Twiss v Cannell HC Christchurch CIV 2009-409-584

[2009] NZHC 2616

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2009-409-000584

BETWEEN  KEVIN GERARD TWISS Plaintiff

ANDSUZANNE MARY CANNELL AND PETER EDWARD CANNELL Defendant

Hearing:         28 September 2009

Appearances: Mr Paulsen for Plaintiff

Ms S M Cannell in person
No appearance for Mr P E Cannell

Judgment:      6 November 2009 at 12.30 p.m.

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

0611.09 at 12.30 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel:

Cavell Leitch Pringle & Boyle, P O Box 799, Christchurch

Copy:

Mrs S Cannell, 130 Gowing Drive, Meadowbank, Auckland – by email: [email protected]

TWISS V CANNELL & ANOR  HC CHCH CIV-2009-409-000584  6 November 2009

[1]      Although the defendants did not have counsel appearing for them at the hearing before me they had, at an earlier stage in the proceedings, been represented by counsel, Mr K W Clay.  Presumably it was with his assistance that they filed a notice of opposition and affidavits in support.  Ms Cannell appeared in person but Mr P E Cannell did not appear.   Understandably Ms Cannell was very much at a disadvantage in making legal submissions and did not attempt to do so.   She did, however, bring a number of factual matters to my attention.  I have no doubt that the matters that she mentioned to me were advanced honestly and in good faith.  In the end, though, the question of whether or not the plaintiff is entitled to remedies he seeks depends upon the consideration of contract law and the law relating to the equitable remedy of specific performance.

[2]      The brief factual background is that the plaintiff owned a property at 61

Vancouver Crescent, Christchurch and from those premises operated a tavern under the name ‘Vancouver Inn’.  In August 2008 the plaintiff entered into an agreement with the defendants, the substance of which was a swap: the plaintiff swapped the business and premises of the Vancouver Inn for two properties at Mount Pleasant Road, Christchurch owned by the defendants.  The agreements were expressed to be interdependent  and  settlement  was  to  be  effected  contemporaneously.     The agreement for the sale of the plaintiff’s business included a financial warranty to the effect that the turnover of the tavern business had been $75,000 in the months of April, May and June of 2008.   No annual accounts for the current or previous financial year were provided.  The agreement was subject to the defendants carrying out  ‘due  diligence’  with  respect  to  the  tavern  business.    The  settlement  and possession date was to be two months from the ‘date of confirmation’.  However in August 2008 the defendants sought an extension of time for completion of due diligence investigations.  Eventually on 2 December 2008 the defendants confirmed the special conditions of sale, with the result that all three sale and purchase agreements – that for the Mount Pleasant properties, and the two agreements for the sale of the property and business of the Vancouver Inn, respectively, became unconditional on 2 September 2008.

[3]      By October the agreements had still not settled and the parties agreed to defer settlement  until 17 November 2008 on certain conditions, which included:

a)        The defendants were to pay all of the plaintiff’s legal expenses from

30 October 2008 forward;

b)        The  defendants  were  to  take  possession     of  the  business  from  3

November 2008 and run it in accordance with good business practice;

c)        The defendants were to vacate the premises and cease to run the business  upon receiving written notice from the plaintiff;

[4]      However on 17 November the defendants did not settle the transaction and requested a further extension of settlement to 17 December 2008.  In December 2008 the defendants began to voice concerns about the accuracy of the turnover figures and on 17 December 2008 the defendants’ lawyer advised that they had received no mortgage documentation and the defendants would not be in a position to settle. Thereafter settlement notices were served on 9 January 2009 and there were further exchanges of correspondence in which the defendants’ lawyers asserted that the turnover figures were wrong.   Attempts were made to settle the matter but those proved to be fruitless and on 25 March 2009 the plaintiff issued proceedings against the defendants seeking, amongst other things, an order for specific performance.

[5]      The defendants have remained in possession of the business and the property from which it is carried on and have also retained possessions of the sections of land which were the price that they were to pay the plaintiff for the tavern business in property.  Ms Cannell told me that the defendants cannot raise any money from the bank  because  of  the  poor  trading  performance  of  the  tavern  business.     The defendants have never cancelled the contract.

Defences

[6]      In the documents that the defendants have filed, a number of defences are advanced including an unequivocal assertion that the plaintiff gave a false warranty of the turnover of the tavern business.  The defences are misrepresentation, that the plaintiff does not come to Court seeking equitable relief with clean hands, and that the plaintiff was in breach of s 9 of the Fair Trading Act 1986.

[7]      As  I  understand  matters,  the  proper  approach  to  be  taken  in  summary judgment cases requires me to approach this matter on the basis that all that the defendants  must  do  is  show  that  it  is  reasonably arguable  that  they  have  such defences.

[8]      There  is  evidence  that  the  warranty  that  the  plaintiff  gave  was  false. Specifically, the defendants are able to point to evidence that the business in fact earned substantially less than the level of turnover that the plaintiff described ($75,000 in three months).   The defendants have given affidavit evidence to that affect.  Of course, whether that evidence will ultimately be believed is not for me to say.  But it is not implausible.

[9]      Mr Paulsen in his lucid submissions for the plaintiff drew my attention to two provisions in the contract.  Clause 6.5 of the contract states:

The vendor warrants and undertakes that the turnover warranty details stated on the front page of this agreement correctly disclose the turnover of the business (excluding GST) for the period stated.

[10]     Clause 6.6 dealt with the consequences of a breach of warranty and says:

“Breach of any warranty or undertaking contained in this clause does not defer the obligation to settle.  Settlement shall be without prejudice to any rights or remedies available to the parties at law or in equity, including but not limited to the right to cancel this agreement under the Contractual Remedies Act 1979”

[11]    Mr Paulsen accepted that it was reasonably arguable on the part of the defendants that the warranty figures were not true.  But he said that even if that was so, the effect of clause 6.5 meant the defendants cannot rely upon a breach of the warranty but are obliged to settle in full without prejudice to their rights to compensation:  Lifestyle  Group  Limited  v  Maxwell  (High  Court,  Nelson,  25

September 2007, MacKenzie J CIV-2005-442-395): [12]      I shall comment on this issue below.

Fair Trading Act

[13]     I deal next with the ground of opposition that relied upon s 9 of the Fair

Trading Act 1986.

[14]     I do not believe that such claims under the Fair Trading Act are covered by paragraph 6.6 of the contract, which deals with breaches of warranty (as opposed to statutory remedies of the kind provided in the Act).  Therefore, an arguable defence under the Fair Trading Act is available as a ground upon which the defendants are able to defeat the plaintiff’s summary judgment application.

[15]     No proceedings have been issued seeking relief under the Fair Trading Act. But wide ranging orders can be made under s 43 including varying the contract.

[16]     At the hearing before me I did not receive submissions on the question of the relationship between the Fair Trading Act and  the equitable remedy of specific performance.    I would  have  thought  that  it  was  an  appropriate  exercise  of  the discretion to decline to enter summary judgment if the effect of entering judgment would be to defeat any right to relief that the defendants might have under the Fair Trading Act, including a right to have the terms of the contract modified.

Other issues

[17]     Mr Paulsen impressed upon me the hardship that the present arrangement was causing to his client.  He had given possession of the business to the defendants and they had taken over possession of that business but at the same time had refused to transfer to the plaintiff the property that was the consideration for the contract.

Conclusion

[18]     I am not prepared to hold at the summary judgement stage that in order to give effect to Clause 6.6 of the Agreement (see [10] above], the Court should grant specific performance of the legal obligations stated in the parties’ agreement, even

though there might be factors which would otherwise entitle a Court exercising equitable jurisdiction to decline to grant the remedy of specific performance.   To do so would amount to interpreting Clause 6.6 as ousting the jurisdiction of the Court to exercise the discretion  vested in it as  a Court of  equity,  which  would seem to contravene public policy.   I think the better view is that Clause 6.6 describes the parties’ legal rights under the agreement but says nothing about the power of a Court exercising equitable jurisdiction to withhold the remedy of specific performance.  If I am correct in that view, then the fact that there is a reasonable argument available to the defendants that there has been misrepresentation on the part of the plaintiff, and that the plaintiff has not come to Court with clean hands must mean that there is a reasonably arguable defence to the plaintiff’s claim for specific performance.

[19]     Mr Paulsen emphasised that the defendants wish to ‘have it all’.  That is, they wish to be in possession of the land and business but not to pay for it by transferring the land which was the “price” that they had to pay to the plaintiff.  But an order dismissing the summary judgment application would not constitute a final judgment having that effect.

[20]     My view is that the plaintiff wishes the defendants to execute the contract fully at this point, at a stage where the defendants claim they have been misled.  I accept that they have not attempted to cancel the contract.  Possibly that is because they made an election to affirm the contract and now find it impossible to retreat to their former position.  However, in deciding this summary judgment application, it is not a matter of balancing the inconvenience and hardship to the parties.  The High Court Rules specifically require the Court to consider whether the defendants have a reasonably arguable defence.  If I decline summary judgment that simply means that the Court at a substantive hearing will have the opportunity to investigate more thoroughly the merits of the defendants’ claims.  For present purposes, though, there is an arguable defence.   The clean hands defence has the  required  elements of dishonesty.    The  alleged  derelictions  of  the  plaintiff  can  be  linked  to  the  very difficult position that the defendants find themselves in.

[21]     I have not overlooked the point that Mr Paulsen made that in respect of the defendants having elected to affirm the contract, it is difficult to see how the Court

could make any order other than an order for specific performance.  However, I take the view that there are two possibilities.   The Court might decline specific performance in the particular circumstances of this case and proceed with the matter by way of a claim for damages instead.   Alternatively, the Court might make an order for specific performance but attach a condition of compensation to the making of that order.  I agree that it seems unlikely that the Court would decline a specific performance claim and make no other order in favour of the plaintiff, even if the turnover warranty was found to be wrong.  That is because even if the business were found to be valueless the property would have some value.

[22]     I remind myself that the decision on the present application is not a final determination of the rights and wrongs of this case.  In my view there is an arguable defence and summary judgment should be declined.  The Registrar is to allocate a case management conference so that directions can be given for the conduct of the proceeding from this point.  The parties should confer on the matter of costs and I

would hope that a consent order on costs could be made at the conference.

J.P. Doogue

Associate Judge