Torbay View Trustee Limited v Glenvar Everuni Limited
[2015] NZHC 1236
•3 June 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-251 [2015] NZHC 1236
BETWEEN TORBAY VIEW TRUSTEE LIMITED
Applicant
AND
GLENVAR EVERUNI LIMITED Respondent
Hearing: 3 June 2015 Appearances:
A Sharp for Applicant
J Wickes for RespondentJudgment:
3 June 2015
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Jesse & Associates (Jesse Nguy) Auckland, for Applicant
Loo & Koo (Jennifer A Wickes) Auckland, for Respondent
Counsel:
A D Sharp, Barrister, Auckland, for Applicant
TORBAY VIEW TRUSTEE LIMITED v GLENVAR EVERUNI LIMITED [2015] NZHC 1236 [3 June 2015]
[1] Torbay View Trustee Ltd applies to sustain caveat 997836.1 lodged against the property owned by Glenvar Everuni Ltd at 9/254 Glenvar Road, Torbay, Auckland. The interest claimed under the caveat is:
Pursuant to an agreement for sale and purchase of real estate dated
14 August 2014, Land Trust Ltd agreed to sell and Torbay View Trustee Ltd (as trustee of the Torbay View Trust) agreed to purchase the land contained in the above certificate of title no. NA1869/192, following purchase of the same by Land Trust Ltd from the registered proprietor, Glenvar Everuni Ltd.
In short, Torbay View Trustee Ltd has caveated as a sub-purchaser.
[2] This case concerns two property developers/traders. One is Mr Stephen
Robert Kelly. There are three companies associated with Mr Kelly:
(a) Land Trust Ltd, which was the original purchaser from Glenvar
Everuni Ltd;
(b) Torbay View Trustee Ltd, the caveator and the sub-purchaser; and
(c) Form Property Group Ltd, which owns a commercial unit at
160 Grafton Road.
The other is Mr Bin Yan Zhou, director and in control of Glenvar Everuni Ltd.
[3] The case involves a number of agreements for sale and purchase of land. All the agreements use the Auckland District Law Society form (9th ed 2012 (2)). The agreements are:
(a) An agreement between Land Trust Ltd and Glenvar Everuni Ltd to buy 9/254 Glenvar Road (the Glenvar agreement);
(b)A contemporaneous agreement by Mr Zhou to buy the Grafton property from Form Property Group Ltd (the Grafton agreement);
(c) The sub-sale agreement by Land Trust Ltd to Torbay View Trustee for the Glenvar property; and
(d) Sub-sales of parts of the Glenvar property by Torbay View Trustee Ltd
(the further sub-sale agreements).
Issues
[4] A preliminary point taken by Glenvar Everuni Ltd was that Torbay View Trustee Ltd is out of time with its application but in the light of reply evidence given by Torbay View Trustee Ltd, that is no longer a live issue. That reply evidence shows that the present application was filed in court on time and served on LINZ in the required period of time. An interim order was made in terms of the requirements of the Land Transfer Act 1952. The timing rules have been satisfied.
[5] The issues in the case are:
(a) Glenvar Everuni Ltd says that the caveat is ineffective because there is no agreement dated 14 August 2014 between Glenvar Everuni Ltd and Land Trust Ltd.
(b)Torbay View Trustee Ltd says that the sub-purchase agreement by Torbay View Trustee Ltd is ineffective because it is a pre- incorporation contract that was not ratified after incorporation.
(c) Glenvar Everuni Ltd says that leave was required under s 148 of the Land Transfer Act for Torbay View Trustee Ltd’s caveat because there was a prior caveat lodged by Land Trust Ltd for the same interest.
(d)Does Torbay View Trustee Ltd have a caveatable interest in the Glenvar property? That question involves an enquiry into these matters:
(i)Was condition 20 in the Glenvar agreement able to be waived by Land Trust Ltd? That requires an enquiry whether the condition was for the exclusive benefit of Land Trust Ltd.
(ii) Was Land Trust’s waiver of cl 20 requested by Glenvar?
(iii)Is Glenvar barred from relying on non-satisfaction of conditions because of lack of reasonable effort on the part of Mr Zhou under due diligence clauses?
The Glenvar property
[6] Glenvar Everuni Ltd is the registered proprietor of a half share of a cross- lease title of about 8,000m2 in lot 1, DP3883, described in identifier NA1069/192 at
9/254 Glenvar Road, Torbay, Auckland. The land is undeveloped. The other half share is developed. It appears that any further subdivision of 9/254 Glenvar Road will require resource consent and will entail surveying work to establish independent titles.
The Glenvar agreement
[7] On 19 July 2014 Glenvar Everuni Ltd entered into the Glenvar agreement with Land Trust Ltd. There was a land agent, Barfoot & Thompson. The purchase price of the property is $1,150,000 (inclusive of GST). The settlement date under the agreement is 8 August 2014. There is a deposit payable of $60,000 on the agreement becoming unconditional. The general terms of sale were not amended but the parties added special conditions. Importantly, they included these:
19.This agreement is conditional on the purchaser carrying out a due diligence investigation of the property, to the absolute satisfaction of the purchaser, including without limitation the following within
10 working days from agreement:
(a) All legal and title issues relating to the property and any
encumbrances or memorials registered on the title’
(b) Resource management, code of compliance and LIM matters relating to the property;
(c) A builder’s report, including engineering issues;
(d) Surveying and resource management issues relating to the property;
(e) Valuation advice;
(f) The suitability of the property for the intended use by the purchaser;
(g) Finance on terms and conditions suitable in all respects to the purchaser;
(h) Any other matter that the purchaser deems.
20.The agreement is conditional on Mr Bin Yan Zhou/his company confirmed to buy 3B5/160 Grafton Road, Grafton, from Mr Stephen Kelly/his company within 15 working days from agreement date.
[8] As to the operation of these conditions, the 10 working days under cl 19 expired on 1 August 2014 and the 15 working days under cl 20 expired on 8 August
2014.
The Grafton agreement
[9] On the same day as the Glenvar agreement, Form Property Group Ltd, the owner of a commercial property, Unit 3B5, 160 Grafton Road, Grafton, Auckland, (described in identifier 364594) entered into the Grafton agreement to sell the unit to Mr Zhou. The purchase price is $400,000 inclusive of GST. A deposit of $20,000 is payable on the agreement becoming unconditional. As with the Glenvar agreement, the date of settlement is 8 August 2014. Again, there is no change to the general conditions of sale but the parties added special terms.
[10] The special terms in cls 19 and 20 are to the same effect as special cls 19 and
20 in the Glenvar agreement. Under condition 21, the vendor warranted to convert the property back into an office and to lease it back paying rent of $550.00 per week plus outgoings.
Further events
[11] Although this was unknown to Mr Zhou, on 28 July 2014 this court heard an application by Body Corporate 37993, the body corporate for 160 Grafton Road, to put Form Property Group Ltd into liquidation. The body corporate was a creditor of Form Property Group Ltd for over $200,000 for unpaid body corporate levies.
[12] On 30 July 2014, Land Trust Ltd entered into the sub-sale agreement with Torbay View Trustee Ltd. Torbay View Trustee Ltd is named as the purchaser. The same person, presumably Mr Kelly, signed for both the vendor and the purchaser.
The purchase price is $1,550,000 inclusive of GST. The settlement date is 22 August
2014. Again, the general terms of sale have not been changed but there were special conditions:
18.The parties acknowledge that the vendor is not the registered proprietor of the property as at the signing of this agreement, however [it] has entered into an unconditional sale and purchase agreement for the purchase of the property from the present registered proprietor, Glenvar Everuni Ltd (the substantive agreement).
19.The parties further acknowledge their understanding and agreement that the settlement of this agreement is conditional upon and to occur contemporaneously with the settlement of the substantive agreement.
20. 3B5/160 Grafton Road, Grafton, Auckland
The purchaser shall cause the property at 3B5/160 Grafton Road, Grafton, Auckland (the Grafton property) to be transferred to the vendor for the consideration of $400,000 (four hundred thousand dollars), being an offset of the purchase price to be treated as the deposit. The purchaser shall cause the Grafton property to transfer to the vendor on settlement date.
[13] Clause 18 is incorrect in describing the Land Trust Ltd agreement to buy the
Glenvar property as “unconditional” because it is common ground that at 30 July
2014 the Glenvar agreement was still conditional.
[14] There is also the puzzling aspect that whereas Mr Kelly had entered into an agreement for Form Property Group Ltd to sell the Grafton property to Mr Zhou, within two weeks he entered into another agreement under which Torbay View Trustee Ltd was to arrange for the same property to be transferred to Land Trust Ltd. There is no other evidence to reconcile those matters.
[15] At the date of that agreement, Torbay View Trustee Ltd had not been incorporated. It was not incorporated until 7 August 2014.
[16] On 6 August 2014, Howick lawyers acting for Glenvar Everuni Ltd wrote to the lawyers for Land Trust Ltd. Dealing with the Glenvar agreement, they noted that the agreement was conditional under both cls 19 and 20. They said:
The due diligence conditions are overdue. Please urgently let us have your
client’s position in this regard.
[17] On 8 August 2014, the lawyers for Land Trust Ltd replied:
… We are instructed to confirm the due diligence investigation condition satisfied and accordingly the agreement for sale and purchase conditional only upon your client’s satisfaction of the due diligence investigation condition for the property at 3B5/160 Grafton Road, Grafton, Auckland.
We look forward to your advice with regard to that condition as soon as possible.
[18] The evidence is silent as to written communications between Glenvar Everuni Ltd and its lawyers on the one hand and Land Trust Ltd and its lawyers on the other hand until events in September 2014.
[19] There were other developments. On 7 August 2014, as I have already described, Torbay View Trustee Ltd was incorporated. During the same period, Torbay View Trustee Ltd entered into four agreements to sell house lots to be created out of a subdivision of 9/254 Glenvar Road. While the Auckland District Law Society form was being used, there were extensive modifications to the standard agreement. Terms were added typical of those used by developers when selling lots off the plan. All the agreements were conditional on Torbay View Trustee Ltd taking title to the Glenvar Road property by 19 September 2014, and obtaining resource consents for the issue of separate fee simple titles for each lot sold. In his affidavit Mr Kelly says that Torbay View Trustee Ltd had obtained finance to go ahead with the purchase of Glenvar Road, and that deposits paid by each of the four purchasers were held in a solicitor’s trust account.
[20] One of the sub-purchase agreements was entered into on 7 August 2014, the same day that Torbay View Trustee Ltd was incorporated, and another was entered into on 8 August 2014. The other two agreements were before Torbay View Trustee Ltd was incorporated.
[21] Mr Zhou refers to this period in his evidence. He was not satisfied with the investigation into the Grafton Road property. He believed at the time he signed the agreements he was getting a very good bargain on Grafton Road but on further investigation he came to the view that it was no bargain. He says that on or about the beginning of August 2014 he told the agent to tell the vendor that he was not
satisfied with the Grafton Road property and could not buy it. He would not sell Glenvar Road to Land Trust Ltd. He could not declare the due diligence condition satisfied. There is no evidence of any written communication by either the lawyers for Glenvar Everuni Ltd or by the land agents in terms of these matters described by Mr Zhou.
[22] On 5 September 2014 the lawyers for Land Trust Ltd wrote to Glenvar
Everuni Ltd’s lawyers:
We are instructed that the purchaser waives the condition in clause 20.1 of the agreement for sale and purchase.
Accordingly the agreement is unconditional.
We note that the settlement date specified in the agreement has passed and accordingly propose 22 September 2014 as the settlement date. Please confirm and provide us with your settlement statement as at that date.
Notwithstanding the fact that your client has not satisfied the due diligence condition relating to the purchase of 3B5/160 Grafton Road, Grafton, our client invites your client to do so if it wishes. We look forward to your advice …
[23] On 18 September 2014, new lawyers instructed for Glenvar Everuni Ltd sent an email to the lawyers for Land Trust Ltd:
The above agreement is conditional upon our client satisfying his purchase of 3B5/160 Grafton.
As we advised previously, our client was not satisfied with purchase of
3B5/160 Grafton, the above agreement (254 Glenvar Road) is therefore at an end.
[24] On 19 September 2014, Land Trust Ltd’s lawyers wrote to the new lawyers for Glenvar Everuni Ltd advising that cl 20 of the agreement for sale and purchase for Glenvar Road had been waived, and the agreement had been declared unconditional. It called on Glenvar Everuni Ltd to settle.
[25] On 15 October 2014, Land Trust Ltd lodged caveat 9865559.1 against the title to Glenvar Road. The interest Land Trust Ltd claimed in the caveat was:
… pursuant to an unconditional agreement for sale and purchase dated
19 July 2014 between the registered proprietor as vendor and the caveator, Land Trust Ltd, as purchaser.
[26] On 27 November 2014 Glenvar Everuni Ltd’s lawyers wrote to the lawyers
for Land Trust Ltd. The letter said, amongst other things:
We are instructed by our client that it could not through its agent request your client to waive the requirement for there to be a trade of the Grafton Road apartment, nor did it waive the condition contained within clause 20 of the agreement for sale and purchase. Our client advises that its agent has confirmed that he denies making the above request in communication with your client.
The condition in clause 20 is for the benefit of the vendor and your client cannot unilaterally waive that condition. Our client is dissatisfied with the same condition and therefore the agreement is now at an end.
The letter then referred to the caveat that had been lodged and asked for it to be withdrawn, failing which application would be made to lapse it.
[27] On 10 December 2014, Glenvar Everuni Ltd applied to lapse the caveat by Land Trust Ltd under s 145A of the Land Transfer Act. The caveat lapsed, apparently, because Land Trust Ltd took no action to sustain the caveat.
[28] On 23 December 2014 Torbay View Trustee Ltd lodged the caveat in this case against the title to the Glenvar property.
[29] Glenvar Everuni Ltd applied to lapse that caveat on 19 January 2015 and this proceeding has followed. There is an interim order sustaining the caveat until the merits of the application are determined.
[30] So far no deposits have been paid under the Glenvar agreement or the Grafton agreement. No-one one has served any notice under cl 2.2 of the general conditions requiring payment of a deposit. Although settlement dates have been proposed, no party has issued any settlement notices.
[31] I referred earlier to the liquidation proceeding brought by the body corporate for 160 Grafton Road. Associate Judge Sargisson gave her decision on 12 February
2015. She made an order putting the company into liquidation. Attached to Ms Wickes’ submissions is a copy of the liquidators’ first report on the liquidation. The liquidators record that the body corporate is owed $206,840 in outstanding levies. There are also costs of the liquidation application of $17,565. They also
noted that there were two mortgages registered against the title. The first mortgagee is owed approximately $400,000 and the second mortgagee is owed more than
$1,000,000.
[32] There is a further matter going to context information. Mr Kelly has included in his evidence a report by a registered valuer as to the value of the Glenvar property. As at 31 July 2014 the valuer assessed the value of the property at $1,800,000 including GST. The primary basis for the valuation seems to be a notional subdivision, cross-checked by reference to comparative sales. On the basis of that valuation the purchase by Land Trust Ltd seems to be a bargain and Glenvar Everuni Ltd appears to have sold at an under-value. Mr Zhou’s reluctance to go ahead with the agreement may therefore be understandable.
Is the caveat invalid because of the incorrect date of the agreement?
[33] The caveat by Torbay View Trustee Ltd refers to an agreement for sale and purchase with Land Trust Ltd dated 14 August 2014. The evidence is that there was no agreement on 14 August 2014. There was, instead, an agreement on 30 July
2014. Glenvar Everuni Ltd submits that invalidates the caveat.
[34] With respect, I do not accept that as significant. I take my guidance from these authorities. In Norrie v Registrar-General of Land Ellen France J made the point that while there is a requirement for certainty in a caveat, what would be “sufficient certainty” would vary according to the circumstances. She said:1
One purpose of requiring adherence to the form is to provide a threshold of some sort albeit there are avenues of redress for the registered proprietor (making an application for removal of a caveat under s 143 and the ability under s 146 to seek damages from the caveator).
[35] She also made the point that while complaints were often directed at s 137(2)(b) of the Land Transfer Act, frequently the real complaint is non-
compliance with s 137(2)(c):2
1 Norrie v Registrar-General of Land (2005) 6 NZCPR 94 (HC) at [39].
It was necessary to explain how the interest derived from the registered proprietor. In some cases this factor may be obvious from the title but that was so here.
[36] The Court of Appeal approved her decision in Zhong v Wang.3 That decision has been regarded as indicating that a liberal approach should be applied when dealing with technical challenges to caveats. The court emphasised the need to identify the form of interest and how it is derived from the registered proprietor.
[37] There is no more than a drafting error in that the date of the sub-sale agreement is misstated. That will not have misled Glenvar Everuni Ltd in any sense. It was concerned to know that there was a sub-sale agreement. It could have learnt that from reading the caveat. The sub-sale agreement was made after the Glenvar agreement. Although the date was misstated, the drafting of the caveat was sufficient to identify the interest claimed and how it was derived. The error in the date of the agreement is immaterial.
[38] Accordingly, the caveat is not invalid on that ground.
Is the sub-sale agreement ineffective because it is a pre-incorporation contract that was not ratified upon incorporation?
[39] This matter turns on s 182 of the Companies Act 1993:
182 Pre-incorporation contracts may be ratified
(1) In this section and in sections 183 to 185 of this Act, the term pre- incorporation contract means—
(a) a contract purporting to be made by a company before its incorporation; or
(b) a contract made by a person on behalf of a company before and in contemplation of its incorporation.
(2) Notwithstanding any enactment or rule of law, a pre-incorporation contract may be ratified within such period as may be specified in the contract, or if no period is specified, then within a reasonable time after the incorporation of the company in the name of which, or on behalf of which, it has been made.
3 Zhong v Wang (2006) 7 NZCPR 488 (CA).
(3) A contract that is ratified is as valid and enforceable as if the company had been a party to the contract when it was made.
(4) A pre-incorporation contract may be ratified by a company in the same manner as a contract may be entered into on behalf of a company under section 180.
(5) Notwithstanding the Contracts (Privity) Act 1982, if a pre- incorporation contract has not been ratified by a company, or validated by the court under section 184, the company may not enforce it or take the benefit of it.
[40] While it does not say so directly, Glenvar Everuni Ltd relies impliedly on s 182(5) which provides that if a pre-incorporation contract has not been ratified by a company or validated by court order, the company may not enforce it or take the benefit of it.
[41] There has been ratification. That is apparent because of the sub-sale agreements made on 7 and 8 August 2014. Those agreements refer to the agreement between Land Trust Ltd and Torbay View Trustee Ltd. Torbay View Trustee Ltd needed to obtain title to the lots to be created by virtue of its agreement with Land Trust Ltd. In entering into those agreements, it committed itself to performing the agreement with Land Trust Ltd. In making that commitment it ratified that agreement. The ratification is recorded in writing by virtue of those written agreements. The ratification took place almost immediately after incorporation – within a reasonable time under s 182(2). Besides, Mr Kelly’s affidavit, made in his capacity as director of Torbay View Trustee Ltd, confirms that ratification.
Is this a second caveat under s 148 of the Land Transfer Act 1952?
[42] Glenvar Everuni Ltd says that the caveat by Torbay View Trustee Ltd is a second caveat under s 148, and therefore requires a court order. Its argument is that Land Trust Ltd had lodged a caveat, relying on the Glenvar agreement, but it lapsed under s 145A. It says that the new caveat is in respect of the same interest and that it has been lodged by or on behalf of the same person, Land Trust Ltd. It makes that submission notwithstanding that Land Trust Ltd and Torbay View Trustee Ltd are separate persons.
[43] Section 148 of the Land Transfer Act says:
No second caveat may be entered
(1) If a caveat has been removed under section 143 or has lapsed, no second caveat may be lodged by or on behalf of the same person in respect of the same interest except by order of the High Court.
(2) For the purposes of verifying that a caveat does not contravene the prohibition in subsection (1), the Registrar is not obliged to inquire further than the current folium of the register or computer register for the land.
[44] In Emslie v Genuine Investments Ltd (in liq), Asher J said: 4
[119] … However, s 148(1) refers to a matter of real substance. It ultimately requires the High Court to consider whether the caveat is protecting the same interest.
[120] To do this it is legitimate for the Court to go further than the plain words of a caveat, and to consider the substance of the interest that a party is seeking to protect. It seems highly unlikely that it was intended by the drafters of s 148 that a party might be able to lodge a second caveat, simply by expressing the protection of the underlying interest in a different way using apparently different words. The purpose of the section was presumably to ensure that the strict rules set out for the challenging of caveats, and their subsequent lapsing if certain steps were not taken, were not nullified by the parties being able to allow caveats to lapse and then immediately lodging a further caveat. This would undermine the policy of the Act: Attorney- General v Langdon [1999] 3 NZLR 457 at p 473.
[45] That is helpful in explaining the purpose of the section. In particular, it is important protection against vexatious caveats.
[46] It is necessary to consider:
(a) whether the same interest is relied on in both caveats, and
(b) whether Torbay View Trustee Ltd can be identified with Land Trust
Ltd.
[47] I deal first with the question of interest.
4 Emslie v Genuine Investments Ltd (in liq) (2005) NZCPR 161 (HC) at [119]-[120].
[48] It is common ground that a sub-purchaser may lodge a caveat. The authority is McDonald v Isaac Construction Ltd. The decision is valuable for its analysis of the interest of the sub-purchaser in the property of the head vendor. Tipping J summarised his views:5
In my view, there is no reason in principle why a sub-purchaser, whether by sub-sale or assignment, should not be regarded as acquiring an equitable interest in the land. If the sub-sale or assignment is of the whole of the subject-matter of the head contract then, as the authorities show, the sub- purchaser is entitled to step into the shoes of his vendor for the purposes of enforcement against the head vendor.
[49] Earlier in his decision, Tipping J referred to Shaw v Foster where Lord
O’Hagan said: 6
And it is farther very clear that the interest so vested in the purchaser may be the subject of charge or assignment, and that the sub-assignee or incumbrancer may enforce his rights against the vendor, at all events if he assumes the position of the vendee, and fulfils the duties and sustains the liabilities created by the contract.
[50] Similarly, in Naismith v Smith, it was held that a sub-purchaser could enforce completion by the head vendor, the intermediate party having disappeared.7
[51] It is necessary to note, of course, that Tipping J held that if a necessary link in the equitable chain were to break, the initial equitable interest would cease. A sub- purchaser is in no stronger position than the head purchaser.8
[52] McDonald v Isaac Construction Ltd shows that when a sub-purchaser caveats the title of the head vendor, he is relying on the same interest as the purchaser under the head contract. The ability to caveat relies on the rights of the purchaser under the head contract: the sub-purchaser is able to step into its shoes. Therefore the same interest criterion is satisfied.
[53] The next element is whether the caveat – admittedly lodged by a different person – has been lodged by or on behalf of the original caveator. Here, it is
5 McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 (HC) at 619.
6 Shaw v Foster (1872) LR 5 HL 321 at 349-350.
7 Naismith v Smith [1954] VLR 567 (VSC).
8 McDonald, above n 5, at 619.
important to recognise that the rights of the sub-purchaser are derivative in that the sub-purchaser is able to step into the shoes of the head purchaser and assert the head purchaser’s rights. When Torbay View Trustee Ltd lodged its caveat, it was relying on the rights of the head purchaser and was stepping into its shoes. It was lodging a caveat on behalf of the head purchaser. The requirement for the identity of the caveator is established under s 148. Accordingly, I find that the present caveat is invalid because an order was not obtained under s 148 of the Land Transfer Act.
Does Torbay View Trustee Ltd have a caveatable interest in the Glenvar property?
[54] That, however, does not complete the consideration of the matter. It is also necessary to consider whether the matter could be addressed by making an order under s 148 for a fresh caveat. If Torbay View Trustee Ltd has a genuine interest in seeking to have its caveat upheld, it would be unduly harsh not to make a fresh order under s 148.
[55] As earlier indicated, the matters to be considered are:
(a) Did the condition in cl 20 in the Glenvar agreement operate only for the benefit of Land Trust Ltd, or was it inserted for the benefit of both parties?
(b) Did Glenvar Everuni Ltd request the waiver? and
(c) Did Mr Zhou make reasonable efforts to comply with the due diligence condition in the Grafton agreement?
Did the condition in cl 20 in the Glenvar agreement operate only for the benefit of
Land Trust Ltd, or was it inserted for the benefit of both parties?
[56] These questions deal with conditions clauses in the contracts and waiver. General condition 9.8 of each agreement for sale and purchase says:
Operation of condition
9.8If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such 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 to 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 monies paid by the purchaser under this agreement and neither party shall have any 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. Any waiver shall be by notice.
[57] Under the general conditions any notice must be given in writing.9
[58] In Hawker v Vickers the Court of Appeal gave guidance on the operation of conditions when the question of waiver arises. The agreement for sale and purchase in that case was an earlier version of the Auckland District Law Society’s agreement for sale and purchase. Clause 7.2 of the agreement in that case corresponds to cl 9.8(5) of the agreement in this case. The Court of Appeal said:10
The legal principles are well established. A party may waive a condition or provision in a contract which is solely for that party’s own benefit and is severable. In such a case the other party is denied the right to treat the condition as unsatisfied and is obliged to complete notwithstanding the loss of that advantage. The question is one of construction of the contract. It turns on whether the stipulation is in terms or by necessary implication for the exclusive benefit of the party, and the answer is derived from a
9 Condition 1.3(1).
10 Hawker v Vickers [1991] 1 NZLR 399 (CA) at 402.
consideration of the contract as a whole in the light of the surrounding circumstances: and oral evidence, of the parties’ intentions and of the course of negotiations is inadmissible.
[59] And:11
It is clear from cl 7.2 [cl 9.8 in the present agreement] that the framers of the printed standard general conditions of contract recognised that waiver of a condition and avoidance of a contract for non-fulfilment of the condition are distinct concepts and that a power of waiver exercisable up to a specified date may co-exist with the entitlement of either party to bring the contract to an end after that specified date if the condition is not satisfied. In principle, too, that must be right and we do not read Moreton v Montrose Ltd as deciding anything to the contrary. Certainly a unilateral waiver does not sit easily with a concurrent option for either party to avoid for non-fulfilment a condition unless, as provided for in cl 7.2(2) [cl 9.8(5) in the present agreement], the option is exercisable but not actually exercised before the condition is waived. But there is nothing inconsistent in providing expressly or by necessary implication for unilateral waiver of a condition up to a certain date and thereafter for allowing either party to avoid the contract for nonfulfilment of the condition. Such a provision simply recognises the commercial reality that the nature and significance to the parties of a condition in a contract may change over time or at a point in time. 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.
[60] Under the Glenvar and Grafton agreements, the due diligence period was
10 working days – that is, up until 1 August 2014. There is no evidence that either side gave notice to the other in respect of the due diligence condition within the
10 working days. Condition 20 in each agreement required a confirmation to be given within 15 working days – that is, by 8 August 2014, the settlement date.
[61] By 8 August 2014, Land Trust Ltd had given notice to Glenvar Everuni Ltd that it was relevantly satisfied under the due diligence condition in the Glenvar agreement, but in other respects the conditions had not been fulfilled by the dates set in the agreements.
[62] That then led to the position allowed for in cl 9.8(5). With non-fulfilment of the conditions by the dates for fulfilment, either party could give notice to the other
avoiding the agreement - so long as the conditions had not been fulfilled or waived
11 Hawker at 403.
by the time notice was given. It remained open to either party to fulfil conditions up until one or other of them gave notice to avoid the agreement.
[63] The letter by Land Trust Ltd’s lawyers on 5 September 2014 purported to waive cl 20 in the Glenvar agreement. If that waiver was effective, then Glenvar Everuni Ltd had lost the opportunity to terminate the agreement and would be bound to transfer Glenvar Road to Land Trust Ltd. The effect of that is to treat the two agreements as not dependent on the other. It would allow Land Trust Ltd to abandon one agreement and push ahead with the other alone.
[64] Mr Kelly characterises cl 20 as akin to a finance agreement under cl 9.8(6). To a certain extent that is understandable, because by early September Mr Zhou had recognised that the purchase of the Grafton property would be a disaster for him. Certainly, even though these matters were not known to Mr Zhou, it can now be seen that the liquidation application had been heard with a decision pending, and that the company owning the property was grossly insolvent. From that point of view, Mr Kelly’s reaction of abandoning the Grafton agreement and offering cash instead would seem to make sense. One can understand his view that he was offering hard cash in place of the uncertainty of taking a property investment.
[65] But that is to judge matters after the parties entered into the agreements on
19 July 2014. The agreements are to be construed in the circumstances that applied when they were made. At that stage the purchasers did not have complete knowledge of the properties to be purchased. That uncertainty is recognised by the fact that they inserted due diligence conditions in both agreements. Both were proceeding on the basis that further investigation might require them to withdraw from the agreement because of information that came to hand. The due diligence clauses allowed them to take into account a large range of matters to decide whether they should continue with the purchases or not.
[66] Another factor is that these were drawn up to be interdependent contracts. These were trades. Mr Kelly acknowledges that in paragraph 7 of his primary affidavit:
The sale from Glenvar to Torbay View was essentially a trade deal.
[67] Glenvar Everuni Ltd argues that trade deals are typically interdependent. Under trade deals the values given to properties may not correspond to actual market values. The parties to the trade deal with each other on the basis of the relative values they have adopted in the interdependent agreements. Clause 20 in both the Glenvar agreement and the Grafton agreement are directed at that interdependency. Their purpose is to ensure that one agreement was not to go ahead without the other. It is the fact of that interdependency that prevents Land Trust Ltd and, through it, Torbay View Trustee Ltd alleging that cl 20 has been inserted only for its benefit. In other words, the interdependency provisions operate for the benefit of both parties. One party cannot opt out of one side of the trade without the other side of the transaction also falling over.
[68] Accordingly, I find that as the agreements are interdependent it is not open to Land Trust Ltd and Torbay View Trustee Ltd to waive cl 20 of the Glenvar agreement unilaterally.
[69] Ms Wickes referred to Forrester Parker Developments Pty Ltd v Church as authority that agreements may be interdependent even though there may not be strict identity of all the parties to the agreements. Derrington J said:12
To say otherwise is to fail to recognise that the parties can validly contract on whatever legal terms they may agree to; and if they agree on a term that shows that it is intended for the benefit of a third party at the wish of one contracting party, there cannot be a right of waiver by the other alone if he also derived a benefit from the term. That would be quite contrary to the solemn agreement of the parties.
Consequently the benefit to one party that will exclude a claim by the other of a power to waive is not limited to a benefit enjoyed by the former personally in her own right and may extend to a benefit to another whom that contracting party would wish to endow. The suggestion to the contrary implicit in the plaintiff’s argument is not supported by any authority cited, nor even by direct statement and argument. The whole point in the construction exercise of looking at the concept of benefit, is to determine whether the parties commonly agreed that only one had an interest in enforcing the term. The factor of benefit is relevant only for the purpose of throwing light on the larger question, and no artificial limitation alien to that purpose should be allowed to intrude.
12 Forrester Parker Developments Pty Ltd v Church [1997] 2 Qd R (QSC) at 173.
[70] While Mr Sharp pointed out that the facts in that case are quite different from the present, he accepted the point that there can be interdependent agreements even though there may not be identity of the parties. That is particularly the case here, where the purchaser under the Grafton agreement (Mr Zhou) is the director and in control of Glenvar Everuni Ltd, and when Mr Kelly was in effective control of Land Trust Ltd, Torbay View Trustee Ltd and Form Property Group Ltd.
Did Glenvar Everuni Ltd request the waiver?
[71] Torbay View Trustee Ltd relies on the evidence of Mr Zhou describing his investigations and his advice to the land agent about the beginning of August 2014 that he was not satisfied with the purchase, would not buy it, and would not sell Glenvar Road to the applicant.
[72] Mr Kelly deposes that the land agent, Ms Wang, spoke to him about
5 September 2014, that is, about a month later. She enquired why the transactions had not settled. Mr Kelly advised that the Grafton side of the transaction had not gone unconditional. Ms Wang said, “I think you must consider to do transaction without office.” – which Mr Kelly took to be a reference to the Grafton property. Mr Kelly said that he would look into it.
[73] I regard it as a long stretch by Mr Kelly to try to link Mr Zhou’s evidence as to his non-satisfaction with the Grafton Road property in early August 2014 and his decision not to go ahead with the sale of Glenvar Road, with the conversation by the land agent nearly a month afterwards. In particular, I would expect every land agent worth their salt to communicate with the parties more promptly than that.
[74] There is a mismatch between what Mr Zhou said, that he would not go ahead with either side of the transaction, neither the purchase of Grafton Road nor the sale of Glenvar Road, and Ms Wang proposing that one side of the transaction be abandoned and the other proceed. On Mr Kelly’s evidence, the statements attributed to Ms Wang are not what Mr Zhou authorised her to say.
[75] In these circumstances, I do not regard it as reasonably arguable that Mr Zhou authorised Ms Wang to make the conversation referred to as having taken place on
5 September 2014. Neither Mr Zhou nor Glenvar Everuni Ltd is bound by it.
[76] If this was an alleged waiver, or acquiescence by Land Trust Ltd, Land Trust Ltd did not relevantly change its position after the alleged waiver. It had already entered into the sub-sale agreement with Torbay View Trustee Ltd. There is no evidence of any relevant change of position after 18 September.
[77] Whatever communications there were did not amount to notice in writing, and, in the absence of writing, the formal requirements for a variation of contract were not satisfied. I do not regard the allegation that Mr Zhou invited a unilateral waiver by Land Trust Ltd as being reasonably arguable.
Did Mr Zhou make reasonable efforts to comply with the due diligence condition in the Grafton agreement?
[78] Torbay View Trustee Ltd criticised Mr Zhou’s lack of due diligence in making his investigations. This issue was raised late. If Mr Zhou had been put on notice that this matter was to be put in issue, I have no doubt that he would have explained more fully what investigations he did make. It can be seen in the light of the undisputed history that buying Grafton Road would have been a disaster for him, given that the vendor was insolvent. There was a large amount of debt secured against the property. There were large unpaid body corporate levies. That insolvency would create difficulties in transferring of title so as to make the agreement unfeasible. Further justification from Mr Zhou for his unwillingness to buy the Grafton property is not required.
[79] The upshot is that it is not arguable for Torbay View Trustee Ltd that the letter of 5 September 2014 by Land Trust Ltd’s lawyers was an effective waiver of satisfaction with cl 20 of the Glenvar agreement. On 18 September 2014 the lawyers for Glenvar Everuni Ltd gave an effective notice avoiding the Glenvar agreement under cl 9.8(5). As the agreement was at an end, neither Land Trust Ltd nor Torbay View Trustee Ltd can enforce it.
[80] For these reasons, I do not find that Torbay View Trustee Ltd or Land Trust Ltd has a caveatable interest in the Glenvar property. Therefore no useful purpose would be served by making an order under s 148 of the Land Transfer Act allowing the caveat to be lodged.
[81] For the above reasons I dismiss the application to sustain the caveat.
Costs
[82] I grant costs to Glenvar Everuni Ltd on a 2B basis. I trust that the parties will be able to agree the costs on that basis, but if they cannot memoranda may be filed.
………………………………………..
Associate Judge Bell
1
2
0