Tong v ANZ Bank New Zealand Limited
[2015] NZHC 2056
•28 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-001151 [2015] NZHC 2056
BETWEEN YUELEI TONG
Plaintiff
AND
ANZ BANK NEW ZEALAND LIMITED First Defendant (Struck Out)
YEWEN WANG Second Defendant
Hearing: (On the papers) Counsel:
Ross Dillon for the Plaintiff
No appearance for the Second DefendantJudgment:
28 August 2015
JUDGMENT OF MOORE J
This judgment was delivered by me on 28 August 2015 at 10:00am pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
TONG v ANZ BANK NEW ZEALAND LIMITED [2015] NZHC 2056 [28 August 2015]
Introduction
[1] The plaintiff in this proceeding entered an agreement for sale and purchase of a house with the second defendant. That agreement did not settle and the plaintiff applied for specific performance and for damages. The second defendant did not file a statement of defence, and so the matter proceeded by way of formal proof. On
10 July 2015 I issued a decisions judgment granting specific performance but I
reserved my reasons for that decision and also reserved the question of damages.1
[2] This judgment gives reasons for my earlier decision, and also answers the outstanding question of damages.
Relevant Facts
[3] On 25 June 2014, the plaintiff and the second defendant entered into an agreement for sale and purchase (“the agreement”) for the second defendant’s property in Pinehill (“the Property”). That property was subject to a mortgage in favour of the first defendant.
[4] Consistent with the terms of the agreement, the plaintiff took possession of the property on the same day and took over construction of a building on the premises. This project was conducted at a cost to the plaintiff of over $200,000. Further, the plaintiff began to make regular payments to the first defendant against the second defendant’s mortgage.
[5] Difficulties soon arose, however, as the second defendant did not pay contractors or suppliers for work conducted before 25 June 2014, as required by cl
23 of the agreement. The second defendant also failed to provide the plaintiff with certain relevant information about the development. As a result, the vendor paid these fees, at a total cost of $88,037.74, and discontinued making payments to the
vendor’s mortgage.
1 Tong v ANZ Bank New Zealand Limited & Anor [2015] NZHC 1621.
[6] The plaintiff then sought accelerated settlement, but this was not completed as the vendor did not accept the plaintiff ’s claim for an equitable set-off, and was not prepared to settle on this basis.
[7] Twice in 2015, the plaintiff also applied to the first defendant to redeem the second defendant’s mortgage. These applications were declined because of statements made by the second defendant to the effect that the agreement was obtained by duress. The second defendant also ceased making the mortgage payments above those made by the plaintiff.
[8] As a result of these non-payments, the first defendant commenced the mortgagee sale process.
Present proceedings
[9] In order to avoid a mortgagee sale, the plaintiff brought proceedings seeking a range of remedies including:
(a) orders to redeem the mortgage and transfer it to the plaintiff; (b) specific performance of the agreement; and
(c) compensation for the alleged breaches of the agreement.
[10] On 25 June 2015, Duffy J made orders directing the first defendant to transfer the mortgage to the plaintiff on payment of all obligations, without prejudice to the claims between the plaintiff and the second defendant. Her Honour left those issues to be dealt with by way of formal proof.
[11] The formal proof hearing was held before me on 8 July 2015. I issued a partial results decision on 10 July 2015 in which I made an order for specific performance, subject to the first $200,000 of any payment due to the second defendant to be paid to the second defendant’s solicitor to be held on trust pending the determination of the claim for damages. Ultimately, the amount payable under the mortgage was $1,129,919.85. This leaves only around $10,000 of the purchase
price. I write this judgment assuming that this sum has been held on trust by the
second defendant’s solicitors as per my earlier orders.
Preliminary matters
[12] I accept that the statement of claim was served on the second defendant and that no statement of defence has been filed by the second defendant. I will therefore dispose of this matter by way of formal proof.2
Specific performance
[13] Specific performance is a discretionary remedy which allows the Court to order a party to fulfil its obligations under a contract instead of awarding damages for breach of contract.3 While historically the remedy was only available where damages would be an insufficient remedy, it is now accepted that specific performance is an appropriate remedy in a wide range of cases.4 In particular,
specific performance is frequently ordered in cases involving the sale of land.5
However, the remedy is not available as of right, and the plaintiff must show that the remedy is an appropriate one in the circumstances.6
[14] While the remedy is discretionary, it is generally accepted that damages will not be an adequate remedy in cases involving the sale of land, particularly private residences.7 In such cases, in the absence of a compelling reason to the contrary, specific performance will be granted to a purchaser if he or she was, at the date of settlement, ready, willing and able to settle.8
[15] Therefore, in the present case, the fundamental question is whether the plaintiff was ready, willing and able to settle on the date of settlement.
2 Pursuant to r 15.9 of the High Court Rules.
3 Laws of New Zealand Specific Performance (online ed) at [1].
4 At [2]; see Butler v Countrywide Finance Ltd [1993] 3 NZLR 623 (CA).
5 Foreman v Hazard [1984] 1 NZLR 586 (CA) at 594; Waimor Holdings Ltd v Dean [1981] 2
NZLR 416 (HC) at 426.
6 Loan Investment Corporation of Australasia v Bonner [1970] NZLR 724 (PC) at 735.
7 Waimor Holdings Ltd v Dean [1981] 2 NZLR 416 (HC); Upper Hutt Arcade Ltd v Burrell [1973]
2 NZLR 699 (SC).
8 Gurney v Gurney (No 2) [1967] NZLR 922 (CA) at 925.
[16] The agreement provided that settlement was to occur on 3 June 2015, but that it could be accelerated by the purchaser on 10 working days’ notice. This right was exercised on or about 9 April, and settlement was rescheduled to occur 23 April
2015. With this letter, the purchaser also provided a compensation schedule seeking to claim compensation in the sum of $173,212.50.
[17] The vendor provided a settlement statement on 21 April 2015 based on a settlement date of 23 April. No reference was made to the compensation claim. On that date, the purchaser represented that it was ready, willing and able to settle, subject only to the compensation claim, this was not accepted.
[18] Clause 7 of the agreement provides that the purchaser may serve notice on the vendor prior to settlement seeking compensation or an equitable set-off against the purchase price, together with a genuine pre-estimate of the loss. If that amount is disputed, it is to be paid to a stakeholder until the dispute is determined.
[19] The purchaser, by way of the letter which sought to accelerate settlement, complied with this term. He was willing to settle, subject to the disputed sum which had been set out in the schedule prior to settlement. There is no argument that this claim was otherwise than genuine. There is therefore no basis on which it can be argued that he was not ready willing and able to settle.
[20] I therefore grant the application for specific performance.
Compensation
[21] The next question is whether the plaintiff is entitled to the sums in compensation which are claimed. That is, the sums for work carried out at the property prior to settlement. In my results judgment, I directed the first $200,000 of any sum paid to the second defendant to be held on trust by the second defendant’s solicitor, pending the determination of this claim. Ultimately, a little more than
$10,000 was paid. I now address how that money should be distributed and whether any further damages are owed.
[22] The plaintiff’s claims are all in breach of contract. It is trite that the appropriate measure of damages in such cases is to restore the plaintiff to the position he would have been in had the breach not occurred.9 The standard of proof is of course the balance of probabilities.10
[23] The compensation is sought on the basis that had the agreement been performed, settlement could have been completed prior to 1 January 2015. On this basis, the plaintiff seeks compensation for the following losses:
(a) $88,037.74 for the outstanding payments to contractors;
(b) $34,800 for additional interest payments required under the vendor’s
mortgage between January and June 2015;
(c) $13,244.40 for lost interest on the sum of $460,000 that could have been gained on immediate resale of the property;
(d) $47,777 for legal costs expended in seeking to resolve the defendant’s
breach;
(e) $9,249.66 in interest costs for the sum of $210,000 borrowed towards the repair work; and
(f) $134,550 required to cover additional repairs. [24] The total claimed therefore is $317,578.65.
[25] I accept that the second defendant breached the contract and that the plaintiff suffered loss as a result. The plaintiff is entitled to damages for the breach of
contract as of right.11
9 Robinson v Harman (1848) 1 Ex 850, 154 ER 363 at 855 and 365.
10 Maree Chetwin “Contract” in Peter Blanchard (ed) Civil Remedies in New Zealand 4 at [1.4.1].
11 John Burrows, Jeremy Finn, Stephen Todd Law of Contract in New Zealand (4th, LexisNexis
NZ, Wellington, 2012) at [21.1].
[26] What I do not accept entirely is the amount of damages claimed. Rather, I
consider that the amount due is somewhat lower than that claimed by the plaintiff.
[27] Given that the contract contained an accelerated settlement clause, I accept that the plaintiff was entitled to settle the agreement at any time when the work was complete. I also accept his evidence that this could have occurred prior to 1 January
2015, had the second defendant complied with the terms of the agreement. As a result, I also accept that the property could have been resold six months sooner, and that the plaintiff has suffered loss as a result. That loss is the use of the money which he would have obtained through the sale. However, in the plaintiff’s approach to calculating the sum owed there is some degree of double counting.
[28] Under (c) above, the plaintiff seeks the interest which he would have made on the profit from the resale of the house. However, under (e), he also seeks the interest which he paid on his overdraft expended in repairing the property. As such, the plaintiff seeks to recover twice for the profit which would have been expended in paying off this overdraft.12 As such, I am only prepared to award $9,126.71 under (c), being the interest payable on the $250,000 profit that would be expected after the plaintiff paid off his overdraft. However, I accept the amount claimed under (e) as
$9,249.66.
[29] Similarly, in his affidavit of 26 May 2015, the plaintiff states that he ceased making payments towards the second defendant’s mortgage and sought to offset these payments against the payments made to contractors. Nonetheless, he now seeks credit for the following:
(a) the full amount of the second defendant’s mortgage which he has now
paid;
(b)the payment of interest payments under the mortgage at $5,800 a month; and
12 Compare, for example Anglia Telivision v Reed [1972 1 QB 60 (CA) at 63-64.
(c) the payment of $84,037.74 which he made to the various contractors and suppliers who had not been paid.
[30] The plaintiff states that prior to discontinuing making interest payments towards the mortgage, he made payments of $5,800 per month. However, he does not indicate that these payments were continued at any point.
[31] As at 19 June 2015, the mortgage was in arrears to the sum of $45,433.54. This sum was paid by the defendant when he paid the full amount of the second defendant’s mortgage. However, this sum was owed, in part, because of the non- payment of the interest payments under the agreement. As a result, this must be offset against the $84,037.74 payable. While I accept the plaintiff’s argument that this sum may not be entirely a result of his non-payment, I consider that a large part of it is. Further, I have not been provided with an updated account of arrears as at the date the mortgage was ultimately paid. I therefore cannot satisfactorily resolve these sums.
[32] I am bound to give judgment on such sum as I consider proved on the balance of probabilities. Given the scarcity of evidence, this can be, at best, an estimation on my part.
[33] I consider that of the amount of the mortgage paid by the defendant; up to
$50,000 may have been a result of the plaintiff’s non-payments. This amount must be off-set against the $88,037.74 in repairs claimed. I am therefore only prepared to award $38,037.74 in terms of (a) above. Furthermore, in the absence of any evidence as to the amount of interest paid by the plaintiff since 1 January 2015 (if any), I make no award in terms of (b) above. I simply cannot conclude on the balance of probabilities that such payments were, in fact, made. Hence, there can be no compensation for them.
[34] As for the reinstatement costs set out in (f), I accept that these costs are payable. Mr Tong states in his affidavit, which is supported by a quote from an independent contractor, that this is the sum that was required to repair the property to the state that the second defendant had promised him at the time of the agreement.
In particular, this included the installation of chattels which the second defendant had promised to provide and the connection of utilities, both of which the second defendant had represented were already connected. This work has not yet been completed, because of the cost, but I accept that the quote provided is a reasonable estimate. I therefore award the sum of $134,550 under this head.
[35] This, finally, leaves the question of legal fees. The plaintiff says that he has expended more than $45,000 in fees as a result of the second defendant’s actions. I have no reason to doubt this claim. However, legal costs are not generally able to be recovered as damages, and a separate claim must be made in costs. While there are some exceptions where a party may seek full indemnity costs, costs are normally only paid on a scale basis.
[36] This is not such a case where indemnity costs are appropriate. Nor do I intend to deal with costs by way of damages. I therefore decline to make any award for this part of the claim.
[37] I therefore make the following awards of damages:
(a) $38,037.74 for the outstanding payments to contractors;
(b) I make no award for additional interest payments required under the
vendor’s mortgage between January and June 2015;
(c) $9,126.71 for lost interest on the sum of $250,000 that could have been gained on immediate resale of the property;
(d) I make no award for legal costs expended in seeking to resolve the
defendant’s breach;
(e) $9,249.66 in interest costs for the sum of $210,000 borrowed towards the repair work; and
(f) $134,550 required to cover additional repairs.
[38] That is a total of $190,964.11, which is to be set off against the outstanding portion of the purchase price ($10,080.15). I therefore order that the sum held on trust is to be paid to the plaintiff, and that the second defendant is also to pay damages in the sum of $180,883.96 to the plaintiff.
Costs
[39] The plaintiff has been successful in its claim. It is therefore entitled to costs. I award costs on a 2B basis with disbursements as fixed by the Registrar.
Moore J
Solicitors:
Mr Dillon, Auckland
1