Singh v Mao

[2022] NZHC 3046

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-407

[2022] NZHC 3046

BETWEEN

HARGUN SINGH

Plaintiff

AND

XIEYAN MAO

Defendant

Hearing:	10 October 2022
Appearances:	Michael G Locke for the Plaintiff Daniel Zhang for the Defendant
Judgment:	23 November 2022

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Penalty interest and costs]

This judgment was delivered by me on 23 November 2022 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Gandhi Lala (Jaswin Gandhi), Auckland, for the Plaintiff

Advent Ark Lawyers (Daniel Zhang/Ezra Tie), Auckland, for the Defendant

Counsel:

Michael Locke, Barrister, Auckland, for the Plaintiff

HARGUN SINGH v XIEYAN MAO [2022] NZHC 3046 [22 November 2022]

Introduction

[1]                 This judgment makes certain orders to implement two judgments of Associate Judge Bell, respectively dated 30 July 2021 and 27 August 2021.1

Background

[2]                 Hargun Singh was the purchaser, and Xieyan Mao the vendor, of a property at 57 Yeovil Road, Te Atatu Peninsula. Mr Singh sued Ms Mao for specific performance of the relevant sale and purchase agreement. He applied to this Court for summary judgment.

[3]                 The background was that Ms Mao sold the property to Mr Singh with vacant possession.   But the property was in fact subject to a fixed term tenancy ending on   6 July 2021. Ms Mao insisted Mr Singh take the property subject to the tenancy.

[4]                 On the settlement date, Ms Mao issued a settlement notice. She later cancelled the agreement, saying Mr Singh had not tendered settlement. She said her settlement notice was valid, and her cancellation effective, notwithstanding she had breached the agreement by not providing vacant possession.

[5]                 In his judgment of 31 July 2021, Associate Judge Bell granted summary judgment and ordered specific performance of the agreement. His Honour determined that Ms Mao was required to complete the agreement, and that an allowance was to be made to Mr Singh because of her breach.  He directed settlement to take place on   20 August 2021.

[6]                 Ms Mao did not settle. She instead appealed to the Court of Appeal and applied to this Court for a stay of execution pending that appeal. Associate Judge Bell allowed the stay in a judgment of 27 August 2021.

1      Singh v Mao [2021] NZHC 1959 [Substantive judgment]; and

Singh v Mao [2021] NZHC 2230 [Stay judgment].

[7]                 The Court of Appeal heard Ms Mao’s appeal on 18 November 2021. In a judgment of 22 August 2022, it dismissed the appeal.2 It remitted the matter back to this Court for any further orders that may be necessary to ensure the property is transferred in accordance with Associate Judge Bell’s stay judgment.

[8]                 The parties have been unable to resolve certain matters to give effect to Associate Judge Bell’s substantive and stay judgments. Those matters relate to:

(a)the date of settlement and other matters ancillary to settlement;

(b)the payment of default interest under the sale and purchase agreement; and

(c)costs and disbursements.

Update to the Court

[9]                 Following the hearing Daniel Zhang, for Ms Mao, filed a memorandum dated 25 October 2022 advising the Court that the transfer of the property was completed on 20 October 2022 on the basis that:

(a)penalty interest which Mr Singh claims against Ms Mao for the period from September 2020 to September 2022 in the amount of $380,000 has been held in Mr Singh’s solicitor’s trust account; and

(b)penalty interest which Ms Mao claims against Mr Singh for the period from 30 September 2022 to 20 October 2022 in the amount of $9,000 is held in Mr Singh’s solicitor’s trust account.

Sale and purchase agreement

[10]             It is necessary to set out some of the relevant clauses of the sale and purchase agreement.

[11]Clause 3.13 provides:

(1)For the purposes of this subclause 3.13:

2      Mao v Singh [2022] NZCA 390.

(a)the default period means:

(i)in subclause 3.13(2), the period from the settlement date until the date when the vendor is able and willing to provide vacant possession and the purchaser takes possession.

…

(2)If this agreement provides for vacant possession but the vendor is unable or unwilling to give vacant possession on the settlement date, then, provided that the purchaser provides reasonable evidence of the purchaser’s ability to perform the purchaser’s obligations under this agreement:

(a)the vendor shall pay the purchaser, at the purchaser’s election, either:

(i)compensation for any reasonable costs incurred for temporary accommodation for persons and storage of chattels during the default period; or

(ii)an amount equivalent to interest at the interest rate for late settlement on the entire purchase price during the default period; and

(b)the purchaser shall pay the vendor an amount equivalent to the interest earned or which would be earned on overnight deposits lodged in the purchaser’s lawyer’s trust bank account on such portion of the purchase price (including any deposit) as is payable under this agreement on or by the settlement date but remains unpaid during the default period less:

(i)any withholding tax; and

(ii)any bank or legal administration fees and commission charges; and

(iii)any interest payable by the purchaser to the

purchaser’s lender during the default period in respect of any mortgage or loan taken out by the purchaser in relation to the purchase of the property.

…

(6)The provisions of this subclause 3.13 shall be without prejudice to any of the purchaser’s rights or remedies including any right to claim for any additional expenses and damages suffered by the purchaser.

(7)If the parties are unable to agree upon any amount payable under this subclause 3.13, either party may make a claim under clause 10.0.

[12]Clause 10.0, dealing with compensation, provides:

10.1If the purchaser has not purported to cancel this agreement, the breach by the vendor of any term of this agreement does not defer the purchaser’s obligation to settle, but that obligation is subject to the provisions of this clause 10.0.

10.2The provisions of this clause apply if:

(1)the purchaser claims right to compensation for:

(a)a breach of any term of this agreement; or

…

(2)there is a dispute between the parties regarding any amounts payable:

(a)under subclause 3.12 or subclause 3.13 …

…

10.3To make a claim under this clause 10.00:

(1)the claimant must serve notice of the claim on the other party on or before the last working day prior to the settlement date (except for claims made after the settlement date for amounts payable under subclause 3.12 or subclause 3.13, in respect of which the claimant may serve notice of the claim on the other party at any time after a dispute arises over those amounts); and

(2)the notice must:

(a)state the particular breach of the terms of the agreement, or the claim under subclause 3.12, subclause 3.13 …; and

(b)state a genuine pre-estimate of the loss suffered by the claimant; and

(c)be   particularised   and   quantified   to    the   extent reasonably possible as at the date of the notice.

…

10.5If the amount of compensation is agreed, it shall be deducted from or added to the amount to be paid by the purchaser on settlement.

10.6If the purchaser makes a claim for compensation under subclause 10.2(1) but the vendor disputes the purchaser’s right to make that claim, then:

(1)the vendor must give notice to the purchaser within three working days after service of the purchaser’s notice under subclause 10.3, time being of the essence; and

(2)the purchaser’s right to make the claim shall be determined by an experienced property lawyer or an experienced litigator appointed by the parties. If the parties cannot agree on the appointee, the appointment shall be made on the application of either party by the president for the time being of the New Zealand Law Society. The appointee’s costs shall be met by the party against whom the determination is made.

10.7If the purchaser makes a claim for compensation under subclause 10.2(1) and the vendor fails to give notice to the purchaser pursuant to clause 10.6, the vendor is deemed to have accepted that the purchaser has a right to make the claim.

[13]             Clause 10.8 of the sale and purchase agreement contains provisions for settlement to proceed with funds held by a stakeholder until the amount of any compensation claim is determined. And cl 10.9 provides for deferment of the settlement pending determination under cl 10.8. The clause continues:

10.10The procedures prescribed in subclauses 10.1 to 10.9 shall not prevent either party from taking proceedings for specific performance of the contract.

10.11A determination under subclause 10.6 that the purchaser does not have the right to claim compensation under subclause 10.2(1) shall not prevent the purchaser from pursuing that claim following settlement.

The parties’ positions

[14]             In a memorandum dated 2 September 2022, Michael Locke, for Mr Singh, says Mr Singh notified Ms Mao that he wished to settle the purchase on 30 September 2022. He says he is instructed that Mr Singh has faced difficulties in arranging finance as a result of Ms Mao having complained to BNZ regarding Mr Singh’s finance application breaching the bank’s loan to value lending criteria. He says it is a reasonable inference that Ms Mao has sought to sabotage Mr Singh’s funding to settle the transaction.

[15]             Mr Locke says that the purchase price for the property will be substantially reduced to account for penalty interest and costs from the payment due on settlement

— a sum he says amounts to around $400,000. For that reason, he says loan to value issues seem unlikely to continue to be a factor. But he says Mr Singh will need some additional time to make fresh finance applications to new lenders.

[16]             In a reply memorandum dated 5 September, Mr Zhang objects strongly to the suggestion that Ms Mao has sought to sabotage Mr Singh’s finance application. He says further that Ms Mao does not agree that she is required to pay penalty interest. Mr Zhang says cl 3.13, properly construed, has the effect that compensation is only claimable if the purchaser actually settled on the settlement date. Because Mr Singh did not settle, he cannot claim compensation. And he says that even if Ms Mao is liable to pay penalty interest, it should only be payable up to the release of the Court of Appeal’s judgment or on 31 August 2022,  being  the  date  Mr Zhang  emailed Mr Locke that Ms Mao was reading and willing to settle.

[17]             Mr Locke filed a further memorandum in response, dated 5 September 2022. He says the application of cl 3.13 in this case is straightforward. Ms Mao was able but unwilling to give the contracted for vacant possession on the original settlement date. Mr Singh was able  to  perform  his  obligations  as  at  that  settlement  date. Mr Singh has therefore elected interest for late settlement under cl 3.13(2)(a)(ii). He points out that in the hearing for the stay application, Associate Judge Bell explicitly asked Ms Mao if she appreciated that penalty interest would continue to run under the agreement if the appeal did not succeed, and that Ms Mao knowingly accepted that risk.3

Analysis

[18]The questions to be determined in this judgment are:

(a)Is Mr Singh entitled to penalty interest against Ms Mao pursuant to   cl 3.13(2)(a)(ii) of the sale and purchase agreement? The answer to this question depends on the answers to two other questions:

(i)Did Mr Singh have to complete settlement of the sale and purchase to be  entitled  to  claim  penalty  interest  against  Ms Mao?

3      Associate Judge Bell made the same point in a minute of 17 August 2021: Singh v Mao HC Auckland CIV-2021-404-407, 17 August 2021 (Minute of Associate Judge Bell) at [6].

(ii)Did Mr Singh give notice to Ms Mao in accordance with cl 10.3 of the sale and purchase agreement of his claim for penalty interest?

(b)Is Ms Mao entitled to penalty interest against Mr Singh for the period of 30 September 2022 to October 2022?

Is Mr Singh entitled to penalty interest against Ms Mao pursuant to cl 3.13(2)(a)(ii) of the sale and purchase agreement?

[19] It is noted at [18] above that the answer to this question depends on answers to two preliminary questions, which I deal with in turn.

Did Mr Singh have to complete settlement of the sale and purchase to be entitled to claim penalty interest against Ms Mao?

[20]             Mr  Zhang  has  argued  that  to  be  able  to  claim  penalty  interest  under   cl 3.13(2)(a)(ii), Mr Singh was required to settle the purchase. Mr Zhang submits that the title to cl 3.13 “Vendor default: late settlement or failure to give possession” indicates the clause deals with two types of vendor default: late settlement or failure to give possession, and the use of the word “or” is deliberate.   He submits that       cl 3.13(1) lists three different periods as the “default period”. Each default period is distinct to a particular scenario. Mr Zhang analyses the clauses as follows:

(a)Clause 3.13(2) is the first scenario, where the vendor should give vacant possession but is unwilling or unable to do so. In that instance the definition of “default period” in cl 3.13(1)(a)(i) applies.

(b)Clause 3.13(3) deals with the second scenario, where the vendor should give vacant possession and is willing and able to do so, but is in default for other reasons. In this instance the definition of “default period” in cl 3.13(1)(a)(ii) applies.

(c)Clause 3.13(5) deals with the third scenario, where the property is sold with tenants, and the vendor is in default of settlement. In this instance the definition of “default period” in cl 3.13(1)(a)(iii) applies.

[21]             Mr Zhang submits that only cls 3.13(1)(a)(ii) and (iii) deal with late settlement, as those clauses use the phrase “until the date when settlement occurs”. In the case of the “default period” definition in cl 3.13(1)(a)(i) there is no late settlement but only failure to give possession. Accordingly, settlement must occur because cl 3.13(2) implies that settlement has taken place by making no reference to “the date when settlement occurs”. It only focuses on the purchaser taking possession.

[22]             Mr Zhang submits that this interpretation is reinforced by use of the phrase “amount equivalent” in two places in cl 3.13(2). He submits this phrase indicates that the money to be paid by the vendor to the purchaser (under cl 3.13(2)(a)) is not late settlement penalty interest, but an amount equivalent to late settlement penalty interest. He submits that this is because settlement is assumed to have taken place and this contrasts with the actual late settlement penalty interest phrase used in cl 3.12(1).

[23]             Mr Locke, on the other hand, submits that in Associate Judge Bell’s judgment dated 30 July 20214 Mr Singh’s counsel had made it clear that Mr Singh is entitled to late settlement interest under cl 3.13 for Ms Mao’s failure to give vacant possession, even if his emails were not a formal claim under cl 10. Mr Locke submits that emphasis on the language of cl 3.13 relied on by Mr Zhang is an artificial construction. References to an “amount equivalent to” late settlement penalty interest are simply references to a calculation of the interest for the relevant default period.

Conclusion on this issue

[24]             I do not accept Mr Zhang’s arguments in respect of the requirement for      Mr Singh to have settled the purchase before being entitled to penalty interest for  Ms Mao’s  failure to give vacant possession on  the settlement date.  In  my view,  Mr Zhang’s argument is placing artificial importance on the wording differences in  cl 3.13(1)(a) and the three definitions of “default period”.

[25]This conclusion is supported by the wording of cl 3.13(2)(b), which provides:

the purchaser shall pay the vendor an amount equivalent to the interest earned or which would be earned on overnight deposits lodged in the purchaser’s lawyer’s trust bank account on such portion of the purchase price

4      Substantive judgment, above n 1, at [48(d)].

(including any deposit) as is payable under this agreement on or by the settlement date but remains unpaid during the default period …

[26]             This clause makes it clear that settlement will not necessarily have occurred, as it contemplates amounts that were payable on the settlement date but remain outstanding. The clause is intended to compensate the vendor for not having received the settlement proceeds on the settlement date due to the deferral of settlement by reason of the vendor’s failure to give vacant possession.

[27]             Therefore, I conclude that Mr Singh was not required to settle the sale and purchase agreement to claim penalty interest under cl 3.13(2)(a)(ii).

Did Mr Singh give notice to Ms Mao in accordance with clause 10.3 of the sale and purchase agreement of his claim for penalty interest?

[28]             Mr Zhang submits that no proper notice was given by Mr Singh for a claim for compensation under cl 10.3, and it was not given in accordance with the time required such notice was to be given under that clause. Clause 10.3(1) provides that the notice of claim must be served on Ms Mao on or before the last working day prior to the settlement date (except where a claim is made after the settlement date for amounts payable under cl 3.12 or 3.13, in respect of which the claimant may serve notice of the claim on the other party at  any time after the dispute arises over those  amounts).  Mr Zhang submits that the letter of 16 September 2020 was not a notice in compliance with cl 10.3 and was given on the settlement date, not the last working day prior to the settlement date.

[29]             Mr Locke, on the other hand, submits that the letter sent by Mr Singh’s solicitors to Ms Mao’s solicitors on 16 September 2020, being the day of settlement, relates to a dispute as to the amounts owing under cl 3.13 and was in accordance with that clause as it did not need to be given the working day prior to settlement.

[30]             Mr Locke submits  that  the  letter  of  16  September  2020  complied  with  cl 10.3(2). Clause 10.3(2) states that the notice must:

(i)state the particular breach of the terms of the agreement, or the claim under cl 3.12, 3.13 or 5.2, or for misrepresentation, or for

breach of s 9 or s 14 of the Fair Trading Act 1986, or for an equitable set-off;

(ii)state a genuine pre-estimate of the loss suffered by the claimant; and

(iii)be particularised and quantified to the extent reasonably possible as at the date of the notice.

[31]             Mr Locke submits that the letter of 16 September 2020 complied with these requirements. He submits that under cl 10.6 of the agreement, if the purchaser makes a claim for compensation under subclause 10.2(1), but the vendor disputes the purchaser’s right to make that claim, then the vendor must give notice to the purchaser within three working days after service of the purchaser’s notice under cl 10.3, time being of the essence. Mr Locke submits that Ms Mao did not give any such notice within that period or raise any dispute regarding the claim for compensation or late settlement interest, other than to deny she was in breach of the agreement — a position she maintained through the  High  Court  proceeding  and  the  appeal  —  despite  Mr Singh’s statement of claim pleading this claim as a separate cause of action.

Conclusion on this issue

[32]             In my view, the letter of 16 September 2020 to Ms Mao’s solicitors was sufficient in substance to comply with cl 10.3 and was also given in the period required under cl 10.3(1).

[33]             As to Ms Mao’s failure to give a dispute notice under cl 10.6(1), I do not think this assists Mr Singh’s argument that he is entitled to penalty interest. I do not think this provision applies as the obligation to give the dispute notice under this clause only applies to claims for compensation under cl 10.2(1), which does not include disputes under cl 3.13 (which claims are made under cl 10.2(2), not cl 10.2(1)).

[34]             In my view, Mr Singh is entitled to penalty interest against Ms Mao, calculated in accordance with cl 3.13(2)(a)(ii). Interest should be calculated from 16 September 2020 to 30 September 2022. Although settlement did not occur on 30 September 2022,

it appears that Ms Mao was ready to settle on that date, apart from the dispute as to whether Mr Singh should put the disputed amount of penalty interest into a trust account. This is a fair date to stop penalty interest running against Ms Mao.

[35]             The remaining issue in relation to calculation of the interest is the allowance which must be set off pursuant to cl 3.13(2)(b), which is a calculation of interest on an actual or notional deposit at trust account interest rates as applicable to the purchaser’s solicitor’s trust account for the default period. A calculation of this amount needs to be undertaken.

Is Ms Mao entitled to penalty interest against Mr Singh for the period 30 September 2022 to October 2022?

[36]             It is apparent that the parties in correspondence agreed that the revised settlement date after release of the Court of Appeal judgment on 22 August 2022 would be 30 September 2022. However, there was dispute as to whether the amount of the penalty interest claimed by Mr Singh against Ms  Mao was to  be drawn down by  Mr Singh and held on trust pending resolution of the dispute. This point was not resolved by 30 September 2022. My view is that there was no concluded agreement as to the basis upon which settlement would occur on 30 September 2022. Similarly to the view I have taken that penalty interest should stop running against Ms Mao from 30 September 2022, I am of the view that Ms Mao is not entitled to interest on the outstanding purchase price for the period from 30 September 2022 to 30 October 2022.

Result

[37]             In view of the conclusions I have reached at [32]–[34] and [36], the result is as follows:

(a)Mr Singh is entitled to penalty interest as calculated in accordance with the  sale  and  purchase  agreement  from   16   September  2020   to 30 September 2022. A credit must be calculated and allowed in respect of the amount owed by Mr Singh to Ms Mao, pursuant to cl 3.13(2)(b).

(b)Ms Mao is not entitled to penalty interest against Mr Singh for the period from 30 September 2022 to 30 October 2022.

Orders

[38]I make the following orders:

(a)(i)     Mr Singh  is  entitled to penalty  interest  for the  period  from  16 September 2020 to 30 September 2022 calculated in accordance with the terms of the sale and purchase agreement. A credit must be calculated and allowed in respect of the amount  owed  by  Mr   Singh   to   Ms   Mao,   pursuant   to  cl 3.13(2)(b).

(ii)Counsel are directed to endeavour to agree final calculations of the interest amount owing. If agreement cannot be reached, the parties are given leave to come back to the Court.

(b)Ms Mao is not entitled to penalty interest for the period from 30 September 2022 to 20 October 2022.

(c)As to costs, I note counsel have already exchanged memoranda. Counsel are to endeavour to agree costs within 20 working days of the date of this judgment, failing which counsel for the plaintiff is to

submit a memorandum as to costs and counsel for the defendant is to submit a memorandum in reply within 5 working days of receipt of counsel for the plaintiff’s memorandum.

…………………………….. Associate Judge Taylor