Studio New Zealand Limited v Wallace
[2021] NZHC 959
•3 May 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-002265
[2021] NZHC 959
IN THE MATTER OF An application under s 143 of the Land Transfer Act 2017 BETWEEN
STUDIO NEW ZEALAND LIMITED
Applicant
AND
BRUCE JOHN WALLACE
First Respondent
SARAH JANE WALLACE
Second RespondentTLR WALLACE TRUSTEE COMPANY LIMITED
Third Respondent
TONEA TRUSTEE COMPANY LIMITED
Fourth Respondent
Hearing: 19 March 2021 Appearances:
K M Massey and L H Mau for Applicant D J Chisholm QC for Resondents
Judgment:
3 May 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 3 May 2021 at 3.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar Date……………………..
STUDIO NEW ZEALAND LTD v WALLACE & ORS [2021] NZHC 959 [3 May 2021]
Introduction
[1] Studio New Zealand Ltd (SNZ) seeks an order pursuant to s 143 of the Land Transfer Act 2017 (LTA) that a caveat be sustained over a substantial property at Porchester Road, Takanini (the Property). The four respondent trustees (the Trustees) are the registered proprietors of the Property.
[2] SNZ contends, on the basis of an exchange of emails and a letter, that there is a binding conditional agreement for sale and purchase of the property. The conditional agreement is said to entitle SNZ, as purchaser, to a beneficial interest in the land and despite there being no formal signed contract. The agreed purchase price was
$53,500,000 (plus GST if any).
[3] The Trustees say that there was no legally binding agreement for sale and purchase. They contend that a formal agreement for sale and purchase executed by all parties (including all the Trustees) was objectively contemplated before any binding agreement could come into existence and consistent (so they say) with the normal presumption existing in New Zealand. The Trustees further say that neither Bruce nor Robert Wallace (the authors of the emails) had actual or ostensible authority for the purposes of s 24 of the Property Law Act 2007 (PLA) to bind all the Trustees to an agreement.
Background
[4] SNZ was incorporated in 2009 to develop purpose-built screen infrastructure in Auckland.
[5]The four respondents are:
(a)As trustees of the B J Wallace Trust, the registered proprietors as to a half-share of the Property; and
(b)As trustees of the S J Wallace Trust, the registered proprietors as to the remaining half-share of the property.
[6] SNZ says that in 2016 it identified the Property as an attractive site for the development of a screen production complex. Around that time, SNZ approached the Trustees to explore options to purchase or lease the Property.
[7] On 7 October 2016, SNZ and the Trustees entered into a conditional agreement for the sale and purchase of the Property (the original agreement). It was conditional on due diligence by 28 February 2017 and was signed by all the parties (an ADLS 9th edition 2012(5) version). SNZ says the original agreement was never formally terminated.
[8] Instead, SNZ contends it entered into, at the Trustees’ suggestion, a joint venture arrangement for the purposes of jointly undertaking the project from or around May 2017 (the Joint Venture).
[9] SNZ submits that between that time and August 2020 the parties “in their capacity as joint venture partners, undertook extensive work in the furtherance of that joint venture purposes …”. This included obtaining resource consents and seeking government funding for the project.
[10] Funding of $40m from Crown Infrastructure Partners was granted to the parties’ project as a “shovel ready” infrastructure project on 10 July 2020, subject to due diligence and terms and conditions.
[11] SNZ says that on or around 27 August 2020, Bruce and Robert Wallace, on behalf of the Trustees, purported to terminate the Joint Venture and offered SNZ an opportunity to purchase the property for $53,500,000 (plus GST) conditional on the completion of a due diligence investigation by 20 December 2020. That contended offer was initially made verbally but was repeated in a letter dated 27 August 2020 from Robert Wallace. The letter said:
As I explained at the meeting the trustees have come to the conclusion that they are not willing to commit their land to a project to be undertaken by a joint venture or partnership …
It is therefore time to bring our negotiations to a conclusion.
The trustees have, however, asked me to confirm that they are willing to allow you one final opportunity (perhaps with other investors) to undertake the project. They would be prepared to enter into a conditional sale of the property at the agreed price of $53,500,000 (plus GST if any). The sale would be conditional on your understanding due diligence and the trustees would allow you until 20 December 2020 to put your arrangements in place and complete your due diligence.
If that opportunity is of any interest to you could you please present a purchase proposal by the end of next week.
[12] On 4 September 2020, SNZ says that it presented a counter-offer proposing a three-year option to purchase the property for $53,500,000. The email sent by Richard Glenn to Robert Wallace on that date stated:
We are disappointed that the partnership has to end, but understand the Trustees’ position …
Please consider our attached offer in the context of the following variables:
·…
·The price of $53.5 million when your own proposal committed the land for a three-year period interest free, is also not justified in the situation of a short-term option …
[13] By email sent on 7 September 2020, Mr Bruce Wallace (whose email was addressed to Mr Coldicutt and Mr Glenn) rejected SNZ’s proposal/counter-offer and stated as follows:
Our correspondence of the 27 August 2020 detailed a simple offer which affords you both one final opportunity to undertake the project independently of us for the purchase of 296 Porchester Road. The terms and price which the trustees would accept were detailed within the correspondence, that is our offer.
If you avail yourselves of the opportunity as presented, then the property and project will be yours …
If you wish to present your offer, we will give you until close of business (5 pm) Wednesday, 9 September 2020, failing which the offer will be withdrawn.
[14] On 9 September 2020 at 2.50 pm, SNZ wrote to Robert and Bruce Wallace by email and stated:
1.We refer to your letter dated 27 August 2020. Studio New Zealand Ltd accepts the offer made by the trustees of the B J Wallace Trust and S J Wallace Trust for Studio New Zealand Ltd to purchase the
property at a purchase price of $53,500,000 plus GST (if any) conditional on due diligence by 20 December 2020.
2.We enclose a signed sale and purchase agreement which formally documents the sale. We have included provisions dealing with the transfer and use of the resource consents and associated materials and tailored the due diligence clause to reflect the current circumstances.
[15] No formal written agreement for the sale and purchase of the Property (whether a standard ADLS agreement or otherwise) has ever been signed by the parties.
[16]The parties have since had without prejudice discussions.
[17] On 15 October 2020, SNZ lodged the caveat against the Property. The Trustees subsequently applied for orders lapsing the caveat.
[18] Then, on 18 November 2020, Hornabrook Macdonald, solicitors for the Trustees, sent a sale and purchase agreement to Russell McVeagh, solicitors for SNZ, for execution. It set a deadline for the return of the executed document of 26 November 2020 and included the due diligence date of 20 December 2020. That document has never been signed or executed.
[19] SNZ applied to the Court for orders sustaining the caveat on 19 November 2020.
[20] On 21 December 2020, Hornabrook Macdonald, for the Trustees, wrote to Russell McVeagh confirming the Trustees’ position that there was no binding agreement but noted “without prejudice to that position” that if the correspondence at issue is found to constitute a conditional purchase agreement, the agreement was cancelled for non-fulfilment of the due diligence condition.
[21] Russell McVeagh responded on 22 December 2020, acknowledging that SNZ did not confirm due diligence by 20 December 2020, but claiming the responsibility for that failure rested entirely with the Trustees.
[22] On 23 December 2020, SNZ filed separate proceedings against the Trustees in this Court (CIV-2020-404-2544) (the Substantive Proceeding) in which SNZ pleads four causes of action, including:
Breach of fiduciary duty
(a)SNZ alleges that:
(i)pursuant to the Joint Venture the Trustees owed fiduciary duties to it, including the duty of loyalty;
(ii)the Trustees have breached their duty of loyalty in failing to act reasonably and with fair dealing with purporting to terminate the Joint Venture and in making the Offer, in particular the Trustees have made the Offer on unreasonable terms and now assert that the Offer was never one that was capable of acceptance (which is denied); and
(b)SNZ seeks a mandatory injunction requiring the Trustees to provide a signed sale and purchase agreement reflecting the Agreement and to extend the period for fulfilment of the due diligence condition to a date that is (at least) 80 working days after the Trustees provide a signed sale and purchase agreement.
Breach of implied term
(c)SNZ alleges that the Trustees have breached an implied term in the Agreement requiring them to do everything reasonably necessary to allow SNZ to meet the due diligence condition, including to provide a signed sale and purchase agreement to enable SNZ to seek funding for the purchase of the Property; and
(d)SNZ seeks an order for specific performance requiring the Trustees to provide a signed sale and purchase agreement reflecting the Agreement and to extend the period for fulfilment of the due diligence condition to
a date that is (at least) 80 working days after the Trustees provide a signed sale and purchase agreement.
Relevant legal principles
[23]Section 143 of the LTA provides:
Lapse of caveat against dealings
(1) The following persons may apply to the Registrar for the lapse of a caveat against dealings affecting an estate or interest in land:
(a)a person who wishes to register an instrument affecting the estate or interest protected by the caveat; or
(b)the registered owner or a person acting for or on behalf of the registered owner of the estate or interest affected by the caveat.
(2) The Registrar must give notice of an application under subsection (1) to the caveator.
(3)A caveat to which an application relates lapses unless, –
(a)within 10 working days after the date on which the Registrar gives notice of an application under subsection (1) to the caveator, the caveator gives notice to the Registrar that an application has been made to the court for an order that the caveat not lapse; and
(b)within 20 working days after the date on which the caveator gives a notice to the Registrar under paragraph (a) (the relevant period), an order of the kind referred to in subsection (4) is served on the Registrar.
(4)The orders are –
(a)an order that the caveat not lapse:
(b)an interim order that the caveat not lapse:
(c)an order adjourning the application.
(5) The caveat lapses if the court makes an order to that effect before the close of the relevant period.
(6) If the court makes an order under subsection (4)(b) or (c), the caveat will not lapse if, after the close of the relevant period, –
(a)the court makes a final order that the caveat not lapse; and
(b)the order is served on the Registrar.
(7) If the court makes an order under subsection (4)(b) or (c), the caveat will lapse if, after the close of the relevant period, –
(a)the court makes a final order that the caveat lapse; and
(b)the order is served on the Registrar.
[24] The principles governing applications to sustain caveats were restated by the Court of Appeal in Philpott v Noble Investments Ltd:1
(a) The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;
(b) It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;
(c) The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained – either because there is no valid ground for lodging it in the first place or, because such a ground no longer exists;2 and
(d) Where an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.3
[25] It is well-established that conditional agreements for the sale and purchase of land can create an equitable interest in the relevant property.4 In McDonald v Isaac Construction Co Ltd,5 the Court held:
In the usual case where the parties intend to be bound and to remain bound subject to the fulfilment of the condition, equitable interests in land can arise by means of such a conditional contract.
1 Philpott v Noble Investments Ltd [2015] NZCA 342 at [26]. I note that although that case was dealing with the Land Transfer Act 1952, the same approach applies in relation to the LTA 2017.
2 Sims v Lowe [1988] 1 NZLR 656 at 660 (CA); Zwarst v Saxton [2012] NZHC 448 at [12].
3 Stewart v Kaipara Consultants Limited [2000] 3 NZLR 55 (CA) at [23].
4 DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [10.009] [Hinde McMorland and Sim].
5 McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 (HC) at 619.
Issues
[26] The overarching issue is whether SNZ has established a reasonably arguable case that there was a legally binding agreement for the sale and purchase of the Property. In order to resolve that issue, the following questions require determination:
(a)Did the email correspondence give rise to a binding agreement for the sale and purchase of the Property, including an intention to be immediately bound, or was it objectively contemplated that no binding agreement would come into existence until a formal agreement was executed by all parties?
(b)Did Bruce and Robert Wallace have actual or ostensible authority for the purposes of s 24 of the PLA to bind all of the Trustees to an agreement?
Issue one: Is there a binding contract?
Legal principles
[27] It is not in dispute the requisite elements for the formation of a legally binding contract are:6
(a)An intention to be immediately bound, at the point when the bargain is said to have been agreed; and
(b)An agreement, express or implied, or the means of forming an agreement on every term legally essential to formation of the contract or manifest by the parties as essential to their bargain.
6 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA) at [53].
[28] The assessment of these criteria is an objective exercise supported by consideration of the surrounding factual matrix.7 The Court’s usual approach is to look to the existence of offer and acceptance.8
[29] It is also not in dispute that the only “legally essential” terms the parties must agree upon to effect a contract for the sale and purchase of land are:9
(a)The parties to the contract;
(b)The interests being sold and purchased; and
(c)The price.
[30] Part 4 of the Contract and Commercial Law Act 2017 provides electronic communications, such as email, can generate enforceable legal relations.
The arguments
[31] Before me, Ms Massey, for SNZ, and Mr Chisholm QC, for the Trustees, each adopted different starting points as to the proper interpretation of the alleged contract. Ms Massey emphasised this is a simple case meeting the caveat threshold: the language of the emails is unambiguous and clear, evidencing the parties’ agreement on essential terms and their immediate intention to be bound, but with the understanding they would later draw up the formal agreement to reflect their binding contract and agreeing on further, non-essential terms.10 Ms Massey submitted that what the Trustees wanted, and received from SNZ, was a binding commitment to purchase the Property: notably, she says, when SNZ returned a draft agreement, the
7 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd, above n 6, per Blanchard J, at [53]–[54].
8 See, for example, Wilmott v Johnson [2003] 1 NZLR 649 (CA) at 656.
9 Country Club Apartments Ltd v MFT Properties Ltd [2011] NZCA 560 at [47]; Cynthia Hawes (ed) “Contracts for the Sale of Land” in Laws of New Zealand Sale of Land (online ed, LexisNexis) at [5].
10 Ms Massey referred to this as fitting the description in DW McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [3.12] of the “fourth situation” in which intention to be bound may be found: “that in which the parties are content to be bound immediately and exclusively by the terms they have agreed upon whilst expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.”
Trustees’ response was to emphasise their “simple offer” requiring acceptance. She contended the parties’ ongoing relationship of trust and confidence—i.e. the Joint Venture – supports the view the parties were content with this arrangement and intended to be immediately bound. Ms Massey submitted the parties’ relationship and other matters, required the Court to test the full evidence at trial, but that nonetheless the agreement remains on foot and the threshold of a reasonably arguable case is clearly met here.
[32] Mr Chisholm submitted that SNZ’s contentions are tenuous and lack commercial reality. He emphasised that this was a complex deal involving commercial parties on each side, one of whom was legally represented (SNZ by Russell McVeagh) and a significant sum of money. He made much of the fact that, attached to two of the critical emails that SNZ relies on, namely those of 4 September and 9 September 2020, were two complex draft, written agreements. In addition, Mr Chisholm argued there were simply too many unagreed matters that, in the context of a deal such as this, would have been agreed and therefore the parties did not intend to be immediately bound. Against that background, the inference arising from the requirement that agreements for sale and purchase of land be in writing (as provided in s 24 of the PLA), namely that the parties did not intend to be bound in contract until their agreement is in writing and signed by all, has direct and clear application. As to the language of the emails, Mr Chisholm submitted that the email of 27 August 2020 simply invited SNZ to present a proposal; it was not an offer capable of acceptance.
[33] Both parties referred to the Court of Appeal’s decision Carruthers v Whitaker.11 Mr Chisholm relied on it as the leading authority in support of a presumption that there is no intention to be bound unless and until a formal contract is signed. Ms Massey submitted, however, that Carruthers does not create a presumption against intention to be bound by informal agreements, relying on a 1993 article by Professor David McLauchlan.12 SNZ’s case also relies on the decision of Woodhouse J in Geneva Healthcare v Essential Assets,13 which Ms Massey submitted
11 Carruthers v Whitaker [1975] 2 NZLR 667 (CA).
12 DW McLauchlan Informal Agreements for the Sale or Lease of Land: When are they contracts?
[1993] NZ Recent Law Review 442.
13 Geneva Healthcare Ltd v Essential Assets Ltd [2014] NZHC 3236.
is on “all fours” with the present case and in which Woodhouse J held the presumption did not apply.
Analysis
Offer, acceptance and terms
[34] I find the applicants have established a reasonably arguable case that the letter of 27 August and the emails of 7 and 9 September 2020 can properly be interpreted as the presentation of an offer by the Trustees that was capable of acceptance, and indeed was accepted by SNZ, and giving rise to an immediate intention of the parties to be bound. My reasons follow.
[35] The starting point and, indeed, ultimately the decisive factor, in addressing the critical issue of objective interpretation in this case, is the language of the August and September 2020 correspondence. It assists to repeat the language used. In the email of 7 September 2020, Bruce Wallace states, “Our correspondence of 27 August 2020 detailed a simple offer” which provided SNZ “one final opportunity” to purchase the property. He then goes on to state:
If you avail yourselves of the opportunity as presented, then the property and the project will be yours.
[36] I acknowledge Mr Chisholm’s submission that the email of 27 August 2020 was not an offer capable of acceptance, but an invitation to submit a proposal. SNZ responded with a 65-page proposal that was not acceptable. However, even if there is merit to those contentions, it is arguable in these summary proceedings, based on the above correspondence – in particular, the 7 September 2020 email which uses different language to the 27 August 2020 email rejecting the proposal – that a formal offer was on the table.
[37] Crucial to this conclusion is the fact that the parties reached agreement on all legally essential terms. I note agreement on the legal interest being sold, the Property, is not a matter at issue. In his email of 7 September 2020, Bruce Wallace stated that the Trustees would accept a sale and purchase for the Property in the terms and price that they had previously outlined. Those terms were simply:
(a)That the purchase price was $53.5m (plus GST); and
(b)That the agreement was conditional upon SNZ undertaking a due diligence investigation by 20 September 2020.
[38] Therefore, I accept it is clearly arguable that the unambiguous interpretation of those statements is that if SNZ accepted the “simple offer” that was presented, then SNZ would eventually become the registered proprietor of the Property.
[39] I accept that there was no agreement as to a deposit (quantum) and a settlement date. However, it is not in dispute that those are not legally essential terms for an agreement for the sale and purchase of land. I address how these unresolved matters bear on the issue of the parties’ intention to be bound below.
Was there an intention to be immediately bound?
[40] As to whether the parties had an immediate intention to be bound, however, Mr Chisholm sought to draw focus to what was lacking in the parties’ key communications: that too many crucial matters, which cannot be implied as terms, were left unresolved, and therefore the presumption in Caruthers applies. He acknowledged that these are not legally essential terms but contended that there are simply too many outstanding, important issues and the implied contractual term doctrine that SNZ relies upon cannot sensibly or safely be invoked to fill the substantial gaps.
[41] On this issue, Professor McLauchlan notes in his article that the absence of formality can be an important factor in determining the existence of a reasonable inference the parties had manifested a firm intention to be bound. The parties will not be bound “if it is reasonable to infer that execution of the later formal document was regarded as the ‘decisive step’”, and “no binding obligations were intended unless and until formalities were completed.”14 Professor McLauchlan concludes, given the requirement that contracts for the sale of land be in writing, the absence of formality “commonly provides the basis for a strong argument that intention to be bound cannot
14 McLauchlan, above n 12, at 442.
reasonably be inferred.” In addition, McMorland’s Sale of Land observes the requirement of s 24 of the PLA is said to give rise to an inference that the parties do not intend to be bound in contract until the agreement is in writing and signed by both.15
[42] I accept Mr Chisholm’s argument that the absence of formality is an important consideration, particularly in the context of a complex commercial deal of $53.5m, and given the background of the 2016 original agreement (in writing, in the form of an ADLS agreement), the draft agreements attached to the critical 9 September 2020 email, and the requirements of s 24 of the PLA. However, I find such inferences do not displace or provide an adequate basis for concluding that the arguable case threshold has not been made out by SNZ, even if a Court with the benefit of a full hearing may reach a different view. The language used in the critical September correspondence, read in the context of the arguably lengthy relationship between the parties, clearly establishes, on an objective basis, an arguable and thus proper basis for the caveat to be sustained.
[43] I also accept Ms Massey’s submissions that the present circumstances are very similar to those in Geneva Healthcare.16 In that case, also concerning a caveat, the Court held that there was a reasonably arguable binding agreement for the sale and purchase of certain properties based on email correspondence of an intention to be immediately bound, and despite there being no formal written and signed contract. Woodhouse J held that there was nothing to indicate from the evidence that either party had in mind the need to draw up a formal contract before they would be bound, and in those circumstances the inference or presumption referred to by the Court of Appeal in Carruthers v Whitaker did not apply. There were several statements, particularly in Essential Assets’ communications, indicating the contrary. What Essential Assets wanted (and received) was a commitment from Geneva to buy the properties.
[44] Similarly here, it is arguable on the face of the communications that what the Trustees wanted, and ultimately received, was a binding commitment from SNZ to buy the Property by the deadline of 9 September 2020 (which they met) and that this
15 McMorland, above n 10, at [3.13].
16 Geneva Healthcare Ltd v Essential Assets Ltd, above n 12.
was intended to be the “decisive step.” There are several statements in the email correspondence, particularly those from the Trustees, indicating, arguably, that there would not be a need for the parties to draw up a formal contract before becoming bound. For example, when SNZ made a counter-offer on 4 September 2020 proposing a three-year option to purchase the Property (and provided draft agreements for the Trustees’ consideration), the Trustees rejected that counter-offer and reiterated that their 27 August 2020 email detailed a “simple offer” setting out “the terms and price which the Trustees would accept”. I also accept on the evidence before me, as it stands, that there is a history of dealings between the parties and a degree of trust and cooperation between them that supports this conclusion.
[45] At this interim stage, the outstanding relevant terms can be addressed as a matter of implied terms, or by having regard to the arguable Joint Venture relationship between the parties, which I accept are reasonably arguable. McMorland notes that if the parties did not intend to agree upon a particular non-essential term, the matter in question would be dealt with by the otherwise applicable rules of common law and equity.17 The text also notes that where there is no express provision in the contract governing any matter required for carrying out the contract, and the parties do not intend to agree on any such term, it is said to be “open” and governed by the appropriate rules of common law or equity.18
[46] Finally, because SNZ did not meet the due diligence condition by 20 December 2020, it must establish it is reasonably arguable that the agreement remains on foot and was not cancelled. SNZ again relies on the doctrine of implied terms and also the proposition that a party cannot rely on its own default in justifying the cancellation of an agreement. Again, I accept that these contentions are reasonably arguable. Whether they are ultimately successful will be a matter for trial. The full factual background needs to be tested.
17 McMorland, above n 10, at [3.09].
18 McMorland, above n 10, at [3.09].
Issue two: ostensible authority and the requirements of s 24 of the PLA
[47] As noted, s 24 of the PLA provides that a contract for the sale of land is not enforceable unless the contract is in writing and signed by the party against whom the contract is sought to be enforced.
[48] It is not in dispute that the Trustees, as the registered proprietors of the land, are the party “against whom the contract is sought to be enforced”. Section 24 requires signature by all four respondent trustees as the vendors.
[49] The 27 August 2020 email and the 7 September 2020 email were signed by Robert Wallace (on paper) and Bruce Wallace (electronically). Bruce Wallace is a trustee but his son, Robert Wallace, is not. None of other three trustees have signed.
[50] SNZ relies on the doctrine of ostensible authority in advancing its case that the requirements of s 24 have been met. That doctrine is described by Asher J in Pascoe v Attorney-General as follows:19
[21] Ostensible authority is created, therefore, by the actions of the principal, who by words or conduct represents to the other party that a person has the necessary authority to enter into the transaction on the principal’s behalf. The authority may be either express or implied, and may arise by the principal permitting the agent to act in some way in the conduct of the principal’s business with other persons. The representation of authority can be effected through a course of dealing that is sufficiently frequent and understood. It may also arise where an agent is vested with a particular office and that office is of the kind that could reasonably be expected to carry the authority. The perception of authority by the other party must be reasonable. Specific limitations on the authority of an agent may not be effective if the actions of the principal had created the representation of authority.
[22] No representation by the agent can create ostensible authority without something more. However an agent’s authority may emanate from the joint actions of both the principal and the agent where the principal appoints an agent to a position that enables the agent to then bolster its authority in dealings with a third party.
(emphasis added; citations omitted)
19 Pascoe v Attorney-General [2015] NZAR 457 (CA).
[51]In this analysis, Asher J referred to the following statements of Richardson J in
New Zealand Tenancy Bonds Ltd v Mooney:20
The doctrine of apparent or ostensible authority applies where a person by words or conduct represents or permits to be represented that another person has authority to act on his behalf: in such a case he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if that other person had the authority that he was represented to have, even though he had no actual authority (Bowstead on Agency (15th ed, 1985) p 284). As Bowstead goes on the emphasise (p286) a representation by the agent that he has authority cannot create apparent authority unless the principal can be regarded as having in some way instigated or permitted it, or put the agent in the position where he appears to be authorised to make it. ‘No representation by the agent to the extent of this authority can amount to a “holding out” by the principal’ …
(emphasis added)
[52] The critical issue I must address is whether there is an arguable case that the principals (here, the Trustees) can be regarded as having in some way instigated or permitted the authority or the apparent authority that Robert Wallace and Bruce Wallace represented they had when they wrote the correspondence on behalf of the Trustees.
[53] There is little or no direct evidence that the relevant principals, namely the registered proprietor Trustees, in some way instigated or permitted the authority or the apparent authority of either Robert Wallace or Bruce Wallace. Mr Chisholm submitted this is a weakness of SNZ’s case: an agent cannot self-authorise.21
[54] However, the relatively lengthy relationship between the parties and clear, ongoing discussions and negotiations between them since at least 2016 about the sale of the Property provides the crucial context for addressing the ostensible authority issue. The evidence may be somewhat tenuous, but I find that it is arguable that there has been a mutual understanding, reinforced by the actions of at least some of the Trustees, that all the Trustees as registered proprietors were prepared and willing to sell the Property.
20 New Zealand Tenancy Bonds Ltd v Mooney [1986] 1 NZLR 280 (CA), at [283]–[284].
21 New Zealand Tenancy Bonds Ltd v Mooney, above n 20, at [283]–[284].
[55] The language of the critical August and September 2020 correspondence is consistent with this finding. The letter of 27 August 2020 refers to “the Trustees” and Robert Wallace expressly stated that “the Trustees have, however, asked me to confirm that they are willing to allow you one final opportunity …” (emphasis added). The email from Bruce Wallace of 7 September 2020 refers to “our correspondence of 27 August 2020” and “we will give you till close of business …” (emphasis added). No advice or indication is given to SNZ that neither Bruce nor Robert Wallace needed to obtain authority from the Trustees and the acceptance by SNZ in its email of 9 September 2020 proceeds on the understanding that there was no issue with authority.
[56] In addition, in his third affidavit, Bruce Wallace contends that neither Robert nor James Wallace are trustees and that they have neither actual nor ostensible authority to bind the trustees to transactions. However, I note that in his first affidavit sworn 10 December 2020, Bruce Wallace addresses the exchange of email correspondence on what appears to be an assumption or understanding that both he and his son Robert were acting with the authority of the Trustees (at paragraphs [8] – [11]).
[57] From all the evidence before me, it can be inferred that the Trustees instigated, or permitted, Robert and Bruce Wallace to make an offer on their behalf to sell the Property for $53.5m and which accepted would be legally binding. I thus find that an arguable case of ostensible authority has been made out.
[58] To the extent the position does not emerge with full clarity, I note that an order for the removal of the caveat will only be made if it is “patently clear”22 that the caveat cannot be maintained. Therefore, any doubts should be resolved by upholding the caveat and allowing all matters to be tested at trial.
22 Philpott v Noble Investments Ltd, above n 1, at [26].
Discretion
[59] Even if a caveatable interest is established, as I have found, the Court still retains a residual discretion not to uphold a caveat, for example where there can be no benefit flowing to the caveator.23
[60] However, it is clear in this case that an order for removal would prejudice SNZ, as caveator, and I find there is no basis for exercising my discretion to order the removal of the caveat.
[61] There remains, however, the issue of whether the caveat should be sustained on condition that SNZ give an undertaking as to damages.
[62] The Trustees are concerned that SNZ is a shell company; it does not have any substantive assets or income and does not trade or earn revenue. The Trustees say that they have already lost opportunities as a result of the caveat, to deal with the Property, including leasing opportunities. The Trustees’ solicitors have recently repeated a request for a proposal from SNZ for security for costs in the Substantive Proceeding.
[63] Mr Chisholm referred to a recent Court of Appeal decision Cowan v Cowan,24 a caveat case where in granting leave to lodge a second caveat, it was a condition of the order that the applicants give an undertaking as to damages to protect the respondent should their claim fail.
[64] There may well be merit to Mr Chisholm’s submission. However, in my view, those matters are best addressed as a matter of security for costs in the Substantive Proceeding. The issue of an undertaking as to damages only arose after the conclusion of the hearing and there is very little evidence before me squarely addressing the issue.
[65]I thus reject the contention that there should be an undertaking as to damages.
23 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA), at [656].
24 Cowan v Cowan [2021] NZCA 31 at [40].
Conclusion
[66] SNZ has established a reasonably arguable case to a beneficial interest in the Property and, on that basis, the application that the caveat not lapse is be granted. There are no discretionary factors supporting an order the caveat should nonetheless be removed.
Result
[67] The application by Studio New Zealand Ltd that caveat 11884633.1, lodged against the property identified by Record of Title 622075 at 296 Porchester Road, Takanini, Auckland, not lapse, is granted pursuant to s 143 of the Land Transfer Act 2017. The caveat is thus sustained.
[68] That order is conditional on SNZ taking all reasonable steps to prosecute the Substantive Proceeding, namely CIV-2020-4040-2544.
[69]Leave is reserved to the parties to apply for further directions or orders.
[70] As to costs, I am of the view that having succeeded, SNZ is entitled to costs and disbursements and on a 2B basis. If costs cannot be agreed, then memoranda (no more than three pages) are to be filed and served within 14 days.
Associate Judge P J Andrew
5
0