Station Properties Ltd (in rec) v Kumar
[2012] NZHC 1527
•29 June 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-354 [2012] NZHC 1527
BETWEEN STATION PROPERTIES LIMITED (IN RECEIVERSHIP)
Plaintiff
ANDVIKRAM KUMAR AND NIRUPAMA KUMAR
Fourth Defendants
ANDROBERT JAMES SELWYN Fifth Defendant
ANDMICHAEL DONALDSON AND PATRICIA BRONWYN DONALDSON Sixth Defendants
Hearing: 12, 13, 14, 15, 16 and 20 September 2011
Supplementary submissions: 27 September 2011
Appearances: J Cooper and S East for Plaintiff
R Kelly and K Jarvis for Fourth, Fifth and Sixth Defendants
Judgment: 29 June 2012
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 29 June 2012 at 5:00 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors:
S East, Bell Gully, AucklandCopy:
J Cooper, Barrister, Auckland
R Kelly, Barrister, DunedinK Jarvis, Barrister, Dunedin
STATION PROPERTIES LIMITED (IN RECEIVERSHIP) V KUMAR & ORS HC AK CIV-2009-404-354 [29
June 2012]
Table of Contents Paragraph
Number
Introduction [1] Terms used in this judgment [4] Factual background leading to contract [6] Subsequent events [23] Call for settlement, failure to settle [27] Pleadings [30] The plaintiff’s claim [30]
The defendants’ arguments [32]
What documents provided the terms of the contracts? [37]
Was there any effective distinction between acts done on behalf of SPL and acts done on behalf of the McEwan Group and Forum Select?
[38]
What documents and terms comprised the contracts? [46]
Conclusion as to what the contract comprised [75] What was the effect of the gazump clause? [76] Did the Settlement Date arrive? [87] Conclusion as to whether the Settlement Date arrived [112]
Was the plaintiff ready, willing and able to settle? [114] The sunset clause and the variation agreement [130] The affirmative defences [133] Outcome [140] Costs [143]
Introduction
[1] The plaintiff, Station Properties Limited (“SPL”), prior to its being placed in receivership, was the developer of a property know as Bowen View, an apartment complex in Queenstown. The defendants were all investors who entered into sale and purchase agreements to buy apartments in Bowen View.
[2] SPL called upon the defendants to settle the purchase of their apartments. They refused and the agreements have since been cancelled. SPL now seeks damages from the defendants in relation to the cancellation of those agreements and the resale of the apartments.
[3] This judgment deals with the liability of the defendants to SPL in damages. The proceedings as they relate to the other original defendants have been discontinued and those parties have taken no further part in this case.
Terms used in this judgment
[4] It will become clear that there is a fundamentally significant dispute between the parties as to what documents comprised the binding contract between them and, consequently, what the terms of the contract were. The plaintiff asserts that the terms of contract were confined to those set out in the sale and purchase agreement provided to each of the defendants under cover of a letter dated 20 September 2005. In the agreements they received, the defendants identified, by a hand-written insertion, the unit in the Bowen View development in respect of which they wished to contract, signed the document, and returned it to the plaintiff. The defendants assert that the contracts comprised the sale and purchase agreements they signed, and the documents they received with it by mail.
[5] For clarity, I refer in this judgment to what I find to be the contract between the parties as “the contract” and to the individual document headed “Bowen View, Queenstown Sale & Purchase Agreement” as “the sale and purchase agreement”.
Factual background leading to contract
[6] Between 2001 and 2004, the fourth defendants (“the Kumars”), the fifth defendant (“Mr Selwyn”) and the sixth defendants (“the Donaldsons”)1 became involved with Investors Forum NZ Limited (“Investors Forum”). Investors Forum purported to provide investment education, professional service referrals and residential investment property sourcing services. The Kumars and the Donaldsons paid membership fees to ‘join’ Investors Forum. Mr Selwyn did not pay a membership fee but signed up to the forum and attended meetings and seminars. The Investors Forum held property investment seminars run by Dan McEwan which
the defendants attended at various times and locations. The seminars were a mixture of advice, information and promotional material about property investment.
[7] According to the evidence of the defendants, Dan McEwan was a somewhat charismatic figure who impressed on them his experience, and success, in the property development business. They were encouraged by Mr McEwan to place their trust in him.
[8] Mr McEwan explained to those who joined Investors Forum or attended his seminars that he had a network of trusted advisers (lawyers, mortgage brokers and financiers) who were professionals with the expertise necessary to understand his investment techniques. The defendants say they were actively discouraged from taking advice from people outside the McEwan network.
[9] Among the investment concepts promoted by Mr McEwan in his role of what the defendants considered to be a mentor and adviser was the concept of underwriting. While Mr McEwan, it seems, did not explain the concept in too much detail, it was promoted as an alternative to purchasing in that it would amount to a short-term, low risk investment which required relatively low outlay.
[10] The defendants, through their association with Investors Forum, received a number of offers to invest in property development schemes. In October 2004, the
defendants were offered redeemable preference shares in a company called Forum
1 Referred to collectively as “the defendants”.
Select Bowen View Limited (“Forum Select”). The money raised by Forum Select was to be used to invest in the plaintiff, SPL, which had been incorporated in October 2003 and of which Dan McEwan was, by October 2004, a director.
[11] The object of Forum Select’s investment in SPL was the development of the Bowen View apartment complex on the corner of Kent Street and Edgar Street in Queenstown. Each of the defendants paid $72,000 for nine redeemable preference shares in Forum Select. The defendants were, by virtue of their shareholding in Forum Select, to share in the profits generated by the construction and sale of the Bowen View complex.
[12] From the proceeds of its share sales, Forum Select made advances to SPL which, in return, issued non-voting A-shares to Forum Select. These advances were secured by a General Security Agreement which ranked for payment behind SPL’s bank debt. Using both the Forum Select advances and money raised from the bank, SPL acquired the land for the Bowen View development from another McEwan company, in October 2004.
[13] By September 2005, however, SPL had run into difficulties in obtaining the finance needed to begin construction of the complex. The proposed funder was Bank of Scotland International (“BOSI”), based in Australia. In order to obtain the requisite loan at a lower interest rate, it was proposed that shareholders in Forum Select would either buy outright or underwrite units in Bowen View. This proposal was communicated to the defendants, amongst others, by email on 20 September
2005 (“the 20 September email”).
[14] The email was sent by Natasha Addis of the McEwan Group and “signed” by Kelly and Dan McEwan. It informed the recipients that they had been sent documents concerning an agreement for sale and purchase, and set out the details of the two proposed options in the following terms:
Progress
Construction cost – The project has been ready to start for a couple of months, however we have been strategically holding back on pricing the construction as construction prices are easing in Queenstown. As the McEwan Group has a significant number of developments in Queenstown, some of which are completing, we are aware that an excess supply of
resources are coming available and predict that benefits will be gained. Commencement – We have set the start date for directly after Christmas,
which means that marketing runs from now until completion of the units and
we are to start on the construction contract now.
Finance – The current finance facility expires on the 8th of October and we require some sales to secure a lower interest loan.
Layout – We have managed to include several more apartments in the fabric of the building providing more income. 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 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 [passed] onto the company at cost plus 10%
- we will fly to Italy and import the majority of these items.)
Purchasing
As a shareholder in the project, you are not required to pay a deposit and are encouraged [to] purchase a unit, provided it is done in the priority you invested (This is in place until 10th October, as delays in this process cost money. It is in everyone’s interest to move on with the project).
As an incentive to purchase, the project will pay a 1% purchasers fee (of the unit price only), pre settlement.
You can purchase in one of two ways;
1) Buy outright (you must delete the last special condition, clause 37.1 (cancel at anytime clause). This will allow all future gains to be yours with this investment unit which can’t be sold until after completion.
E.G. * Value
Unit say $700,000
Furniture + Aircon $30,000
Growth (assume 10%) $70,000
Value upon completion $800,000
Profit (pre Tax)
Development $85,000 - * estimation only for a $72,000 share)
Purchaser’s Fee $7,000
Growth $70,000 - * historical evidence shows this
Total $162,000
2) Buy as an underwrite with the intention of the company selling. A “Gazump clause, Clause 37.1” has been inserted into the contract. This clause allows the development company to cancel your contract at any time. The purpose of this is if we can sell the unit for the same or more value this will benefit the project (this is at the companies discretion). The project will split the difference 50/50 with the original purchaser. This secures the project funding and as future sales occur increases the values. Contracts with a gazump clause are not unconditional we pay no sales commission – this commission is only paid to the final purchase sales person. When an
offer is made you may either go unconditional on your purchase or agree for us to cancel the agreement and sell sharing the profit.
E.G. * Value
Unit say $700,000
Furniture + Aircon $30,000
Growth (assume 10%) $70,000
Value upon completion $800,000
Profit (pre Tax)
Development $85,000 - * estimation only for a $72,000 share)
Purchaser’s Fee $7,000
Sold half way $17,500 – split 50/50 assuming 10% growth and sold midway through construction.
Total $109,500
As there are only limited units available we urge you to make a prompt decision. Sales of units confirms;
Profits
Development funding
Secures today’s development costs
Enable the refinance of land required in 3 weeks to enable works to start. Secures 6th January commencement date.
Please call us with any questions. Kelly and Dan McEwan.
[15] Documents listed in the email were sent to investors, accompanied by a letter dated 20 September 2005 (“the 20 September letter”). That letter, which was on McEwan Group letterhead and “signed” by “Station Properties Limited (Land owning company)”, enclosed a sale and purchase agreement; a brochure; a price list; and a set of instructions for completion of the agreement for the Bowen View units.
[16] The 20 September letter read:
This letter should be held on your personal file and is for reference purposes for the intention/direction of the development.
On the basis that you are either a shareholder in the vendor company or a shareholder in Forum Select Bowen View Limited, we confirm that any reference in the sale and purchase agreement to your deposit is hereby varied to provide that the total deposit to be paid by you is one dollar only.
The vendor company also confirms that it will not be in a position to commence construction until it has made arrangements with lenders in respect of the balance of the deposit that would otherwise be payable. This arrangement may well require you to assign your rights to your RPS and
associated monies received thereafter for a sum equal to the normal 10% deposit, that would otherwise be payable for their security purposes. We have had discussions with a lender and this may not be a requirement but need to warn you that it may.
If we are unable to enter into such arrangements with your co-operation the economic viability clause will be revoked and you would not have any obligation to settle under the sale agreement.
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 a 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 shareholder 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 the income would be pooled or tied to each unit. If pooled this would require a prospectus.
Please complete and sign in duplicate your sale and purchase agreements in order to secure your investments. An instruction sheet is attached to help you complete this document.
Please feel free to call the offices for assistance on 09 921 5060 or
09 921 5068.
Station Properties Limited (Land owning company)
[17] A follow-up email was sent to investors by Natasha Addis on
10 November 2005 (“the 10 November email”). That letter gave investors a further update as to progress and also indicated that further investors were needed to buy or underwrite apartments. The email, purportedly “signed” by Kelly McEwan, disclosed that three further sales would be necessary to achieve the minimum of
11 sales which would trigger the release of the first tier of funding from Bank of Scotland and enable working capital to fund consultancy and marketing fees. The email indicated that five further sales, in respect of which a 10 percent deposit or bond would be paid, would be required to trigger the second tier of full construction funding.
[18] It was said in the 10 November email that the developers were in talks with potential building managers. The indicative term sheet containing the terms of the loan offer from BOSI was attached to the email, together with a valuation report dated 7 November 2005.
[19] Each of the defendants ultimately agreed to take up the underwrite option offered in the 20 September email in respect of units priced between $880,000 and
$1.3 million. They signed and returned the sale and purchase agreements to SPL. Mr Selwyn did so in October 2005, prior to the follow-up email from Natasha Addis, while the Donaldsons and Kumars did so in February and April 2006 respectively.
[20] As all of the defendants were Forum Select investors, they were required to pay a deposit of only $1.
[21] As the 20 September email intimated, the only difference between the sale and purchase agreements the defendants signed and the version which would have facilitated outright purchase was that the defendants did not delete clause 37.1. That clause was referred to between the parties, and in argument before me, as ‘the gazump clause’. It is the clause by which the underwriting arrangement is said to have been given contractual efficacy and reads:
Notwithstanding 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.
[22] Also included in the sale and purchase agreement, under the heading “Further
Terms of Sale” were the following relevant provisions:
(a) A sunset clause (cl 26), which provided that if the project was not complete by 20 December 2007, either party was able to cancel the agreement by notice, in which case the purchaser would be entitled to the refund of the deposit together with any accrued interest, and neither party would have any right of claim against the other.
(b)A clause headed “Purchaser’s Acknowledgement” (cl 33.1) (“the entire agreement clause”) which provided, so far as is relevant:
The purchaser enters into this agreement entirely in reliance on the purchaser’s own judgement and not in reliance upon any statement, representation, advertising brochures or warranty made by the vendor or the vendor’s agent ... The purchaser acknowledges that this agreement constitutes the entire agreement between the parties.
Subsequent events
[23] Further issues securing the requisite finance delayed the beginning of construction. The prospective lender, BOSI, required certain conditions to be met. Consequently, in August 2006, Edgar Street Construction Limited, SPL’s joint venture partner in the construction, wrote to Forum Select investors/underwriters, including the defendants, informing them that if the project was to proceed they were required to agree a variation of the sunset date in the sale and purchase agreements and payment of a further deposit.
[24] The variation “required” of the defendants was the deletion of clause 26.1
(the sunset clause) and its replacement by a provision which read:
26.1If the vendor is not ready, willing and able to settle this Agreement on or before the period of 12 months from and including the Estimated Completion Date, then either party may, by notice in writing at any time thereafter, cancel this Agreement and the purchaser shall be entitled to return to the return of the deposit together with Net Interest accrued and neither party shall have any right of claim against the other.
[25] A related amendment to clause 14.1 was the insertion of a definition of the
Estimated Completion Date, as follows:
(12) “Estimated Completion Date” means the Estimated Completion Date determined at the date of the initial drawdown of funds for the Works by the Quantity Surveyor for the Vendor’s primary funder.
[26] The defendants signed the necessary variations and the Kumars and Mr Selwyn paid the further deposits. Construction of the complex eventually began in September 2006.
Call for settlement and refusal to settle
[27] In mid-July 2008, the defendants each received letters from Forum Select signed by Dan McEwan. The letter advised that the titles for the development were expected to be ready by 31 July 2008 and that, once those titles had been issued, Forum Select would be calling for settlement.
[28] Subsequently, in early August 2008, SPL wrote to the defendants’ various solicitors enclosing both a settlement statement and a certificate of practical completion (dated 2 July 2008). Further settlement statements were sent by SPL through September and October 2008. The defendants were not prepared to settle. Each of them had obtained independent valuations of their respective apartments and found that the apartments were valued substantially below the purchase price.
[29] In February 2009, SPL issued proceedings against the defendants seeking orders for specific performance. When SPL was placed into receivership in April 2009, the receivers continued to pursue the defendants, initially for specific performance and, following the cancellation of the agreements, for damages.
Pleadings
The plaintiff ’s claim
[30] The plaintiff relies on the terms of the sale and purchase agreement alone. It says that, when it called upon the defendants to settle, it was ready, willing and able itself to settle, having fulfilled or being willing and able to fulfil all of its obligations, and the construction having been certified as practically complete. It claims that the continuing failure of the defendants to settle their respective agreements amounted to repudiation of those agreements and that the plaintiff was entitled to cancel each of the agreements in April 2010.
[31] The plaintiff says it is entitled sue for damages to compensate it for the loss it claims to have suffered as a consequence. In each case, the damages claimed are the difference between the agreed sale price and the resale price actually achieved upon resale, plus contractual interest (at the rate of 15%) from the original Settlement Date.
The defendants’ arguments
[32] The defendants maintain that the Settlement Date never arrived, because the plaintiff never obtained a certificate of practical completion in terms of the contracts, and that consequently the plaintiff was not entitled to call upon them to settle.
[33] The defendants say, further, that the terms of the contracts included not only the provisions of the sale and purchase agreement, but also incorporated the terms of the 20 September email (which foreshadowed the delivery of the sale and purchase agreement) and other documents which accompanied the agreement, namely, the
20 September letter; the agreement instructions; the brochure; and the price list.
[34] The defendants say that, as at the Settlement Date, the plaintiff was not ready willing and able to settle because:
(a) items comprising the furniture and air-conditioning/heating packages which had been promised had not been supplied;2
(b)the plaintiff had not paid, and was not in a position to pay, the one percent purchase fee which was due to be paid prior to settlement; and
(c) a management agreement had never been entered into.
[35] The defendants say that the plaintiff’s purported cancellation of the contracts on the grounds of alleged default by the defendants amounted to repudiatory conduct and that the defendants successfully cancelled their contracts as a result.
[36] Furthermore, the defendants maintain that there are a number of affirmative defences which they can call upon. They allege that Dan McEwan breached a duty of good faith which he owed them; that it would be unconscionable to enforce the
bargain; and that they were induced to enter the contracts by misrepresentations.
2 Although the defendants’ conceded at the hearing that the air-conditioning had in fact been installed in each unit.
What documents provided the terms of the contracts?
[37] Apart from the issues in relation to the plaintiff’s demands for settlement, the principal area of dispute between the parties is the question of what provisions of which documents constituted the contracts between the plaintiff and the defendants. This issue should be resolved first.
Was there any effective distinction between acts done on behalf of SPL and acts done on behalf of the McEwan Group and Forum Select?
[38] There is a sub-issue to be determined in making findings as to the documents which comprised the contracts and the terms and conditions at issue, namely, whether what was done at any relevant time was done by or on behalf of SPL, the plaintiff, or whether it was done independently of SPL by the McEwan Group, Investors Forum or Forum Select as separate entities. If the latter, any undertakings given by or on behalf of those entities would not be binding on the plaintiff.
[39] The totality of the evidence, including the correspondence which emanated from various persons engaged by entities in the McEwan Group, satisfies me that it would be commercially unrealistic to draw a nice distinction between the legal entities who were involved in the Bowen View Development, so far as their activities relate to the entering into of the contracts by the defendants.
[40] First, there was no evidence that SPL had any management or staff not employed by the McEwan Group and its constituent enterprises. The 20 September letter, for example, though purportedly “signed” by SPL was on McEwan Group letterhead. Further, in the 20 September email setting out the reasons for the offer to the defendants to acquire units from SPL, Kelly McEwan and Natasha Addis of the McEwan Group discussed and explained proposed arrangements which were clearly related to SPL. These included the $1 deposit which replaced the standard requirement for a 10 percent deposit; the air-conditioning and furniture packages, the cost of which formed part of the purchase price; and the payment of the one percent purchaser’s fee which was tied to the price to be paid for the relevant unit.
[41] Similarly, it is plain that the ownership of shares in Forum Select was mingled with the obligation to pay a deposit to SPL in a way which makes it clear that SPL was merely a vehicle for the implementation of the project. I am more than satisfied that, at all times, Dan McEwan, Kelly McEwan, Natasha Addis and all of the other persons engaged by McEwan Group companies in the project were acting as the agents of SPL at times which are relevant to this proceeding.
[42] Taking this view does not involve lifting SPL’s corporate veil; it is simply a matter of recognising the commercial reality and the fact that SPL was not in an arm’s length relationship with the McEwan Group. It was operated by those who were deeply involved in all aspects of the administration of the Bowen View project as a whole.
[43] That this conclusion is justified is corroborated, in my view, by the terminology of the correspondence. I note, for example, that where the
20 September email refers to the purpose for the gazump clause, and the prospective sale of units, the pronoun “we” is used in a sense indicating that the authors of the email were the vendors or representatives of the vendor. The vendor could only be SPL. Similarly, the reference in the email to the borrowing requirements (under the heading “Finance”) also includes the pronoun “we” in relation to the securing of a lower interest loan. The borrower was SPL, not Forum Select, as the BOSI term sheet shows.
[44] I refer also to the email sent to the Kumars on 16 August 2006, by Natasha Addis, relating to the variation agreement. That email concerned a demand that the Kumars should make a further deposit payment, an obligation which could only have been owed to SPL as the vendor of the units.
[45] Further, the 20 September letter from SPL covered much the same topics as the email, and complemented it.
What documents and terms comprised the contracts?
[46] Against that background, I turn to consider whether the contract which the plaintiff sought to enforce and on which it sues included more than the document headed “Bowen View, Queenstown Sale & Purchase Agreement”.
[47] In this respect, the plaintiff asserts, relying on the entire contract clause, that the contract comprised exclusively the sale and purchase agreement which, the plaintiff says, comprised a number of pages stapled together and which was included in the package of documents sent to the defendants under cover of the
20 September letter.
[48] There is an evidential difficulty for the plaintiff in this proposition in that not all of the pages of the documents produced in evidence were signed or initialled by the parties or their representatives, and there was no evidence as to which pages were stapled together, by whom, and when.
[49] In the case of the Donaldsons, what I infer to be the signatures of Mr and Mrs Donaldson appear on the second page of the “Summary and Execution” section of the agreement, and their initials appear on the first page. They do not appear to have signed any other page apart from some, but not all, of the plans which the plaintiff said formed part of the agreement. The plaintiff ’s signatory has initialled some but not all of the pages after the “Summary and Execution” section, but none of the plans.
[50] Furthermore, although it appears Mr and Mrs Kumar initialled the first page of the summary and execution section, and signed on the second page, their initials do not appear elsewhere. In contrast to the Donaldsons’ agreement, there are no pages in the Kumar agreement setting out the draft Body Corporate Rules and only one page of the specifications has been produced.
[51] Mr Selwyn signed the second page of the summary and execution section on the agreement related to his unit but did not initial any other page.
[52] These uncertainties are exacerbated by the defendants having returned the documents to the plaintiff, so that they could be executed by the plaintiff’s representatives at a later date, and never being provided with executed copies until discovery.
[53] In the absence of evidence identifying reliably and accurately what the plaintiff describes as “the agreement” for the purposes of its reliance on the entire agreement clause, it is not possible to know just what the plaintiff means, or to accept its assertions.
[54] In my view, however, there is a more fundamental difficulty for the plaintiff in endeavouring to confine the respective obligations of the parties to those comprised in the document headed “Sale & Purchase Agreement”, whatever its particular contents may have been in respect of any defendant.
[55] As indicated earlier, the sale and purchase agreements were foreshadowed by the 20 September email and were, on delivery to the defendants, accompanied by a number of other documents.
[56] The first issue arising from the pleadings is whether the 20 September email was sent by or on behalf of the plaintiff. As to that, I have already indicated that at all material times, employees or agents of the McEwan Group and its constituent entities were acting as the agents of SPL. I do not consider there can be any doubt that, at the time it became necessary for them to satisfy BOSI’s funding requirements by securing a greater level of sales of units in Bowen View, McEwan Group and Kelly and Dan McEwan were acting on behalf of SPL Limited, the company which was the vehicle for profit-making by the investors in Forum, and by the McEwan Group.
[57] The defendants were shareholders in Forum Select and the success of their investment depended upon the success of the development of Bowen View by SPL. The defendants were requested to enter into the proffered agreements with SPL in order to enable Forum Select to satisfy its principal funder that the first tranche of the advance should be made available to meet consultancy fees and marketing
activities which, in turn, would enable construction by SPL to commence. In encouraging the defendants to enter into the agreements with SPL, so as to protect their investments, Forum Select, Dan and Kelly McEwan, and the McEwan Group were acting as the agents of the vendor in making offers for the sale and purchase of units in the development.
[58] When read together, it is clear that the documents sent to the defendants by email and by post on 20 September 2005 were intended to be sufficiently complete to enable immediate acceptance which would form a binding contract. The promoters of the development were under admitted pressure to secure agreements which they could then promote to the funders as sales justifying confirmation of the loan facility and the draw-down of the first advance. As the 20 September email indicated, the then current finance facility was due to expire on 8 October and the developers required some sales to secure a lower interest loan. The email encouraged shareholders in Forum Select to purchase a unit on the basis that they would not be required to pay a deposit, that advantage being in place until
10 October.
[59] The 20 September email ends with the following encouragement:
As there are only limited units available we urge you to make a prompt decision. Sales of units confirms;
Profits
Development funding
Secures today’s development costs
Enable the refinance of land required in 3 weeks to enable works to start. Secures 6th January commencement date.
[60] That the defendants needed to do no more than sign the agreements in order to form a contract is confirmed by the direction in the agreement instructions:
Please do not change any aspect of the sale and purchase agreement.
[61] It is also clear that the 20 September email and the agreement instructions which accompanied the 20 September letter contained terms and conditions being offered by SPL which were not expressed in the document headed “Sale & Purchase Agreement”. For example, the 20 September email acknowledged that the sale and purchase contracts did not include the furniture package which was a necessary
adjunct to the entering into of a management agreement for the running of the development as a going concern. If the units were intended to be purchased for the personal use of the owners themselves, there would have been no need for the vendor to include furniture and air-conditioning/heating packages as mandatory. But those items were necessary for the future use of the units as serviced apartments, and for the sale of the units as part of a going concern (and, therefore, free of GST).
[62] This is explained in the price list which accompanied the sale and purchase agreement, but not in the agreement itself. The price list listed the cost of the air- conditioning and heating upgrade ($10,125) and the cost of the furniture package ($30,000), and contained an explanation in the footnote to the list as follows:
For use as a serviced apartment Air-conditioning/Heating and furniture package is required.
A furniture package is mandatory and price will be made available 6 months prior to completion. Shareholders in the project will purchase these at cost plus 10%.
[63] The agreement instructions which accompanied the sale and purchase agreement identified that the purchase price to be inserted by the purchasers into the agreements was to be the price which included “air-con and furniture”. The instructions also included the following explanation:
Prior to completion, an up-to-date furniture package arrangement, along with air-conditioning and heating, will be mandatory.
[64] Further confirmation of the necessary inclusion of the air- conditioning/heating and furniture packages as terms and conditions of the contract was provided by the 20 September letter, written on behalf of SPL, which stated that the “sale agreement needs to include furniture package/air-conditioning/heating package.”
[65] Since it was never disputed by the plaintiff that it was obliged under the contract to provide air-conditioning, heating and furniture at the time of settlement, that concession necessarily involves acceptance that the obligation arose from the
20 September email, the 20 September letter, the agreement instructions and the
price list and not from the document headed “Sale & Purchase Agreement”.
[66] The inclusion of the air-conditioning/heating and furniture packages as mandatory obligations, and the inclusion of the cost of those packages in the purchase price, leads also to the necessary implication that the serviced apartment management agreement was an integral part of the offer being made by SPL in the package of documents sent out on 20 September 2005.
[67] Although it was suggested in the 20 September letter that such a management agreement was arranged “as an option”, any such option could apply only to members of the public who, at a later stage of the development, may have been purchasing units for their own occupation. Since the Forum Select investors were being encouraged to enter into the sale and purchase agreements for different purposes (namely, to secure the funding which would enable construction to begin) the option of not taking up the air-conditioning and furniture packages was not available to them.
[68] There is no doubt that the Bowen View units were never offered to the defendants and other Forum Select investors because they were a good buying prospect in their own right. The only reason for urging them to enter the sale and purchase agreements was to achieve a sales level which would allow the funding stream to flow.
[69] Although it is important to the defendants’ case for the contractual arrangements to be found to exist within the group of documents provided, rather than the sale and purchase agreement alone, the same position applied to the plaintiff when it came to making demands for top-up deposit payments.
[70] In the 20 September letter, SPL explained that, although the defendants and other Forum Select investors were being incentivised to take up the sale and purchase offer by not having to pay more than a $1 deposit, it was necessary for SPL to make an arrangement with its funders “in respect of the balance of the deposit that would otherwise be payable.” It was explained to the shareholders that the arrangement might require them to assign their rights to their redeemable preference shares in Forum, and other monies received, “for a sum equal to the normal 10% deposit.”
[71] This obligation did not appear in the sale and purchase agreement but it was explained further in the agreement instructions, as follows:
For shareholders the share value goes towards the 10% deposit. You may, however, need to top the deposit up to the required 10% should the deposit of your unit be more than your invested funds – I.e.3 You have bought shares for the value of $72,000 and the Unit is $820,000. The $72,000 will go towards the deposit. We will notify you before commencement if this applies.
[72] There can be no doubt that the deposit arrangements contained in the accompanying documents were intended by the plaintiff to create binding obligations once they were accepted by the offerees.
[73] Confirmation of that position can be seen in the demand made by Natasha Addis, in an email sent on behalf of SPL on 16 August 2006, that the Kumars should pay the top-up, although the requirement was to pay a 7.5 percent deposit rather than
10 percent.
[74] The nature and content of the 20 September email and the documents which accompanied the sale and purchase agreement, and the manner in which they were presented to the defendants, make it clear that the documents as a whole represented the offer being made by the vendor. It would be wholly unrealistic to regard the other documents as pre-contractual representations, in circumstances where they contained substantive terms and conditions; where they were provided contemporaneously with the sale and purchase agreements; and where the offerees were directed not to alter the sale and purchase agreement in any way. The whole package was a take-it-or-leave-it proposition.
Conclusion as to what the contract comprised
[75] In those circumstances, the common understanding of the parties, objectively determined, must be that, in clause 33.1, the acknowledgement that “this agreement” constituted the entire agreement between the parties should be taken to refer to the
contract which was comprised in:
3 It is plain that the author of instructions was intending to give an example so the abbreviation should properly have read “e.g.”
the 20 September email;
the 20 September letter;
the agreement instructions;
the price list; and
the “sale & purchase agreement”.4
What was the effect of the gazump clause?
[76] Having reached that conclusion, I turn to consider the implications of the gazump clause (clause 37.1), which bears restating:
Notwithstanding 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.
[77] If this provision was to be applied strictly according to its terms it would amount to a negation of the vendor’s consideration under the agreement. What would otherwise be consideration in the form of a promise to provide the specified unit in the development on settlement is worthless if the clause is to be read as entitling the vendor to simply walk away from the arrangement, leaving the purchaser without recourse to the recovery of any deposit paid, let alone to any rights to specific performance. Such an arrangement makes no commercial sense so the objective evidence of the parties’ mutual intentions regarding the gazump clause must be sought elsewhere.
[78] The answer is provided by the 20 September email which explained the options being offered to the prospective purchasers as being buying outright and
buying as an underwrite with the intention of the company selling the unit.
4 I exclude the brochure which is promotional material and which makes no direct reference to the sale and purchase agreement.
[79] The email explains that, in order to purchase outright, the last Special Condition, clause 37.1, had to be deleted by the purchaser when signing the agreement.
[80] The alternative of buying as an underwrite with the intention of the company selling was explained as follows:
2) Buy as an underwrite with the intention of the company selling. A “Gazump clause, Clause 37.1” has been inserted into the contract. This clause allows the development company to cancel your contract at any time. The purpose of this is if we can sell the unit for the same or more value this will benefit the project (this is at the companies discretion). The project will split the difference 50/50 with the original purchaser. This secures the project funding and as future sales occur increases the values. Contracts with a gazump clause are not unconditional we pay no sales commission – this commission is only paid to the final purchase sales person. When an offer is made you may either go unconditional on your purchase or agree for us to cancel the agreement and sell sharing the profit.
[81] The intention of that paragraph, objectively assessed, must be that the gazump clause would be exercised by the vendor only in the event that, prior to settlement, it received an offer from a third party for the same price or a greater price than that contained in the agreement. When such an offer was received, the purchaser would be given the option of settling the purchase on the agreed terms or agreeing that the purchaser’s agreement would be cancelled under clause 37.1 and the difference between the purchase price in the agreement and the amount to be paid by the third party purchaser shared equally between the shareholder purchaser and the vendor.
[82] The defendants argue that the effect of the “buy as an underwrite” paragraph in the 20 September email, assuming it to be a term of the contract as I have found, is that they were given an option to settle the purchase and acquire the unit or to relinquish their right to do so, irrespective of any intervening offer from a third party. They say that this view is reinforced by representations made to them at various times by representatives of the vendor, but I put those to one side for present purposes.
[83] It is unrealistic to regard the underwrite option as not involving any obligation on the purchasers to settle except at their election. The express purpose of
the offer was to secure additional “sales” which would enable the vendor to take advantage of the funding arrangement. The offer was at all times expressed in terms of a “purchase” of a unit as the correspondence, the agreement instructions, and the terms of the sale and purchase agreement make abundantly clear.
[84] It is fair to say that the arrangements were founded on a confident expectation on the part of the vendor, apparently shared by the defendants, that purchase would become unnecessary because of the anticipated interest of the public and the ultimate acquisition of the units by third parties. But an objective assessment of the provision must result in the inclusion of an obligation on the defendants to purchase in the event that such expectations were not met.
[85] So far as they relate to the issue of the meaning to be attributed to the paragraph in the 20 September email dealing with the underwrite option, I exclude as inadmissible the claims by the defendants in evidence that they did not believe they were agreeing to arrangements which might require them to actually acquire the units over which they had contacted. Their evidence in that regard is relevant, however, to the question of the effect of any misrepresentations about their obligations as underwriters which may have been made on behalf of SPL prior to their entering into the contract. I deal with that issue below.
[86] Against the background of my findings as to what the contract provided, and that the underwrite option included an obligation to purchase, I turn to the defendants’ assertions that they were never lawfully required to settle.
Did the Settlement Date arrive?
[87] Although not raised in the pleading until an amended statement of defence was filed shortly prior to the hearing, the defendants pressed a point which, they argued, provided a complete answer to the plaintiff’s claims whatever the outcome of the dispute between the parties as to which documents and provisions comprised the terms of the contracts.
[88] The defendants submitted that, assuming it was held that the obligation to purchase was unconditional, the plaintiff was not in the position to call on them to settle at any time prior to the date upon which the plaintiff purported to cancel the agreements. It was submitted that, the Settlement Date provided for in the agreement was to be determined by the date of practical completion (among other dates), and that the settlement obligation never crystallised because practical completion was never certified in terms of the sale and purchase agreement.
[89] The argument is founded upon what the defendants say is the plain meaning of key expressions defined in the special conditions of contract at clause 14 of the sale and purchase agreement.
[90] Clause 14.1, so far as is relevant, provided:
...
(2) “Date of Practical Completion” means the date on which the Works reach the stage of Practical Completion as certified by the vendor’s Architect.
...
(4) “Practical Completion” means 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.
(5) “Settlement Date” means the later of:
(a) five working days after the issue of title under the Unit Titles
Act 1972; or
(b) the date which is five working days after the date of
Practical Completion; or
(c) the date which is five working days after the date of issue of a Code of Compliance Certificate for the Unit from the territorial authority
...
(7) Vendor’s Architect” means Leuschke Group Architects Limited or such other company, firm or person as the vendor may appoint to supervise construction of the Works
(8) “Works” means the construction of the development on the land comprising residential apartments, carparks and ancillary services and facilities generally in accordance with the Plans and Specifications and includes any additional work or materials agreed in writing by the parties.
[91] It was accepted that Code Compliance Certificates for the units had been issued by the territorial authority on 1 July 2008. Titles were available by
7 August 2008.
[92] It is common ground also that settlement was called for by the plaintiff to take place on 14 August 2008. The defendants failed to settle on that date. A further call for settlement on 26 September 2008 was made and was similarly ignored by the defendants. On 10 October 2008, the plaintiff gave the defendants notice requiring settlement within twelve working days, being 28 October 2008. The defendants failed to settle.
[93] In February 2009, SPL issued summary judgment proceedings seeking orders for specific performance against the defendants. On 20 April 2009, SPL was placed into receivership. The summary judgment proceedings were continued by the receivers although, against the defendants, summary judgment was declined in December 2009.
[94] In February 2010, the receivers’ solicitors wrote to the defendants inviting them to proceed with and complete the settlement and further indicated that the continued failure to settle would be treated as a repudiation of the agreements. When the defendants failed to settle at that stage, the receivers cancelled the sale and purchase agreements by letters dated 6 April 2010.
[95] Whether the plaintiff was entitled to call for settlement on the various dates noted turns, in the defendants’ principal submission, on whether practical completion had been validly certified in terms of the sale and purchase agreement.
[96] It was the case for the plaintiff that practical completion had been certified on
2 July 2008 by a Mr Dawson who was a director of Maltbys Limited, a firm of quantity surveyors. Mr Dawson certified that practical completion was achieved on
3 June 2008, notwithstanding what he described as “minor remedial items” set out in schedules attached to the certificate. Mr Dawson’s evidence was that, at the time the inspection was conducted on 3 June 2008, construction had been completed; the joinery had been fitted; heating and air conditioning had been installed; carpets had been laid; and the units were effectively ready for occupancy and use, notwithstanding the minor items which required finishing, alteration or remedial action.
[97] As to this, the defendants argued, first, that the definition of “Vendor’s Architect” in clause 14.1(7) of the Special Conditions did not allow for more than one company firm or person to act in that capacity, the meaning ascribed to the term being “Leuschke Group Architects Limited or such other company firm or person as the vendor may appoint” (my emphasis). I accept that interpretation; if it was intended that more than one vendor’s architect could be appointed under the definition, the conjunction “and” would have been used. There was no evidence that Leuschke Group Architects Limited (“Leuschke Group”) had been replaced and, in fact, it was common ground that Leuschke Group were continuing in their role as supervisors at the time the purported certificate of practical completion was issued.
[98] Further, it was submitted that the role of the Vendor’s Architect under the sale and purchase agreement was to supervise construction of the works, and that it was never Mr Dawson’s or Maltby’s role to do that. Mr Dawson acknowledged in evidence that, as a quantity surveyor, his role was cost management. He accepted that he was not qualified as an architect or an engineer and had no other building qualifications. This concession, which was properly made, is consistent with the construction warranty, given by the vendor in clause 19 of the agreement, that the supervisor of the works would be “a competent and properly qualified building architectural or engineering firm or individual”.
[99] Even if I am wrong in my conclusion that the definition of “Vendor’s Architect” required that Leuschke be replaced, rather than having a co-architect appointed to the role, the meaning of “such other company firm or person as the vendor may appoint” must be qualified by the obligation to ensure that the other company, firm or person met the criterion in clause 19.
[100] Mr Dawson said that his task in respect of the Bowen View development was cost control, but that as “engineer to the construction contract” he had administrative responsibilities on behalf of the vendor or the principal to ensure that variations and progress payments were properly documented as between the builder and the owner.
[101] Mr Dawson distinguished his role in respect of the sale and purchase agreements from that of the old fashioned term “clerk of works” which was used to denote someone who had construction knowledge overseeing the physical building work to make sure that it was carried out according to specification. He acknowledged that in carrying out his responsibilities on the project he was relying on the architect (Leuschke Group) to fulfil the role of supervising quality and workmanship because, as quantity surveyors, his firm did not have that qualification.
[102] Mr Dawson made it clear that it was not his role, in terms of the sale and purchase agreement, to ensure that the works carried out were constructed and completed in accordance with sound and accepted standards of workmanship and said he was relying on the architect to provide that assurance to him. He accepted that it was the architect who was the supervisor, even though he actually signed variation certificates under the construction contract, and did the same for progress payments.
[103] Importantly, Mr Dawson acknowledged in cross-examination that he had never certified Practical Completion in accordance with the sale and purchase agreement. The Practical Completion certificate he issued was purely for the purpose of clause 10.4 of the construction contract between the owner and the builder, as the certificate identified.
[104] Mr Dawson also acknowledged that on 24 June 2008, Leuschke Group had written to the plaintiff’s project managers indicating that a Leuschke Group representative had carried out an inspection of the property on 19 June and noted that there were still work items to be carried out which Leuschke Group considered needed to be complete prior to the buildings being practically complete. They noted there was also evidence of further remedial work then being required as a result of completion work carried out since the previous visit.
[105] The letter concluded:
... to be practically complete, the building 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 section or 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.
[106] Although this letter was related to certification of Practical Completion under the construction contract, it is clear that, at 24 June 2008, Leuschke Group did not consider that Practical Completion could be properly certified. There was good reason for this. On 30 May 2008, Leuschke Group had provided a 57-page list of items requiring remediation over the entire project, work which the architect from Leuschke Group, Mr Cocker, indicated would require at least three weeks work to complete.
[107] The plaintiff’s position was that, although the list may have been lengthy, the items listed were mainly trivial, including such things as putting knobs on toilet controls, and that the examination conducted in May 2008 was so cursory that the Leuschke Group representative had not realised that the water supply to the complex had been switched off to avoid freezing in the pipes.
[108] It appeared from the evidence that the difficulty for the plaintiff was that Leuschke Group was based in Auckland and that, because of the financial constraints on the project, there was insufficient funding to pay for a Leuschke Group representative to return to Queenstown, on completion of the listed remediation, to undertake a further inspection. I infer from the evidence that in order to save expense, the plaintiff was prepared to regard Mr Dawson’s certificate for the purposes of the construction contract as being a certificate which satisfied the requirements of the sale and purchase agreement.
[109] Mr Dawson accepted that he did not certify that the works had been completed as designed. He also agreed that between 3 June 2008 and the date of his
certificate he had not re-inspected the property to ensure that some of the more major items preventing Practical Completion in the view of Leuschke Group, such as the absence of toilet controls and a handrail, were completed.
[110] The defendants make the point also that Mr Dawson’s “certificate” referred to
24 units and three houses as having been practically complete whereas the development included 25 units and three houses. While this might have been a typographical error as Mr Dawson suggested in evidence, the defendants submit that none of them was in a position to know whether theirs was the unit for which Practical Completion had not been certified.
[111] Putting that possible mis-description to one side, however, it is clear on the evidence that Mr Dawson was never appointed “Vendor’s Architect” for the purposes of the sale and purchase agreements. No one other than Leuschke Group Architects Limited was appointed to that role, and with Leuschke Group being of the opinion that the works were not practically complete at the beginning of June 2008, no Practical Completion certificate as defined in the sale and purchase agreements was ever issued by the Vendor’s Architect as defined.
Conclusion as to whether the Settlement Date arrived
[112] It was common ground that to satisfy the definition of “Settlement Date” in the agreements, all three of the events described in clause 14.1(5) of the agreement had to be completed, the Settlement Date being five working days after the last occurring event. It follows from the absence of a valid Certificate of Practical Completion that the defendants are correct to submit that the Settlement Date never arrived. It was not open to the plaintiff, therefore, to rely on the terms of the agreements to make time of the essence and insist on settlement.
[113] For these reasons, I accept the submission for the defendants that the failure of the plaintiff to obtain a practical completion certificate in accordance with the contractual arrangements meant that it could not require the defendants to settle. That is fatal to the plaintiff’s claim.
Was the plaintiff ready, willing and able to settle?
[114] In case, I should be wrong about that, I have considered also the effect of clause 9.1(2) of the agreements which provided that a settlement notice would be effective “only if the party serving it is at the time of service either in all material respects ready able and willing to proceed to settle in accordance with the notice or is not so ready able and willing to settle only by reason of the default or omission of the other party.”
[115] The defendants argue that the failure of the plaintiff to meet its material obligations under the contract prior to making demands for settlement also provides a complete defence to the plaintiff’s claims.
[116] This defence is founded on the proposition that the terms of the contract required the plaintiff, prior to or at settlement:
(a) to pay the defendants’ one percent of their respective purchase prices;
(b)to provide the furniture component of the $40,000 air- conditioning/heating and furniture package described in the correspondence and identified in the price list; and
(c) to enter into a management agreement for the letting of the units to enable a sale, free of GST, as a going concern.
[117] I am satisfied on the evidence of Mr Groves who was project manager for the plaintiff in relation to the Bowen View Development that, although he had made efforts to source furniture, the funder BOSI was unwilling and the plaintiff unable to provide the funding to do so. The plaintiff’s former solicitor Mr Goodwin, confirmed that it was fundamental to a vendor’s obligations, if required to provide air-conditioning and furniture in return for a purchase price based on such components, that it would do so on settlement. Mr Goodwin knew that no furniture had in fact been provided as at the expected Settlement Date. He also conceded that, had he been aware of the contents of the price list and the agreement instructions,
which contained the obligations to provide furniture, he would have discounted the price and the amount required to settle in the settlement statements he prepared. Mr Goodwin confirmed that the position taken by Dan McEwan about the provision of furniture to the defendants was that BOSI were not going to fund it and so it was not going to happen.
[118] I note in those circumstances that Dan McEwan’s representation to the defendants, in an email dated 6 June 2008, that high quality furniture was available to be placed in the units, was entirely misleading.
[119] The difficulty for the plaintiff in obtaining funding for the furniture package reflected the difficulty it had in meeting its obligation to pay to the defendants a one percent purchase fee prior to settlement. It is clear from the evidence that, in reporting to BOSI about its success in achieving a sufficient level of sales to trigger the release of funds for the project, the plaintiff never disclosed that the sale to the defendants and other Forum Select investors had been incentivised by, and was predicated on, the undertakings contained in the 20 September email, the
20 September letter, the agreement instructions and the price list. I am satisfied from the evidence of Ms Zamiri (a former McEwan Group employee) and her exchanges with Melissa Ruediger of BOSI that the plaintiff deceived its funder by withholding the information that the defendants were entitled to a one percent credit and a furniture package on settlement.
[120] It is clear, therefore, that, despite suggestions from the receiver Mr Graham to the contrary regarding furniture, the plaintiff was not in a position to meet its obligations on settlement either at the time settlement demands were first made or more latterly when the plaintiff was plainly insolvent and entirely dependent on outside funding.
[121] The plaintiff argues that, if the one percent purchase fee, the furniture component and the management agreement were required to be provided under the contract, the failure or inability of the plaintiff to meet these terms and conditions was not sufficiently material or substantial to justify the defendants’ refusal to settle.
[122] The plaintiff cited several cases suggesting that differences in value of between six percent and 11 percent of the purchase price did not justify refusal to settle and might sound in damages only.5
[123] Taken individually, it is arguable that the failure to provide a one percent discount on the purchase price, or a $30,000 furniture package, or to have in place a management contract for the operation of the development as serviced apartments, were not sufficiently material to justify a refusal by the defendants to settle their purchases.
[124] In the context of this case, however, I consider the defendants were entitled to regard the breaches of those obligations by the plaintiff as sufficiently substantial or material to justify refusing to complete the purchase when the plaintiff demanded it.
[125] None of the defendants had intended, initially, to be the owners of apartments in Queenstown. Following their attendance at Investors Forum meetings and being persuaded to follow Dan McEwan’s approach to property investment, they had purchased shares in what was essentially an investment company and intended to make their profits out of involvement in the development rather than in actually acquiring property. They were urged to enter into the sale and purchase agreements, however, not because it was believed owning a unit in Bowen View would be a sound investment, but because their investment in Forum Select was under threat through the relatively low sales and the inability of the McEwan Group to secure adequate funding in the absence of a higher level of sales.
[126] Although I have found that the defendants entered into a contract which required them to purchase the units in the absence of matching or better offers from third parties, I do not doubt that they were encouraged by the representations on behalf of the plaintiff to believe that their investments were relatively low risk. In the initial stages, they believed, consistently with what they had been told by Dan
McEwan at Investors Forum meetings, that the underwrite option was relatively low
5 Arranmore Developments Ltd v Zeeland Developments Ltd (2001) 11 NZCPR 799; Jolly v Palmer
[1985] 1 NZLR 658; Young v Hunt [1984] 2 NZLR 80; Spence v Danesh HC Dunedin CP 16/01,
21 February 2002.
risk and inexpensive. They were provided with an incentive to enter the sale and purchase agreements by the proposition that Bowen View would be a well-managed complex of serviced apartments. The one percent purchase fee (which on purchase prices of between $880,000 and $1.3 million was not insignificant) was a real incentive to investors who had purchased shares in Forum Select for $72,000. Although the defendants themselves did not intend to be long-term owners of the units, the prospect of having in place a well-regarded management company to run the complex as part of a going concern was a material benefit, in that it would enhance the likelihood of early sales of the units to third parties.
[127] I am satisfied that the terms of the 20 September email and the agreement instructions went further than raising a management contract as a possibility. The defendants were told in the email that the design of the development had been altered to accommodate a management agreement. The email and the instructions both said that a management agreement “will” be made available or offered before settlement.
[128] In the circumstances, I do not think a mathematical analysis of the amounts of the benefits not provided by the vendor does the defendants’ position justice. In my view, the failure of the plaintiff to put itself in a position to provide what it had promised in terms of the purchase fee, the furniture package and the management
agreement was essential to the bargain it had struck with the defendants.6 The
plaintiff says that it had an informal arrangement with a respected hotel manager, Select Hotels, to manage the property. It is clear, however, that the precarious financial position of SPL prevented any firm arrangement being put in place.
[129] The plaintiff’s breaches were material and substantial; they justified the defendants’ refusal to settle.
6 Progeni Systems Ltd v Hampton Studios Ltd HC Christchurch CP 105/86, 11 August 1987.
The sunset clause and the variation agreement
[130] I have already referred to the sunset clause in the sale and purchase agreement,7 and to the approach of Edgar Street Construction Limited, to the defendants about the requirement for a variation.8
[131] The evidence established that the Estimated Completion Date was
13 March 2008, meaning that the variations agreed to by the defendants entitled them to cancel the agreement on or after 13 March 2009, pursuant to the amended clause 26.1, if the plaintiff was unable to settle by then.
[132] Since the plaintiff was at no stage able to settle in terms of its obligations under the agreement, cancellation of the agreement by the defendants was justifiable under this provision as well as on the grounds of repudiation by the plaintiff .
The affirmative defences
[133] Having regard to the firm views I have reached about the justification for the defendants’ refusal to settle their cancellation of the contracts, it is unnecessary to consider the affirmative defences raised. These included an allegation that Dan McEwan owed fiduciary duties to the defendants by reason of his undertaking to act as teacher/mentor/expert financial adviser to them; that he was guilty of unconscionable conduct in his pre-contractual dealings with the defendants; and that pre-contractual representations about the nature of the agreements, particularly with regard to their obligations to settle, amounted to misleading and deceptive conduct under the Fair Trading Act.
[134] The difficulty facing the defendants, at least in respect of the allegations of breach of fiduciary duty and unconscionable conduct, is relating Mr McEwan’s self- promotion and generalised boasting to SPL in a way which assists the defendants to defend the claims in this proceeding, rather than in founding independent causes of
action against Mr McEwan personally.
7 At [22](a) above.
8 At [23]- [26] above.
[135] There was evidence at the hearing, however, which more closely related the offer of units by SPL to pre-contractual representations which the defendants claim induced them to enter into the contracts. I consider those allegations briefly.
[136] The Donaldsons and Mr Selwyn based their view that they were under no obligation to actually buy a unit principally on the terms of the documents which I have held to comprise the contract between the defendants and SPL. I have already said that I disregard the evidence of what they thought they were agreeing to as being inadmissible.
[137] Mr Kumar, however, relies not only on his interpretation of the documents but also upon express representations made to him by a Mr Charlett, who was a business development co-ordinator employed by Investors Forum. Mr Kumar said that he was assured by Mr Charlett that he would never be obliged to settle the purchase of an apartment if he signed an underwrite agreement.
[138] Mr Charlett was called as a witness for the defendants. He said that in his role as a business development co-ordinator he had been authorised to represent Dan McEwan and the interests of the McEwan Group of companies, including the plaintiff SPL. Mr Charlett said he was told by Mr McEwan and other personnel involved with Investors Forum that investors who signed up to underwrite agreements for developments would not be required to settle a purchase of the apartment they underwrote. He says he believed that and stressed that he had been assured by Mr McEwan that investors who entered underwrite agreements would not be compelled to settle under any circumstances. Mr Charlett confirmed that he had conveyed this view to Mr Kumar.
[139] I am satisfied on the evidence that this representation was made on behalf of SPL and that it was instrumental in inducing Mr Kumar to enter into the sale and purchase agreement in April 2006. Had it been necessary to do so, therefore, I would have granted Mr Kumar remedies under the Contractual Remedies Act so as to relieve him of what otherwise would have been his obligations to the plaintiff.
Outcome
[140] Although I have found that the defendants entered into a binding obligation to purchase their respective units in the event that the plaintiff did not receive a matching or better offer from another potential purchaser, I have determined that the plaintiff had not obtained a valid certificate of practical completion in terms of the contract and that the plaintiff was not entitled to call on the defendants to settle. In those circumstances, the cancellation of the contracts by the defendants in the face of repudiatory conduct by the plaintiff was effective. The plaintiff’s claim fails on that basis.
[141] In the alternative, I have found that the plaintiff was not ready, willing and able to settle at the time it demanded settlement from the defendants. On that ground also the defendants were, in my view, entitled to refuse to settle and to subsequently cancel the contracts.
[142] For the reasons given, I dismiss the plaintiff’s claims and enter judgment for the defendants.
Costs
[143] The defendants are entitled to costs. I invite the parties to confer and, if possible, agree on costs. In the event that agreement is not reached, the defendants shall file and serve a memorandum as to costs on or before 3 August 2012. The plaintiff’s reply memorandum shall be filed and served no later than
31 August 2012. Unless directed otherwise, costs shall then be determined on the papers.
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Toogood J
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