Station Properties Limited (in receivership and liquidation) v Kumar
[2013] NZCA 70
•20 March 2013
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA453/2012 [2013] NZCA 70 |
| BETWEEN STATION PROPERTIES LIMITED (IN RECEIVERSHIP AND LIQUIDATION) |
| AND VIKRAM KUMAR AND NIRUPAMA KUMAR |
| AND ROBERT JAMES SELWYN |
| AND MICHAEL DONALDSON AND PATRICIA BRONWYN DONALDSON |
| Hearing: 20-21 February 2013 |
| Court: O'Regan P, Randerson and Asher JJ |
| Counsel: M J Tingey and S V East for Appellant |
| Judgment: 20 March 2013 at 11:00am |
JUDGMENT OF THE COURT
AThe appeal is allowed.
BIt is declared that the appellant was entitled to cancel the transactions on the grounds of repudiation by the respondents.
CThe case is remitted to the High Court for determination of the damages issue.
D The respondents jointly and severally must pay costs to the appellant as for a standard appeal on a Band A basis with usual disbursements. We certify for second counsel.
____________________________________________________________________
REASONS
(Given by Randerson J)
| Table of Contents
|
Introduction
This appeal arises from a dispute over an apartment development in Queenstown known as Bowen View. The appellant Station Properties Ltd (Station) was one of a group of companies controlled by Mr Daniel McEwan and was responsible for the development, construction and sale of the apartments.
In May 2006 the respondents each entered agreements for sale and purchase (ASPs) to buy an apartment in the complex to be built in accordance with plans and specifications identified in the ASPs.[1] The agreed sale prices were:
First Respondents (Mr and Mrs Kumar) $1,135,125.00 plus GST
Second Respondent (Mr Selwyn) $1,039.625.00 plus GST
Third Respondents (Mr and Mrs Donaldson) $ 880,125.00 plus GST
[1]The complex was to comprise 25 apartments and 3 houses. A number of other apartments in the complex were sold but these sales are no longer in issue.
Prior to the ASPs being signed, the respondents alleged that representations were made to them by or on behalf of Station about the terms of the proposed sales. They also asserted that certain additional terms were agreed to. These were not mentioned in the ASPs but, in summary were that Station would:
·Pay a fee of one per cent of the purchase price to each of the respondents in consideration of their signing the ASPs.
·Provide furniture for each apartment.
·Arrange a management agreement for all apartments in the complex.
Each of the respondents also alleged that they were told the ASPs were “underwrite” agreements and that they would not be required to settle the purchases since Station’s intention was to sell the entire complex to a single purchaser upon completion of construction. The respondents alleged Mr McEwan (or others on his behalf) told them that the ASPs were required to enable Station to satisfy the requirements of the principal funder, Bank of Scotland International (Australia) Ltd (BOSI).
The ASPs contained a number of special conditions. Settlement was to occur five working days after the last of the following events:
·The date of issue of unit titles;
·The date of Practical Completion as defined; or
·The date of issue of code compliance certificates.
The term “Practical Completion” was defined to mean:
…that stage of construction when the Works are substantially complete so that the property is capable of being used for the purposes for which it is intended without material inconvenience notwithstanding that there may be items of a comparatively minor nature that require finishing, alteration or remedial action”.[2]
[2]The “Works” were defined as meaning construction generally in accordance with the agreed plans and specifications.
The ASPs contained two unusual terms described in the evidence as a “sunset” clause and a “gazump” clause:
26.0 Sunset clause
26.1If the vendor is not ready, willing and able to settle this agreement on or before 20 December 2007, then either party may, by notice in writing at any time thereafter, cancel this agreement and the purchaser shall be entitled to the return of the deposit together with Net Interest accrued and neither party shall have any right of claim against the other.
37.0 Vendor’s right to cancel (“Gazump” clause)
37.1Notwithstanding anything to the contrary herein, the vendor shall have the right to cancel this contract without notice at any time. In the event of such cancellation, the purchaser shall not have any right to compensation of any sort whatsoever.
The sunset clause was later varied by agreement to extend the date to 13 March 2009 (12 months after the “estimated completion date” of 13 March 2008).
Station separately contracted with Fletcher Construction for the construction of the apartments which commenced in September 2006. By mid-2008, construction was nearing completion. From July that year, Station began communicating with the respondents about settlement. Station acknowledged to the respondents that the property market had become depressed by that time and that its efforts to sell the completed development to others had been unsuccessful. As well, Station was experiencing financial difficulties.
The respondents each obtained valuations which revealed that the current values of the units were substantially lower than the prices agreed in the ASPs two years before.
From August 2008, Station’s solicitors began calling on the respondents to settle the ASPs. There is no dispute that titles and code compliance certificates had been issued. Station relied upon a practical completion certificate (PCC) issued by the quantity surveyors for the project (Maltbys) rather than by the architect designated in the ASPs (Leuschke Group Architects Ltd). It was not until much later that an issue was raised about the validity of the Maltbys’ PCC but it was to become a central feature of the High Court judgment under appeal as we later discuss.
Despite attempts by Station to secure settlement over the period from August to October 2008, this did not occur. The Judge found that the respondents refused or were not prepared to settle the transactions. In consequence, Station issued summary judgment proceedings against the respondents and other purchasers seeking orders for specific performance of the ASPs. Associate Judge Robinson declined summary judgment in December 2009. He found that the respondents had an arguable defence based on pre-contractual misrepresentation under the Fair Trading Act 1986.[3]
[3]Station Properties Ltd v Lever Action Ltd HC Auckland CIV-2009-404-354, 17 December 2009.
After Station issued its proceedings in the High Court, it was placed into receivership by BOSI on 20 April 2009. When the summary judgment application was dismissed in December of that year, Station’s solicitors wrote to the respondents’ solicitors in February 2010 advising them that unless the respondents settled the ASPs, they would be treated as having repudiated the agreements. Settlement did not proceed and Station cancelled the ASPs on 6 April 2010, reserving the right to recover damages from the respondents.
The final step in this outline of the key facts is the judgment under appeal given by Toogood J on 29 June 2012 upon the substantive hearing of Station’s proceedings.[4] The principal findings by the Judge were:
[4]Station Properties Ltd (in rec) v Kumar [2012] NZHC 1527.
·The additional terms identified in [3] above were terms of the overall agreement between the parties. (We will call these additional terms “the side agreements”.)
·The gazump clause meant it could only be exercised if the vendor received an offer from a third party for the same price or a greater price with any profit being shared with the relevant respondents.[5]
·The time for settlement of the ASPs had never arrived because the Maltbys’ PCC did not comply with the contractual terms since the ASPs required the PCC be issued by Leuschke Group.
·Station had repudiated the ASPs by requiring the respondents to settle before the contractual settlement date.
·Station was never ready, willing and able to settle since it was unable to fulfil its obligations under the side agreements.
·Station’s breach of the side agreements was material and substantial.
·Cancellation of the ASPs by the respondents was justifiable for breach by Station as well as on the grounds of repudiation by Station.
·Although not necessary to consider the affirmative defences raised by the respondents, the Judge said he would have granted remedies to Mr Kumar (but not to the Donaldsons or Mr Selwyn) under the Contractual Remedies Act 1979, based on pre-contractual representations by a Mr Charlett on behalf of Station.
Issues on appeal
[5]The Judge’s interpretation of this clause is not challenged.
As is so often the case, the arguments in this Court have shifted somewhat from those focused upon in the High Court. It is no longer in dispute that:
·The side agreements did constitute contractual terms.
·The Maltbys’ PCC did not conform to that required by the ASPs.
·The time for settlement did not arrive before the ASPs were cancelled.
Unlike the argument in the High Court, the focus of the argument before us was on the repudiatory conduct of the respondents. The essence of Mr Tingey’s argument for Station is straightforward:
·By their conduct in the period July to October 2008 and thereafter, the respondents each repudiated the ASPs by demonstrating they did not intend to complete them (whether the time for settlement had arrived or not).
·The respondents had no justification for repudiating the ASPs since Station was not in material breach of the ASPs or the side agreements.
·The apartments were, as a matter of fact, practically completed by mid-2008.
·Station was, at relevant times, ready, willing and able to settle (or could have done if the validity of the PCC and the alleged breaches of the side agreements had been drawn to its attention or relied upon by the respondents at the time they were refusing to settle or to proceed with the ASPs).
·Station was entitled to cancel for repudiation by the respondents and to recover damages for its losses.
·There is no basis in law or fact for the Judge’s conclusion in relation to Mr Kumar’s affirmative defence arising from pre‑contractual representations.
On behalf of the respondents Ms Kelly supported the High Court decision, substantially for the reasons the Judge gave.
The facts in more detail
The terms of the side agreements
We have already set out the key terms of the ASPs but it is necessary to discuss the terms of the side agreements by reference to relevant documentary material. In an email sent to the respondents on 20 September 2005 Station advised:
The design has been altered to allow for a management arrangement to be run from House 3. This means the management rights will be sold to the highest bidder (around $25,000 per unit is the market rate) providing further income to the company. The sale and purchase contracts do not include a management agreement at this stage, however this will be made available during construction, along with the furniture package. (This will be past onto the company at cost plus 10% - we will fly to Italy and import the majority of these items.)
The same email recorded that:
As an incentive to purchase, the project will pay a 1% purchasers fee (of the unit price only), pre settlement.[6]
[6]It is accepted that Mr Kumar’s arrangement was slightly different. In his case, it was agreed that the one per cent purchasers fee would be paid upon the first construction drawdown under the Fletchers building contract.
In a letter of 20 September 2005 accompanying the ASPs for signature, Station advised the respondents:
The sale agreement needs to include the furniture package/air-conditioning/heating package. Full lists of the contents of this item will be made available and as you are a shareholder will be at cost plus 10%. We have set a budget and will work to this. The public will pay a marked up price determined by a third party valuation (this is clearly more profit to the project).
The vendor intends to arrange for the benefit of its shareholders as an option a serviced apartment management agreement. Decisions to be considered would be a number of weeks for personal usage, operator and brand, and weather [sic] the income would be pooled or tied to each unit. If pooled this would require a prospectus.
These issues were put slightly differently in instructions given to the respondents as to how to execute the ASPs:
Prior to completion, an up to date furniture package arrangement, along with air-conditioning and heating, will be mandatory.
A property management agreement will be offered pre settlement, we expect settlement to be approximately April 2007.
The intention to provide a furniture package was confirmed in a price list for the apartments as at September 2005 which described a furniture package as being “mandatory”. The price was to be available six months prior to completion. The price list added $30,000 for the furniture package to the price otherwise applicable to each apartment.
Mr Tingey pointed out that cl 28.2 of the ASPs provided that:
… The vendor may procure the body corporate to enter into a Building Manager’s Agreement, in the same or similar form enclosed, with a professional building management company to be nominated by the vendor prior to settlement date.
We accept that the precise nature of any obligation on the part of Station to provide a management agreement is ambiguous and that it is reasonably arguable that the contractual term set out in the ASPs should override any other representations made prior to the execution of the ASPs. However, for reasons we later discuss, we do not think it matters whether there was a contractual obligation to provide a concluded management agreement at the time of settlement or whether (as Mr Tingey submitted) Station had the option of procuring a management agreement if it chose to do so. Nor do we think it matters whether Station’s only obligation (at best) was to nominate a building management company prior to settlement.
The Practical Completion Certificate (PCC)
On 29 and 30 May 2008 Mr Cocker of Leuschke Group inspected the apartments and prepared a lengthy list of items remaining to be completed. His evidence was that it would take at least three weeks to complete the list of outstanding matters. On 19 June 2008 another Leuschke employee (Mr Reeve) made a brief inspection of part of the site while on a visit to Queenstown for other purposes. In consequence of this inspection, Mr Cocker wrote on 24 June 2008 to Station’s project manager (Insignis Ltd) and Mr Dawson of Maltby’s:
RE: BOWEN VIEW APARTMENTS – PRACTICAL COMPLETION.
Milton Reeve, from our office, carried out a brief inspection of part of the site on Thursday, 19th June 2008.
We have attached a list of some items observed on the 19th June 2008.
We have looked at the photographs he took on that day and note that there are still work items to be carried out (such as toilets not working) that we would consider need to be complete prior to the buildings being practically complete. There is also evidence of further remedial work now being required as a result of completion work carried out since our previous visit.
To be practically complete, the buildings should be suitable for occupation with only minor remedial work being required, and the remedial work should not be of a nature that would be disruptive to the occupation of the building.
If the construction contract does not have provision for sectional practical completion, then the entire project has to be practically complete before you can issue your certificate.
It appears to us that the works are still not at that stage.
Yours faithfully
LEUSHKE GROUP LIMITED.
The list attached referred to some outstanding matters noted by Mr Reeve on his 19 June visit. This did not purport to be a full inspection but covered one of the three houses and some of the apartments. We note however that, by the time of Mr Cocker’s letter of 24 June 2008, more than three weeks had gone by since Mr Cocker’s 29 and 30 May inspections.
Despite Mr Cocker’s letter of 24 June, Mr Dawson of Maltby’s wrote to Station and Fletcher Construction on 2 July 2008 stating:[7]
This is to certify that in accordance with clause 10.4 of the conditions of the Contract, Practical Completion of 24 units and 3 houses was achieved on 3 June 2008.
Outstanding defects are noted on the attached schedules and will need to be resolved within the 12 week period.
This certificate does not warrant that the works have been completed as designed, marketed or in accordance with relevant laws or standards, but merely that the building is on the whole fit for occupation. Refer to attached Queenstown Lakes District Council Code Compliance Certificate for compliance with the Building Act 2004.
[7]The reference to 24 units was a typographical error.
The code compliance certificates and the long list of outstanding matters prepared by Leuschke Group earlier and dated 30 May 2008 were attached to Mr Dawson’s letter.
In evidence, Mr Dawson readily accepted that his role was to keep an overview of the construction contract as the designated “Engineer to the Contract”. His qualifications were as a quantity surveyor of some 20 years experience. He readily accepted he was neither an engineer nor an architect by qualification and that he looked to Leuschke Group for advice as to the state of completion of the project for the purpose of the ASPs. As his letter stated, his PCC was for the purposes of cl 10.4 of the conditions of the building contract with Fletchers.
Mr Dawson was pressed in cross-examination about whether he had “ticked off” the defects listed following the 29 and 30 May inspections by Leuschke Group. He said he had done so after 19 June although he did not have with him any evidence to support a formal inspection. Nevertheless, he had visited the site once per week during this period.
He was asked about one of the matters Mr Reeve had found to be outstanding (toilets not working) and explained that the reason for that was that the water had been turned off to avoid the water freezing in the pipes during the Queenstown winter. There was some suggestion in the evidence that the failure of the toilets to operate might have been because of the absence of the operating button but, whatever the cause, this was clearly a matter which could have been quickly and easily remedied.
Mr Dawson was also asked about a missing handrail on an internal stairway. He accepted that this was the only item which was more than minor in his opinion. He was sure that he had contacted the builder to make sure it was installed. Other than this item, he regarded all the defects listed as minor and maintained his view that, at least for the purposes of the construction contract, the development was practically complete as he certified on 2 July.
Mr Cocker was called at trial for the respondents. He confirmed his view that, as at 24 June 2008, he did not consider the construction of the complex was practically complete in terms of the definition contained in the ASPs. He added that Leuschke Group had not undertaken any further complete inspections thereafter and did not at any time issue a PCC. However, in cross-examination, Mr Cocker accepted that the bulk of the items on the list prepared at the time of the 29 and 30 May inspections were minor items capable of being remedied fairly quickly and easily. There was no structural work required. He mentioned an issue over a sheet of roofing material which had been more than minor but could not recall whether this was still at issue by the time of the preparation of the list on 30 May. Since Leuschke Group were based in Auckland, he had attended only two of the monthly project meetings during construction. These meetings took place in Queenstown and were chaired by Mr Dawson. He accepted that the local authority had issued code compliance certificates for the development on 1 July 2008. He also accepted it was likely the missing stair handrail had been attended to before the code compliance certificate was issued since it was a building code requirement. He agreed that the other issues identified by Mr Reeve in his 19 June visit were all minor items that could be fixed comparatively easily and quickly. He had no reason to suppose that they were not promptly attended to.
Factual conclusion on practical completion
Because of the way the case developed in the High Court, the Judge did not make any factual finding as to whether, in substance, the construction of the apartments was complete in accordance with the plans and specifications appended to the ASPs. Rather, his focus was on the technical issue of whether the PCC conformed with the requirements of the ASPs. Since it was issued by Maltby’s and not by the Leuschke Group as required, he found that it did not conform to the contract. In consequence, the settlement date did not arrive.
On our own review of the evidence, we find that the apartments were substantially complete no later than mid-July 2008 and probably earlier than that date. A full month had gone by since Mr Cocker’s estimate that it would take at least three weeks to address the list of items outstanding from the inspections on 29 and 30 May; the local authority had issued its code compliance certificates on 1 July; Mr Dawson’s clear evidence was, that at least for the purposes of the construction contract, he was satisfied the works were substantially complete when he issued his PCC on 2 July 2008; and despite the contrary view expressed by Mr Cocker in his 24 June letter, Mr Cocker accepted there was no reason to suppose that the matters outstanding at that date had not been attended to.
In any event, Mr Cocker accepted that all of the items identified from the inspections on 29 and 30 May and 19 June were minor matters, easily fixed. The only exceptions were the handrail and the functioning of the toilets. The handrail must, on the balance of probabilities, have been completed before the code compliance certificate was issued by the local authority on 1 July. The non‑functioning of the toilets was explained either on the simple basis that the water was turned off or because of the absence of the relevant operating buttons. On any view, this was not a significant issue.
We consider we are entitled to place weight upon Mr Dawson’s evidence in reaching our factual conclusions. Both Station and Fletcher Construction had sufficient confidence in his experience and ability to appoint him as the contract engineer for the purposes of the construction contract. He visited the site much more frequently than the representatives of the Leuschke Group and was in the best position to judge the state of completion of the project. We accept there were some slight differences in the definitions of practical completion for the purposes of the ASPs and the construction contract but our conclusion is one of substance rather than technical compliance with the strict definitions.
Events from July 2008 onward
On 15 July 2008 Mr McEwan wrote to each of the respondents. He said:
… we have been advised by our contractors that we now have practical completion and Code Compliance for the apartments at Bowen View. Therefore we are only waiting on the Issue of titles before we are able to call for settlement. We expect that titles may be available by 31st July 2008.
The letter went on to set out the amount required for settlement and advised that Station might be in a position to call for settlement in approximately three weeks time. Mr McEwan recommended that the respondents make immediate arrangements for any finance required to settle the purchase and to advise their solicitors accordingly.
On 22 July 2008, a solicitor employed by the McEwan Group (Ms Zamiri) wrote to the respondents advising, amongst other things:
Management/Operator
Select Hotels remain our operator of choice, however it is unlikely that any agreement will be reached before settlement is called for. The construction funder is not prepared to purchase furniture for the unsold units, which would leave the operator with insufficient units to run an efficient operation.
In terms of obtaining mortgage finance, this means the units will not be managed at the time of settlement. Purchasers will thus be able to borrow a higher percentage against valuation, but GST is payable on the purchase price. GST is payable because this was always designed and consented to be a managed complex and as such attracts GST. If a management agreement is put in place in the future, GST registered owners can claim GST back.
…
Furniture
We are still negotiating with the funder regarding those purchasers whose contracts included furniture packages.
Settlement Timing
Those investors who have committed to the purchase of a unit via a Sale and Purchase agreement should be well down the path of organising finance by now, in anticipation of settlement around mid August. The Sale and Purchase agreement specifies a period of 5 working days after the issue of the latter of: title, code compliance or practical completion.
Code Compliance and Practical Completion have been issued. Titles are currently being prepared – expected first week of August. The vendor’s solicitor will then call for settlement, with 5 days available to settle without incurring any penalty interest. Unless a magic bulk buyer is found very soon, the financier will require these investors to settle their obligations.
On 7 August 2008 Station’s solicitor, Mr Jeremy Goodwin of Carter Atmore wrote to the solicitors for each of the respondents enclosing a copy of the title, copies of the code compliance certificates and the Maltby’s PCC. The list of matters requiring attention as at 30 May prepared by Leuschke Group was not attached to the PCC. Mr Goodwin advised that the settlement date was 14 August 2008 and that a settlement statement would follow shortly.
On 13 August 2008, Ms Zamiri emailed Ms Ruediger (the Associate Director, Corporate and Property Finance within BOSI):
Before settlement notices can be issued, several outstanding issues need to be resolved.
These are:
1.Furniture packages – to be provided or credited?
2.Body Corporate – About Body Corporates is unable to accept our invitation to be the Body Corporate. We need to approach Strictly Body Corporates, however there needs to be an assurance that the Body Corporate levies will be forthcoming from the remaining unsold units.
3.Management agreement – purchasers need to know if there will be an operator in place or not. In particular this relates directly to Unit 26’s agreement.
4.Underwrite fees – will these be able to be credited on settlement?
5.1% purchasers fees – will these be able to be credited on settlement?
I would be grateful if you could clarify any or all of these issues for me. My understanding has been that you have been liaising with Steve [Groves] on some of the above but I haven’t been privy to any updates.
This email drew a stern response from Ms Ruediger on 21 August 2008:
BOS was not aware of any underwrite/purchaser fees nor was Tony Dawson who has confirmed that they were not included within the marketing & sales commissions budget.
Furthermore, the S&P agreements do not detail such fee arrangements.
Hence, no set off will be made at settlement. You should provide me with any “side agreements” (which agreements, you should note, will be in breach of BOS’ facility agreement given they were made without our prior consent) sooner rather than later – I need to know what we are potentially dealing with here and report the situation to HBOSA Credit. Needless to say, Credit will not be forgiving in this regard and we will be pushing back on any set offs claimed, to the legal extent that we can.
Station’s calls for settlement and the responses from the respondents
Station’s solicitors called for settlement by letters issued on 23 September 2008, 9 October 2008 and 10 October 2008 including the issue of settlement notices. Despite this, none of the respondents made any attempt to settle the transactions at any time, even after the appointment of receivers for Station.
Mr and Mrs Kumar
Much of Mr Kumar’s evidence on behalf of himself and his wife focussed on the alleged pre-contractual representations and his understanding that he had signed an underwriting agreement which would not require him to settle the ASP. His evidence was that it was not until receiving Station’s letter of 15 July 2008 advising that a call for settlement would be made about the end of that month, that he and his wife had any idea they were expected to settle the purchase of the apartment under the ASP. He and his wife decided that they should investigate whether “it would be a viable option for us to settle the purchase of the apartment and on-sell it to a third party, rather than to fight the plaintiff [Station] over its change of position”. They obtained a valuation on 13 August 2008, valuing the unit at $535,000, less than half the sale price under the ASP. Mr Kumar said that the valuation was so low that he and his wife realised that settling the purchase was not a viable option.
After Station’s second call for settlement in September 2008, Mr Kumar sent an email to Mr Groves of Station on 29 September 2008:
Our solicitor has been asked by your (Station Properties) solicitors to settle on Unit 24, Bowen View Apartments, Queenstown.
We had underwritten this apartment but note that Station Properties has made almost no effort to sell this apartment, particularly when the market was positive.
Nevertheless, as an attempt to find a compromise solution, we are able to settle and pay for this unit based on the attached valuation, i.e. our offer is $535,000 inclusive of GST, furniture package, and all other payments whatsoever (including any penalties, interest, etc.) but excluding Body Corporate levy and rates.
Please let me know if this is acceptable.
There does not appear to have been any direct response in writing to Mr Kumar’s proposal but it was never accepted. This was made clear on 9 October 2008 when Mr Goodwin wrote to the solicitors for Mr and Mrs Kumar calling for settlement and later issuing a formal settlement notice. In evidence, Mr Kumar said the key factors of concern to him were the alleged pre-contractual representations regarding his obligations to settle an ASP, the lack of effort by Station to sell the apartment at an earlier stage, the loss of value of the apartment and the fact that they could not afford to proceed. Although Mr Kumar made enquiries at earlier stages about the one per cent fee due to him, this did not feature in his written communication to Station. There was no reference to the furniture package or the management agreement and no suggestion the building work was incomplete.
Much later, on 2 June 2010 (after Station’s letter of 6 April 2010 cancelling Mr Kumar’s ASP), new solicitors representing Mr and Mrs Kumar wrote to Station’s solicitors purporting to cancel the ASP for breach of the obligation to pay the one per cent fee (amounting to $11,351.25 and due upon the first construction drawdown under the building contract). By then, on our view of the matter, the ASP had already been validly cancelled by Station.
It is not in dispute that if a party to a contract repudiates it by making it clear by words or conduct that he or she does not intend to perform the obligations under it, the opposite party may cancel the contract.[8]
[8]Section 7(2) Contractual Remedies Act 1979 and see the discussion in Burrows Finn & Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [18.2].
We accept Mr Tingey’s submission that Mr and Mrs Kumar clearly repudiated the ASP by refusing to recognise any obligation to settle and by offering instead to buy the apartment at the much reduced figure of $535,000. In doing so, Mr and Mrs Kumar were plainly evincing an intention not to proceed with the ASP in accordance with its terms or at all. Our conclusion in this respect is subject to any question of justification on the part of Mr and Mrs Kumar which we discuss below.
Mr Selwyn
Mr Selwyn’s evidence at trial bears a remarkable resemblance of that of Mr Kumar’s. He too dwelt at length on the alleged pre-contractual representations and expressed shock at being advised in Ms Zamiri’s email of 16 July 2008 that he would be expected to settle the purchase as soon as titles were available. This was, he said, the first time he had any reason to believe that Station expected him to settle the purchase of the apartment.
After receiving Mr Goodwin’s letter of 7 August 2008 calling for settlement, Mr Selwyn emailed Ms Zamiri on 8 August 2008 enquiring about the status of the deposit paid under the ASP and payment of the one per cent fee. Ms Zamiri responded on 11 August advising Mr Selwyn of the amount of the deposit held by Station’s solicitors and advising that, in respect of the one per cent fee, “it is likely that it may be able to be credited on your settlement statement”. Mr Selwyn replied on 13 August. He did not raise any issue about the suggestion that the one per cent fee be credited on settlement but asked that a detailed list of chattels (including the furniture package) be provided and put in place prior to settlement. There was no suggestion the works were not complete.
Mr Selwyn said he too decided to obtain a valuation to see whether it would be a viable option to settle the purchase and sell it to a third party rather than getting into a dispute with Station over what he described as “its change in position”. On 26 August 2008 Mr Selwyn obtained a valuation of the apartment at $615,000 (or about 60 per cent of the price under the ASP.
On 29 August 2008 Mr Selwyn emailed Ms Zamiri stating:
I regret to advise that based on extensive discussions with my legal advisor and banker, I will not be in a position to settle on the above property.
I have obtained an independent valuation from Colliers International who value the property at $615000 including GST compared to the original price of $11695781 incl GST. Of note in the valuation is the observation that “a number of the units in the development were sold at significantly higher levels off the plans two years ago. We consider these transactions were above the market at that time.”
The original intent of the contract was to onsell the apartments to an operator and this has not been done. Indeed, I understand that half of the apartments remain unsold.
Accordingly, because I believe that the developer has not complied with its obligations under the Contract, I now wish to rescind the contract. This is without prejudice to any remedies I may have against the developer.
Ms Zamiri responded on 10 September 2008 advising that Station did not accept the rescission and that a settlement statement would be forwarded as soon as Station was in a position to call for settlement.
Mr Selwyn’s solicitors confirmed by letters of 12 and 24 September 2008 that, by reason of alleged failure by Station to comply with its obligations under the ASP, Mr Selwyn considered the contract to be at an end. We note that no specific reference was made in Mr Selwyn’s email of 29 August or his solicitor’s letters the following month to the non payment of the one per cent fee or issues relating to furniture or the management agreement. Rather, as in Mr Kumar’s case, the focus was on the substantial drop in value of the apartments since the ASP was first signed and the failure by Station to on-sell the apartments to a third party.
Assuming the absence of any legal justification for his stance, we are satisfied that Mr Selwyn’s communications in August and September 2008 amounted to a repudiation of the ASP. He was clearly unwilling to proceed to complete the transaction and purported to rescind the contract.
Mr and Mrs Donaldson
Mrs Donaldson gave evidence on behalf of herself and her husband at trial. She said she became concerned after receiving the email from Station on 6 June 2008 that said, contrary to her previous understanding, she and her husband might be required to settle the purchase of the apartment. She and her husband obtained a valuation dated 9 July 2008 valuing the apartment at $595,000, a figure substantially lower than the purchase price under the ASP. Mrs Donaldson said that the valuation was obtained for the same reasons mentioned by Mr Kumar and Mr Selwyn in their evidence, namely to see whether settling and on-selling the apartment would be a viable alternative rather than entering a dispute with Station. However, once the valuation was obtained, Mr and Mrs Donaldson accepted that settling and on-selling was not realistic.
Mrs Donaldson said she had several conversations with representatives of Station including Mr Groves and Ms Zamiri. In late June 2008, she said Mr Groves informed her that it did not seem likely that a third party would purchase the entire development and that she and her husband would be required to settle the purchase. Despite Mrs Donaldson protesting that they had not agreed to settle the purchase, Mr Groves informed her they would need to do so if called upon.
Following this discussion and after receipt of the letter from Station of 15 July 2008 suggesting that settlement about the end of July 2008 was likely, Mrs Donaldson telephoned Ms Zamiri. She told Ms Zamiri that, as underwriters, they never agreed to settle the purchase of an apartment and could not afford to do so even if they had wanted to. She said Ms Zamiri told her that “things were going crazy there, that we should sit tight, that we should not settle”. Ms Zamiri confirmed in her evidence for the respondents at trial that matters were in disarray at Station during this period and that there were financial difficulties. It was for that reason that she told Mrs Donaldson to “sit tight” but she did not agree that she told her categorically not to settle. She accepted she might have told Mrs Donaldson not to settle at that particular time because settlement statements had not been issued and because of other difficulties over matters such as the furniture packages and the fees due to the respondents.
Mrs Donaldson accepted in cross-examination that Mr Groves had told her she had to settle and of course she knew she was being required to settle as soon as Station’s solicitors began demanding settlement.
Mrs Donaldson said she also raised concerns with Mr Groves about the failure to pay the one per cent fee and the failure to arrange the promised furniture package. She also referred to errors in the settlement statement issued by Station’s solicitors in September and October 2008. At one point, a deduction appeared to have been made from the price to allow for the value of the furniture/air-conditioning package but, at a later stage, this was adjusted to reflect the full purchase price for the apartment. Like the other respondents, it was never suggested by the Donaldsons that the building work was incomplete.
Mrs Donaldson said that she and her husband did not wish to own an apartment in Queenstown. If they had wished to do so, they would have purchased an apartment outright rather than entering into an “underwriting” agreement which she understood would not require them to settle. They could not afford to purchase the apartment which, by the time of settlement, was valued at a significantly lower figure than the purchase price Station was asking them to pay.
In cross-examination, Mrs Donaldson acknowledged that she and her husband had never made a written offer to settle at a price that made allowance for the one per cent fee and the failure to deliver the furniture and a management agreement. Although she said she had told Mr Groves she was willing to discuss the matter, that did not occur. Ultimately, Mrs Donaldson acknowledged in her evidence that even if Station had offered to settle at a discount to reflect the one per cent fee and a discount for the furniture, she and her husband would not have been willing or able to settle the purchase. She volunteered that she and her husband never had any intention of settling even if Station had offered a discount for those matters.
We are satisfied that Mr and Mrs Donaldson clearly demonstrated that they had no intention of completing the ASP even if some allowance had been made for their matters of complaint with regard to the one per cent fee and the furniture package. The factors of concern to them were undoubtedly their belief that they were not obliged to settle the ASP; their appreciation (late in the piece) that they were being required to settle; and the intervening significant drop in the market value of the property which meant it could not be on-sold and that they could not afford to buy it. These factors, combined with the continuing failure by the Donaldsons to respond to subsequent calls for settlement and the settlement notices issued by Station confirmed Mrs Donaldson’s frank acknowledgement in her evidence at trial.
Subject to any issue of legal justification, we are satisfied the Donaldsons repudiated the transaction.
Was there any justification for the respondents’ repudiation of the transactions?
In cases of repudiation of contract, it may be doubted that issues of justification are directly relevant[9] except to the extent they may bear upon whether the cancelling party was ready, willing and able to perform the contract and was not itself in material breach.[10] Ms Kelly advanced four matters on behalf of the respondents which she submitted justified the respondents’ refusal to proceed with the transaction.
The PCC issue
[9]Compare cancellation for breach where s 7(3) and (4) of the Contractual Remedies Act apply.
[10]The issue of materiality was recently discussed by this Court in Pimlico Properties Ltd v Driftwood Developments Ltd [2009] NZCA 523 at [31].
The first is the PCC issue we have already discussed. It is clear that the lack of a PCC issued by Leuschke Group in conforming with the ASPs did not emerge until shortly before the trial in the High Court. Ms Kelly explained that it was not until after discovery that the Leuschke Group letter of 24 June 2008 was made available. The contract provided that someone else could be nominated to provide the PCC and she said it was not appreciated that this had not occurred.
However, we consider all this is beside the point. There was no suggestion during the time Station was calling for settlement in 2008 that, as a matter of fact, the apartments were not substantially completed in accordance with the plans and specifications. Even now, there is no evidence that any specific items remained to be completed.
Given our factual conclusion that the complex was in fact substantially complete by no later than mid-July 2008, there is no basis to suggest that Station had not completed its obligations under the ASP to construct the apartments generally in accordance with the plans and specifications appended to the contracts. While the date for settlement could only be triggered by the issue of the PCC, its absence does not have the significance attributed to it by the Judge. On our view of the matter, the respondents had repudiated the ASPs before the time for settlement had arrived. We have no doubt that if the respondents had been willing to settle and had raised the absence of a PCC that complied strictly with the technical terms of the contract, Station would have obtained the appropriate PCC and tendered it on settlement.
The one per cent fee
The second matter relied upon by the respondents is the admitted failure by Station to pay or offer the one per cent fee. This payment was offered as an incentive to the respondents to enter the ASPs, but it was, in the scheme of things, a relatively minor matter. In dollar terms, the amount due to Mr and Mrs Kumar was $11,351; for Mr Selwyn it was $10,396; and it was $8,801 for the Donaldsons. We accept on the evidence that these amounts could not have been paid in cash by Station and that it was very unlikely that BOSI would have been prepared to advance further cash to enable the payments to be made. However, we find it inconceivable in commercial terms that Station and BOSI would not have agreed to the relevant sums being credited against the purchase price at settlement as envisaged in cases such as the recent Supreme Court decision in Property Ventures Investments Ltd v Regalwood Holdings Ltd.[11] Station’s receiver Mr Graham confirmed that, post‑receivership, he would have readily agreed to give credit for items such as this if the respondents had been willing to proceed with the purchase.
[11]Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231 at [61]–[69] of the majority judgment discussing equitable set-off in relation to an agreement for the sale and purchase of land.
Contrary to the view reached by the Judge, we are not persuaded that this issue was material or substantial.
The furniture package
We reach a similar view with regard to the furniture. Mr Groves gave extensive evidence about the steps taken by him to secure furniture packages in accordance with Station’s obligations. He accepted, however, that although the furniture was available, it was neither installed nor paid for. It could not have been acquired without funding by BOSI which he said would not be forthcoming. Mr Groves’ evidence was that it made no sense to acquire the furniture if the respondents were not willing to proceed with the ASPs.
Again, we are satisfied that, if the respondents had been ready, willing and able to settle the transaction, a deduction of $30,000 from the purchase price would have been the obvious and appropriate way to deal with this issue. We respectfully differ from the Judge on this issue. We are satisfied that this issue was not material or substantial.
The management agreements
The final matter advanced by Ms Kelly was the failure to obtain the promised management agreements. Mr Groves gave evidence on this subject to the effect that management agreements were available but did not proceed for the same reasons as those he gave in respect of the furniture. We accept that Station had nominated a manager but the arrangement was not in place at the time settlement was called for or at any later time before Station cancelled for repudiation by the respondents.
Even assuming, contrary to Mr Tingey’s submission, that the obligation was to actually have a management agreement in place, we find ourselves in disagreement with the view of the Judge that this was a material factor. We are satisfied on the evidence that, had the respondents been willing to proceed with the transactions, it would have been a simple matter for a management contract to have been put in place or for an appropriate allowance to have been made against the purchase price.
Ms Kelly submitted that the failure of Station to provide a management contract meant that the respondents became liable to pay GST on the purchase which they would not have had to pay if the apartments had been sold as a going concern. However, we accept Mr Tingey’s submission that the purchasers were always obliged to pay GST on the purchase price. The ASPs provided expressly for the payment of GST in addition to the price. The purchase could not be zero-rated for GST in terms of s 11(1)(m) of the Goods and Services Act 1985 (the GST Act) since the respondents were not registered for GST purposes and the ASPs contained no agreement to sell as a going concern.
The only question therefore is whether the respondents could later recover the GST they were bound to pay on settlement. We accept Mr Tingey’s submission that the respondents could have recovered the GST subsequently under s 20 of the GST Act if they had entered a management agreement under which the units were leased and if they had become registered for GST. This could have been achieved after settlement so long as they had intended to purchase the units for the principal purpose of leasing them thereby qualifying as a “taxable activity” in terms of s 6 of the GST Act. On the evidence, none of the respondents intended to personally occupy the units and all understood the apartments would be leased under a management agreement. The recovery of GST could have occurred promptly so that any interest costs on borrowing to pay the GST would have been immaterial.[12]
[12]In terms of s 15 of the GST Act, the taxable period could have been as short as one month.
We conclude that none of the matters relied upon as justifying the respondents’ refusal to proceed with the ASPs, whether taken singly or together, constituted a material or substantial breach which could have justified the respondents not proceeding with the transactions.
The sunset clause
Ms Kelly submitted that the respondents were entitled to rely on the sunset clause at any time after 13 March 2009 and cancel the contract. She submitted the respondents had done so by giving notice in writing when they filed their notice of opposition to the summary judgment application on 9 June 2009.
We do not accept that submission. The notice of opposition pleaded breach of fiduciary duty by Station, unconscionable conduct, breach of s 9 of the Fair Trading Act and misrepresentation relying on the Contractual Remedies Act. The relief sought was for orders that the respondents were entitled to rescind their contracts or that Station was estopped from enforcing the contracts, a declaration that the contracts were void, and damages. The claim for damages was clearly inconsistent with any reliance on the sunset clause. It gave only a right to cancel the contract. We conclude that the notice of opposition did not purport to cancel the contracts or to rely on the sunset clause. And, as we next discuss, Station was ready, willing and able to proceed with its primary obligations. The sunset clause could not therefore be triggered.
Was Station ready, willing and able to proceed with the transactions?
With the exception of the four matters we have just dealt with, there is no question that Station was ready, willing and able to complete the transactions from the time when the titles were issued shortly before Mr Goodwin’s letter to the respondents of 7 August 2008. We accept that Station’s actions from July 2008 onwards indicated that it was not intending to honour the side agreements. The Judge found they were bound to do so and that is no longer challenged. But, for the reasons already discussed, if those matters had been raised as barriers to settlement of the transactions which the respondents were otherwise willing to perform, they could have been easily resolved by the means already discussed.
Station was at all relevant times ready, willing and able to fulfil its primary obligation to transfer the completed apartments to the respondents in exchange for the price. The side agreements were just that. They were entirely ancillary to Station’s principal obligation and could have been fulfilled or otherwise satisfied if the respondents had been willing to proceed.
Given the respondents’ repudiation of the ASPs, Station was entitled to cancel the contracts immediately or to keep them on foot and cancel later if the respondents continued to repudiate the contracts.[13] The receivers adopted the second option after their appointment and called on the respondents once more to complete their obligations or face cancellation and a claim for damages.[14]
[13]As per Ingram v Patcroft Properties Ltd [2011] NZSC 49, [2011] 3 NZLR 433 at [24] and [26].
[14]See Burrows Finn & Todd, above n 8, at pp 708–709.
In these circumstances, Station was not obliged prior to cancellation to meet its obligations under the side agreements if to do so would be futile.[15] Since the respondents had all made it very clear they were not intending to complete the transactions for reasons quite unrelated to the terms of the side agreements, there was no point in fulfilling the side agreements at that stage.
Conclusion on the contractual issues
[15]Ingram v Patcroft Properties Ltd, above n 12, at [41].
For the reasons given, we are satisfied that Station was entitled to cancel for repudiation of the contracts by the respondents and to recover damages for its losses. As Mr Tingey acknowledged, Station would be required to make appropriate allowance for its failure to pay the one per cent fee or to provide the furniture and the management contract.
Was there any basis for the Judge’s conclusion in relation to Mr Kumar’s affirmative defence?
All respondents sought relief in the High Court on the basis of the pre‑contractual dealings they had with Station or its various representatives. The Judge found that the Donaldsons and Mr Selwyn based their view that they had no obligation to actually purchase a unit mainly on various representations made in other documents outside the terms of the written ASPs but which the Judge had found formed part of the overall contractual arrangements. The Judge concluded that he must exclude as inadmissible the claims by the respondents that they did not believe they were agreeing to arrangements which might require them to actually settle the purchase of the apartments. The Judge considered that the representations they relied upon could not stand with the terms of the ASP.[16] There is no cross‑appeal against that finding.
[16]At [83].
As already mentioned, the Judge did not find it necessary in view of his other findings in favour of the respondents to consider the affirmative defences. However, based on the evidence of Mr Charlett, the Judge concluded that, if it had been necessary to do so, he would have granted Mr Kumar remedies under the Contractual Remedies Act so as to relieve him of the obligations to Station he would otherwise have had.
In that respect, the Judge accepted Mr Charlett’s evidence that he told Mr Kumar that investors who entered underwrite agreements would not be compelled to settle the transactions under any circumstances. Mr Charlett said in evidence that he believed that this was the case since Mr McEwan had assured investors of this.
We are satisfied that there is no basis to support the Judge’s obiter finding on this issue. There could be no claim under the Fair Trading Act on the basis of misleading or deceptive conduct because there is no evidence that Mr Charlett did not genuinely believe that what he told Mr Kumar was correct. No doubt he had in mind that the property would be on-sold before Mr Kumar was required to complete. He was not making any representation of present fact. Rather, he was making a statement on behalf of Station of its future intentions which he genuinely believed to be true.
The only basis upon which Mr Kumar’s affirmative defence could have succeeded is that the representation made by Mr Charlett became a term of the contract. However, it is clear that a defence based on an alleged oral term is not available where that term would contradict the written agreement subsequently entered into: Krukziener v Hanover Finance Ltd[17] and Hickman v Turn and Wave Ltd.[18]
[17]Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [34]–[36].
[18]Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 318 at [213]. Although this decision was reversed by the Supreme Court on other grounds, that does not affect the observations made by this Court on this issue.
We accept Mr Tingey’s submission that the representation relied upon is inconsistent with the contents of the written ASP executed by Mr and Mrs Kumar some 12 months after the conversation with Mr Charlett took place. Plainly, the Kumars were obliged under the terms of the ASP to settle the purchase when called upon to do so.
Ms Kelly sought to persuade us that Mr Charlett’s representation that Mr Kumar “would” not be required to settle was consistent with the gazump clause (cl 37.1 of the ASP). She submitted that this gave Station the option of cancelling the contract, in which case the respondents would not be required to settle. We are not persuaded this argument has any substance. The gazump clause clearly gave Station an option to cancel the contract without notice at any time if it chose to do so. Mr Charlett’s statement that Mr Kumar would not be required to settle under any circumstances clearly negated Station’s right to cancel under cl 37.1 at its discretion. As such, the oral representation made by Mr Charlett contradicts cl 37.1 and could not give rise to any affirmative defence under the Contractual Remedies Act or otherwise.
Summary and disposition
We have found for the reasons given that the appellant was entitled to cancel the transactions at issue for repudiation by the respondents.
In formal terms:
(a) The appeal is allowed.
(b)It is declared that the appellant was entitled to cancel the transactions on the grounds of repudiation by the respondents.
(c)The case is remitted to the High Court for determination of the damages issue.
(d)The respondents jointly and severally must pay costs to the appellant as for a standard appeal on a Band A basis with usual disbursements. We certify for second counsel.
Solicitors:
Bell Gully, Auckland for Appellant
Staley Cardoza, Dunedin for Respondents
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