Verboeket v Seaview Road Ltd HC Auckland CIV-2010-032-190

[2011] NZHC 1785

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-032-190

BETWEEN  PETER CHARLES ROBERT VERBOEKET

Plaintiff

ANDSEAVIEW ROAD LIMITED Defendant

Hearing:         17-19 October 2011

Counsel:         PSJ Withnall for Plaintiff

S M Dwight and K M McMullen for Defendant

Judgment:      15 December 2011 at 4:00 PM

In accordance with r 11.5 I direct the Registrar to endorse this judgment with a delivery time of 4pm on the 15th day of December 2011.

RESERVED JUDGMENT OF MACKENZIE J

TABLE OF CONTENTS

Introduction  [1] Factual background  [2] The pleadings  [19] Was there an agreement?  [21] The effect of the Nicholls lease       [28] The vendor‟s cancellation  [53] The counterclaim  [65]

Result  [76]

VERBOEKET V SEAVIEW ROAD LIMITED HC WN CIV-2010-032-190 15 December 2011

Introduction

[1]      This is an action by the plaintiff to recover its deposit of $165,000 and related expenses paid on a contract for the purchase of a commercial building in Lower Hutt, which did not proceed. The defendant counterclaims for damages for breach of the contract by the plaintiff.

Factual background

[2]      In 2009, Seaview Road Limited (Seaview) was the owner of a four storey commercial building in Lower Hutt known as Apex House.  Seaview decided to sell the building and it was listed with various real estate agents from early in 2009.

[3]      Mr Verboeket  was  a  practising  barrister,  solicitor  and  registered  patent attorney who was also actively engaged in running a number of companies for family trusts of which he is a trustee.   In 2009 he had sold his interest in the law practice  and  was  looking  at  other  opportunities.     Mr Verboeket  had  limited experience in property development.   He discussed, with two potential business partners, Mr Giddens and Mr Naylor, the prospect of becoming involved in property development in Lower Hutt.  Mr Naylor later dropped out, but Mr Giddens remained involved throughout.

[4]      They became aware that Apex House was on the market and decided to investigate it further.   While they were investigating a possible purchase, Seaview entered into a conditional agreement, on 1 October 2009, to sell the property for

$1.51 million to another party.  That agreement was conditional upon the purchaser completing due diligence investigations within 30 working days.  Mr Verboeket and his associates decided to put in a back up offer, at a price of $1.65 million.   The purchaser was Mr Verboeket or nominee.   The offer was subject to the previous agreement  not  becoming  unconditional  by  16 November 2009.    It  was  further conditional upon:

(a)       The purchaser‟s approval of title within 20 working days;

(b)The purchaser obtaining satisfactory reports from: (i)  a registered engineer;

(ii)       an architect;  and (iii)    a registered valuer, all within 25 working days

(c)      The   purchasers   arranging   satisfactory   mortgage   finance   within

30 working days.

[5]      All of those times were to run from the date on which the prior agreement for sale and purchase did not become unconditional.

[6]      On 16 November 2009, Seaview‟s lawyers Cavell Leitch Law (Cavell Leitch) advised  that  the  earlier  contract  was  at  an  end  and  that  the  contract  between Mr Verboeket and Seaview was now on foot.  The condition as to approval of title was confirmed on the due date, 14 December 2009. Architect and engineer‟s reports were  obtained,  which  were  satisfactory  to  Mr Verboeket.    The  valuer‟s  report however was not.  The valuer valued the property at $1.3 million, well short of the

$1.65   million   purchase   price.      Mr Verboeket   wrote   to   Cavell   Leitch   on

19 December 2009 confirming the conditions as to registered engineer‟s report and the architect‟s report but advising that the registered valuer‟s  report condition was not satisfied. He enclosed a copy of the valuation and said:

I understand that Simon Henry, the principal decision maker for the Vendor, is   presently   overseas   and   does   not   return   to   New   Zealand   until

15 January 2010.  The Purchasers remain interested in proceeding with this transaction, but wish to discuss the way forward with Mr Henry (or in his

absence his authorized nominee) to see if there is a way that the valuation issue can be resolved.  For obvious reasons until the valuation issue is sorted

out the matter of finance cannot be confirmed (although, and subject to a satisfactory resolution of the valuation condition, preliminary indications are that finance will not be an issue).

Accordingly, it is proposed that the valuation condition be extended through to 18 January 2010, the finance condition to 1 February 2010, and settlement to 19 February 2010.

The above has been communicated to the agent, Sean Creighton, who I understand has been in direct communications with the vendor, however as Mr Henry is away we have yet to receive a response.  As the writer is on

leave as from today please confirm via email that this is acceptable.  Should you wish to discuss this matter I can be contacted via mobile.

[7]      Mr Henry, the director of Seaview dealing with the matter, did not want further delay as he was concerned about the effect on tenancy opportunities within the building.  He responded to the real estate agent on the proposal for an extension of time on 20 December, in these terms:

I  can‟t wait  any  longer  as  we  have  good  tenants  that  want  their  lease renewals signed off.   We have been holding off signing them pending confirmation. I will go back to the market post 8 Jan.

[8]      That was conveyed to Mr Verboeket, who then communicated with Mr Henry by e-mail on 22 December as follows:

I note your position.  We will see what transpires.  In the meantime you may wish to consider the following options:

1.We are happy to immediately make an unconditional offer of $1.3 million.     Deposit  to  be  paid  8 January  2010.     Settlement  on

1 February 2010;  or

2.By way of alternative, we have today instructed Paul Butchers of CBRE (who was the valuer I believe you used for your own last valuation several years back) to provide us with an alternative valuation to see if that produces a higher valuation.   Paul has indicated that he will be unable to start his analysis until 11 January. Nevertheless if Paul‟s valuation produces a higher figure than $1.3 million we would be happy to offer that, but subject to confirmation of finance.

As I have previously mentioned, should you renew any tenancies that would, from our perspective, make the property significantly less attractive.

[9]      On 23 December, Mr Verboeket was advised by the real estate agent that Mr Henry had instructed his solicitor to cancel the contract.  That day, Cavell Leitch sent a fax to Mr Verboeket, cancelling the contract because of non-confirmation of the condition regarding the valuation report, which had been due for confirmation on

21 December 2009.

[10]     Mr Verboeket was not in his office when that fax was received.   He was advised of its receipt by Mr Giddens by telephone on the morning of 24 December. He immediately sent a letter to Cavell Leitch  dated 24 December 2009 in these terms:

I refer to my letter of 19 December 2009.

I now confirm that the Registered Valuer‟s Report condition is satisfied.

I understand that your client is unwilling to extend the previous contract condition deadlines. That is fine. The finance condition therefore remains in place at 8 January 2010.  I will refer closer to that time.

[11]     He followed that up with a further letter to Cavell Leitch on 8 January 2010 as follows:

I refer to my letters of 19 and 24 December 2009.

In my letter of 24 December 2009 I confirmed that the Registered Valuer‟s Report condition had been satisfied.  I have since, on my return from leave, noted a fax on my fax machine in which the vendor has purported to cancel the   sale   &   purchase   contract.     As   I   made   clear   in   my   letter   of

19 December 2009, as I was going on leave over the Christmas/New Year period  communication  would  only  be  accepted  via  email  or  mobile

telephone.     In  all  of  the  circumstances,  as  you  were  notified  of  the

acceptance of the Registered Valuer‟s Report condition prior to my being made aware of your client‟s  purported cancellation I do not regard your

faxed letter of 23 December as having any legitimate effect, and therefore

that I consider that the contract remains on foot.

I now confirm the finance condition.  In all of the circumstances my position is that the contract is now unconditional.   I have spoken to the vendor‟s agent, Sean Creighton, today and advised him of that informally.  I have also requested details of the account into which the deposit is to be paid. As soon as I am notified of this the deposit will be paid.

[12]     The deposit of $165,000 was paid  to the real  estate agent on 8 January. Cavell Leitch responded in these terms, by e-mail dated 11 January:

Thanks for your letter confirming the agreement as unconditional.

We note settlement is scheduled for 1 February 2010 and will forward our settlement statement/tax invoice soon.

[13]     Apex House was leased to a number of commercial tenants occupying, in most  cases,  suites  or rooms  smaller than a whole floor.   The contract  between Mr Verboeket and Seaview was on the REINZ/ADLS standard form, eighth edition

2006 (2).   In the box on the front page dealing with tenancies the words “refer to attachment” were inserted.   Attached  to  the agreement  was  a document  headed “tenancy schedule by property (rent receivable) 12/05/2009 for property Apex House” which gave brief details of a number of tenancies.

[14]     One of the tenancies listed on the tenancy schedule was of Suite 206, an area of about 21 square metres.  That was shown in the tenancy schedule as being let to Mabel Sue solicitor, for a term of four years from 25 March 2006, with a four year right of renewal.  Ms Lewis, the property manager of the Rapaki Property Group of which Seaview is a part, said in evidence that Ms Sue had sublet Suite 206 from February 2009  to  another  solicitor,  Mr Nicholls.    In  August 2009,  Ms Sue  had advised that she did not wish to exercise her right to renew the lease of Suite 206 after the expiry of the initial four year term on 25 March 2010, but that Mr Nicholls wished to remain as a tenant.   Ms Lewis then dealt direct with Mr Nicholls and agreed on a lease of Suite 206, to commence on the expiry of the existing lease on

25 March 2010.   Terms were formally offered to Mr Nicholls in an e-mail dated

7 September 2009, which read:

Further to our telephone conversation, we will draw up an Agreement to

Lease base on the following terms:

Term:  4 Years

Commencement:         25 March 2010

Rental:  $5,000 per annum + GST Rent Review:  Every 2 years

Once we receive your confirmation, we will proceed with paperwork. If you have any questions, please do not hesitate to contact me.

Ms Lewis  subsequently  sent  a  form  of  agreement  to  lease  by  e-mail  dated

15 September reading as follows:

Please see attached offer for your consideration.

If all is acceptable to you, please sign where required, initial every page and return to our office by mail.

If you have any questions, please do not hesitate to contact me.

Mr Nicholls responded to that by e-mail dated 17 September saying:

Given  that  I  am  not  renting  a  carpark,  I  don‟t agree  for  carpark  area maintenance (para 10) to be included in the outgoings;  otherwise the rest is okay.

Please advise whether you are prepared to make that amendment.

Ms Lewis replied by e-mail dated 18 September in these terms:

After consideration, I believe your request is fair.

Our Auckland office will update the Agreement and we‟ll send you a new

one.

Kindly dispose of what we‟ve just sent you.

The  amended  agreement  to  lease  was  sent  under  cover  of  an  e-mail  dated

24 September 2009.   It was returned, signed by Mr Nicholls, on 27 October 2009. Ms Lewis then arranged for Mr Henry to sign the lease as director of Seaview, which he did on or about 29 October 2009.

[15]     Mr Verboeket‟s evidence is that he first became aware of the Nicholls lease as a result of a fortuitous conversation between Mr Nicholls and a valuer engaged by Mr Verboeket who was inspecting the property on 14 January 2010.  He asserts that the existence of this lease was particularly material given the impact it had on the feasibility of the project which Mr Verboeket and Mr Giddens were investigating, to convert the building, in stages, to apartments.    That required earthquake strengthening.     Mr Verboeket  asserts  that  the  ability  to  start  the  project  by undertaking  the  necessary  earthquake  strengthening  required  that  Suite  206  be vacant, and that was pivotal to the ability to carry out earthquake strengthening work for the whole building.

[16]     Mr Verboeket wrote to Cavell Leitch on 22 January 2010.   He attached a copy of the tenancy schedule annexed to the agreement for sale and purchase, and of the lease with Mr Nicholls.   He requested a copy of all leases and agreements to lease for the property.  He said:  “Until the above matters are addressed your client should regard the sale and purchase agreement as “on hold”.  All of the purchaser‟s rights and remedies are expressly reserved.”  Cavell Leitch responded by letter dated

28 January, in terms which Mr Verboeket said in evidence in his view trivialised the effect of the new lease of Suite 206.   Cavell Leitch‟s letter also made clear that Seaview expected settlement on 1 February 2010.

[17]     Mr Verboeket    instructed    solicitors,    Costa    Varuhas    &    Co.       On

1 February 2010,   Mr Verboeket   responded   to   an   e-mail   from   Cavell   Leitch concerning settlement by stating that the matter was being handled by Mr Varuhas.

He  did  not  settle  on  1 February,  and  on  2 February  Cavell  Leitch  sent  to Mr Verboeket  a  settlement  notice  under  cl 9.1  of  the  contract.    That  required settlement on or before 18 February 2010.   Mr Varuhas wrote to Cavell Leitch on

5 February 2010 requesting copies of all lease documentation held by Cavell Leitch for the purpose of settlement.   He said:   „In the meantime, we reiterate that our client‟s position  concerning  the  transaction,  your  client‟s conduct  in  connection therewith and the settlement notice, is entirely reserved.”   He sent a further letter requesting a response on 9 February.   Cavell Leitch replied on 11 February, forwarding a lease schedule and stating their understanding that Mr Verboeket had been given the documentation before confirmation of the contract.  The letter said “Our client is ready and able to settle this transaction fully and intends to enforce its rights under the settlement notice should your client fail to settle”.  There was further correspondence, principally relating to the lease documents for the building.   By letter dated 18 February, Mr Varuhas wrote a lengthy letter in which he asserted that the settlement notice was ineffective because:  the vendor was not ready, able and willing to settle for several reasons;  the settlement notice was defective because the vendor did not have the required documents for the leases;  the agreement was not in force because the vendor had cancelled it in December;  the vendor was in breach of its equitable obligations by entering into a new lease after 8 October; and the vendor was in breach of the Fair Trading Act.

[18]      On 23 February 2010 Cavell Leitch sent a letter to Costa Varuhas & Co cancelling the agreement for failure to settle as required by the settlement notice.  On

26 February 2010 Mr Varuhas wrote to Cavell Leitch asserting that there was no agreement in place between the parties, and that if there were then Seaview was not entitled  to  exercise  any  right  of  cancellation.    He  requested  the  return  of  the

$165,000 deposit paid on 8 January 2010.  Proceedings were initially commenced in the District Court in March 2010.   Following a counterclaim by Seaview in those proceedings, the present proceedings were issued on 7 October 2010.

The pleadings

[19]     The plaintiff seeks the return of the deposit of $165,000 and incidental relief. He pleads five causes of action:

(a)      that there was no contract when the deposit was paid;

(b)      that Seaview is in breach of its duties as a constructive trustee;

(c)       that  Seaview  has  engaged  in  misleading  or  deceptive  conduct  in breach of s 9 of the Fair Trading Act 1986;

(d)that Seaview made false or misleading representations in breach of s 14 of that Act;  and

(e)      That Seaview wrongly purported to cancel the contract.

[20]     The defendant denies each cause of action, and counterclaims for the loss on

resale consequent on the plaintiff‟s failure to settle the purchase.

Was there an agreement?

[21]     The  first  cause  of  action  was  succinctly  summarised  by  Mr Withnall  in opening in these terms:

Firstly, the plaintiff says that the payment of $165,000 to the defendant on

8 January 2010 was a gratuitous payment which was not due and which the plaintiff had no obligation to make and is accordingly entitled to its return. The Agreement of 8 October 2009 had been cancelled on 23 December 2009 and no negotiations or fresh Agreement having been entered into in writing (as required by s 24 of the Property Law Act 2007), the sum that had been due in part payment under a cancelled Agreement was not due and payable and accordingly a payment for an ineffectual transaction.

[22]     I have described, at [9] to [12], the sequence of events.   I find that Cavell Leitch‟s  letter  of  23 December 2009  was  a  notice  properly given  cancelling  the contract.  It would, but for the events that followed, have brought the contract to an end.   Mr Verboeket, knowing that notice had been given, deliberately set out to mislead Cavell Leitch into believing that he had not received the notice of cancellation before he sent his letter of 24 December 2009 in which he purported to confirm that the valuer‟s report condition was satisfied.   Mr Verboeket treated the contract as if it were still in effect, and sought to have the vendor also treat the contract as if it were still in effect.   He confirmed that position in his letter of

8 January 2010, in which he made a statement, which he acknowledged in evidence that he knew to be untrue, that he had not received notice of the cancellation of the contract until his return from leave, in the New Year.

[23]     In that letter, Mr Verboeket also challenged the method by which notice was given.   I find that the notice was properly given in accordance with cl 1.2 of the contract, and Mr Verboeket indirectly received actual notice of it.  But even if it was not properly given, that could not avail Mr Verboeket on this cause of action.  If it was not properly given, then the cancellation would be ineffective, so that a basic element of the first cause of action, namely that the agreement had been cancelled, would not be made out.

[24]     The vendors, through Cavell Leitch, accepted Mr Verboeket‟s assertion that the contract was still on foot and that it was unconditional.  In those circumstances, the only possible contractual analysis which can be placed upon the correspondence is that Mr Verboeket, by his letters of 24 December and 8 January, made an offer to reinstate the cancelled contract, on its previous terms, and that Cavell Leitch‟s fax of

11 January 2010 constituted an acceptance, on behalf of the vendor, of that offer.  It simply defies common sense to assert that the actions of the parties after the notice of cancellation, including the actions of Mr Verboeket in paying the deposit, were devoid of contractual effect.   The vendor was acting under a mistake, induced by Mr Verboeket‟s  false statement that he was not aware of the cancellation when he sent his letter of 24 December 2009.  That mistake might have provided grounds for relief to Seaview under s 6 of the Contractual Mistakes Act 1977, but Seaview does not seek relief.  Relief is not available to Mr Verboeket, as he did not act under a mistake.

[25]     The previous agreement, and that correspondence, constituted a sufficient record in writing of the terms of the contract in terms of s 24(1)(a) of the Property Law Act 2007.  Mr Verboeket‟s signature of the original agreement, and his letters of

24 December and 8 January, constituted signature by him of that contract or written record in terms of s 24(1)(b).

[26]     That conclusion makes it unnecessary for me to address Seaview‟s alternative submission that Mr Verboeket is estopped from asserting that the agreement was cancelled.

[27]     The plaintiff‟s first cause of action must fail.

The effect of the Nicholls lease

[28]     The next three causes of action involve similar factual issues, relating to the granting of the Nicholls lease, and the failure to disclose it.  In the second cause of action, the plaintiff asserts that on entering into the sale and purchase agreement the defendant owed duties to the plaintiff as a constructive trustee not to derogate from the grant which the defendant agreed to sell the plaintiff in the agreement and not to grant any new leases in respect of the premises without disclosing and obtaining the consent of the plaintiff, and to disclose all information relating to the leases.  The plaintiff asserts that the defendant breached those obligations to the plaintiff as constructive trustee by entering into the lease of Suite 206 with Mr Nicholls without consulting the plaintiff or obtaining its consent, and by failing to disclose the new lease to the plaintiff.

[29]     In the third cause of action, the plaintiff asserts that the defendant‟s actions in respect of the lease of Suite 206 to Mr Nicholls constituted conduct in trade that was misleading or deceptive or likely to mislead or deceive, in breach of s 9 of the Fair Trading Act 1986.

[30]     In the fourth cause of action, the plaintiff asserts that the defendant‟s actions in respect of the lease of Suite 206, and the failure to disclose that to the plaintiff, constituted false or misleading representations to the plaintiff in connection with the sale of the land, in breach of s 14 of the Fair Trading Act.

[31]     The essence of the plaintiff‟s case in respect of these three causes of action was again succinctly summarised by Mr Withnall in his opening.  He said:

Secondly, the Plaintiff says that if somehow there was a new Agreement brought into being the Defendant as vendor had an obligation, either as

constructive trustee of the beneficial interest in the land for the Plaintiff or so as not to engage in misleading or deceptive conduct in trade, or conduct likely to mislead or deceive, or make false or misleading representations in trade, to divulge the Nicholls Agreement to Lease and/or obtain the approval of  the  Plaintiff  before  entering  into  the  Nicholls  Agreement  to  Lease: Abdulla v Shah (1959) AC 124 (PC), ss 9 and 14 Fair Trading Act 1986, AMP Finance NZ Ltd v Heaven (1966) 6 NZBCL 104, 188 (CA).

[32]     The constructive trust which is pleaded in the second cause of action is the form of constructive trust described by the Court of Appeal in Bevin v Smith:[1]

[1] Bevan v Smith [1994] 3 NZLR 648 (CA) at 659.

The "institutional" constructive trust in favour of a purchaser pending completion of a sale and purchase transaction is well  established: Cope, Constructive Trusts (1992) pp 899 and 904, Official Assignee v Johnston [1974] 1 NZLR 79. As stated by Cope it rests on the equitable doctrine of conversion which looks upon that as done which ought to be done. Thus the purchaser under a specifically enforceable contract is treated in equity as the owner of the property and the vendor as constructive trustee. From the time the contract becomes specifically enforceable the purchaser is entitled to all benefits of a capital nature which accrue to the actual subject-matter of the contract whereas the vendor is entitled to retain such benefits which are unconnected with the subject-matter.

[33]     The basis upon which a constructive trust of that sort will arise was described by Henry J in Official Assignee v Johnston:[2]

[2] Official Assignee v Johnston [1974] 1 NZLR 79 (SC) at 82.

For a comprehensive statement of the effect on title of an agreement for sale and purchase such as the instant agreement, I cite a paragraph from Williams on Title (3rd ed) 665. It reads:

"An agreement for the sale of land, if it is such an agreement as the court will enforce by a decree of specific performance, is in equity an alienation of the beneficial interest in the property, and as from the date of the binding contract, the vendor's beneficial interest is transferred  from  the  land  to  the  purchase-money,  and,  if  his interest was of the nature of real estate, it is, as from that date, converted into personalty. As regards the land, he becomes, as between himself and the purchaser, constructively a trustee for the purchaser with the right to be indemnified by the purchaser against the liabilities of the trust property; and the purchaser becomes the beneficial owner, with the right to dispose of the property by sale, mortgage or otherwise, and  to devise it by will. On his death intestate it devolves on his legal personal representatives who hold it, subject to the requirements of administration, on trust for sale and for distribution of the net proceeds among the persons entitled on intestacy. In one sense the vendor becomes a mortgagee since he has a vendor's lien on the property for the payment of the balance of the purchase-money or the whole of it if no deposit been paid."

[34]     In  this  case  there  was,  before  16 November 2009,  no  contract  between Mr Verboeket and Seaview which could give rise to a constructive trust in favour of Mr Verboeket under that principle.   The contract was conditional upon the prior contract not proceeding.  If that contract had proceeded, there would have been no contract for the sale of Apex House to Mr Verboeket.   The equitable doctrine of conversion, as described in Bevin v Smith, had no application.   Seaview was not subject to any obligation to hold its interest in the land in such a way as to protect the equitable interest of Mr Verboeket in the land prior to 16 November 2009, as he had none.

[35]     I find that, in the exchange of e-mail correspondence between Ms Lewis and Mr Nicholls set out at [14], a contract for the lease of Suite 206 from Seaview to Mr Nicholls was concluded no later than Ms Lewis‟ e-mail of 18 September.   The offer made by submission of the form of agreement to lease in the e-mail dated

15 September was the subject of a counter offer by Mr Nicholls in his e-mail of

17 September,   which   counter   offer   was   accepted   by   Ms Lewis‟  e-mail   of

18 September.  In those circumstances, I find that, in signing the lease on or about

29 October, Seaview did not enter into any new contractual commitment in respect of Suite 206.   The lease had been entered into before the agreement for sale and purchase was entered into as a backup offer, on 8 October.

[36]     But, if I am wrong in that conclusion, and the agreement to lease Suite 206 to Mr Nicholls was entered into in September 2009 and it was not concluded until Mr Henry signed the lease on or about 29 October, Seaview did not at the time the lease was entered into owe any duty as a constructive trustee to Mr Verboeket.

[37]     So far as events after 16 November are concerned, I need not address the issue whether a conditional contract, such as existed between Mr Verboeket and Seaview after that date, will give rise to a constructive trust.  As counsel for Seaview submits, all that remains for the plaintiff‟s claim after that date is the allegation that Seaview acted in breach of constructive trust by failing to disclose all information about the leases.  She submits that the obligation that arises under constructive trust is an obligation on the vendor not to deal with the property inconsistently with the agreement for sale and purchase.  It has nothing to do with disclosure of information.

I accept that submission.   Seaview‟s obligation under the agreement for sale and purchase was to deliver the property in the form and condition which it had contracted.  In the events that occurred, and in the way the plaintiff‟s case has been presented, it is not necessary for me to address directly the effect of the Nicholls lease, and the discrepancy in the tenancy schedule which did not disclose it, on Seaview‟s ability to perform its contractual obligation.  I touch upon that obligation in dealing with the fifth cause of action.   For the second cause of action, it is sufficient to find that there is no obligation on Seaview, as a constructive trustee, to disclose information about the leases.   The vendor‟s obligations in that regard are contractual, not equitable.  The second cause of action must fail.

[38]     It is convenient to deal together with the two causes of action under the Fair Trading Act.   The conduct complained of is an omission to disclose the lease of Suite 206 to Mr Nicholls.  The point at which that omission first occurred was when the tenancy schedule was incorporated into the agreement for sale and purchase. That schedule forms part of the contract.   In those circumstances, it may be questionable whether either s 9 or s 14 of the Fair Trading Act is engaged.  First, any errors in the tenancy schedule will have contractual consequences.   As a general principle, it may be questionable whether an error which leads to a particular contractual consequence can be said to be misleading or deceptive conduct.  Second, the error was discovered before the contract was settled, so that the purchaser had the opportunity to exercise any contractual rights to which the error gave rise.  On that basis, the allegedly deceptive or misleading conduct could cause no loss.  I do not consider it necessary to venture into these questions.   I assume, without deciding, that neither the fact that an error in the schedule incorporated into the contract may have contractual consequences, nor the fact that the error was discovered before the contract was settled, precludes the availability of a remedy under the Fair Trading Act.

[39]     Counsel for the defendant submits that the lease was not provided to the plaintiff in November 2009 because it was inadvertently overlooked.  To the extent, if any, that this may be relevant, I find that the failure to disclose the Nicholls lease in  the  tenancy  schedule,  or  to  mention  it  thereafter,  was  inadvertent  and  not deliberate.  Ms Lewis‟ evidence which I have described at [12] explains the sequence

of events with regard to the lease.  Ms Nguyen, the office manager for Rapaki based in Auckland, was the person responsible for providing tenancy schedules and other information  to  the  real  estate  agents  with  whom  Apex  House  was  listed.    The tenancy schedule is a print out from Rapaki‟s property management system.   The Nicholls lease was in the process of negotiation and had not been fully documented when  that  information  was  first  given.     It  did  not  become  operative  until March 2010.    Those  factors  explain  why  the  tenancy  schedule  in  the  property management system would not have been updated.   On the evidence, I accept the submission that the failure to disclose was inadvertent.

[40]     Where a breach of s 9 or s 14 is established, there must be proof that the deceptive or misleading conduct, or the misrepresentation, was causative of the loss for which a remedy is sought under s 43 of the Act.   The Supreme Court in Red Eagle Corporation Ltd v Ellis[3] recommended a two stage approach under which the Court should first determine whether a breach of s 9 is proved, and then under s 43, look to see whether it is proved that the claimant has suffered loss or damage “by” the conduct of the defendant.

[3] Red Eagle Corporation Ltd v Ellis [2010] NZSC 20.

[41]     Making the assumption which I have described at [38], I proceed on the hypothesis that the first limb of that approach, a breach of s 9, might be satisfied.  I find that the second limb, loss or damage arising from the conduct as required by s 43, is not established, for the reasons which follow.  I reach that conclusion, even on the assumption described at [38], that the plaintiff‟s contractual rights in relation to the error do not preclude the possibility of a loss arising from the conduct.

[42]     The plaintiff contends that the lease to Mr Nicholls was of crucial importance to him.  He further contends that the importance of not entering into additional leases had  been  made  known  to  Seaview.    Mr Verboeket‟s evidence  in  chief  on  the importance of the Nicholls lease was put in his evidence in chief in these terms:

15.8The existence of this new lease was particularly material given the impact it had on the feasibility of the project, and in particular the ability to even start by undertaking earthquake strengthening, which was a necessary prerequisite, as Room 206 being vacant was pivotal

to our ability to carry out earthquake strengthening work for the whole building.

15.9The  failure  to  disclose  the  existence  of  the  lease  made  all  the difference  to  our  proceeding  with  the  sale  &  purchase  of  Apex House,  and  induced  us  to  incur  the  unnecessary  consultant‟s expenses to satisfy conditions for satisfactory registered engineer‟s, architect‟s  and valuer‟s  reports and to arrange mortgage finance. The non-disclosure of the existence of the Nicholls lease was central to committing to the Agreement.

[43]     I do not accept that evidence.   It is not consistent with the other evidence. Mr Verboeket‟s evidence is that a key issue for him in his proposed development was the ability to be able to develop the building in a staged floor by floor basis.  He said that on the face of it the building had an ideal lease profile for conversion purposes with whole floors appearing to come free in stages.  The tenancy schedule, and some annexures to Mr Verboeket‟s brief of evidence which were prepared with the object of demonstrating that, do not bear out that proposition.  The ground floor was subject to a single lease, subject to a six year term expiring in September 2011, but with a six year right of renewal, that is to October 2017.  Parts of the first floor were vacant, and the lease of the remainder expired in March 2011, with no right of renewal.   The second  floor, on which  Suite 206 is located, was  leased in four tenancies.  One of those, with an area of approximately 28 square metres, expired on

31 January 2011.   Two other tenancies, with an area totalling approximately 110 square  metres,  had  rights  of  renewal  which  extended  to  September 2014  and December 2016.   The previous lease of Suite 206 to Mabel Sue was shown in the tenancy schedule as having a right of renewal until March 2014.  The third floor was partly vacant and the remainder was let in two tenancies, one of which had rights of renewal expiring finally in July 2011, and the other (also to Mabel Sue) had rights of renewal extending to March 2014.  I do not consider that that lease maturity profile provides substantial support for Mr Verboeket‟s evidence that the building “had an ideal lease profile for conversion purposes, with whole floors appearing to come free in stages”.

[44]     So far as Suite 206 is concerned, the tenancy schedule showed that the lessee had rights until 2014.   The right of renewal beyond March 2010 had in fact been relinquished by Ms Sue, but that was immediately followed by the grant of the new lease to Mr Nicholls.  The comparison which Mr Verboeket sought to make in his

evidence between the situations, before and after the Nicholls lease:  on the one hand a lease expiring in March 2010 for which the right of renewal had been relinquished, and on the other a lease expiring in March 2016, does not reflect the position as it must have been known to Mr Verboeket.  The true comparison was between a lease expiring in March 2010 but with a right of renewal to March 2014, and a lease expiring in March 2014 with a right of renewal to March 2016.

[45]     As  further  support  for  his  claim  that  the  Nicholls  lease  was  a  crucial impediment  to  his  proposals,  Mr Verboeket  said  that  the  necessary  earthquake strengthening work involved work to one of the outside columns of the building, in the area of Suite 206, and this would not have been possible while a tenant was in occupation.  His evidence is that had he known of the existence of the Nicholls lease of Suite 206 he would have almost certainly stopped investigations at that point and terminated the contract, because the risk that he would have been prevented from undertaking any apartment conversions at all was simply too great.

[46]     I  do  not  accept  Mr Verboeket‟s  evidence  on  this  point.    Mr Verboeket adduced no evidence to support the proposition that the room was too small for a tenant to be able to stay in occupation during the earthquake strengthening work. The  defendant  adduced  evidence  from  a  consulting  engineer,  Mr Brookie,  who described ways in which the work could have been carried out while a tenant remained in occupation.   His opinion was that the work on each level would be likely to take between one and two weeks to complete and that it could be done out of normal hours to minimise disruption to existing tenants.  I accept his evidence.

[47]     That evidence gives no guarantee that the work could have been carried out. The cooperation of the tenant would have been necessary.  However, Mr Verboeket made no attempt to ascertain whether or not the work could have been carried out, or whether that cooperation could have been obtained, perhaps for a payment for inconvenience.  He did not approach Mr Nicholls.  He did not advise Seaview of this issue so that it might approach Mr Nicholls.

[48]     Further, Mr Verboeket‟s evidence that the Nicholls lease of Suite 206 was essentially fatal to the carrying out of the earthquake strengthening work to the

column does not take sufficiently into account the position in the tenancies adjoining that  column  on  the  other  floors.    On  the  ground  floor,  the  lease  expired  in October 2011 with a right of renewal to October 2017.  The first floor would have become available in March 2011, but, as the position was shown in the tenancy schedule and as it must have been known to Mr Verboeket when he decided to purchase, the third floor was subject to the lease to Ms Sue with a right of renewal extending to March 2014.  There is no evidence which might support the proposition that the consent of the tenants on other floors might be easier to obtain than that of Mr Nicholls.  Mr Verboeket sought to distinguish those tenancies on the basis that area of Suite 206 was smaller.  I do not find that a persuasive distinction, in the light of Mr Brookie‟s evidence.

[49]     For these reasons I find that Mr Verboeket has failed to prove that, if he had proceeded with the purchase, the existence of the Nicholls lease would have caused him loss or damage.   I am forced to the conclusion that Mr Verboeket‟s  reliance upon the Nicholls lease of Suite 206 as a reason for not proceeding to settlement of the purchase of Apex House was a pretext, not a valid commercial reason for seeking to  be  released  from  the  contract.    That  is  a  harsh  conclusion  to  reach.    I  am reinforced   in   reaching   that   conclusion   by  Mr Verboeket‟s  actions   over   the cancellation of the contract in December 2009.   On that occasion, he adopted a strategy which involved making a statement which he knew to be false in seeking to avoid the cancellation of the contract and have it renewed.   I consider that his reliance on the Nicholls lease as a pretext for escaping from the contract is consistent with that earlier behaviour.

[50]     For these reasons, I find that Mr Verboeket has not established any loss arising from his claimed reliance on the alleged misleading or deceptive conduct or misrepresentation, so that both the third and fourth causes of action must fail.

[51]     In addressing these causes of action, it has not been necessary for me to deal with one matter upon which Mr Verboeket placed much reliance, and on which there was a conflict between his and Mr Giddens‟ evidence, and Mr Henry‟s  evidence. That matter is whether, and how clearly, Mr Verboeket made it known to Mr Henry his wish that no further leases should be granted.  For the reasons which follow, I do

not consider that question relevant, and I therefore do not address the conflict of evidence on it.

[52]     The two telephone conversations between Mr Henry and Mr Verboeket (one of which Mr Giddens overheard) on which Mr Verboeket principally relies both took place in November.  By then, the Nicholls lease was in place.  The position was then governed by the contract, which included rights for the purchaser to make investigations and requisitions as to title.  In the events that occurred, and in the way the plaintiff‟s  case has  been presented, it is not necessary for me to  determine whether the existence of the Nicholls lease might have prevented Seaview from performing its contract.  I address that issue, to the extent necessary, in dealing with the plaintiff‟s fifth cause of action.

The vendor’s cancellation

[53]     The fifth  cause of action  asserts  that  the defendant‟s cancellation  of  the

contract was wrongful.  The pleading is in these terms:

26.By letter from the Defendant‟s solicitors to the Plaintiff‟s solicitors dated  23 February 2010,  the  Defendant  purported  wrongfully  to cancel the Agreement in that:

(a)       The Defendant purported to cancel the Agreement pursuant to  a  settlement  notice  dated  2 February 2010,  when  the Defendant was not ready, willing and able to settle the Agreement prior to, on, or after 2 February 2010.

(b)       The Defendant purported to cancel the Agreement relying on a letter from the Plaintiff‟s solicitors to the Defendant‟s solicitors  dated  18 February 2010  as  repudiation  of  the Agreement, when such a letter did not amount to an unequivocal refusal by the Plaintiff to perform the Agreement.

27.By letter from the Plaintiff‟s solicitors to the Defendant‟s solicitors dated  26 February 2010,  the  Plaintiff  gave  notice  accepting  the Defendant‟s wrongful purported cancellation of the Agreement and in turn cancelled the Agreement accordingly.

[54]     In his letter of 22 January to Cavell Leitch Mr Verboeket purported to put the sale and purchase agreement “on hold”.   In Property Ventures Investment Ltd v Regalwood Holdings Ltd Tipping J said: [4]

[4] Property Ventures Investment Ltd v Regalwood Holdings Ltd [2010] NZSC 47; [2010] 3 NZLR

231 at[97]-[98].

In his Sale of Land Dr McMorland discusses cl 6.5, observing:

It is sometimes thought by a purchaser faced with a breach by a vendor of a warranty or undertaking in cl 6.0 that the purchaser has the “right” not to settle until the matter is “sorted” or until the vendor has agreed to a variation of the contract by a reduction of the purchase price. That is not so. There is never a “right” to a variation of a  contract; by definition, a  variation is a  bilateral agreement. If a breach of a warranty or undertaking is established, the purchaser will have certain remedies and must decide which of those to exercise. If cancellation is one of those, the purchaser must elect on or before the  settlement date  whether or not  to cancel. There is no right to refuse to settle while threatening to cancel if the vendor will not reduce the price, a tactic sometimes employed. It is the purpose of cl 6.5 to make this situation, which is the law in any event, a clear and express term of the contract. A breach of any warranty does not defer the obligation to settle on the due date as required by the contract.

However, the clause does not take away from the purchaser any right or remedy the purchaser may have consistent with settlement. [Emphasis added.]

I respectfully agree with that analysis. The purchaser is exercising a right consistent with settlement if he deducts from the purchase price a genuine pre-estimate of the amount by which the value of the property has been depreciated by reason of the vendor‟s breach of warranty, and tenders settlement on that basis. A vendor who is in breach of warranty cannot insist that the non-cancelling purchaser settle by paying the full purchase price. The vendor will be in further breach by declining to accept a tender based on a deduction by the purchaser of a genuine pre-estimate of the loss caused by the breach of warranty.

[55]     This contract is in the same form as that discussed by Dr McMorland, and includes cl 6.5 which provides:

Breach of any warranty or any undertaking contained in the 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 an equity, including but not limited to the right to cancel this agreement under the Contractual Remedies Act 1979.

[56]     It is unnecessary to decide whether the discrepancy in the tenancy schedule attached to the contract, which did not include the Nicholls lease, meant that delivery

of possession subject to that lease would have been  a breach by Seaview of a warranty or undertaking covered by cl 6.0, and if so whether that might have given rise to a right to cancel.  If he had a right to cancel, Mr Verboeket did not exercise it. Nor is it necessary for me to consider whether Mr Verboeket might have been able to deduct from the purchase price a genuine pre-estimate of the amount by which the value of the property had been depreciated by reason of a breach of warranty by the vendor, as Tipping J suggested.   He did not take any such action.   Mr Verboeket sought to employ the tactic described by Dr McMorland, by purporting to put the agreement for sale and purchase “on hold”.  That was not a course that was open to him.

[57]     The discrepancy between the tenancy schedule and the actual lease situation might be a matter of title which could have been the subject of a requisition under cl 5.0.  That clause enables a purchaser to raise objections to the vendor‟s title, and provides a mechanism for dealing with those.  This contract was also subject to the specific approval of title clause to which I have referred.  Copies of the leases were given to  the purchaser,  and  these  did  not  include the  Nicholls  lease.    In  those circumstances, the purchaser might well have been able to raise a valid requisition as to title when that lease became known, despite the earlier approval of title and the absence of a requisition under cl 5.0.

[58]     If  that  had  been  done,  cl 5.4  might  require  consideration.    That  clause provides:

Except as otherwise expressly set forth in this agreement, no error, omission or misdescription of the property or the title shall annul the sale but compensation, if demanded in writing before settlement but not otherwise, shall be made or given as the case may require.

[59]     That point was also mentioned by Tipping J in Property Ventures.  He said:[5]

[5] At [105].

Finally I mention the rule in Flight v Booth. This rule was a judicially imposed restriction on the literal effect of contractual clauses like cl 5.4. The stipulation that “no” misdescription shall annul the sale is not to be taken literally. The effect of the rule is that if the misdescription affects the subject- matter of the contract to such an extent that the purchaser might well not have entered into the contract if aware of the true position, the purchaser may elect to cancel, despite the no-annulment provision. There is little or no

difference between this basis for cancellation and the ordinary breach ground for cancellation under s 7 of the Contractual Remedies Act 1979, which is entirely consistent with the rule. The only point which may need attention in a case in which it is raised is whether a no-annulment provision like cl 5.4 might prevail over the rule in Flight v Booth as an expressly agreed remedy which ousts cancellation pursuant to s 5 of the Act. The answer to that may be that a variance in the subject-matter of the extent necessary to attract the rule goes beyond the concept of misdescription.

[60]     As Tipping J notes, the effect of the rule in Flight v Booth[6]is that if the misdescription affects the subject matter of the contract to such an extent that the purchaser might well not have entered into the contract if aware of the true position, the purchaser may elect to cancel, despite the “no annulment” provision.  Whether that principle is engaged here does not arise, because the purchaser did not elect to cancel.

[6] Flight v Booth (1834) 131 ER 1160 (CP).

[61]     If it had been necessary for me to determine the question, I would have held that the error in the tenancy schedule did not affect the subject matter of the contract to such an extent that the purchaser might well not have entered into the contract if aware of the true position.   For the reasons I have given in considering the Fair Trading Act causes of action, I have not accepted Mr Verboeket‟s evidence that the difference between the tenancy schedule and the Nicholls lease was crucial.  I have held that that was a pretext, rather than a reason, for seeking to escape from the contract.

[62] I need to mention the possibility that the purchaser might have adopted the strategy, on receipt of the vendor‟s settlement notice dated 2 February 2010, of putting the vendor to the proof of its readiness and ability to settle, by tendering the purchase price, but refusing to accept documents proffered that did not match the tenancy schedule, and cancelling on the grounds of the vendor‟s failure to settle. Again, it is not necessary for me to address in detail the questions of whether that was an available strategy, and what its consequences might have been, since that is not what the purchaser did. I have summarised the correspondence at [16]. At no stage did that include an assertion that the purchaser was ready willing and able to settle in accordance with the terms of the contract as the purchaser asserted them to be. Unless the purchaser tendered payment, the vendor could not be shown to have

breached the contract.[7]   There had been no indication from the vendor that proper tender would be futile.

[7] Bahramitash v Kumar [2005] NZSC 39; [2006] 1 NZLR 577 at [16]-[18].

[63] At this point it is relevant also to mention another issue which was the subject of dispute in evidence. The contract had been subject to finance. Finance was confirmed by the letter of 8 January set out at [9]. Mr Verboeket did not have an offer of finance from BNZ, whom he had approached. He said in his evidence in chief that “it was clear that funding would not be a significant issue [so] I was comfortable confirming the finance condition”. He maintained that position under cross-examination. It is not necessary for me to make any factual finding on that position, beyond recording that finance had not been arranged. Demonstration that he was ready willing and able to settle would have required Mr Verboeket to tender the purchase price. He did not.

[64]     For these reasons, the plaintiff‟s fifth cause of action must also fail.

The counterclaim

[65]     The defendant has counter-claimed for the plaintiff‟s breach of the contract in failing  to  settle.    The  defendant  relies  on  the  notice  dated  23 February 2010 cancelling the contract.   It asserts that upon cancellation the deposit paid by the plaintiff was forfeited to the defendant and that the defendant is entitled to recover damages, which it calculates at $467,952.32 made up as follows:

105.     Seaview has suffered loss and damage as follows:

Purchase price under agreement of

8 October 2009  $1,650,000.00

Less value of property at date of

settlement  $1,080,000.00

Sub total  $570,000.00

Plus Agents‟ commissions  $54,843,75

Plus legal costs  $8,081.57

Less deposit paid  $165,000.00

Balance  $467,925.32

[66]     For the reasons I have given in dealing with the plaintiff‟s claim, I find that the vendor was entitled to cancel the contract, because the purchaser had not settled the contract in accordance with the settlement notice.  He had not taken any action which might have been available to him under the contract to ensure that his failure to settle would not constitute a breach of the contract by him triggering the vendor‟s right to cancel for breach. Accordingly, the vendor is entitled to recover damages for the purchaser‟s breach.

[67]     It is common ground that the measure of damages includes the difference between the price the defendant would have received on the settlement date and the market value of the building on that date.   In support of its claim that the market value of the property at the date of settlement was $1.08 million, the plaintiff relies upon the evidence of a valuer, Mr Wall.   He carried out a market valuation, in June 2010, for the purpose of assessing the current market value of Apex House at

1 February 2010.  He assessed its value at $1.08 million.

[68]     The plaintiff called no evidence to challenge Mr Wall‟s valuation.  He sought to rely upon two valuation reports which had been earlier obtained, which were included in the bundle of documents, subject to objection by the defendant as to their admissibility.  I ruled on their admissibility in the course of trial.  I repeat that ruling here.

[1]       A ruling is required as to the admissibility of two valuation reports which are contained in the bundle of documents.  They have been included subject to objection by the defendant as to their admissibility. They are:

(a)       A valuation report dated 17 December 2009 carried out by Appraisal   Property   Consultancy   Limited   assessing   the market value of Apex House as at 9 December 2009; and

(b)       A valuation report dated 14 January 2010 carried out by C B Richard Ellis assessing the market value of Apex House at that date.

[2]       Neither of the valuers who prepared the reports is to be called as a witness.   That means that any statement by the valuers which is offered to prove the truth of its contents is a hearsay statement. Hearsay statement is defined in s 4 of the Evidence Act 2006 in these terms:

Hearsay statement means a statement that—

(a)      was made by a person other than a witness; and

(b)      is offered in evidence at the proceeding to prove the truth of its contents

[3]The issue here is whether each of the valuation reports is offered as truth of its contents. Its contents are an expression of opinion by the valuer. The basis on  which the evidence is potentially relevant, under s 7, is that it has a tendency to prove a matter of consequence to the determination of the proceeding, namely the market  value  of Apex  House  at  the  relevant  date.  That  is  a question of fact. Evidence which goes to that issue must accordingly, for the purposes of the hearsay rule, be treated as evidence of fact. The valuation reports state, as a fact, what opinions the valuers hold as to the market value. The reports are therefore offered to prove the truth of their contents.

[4]      Section 17 sets out the hearsay rule. It provides: A hearsay statement is not admissible except—

(a)      as provided by this subpart or by the provisions of any other

Act; or

(b)      in cases where—

(i)       this Act provides that this subpart does not apply;

and

(ii)      the hearsay statement is relevant and not otherwise inadmissible under this Act.

[5]      Section 18(1) provides:

A hearsay statement is admissible in any proceeding if—

(a)      the   circumstances   relating   to   the   statement   provide reasonable assurance that the statement is reliable; and

(b)      either—

(i)        the  maker  of  the  statement  is  unavailable  as  a witness; or

(ii)      the  Judge  considers  that  undue  expense  or  delay would be caused if the maker of the statement were required to be a witness.

…

[6]       In this case it is not contended that the maker of the statement is unavailable as a witness and there has been no argument put that

undue expense or delay would be caused if the valuers were required to be witnesses.

[7]       Section  19  deals  with  the  admissibility  of  hearsay  statements contained in business records. The valuation reports are not business records as defined in s 16.

[8]       Mr Withnall relies on the provisions dealing with the admissibility of opinions contained in ss 23 to 25. Under s 23 a statement of opinion is not admissible in a proceeding except as provided by s 24 or 25. Section 24 is not relevant to the present situation. Admissibility must therefore turn on s 25. Section 25(1) provides:

An opinion by an expert that is part of expert evidence offered in a proceeding is admissible if the fact-finder is likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding.

[9]       That provision cannot apply here. The opinion contained in each of the reports is an opinion by an expert, but it is not part of expert evidence   offered   in   this   proceeding.  The   statements   are   not admissible   under   s   25   as   opinion   evidence.   That   makes   it unnecessary to consider whether I would be likely to obtain substantial help from an opinion where the maker of the opinion is not available to be tested on that opinion.

[10]      For these reasons, I rule that neither of the valuations is admissible as proof of the value of the building, or as the opinion evidence of the writer of the report as to the value of the building.

[69]     The consequence of that ruling is that there is no evidence from a valuer to challenge Mr Wall‟s  valuation.   One challenge which was advanced to Mr Wall‟s valuation was cross-examination of him on the method used for the calculation of operating expenses which he used in calculating the market value under one of the three methods which he used, the investment or economic approach, which he regarded as the most appropriate method for this building.   He did not accept the validity of the propositions put to him challenging his methodology.  There was no evidence to support that alternative methodology.   I accept Mr Wall‟s  evidence on this point.

[70]     The plaintiff sought to rely upon some conditional agreements for the sale of the building which had been entered into during the period after cancellation, when Seaview was endeavouring to resell the property.   There were three contracts, for prices ranging between  $1.23 and $1.35 million.   None of those contracts ever

became unconditional.   I do not regard them as a reliable indicator of the market value of the property.  A more reliable indicator is the price at which the property was in fact sold.   It was sold under an agreement entered into in March 2011 for

$1.03 million.  Before that contract could be settled, Seaview had to carry out certain work to remove Apex House from the earthquake prone list, and settlement of the sale took place on 20 September 2011.

[71]     In the absence of any cogent evidence to contradict it, I accept Mr Wall‟s

evidence as to the market value.

[72]     Another component of the damages calculation was the real estate agent‟s commission.  Mr Henry‟s evidence was that this was deducted from the deposit.  He was cross-examined about that.  Seaview had issued a third party notice against the real estate agent, Wellington Real Estate Ltd.   That claim was withdrawn, by a memorandum  signed  by  counsel  for  the  defendant  and  the  third  party,  in December 2010.  Mr Henry said that the commission had not been refunded, and to the best of his knowledge an arrangement had been made where the matter of a refund was dependent on the outcome of the present claim.   In the light of that evidence,  I accept  that  the  defendant  has  suffered  a  loss  in  the  amount  of  the commission.

[73]     The  next  question  is  whether  that  amount  properly  forms  part  of  the defendant‟s claim against the plaintiff.  Mr Withnall submits that a claim for loss of bargain cannot include expenditure it was necessary for the vendor to incur for the purposes of the bargain.  He therefore submits that, if commission is to be claimed, it must be the commission on the resale.   There is authority for that, as a general

proposition.[8]    In this case, the form of contract has specific provisions as to the

[8] H McGregor (ed) McGregor on Damages (18th ed, Thomson Reuters, London, 2009) at [22.033].

calculation of damages.  Clause 9.4 provides:

If the purchaser does not comply with the terms of the settlement notice served by the vendor then, subject to clause 9.1(3):

(1)      Without prejudice to any other rights or remedies available to the vendor at law or in equity the vendor may:

(a)      Sue the purchaser for specific performance; or

(b)      Cancel this agreement by notice and pursue either or both of the following remedies namely:

(i)        Forfeit and retain for the vendor‟s own benefit the deposit paid by the purchaser, but not exceeding in all 10% of the purchase price; and/or

(ii)      Sue the purchaser for damages

…

(3)       The damages claimable by the vendor under subclause 9.4(1)(b)(ii) shall include all damages claimable at common law or in equity and shall also include (but shall not be limited to) any loss incurred by the vendor of any bona fide resale contracted within one year from the date by which the purchaser should have settled in compliance with the settlement notice. The amount of the loss may included:

(a)       Interest on the unpaid portion of the purchase price at the interest rate for late settlement from the settlement date to the settlement of such resale;  and

(b)       All costs and expenses reasonably incurred in any resale or attempted resale; and

(c)       All  outgoings  (other  than  interest)  on  or  maintenance expenses in respect of the property from the settlement date to the settlement of such resale.

…

[74]     In its calculation of damages, the vendor has given credit to the purchaser for the full amount of the deposit paid, $165,000.  Under cl 9.4(1)(b), it was not required to do so.   The deposit actually received by the vendor was the net amount, after deduction of the commission.   The vendor should not, in the light of cl 9.4, be required to give credit for more of the deposit than it actually received.   In those circumstances, I consider that it is appropriate to allow in the calculation, the commission paid on the sale.

[75]     The other item in the calculation is legal expenses.  There is no challenge to that item, and I allow it.

Result

[76]     There will be judgment for the defendant on the plaintiff‟s claim.  There will also be judgment for the defendant on its counter-claim in the sum of $467,925.32.

[77]     My preliminary view is that the defendant should receive costs, on a 2B basis.  The parties may submit memoranda if they are unable to agree in the light of that indication.

“A D MacKenzie J”

Solicitors:         C V Law Ltd, Wellington for Plaintiff

Cavell Leith Pringle & Boyle, Christchurch for Defendant