To v Huang
[2015] NZHC 929
•6 May 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-000249
CIV-2015-404-000278 [2015] NZHC 929
BETWEEN THI KIM PHUONG TO
Applicant
AND
DONGLING HUANG and ZHIGAO LU Respondents
Hearing: 23 April 2015 Appearances:
Mr Hickson for Applicant
Mr O'Callahan for Ms Huang and Mr LuDate:
6 May 2015
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
06.05.15 at 4.30 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
TO v HUANG and Anor [2015] NZHC 929 [6 May 2015]
Introduction
[1] Mr To (whom I will refer to as the purchaser) entered into an agreement for the sale and purchase of the property at 431 Mill Road, Takanini on or about 12
December 2014 with the other parties to the agreement; being Ms Huang and Mr Lu
(whom I will refer to in this judgment as the vendors).
[2] The vendors have declined to proceed with the agreement for sale and purchase and have since purported to cancel it in the circumstances which I shall describe below. As a consequence, the purchaser lodged a caveat on the title to the vendor’s property. He seeks orders that the caveat not lapse. He also applies for summary judgment in the form of an order for specific performance, requiring the vendors to transfer the property to him pursuant to the agreement for sale and purchase. Both of these applications are opposed.
Background
[3] I will describe aspects of the agreement for sale and purchase in detail at the appropriate point in this judgment.
[4] Neither party made any reference in submissions to the principles that govern the making of orders for sustaining caveats or for the grant of specific performance because it was accepted that, in the circumstances of this case, the outcome will depend solely on an interpretation of the parties’ contract. The parties both accept there are no residual issues of disputed fact, which means that the Court needs to be concerned with arguable defences.
[5] The agreement that the parties entered into was conditional on the following: (a) satisfactory finance by 7 January 2015 (cl 9.1);
(b) a satisfactory LIM by 14 January 2015 (cl 9.2);
(c) a satisfactory building report by 7 January 2015 (cl 9.3,); and
(d) Satisfactory due diligence by 14 January 2015 (cl 22).
[6] The dispute between the parties centres upon the correct interpretation of the due diligence provision. The due diligence clause in the contract was to the following effect:
22. DUE DILIGENCE
This Agreement is entirely conditional upon the purchaser determining that the purchase of the property described in this Agreement comprises a commercially acceptable and viable project suitable to the Purchaser. It will be solely for the purchaser to make this determination and the Vendor will not require the Purchaser to justify or substantiate the Purchaser’s decision. Should this condition not be satisfied by 5.00pm after 15 working days from the date of this Agreement signed by both parties, this Agreement shall be voidable at the option of the Purchaser. In the event of the cancellation pursuant to this clause, all monies paid shall be refunded in full and neither party shall have any further claim or action against the other.
[7] As well, the inter-relationship between cl 22 and cl 9.8 of the agreement for sale and purchase is a further matter that the Court needs to consider. Clause 9.8 provides as follows:
Operation of conditions
9.8If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each condition the following shall apply unless otherwise expressly provided:
(1) The condition shall be a condition subsequent.
(2) The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.
(3) Time for fulfilment of any condition and any extended time for fulfilment a fixed date shall be of the essence.
(4) The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.
(5) If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other. Upon avoidance of this agreement the purchaser shall be entitled to the immediate return of the deposit and any other moneys paid by the purchaser under this agreement and neither party shall have a right or claim against the other arising from this agreement or its termination.
(6) At any time before this agreement is avoided the purchaser may waive any finance condition and either party may waive any other condition which is for the sole benefit of that party. A waiver shall be by notice.
[8] The parties agree that the date for fulfilment of all four conditions would be
14 January 2015.
[9] On 14 January 2015 the applicant paid the deposit which was fixed under the contract at $100,000 to the real estate agents acting for the vendors. The obligation to pay the deposit arose “on unconditional date”.
[10] On the same day, James Law (solicitors acting for the purchaser) sent an email to Wilson Barber & Co (solicitors acting for the vendors) as follows:
“The due diligence is satisfied provided that the settlement date is fixed on
20 March 15.
Please confirm.
The other conditions are satisfied.
I confirm that my client will take over the tenants and he will manage the
tenancy himself.”
[11] The vendors did not respond to the applicants’ request to change the settlement date. There was no further communication between the parties on that date.
[12] By email on 15 January 2015, the vendors’ solicitor advised the purchaser’s solicitor that as the conditions had not been achieved in the time provided by the agreement, the contract was avoided.
Analysis
[13] The contention for the purchaser is that the vendors had no entitlement to cancel the agreement in the event that there was a breach of cl 22. The purchaser, alone, had the right to cancel the agreement under that particular provision.
[14] The first issue that arises is whether the purchaser actually complied with the requirement of cl 9.8; that he should give notice that cl 22 was fulfilled or waived.
The notice which the purchaser’s solicitors sent to the solicitors acting for the vendors on 14 January 2015 has been set out. I do not accept that that is a notice which complies with cl 9.8 of the agreement. The obligation of the purchaser was to provide an unconditional notification of whether he confirmed the contract under the due diligence provision. The requirement for an unconditional notification arises from the need for contracts for the sale of property of this kind to be construed in a way which gives certainty to the other side. As was noted in the Court of Appeal
decision in Hawker v Vickers in another context:1
If the contract is fulfilled or waived, the parties then have the certainty of an unconditional contract. If not fulfilled or waived by the nominated date, each is free to end the contract by appropriate notice to the other.
[15] A notice of the kind which the purchaser purported to give in this case does not provide certainty. The letter which the solicitors for the purchasers sent to their counterparts, in effect, represented a statement that the purchaser would be able to confirm that the requirements of due diligence had been satisfied if the vendors agreed to an extension of the date for settlement of the contract. A contingent statement of that kind is not, in my view, what the contract required or called for.
[16] I will next make some comments about the general approach to interpretation of provisions such as cl 22. Those provisions make it clear that what was intended was that there should be some communication by the purchaser of his decision. The only reason why there had to be a communication to the vendors was so that they could have some certainty about whether they were still bound by the agreement or whether they were, alternatively, entitled to deal with the property free of the agreement for sale and purchase.
[17] Such an approach is consistent with the content of cl 9.8 which I have set out above in this judgment. Clauses 9.8(3),(4) and (5), in combination, have the effect of fixing a certain time for the purchaser to exercise such rights as he might have under cl 22 – that is, to advise the vendors whether or not he proposed to exercise his rights to cancel under the due diligence provision. Those provisions also have the
effect that the conditions are not fulfilled if the purchaser has failed to give such a
1 Hawker v Vickers [1991] 1 NZLR 399 (CA) at 408.
notice in the time limited for that purpose in the agreement. The purchaser therefore exposes himself to a right on the part of the vendors to cancel the agreement. Therefore, while he solely had the undoubted right to cancel the agreement on grounds related to what he discovered on carrying out due diligence, the process was not entirely a unilateral one. If he wished to proceed, he needed to give notice to the vendors and, if he failed to do so in the time required, the vendors had the right to cancel the agreement.
[18] The foregoing section pre-supposes that cl 9.8 has application in the circumstances of the present case. Mr Hickson argued that it did not. His argument focused closely on the introductory words at the beginning of cl 9.8, which stated that the provisions in the following clause applied “unless otherwise expressly provided”. Essentially, Mr Hickson contended the fact that it was provided in cl 22 that the agreement should be voidable at the option of the purchaser, essentially, meant that the purchaser alone had rights to cancel the agreement under cl 22 and that the attempt on the part of the defendant to cancel was not a step that was sanctioned by the clause. He further submitted that cl 9.8 did not apply.
[19] Clause 9.8 states, in effect, that it is to apply to the conditions and the contract “unless otherwise expressly provided”. It was Mr Hickson’s submission that the fact that cl 22 provided that the agreement was voidable at the option of the purchaser because of the due diligence provisions contained in cl 22 ousted the provisions of cl 9.8.
[20] I consider that the reference to the “option of the purchaser” identifies that it is the purchaser who was intended to have the benefit of the due diligence provision contained in cl 22. I accept the submission which Mr O’Callaghan made for the vendors, to the effect that the words were included in the provision to make it clear that a party may waive a condition or provision in the contract which is solely for his or her own benefit and is severable. It was not, however, a matter for the sole option of the purchaser whether he should give notice of what his stance was on the issue of due process. That is to say, the reference to voidability being at the option of the purchaser did not excuse the purchaser from communicating his decision to the vendors, which is what cl 9.8(4) and cl 9.8(5) are concerned with. There is therefore
no conflict between the latter provisions and clause 22. It follows that it is not open to the purchaser to argue that provision for the matters dealt with by those two subclauses of cl 9.8 is something about which cl 22 “expressly provided”. Clause 22 did not make any provision at all for those matters, let alone an express provision.
[21] That leads me to the conclusion that, once time became of the essence, by failing to give notice, the purchaser ran the risk that the vendors would take advantage of the position and cancel the agreement because the purchaser had not given notice that the provision was satisfied or that he waived reliance upon it. Before I express a final view on whether the vendors effectively cancelled the agreement, there is one remaining point to be dealt with.
[22] It was the submission made on behalf of the purchaser that if notice was required, and the purchaser accepted that the due diligence provision had been satisfied, then such notice had been impliedly given to the vendors by the purchaser in paying the deposit on the last day for notification of fulfilment. It was said that because there was no requirement to pay the deposit until the contract was unconditional, it therefore followed that by paying the deposit, the purchaser was implicitly acknowledging that the contract was unconditional.
[23] That contention is not accepted. The reason is that, as Mr O’Callaghan submitted, the actions of the purchaser amounted to paying the deposit to a stakeholder, in circumstances where the party paying (the purchaser) was still trying to negotiate amendments to the agreement. At the point where the payment was made, the purchaser’s actions, objectively considered, could well be viewed as the making of a payment of the deposit on the basis that he might well recover that sum if the contract never became unconditional. Therefore, there was no unequivocal representation by conduct on the part of the purchaser that he regarded the contract as being unconditional and that he accepted that due diligence had been satisfied.
[24] Further, the argument which is put forward concerning the deposit is inadmissible because the contract, and in particular cl 9.8(5), calls for the giving of explicit notice rather than entitling one party to the contract who has failed to give explicit notice to argue that the counterparty was informed of this position by
inferences to be drawn from the circumstances. The requirements of certainty, when the court is dealing with agreements for sale and purchase of land, excludes any possibility of such an approach being accepted. If the door was to be open to such an approach, uncertainty would mean that the party would not achieve clarity as to its position until the matter had been ruled on in proceedings such as those at present before the Court.
Conclusion/ Orders
[25] The applications which the purchaser has filed are both dismissed.
[26] The parties are to confer with a view to agreeing on the question of costs and, in the absence of such agreement, are to file and serve submissions on the question of costs which must not exceed five pages on each side within 10 working days of
the date of delivery of this judgment.
J.P. Doogue
Associate Judge
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