Sayers v Burton HC Auckland CIV 2007-404-003051
[2009] NZHC 2274
•21 December 2009
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2007-404-003051
AND BETWEEN EDWARD WILSON SAYERS, EDWARD SAYERS LUDBROOK, VICTORIA JANE LUDBROOK TOGETHER IN PARTNERSHIP AS THE BARKER
GROVE PARTNERSHIP Plaintiffs
ANDCATHERINE CONGREVE BURTON Defendant
Hearing: 14-15 October 2009
Appearances: D J G Cox for Plaintiffs
K McDonald for Defendant
Judgment: 21 December 2009 at 4.00 p.m.
JUDGMENT OF VENNING J
This judgment was delivered by me on 21 December 2009 at 4.00 pm, pursuant to Rule 11.5 of the
High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Rennie Cox, Auckland
Kevin McDonald, Auckland
SAYERS V BURTON HC AK CIV-2007-404-003051 21 December 2009
Introduction
[1] In June 2006 Miss Burton, then aged 79, agreed to sell a property she had inherited from her brother to the plaintiffs. She agreed to sell it for $125,000. She dealt with Mr Edward Sayers, who at the time was himself 65 years old.
[2] A number of weeks after agreeing to sell the property to the plaintiffs, Miss Burton was told the property was worth a lot more than $125,000. After taking advice she refused to settle.
[3] The plaintiffs seek specific performance of the agreement. Miss Burton resists the claim for specific performance. She says the agreement was an unconscionable bargain.
The parties and the property
[4] The plaintiff Edward Sayers is now a part-time taxi driver. At the time he dealt with Miss Burton in 2006 he had a lawn mowing round. He does not own his own home.
[5] The other plaintiffs are Mr Sayers’ nephew, Edward Ludbrook, and his wife, who Mr Sayers regards as his niece. They agreed to help Mr Sayers purchase the property by providing the deposit and effectively borrowing the balance required to complete the purchase.
[6] Miss Burton has never married. She lives alone in the home at Blockhouse Bay that her father bought for her in 1962. Her parents are now deceased. She had two brothers. One died approximately 16 years ago as a result of an accident and her other brother, Norman, died in October 2005.
[7] Norman owned the property in issue, the unit at 1/13 Peek Street, Ellerslie. Miss Burton inherited 1/13 Peek Street as the sole beneficiary of her brother’s estate.
General background
[8] In 2006 Mr Sayers was living with his sister (aged in her seventies) but, as he was approaching retirement, he wanted to buy his own home. He could not afford to buy a property himself, but his nephew and niece, who he was close to, agreed to help him financially if he found a suitable property.
[9] Mr Sayers first became aware of 1/13 Peek Street through his lawn mowing round. He had a contract to mow a Mr Kennedy’s lawn at 3/13 Peek Street. When there he saw the unit at 1/13 Peek Street was run down and the surrounding garden overgrown. One day Mr Sayers noticed that some attempts were being made to tidy the property up. He was told by Mr Kennedy that the occupant had died, and the property was being cleaned out by his sister who had inherited the property.
[10] Mr Sayers decided that unit 1 was the sort of unit that would suit him. Given
its rundown state he thought it might be a property that his family could afford to assist him with. Mr Kennedy obtained Miss Burton’s contact details and gave them
to Mr Sayers.
[11] After making initial contact by phone, in about mid April, Mr Sayers followed that up by writing to Miss Burton on 1 May, offering to buy the property
for $125,000, subject to finance, with settlement on a date suitable to her. As part of the proposal Mr Sayers offered to clear the garden and driveway and remove and dump items that Miss Burton did not wish to keep.
[12] Miss Burton replied promptly by letter of 3 May 2006. She told Mr Sayers that as she had mentioned, (on the phone), someone else was interested in the property. They were still interested and as they had contacted her first she would have to give them first option. She said that that purchaser’s idea was to have a valuer assess the place but she doubted if it would be worth more than the $125,000
Mr Sayers was offering as it was in very bad shape inside as well as outside. She apologised for any inconvenience.
[13] The other person that was interested in the property was apparently a Mr Burgess, an associate of a Mr Hatch. Mr Hatch had been recommended to Miss Burton as a person who could help her place a value on her brother’s old car. Mr Hatch had bought the car, and helped Miss Burton clear out some of her brother’s property. He suggested to Miss Burton that Mr Burgess, a friend of his, might be interested in buying the unit.
[14] Mr Sayers wrote again on 5 May noting Miss Burton’s advice that someone else was interested but asked that he be given an opportunity to match or improve on the offer, finance permitting.
[15] Nothing further passed between the parties, apart from a chance meeting at the property when one day Miss Burton was there and cleaning the property, Mr Sayers was again mowing Mr Kennedy’s lawn, until early June when Mr Sayers wrote to reaffirm his interest in the property.
[16] Then, on Sunday 11 June 2006, Miss Burton telephoned Mr Sayers at home and said she would sell him the property for $125,000. He said he would need to get
a copy of the title search to draw up an agreement. Miss Burton said she had one. Mr Sayers collected the copy of the title search from her the next day and then, through his nephew, obtained an agreement for sale and purchase form which he filled in. He then rang Miss Burton on 13 June and, at her request, arranged to meet at the unit to sign the agreement on 15 June. Mr Sayers and his niece Ms Ludbrook attended the unit and signed the agreement that day, as did Miss Burton.
[17] Mr Sayers paid the deposit about a week later and started to tidy the property up. As part of the process he had a large tree removed. Miss Burton was annoyed that the workmen engaged to do that blocked the driveway when she went there to clear out more of her brother’s property.
[18] Some five or six weeks after Miss Burton had signed the agreement to sell the property Mr Hatch rang her. Miss Burton told him she had sold the property. Mr Hatch was concerned at that. He rang Mr Sayers and accused him of taking
advantage of Miss Burton. He also arranged for Miss Burton to take advice. After taking advice Miss Burton refused to settle.
[19] These proceedings followed. In the statement of defence, in addition to pleading unconscionable bargain Miss Burton also pleaded undue influence. At the outset of the hearing Mr McDonald confirmed the defence of undue influence had been abandoned. The focus of the case is on whether the agreement for sale and purchase should be set aside as an unconscionable bargain.
Principles
[20] The Court of Appeal have recently summarised the principles that apply to an unconscionable bargain in the case of Gustav & Co Limited v Macfield Limited
[2007] NZCA 205 [30]:
1Equity will intervene to relieve a party from the rigours of the common law in respect of an unconscionable bargain.
2This equitable jurisdiction is not intended to relieve parties from “hard” bargains or to save the foolish from their foolishness. Rather, the jurisdiction operates to protect those who enter into bargains when they are under a significant disability or disadvantage from exploitation.
3A qualifying disability or disadvantage does not arise simply from an inequality of bargaining power. Rather, it is a condition or characteristic which significantly diminishes a party's ability to assess his or her best interests. It is an open- ended concept. Characteristics that are likely to constitute a qualifying disability or disadvantage are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may also qualify depending upon the circumstances of the case.
4If one party is under a qualifying disability or disadvantage (the weaker party), the focus shifts to the conduct of the other party (the stronger party). The essential question is whether in the particular circumstances it is unconscionable
to permit the stronger party to take the benefit of the bargain.
5Before a finding of unconscionability will be made, the stronger party must know of the weaker party's disability or disadvantage and must “take advantage of” that disability or disadvantage.
6The requisite knowledge may be that of the principal or an agent, and may be actual or constructive. Factors associated with the substance of a transaction (for example, a marked imbalance in consideration) or the way in which a transaction was concluded (for example, the failure of one party to receive independent advice in relation to a significant transaction) may lead to a finding that the stronger party had constructive knowledge. So, in the particular circumstances the stronger party may be put on enquiry, and in the absence of such enquiry, may be treated as if he or she knew of the disability or disadvantage.
7Taking advantage of” (or victimisation) in this context encompasses both the active extraction and the passive acceptance of a benefit. Accordingly, as Tipping J said in Bowkett at 457, an unconscionable victimisation will occur where there are:
… circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience accept the benefit of this transaction in these circumstances either at all or unless you have full independent advice.
8If these conditions are met, the burden falls on the stronger party to show that the transaction was a fair and reasonable one and should therefore be upheld.
[31] While factors such as a marked imbalance in consideration or procedural impropriety are generally present in unconscionability cases, neither is a prerequisite for relief. However, if there is no significant imbalance in consideration or if the weaker party received full independent advice it is unlikely that any issue of unconscionability will arise.
[21] The case went on appeal: [2008] 2 NZLR 735. Although the Supreme Court differed from the Court of Appeal on the time at which the issue was to be considered, it accepted the general principles were correctly identified by the Court
of Appeal.
The issues in this case
[22] The issues in this case are:
a) Was Miss Burton under a significant disability or disadvantage at the time she agreed to sell the property to Mr Sayers?
b)Was the purchase price of $125,000 markedly less than the property is worth?
c) Did Mr Sayers, (and the other purchasers) actually know of Miss
Burton’s disability or disadvantage?
d)If not, did Mr Sayers, (and the other purchasers) have constructive knowledge of Miss Burton’s disadvantage by reason of a marked imbalance in consideration? and
e) Did Mr Sayers, (and the other purchasers) take advantage of Miss
Burton?
Was Miss Burton under a significant disability or disadvantage?
[23] The first issue is whether Miss Burton was under a significant disability or disadvantage. Mr McDonald submitted that the following factors showed Miss Burton was under a significant disadvantage:
· her age and isolation;
· her ignorance about the processes of buying and selling property;
· her ignorance about the value of the property; and
· she was misled by the plaintiffs about the need to instruct a lawyer.
[24] Miss Burton was 79 years old at the time she made the agreement for sale and purchase. She was three years older, 82, by the time she gave evidence in Court. Age itself is not a qualifying disadvantage. The disability must be operative in the circumstances of the particular case. The Court must consider the effect of that disability on the affected parties’ ability to protect their own interests: Begbie v State Bank of New South Wales Ltd (1994) 16 ATPR 41-288; Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1. My distinct impression of Miss Burton,
having observed her give evidence, is that of an independent woman who knew her own mind, and who would not readily be badgered or allow her will to be overborne. She was well able to look after herself on a day to day basis, and, as will be seen, was able to deal with business issues and deal with lawyers as and when necessary. I infer that three years earlier, when she was 79, she would have been at least as astute and competent in her dealings with Mr Sayers. I do not consider Miss Burton’s age
to be a disability or disadvantage, and certainly not a “special” disadvantage as is required: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.
[25] Nor do I see the fact that Miss Burton had no living relatives and lived alone
as a weakness or as evidence supporting a finding of disability. Indeed the fact that she had cared for herself and lived on her own for a long period of time had, if anything, made her more independent, and more able to look after herself than would perhaps have been the case if she had been recently widowed, for example.
[26] Next, while Miss Burton had no experience in buying or selling property, she had access to a lawyer if she wanted to seek advice about selling the property. It is apparent from the calendar she disclosed during the course of her evidence that she had a number of dealings with the lawyers administering her brother’s estate over the relevant time period she was dealing with Mr Sayers.
[27] Miss Burton recorded a number of details of daily events on a calendar. She brought the calendar to Court, on her own initiative (and without referring it to her counsel – it had not been discovered) to refer to when giving evidence. On the calendar Miss Burton recorded telephone calls she made and received, money that she had paid for various items, and letters that she had received and posted. She even recorded routine matters such as obtaining warrants of fitness, buying petrol and the like.
[28] Not only did the lawyer administering her brother’s estate regularly write to her and ring her, it appears from Miss Burton’s calendar entries that she made telephone calls to the lawyer herself on a number of occasions during the relevant period. For example she made calls to the lawyers on 4 April, 26 and 31 May. There were also references to the lawyer ringing her in early June. While Miss
Burton may not have had a lawyer of her own, she was in regular contact with a firm
of lawyers that she had dealings with. She could have taken advice from them at any time regarding the sale of the unit. She was dealing with those lawyers in relation to her brother’s estate and would, by that stage, have developed a relationship with them. One of the issues they dealt with for her, was the transfer of the unit to her. She could, if she wanted, have discussed the sale of the unit with the lawyers who had been involved in the transfer of it to her. It is apparent she had occasion to, and did call them, to discuss other issues relating to the estate.
[29] Next Mr McDonald submitted that Miss Burton was ignorant about the value
of the property. I agree that at the time she sold the property, Miss Burton was not aware of the property’s true value. For the reasons that follow, however, I also find that Mr Sayers (and the other plaintiffs) were not aware of the property’s true value either.
[30] Miss Burton was aware that the property had a rating valuation of $155,000. She had a copy of that rating valuation in her possession at the time she dealt with Mr Sayers. Both Mr Sayers and Miss Burton based their initial assessment of the value of the property on that rating valuation. In her correspondence with Mr Sayers she rationalised the difference between the $155,000 rating valuation, which she took to be the estimated value of the property, and the $125,000 offered by Mr Sayers of $30,000 as being the sum required to carry out the repairs necessary to the property.
[31] Finally, Mr McDonald submitted that Miss Burton was misled by the plaintiffs about the need to instruct a lawyer. That submission is also relevant to consideration of whether Mr Sayers took advantage of Miss Burton. There is a conflict of evidence between Miss Burton on the one hand, and Mr Sayers and his niece Ms Ludbrook on the other, about the circumstances surrounding Miss Burton’s execution of the agreement for sale and purchase. Ms Ludbrook said she heard Mr Sayers suggest Miss Burton should take the agreement to a lawyer. Miss Burton said that Ms Ludbrook only appeared in the doorway after Mr Sayers had gone through the agreement with her.
[32] In their evidence Mr Sayers and Miss Ludbrook said they met Miss Burton at the door of the unit. Mr McDonald sought to make something of the fact Miss Ludbrook initially said that when she arrived at the property Mr Sayers was already there, talking to Miss Burton. Miss Ludbrook changed her evidence and said that she effectively arrived at the unit at the same time as Mr Sayers. But even in her original evidence, Ms Ludbrook went on to describe the discussion regarding the agreement that followed and confirmed that Mr Sayers suggested to Miss Burton that she take legal advice. Ms Ludbrook’s initial evidence is still consistent with meeting Miss Burton at the door. Mr Sayers could have been talking to Miss Burton at the door when Ms Ludbrook first met her, even if Miss Ludbrook arrived at the unit a few minutes after Mr Sayers. Ultimately, whether Ms Ludbrook arrived at the same time or after Mr Sayers is not particularly relevant. What is relevant is whether she was there when Mr Sayers went through the agreement with Ms Burton. It is common ground that the agreement was discussed later, inside the unit. I prefer the evidence of Mr Sayers and Ms Ludbrook on that point and find that Ms Ludbrook was present when Mr Sayers went through the agreement with Miss Burton.
[33] In any event, there is not a significant difference between the parties on this point. Miss Burton agrees that before she signed the agreement Mr Sayers asked her
if she wanted a lawyer. She said:
I asked him what purpose a lawyer would serve. He said to me that they would work out any rates adjustment or refund that would be due to me. I replied that rates demands would be due at about the time he took possession, and if there was any refund, it would be less than the charges or fees of a lawyer.
At this time I asked if there was any other reason to consult a lawyer, and Mr Sayers said “No”. I recall this clearly, and this was the only time that the subject of lawyers came up. At this time Mr Sayers said that he had previously been a land agent, and understood about these matters. Looking back on the matter now, I do not believe Mr Sayers was being strictly honest with me, and that he was taking advantage of me.
[34] The evidence of Mr Sayers was that:
I was surprised when she said she would sign it on the spot. I suggested that she should take it to her lawyer, but she said that she did not want to “waste money on lawyers”. I told her that she would need a lawyer in any event to settle the contract to adjust the various expenses, e.g. rates, power and so on. She mentioned she was not used to selling property. I responded that even
though I had done a real estate course in South Australia, I had only ever sold businesses, both here and in South Australia, and had never sold a house, and was no more experienced than her.
Mr Sayers then said that they discussed the settlement date.
[35] On both versions of events there was a discussion, initiated by Mr Sayers, about whether Miss Burton should, or would, discuss the agreement with her lawyer.
[36] I accept Mr Sayers went through the agreement with Miss Burton and that when he came to the provision which referred to the fact it was a binding agreement and that professional advice should be sought regarding its effect and consequences Mr Sayers asked Ms Burton whether she wanted to see a lawyer. Miss Burton was anxious not to incur the additional cost of a lawyer. She indicated that she did not want to go to a lawyer. Mr Sayers’ response was to the effect that she would need a lawyer for the conveyancing and settlement of the sale to apportion rates etc. in any event. I find that Miss Burton decided not to pursue the matter with a lawyer because she wanted to avoid the costs of a lawyer. That is borne out by her decision to fix a settlement date to co-incide with the end of a rates period.
[37] It follows that I reject the submission that Mr Sayers misled Miss Burton about the need for her to see a lawyer. While Miss Burton did not have legal advice, Mr Sayers went through the agreement with her and advised her she could take the agreement to a lawyer. Rather than the plaintiffs seeking to dissuade Miss Burton from seeking legal advice about the agreement, Mr Sayers raised the issue with her and correctly told her she would need one anyway. While Miss Burton did not take legal advice the plaintiffs did not seek to dissuade her from taking such advice.
[38] In conclusion on this point, I find that Miss Burton was under a disadvantage
at the time she made the agreement for sale and purchase in that she was not aware
of the value of the property when she sold it to the plaintiffs. There is an issue whether that is a sufficient, special disadvantage, which I return to. But Miss Burton was not suffering from any other disability or disadvantage.
Was the purchase price of $125,000 markedly less than what the property was worth?
[39] The value of the property at the date of the agreement for sale and purchase is
a major issue in this case. Both parties called valuers to give evidence about the value of the property as at June 2006.
[40] The plaintiffs called Mr Gardner, the principal of Gardner Valuations Limited, with approximately 37 years experience in valuation. Mr Gardner undertook an external inspection of the property on 17 November 2008 and an internal examination on 6 April 2009. He has also perused photographs of the property taken in June 2006.
[41] In Mr Gardner’s opinion, as at 14 June 2006, the property had a value of
$155,000 made up of:
Land $125,000, Improvements – $65,000
Less reduced saleability because
$190,000
of deferred maintenance of $35,000,
Total: $155,000.
[42] The defendants relied on the evidence of Mr Clark. Mr Clark has over 20 years’ valuation experience. He visited the property on 19 March 2007. In Mr Clark’s opinion the property would have had a value in June 2006 of $220,000. Mr Clark reached that value using two alternative methods:
·first, by taking the property’s existing condition (as at March 2007) which, for present purposes, he assumed to be the same as June 2006;
·second, by taking the value of the property in a tidy habitable condition and then allowing a deduction for the condition the property was actually in.
[43] On the first approach Mr Clark’s valuation of $220,000 was arrived at:
Land value: $150,000
Improvements $70,000
Total: $220,000
[44] On the second basis Mr Clark arrived at the same figure of $220,000 in the following way:
Land value: $150,000
Value of improvements in a tidy habitable condition $100,000
$250,000
Less allowance for the property’s state: $30,000
$220,000
[45] Mr Clark justified the higher value for the land of $150,000 in each case on the basis that there had been an increase in the market between July 2005 and June
2006.
[46] The Auckland City Council valuation for rating purposes as at 1 July 2005 was $155,000 made up of land value $115,000 and improvements $40,000. By comparison the rating values for units 2 and 3, which are to all intents and purposes identical to unit 1 – (apart from the state of maintenance of the properties) were
$275,000 and $280,000 respectively. Unit 2 had a land value of $114,000 and improvements of $161,000. Unit 3 had a land value of $126,000 and improvements
of $154,000. The significant difference between the properties was in relation to the value of improvements.
[47] Mr McDonald criticised Mr Gardner’s valuation. He submitted that Mr
Gardner’s methodology was flawed. Mr McDonald submitted Mr Gardner appeared
to arrive at his value and then compare that value to units in the same price range to support the valuation, which was equivalent to reaching a conclusion and then working backwards to support it. Mr McDonald submitted that Mr Gardner had ignored the potential of the property and the comparative value of units 1 and 2. He argued that Mr Gardner had double counted by allowing an initial deduction to take account of the depreciated value of the property to arrive at the figure for improvements of $65,000 and then allowing a further deduction for deferred maintenance.
[48] On the other hand Mr Cox criticised Mr Clark on the basis that in each of the comparative sales Mr Clark referred to, the quality or condition of the properties was considerably better than the subject property. In other words, Mr Cox argued that Mr Clark set the benchmark too high. Mr Cox suggested that Mr Clark’s rejection of the Auckland City Council rating valuations as of little assistance was unrealistic given that over a half of the sales used by the valuers as comparators were within $10,000 of the capital value assessed for rating purposes.
[49] I accept there is some force in Mr McDonald’s criticism of Mr Gardner’s valuation methodology. Mr Gardner’s approach does involve an element of double counting in this case. Mr Clark’s method of considering comparative sales and then allowing a deduction for the state of the current property is the preferable approach. Further, the figure of $100,000 for improvements is still significantly less than the other units at 2 and 3, 13 Peek Street. Taking the figure of $100,000 for improvements in large part answers Mr Cox’s criticism that the comparative sales Mr Clark relied on were too high.
[50] I consider Mr Clark’s assessment of approximately $100,000 for the value of improvements is more consistent generally with other similar units. While the
$100,000 was still less than the figures for improvements relating to units 2 and 3, the difference reflects the generally poor state of the property.
[51] The unit was not just in original and a depreciated condition. In June 2006 the property was in a very poor state of maintenance and repair, both inside and out. Externally the garden was completely overgrown. A large tree shaded the property.
The front and back of the property was overgrown. There was a row of bamboo plants down the driveway. There were cobwebs over the exterior brick walls. The appearance and state of the property was so bad the council had written to Miss Burton as the new owner to advise the property could be in breach of a by-law prohibiting a property remaining in a condition which allowed the harbouring of or breeding of rodents, flies, cockroaches, mosquitoes or other vermin.
[52] The window frames of the unit were deteriorating and, at the least, needed repainting. The back door could not be locked. The frame was warped. It was held shut by a board. The guttering of the unit was rusty. The tiles were covered in moss and mould. The house had a distinctly musty smell. Miss Burton’s brother had been
a hoarder. The interior of the house was cluttered and messy. There were boxes stacked about the rooms in such a way there were paths inside the unit which had to be followed if a person was to track their way through the unit. There was mould on the ceiling of the lounge and mould in other rooms. The fixtures and fittings of the house were in a very basic, original state. The floors needed replacement throughout.
[53] However, I do consider that Mr Clark has overstated the land value for the property. While the land values may have risen from 2005 to 2006, on the basis of the evidence of sales and the evidence of the Quotable Value report as to comparison values, they have not risen as much as Mr Clark suggests. Mr Gardner’s assessment
of land value is more realistic.
[54] Further, a complete refurbishment and a considerable amount of money would have been required to bring the property up to the state of the other units at 13
Peek Street. Mr Clark was prepared to concede that the $35,000 suggested by Mr Gardner for the work required for deferred maintenance could well be correct. On the evidence it seems the $35,000 might be conservative.
[55] That leads me to conclude that as at June 2006 the actual value of the property even in its poor state was closer to $190,000 made up as follows:
Land value: $125,000.
Mr Clark’s assessment of the value of improvements, assuming the property was in a tidy and habitable
condition: $100,000
$225,000
Deduction for the deferred maintenance required. $35,000
$190,000
The $190,000 is $30,000 less than suggested by Mr Clark but $35,000 more than suggested by Mr Gardner. The result is that the purchase price of $125,000 represents approximately 66% of the value of the property.
[56] There are other factors to take into account in this case in assessing the value
of Mr Sayers’ offer to Miss Burton. By dealing direct with Mr Sayers, Miss Burton avoided the need to incur real estate agent’s fees. Mr Sayers also agreed to assist her with the removal of any items that she wished to take from the property. Mr Sayers also agreed to fix a settlement date that suited Miss Burton. A further allowance of something in the order of $5,000 could be justified to recognise those other perceived benefits to Miss Burton in dealing direct with Mr Sayers. Even so, that leaves a difference between the value of the property and the value of Mr Sayers’ offer of $60,000. Put another way, the value of the plaintiffs’ offer was just under 70% of the value of the property.
[57] The defence also led evidence from a Ms Snow, a solicitor, about the value of the property. Ms Snow’s firm was recorded on the agreement for sale and purchase
as the solicitor for the plaintiffs.She had, however, never acted for them. Mr Ludbrook obtained a copy of the agreement for sale and purchase from his accountant who had obtained a copy of the agreement from Ms Snow as they practised from the same building. After Mr Hatch contacted her however, Ms Snow was not prepared to act on the agreement. She had not acted for Mr Sayers in the past. Ms Snow said she was concerned at what she considered to be the very low purchase price of $125,000.
[58] Ms Snow’s evidence as to the value is not of particular assistance. She accepted that she had no knowledge of the particular property. She had never seen it
and was not aware of the rating value for it. She was first alerted to the existence of the agreement by Mr Hatch at a time when Mr Hatch was challenging the validity of the agreement on behalf of Miss Burton. It is inevitable Ms Snow’s approach to the value of the property and the transaction overall was affected by Mr Hatch’s approach to her.
[59] In summary, the property Miss Burton agreed to sell for $125,000 (with perhaps additional benefits of $5,000) was worth $190,000. In agreeing to sell it for
$125,000 Miss Burton was not aware of its true value. The imbalance is such that she was at a special disadvantage through her lack of knowledge of its real value.
Did Mr Sayers and the other purchasers actually know of Miss Burton’s disadvantage?
[60] Mr McDonald submitted that Mr Sayers knew of Miss Burton’s disadvantage for the following reasons:
· Miss Burton had recently suffered a bereavement;
· Mr Sayers knew he was dealing with an elderly lady;
· The other party interested in the unit, Mr Burgess, wanted to instruct a valuer;
· Mr Sayers knew Miss Burton was ignorant of the true value of the property, particularly because she had only recently inherited it;
· Mr Sayers had undertaken some research in determining the price he would pay and was acting in his own interests;
· Mr Sayers knew Miss Burton was not experienced in selling property and that it would be wise for an elderly person to obtain a valuation;
· The significant inadequacy of consideration must lead to a finding of constructive knowledge on the part of Mr Sayers of Miss Burton’s disadvantage.
[61] A number of the points raised do not address the particular disadvantage in this case. But for completeness I deal with them. While Mr Sayers knew Miss Burton’s brother had recently died, that was not an operative disadvantage at the time. As noted, Miss Burton had lived alone for a number of years. Her brother had also lived alone. There was no evidence that Miss Burton was so affected by grief at the bereavement of her brother (which had occurred six months earlier) that she was particularly vulnerable. She was able, during this time period, to deal with the solicitors regarding the realisation of her brother’s estate and with the practical issues involving the property.
[62] Mr Sayers was aware Miss Burton was elderly. He had met her at the unit on
at least one occasion, and had spoken to her on the phone. But for the reasons given above Miss Burton was not a frail or disadvantaged elderly lady. There was no reason for Mr Sayers to consider her age put her at a disadvantage. Rather she was a strongly independent person who was able to look after herself.
[63] The fact Miss Burton had told Mr Sayers that the other interested purchaser wanted to get a valuation if anything, supports Mr Sayers’ evidence that he thought a valuation had been obtained and, as Miss Burton accepted the $125,000, the valuation must have been about the figures they were working on. Miss Burton had told him in her letter of 3 May the other purchaser wanted to get a valuation. Miss Burton did not agree to sell to Mr Sayers until over a month later. There had been ample time for the other party to have obtained a valuation. From Mr Sayers’ point
of view, Miss Burton may have had more information about the value than him.
[64] While Mr Sayers had undertaken some research to determine the price he was prepared to pay for the property, the research was limited. It involved speaking to Mr Kennedy, reading the Property Press and looking up the council valuation for the unit. He did not obtain a valuation for the unit from a valuer and did not have copies
of the council valuations for the other units at 13 Peek Street. Like Miss Burton, Mr
Sayers largely relied on the rating valuation of $155,000 as his starting point. Mr
Sayers then considered how much might need to be spent on the property and put in
his offer after taking that into account, and after also considering the mortgage that
he could afford to service.
[65] Miss Burton approached this transaction on the basis that the rating valuation
of $155,000 represented the value of the property once it was tidied up and had the repairs needed attended to. She considered that as it was, the unit would be worth less than that because of its state. I accept Mr Sayers’ evidence that when she spoke
to him on the phone to say she would sell the unit to him she said words to the effect that the valuation was $155,000 and that it would cost about $30,000 to fix it up and that once fixed up, it could probably sell for more.
[66] Although Miss Burton did not accept she said that I prefer the evidence of Mr
Sayers. Miss Burton had acknowledged as much in writing to Mr Sayers as early as
3 May. Miss Burton’s recollection and evidence was at times adjusted to justify her change in attitude to Mr Sayers. Some of her evidence, for example, was at variance with her own notes made on her calendar. I find that Miss Burton believed the property would be worth about $155,000 when tidied up and the basic repairs that were necessary, were done. In fact, it was worth closer to $190,000 but on the evidence I accept that neither Mr Sayers nor Miss Burton were aware the property was worth as much as $190,000. They both proceeded on the basis that the property needed about $30,000 spent on it and it would then be worth about $155,000 or perhaps a little more. Neither of them were aware it was worth about $190,000 in the state it was.
[67] While Mr Sayers accepted in cross-examination that it would be wise for an elderly person to obtain a valuation, that does not support the submission that he took advantage of any disability that Miss Burton had. There is no evidence that Mr Sayers knew Miss Burton did not have a valuation and took advantage of that fact.
As noted, Mr Sayers could reasonably have taken the view that a valuation had been obtained and Miss Burton was aware of it. Further, for the reasons given, I find Mr Sayers was not aware of the value of the property. As he was not aware of its value,
he could not consciously take advantage of Miss Burton’s lack of knowledge of its true value.
[68] Mr McDonald’s last submission under this head, that the significant inadequacy of consideration meant that Mr Sayers had constructive knowledge of the disadvantage, leads into the fourth issue, which is perhaps the most difficult issue in this case.
Did Mr Sayers (and the other purchasers) have constructive knowledge of Miss
Burton’s disadvantage by reason of the marked imbalance in consideration?
[69] The only operative disadvantage or disability that Miss Burton suffered from
in this transaction was her lack of knowledge of the true value of the unit.
[70] As I have found there is no evidence Mr Sayers and the other plaintiffs had actual knowledge of the value of the property either, the defendant’s case that the plaintiffs, particularly Mr Sayers, had knowledge of Miss Burton’s disability (that she was unaware of the true value of the property) must be based on an argument of constructive knowledge of Miss Burton’s disability. The possibility of constructive knowledge of the disability is raised in the Gustav decision noted at [20] above.
[71] At [30] of Gustav the Court of Appeal summarised the law. It is necessary to consider the underlying principles that the summary was drawn from. A good starting point is the Privy Council decision of O’Connor v Hart [1985] 1 NZLR 159. The issue for the Judicial Committee was whether a contract by a person of unsound mind, whose incapacity was unknown to the other contracting party was voidable on the grounds that it was unfair in the absence of the unfairness amounting to an equitable fraud which would have enabled the complainant to have avoided the contract even if of sound mind. However, Their Lordships also considered the issue
of unconscionable bargain.
[72] In the course of delivering the decision of the Privy Council Lord Brightman said at p 171:
In the opinion of their Lordships it is perfectly plain that historically a Court
of equity did not restrain a suit at law on the ground of "unfairness" unless the conscience of the plaintiff was in some way affected. This might be
because of actual fraud (which the Courts of common law would equally
have remedied) or constructive fraud, ie conduct which falls below the standards demanded by equity, traditionally considered under its more common manifestations of undue influence, abuse of confidence, unconscionable bargains and frauds on a power. (Cf Snell's Principles of Equity (27th ed, 1973) pp 545 et seq.) An unconscionable bargain in this context would be a bargain of an improvident character made by a poor or ignorant person acting without independent advice which cannot be shown
to be a fair and reasonable transaction. "Fraud" in its equitable context does not mean, or is not confined to, deceit; "it means an unconscientious use of
the power arising out of the circumstances and conditions of the contracting
parties"; Earl of Aylesford v Morris (1873) 8 Ch App 484, 490. It is victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances.
Their Lordships have not been referred to any authority that a Court of
equity would restrain a suit at law where there was no victimisation, no
taking advantage of another's weakness, and the sole allegation was
contractual imbalance with no undertones of constructive fraud.
(emphasis added)
And later, at p 174:
"Their Lordships turn finally to issue (C), whether the respondent trustees are entitled to have the contract set aside as an 'unconscionable bargain'. This issue must also be answered in the negative, because Mr Hart was guilty of no unconscionable conduct. Indeed, as is conceded, he acted with complete innocence throughout. He was unaware of Jack's unsoundness of mind. Jack was ostensibly advised by his own solicitor. Mr Hart had no means of knowing or cause to suspect that Jack was not in receipt of and acting in accordance with the most full and careful advice. The terms of the bargain were the terms proposed by Jack's solicitor, not terms imposed by Mr Hart or his solicitor. There was no equitable fraud, no victimisation, no taking advantage, no over-reaching or other description of unconscionable doings which might have justified the intervention of equity to restrain an action by Mr Hart at law. The respondent trustees have in the opinion of their Lordships failed to make out any case for denying to Mr Hart the benefit of a bargain which was struck with complete propriety on his side."
[73] The present case is one of a contractual imbalance. On the authority of O’Connor v Hart, the contract could only be set aside if Mr Sayers (and the other plaintiffs) accepted the benefit of that imbalance in unconscionable circumstances. Given the finding that Mr Sayers was not aware of Miss Burton’s disadvantage (that she did not know of the true value of the property), the contract could only be set aside if it could be said Mr Sayers should have had constructive knowledge of that fact.
[74] The application of constructive knowledge in these circumstances was discussed by the Court of Appeal in Nichols v Jessup [1986] 1 NZLR 226. The defendant owned a property with frontage to the road. Running down the side of the defendant’s property was a strip of land leading to the plaintiff’s property. In order
to improve the road access to his property the plaintiff proposed to amalgamate his strip of land and the defendant’s driveway by granting mutual rights of way. The amalgamation would increase the potential for the development of the plaintiff’s land. The defendant initially agreed but subsequently changed her mind. The plaintiff sought to enforce the agreement. The evidence was that the amalgamation would enhance the value of the plaintiff’s property by $45,000 and diminish the value of the plaintiff’s property by $3,000. The trial Judge found the consideration was grossly inadequate, the plaintiff had not received professional legal advice, was ignorant about property matters, unintelligent and muddleheaded. While the plaintiff had not set out to take advantage of her the bargain was one-sided and unfair and was set aside.
[75] On appeal Cooke P said at 228:
In applying O'Connor v Hart one has to keep in mind two important points. First, the Privy Council stressed that there was no element of culpability whatever in the appellant's conduct. In other words, as I understand their Lordships, it was not a case where as a purchaser he either knew or ought to have known that he was taking advantage of any deficiency in the vendor's understanding of the transaction or mental capacity. That distinguishes the case from Moffat v Moffat [1984] 1 NZLR 600, a decision of this Court evidently not drawn to attention in argument before the Judicial Committee
in O'Connor v Hart but on the reasoning of Somers and Hardie Boys JJ
wholly consistent in my view with that case.
...
Secondly, although in the event the Judicial Committee heard no argument on whether the sale agreement was fair (see the reports cited, at pp 164-165 and p 1016 respectively), their account of the facts at the beginning of the judgment is full enough to show that, even though Cook J found that a substantially higher price might well have been obtained, the agreed price and terms were not patently unfair. There appears to be nothing in O'Connor
v Hart contrary to the view that a gross disparity of consideration, if it ought
to have been evident to a purchaser may be one factor in deciding whether in
all the circumstances of a particular case he has made an unconscionable
bargain.
(emphasis added)
[76] The underlined passage is relevant because it supports the submission for Miss Burton that a gross disparity in consideration (if it ought to be evident) may be one factor in deciding whether there has been an unconscionable bargain. That does however not address what might amount to a sufficiently gross disparity in consideration. In O’Connor v Hart for example the property was sold for just under
$180,000 with settlement in two years time. At that time the property could have been worth as much as $272,000. Even taking account of the request for the purchaser to pay 11% interest and the vendors retaining occupancy rights, the imbalance was substantial, but not sufficient for Their Lordships to find that the agreement should be set aside.
[77] Cooke P concluded his summary of O’Connor v Hart by noting:
I do not think that there is anything in Samuel v Newbold [[1906] AC 461] or O'Connor v Hart or any other high authority to encourage the idea that a modern Court of equity, in cases outside statute, should disregard a very marked imbalance of benefits in determining whether to set aside as unconscionable a contract with a grantor or vendor whom the grantee or purchaser knew or ought to have known to have been at a significant disadvantage in appreciating the relative consequences of the bargain.
[78] In the course of his judgment McMullin J also referred to the passage highlighted above from the passage of Lord Brightman’s judgment. It can be traced
to the decision of Fry v Lane (1888) 40 Ch D 312, 322 where after reviewing the decisions to that date Kay J said:
"The result of the decisions is that where a purchase is made from a poor and ignorant man at a considerable undervalue, the vendor having no independent advice, a Court of Equity will set aside the transaction."
[79] A review of the authorities referred to in Fry v Lane suggests that the Court contemplated more than just an imbalance in consideration was required. The ignorance or lack of education referred to were also operative disadvantages. Further, the imbalance in Fry v Lane was effectively sufficient to amount to actual fraud.
[80] McMullin J also confirmed that passive acceptance of a benefit in unconscionable circumstances will be sufficient to engage equitable relief. He concluded that:
These cases, including not least of all the opinion of the Privy Council in O'Connor v Hart, do not require proof of an active extortion of a benefit, an abuse of confidence, a lack of good faith by the party seeking to hold the bargain. Accepting the benefit of an improvident bargain by an ignorant person acting without independent advice which cannot be shown to be fair, may be unconscionable. Such a transaction may affect the conscience of the party who benefits from it. The burden in such circumstances of proving that the bargain is fair and reasonable may rest on the party seeking to take advantage of it: O'Connor v Hart [1985] 1 NZLR 159, 171; [1985] AC 1000, 1024 and Fry v Lane (1888) 40 Ch D 312, 322.
[81] Finally, Somers J noted:
The equitable jurisdiction to set aside unconscionable bargains is not a paternal jurisdiction protecting or assisting those who repent of foolish undertakings. It is a jurisdiction protecting those under a disadvantage from those who take advantage of that fact; equity looks to the conduct of the stronger party. But, at least in its antipodean statement, a party may be regarded as unconscientious not only when he knew at the time the bargain was entered into that the other suffered from a material disability or disadvantage and of its effect on that other, but also when he ought to have
known of that circumstance; when a reasonable man would have adverted to
the possibility of its existence. This is, practically, to import the archetype of the common law. It is not new for it was ever the case about constructive
notice in equity. If the circumstances are such as fairly to lead a reasonable
man to believe that another is under some serious disadvantage affecting his
ability to protect himself he is bound to make inquiry and will be taken to
know whatever such inquiry would have disclosed. Cf Owen v Homan
(1853) 4 HL Cas 997, 1035 per Lord Cranworth LC. (emphasis added)
[82] The leading case in Australia on the issue is the High Court of Australia decision of Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447.
In that case, Mason J, when discussing the subject of disadvantage or disability stated:
I qualify the word “disadvantage” by the adjective “special” in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party. (emphasis added)
[83] Wilson J put the matter this way:
The jurisdiction is long established as extending generally to circumstances
in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any
reasonable degree of equality between them, and (ii) that disability was
sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it.
[84] So both the Court of Appeal and High Court of Australia accept that constructive knowledge of the disadvantage may be sufficient to engage the principle, and to place the onus on the party seeking to rely on the bargain to show that the bargain was fair and reasonable.
[85] In Chapter 6 of his text: Exploitative Contracts (2003) Oxford University Press, Professor Rick Bigwood argues against the application of constructive knowledge to the concept of unconscionable dealing. The author argues that in order
for the dealing to be unconscionable and so give rise to the jurisdiction to afford relief, the advantage taking must constitute exploitation which requires both knowledge of the special disadvantage and a conscious failure to correct for the power imbalance that results from that knowledge and position.
[86] As to the requisite knowledge, the author argues that the party’s conscious conscience must somehow be charged with a known form of equitable fraud or wrongdoing. A party would not act unconscionably if he did not know or the others’ disability: Micarone v Perpetual Trustees Australia Limited (1999) 75 SASR 1, 107.
In the case of Blomley v Ryan (1956) 99 CLR 362, at p 405 Kitto J described the situation where equity would grant relief against an unconscionable dealing as:
. . whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.
emphasising the need for an unconscientiously taking of advantage to engage equity.
[87] Professor Bigwood notes that the level of knowledge, whatever it may be, must serve the purpose for which the jurisdiction is said to exist which is the prevention of exploitation in voluntary or consensual relations. On that basis he
argues that the doctrine of constructive notice should be ruled out as an appropriate criteria of knowledge because exploitation implies intentionally or deliberateness on the part of one party which must be assessed in the light of what that party actually knew at the relevant time as distinct from what a hypothetical reasonable person should have known or appreciated. The author argues that there must at least be sufficient evidence to permit a conclusion that the party in fact entertained serious doubts as to the other’s ability to make a judgment as to her own best interests in the transaction.
[88] While I accept the force of the argument made by the author it is contrary to the approach of the Court of Appeal in Nichols v Jessup and Moffat v Moffat [1984]
1 NZLR 600, 606. It is also contrary to the decision of Tipping J in Bowkett v Action Finance [1992] 1 NZLR 449 where at 460 Tipping J considered the application of O’Connor v Hart and identified the circumstances that will normally be present in an unconscionable bargain as:
(1) The weaker party is under a significant disability.
(2) The stronger party knows or ought to know of that disability. (3) The stronger party has victimised the weaker in the sense of
taking advantage of the weaker's disability, either by active
extortion of the bargain or passive acceptance of it in circumstances where it is contrary to conscience that the bargain should be accepted.
(4) There is a marked inadequacy of consideration and the stronger party either knows or ought to know that to be so.
(5)There is some procedural impropriety either demonstrated or presumed from the circumstances.
The foregoing does not purport to be a definitive or an exhaustive analysis. I do not suggest that all elements need necessarily be shown, but obviously elements (1), (2) and (3) are crucial and one could hardly have an unconscionable bargain without a disability in the weaker party and knowledge and taking advantage thereof by the stronger party.
(emphasis added)
[89] In the course of his decision in Bowkett Tipping J noted that the victimisation
of which Lord Brightman spoke in O’Connor v Hart was capable of being either active, in the sense of the active extortion of a benefit, or passive, in the sense of the
passive acceptance of a benefit in unconscionable circumstances. As to that latter situation Tipping J said at p 457:
I regard that latter concept as meaning that there must be circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot
in all good conscience accept the benefit of this transaction in these circumstances either at all or unless you have full independent advice.
[90] On the evidence in this case, I accept that Mr Sayers was not aware that Miss Burton did not know the true value of the property. Both he and Miss Burton took the rating value of $155,000 as the basis for its valuation. Mr Sayers then put in an offer at $125,000 based on what he thought it might cost to do the property up and, also, on what he could afford to service. Miss Burton apparently thought that the property would be worth about $155,000, perhaps more when it had the work done
on it and accepted that the work it needed would cost about $30,000. Neither of them thought the property was worth $190,000 in the state the property was in.
[91] The plaintiffs did not have knowledge of the true value of the property and were not therefore aware of Miss Burton’s disadvantage, which was in this case, a lack of knowledge of the market value of the property. On those facts it is difficult
to see how the plaintiffs can be fixed with constructive knowledge of the circumstances which made the bargain unfair and unconscionable, when they were not aware of the underlying facts which amounted to that disadvantage. What then does the defendant Miss Burton point to, to support the argument that the plaintiffs are to be fixed with constructive notice of that disadvantage and, what is more, took advantage of it?
Did the plaintiffs take advantage of Miss Burton’s disadvantage?
[92] Mr McDonald submitted there were a number of factors which established the plaintiffs took advantage of Miss Burton’s disadvantage:
· The plaintiffs were experienced business people.
·The fact the purchase was a partnership, the low deposit, delayed settlement and pre-settlement access to the property for repairs were hallmarks of their knowledge about property investments.
· The difference between the value of the property and the purchase price.
·The continual contact from Mr Sayers and the pressure on Miss Burton as a result.
·There was no special circumstances which required the agreement for sale and purchase to be prepared and signed by the parties in a little over 48 hours.
·The plaintiffs’ failure to have insisted on Miss Burton receiving independent advice showed they took advantage of her.
[93] Mr Sayers’ nephew and niece did run their own, relatively small, businesses. They were in a financial position to assist Mr Sayers with the deposit and to borrow money from the bank for the balance of the purchase price. But they only became involved in the purchase to help their older relative whom they were fond of, into his own home. Mr Sayers did have some limited experience in real estate in Australia.
He had worked as a business broker in South Australia and had cross-credited his qualifications to New Zealand. But he had never practised in New Zealand. Mr Sayers, who dealt with Miss Burton, and whose home this was to be, could not be described as a successful or experienced businessman. He apparently lost all his capital in 1989 following the sharemarket crash. It seems he was not able to recover that position over the next 17 years, as he was still without a home in 2006. At the age of 65 he did not own his own home, and was living with his elderly sister. He was a lawn mowing contractor. He had no assets apart from his car, trailer and lawn mowing equipment. He could not afford to pay the deposit on the property himself nor could he borrow the balance required without the assistance of his nephew and niece. This is not a case of successful or experienced business people taking advantage of an elderly lady.
[94] There was no significance in the partnership structure used by the plaintiffs to purchase the property. Mr and Mrs Ludbrook would have been required to either guarantee the borrowing or go on the title themselves as they were the principal parties the bank would look to. The deferred settlement was to allow Miss Burton time to clear out the property at her leisure. It was not for the plaintiffs’ advantage. The early access was to enable Mr Sayers to get on with tidying up the property because at the age of 65 he wanted to get into the property and start sorting the property out. The low deposit of $5,000 was favourable to the plaintiffs, but not unduly so.
[95] Mr McDonald submitted the continual contact from Mr Sayers placed pressure on Miss Burton to sell to him. The evidence does not support the submission that Miss Burton was placed under any pressure by Mr Sayers in relation
to the sale of the property. I accept Mr Sayers’ evidence that he initiated the first contact after he obtained Miss Burton’s telephone number from Mr Kennedy. He rang Miss Burton on 14 April. Miss Burton recorded that call in her calendar on 14
April. At that time Miss Burton told Mr Sayers that there was someone else she had already promised the unit to. This was Mr Burgess, Mr Hatch’s associate.
[96] Mr Sayers left the matter there for almost three weeks, until 1 May when he wrote to Miss Burton for the first time. I do not accept Miss Burton’s evidence that before that letter she received two further phone calls from Mr Sayers insisting he wished to purchase the unit. Miss Burton was careful to record in her calendar telephone calls of any moment, such as the initial call from Mr Sayers, and also the calls to and from the lawyers acting in her brother’s estate. In fact she also recorded calls from friends such as Lydia, Joy and others, including Mr Hatch. If Mr Sayers had called her again she would have recorded it.
[97] The next contact by Mr Sayers was his letter of 1 May in which he offered to buy the unit for $125,000 with a settlement date suitable to Miss Burton. The letter cannot be constructed as either an attempt to exert any pressure on Miss Burton. Nor could it be suggested that the letter could have had that effect. The letter was in the following terms:
Dear Miss Burton
I spoke to you a few weeks ago about Unit 1/13 Peek Street Ellerslie. You indicated that you would be selling the unit once you had had a chance to go through the belongings in the Unit and that that might take some time.
I would like to present an offer to buy the unit for $125000.00 (subject to finance approval) with a settlement date that would be suitable to you. This offer is obviously net to you less your legal fees to finalise the transaction ie. no agents fee. I would also ask that if we are able to come to a suitable agreement that I be given access to the outside area prior to settlement to be able to clear the garden and driveway. Once you have cleared the articles you want from inside the property I would remove all that remains. I understand from our conversation that that is mainly papers, books and old furniture that would be dumped. I also would take responsibility for all the cleaning of the unit both inside and out. All external structural repairs e.g. Guttering, downpipes, painting etc would be left until after settlement.
I look forward to your response.
Miss Burton replied by letter of 3 May. She thanked Mr Sayers for his letter and said:
I think I mentioned to you that someone else was interested in the property but I had not heard from him for sometime. However he has since rung me and is still interested. As he contacted me first I will have to give him first option. His idea is for him to have a valuer assess the place. I doubt if it would be worth more than the $125,000 you are offering as it is in very bad shape inside as well as outside.
The man wishing to buy the unit is connected to the person who cleared out the garage. He makes a living out of doing up old places and selling them on. He is also a trader and wheeler and dealer.
I am very sorry if I have inconvenienced you.
[98] I note that Miss Burton was aware that Mr Burgess was interested in the property with a view to buy it, do it up, and sell it on. She seemed comfortable with that suggestion.
[99] Miss Burton noted in her calendar that she posted that letter on 4 May. On receipt of that letter Mr Sayers wrote back to Miss Burton on 5 May:
Thank you for your prompt reply to my letter.
I appreciate that there is someone else interested in 1/13 Peek Street and will make you an offer on the property. I would ask however that I be given an opportunity to match or improve on that offer, finance permitting.
I am interested in renovating the property to live in myself. It is central to my lawn round and I have had difficulty in finding a small unit that has sufficient room to park my trailer and mowing equipment. I have recently qualified for N.Z. Super and the location is ideal for me when I retire as it is
a flat walk to the shops, near a bus route and more importantly near to my family who all live in Remuera. I appreciate that the unit is in great need of repairs but I have the potential at no 3 (where I mow the lawns) and am confident that it can be restored to a comfortable home.
I look forward to your response.
[100] In that letter, Mr Sayers sought to distinguish his position from that of the other interested purchaser who was, as Miss Burton said, someone who would simply do it up and sell it on. By contrast, Mr Sayers wanted it for a home.
[101] Miss Burton has recorded in her calendar that she received that letter on 9 May.
[102] There was then, apart from one chance meeting at the property, no further communication or contact between Mr Sayers and Miss Burton for another month until early June when Mr Sayers wrote again to Miss Burton. Miss Burton has recorded in her calendar that on 7 June she received a letter from Mr Sayers. The letter says:
Just a note to keep in contact and to reiterate my interest in purchasing 1/13
Peek Street Ellerslie. I would also reaffirm my interest in reaching an agreed price with you, with a settlement date that is suitable to you, to enable me to
start the clean up of the garden and surrounds. I am also happy to help you with sorting out the interior and removal of any rubbish.
I am not in any urgent hurry to move as I currently board with one of my sisters and am under no pressure to find other accommodation. However I do want to find somewhere to live on my own and the unit in Peek Street does satisfy most of my requirements. The main one being room to securely park my trailer and mowing equipment whist still being central to my lawn round and close to my family.
I look forward to hearing from you.
[103] Neither the extent of contact nor the tone of the contact suggests that Mr
Sayers placed any pressure on Miss Burton.
[104] In fact the next contact, when Miss Burton agreed to sell the property to Mr
Sayers, was initiated by Miss Burton. She rang Mr Sayers on Sunday 11 June and in
the course of that call, agreed to sell the unit to him. Although she has noted on her calendar for 13 June “agree to sell to Ed Sayers $125,000” it seems to be accepted that she agreed to sell the unit in the call she made on 11 June. Mr Sayers rang on the 13th to arrange a time for her to sign the agreement.
[105] Miss Burton said that when Mr Sayers rang to ask if he could come to her home with the contract for the sale of the property she did not want him coming to her home late at night. It is interesting that in the course of her evidence she said she didn’t tell Mr Sayers that she didn’t want him to come around that night directly. Instead she told him that she was watching Coronation Street and it didn’t suit her for that reason. Miss Burton was able to control the situation. It was at her suggestion the parties met two days later, at the unit itself.
[106] The evidence does not support the submission that Miss Burton was under any pressure by reason of Mr Sayers’ contact, either in terms of the amount of contact or the content of the contact.
[107] Mr McDonald next submitted that there was no need for the agreement to have been prepared and executed within 48 hours and that also reflected Mr Sayers taking advantage of Miss Burton. I do not accept that submission. Mr Sayers prepared the agreement and had it available when he rang Miss Burton on the 13th. When she said it did not suit her at that time, he did not insist that he see her that night to execute the agreement. He agreed with her suggestion to meet at the property in two days time for the agreement to be executed.
[108] Finally Mr McDonald submitted that the lack of independent advice suggested the plaintiffs had taken advantage of Miss Burton. As noted, the evidence establishes that Mr Sayers raised with Miss Burton whether she wished to take the agreement to her solicitors for advice. While Mr Sayers did not insist she took it to her lawyer for advice, nor did he seek to dissuade her. Miss Burton did not have independent advice but it cannot be said that by that reason Mr Sayers took advantage of her. If she had taken legal advice it would have been a complete answer. But the circumstances in which she decided not to seek legal advice do not support the submission Mr Sayers took advantage of her.
Summary – constructive knowledge
[109] The defendant’s argument that the plaintiffs ought to have been fixed with constructive knowledge of Miss Burton’s disadvantage must be premised on the basis the plaintiffs ought to have been aware she did not know the true value of the property. There was no other special disadvantage in this case. Ms Burton’s age and personal circumstances were not a special disadvantage. She was an independent and astute 79 year old. She was in regular contact with lawyers dealing with her brother’s estate. She made reasonably detailed notes in her calendar of events in her life. She was able to control the situations she was involved in. Anyone dealing with Miss Burton, including Mr Sayers, would have been left with the impression Miss Burton was well able to look after her own interests.
[110] For the Court to set aside the agreement for sale and purchase on the basis that Miss Burton was under a special disadvantage and that she was not aware of the true value of the property, the evidence would need to establish a basis for a finding that the plaintiffs had constructive knowledge of that special disadvantage for them to have taken unconscientious advantage of Miss Burton.
[111] As noted, on the evidence I do not accept that there was such knowledge, actual or constructive on the part of the plaintiffs. Mr Sayers was not aware that the property was worth as much as $190,000. At most he expected that once he had spent money on the property then it might well be worth more than the $155,000 but that was in the future.
[112] Both parties worked on the basis of the rating valuation and made their decisions accordingly. Physically the property was in a very bad state both externally and internally. Whoever bought the property would be required to spend considerable time and effort on remedial works.
[113] There was nothing arising out of Miss Burton’s personal circumstances to have put Mr Sayers or the plaintiffs on notice that she was at any special disadvantage. She was not at any disadvantage let alone any special disadvantage,
by reason of her age or personal circumstances. That distinguishes this case from
Nichols v Jessup. In that case the Court found Miss Jessup to be ignorant of property rights, unintelligent and muddleheaded, and her judgment in business matters likely
to be swayed by wholly irrelevant considerations.
[114] By contrast, it cannot be said the plaintiffs “ought to have realised that there was such an imbalance” or that they must have been “well aware of the defendant's characteristics and must have known or suspected that she was no judge of her own interests”.
[115] The plaintiffs were themselves not aware of the value of the property, and there were no other factors to suggest to them that Ms Burton was under a disadvantage. If, in these circumstances, the Court was to set aside the contract on the basis that Miss Burton was not aware of the true value of the property then the Court would effectively be accepting that an imbalance in consideration would itself be a sufficient disadvantage even where there was no unconscientious advantage taken of that by the other party.
Result
[116] It follows that I do not find that the contract should be set aside as an unconscionable bargain. The defence fails.
[117] The plaintiffs are to have an order for specific performance requiring the defendant to do all things necessary to give effect to the agreement for sale and purchase.
Alternative relief
[118] In the event that I was wrong and there was a basis to fix the plaintiffs with constructive knowledge of Miss Burton’s special disadvantage so that the agreement would prima facie be set aside as an unconscionable bargain, it might, in this case, have been appropriate to consider an alternative order rather than setting aside the agreement in its entirety. As was recognised by Tipping J in Bowkett the normal
relief will be the setting aside of the impugned transaction but that can be done either conditionally or unconditionally in the same way as apportionment is available in the case of equitable damages: Day v Mead [1987] 2 NZLR 443. In the case of an unconscionable bargain equity ought to be able to apportion responsibility if appropriate by the imposition of conditions on the relief granted. It need not be an
all or nothing affair.
[119] In Bridgewater v Leahy (1998) 194 CLR 457, at 493 the majority High Court referred to Vadasz v Pioneer Concrete (SA) Pty Limited (1995) 184 CLR 102 and noted that:
In some cases, the equity that arises by reason of an unconscientious or unconscionable dealing ... may be satisfied only by setting aside that dealing
in its entirety. The dealing may be embodied in the one instrument which
contains several provisions or in several instruments. In other circumstances
... the equity may be satisfied by orders setting aside some but not all of these instruments or some but not all of the provisions thereof.
[120] As any grant of relief in this case would be based solely on the imbalance in consideration, the equity of the situation could perhaps have been addressed by enabling the plaintiffs the opportunity to pay the difference between the price of
$190,000 and the $125,000 (plus the allowance of $5,000, i.e. providing the plaintiffs with the opportunity to buy the property for $185,000). However, as neither party addressed that situation in submissions, and as it does not arise on the findings I have made, I take it no further.
Damages
[121] The plaintiffs also seek damages for the costs associated with the delay in settlement. Specific performance is an equitable remedy. On the facts it now seems clear the plaintiffs have obtained a bargain. In deciding to grant the plaintiffs order
for specific performance to enforce that bargain, I am not prepared to grant damages
in addition.
Costs
[122] The plaintiffs are however entitled to costs to scale. Costs to the plaintiffs on
a 2B basis plus disbursements as fixed by the Registrar.
Venning J
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