Singh v Mao
[2021] NZHC 1959
•30 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-407
[2021] NZHC 1959
BETWEEN HARGUN SINGH
Plaintiff
AND
XIEYAN MAO
Defendant
Hearing: 9 July 2021 Appearances:
M G Locke for the plaintiff
K Puddle and L Ding for the defendant
Judgment:
30 July 2021
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 30 July 2021 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Gandhi Lala (Jaswin Gandhi), Royal Oak, Auckland, for the Plaintiff K3 Legal (James Nolen/Kerry Puddle), Auckland, for the Defendant Counsel:
Michael Locke, Auckland, for the Defendant
SINGH v MAO [2021] NZHC 1959 [30 July 2021]
[1] Mr Hargun Singh, the purchaser, sues Ms Xieyan Mao, the vendor, for specific performance of an agreement made on 4 August 2020 to sell a residential property in Te Atatu, Auckland. He has applied for summary judgment.1 Ms Mao sold the property to Mr Singh with vacant possession, but the property was subject to a fixed term tenancy ending on 6 July 2021. Ms Mao insisted that Mr Singh had to take the property subject to the tenancy and would not complete the sale on any other basis. On the settlement date, she issued a settlement notice and later cancelled the agreement, saying that Mr Singh had not tendered settlement. Even though she was told that she was in breach of the agreement in not providing vacant possession, she says that her settlement notice was valid and her cancellation was effective because Mr Singh fumbled in dealing with her breach.
[2] In my judgment, it does not matter that Mr Singh fumbled, because Ms Mao would only settle if Mr Singh paid the full purchase price and took the property subject to the tenancy. She could not insist on settlement on that basis. She will have to complete the agreement with an allowance to Mr Singh because of her breach.
What happened
[3] The Te Atatu property is level, about 800 square metres in area, with a house. It is zoned and suitable for redevelopment. In 2019 Ms Mao obtained resource consent to subdivide the property and build up to seven apartments. In June 2020 she let the property under a residential tenancy agreement for a fixed term from 8 July 2020 to 6 July 2021. On 22 July 2020, she signed a listing agreement with a local real estate agent to sell the property. While the listing agreement records that resource consent has been issued for seven terrace houses, the space for information about any tenancies has been left blank. Ms Mao says, however, that she told the land agents how to contact her property manager for details.
1 There was no dispute as to the approach for plaintiff’s applications for summary judgment under r 12.2 of the High Court Rules 2016.
[4] Mr Singh is a property developer. Ms Mao’s land agents marketed the property “Resource consent issued for seven terrace houses!”. Their advertisement said nothing about the tenancy. Mr Singh says that when he inspected the property he could see in a general way that it was occupied. He was not told about a tenancy. He intended to remove the existing house and carry out a multi-unit development.
[5] The agreement of 4 August 2020 uses the ADLS/REINZ Agreement for Sale and Purchase of Real Estate 10th edition 2019(2). The settlement date was 16 September 2020. On settlement, Ms Mao was to give Mr Singh vacant possession. The agreement was conditional on finance within four working days. Further terms of sale included an acknowledgement by both the vendor and the purchaser that the real estate agent had recommended that they seek legal advice, and any technical or other advice and information, and they had been given reasonable opportunity to obtain that advice before signing the agreement. There was an additional condition for a registered valuation to be obtained, acceptable to the purchaser (cl 23).
[6] On 7 August 2020, Mr Singh’s lawyer emailed Ms Mao’s lawyer advising that the finance condition had been satisfied. Mr Singh paid the real estate agents the deposit at the same time. He arranged for architects and engineers to prepare drawings and plans for his proposed development. On 20 August 2020, Ms Mao’s lawyer sent Mr Singh’s lawyer a statement for settlement on 16 September 2020. The settlement statement is in conventional form, allows for the deposit and apportions the rates between purchaser and vendor. There are no other adjustments to the price.
[7] On 25 August 2020, Ms Mao’s lawyer broke the news to Mr Singh’s lawyer about the fixed term tenancy:
Further to my email enclosing settlement statement on 20 August 2020 I am advised now that there is actually a tenant in the property. However, due to the oversight by the agent the tenant’s details [were] omitted in writing on the agreement. It advised that your client was aware of the existence of the tenant in the property and has agreed to keep the tenant on settlement when entering the agreement, but probably may not realize that it is a fixed term until 6 July 2021 (a tenancy agreement is attached for your client’s information).
Our client instructs us to advise that she has fully advised the agent of the details of the tenant, especially the fixed term of one year. As such our client’s position is that she won’t be responsible for any costs claimed by the tenant due to the break-up of the fixed term of tenancy.
Therefore it is up to your client to either take the tenant as it is and settle on 16 September 2020, or to have the said agreement cancelled and the parties propose to draft a new agreement.
Ms Mao never changed from the position stated in that email. Mr Singh would have to take the property subject to the tenancy and she would not be responsible for any costs incurred if the tenancy had to be broken. Mr Singh had to take it or leave it.
[8] The correspondence between the parties’ lawyers down to the settlement date of 16 September 2020 shows the parties’ respective positions.
[9]In his reply on 25 August 2020, Mr Singh’s lawyer expostulated.
[10] On 31 August 2020, Ms Mao’s lawyer sent Mr Singh’s lawyer an email setting out the compensation the tenants would require if they had to move out on 20 November 2020 (apparently a date that had been discussed). The tenants’ email advised that they would accept $18,000 if they had to move out by 20 November 2020. That offer was never taken up.
[11] Mr Singh’s lawyer’s email of 31 August 2020 explained that the property had been sold with vacant possession on settlement and had been marketed for its development potential. Mr Singh wanted to start development as soon as the purchase settled. That email included:
Any costs associated to remove the tenant is your client’s cost.
Our client requires vacant possession on settlement and if vacant possession is not provided then your client will be in breach of the Agreement.
As a consequence, our client will hold your client liable for all the costs and damages it suffers, together with penalty interest for late settlement.
Our client proposes that it can defer settlement on a completely without
prejudice basis for another month, to 16/10/2020 to allow your client to remove the tenant and provide vacant possession on settlement. Our client’s offer on a without prejudice basis is open until 4 pm this Friday, 4/9/2020.
[12]In response on the same day, Ms Mao’s lawyer said:
1. Our client would never accept your client’s offer unless your client takes over the tenant on settlement; Any intention contrary to that will invalidate the agreement;
2. In fact we note no “vacant possession” is written on the agreement and our client is not bound by that and not obliged to give vacant possession on settlement;
3. The fact is that your client was told and aware of the tenant and confirmed to take over the tenant on settlement. There is correspondence evidencing that. Therefore your client is bound to take over the tenant on settlement.
4. If your client requires the tenant to move out on 20 November 2020, it is your client’s duty to do that after settlement rather than our client’s duty to inform the tenant now.
In any event, our client’s position is that our client will not be responsible for any compensation to the tenant.
[13]Ms Mao’s lawyer’s email of 4 September 2020 included the following:
Our client has accepted your client’s offer on the honest belief that your client will take over the tenancy on settlement and the belief was confirmed by the agent orally and afterwards confirmed by the written email by the agent to the property manager (also copied to my client) on 5 August 2020. This email could be treated as supplementary to the main contract.
As such your client is obliged to settle on 16 September 2020 on the basis to take over the tenant as agreed and accepted by your client.
The email went on to suggest that the parties could agree to void the agreement without any party having any claims against the other, or that the dispute be referred to arbitration.
[14] Mr Singh’s lawyer’s reply of 8 September 2020 re-stated that vacant possession was to be provided on settlement. Mr Singh had been provided with a copy of the resource consent. He had carried out site investigations and had incurred significant costs on engineers and architects. Development was planned to start in mid-November. Mr Singh knew nothing about the fixed term tenancy. The email includes:
In view of the above, our client does not accept any of your client’s options and requires “vacant possession” on settlement. Our client will charge your client penalty interest for late settlement if “vacant possession” is not given. The agreement is very clear that “vacant possession” is to be provided.
[15] Ms Mao’s lawyer’s reply of 8 September 2020 said that Mr Singh was aware of the tenancy and had agreed to take over the tenancy on settlement. If Mr Singh had done due diligence, he would have found out that there was a fixed term tenancy and
accordingly he had constructive knowledge of the fixed term tenancy. That meant that he was required to take the property subject to the tenancy and negated the vendor’s duty to give vacant possession on settlement. It was irrelevant that the agreement did not include details of tenancy. She added:
Therefore our client requires that your client settle on 16 September 2020 with the tenancy and our client will reserve her right to charge penalty interest for later settlement and instruct us to serve the settlement notice if the settlement does not proceed on 16 September 2020
[16]Mr Singh lodged a caveat on 10 September 2020.
[17] In his reply of 14 September 2020, Mr Singh’s lawyer confirmed the contractual position that Ms Mao was to give vacant possession on settlement, and she would be in breach if she did not. The email made this proposal:
That the settlement date be delayed to 16/10/2020 to enable your client to relocate the tenant. Our client will not penalise your client for deferring the settlement; or
Settlement take place on 16/9/2020 as per the Agreement, subject to tenant entering into a new tenancy agreement with your client to replace the existing tenancy agreement and with the tenant confirming in writing in the new tenancy agreement that they will vacate the property on or before 20/11/2020. Any costs associated with replacing the tenancy agreement or relocating the tenant to be your client’s costs.
And added:
If your client does not accept any of the two options above then we have strict instructions to issue “settlement notice” on 16/9/2020 and charge your client penalty instruct together with additional damages that our client will suffer as a direct result of your client’s breach.
[18] On 14 September 2020, after Ms Mao’s lawyer sent documents for e-dealing on settlement, Mr Singh’s lawyer sought confirmation that Ms Mao would provide “vacant possession” on settlement. On 15 September 2020, Ms Mao’s lawyer replied that her client was not required to provide vacant possession on settlement.
[19] On the same day Mr Singh’s lawyer replied that Ms Mao could not unilaterally change the terms of the agreement for sale and purchase. The agreement was clear that Ms Mao was required to provide vacant possession. Mr Singh would not settle
until vacant possession was provided. Ms Mao was in breach by not providing vacant possession. Mr Singh would hold her liable for all consequential losses if vacant possession was not provided on settlement.
[20] Mr Singh’s lawyer sent a notice of sale on 15 September 2020 and also asked for confirmation that vacant possession would be provided.
[21] On settlement day, 16 September 2020, Mr Singh’s lawyer faxed Ms Mao’s lawyer advising that he held funds and was ready, willing and able to settle. The letter sought confirmation that vacant possession would be provided in terms of the agreement, re-stated that Ms Mao was in default, and in breach by failing to provide “vacant possession” and penalty interest would be charged until vacant possession was given. The letter stated the penalty interest rate both in a percentage rate and a daily rate of $511.23.
[22] The sale did not settle. Mr Singh’s lawyer returned the funds that had been borrowed for the purchase. Ms Mao’s lawyer sent Mr Singh’s lawyer a settlement notice. The notice is silent about vacant possession but, after reciting the agreement, the settlement date and the vendor’s willingness to settle says:
Accordingly the vendor hereby gives notice in terms of Clause 11 of the Agreement and requires you (without prejudice to any other remedies including penalty interest payable to the vendor) to settle on or before the 12th working day after the date of service of this notice upon you, time being of the essence.
The notice also warned of the consequences for non-compliance.
[23] On the same day, Mr Singh’s lawyer sent Ms Mao’s lawyers a settlement notice. Its recitals referred to the need to provide vacant possession and required Ms Mao to settle the purchase within 12 working days by providing vacant possession.
[24] On 2 October 2020, Ms Mao’s lawyers emailed Mr Singh’s lawyer cancelling the agreement for non-compliance with the settlement notice. There were no relevant communications between the parties between the settlement notices of 16 September 2020 and Ms Mao’s lawyers’ cancellation email of 2 October 2020.
The requirement to give vacant possession under the agreement
[25]Clause 3.1 of the sale and purchase agreement says:
Unless particulars of a tenancy are included in this agreement, the property is sold with vacant possession and the vendor shall so yield the property on the settlement date.
[26] The front page of the agreement has a panel in which the names of tenants can be entered, but that has been left blank. The parties should indicate “Yes/No” whether the property is sold with tenancies, but they did not. The third schedule of the agreement provides for further information to be provided as to tenancies, but that has also been left blank. In the absence of any indications as to the tenancies in the agreement under cl 3.1, Ms Mao was required to give vacant possession on settlement. This is so clear that her counsel did not try to argue otherwise.
Ms Mao’s belief that she did not have to give vacant possession
[27] Notwithstanding what the agreement said, Ms Mao has consistently maintained that she did not have to give vacant possession. Some of her belief is based on information given by others. I have relied on that information to explain her belief, but not as truth of the statements.
[28] She says that when she listed the property for sale, she told the real estate salesperson that the property was tenanted and gave the real estate agency contact details for her property manager who was managing the tenancy. The real estate salesperson told her that everyone who looked at the property had been told that it would be subject to the existing tenancy. The real estate agency sent her two offers to consider. Mr Singh’s offer was higher. The other was unconditional, for a lower price, and recorded that the property was sold subject to a tenancy. Ms Mao believed that the agreements were the same in all other respects, apart from conditions and price. She believed that Mr Singh’s proposed conditional agreement was subject to the tenancy, the same as the other. She accepted Mr Singh’s agreement. The agents did not point out to her that this agreement was not subject to a tenancy.
[29] On 5 August 2020, the real estate salesperson emailed the property manager, copied to Ms Mao, asking the property manager to arrange access to the property to Mr Singh’s valuer. The real estate agent said:
The purchaser is an investor and he will keep the tenants under your company management.
[30] That statement is incorrect. Mr Singh is a developer, not an investor. He did not consent to take the property subject to the tenancy. It can be noted that the parol evidence rule prevents the email and the information in it from being used to vary the terms of the agreement. Ms Mao says, however, that the email was consistent with her instructions to sell the property subject to the existing tenants. She relies on that email to say that, whatever the agreement for sale and purchase says, Mr Singh has agreed to take the property subject to the tenancy. She did not understand that the agreement provided otherwise until her lawyer explained that to her on 20 August 2020. She rang one of the real estate sales people, who told her not to worry because Mr Singh was aware that the property was tenanted and he would take the tenants on settlement. Ms Mao emailed the property manager to ask them to advise the tenants of the new owners. She asked the real estate salesperson to correct the agreement, but the sales person said there was no need. The manager of the real estate agency suggested that she write to the tenants asking whether they would be prepared to move out early.
[31] Her lawyer advised her that the agreement was a mistake and incomplete. Accordingly, it was proposed to cancel the agreement and make a new one. She confirms that the tenants advised that they would move out early if they were paid
$18,000. She does not say that she was willing to pay them.
[32]Referring to the emails between her lawyer and Mr Singh’s lawyer, she says:
The essence of these emails are that my position was that the Property was sold with the existing tenants, which the plaintiff was well aware of and accepted to take them on settlement (and that they should have carried out due diligence before they commit to taking the tenants), but because of Mason’s mistake 2 this information was not recorded in the agreement. However, the plaintiff, now knowing that the tenants asked for $18,000 compensation,
2 The real estate salesman.
insisted on vacant possession as per the agreement, regardless of the fact that he had previously advised Mason that he would take the tenants on settlement.
Nowhere in her evidence does she recognise that she was in breach of the agreement by not providing vacant possession, and that she would have to carry the consequences if she did not give vacant possession on settlement. She maintained that position up to the hearing of the summary judgment application.
[33] Her grounds for opposition included a claim for rectification, to have the agreement changed to meet her belief. She also claimed relief under the contractual mistakes provisions of the Contract and Commercial Law Act 2017.
The contractual provisions for failure to give vacant possession
[34] Clause 3.13 of the agreement says what should happen under the agreement if the vendor cannot give vacant possession:
(1)For the purposes of this subclause 3.13:
(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 lawyers’ 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.
[35]Clause 10.0 of the agreement deals with claims for compensation:
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 3.13…
10.3To make a claim under this clause 10.0:
(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 3.13, 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 3.13…; 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 that claim.
Clause 10.8 contains detailed provisions for settlement to go ahead with funds held by a stakeholder until the amount of any compensation claim is determined. Clause 10.9 provides for deferment of the settlement pending determination under cl 10.8.
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.
[36] The clause is recent. It may have been prompted by the comment of the majority in Property Ventures Investments Ltd v Regalwood Holdings Ltd:3
It should also not be beyond the wit of the drafters of standard-form real estate contracts to devise a mechanism which will enable speedy resolution of bona fide and reasonable purchasers’ claims for equitable compensation or set-off and protect each of the contracting parties whilst doubt about the correct position remains.
[37] Mr Singh had the option of cancelling the agreement. Ms Mao offered it but he did not take it up. He wished to continue with the agreement. He was entitled to compensation for being kept out of possession under cl 3.13. His lawyer was on good ground in claiming interest for late settlement until vacant possession was provided. Ms Mao’s lawyer had a small quibble, noting that Mr Singh’s lawyer did not make any allowance for interest on funds earned under cl 3.13(2)(b). That may have been academic if the interest Mr Singh had to pay on his mortgage was more than that earned on the funds kept in his lawyers’ trust account.
[38] Under cl 10.1 Mr Singh was required to settle once he had decided not to cancel the agreement. He was entitled to compensation under cl 3.13, but Ms Mao did not accept that. He therefore had to make a claim under cl 10.3. While his lawyer’s correspondence refers to a claim for interest for late settlement, none of Mr Singh’s lawyer’s emails is a notice under cl 10.3(2). Mr Locke, counsel for Mr Singh, accepted that. That was the fumble.
Was Ms Mao entitled to issue her settlement notice?
[39] The fumble gives Ms Mao her argument that she could give a settlement notice under cl 11 of the agreement. Clause 11 includes these:
11.0Notice to complete and remedies on default
11.1(1) If the sale is not settled on the settlement date, either party may at any time therefore serve on the other party a settlement notice.
(2)The settlement notice shall be effective only if the party serving it is at the time of service either in all material
3 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231 at [75].
respects ready, able, and willing to proceed to settle in accordance with clauses 3.0 and 10.0 or is not so ready, able and willing to settle, only by reason of the default or omission of the other party.
…
11.2… upon service of the settlement notice, the party on whom the notice is served shall settle:
(1)on or before the twelfth working day after the date of service of the notice; …
time being of the essence, but without prejudice to any intermediate right of cancellation by either party.
…
11.4If the purchaser does not comply with the terms of the settlement notice served by the vendor then, subject to subclause 11.1(3):
(1)Without prejudice to any other rights or remedies available to the vendor at law or in equity, the vendor may:
…
(b)cancel this agreement by notice and pursue either or both of the following remedies…
…
11.7Nothing in this clause shall preclude a party from suing for specific performance without serving a settlement notice.
(Emphasis added)
[40] The question is whether under cl 11.1(2) Ms Mao was in all material respects ready, able and willing to proceed to settle in accordance with clauses 3.0 and 10.0. At the time that her lawyers sent the settlement notice, Ms Mao was not prepared to settle on the basis that she had to give vacant possession. She would only settle if Mr Singh took the property subject to the fixed term tenancy and without any compensation. Notwithstanding that, she says that she was entitled to issue the settlement notice. Her argument is:
(a)Faced with her breach of contract, Mr Singh might have cancelled, but he affirmed the agreement. Having chosen to go ahead, he could not equivocate.
(b)As vendor she could only be in default if she failed to settle when the purchaser properly tendered settlement.
(c)Because of the tenancy, Ms Mao could not deliver vacant possession on settlement. Mr Singh would have to take title with the tenants in occupation, subject to adjustments to the price under cl 3.13.
(d)Mr Singh had to make a claim for compensation under cl 3.13, because money goes to documents. She was not in breach so long as he did not seek compensation.
(e)Because she had not agreed to any compensation under 3.13, Mr Singh had to make a claim under cl 10, but he did not do so.
(f)Because Mr Singh did not make a claim under cl 10, he was required to tender settlement without any deduction under that clause.
(g)As Mr Singh had not tendered settlement in full under cl 3 or, alternatively, because he had not tendered settlement on the basis of a claim under cl 10, he remained in default of settlement and Ms Mao was entitled to give a settlement notice. She was not in default and could give the settlement notice.
(h)The settlement notice was valid. It did not specify any amount to be paid on settlement. It did not rule out an adjustment under cl 3.13.
(i)Even after the settlement notice was issued, Mr Singh could still have made a claim under cl 10: see the exception in cl 10.3(1).
(j)Notwithstanding that, Mr Singh did not make any claim during the period for complying with the settlement notice.
(k)She could therefore cancel when he did not comply with her settlement notice.
[41] As to the purchaser not being able to equivocate, Tipping J’s dissenting judgment in Holmes v Booth was cited.4 The Supreme Court affirmed that aspect of his judgment in Property Ventures Investments Ltd v Regalwood Holdings Ltd.5
[42] As to a vendor not defaulting until a proper tender of settlement is made, she cites Bahramitash v Kumar:6
Therefore, ordinarily, a vendor will be in default in relation to that obligation [to convey the property] only if the vendor has failed to settle when a proper tender of settlement is made.
[43] As to the onus on Mr Singh to initiate a claim, she cites the majority in Property Ventures Investments Ltd v Regalwood Holdings Ltd:7
Because it is incumbent upon the purchaser to put forward its claim, it cannot now be said that Regalwood’s demand on 17 May for the full price necessarily demonstrated an unwillingness to proceed to settle in accordance with its obligations. It was not at that time, in the absence of a claim for set-off, asking for more than it was entitled to receive in exchange for the transfer of title. Hence, the issuance of the settlement notice may well have been valid.
[44] That needs to be put into context. The vendor had given a conventional settlement statement asking for payment of the full price and had given a settlement notice when the sale did not settle. Later, the purchaser made a claim. At that stage the vendor made it clear that it would still only settle on payment of the purchase price in full. The Supreme Court held that at that later stage the vendor was in default.8 As a further matter of context, that case was decided under a different version of the Auckland District Law Society/Real Estate Institute of New Zealand’s standard terms of sale. The contract did not have a cl 10 as it appears in the current agreement.
[45] Ms Mao’s argument is somewhat artificial. As it was presented at the hearing, counsel accepted that if Mr Singh had made a claim under cl 10, Ms Mao would have no defence to the claim for specific performance. It was not, however, submitted that if Mr Singh had made a claim under cl 10, Ms Mao would have had a change of heart
4 Holmes v Booth (1993) 2 NZ ConvC 191,633 (CA).
5 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 238 at [72] and [93].
6 Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 at [16].
7 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231 at [81].
8 At [82].
and would have settled with arrangements made following the procedures in cl 10. Such an argument would have failed on the evidence.
[46] In Bahramitash v Kumar, the Supreme Court accepted that notwithstanding the general rule that a purchaser must tender settlement before a vendor can be held to be in default, tender will not be necessary if it would be futile:9
[17] …Ordinarily, therefore, the vendor cannot be shown to have breached the contractual obligation to convey the property unless there has been a proper tender by the purchaser, and in response to that tender the vendor has exhibited an inability or unwillingness to deliver the title and other documentation required in terms of the contract.
[18] An indication from the vendor, by words or conduct, that a contractually proper tender by the purchaser would be futile has significance in two respects. First, the vendor cannot treat the purchaser as being in default by failing to make such a tender. Secondly, the vendor will be taken to have indicated that he or she is not ready, willing and able in all material respects to perform his or her settlement obligations.
[47] The Supreme Court made it clear that the test for showing that a tender would be futile and unnecessary is tough:
[20] The conclusion that going through the motions of tendering would have been a futile exercise is not one which is lightly to be drawn. It is normally prudent, save in the clearest of cases, for the purchaser to carry out a formal tender so that the issue does not arise in litigation, as it unfortunately did in the present case. It is for the purchaser to prove that tender would have been futile. It is a matter which is judged objectively at the time when tender was otherwise due. It is not enough for a purchaser’s solicitor to have subjectively concluded, however honestly, that the vendor will not perform the concurrent obligation in response to a tender of the sum which is due. The futility of the exercise must be clear; it must be shown to have been a foregone conclusion that the tender would not have been accepted or was not able to be accepted.10 In other words, it must be shown that without any real doubt the vendor would either have refused to settle in response to a contractually proper tender or, if willing, would not have been in a position to do so. But a vendor who has by words or conduct plainly intimated an inability or unwillingness to perform the settlement obligation to convey the property, will be regarded with scepticism if he or she later says that, contrary to what the purchaser had been told, if tender had in fact been made in terms of the agreement, it would have been accepted.
9 Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 at [17]–[18].
10 Band v Shearer (1990) ANZ ConvR 631, 632.
[48] In my judgment, Ms Mao took an entrenched position and was prepared to settle only if Mr Singh paid the full purchase price and took title subject to the tenancy. Making a claim under cl 10 would not have made any difference:
(a)Her lawyer maintained that position for her in the emails to Mr Singh’s lawyer.
(b)Her lawyer had told her that the agreement required her to give vacant possession, but she was not prepared to settle on that basis.
(c)She insisted that Mr Singh should bear the costs of her not giving vacant possession.
(d)Mr Singh’s lawyer made it clear that under cl 3.13 Mr Singh was entitled to late settlement interest for not having vacant possession, even if his emails were not formal claims under cl 10. That alerted Ms Mao and her lawyer to the right to compensation, but Ms Mao’s lawyer rejected those suggestions.
(e)Mr Singh’s lawyer made proposals for the contract to go ahead, albeit with Ms Mao carrying some costs. Settlement would be deferred until
16 October 2020, but she would not be required to give vacant possession until November so as to fit in with the tenants’ proposal. That would cost her $18,000 to pay the tenants to leave. She rejected that.
(f)That was better than what Mr Singh could offer in a claim under cl 10.3. If settlement had gone ahead on 16 September 2020 with the fixed term tenancy still in place, Mr Singh would have been entitled under cl 10 to stipulate for a much greater sum to be set aside by way of compensation for not having vacant possession. He would take the property, subject to the fixed tenancy expiring in July 2021. His compensation for failure to give possession would be calculated on possession becoming available at the end of that default period under
cl 3.13(1). He could not count on the tenants co-operating by leaving earlier. They had made their offer to quit to their landlady, not to him. There was nothing to stop the tenants changing their mind. In the hearing, Mr Locke estimated that the compensation would be in the order of $160,000. If Ms Mao was not prepared to accept a settlement proposal which would probably have cost her $18,000 for the tenants to go, she would not have accepted a tender of settlement with a claim under cl 10 for $160,000 to be deducted from the price.
(g)In her affidavit in opposition to the summary judgment application, she did not suggest that she would have had a change of heart if Mr Singh’s lawyer had made a proper claim under cl 10.3. In Bahramitash v Kumar,11 the Supreme Court indicated that the court may well regard a change of heart with scepticism. But here, Ms Mao has not even gone through the motions.
(h)Instead, her affidavit reaffirms her position. She could require Mr Singh to pay the purchase price in full, to take the property subject to the tenancy, and to carry the costs of persuading the tenants to terminate their lease early.
(i)Her notice of opposition maintains her position that Mr Singh was aware that the property was tenanted when he offered to buy it and he indicated he would take the property subject to the tenancy on settlement even though the agreement did not record the tenants’ details. She pleaded contractual mistake and sought rectification. Those positions are inconsistent with any suggestion that she might have been willing to settle, with compensation payable to Mr Singh under cl 3.13, on a claim being made under cl 10(3).
[49] In summary, Ms Mao’s words and conduct clearly showed an unwillingness to settle under cls 3 and 10, even if Mr Singh’s tender of settlement had included a formal claim under cl 10.3. She was not in all material respects ready, willing and able to
11 Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577.
settle and was not entitled to issue the settlement notice on 16 September 2020. Because she was not entitled to issue the settlement notice, she was not entitled to cancel under cl 11.4. Accordingly, the agreement for sale and purchase remained in full force and effect. Mr Singh can still sue for specific performance under cls 10.10 and 11.7.
Other matters
[50] In her notice of opposition, Ms Mao sought relief for contractual mistake under Part 2 Subpart 2 of the Contract and Commercial Law Act 2017. That argument was abandoned, after Mr Locke correctly submitted that Ms Mao’s mistake in interpreting the contract was not a relevant mistake.12
[51] The rectification claim was also abandoned. Rectification of the agreement to align it with Ms Mao’s wishes would have provided for Mr Singh to take subject to the fixed term tenancy and for the details of the tenancy to be shown, including its expiry in July 2021. The evidence is clear that Mr Singh was never informed of the fixed term tenancy and there was never a common intention that he would take title subject to that tenancy.
[52] It was also submitted in Ms Mao’s written synopsis (but not in oral submissions) that cl 23 regarding a valuation was never satisfied. Ms Mao’s lawyer’s cancellation letter was also a notice avoiding the agreement for non-satisfaction of the valuation condition (even though the cancellation letter said nothing about that condition). That condition was for the sole benefit of Mr Singh. He required the valuation to assist in obtaining finance. When his lawyer gave notice that the finance condition was satisfied, it was implicit that he no longer needed to rely on the valuation condition. Moreover, in correspondence, Mr Singh’s lawyers made it clear that the contract was on foot and was proceeding to settlement. That was formalised with Mr Singh’s settlement notice of 16 September 2020. He had affirmed the agreement. After that, neither side could avoid the agreement for non-satisfaction of the valuation condition.
12 Contract and Commercial Law Act 2017, s 25. See Shotter v Westpac Banking Corp [1988] 2 NZLR 316 (HC) at 330–331 and Paulger v Butland Industries Ltd [1989] 3 NZLR 549 (CA).
[53] Ms Mao objected to specific performance as a remedy. It is, however, well established in New Zealand that specific performance is an appropriate remedy to enforce agreements for the sale and purchase of real estate. In this case, the property represented a development opportunity. Ms Mao was prepared to sell that development opportunity on the open market. There is a rising market. It is not clear that Mr Singh may be able to obtain a comparable development opportunity at the same price. Moreover, damages may not be an appropriate remedy. Ms Mao is in Australia. She has given an address in Victoria. Enforcement will be more difficult. A damages award is a less efficient remedy than specific performance. Calculating damages to compensate for a lost development opportunity is not as straightforward as allowing the developer to have the opportunity.
[54] It was objected that Mr Singh had delayed in suing and he should therefore not have specific performance. This proceeding started in March this year – five months after Ms Mao cancelled. That is not a delay that counts against ordering specific performance.
[55] Ms Mao blames her real estate agents. I have recorded some of her complaints to show her belief, but I have not made any finding whether her complaints are well- founded. Nothing in this decision is to be taken as criticising the agents. They have not been heard. Whether they did a good job for her or not is irrelevant for Mr Singh’s claim that she complete the agreement she signed.
Outcome
[56] Mr Singh has shown that Ms Mao does not have an arguable defence to his claim for specific performance. There will accordingly be an order for the specific performance of the agreement of 4 August 2020 for the sale and purchase of the Te Atatu property. Settlement is to be completed on Friday 20 August 2021.
[57] I understand that the tenants have now left the property. The price must still be adjusted in accordance with cl 3.13(2). If the parties cannot agree on the adjustments to be made, they are to follow the procedures under cl 10. Mr Singh will have to give any notice claiming compensation under cl 10.3.
[58] Ms Mao is to pay Mr Singh costs of the proceeding. I trust that counsel will confer and agree on costs, but if they cannot, memoranda may be filed and I will decide costs on the papers. I encourage counsel to confer on costs promptly, with a view to the costs being allowed for on the settlement of the purchase.
[59]Leave is reserved to apply for further directions.
…………………………………….
Associate Judge R M Bell
4
2
1