Smith v Beaven
[2022] NZHC 2162
•29 August 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2022-409-212
[2022] NZHC 2162
BETWEEN MAUREEN DOROTHY SMITH
Plaintiff/First Counterclaim Defendant
AND
ANDREW JOHN BEAVEN, KAY
ELIZABETH BEAVEN and JAMES
CHRISTOPHER DAVIES, as trustees of the MAJESTIC TRUST
Defendants/Counterclaim PlaintiffsGRENADIERS REAL ESTATE LIMITED
Second Counterclaim DefendantALISON MOANA AITKEN
Third Counterclaim Defendant
Hearing: 17 August 2022 Appearances:
T J Twomey for Plaintiff T C Daley for Defendants
Judgment:
29 August 2022
JUDGMENT OF ASSOCIATE JUDGE LESTER
SMITH v BEAVEN [2022] NZHC 2162 [29 August 2022]
[1] The plaintiff was the successful party in a determination (the Determination) undertaken pursuant to a dispute resolution clause in a contract between the parties. Pending the Determination, a sum was paid (the interim amount) to a stakeholder. The plaintiff as the successful party seeks orders that, in substance require the stakeholder to release the interim amount to her. The defendant as the unsuccessful party in the Determination, resist release of the interim amount.
Background
[2] The plaintiff was the vendor of a property in Christchurch sold by auction pursuant to an ADLS REINZ Fifth Edition Auction Form dated 2020 (the Auction Terms).
[3] The defendants were nominated to complete the purchase. The first-named defendant was the original contracting party. Neither party takes issue at this time with the defendants being “nominees” rather than the original contracting parties.
[4] Shortly before settlement, the defendants raised a claim to compensation based on an asserted pre-contractual misrepresentation in relation to the repair of earthquake damage to the property. The information booklet for the property stated that “All repairs completed except for tiles & driveway – the cash settlement for these items will be transferred to new owners upon settlement”. The vendor disputed liability. The parties invoked the process set out in cl 11 of the Auction Terms. In the case of a pre-contractual misrepresentation, the purchaser may claim a right to compensation as an alternative to cancelling the agreement.
[5]Clause 11.1 of the Auction Terms provides:
If 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 cl 11.0.
[6] While cl 11.1 of the Auction Terms refers to breach “of any term of this agreement”, cl 11.2(1) lists a range of claims for which compensation may be sought, including a claim for misrepresentation.
[7] Clause 11 of the Auction Terms sets out a process by which a purchaser gives formal notice of a claim which, in most cases, has to be given on or before the last working day prior to settlement. The notice must give particulars of the alleged breach and state a genuine pre-estimate of the loss claimed to have been suffered.
[8]The following parts of cl 11 are relevant:
11.6 If the purchaser makes a claim for compensation under subclause 11.2(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 11.3, 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.
…
11.8
…
(1)
an interim amount shall be paid on settlement by the party required to a stakeholder until the amount of the claim is determined;
…
(4)
if the parties cannot agree on the interim amount, the interim amount shall be determined by an experienced property lawyer, an experienced litigator, or, where the claim for compensation is made under subclause 7.2, an experienced registered valuer or quantity surveyor appointed by the parties. The appointee’s costs shall be met equally by the parties. If the parties cannot agree on the appointee, the appointment shall be made on the application of either party
to the President for the time being of the New Zealand Law Society;
…
11.9 Where a determination has to be made under subclause 11.6(2) or subclause 11.8(4) and the settlement date will have passed before the determination is made, the settlement date shall be deferred to the second working day following the date of notification to both parties of the determination. Where a determination has to be made under both of these subclauses, the settlement date shall be deferred
to the second working day following the date on which notification to both parties has been made of both determinations.
[9]Significantly for the present dispute, cl 11.11 provides:
A determination under subclause 11.6 that the purchaser does not have a right to claim compensation under subclause 11.2(1) shall not prevent the purchaser from pursuing that claim following settlement.
[10] The parties entered into an agreement to appoint a Christchurch barrister as the “Determiner” as contemplated by cl 11.6(2). The Determiner’s role, as defined in the Appointment Agreement, was to be neutral and resolve the issues between the parties by preparing and issuing a determination. The parties had the right to make submissions and provide evidence to the Determiner. The parties agreed to participate in the determination in good faith and to co-operate with the Determiner to ensure the determination process was conducted in a fair, timely and efficient manner. The determination agreement was signed in January 2022 and the Determination issued on 27 April 2022. The Determiner found in favour of the vendor.
[11]The Determination was as follows:
Determination
57.As the appointed Determiner, I determine pursuant to term 11.6(2) of the Sale Contract that:
a.The Purchaser does not have a right to make a claim for misrepresentation under term 11.2(1)(b) of the Sale Contract;
b.I direct that the funds with accrued interest held in trust by Corcoran French be paid promptly without deduction to the Vendor by monetary transfer to the trust account of Purnell Creighton;
c.As the successful party, the Vendor is entitled to her costs incurred as part of this determination process.
[12] As to the costs of the Determination, a separate costs award was made by the Determiner which required the purchaser to pay to the vendor the sum of $20,819 to reimburse her share of the Determiner’s costs and hearing expenses that she had paid.
The purchaser was to pay the vendor a further $15,471 as a contribution to her party costs on the Determination. The Determiner directed:
Accordingly, the total amount to be paid without delay to the trust account of Purnell Creighton is $36,290.
[13] Despite these rulings, the defendants did not accept that the plaintiff was entitled to the funds held by the stakeholder. Issues were raised by the defendants about the process adopted by the Determiner and the fact he would not permit additional areas of loss said to arise from the pre-contractual misrepresentation to be raised. That ruling was subject to a separate determination.
[14] In short, the plaintiff says, with the determination process having been completed, the stakeholder should release the interim amount as required by the Determiner and seek an order requiring the defendants to consent to that release or direct the stakeholder to pay the stake to her.
[15] The defendants, relying on cl 11.11 (set out at [9] above), say that the Determination is not final. The claim they advanced in the determination based on pre-contractual misrepresentation is now the subject of their counterclaim in this proceeding. The defendants say that until their counterclaim is concluded, the dispute they raised has not been finally determined. They say the interim amount should be held until final determination. That, in short, is the issue to be determined here.
The contractual context
[16] The Auction Terms provides that on settlement date, the purchaser is obliged to pay the balance of the purchase price taking into account the deposit less “… any interim amount the purchaser is required to pay to a stakeholder pursuant to subclause 11.8.”
[17] Here, the purchase settled on the basis part of the purchase price (the interim amount), to which the vendor would otherwise be entitled to under the contract, was paid to a stakeholder pursuant to the dispute resolution mechanism in cl 11.
What is the Determiner is resolving?
[18] Clause 11.6(2) provides it is the purchaser’s right to have a claim for a deduction from the purchase price otherwise payable for possession determined by the Determiner.
[19] Here, the purchaser is in possession of the property but the vendor, at the moment, is out of part of the purchase price to which she was entitled but for the claim under cl 11.
[20]The defendants raised four defences to the plaintiffs’ claim:
(a)the Determination is not enforceable, that is, it is not binding on the parties;
(b)by way of equitable set-off (misrepresentation);
(c)the plaintiff has not come to equity with clean hands;
(d)the Determination was wrongly decided.
Discussion
[21] The purpose of the dispute resolution process is to allow settlement to occur as its permits the parties’ obligations as at the original settlement date to be determined.
[22] Clause 11 of the Auction Terms is a self-contained process aimed at determining what will happen to the deduction from the purchase price.
[23] Here, that process has been completed and a ruling made, save that the purchasers have not completed “settlement” following the Determination being issued. While in the parties’ correspondence they talk about an appeal from the Determiner’s ruling, that is not what the defendants’ counterclaim is. The effect of cl 11.11 is that the Determination does not create an estoppel in respect of the Determiner’s ruling. However, that does not mean the Determiner’s ruling is of no effect. The parties
cannot have intended to participate in that not inexpensive process for it to be simply a nullity. In my view that is the effect of the defendants’ argument.
Defendants’ first defence – Determination not enforceable/non-binding
[24] Mr Daley, counsel for the defendants, submitted the dispute resolution process that the parties engaged in did not amount to a determination of the purchasers’ claim. He submitted the parties had agreed to a right of appeal from the Determination, but that is not what cl 11, nor the Appointment Agreement says. That Agreement in fact says that at para 1:
Appointment of Determiner
1. We will enter into the determination process under clause 11 of the General Terms of Sale under the Particulars and Conditions of Sale of Real Estate by Auction (ADLS / REINZ 5th Ed 2020) dated 25 March 2021.
[25]Further, paragraph 8 of the Appointment Agreement provides:
The parties participate in the determination with the intention of completing the determination process.
[26] Accordingly, I find there is no contractual basis for saying the parties agreed to a right of appeal. If such a right had been intended then how an appeal right would work, that is, to who or to what forum an appeal would lie, the time limit to bring an appeal, and what would happen to the interim amount in the meantime, would have been addressed.
[27]Mr Daley says the evidence shows:
… the parties expressly agreed that the Determination would not be binding, and that either party would be free to appeal the Determination. On that basis, the Respondents say that their claim has not been determined, and that they are under no obligation to consent to the release of the stakeholder amount.
[28] I do not accept Mr Daley’s submission as it depends first, on there being a right of appeal and second, on the determination process being intended by the parties to be what, on the defendants’ case, would be an entirely academic exercise.
[29]Mr Daley then submitted:
There are no express words within the Contract which stipulate that a determination under clause 11 would be binding.
[30] This submission is in respect a wholly commercial one. It does not reflect the purpose or intent of cl 11. That cl 11.6(2) results in a determination is of itself enough to indicate the process was intended to bind the parties in respect of the parties’ settlement obligations, the idea of a determination that does not decide the matter in issue is a novel one.
[31]Mr Daley then submitted:
14.1In the first instance, the Respondents’ right to make a claim for compensation should have been determined under clause 11.6(2);
14.2If the determiner under clause 11.6(2) determined that the Respondents had a right to claim compensation, but the amount of compensation was disputed, then an interim amount would be paid on settlement to a stakeholder until the amount of the claim was “determined” under clause 11.8(1);
14.3Notably, the Contract does not provide for any mechanism (such as a further determination process) to “determine” the amount of a claim in circumstances where an interim amount has been paid to a stakeholder under clause 11.8(1). Clearly in such instances the Contract contemplates that the claim would be “determined” by the Courts.
[32] In my view, this submission is simply wrong. Clause 11.8(4) contemplates that the parties may agree the interim amount, as they did here. The parties having done so then embarked on the determination process which Mr Daley submits in 14.3 (set out in [31] above) was not possible, yet that is what they did. The short point is that the parties entered into an agreement to participate in dispute resolution on the terms I have already referred to. Mr Daley’s submissions ignore the fact that the parties entered the Appointment Agreement “with the intention of completing the determination process”.
[33] Mr Daley referred to MGH Trah Ltd v Fox Mortimer Trustee Co Ltd.1 I do not find that authority helpful given here the parties entered a dispute resolution agreement.
1 MGH Trah Ltd v Fox Mortimer Trustee Co Ltd [2021] NZCA 59, (2021) 22 NZCPR 102.
[34] I refer to cl 11.11 set out at [9] above. The purchasers have issued proceedings by way of counterclaim raising and expanding on the matters that were not accepted by the Determiner. Clause 11.11 provides that the purchaser may do so “following settlement”. At [21], I referred to the original settlement, by that I meant when the purchase price less the interim amount was paid and possession given. Clause 11.9 provides settlement will occur two working days after the Determination. In context that meant the balance of the purchaser’s obligations on settlement were as to be completed on 29 April 2022, that is, two working days after the Determination. Settlement here has not been completed because the defendants have not agreed to the interim amount, being balance of the purchase price held by the stakeholder, being released to the vendor. By providing that a disgruntled purchaser may pursue their claim further after settlement, cl 11.11 reinforces that cl 11 as a whole is about concluding the settlement process. What comes thereafter is not governed by the Auction Terms.
Second defence – set off
[35] The defendants say they have a set-off against the present claim, that is, their claim for damages now in excess of $1,000,000 arising from the claimed misrepresentation.
[36] I do not accept this is a situation where set-off is relevant. What the plaintiff is seeking is her money, that is, the balance of the purchase price (the interim amount) to which she is entitled following the Determination. She is not seeking to recover money from the defendants. The interim amount held by the stakeholder does not belong to the defendants. In other words, there is no money claim against the defendants for which they can set-off their cross-claim.
[37] Nor do I see room for a set-off being raised after the Determination ruled the interim amount should be paid to the vendors. I find the purchasers agreed to the interim amount being released to the vendor if that is what the Determiner ruled. To resist that occurring is not consistent with cl 11 of the dispute resolution agreement as again, it treats the process as having no effect if not accepted by the purchasers.
The purchasers, on their case, can simply ignore the Determination, not consent to the release of the interim amount, and issue proceedings.
Third defence – clean hands
[38] The defendants say that the plaintiff is seeking an equitable remedy in circumstances where she has not come with clean hands. The defendants assert the plaintiff did not participate in the determination process in good faith. They assert that the plaintiff refused to disclose and delayed in disclosing material information which would be relevant to the Determination. The Appointment Agreement records an obligation to co-operate with the Determiner to ensure that the determination process was conducted in a fair and timely way. The Determiner said at paragraph 6 of the Determination:
… I am satisfied that I have received all material evidence available and have the benefit of detailed and considered submissions from both counsel. I acknowledge the assistance received from the Parties and counsel to ensure that this determination process has been conducted in a timely, transparent and effective manner.
[39] The defendants’ complaint about the plaintiff’s involvement in the determination process cannot survive these findings.
[40] The defendants say the plaintiff has accepted that not all earthquake repairs were completed, that being the misrepresentation relied on. Given that acknowledgment, the defendants say the plaintiff accepts making a misrepresentation and therefore cannot seek equitable relief. However, the Determination dismissed the purchaser’s claim, not on the basis the misrepresentation was not made, but on the basis of what the statements relied on meant in all the circumstances. The Determination was; “There was no representation made that all damage had been fully and properly fixed. The statement was simply that all repairs carried out had finished”. However, the defendants treat that representation as if it were a warranty that all earthquake damage was rectified.
Determination wrongly decided
[41] It is then asserted that the Determination was wrongly decided. That is not for me to determine. This proceeding is not a de facto appeal from the Determination. The defendants, if they believe the Determination was wrong, are protected by cl 11.11 once they settle. This means their belief that the Determination was wrong cannot justify their directing the stakeholder not to release the interim amount. The scheme of cl 11 is that a purchaser whose claim for a deduction is declined completes the balance of their settlement obligations, such only being deferred until the release of the Determination, then sues.
Residual discretion
[42] Mr Daley sought to invoke the residual discretion the Court has not to grant summary judgment, submitting that considering matters as a whole to enter judgment would cause injustice. I do not accept holding the defendants to the outcome of the dispute resolution process is an unjust result.
[43] Mr Daley submits the plaintiff, by seeking judgment, is asking the Court to enforce an agreement when she admits to misrepresentations which the defendants say induced them to enter into the agreement for sale and purchase. This is one aspect of the clean hands defence repeated.
[44]I decline to exercise the residual discretion to not enter judgment.
Conclusion
[45] Accordingly, I find the plaintiff is entitled to the funds held by the stakeholder. I do so for the following reasons:
(i)The dispute determination process was intended to permit the parties to achieve settlement. It provides for an interim deduction from the funds the plaintiff was otherwise entitled to on settlement to be held by a stakeholder pending completion of the clause 11 process. Once that process is completed, the settlement – in this case the balance of the
settlement (the interim amount) – must be completed within two working days after the release of the Determination (cl 11.9).
(ii)Had it been intended that the stakeholder would continue to hold the interim amount for some indefinite time while the defendants determined whether to bring their claim, then cl 11 of the Auction Terms would have said so. One would expect it to provide that the disgruntled purchaser would have (say) 20 working days to commence proceedings and, if they failed to do so, the stakeholder would release the funds at the expiry of that period.
(iii)The defendants’ approach gives the cl 11 process no meaning. It becomes an academic exercise of no practical effect as they say the process is not binding. That cannot have been intended. It would also mean a purchaser calling for a deduction to be held by a stakeholder would, if they were unsuccessful, obtain what amounts to a pre-judgment charging order or freezing order by default.
[46] I do not accept the defendants’ submission that their claim has not been “determined” for the purposes of cl 11. That is exactly what the parties agreed was to happen as the extracts from the Appointment Agreement set out at [24] and [25] above record. The parties participated in the prescribed process and a determination was issued. The cl 11 process is at an end. The defendants, by their counterclaims, are embarking on an entirely new process, that is, proceedings in this Court. However, the defendants seek to maintain a benefit of the cl 11 stakeholder process but deny the burden of the Determination, as they say it is not binding on them.
[47] Now that the defendants are in a litigation process, if they consider they require some protection as to the collectability of the amount they claim, then they need to be able to justify such an order in this Court.
Judgment of the costs award
[48] Mr Daley’s submissions did not expressly address the claim for judgment against the defendants for the costs set out in the Determiner’s costs ruling, nor is this issue specifically addressed in the notice of opposition.
[49] By cl 11.6(2) the parties empowered the Determiner to fix the costs the unsuccessful party would have to pay to the successful party. Accordingly, the plaintiff has the contractual right to the costs fixed and, in my view, is entitled to judgment for the costs.
Formal orders
[50] There is an order directing the stakeholder to release and pay the interim amount to the plaintiff – this being one of the orders sought. I am aware the stakeholder is not a party to this proceeding but as a stakeholder they have no interest in the fund.
[51] There is judgment against the defendants for interest on $211,000 at the rate of 10 per cent per annum being the penalty rate under the contract from 29 April 2022 (the settlement date under cl 11.9) until payment, less a credit for the interest earned on the funds while on deposit with the stakeholder. Contractual interest is payable as the defendants have failed to complete settlement.
[52] There is judgment against the defendants in respect of the costs determined by the Determiner on 12 May 2022 in the sum of $36,290.
[53] There is judgment against the defendants for interest on $36,290 from the date of the costs determination (12 May 2022) until payment.
[54] There is an award of costs in favour of the plaintiff on a 2B basis in respect of her proceeding, along with disbursements as fixed by the Registrar.
Associate Judge Lester
Solicitors:
Purnell Creighton, Christchurch Anthony Harper, Christchurch