Wairau Valley Estate Ltd v The December Company HC Christchurch CP No194/97

[2001] NZHC 379

IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY CPNO194/97

BETWEEN WAIRAU VALLEY ESTATE LTD
First Plaintiff

AND MARLBOROUGH BASED SECURITIES NO. 1 LTD
Second Plaintiff

AND THE DECEMBER COMPANY LTD
First Defendant

AND ROLLE HILLIER PARKER (S.I.) LTD
Third Party

AND JULIE CUNNINGHAM REAL ESTATE LTD
Fourth Party

Dates of Hearing: 7, 8 and 9 May 2001

Counsel: C Muston for the Plaintiffs
S J Shamy for the Defendant
A Darroch for Third Party
R W Raymond and R Morgan for Fourth Party

ORAL JUDGMENT OF YOUNG J

INDEX

Paragraph No

Introduction [1]

The parties and the land [2]

Factual background [9]

These proceedings [49]

Overview of issues as between WVEL and MBSL and TDCL [51]

Did the contract between WVEL and TDCL on its true
interpretation provide that the contract was for a plus GST? [53]

Can the plaintiffs resist the argument that the contract
incorporating the original GST provision was varied, post-
11 July 1997 so that the contract price was on a plus GST basis? [64]

If the plaintiffs could establish an ostensible right to pay a GST
inclusive price, could they resist the TDCL argument that the
contract should be rectified? [72]

Is WVEL estopped by the actions of Mr Hunter in assuring
TDCL that the price was on a plus GST basis from contending
to the contrary? [89]

Disposition of case as between plaintiffs and defendants [95]

Issues between defendant and third and fourth parties [96]

Costs [105]

Introduction

[1] This case involves a claim for damages by the purchasers of land against the vendor, claims by the vendors against the two firms of real estate agents involved in the transaction alleging negligence on their part, and claims between the two firms of real estate agents as to contribution.

The parties and the land

[2] The first plaintiff, Wairau Valley Estate Ltd (“WVEL”) is controlled and operated by Mr Ron Stewart who is a Blenheim-based property developer. The second plaintiff, Marlborough Based Securities No 1 Ltd (“MBSL”) is a single purpose company which served as an investment vehicle for Mr Stewart’s wife and investors associated with Mr Stewart in relation to the transaction. This company functioned under Mr Stewart’s control.

[3] The solicitor who has acted throughout for Mr Stewart and the two plaintiff companies has been Mr Bruce McGregor of Thorne Dallas Partners of Whangarei.

[4] The defendant, The December Company Ltd (“TDCL”), consists of nine shareholders. This company too is a single purpose company which was formed in or about December 1994 as the vehicle by which its shareholders acquired an area of land at 876 Colombo Street, Christchurch which was auctioned in that month by the Sisters of Mercy. The total area of land was 5062 m2. It is lot 1 on DP 45940 and the relevant certificate of title is 39D/1087. The chairman of TDCL is Mr Tom McCullough.

[5] It rather appears as though some, and perhaps most, of those involved in TDCL were also involved, one way or another, in the Maryville Courts Trust Board (“MCTB”). This was formed in 1982 and developed and operates a retirement village (known as Maryville Courts). In 1994, the MCTB bought land at 868 Colombo Street. This land consists of 2533 m2. It is lot 3 on DP 68418 and the relevant certificate of title is 39D/1089.

[6] As the deposit plan number indicates, the land owned by the MCTB and the land owned by TDCL adjoin each other.

[7] The third party is Rolle Hillier Parker (SI) Ltd, which was known, when the events which gave rise to this litigation occurred, as Rolle Associates Ltd (“RAL”). The salesman particularly involved with this company in relation to the events which have given rise to this litigation was Mr Don Hunter.

[8] The fourth party is Julie Cunningham Real Estate Ltd (“JCREL”). Two people associated with this company, Mrs Julie Cunningham and Mr Bryan Pearce, were shareholders in TDCL.

Factual background

[9] Some at least of TDCL’s shareholders apparently had a development in mind for the land which that company acquired in December 1994. But in September 1995, the company decided to sell the land instead. At that time, the calculation was that a sale at $1.795m would provide a profit of $50,000 each for the shareholders on their investments. The marketing was to be through JCREL.

[10] The MCTB also decided to put its land at 868 Colombo Street on the market and this too was marketed by JCREL.

[11] Mr Stewart’s interest in both parcels of land was sparked in the middle of November 1996. This was as a result of an approach made to him by Mr Don Hunter. Mr Hunter did not have any formal relationship with TDCL. He had, however, had a lengthy association with Mr Stewart. Mr Pearce of JCREL had approached Mr Hunter to see if he could come up with a buyer. Mr Hunter who was in reasonably regular contact with Mr Stewart, alerted Mr Stewart to the availability of the land.

[12] Mr Stewart saw the land as having potential for the development of motels and apartments.

[13] Between 9 December 1996 and 20 June 1997, WVEL made a series of offers (or proposals) in connection with the Colombo Street property. The first three were rejected. A fourth offer led to the contract which is now in issue in these proceedings.

[14] I will deal first with the three offers or proposals which were rejected.

1. The first was by facsimile of 9 December 1996. It was for all the land contained in Certificates of Title 39D/1089 and 3D/1087 - in other words by the land owned by the MCTB and TDCL. The offer, which is better described as a proposal, was expressed to be subject to a number of conditions. It is clear that Mr Stewart contemplated that the vendors would acquire, in part settlement of the purchase price, land in which he or, perhaps, WVEL was interested in Hanmer (although no price was specified). The proposal did not apportion the proposed purchase price between TDCL and the MCTB. This proposal was not acceptable to either TDCL or the MCTB (who were also in receipt, at the time of other competing and apparently more favourable proposals).

2. These other potential purchasers having fallen by the wayside, Mr Hunter approached Mr Stewart again in the middle of 1997. The result of was a further offer/proposal which was made on 13 June 1997. The offer related to both parcels of land. The proposed price was still $1.9m plus GST. The conditions were similar to those contained in the 9 December 1996 proposal save that there was no reference to the Hanmer properties. This offer was unacceptable because it dealt in an undifferentiated way with the land which was held by both TDCL and the MCTB. As well, by this stage, the MCTB did not wish to sell all of the land it owned.

3. A third offer was made on 20 June 1997. This offer addressed separately the land held by TDCL and the MCTB. For the TDCL land, the price offered was $1.6m plus GST, if any. Amongst the conditions was a requirement for TDCL to subdivide the land into two lots in accordance with a plan which was attached. There was also a requirement for TDCL to take from WVEL land in its Hanmer subdivision which I have mentioned. The offer also addressed land held by the MCTB. The proposal was that WVEL would acquire 1100 m2 of that land. The price offered was $347,600 plus GST, if any.

[15] This third offer was considered by TDCL. The result of the consideration was that Mr Pearce struck out the conditions associated with the subdivision and the requirement to acquire land in the Hanmer subdivision, and, with these alterations, signed the offer on behalf of TDCL and returned it to Mr Hunter. In this form, the document was faxed to Mr Stewart.

[16] Mr Stewart responded with a fax to Mr Hunter of 25 June in these terms:-

“Thank you for your facsimile of yesterday’s date with the counter offer attached.

We have but one question. Is this the final offer from each Vendor? In each attempt that we have tried to reach an agreement, it is us who has structured the deal in a way that we believe works economically and at the same time try and meet the Vendors expectations.

Given that I am away from the 30th June 1997 for three weeks, I would like to have this matter well and truly dealt with by the close of business on Thursday the 25th June 1997.”

[17] Mr Hunter spoke to Mr Pearce who confirmed that TDCL’s position was that the counter-offer (consisting of his amendments to the 20 June 1997 offer) was, indeed, a final offer. Mr Hunter passed this information on to Mr Stewart.

[18] Mr Hunter, acting generally on the instructions of Mr Stewart, then prepared formal agreements on the then current REINZ/ADLS form in respect of both properties. This was on 25 June. From this point on in the judgment I will refer only, in any detail, to the agreement in relation to TDCL land. This is because, in the end, no purchase of the MCTB land proceeded.

[19] The agreement in relation to TDCL land was, to say the least, carelessly drawn.

[20] The form specified a purchase price of $1.6m. On the pre-printed portion of the form there is the following notation:-

“Plus GST if any or inclusive of GST if any. If neither is deleted the purchase price includes GST if any.”

There was no annotation to this wording with the result that the agreement, as drafted, was on the basis that the purchase price included GST, if any.

[21] The agreement did not refer to a possession date.

[22] Under the heading “Special Conditions of Sale” the agreement provided as follows:-

“See Attached Schedule

This offer is subject to and conditional upon the following.

1. Wairau Valley Estate Limited is to act as nominee.

2. A LIMs report to the satisfaction of the purchaser including but not Limited to the full investigation of all services.

3. The purchaser satisfying themselves as to the future intentions of the Christchurch City Council as to the development of Lot 2 DP 68418 on C/T 39D/1088

4. The approval of the Christchurch City Council and the Canterbury Regional Council as to the proposed development plan by the purchaser of the land hereby sold.

5. The vendor at their expense in all things subdividing the land hereby sold into two titles of 1600 m2 marked “A” and 3465 m2 marked “B” on the attached plan.

6. This offer is contemporaneous with an offer with the Marvyille Courts Trust Board.

7. Purchase an area of 1100 m2 being of the land contained in Lot 3 DP 68418 on C/T 39D/1089.

8. The above clauses are for the sole benefit of the purchaser and the vendor shall allow the purchaser 30 working days from the acceptance of this contract to satisfy these clauses and if so satisfied then then [sic] the contract shall be unconditional and the purchaser shall pay the deposit immediately and the balance shall be paid 7 working days after the Vendor’s Solicitor notifies the purchaser’s solicitor of the new title for subdivision of land created in this agreement for the land hereby sold at Colombo Street Christchurch. The rate for late settlement shall be 11% on the balance outstanding.”

[23] There was no attached schedule.

[24] These special conditions were largely taken from the offer of 20 June. The condition as to the Hanmer land was not reproduced as Mr Stewart had recognised that this was not a starter and had given instructions to Mr Hunter not to insert such a condition. The condition as to subdivision remained despite having been rejected when it appeared in the 20 June offer. As I read the special conditions it would have been at least arguable, if they had been accepted without alteration, that the resulting agreement would have been conditional upon the offer in relation to the MCTB land being accepted, although this was expressed most infelicitously.

[25] I note at this point that there is a sharp conflict of evidence between Messrs Stewart and Hunter as to whether the GST inclusive nature of the way the purchase price was described on the form was intentional. Mr Stewart says that it was intentional; that he had instructed Mr Hunter to draft the offer in this way and that Mr Hunter had plainly complied with his instructions. Mr Hunter, in evidence, denies this. He says that his instructions were to follow the form of the 20 June offer except in certain specified respects. He said that this meant that he had been instructed to make an offer on a plus GST, if any, basis. He said that the problem with the first page of the agreement in relation to the GST provision was simply a mistake on his part.

[26] The REINZ/ADLS form, as drafted by Mr Hunter, was faxed to Mr Stewart. He signed the form and then faxed it back to Mr Hunter. This was on 25 June.

[27] Mr Hunter then amended the form as signed by Mr Stewart (as to agent’s commission) and gave the form to Mr Pearce. This was on 26 June.

[28] Mr Pearce discussed the TDCL agreement with Mr McCullogh of TDCL on the evening of 27 June. Mr McCullough was having dinner at the Casino and Mr Pearce discussed the proposed contract with him there.

[29] Both Mr Pearce and Mr McCullough claim that the REINZ/ADLS form which was presented to them had stapled to it Mr Hunter’s business card, the 20 June offer (in the form in which it was after Mr Pearce had altered and signed it), a site plan and the fax from WVEL to RAL of 25 June 1997. Mr Hunter accepts that the form may have had his business card attached but denies that any other documents were attached. I will discuss this issue later in my judgment.

[30] Mr Pearce altered the commission clause on the REINZ/ADLS form. This alteration was initialled by Mr McCullough and he then signed the form on behalf of TDCL.

[31] Mr Pearce then returned with the form to Maryville Courts (which is not far from the Casino) and altered the form by crossing out references to the proposal that TDCL should be responsible for subdivision costs. He then placed the form, which had now been altered three times since Mr Stewart had first signed it, in a drawer in his office at Maryville Courts.

[32] There the document remained until the morning of Monday, 30 June. In the meantime, there had been discussions between Messrs Hunter and Pearce and Messrs Pearce and Stewart. These discussions primarily related to the MCTB offer although there was some vacillation on the part of Mr Stewart in terms of whether he would proceed with either purchase.

[33] On the morning of Monday 30 June, Mr Hunter (who was acting on the instructions of Mr Stewart) told Mr Pearce that Mr Stewart wished to proceed with the TDCL purchase but not the MCTB purchase. Mr Stewart was going to Australia and there was therefore pressure to complete the agreement. So Mr Hunter, with Mr Pearce’s permission, uplifted the document from Mr Pearce’s office at Maryville Courts. It appears that Mr Pearce told Mr Hunter that the agreement, at that stage, was a in shambles, which it undoubtedly was, and suggested that a new agreement should be drawn up to reflect the circumstances as they then were (including the fact that the MCTB purchase was not going to proceed). Mr Hunter, however, thought that the form of agreement was not a major problem and, in the end, his view prevailed.

[34] Mr Hunter then met with Mr Stewart, who initialled the alterations. This meeting and the initialling took place on 30 June although where this took place was not clear.

[35] On 1 July, the original of the agreement was posted by Mr Hunter to Mr McGregor in Whangarei. On the same day there was an agreement entered into between WVEL and a man called Sanders (acting as agent) for the purchase of a portion of the land being acquired from TDCL for $1.4m plus GST. This agreement was conditional. Sanders was acting as agent for a company called Cotterdale Developments Ltd (and I will refer to that company, subsequently in this judgment, as the purchaser). This agreement was conditional.

[36] Messrs McCullough and Pearce soon recognised that there were infelicities with the form of the contract. The problem over GST was spotted. It was realised the special conditions referred to an attached schedule which did not exist. It was also recognised that the provisions in the contract as to the MCTB land were now redundant. They spoke to Mr Hunter with a view to having the document tidied up and he agreed to do so.

[37] Mr Hunter then spoke to Mr McGregor’s secretary on 11 July. Her file note as to this discussion is as follows:

“Don Hunter of Rolle Associates in Christchurch phoned re the Agreement they sent us for The December Co and Wairau Valley.

He says they were premature in sending the Agreement to us as they need some of the conditions to be countersigned by the December Co. He would like us to return the Agreement to them.”

[38] Mr McGregor sent the agreement back to Rolle Associates under cover of a letter of 14 July:-

“As requested, we return the Agreement for Sale and Purchase. This is on your advice that the conditions attached were not countersigned by the vendor. We are unable to obtain instructions from our client in the meantime concerning that.

We note that the special conditions refer to “see attached Schedule”. Is there a further Schedule to be attached to the Agreement?”

[39] On 21 July Mr McGregor wrote to Rolle Associates:

“Could you please fax to us details of progress with having the Agreement finally signed. The date of the Agreement should be adjusted to the date it is finally signed, as the various conditions relate to the acceptance of the terms of the contract and the date of final execution is required to be known.”

[40] Rolle Associates then returned the agreement which had been further and significantly altered. On the first page the GST had been amended so as to provide  the purchase price of $1.6m plus GST. The words “See Attached Schedule” under the special conditions of sale had been crossed out. As well, the conditions as to the MCTB land were deleted.

[41] Mr McGregor dealt with the agreement in this way. First he wrote to Rolle Associates on 23 July :-

“We have received the Agreement.

We note that you have made deletions from the special conditions and those deletions still appear not to be initialled by Mr Stewart.

Also the date of the Agreement has been left at 30th June and that is critical, given that the condition date runs from the date of the contract.

The date of the contract should be the date that it is concluded, which is when the last party has initialled the final alteration. Could you please clarify:

1. Whether the Agreement is now finally signed and all the most recent amendments initialled by both parties.

2. That the vendor accepts the date of Agreement as (say) 23 July.”

Secondly, he sent to Mr Stewart by fax the first page of the agreement, on which the amendment as to GST appeared, and also the special conditions. Despite the first page being sent to Mr Stewart, it appears that neither Mr McGregor, nor Mr Stewart, recognised that there had been an amendment to the GST provision.

[42] From this point, until 27 August, the primary issue which concerned the parties was the date of the agreement. Mr Stewart, who is something of an opportunist, sought to use the events associated with the changes to the agreement to extend, as long as possible, the period during which the agreement was conditional (and thus, indirectly, the time for settlement). During this period the sale to Cotterdale Developments Ltd was declared unconditional. This was on 13 August. This left Mr Stewart, at least on the face of it, with very little room to move in terms of TDCL because he was committed to an on-sale of a of portion of the land which he was acquiring from that company. But try to move he did. There was a meeting between him and Mr McCullough of TDCL at which he sought, without success, to extend the time for satisfaction of the conditions and/or settlement.

[43] Eventually, on 25 August 1997, Mr McGregor wrote confirming that the contract was unconditional and advising that WVEL nominated MBSL as purchaser.

[44] There then followed a further dispute about the settlement date. As I have indicated the contract, as drafted by Mr Hunter, did not provide a specified possession date. On that basis, possession was at large. In the course of the dispute as to the date on which the agreement should be regarded as being signed, TDCL offered to extend the date for confirmation until 25 August on the basis of immediate payment of the deposit on the day that the agreements would be declared unconditional (something which did happen) and on the further condition that settlement should occur within 7 days. WVEL and McGregor did not reply to that proposal in terms but waited until 25 August before confirming. WVEL and MBSL then denied that settlement within 7 days was required.

[45] After a brief flurry of irritable correspondence between the solicitors, TDCL issued a settlement notice for 1 September. This was on 27 August. The way the settlement notice was expressed made it clear TDCL considered the contract was on a plus GST basis.

[46] At this point, that is on 27 August, Mr McGregor reviewed his file. In the course of this he compared the agreement as it was when he received it with the document which came back on or about 23 July. He noted for the first time the change to the GST provision. He immediately, that is on 27 August, wrote to Mr Stewart in Blenheim advising him of the development.

[47] Mr Stewart then adopted the position that he had intended to deal with TDCL on a GST inclusive basis and that the transaction should proceed accordingly. TDCL denied that the contract could be regarded as on a GST inclusive basis. As Mr Stewart, WVEL and MBSL were subject to the on-sale to Cotterdale Developments Ltd they had little choice but to settle.

[48] The transaction was eventually settled on 30 September 1997 for $1.8m (ie $1.6m plus $200,000 for GST). WVEL, in the end, settled the purchase itself but as trustee for MSBL. The settlement was expressly on the basis that WVEL reserved the right to seek to recover the $200,000 which it claimed it was wrongly required to pay on settlement.

These proceedings

[49] In these proceedings, WVEL and MBSL seek to recover the $200,000 GST payment which was required to be paid on settlement. I rather think that the claim, in this respect, is erroneous. In economic terms, the difference between settling at a contract price of $1.6m inclusive of GST as to settling for $1.6m plus GST is, in fact, one-ninth of $1.6m, approximately $178,000.

[50] TDCL has joined the two firms of real estate agents involved, RAL and JCEL and there are cross-claims between the two real estate firms.

Overview of issues as between WVEL and MBSL and TDCL

[51] In order to succeed, WVEL and MBSL must:-

1. Establish that the contract between WVEL and TDCL provided, on its true interpretation, that the contract was on a GST inclusive basis;

2. If so resist the contention that the contract was varied, post-11 July 1997 in a way which resulted in the price of $1.6 m being on a plus GST basis;

3. If successful so far, resist the TDCL argument that the contract should be rectified; and

4. Resist TDCL’s contention that the plaintiffs are estopped by the actions of Mr Hunter in allegedly assuring TDCL that the price was on a plus GST basis, from now contending to the contrary.

[52] I will deal with the arguments as between WVEL and MBSL, on the one hand, and TDCL, on the other, by reference to these issues.

Did the contract between WVEL and TDCL on its true interpretation provide that the contract was for a plus GST?

[53] The plaintiffs’ case places reliance on the REINZ/ADLS form as it was after Mr Stewart initialled the alterations on 30 June.

[54] Messrs McCullough and Pearce assert that the form Mr McCullough signed on 27 June had attached to it the letter of 25 June from WVEL to RAL and the 20 June offer and counter-offer. The 20 June document provided for a $1.6m price on a plus GST basis. So it is contended that the contract should be construed as if that additional documentation was attached. If so, there might be thought to be a conflict between different parts of the contract. The invitation held out to me by TDCL was to resolve robustly that conflict in favour of the 20 June offer form over the REINZ/ADLS form.

[55] Mr Hunter, however, denies that the 20 June offer and counter-offer was attached when he gave the documents to Mr Pearce.

[56] I rather think that Mr Hunter is probably right as to this. I accept that there are staple holes in the agreement which are consistent with what Messrs McCullough and Pearce allege. But the staple holes hardly prove the case. All these show is that the form of the agreement has been stapled together and unstapled on a number of occasions. In any event, I see no reason why Mr Hunter should have bothered to have attached all the documentation referred to by Messrs McCullough and Pearce to the faxed agreement form after he received it from Mr Stewart. I can, on the other hand, see why Messrs McCullough and Pearce would feel more comfortable with their own behaviour if it were the case that the 20 June offer and counter-offer had been attached because this would help them to rationalise what happened essentially along the lines that they were lulled into a false sense of security.

[57] In any event, I do not see this line of argument as material. The alleged attachments were not on the REINZ/ADLS form when signed by Mr Stewart initially (on 25 June). It was not put to Mr Stewart that these attachments were on the form when he initialled the alterations on 30 June. So it is difficult to see how WVEL should be affected by these alleged attachments. Further, even if the documents had been attached, they would not have been of contractual significance as it is, I think, perfectly clear that the REINZ/ADLS form was intended to set out all the contractual terms which were intended to bind the parties.

[58] Accordingly, I have no doubt that, on the true interpretation of the agreement of 30 June 1997, the price was on a GST inclusive basis.

[59] I note that there are some difficulties regarding the form as it was on 30 June 1997 as representing a concluded contract. When Mr McCullough signed on 27 June, the alterations as to subdivision had not been made. He never later initialled them. So the document made available by Mr Hunter to Mr Stewart on 30 June 1997, which Mr Stewart initialled, was not in the same form as it had been when it was signed on behalf of TDCL. Accordingly, it might be thought that Mr Stewart’s initialling of the alterations did not complete the bargain.

[60] There are, however, two other ways of looking at the situation - that is two ways of looking at the situation which result in the conclusion that there was, indeed, a contract.

[61] The first relates to Mr Hunter’s role. By 30 June he must be regarded as being the agent of TDCL. It would rather appear that his conduct in presenting the form to Mr Stewart on 30 June was a representation by TDCL that the form, as it then was, had been signed by Mr McCullough. On this basis, there would be a contract by estoppel - that is TDCL would be estopped from relying on the fact that Mr McCullough had signed the form before the alterations were made.

[62] The second approach relates to the role of Mr Pearce which was not merely as real estate agent. He is also a director and shareholder in TDCL. He had previously dealt with the 20 June offer on the basis that he could sign documents on behalf of TDCL. On this basis, his conduct in making the alterations and authorising Mr Hunter to take the form, so altered, to Mr Stewart, could be regarded as being in the nature of an offer/counter-offer by TDCL to WVEL (albeit one which had not been signed by TDCL in the manner required by the Contracts Enforcement Act) and capable of acceptance. On this basis, the resulting contract would not comply with the requirements of that Act. But as that Act has not been pleaded by way of defence, non-compliance with its provisions is irrelevant. In any event, the requirements of this Act were later satisfied by the correspondence between the solicitors.

[63] The long and the short of it is that I think that there was a contract as at 30 June and in terms of that contract the price was on a GST inclusive basis.

Can the plaintiffs resist the argument that the contract incorporating the original GST provision was varied, post-11 July 1997 so that the contract price was on a plus GST basis?

[64] The second issue relates to variation post-11 July. If the externalities of what happened between 11 July and 25 August are examined, it does appear as if the contract entered into on 30 June was altered.

[65] Obviously, as at 11 July, there was scope for argument as to whether there was in fact a contract in place at all. As I have already mentioned the difficulties as the timing of Mr McCullough’s signature. That provides a context in which what happened after 11 July must be evaluated.

[66] The actions of WVEL and its solicitors between 23 July and 25 August are, in my view, consistent only with the view that they were treating the re-submitted REINZ/ADLS form as a further offer. Further, it seems clear that WVEL and its solicitors, by their conduct, accepted this further offer although I accept that it is not entirely easy to point to the mechanism by which that acceptance occurred and was conveyed. Overall, WVEL and its solicitors acted on a basis which shows unequivocally that they were treating the resubmitted form as representing a varied contract. They deployed the fact that the original agreement had been varied as an argument for obtaining a deferral of what might otherwise have been thought to be the point at which the contract had to be performed. Given that WVEL saw fit to contend that during this period the contract had been varied, by reference to the resubmitted form, I do not think it would be right to permit it to allege successfully now that there was, in fact, only one contract - that is as represented by the REINZ/ADLS form as it was on 30 June.

[67] While I have some difficulty identifying the point at which the revised form can be regarded unequivocally as having been accepted by WVEL, that point must have been reached at least by 25 August at which point the “contract” was declared unconditional by Mr McGregor on behalf of his client.

[68] Does it matter that the alterations included one (as to GST) which was not adverted to by Messrs Stewart and McGregor? I think not, at least for these purposes. I see it as raising, potentially, the same sort of issues as arise in connection with the fact that Messrs McCullough and Pearce overlooked the drafting problem (from their point of view) with the REINZ/ADLS form as to the GST issue on the night of 27 June.

[69] The varied contract must be in the terms provided by the REINZ/ADLS form as it was following its return to Mr McGregor on 23 July.

[70] On this basis, I am left with the conclusion that the original contract was varied so as to provide that the price was on a plus GST basis. This conclusion would not, of course, be inconsistent with the plaintiffs seeking relief in terms of the way in which the variation was achieved if that was appropriate. The plaintiffs’ pleading initially did seek relief in this respect based on the Fair Trading Act. The allegation was that TDCL’s conduct in relation to the July alterations was deceptive and misleading. For the moment anyway I rather think that the conduct of Mr Hunter, in this respect, probably was misleading (albeit that for reasons I will come to WVEL suffered no loss). In any event, however, the Fair Trading Act claim was not proceeded with.

[71] My conclusions on this mean that the plaintiffs’ claim must fail. It is, however, appropriate that I, nonetheless, address the third issue as it is directly relevant to the underlying merits of the claim.

If the plaintiffs could establish an ostensible right to pay a GST inclusive price, could they resist the TDCL argument that the contract should be rectified?

[72] Mr Stewart’s case is that he instructed Mr Hunter to leave open the GST provision on the offer to TDCL so that the price offered was inclusive of GST and, as well, to leave in the condition that TDCL be responsible for the costs of the proposed subdivision. He says that he did this to give him some room to bargain. He claims that he saw the GST issue and the subdivision costs as being capable of being offset against each other. So, to give himself leverage, he deliberately moved away from his previous practice of making his offers on a plus GST basis. He says that he expected TDCL to respond by insisting on the price being expressed on a plus GST basis but, perhaps under pressure, to move on the subdivision costs issue.

[73] The evidence of Mr Hunter is in direct conflict with that of Mr Stewart. He says that it was perfectly clear throughout that the price being offered was on a plus GST basis and the REINZ/ADLS form was prepared on an open basis simply because of an error on his part. He says that throughout all dealings with TDCL were on a plus GST basis and that he was never instructed to the contrary by Mr Stewart.

[74] Mr Hunter made some notes of his discussions on a page of his diary for 28 June 1997. These notes do include the notation “$1.6 + GST” (which would be hard to explain otherwise than on the basis that he thought that that the offer then current was on a plus GST basis). However, the notes as a whole, are not easy to follow and it would be wrong to rely on them as, in effect, controlling the factual issue which I must determine. They are, however, consistent with Mr Hunt’s evidence.

[75] Perhaps more importantly, I see no real reason why Mr Hunter would have acted in the way in which he did if what Mr Stewart says is right. I accept that he and Mr Pearce acted on the basis that the price was plus GST. Mr Hunter did not perform his functions as a real estate agent in all of this with conspicuous accuracy and efficiency. But for him to deal with Mr Stewart on the basis that the price was inclusive of GST and not to alert Mr Pearce to the change in position would have been asking for trouble. It would also have been dishonest. Further, although his later actions in having the GST provision altered by TDCL and then resubmitted, along with the other alterations to the REINZ/ADLS form, was strange (indeed misleading), these actions were nonetheless understandable:-

1. His drafting of the REINZ/ADLS form was defective and he, consistently with his instructions from Mr Stewart, in my view, intended to provide for GST to be additional to the price of $1.6m.

2. At least in substance, in the sense that he did not alert TDCL or its representative, Mr Pearce, to any change from the format of the previous offers, he had put the offer to TDCL on the basis that the price was $1.6m plus GST.

3. I suspect that he may have been concerned about the possibility that Mr Stewart would seek to take advantage of the way in which TDCL had signed if he learned of the error.

4. I rather think, as well, that he hoped to avoid an unpleasant dispute when he altered the GST provision in the way in which he did so as to accord with what had been intended but did not draw attention to this alteration in his dealings with Mr Stewart and his solicitor, either when he returned the form or in his failure to respond to Mr McGregor’s letter of 23 July (which referred to alterations to the special conditions but not the GST provision).

[76] I note, as well, that Mr Hunter has had (and continues to have) a substantial and presumably valuable business association with Mr Stewart. This business association must have been of far more importance to him than a one off deal with TDCL which was, in effect, a single purpose company. So in this respect too, I see no motive for Mr Hunter to have acted in the way now alleged by Mr Stewart and for him now to come along to the court and deny Mr Stewart’s evidence.

[77] There are many problems with Mr Stewart’s evidence.

[78] By the end of June, the availability of the on-sale of a portion of the land to Cotterdale Developments Ltd made the transaction very favourable to WVEL. As well, by 25 June the negotiations between WVEL and TDCL had reached the end of the road. An offer of $1.6m on a GST inclusive basis (ie a little over a net $1.4m) would have had the real potential to result in a complete breakdown of the negotiations.

[79] The initial explanation given by Mr Stewart to his solicitor for his alleged instruction to make the offer on a GST inclusive basis was related to the refusal by TDCL to accept the subdivision clause in the 20 June 1996 offer. In his brief of evidence he said that he equated the subdivision costs to $200,000. Later, however, he produced a letter from his accountant indicating that the costs were $143,000.

[80] The actual costs of subdivision, including surveying fees and reserve fund contributions could never have been seen as likely to exceed $45,000. More significantly, if the subdivision was the responsibility of TDCL, the time for settlement would necessarily have to be extended and this would have the effect of reducing holding costs. Mr Stewart, in his evidence, proceeded on the basis that holdings costs were within his concept of subdivision costs. I find it difficult to see how the holding costs associated with this exercise when added to the actual cost of subdivision would come anywhere near to $200,000, the figure referred to by Mr Stewart in his evidence or perhaps even the $178,000 figure which represents the GST component of a price $1.6m inclusive of GST. So the subdivision costs (even construed broadly as including holding costs) were never really the economic equivalent of the GST change.

[81] Associated with this point there is another of perhaps more significance. When TDCL sought discovery of the subdivision costs, Mr McCullough in his affidavit in support referred to Mr Stewart’s brief of evidence and the references in that brief to estimates (as at June 1997) as to subdivision costs. The affidavit then went on:-

“There have been no discovery of documents on which these estimates were based nor of documents showing the actual costs to the plaintiffs of subdivision or purchase.”

Mr Stewart responded to this request in an uncompromising and unhelpful way:-

“There are no such documents and in any event it is my view that these matters are my business alone.”

But there was an accountant’s file which records, amongst other things, these costs. So what Mr Stewart said in his affidavit was not true. He did not favour me with an explanation as to why his affidavit on this issue was untrue. I am bound to say that I was less than impressed by his conduct in this respect. It plainly reflects adversely on his credibility.

[82] Perhaps, recognising some difficulties with the argument that the GST issue was the economic equivalent of the subdivision costs, WVEL changed tack slightly on this issue in the course of trial and suggested Mr Stewart’s alleged deliberate change of position on the GST issue at the end of June 1997 may also have related to his recognition that TDCL would not accept any Hanmer land in part settlement. But this kind of argument seems to me to be something of a late starter and appropriately discounted for this reason.

[83] The difference between $1.6m plus GST and $1.6m inclusive of GST is significant. As I have said, the GST component in a GST inclusive price of $1.6m is $178,000. This would leave, on Mr Stewart’s contention, a net price for the property of around $1.422m. Obviously all the potential profit lay in the margin between what was paid and what could be realised. In this context, $178,000 is a very significant sum. It was also very important in terms of financing given that the transaction was financed pretty much on a 100% finance basis. If it really was the case that Mr Stewart had expected to obtain the land for $1.42m (net) and was then required to pay $1.6m (net), I would have expected this to have generated a good deal of paper as the consequences were worked through with his partners and financiers. Yet there is a striking absence of contemporaneous evidence which supports Mr Stewart’s evidence.

[84] Indeed, the contemporaneous written evidence is, as I appreciate it, inconsistent with Mr Stewart’s evidence or, at best, inconvenient from his point of view:-

1. On 2 July 1997 Mr Stewart spoke to his solicitor, Mr McGregor. Mr McGregor’s note records a purchase at “$1.6” and a sale of part of the land to Cotterdale Developments Ltd at “$1.4”. This is not a great fit for what Mr Stewart now says. It is common ground that the sale-on of part of the land at $1.4m was on a plus GST basis. It would be rather odd if Mr Stewart were to mention the prices in this way if he thought that the $1.6m price was on a GST inclusive basis.

2. When the July alterations were brought to Mr Stewart’s attention on 23 July, this was by fax from Mr McGregor. As I have indicated, Mr McGregor sent a fax which included the front page of the agreement (with the GST alteration on it) and the special conditions. It is at least possible that the alteration to the GST provision was not noticed because it was thought throughout that the price was on a plus GST basis.

3. Mr Stewart prepared a summary of the transaction for the bank which is, relevantly, in the following terms:

876 Colombo Street Christchurch

Purchase price (conditional contract until the
25th August 1997)  1850000
Reserves Levy 38000 (1600m2 @ $315m2 x
7.5%)
Stamp duty 36275
Legal 10000 (buy & sell & survey)
Interest 42000 (3 months @ 12% on
$1.4 million)  126275

Agent to sell 3462m2 Lot  34075
Agent to sell Motel Lease  12000
  2022350

Less sale of 3465m2 (unconditional offer)       1400000
sale of lease (offer pending)  350000         1750000
Cost of Motel land (1600m2 estimated
Value $600000)  272350

Cost Motel development 15 Units with owners
unit  950000
Interest on Motel development during
Construction  40000
Rebate on lease for first 6 months  70000
  1332350

Estimated value of development (L&B value
$1.5 million)  1500000

Margin  167650

In the commentary Mr Stewart noted:-

“The Company has $450000.00 equity and the amount of finance sort will be sufficient to complete the purchase (including GST but refundable) and development expenses. At the time of settlement of the 3462m2 the loan would be repaid.”

This document would appear to have been prepared by Mr Stewart sometime between 13 August when the sale to Cotterdale Developments Ltd became unconditional but prior to 25 August 1997 (given the reference to “conditional contract until the 25th August 1997”). I have italicised the relevant words in the extract which I have just set out. If so, this is a very inconvenient document from the point of view of Mr Stewart. This is because it was not until 27 August that he became aware of the way in which the GST provision had been altered on the front page of the REINZ/ADLS form. So, prior to 27 August, if his general evidence is correct, he must have assumed that he would be paying $1.6m for the property of which effectively $178,000 would be refundable as GST. But the reference to the price of $1.8m was obviously intended to include $1.6m as the purchase price, $200,000 for GST and $50,000 for what I suppose could be regarded as good measure. In his evidence, Mr Stewart accepted that 13 August start date but was understandably reluctant to accept that the document was written before 25 August. He did not, however, give any convincing explanation for the apparently prospective reference to “25 August 1997”.

4. On 25 August 1997, Mr Stewart spoke to Mr Michael Bushell of Countrywide Bank. This was also before the alterations to the GST provision had come to his attention and before he knew (at least on his evidence) that TDCL contended that the purchase price was on a plus GST basis. This note records:-

“Purchase of St Mary’s site Colombo Street, Christchurch. Purchase price $1.6m plus GST, 5033 sqm. On sale 3,400 sqm for $1.4m, ie picking up balance 1,600 sqm for $200K.”

Mr Stewart contended that the reference to $1.6m plus GST was a mistake on the part of Mr Bushell. Well I suppose it could have been a mistake. Rather more awkward from the point of Mr Stewart is the reference to the “1600 sqm for $200k”. This involves an arithmetical exercise which is consistent only with the price of $1.6m plus GST less $1.4m plus GST. On Mr Stewart’s case his belief on 25 August would have been that the “1600 sqm” had a net cost of not $200,000 but of only $22,000.

5. Although the “problem” over GST was discovered on 27 August, Mr Stewart did not unequivocally assert his current position until 3 or 4 September and I rather think probably not until 4 September. Mr McGregor spoke to Mr Stewart about that matter on 3 September and took a file note of the discussion. The file note concludes:-

“- did you tell him to go Inclusive
- Did you know it was inclusive at that stage”

These questions plainly relate to the instructions which Mr Stewart gave to Mr Hunter when the REINZ/ADLS form was drafted. Mr Stewart’s response to these very important questions is not recorded. So the file note taken by Mr McGregor rather leaves these issues hanging in the air. As to this I note that Mr Stewart came back to Mr McGregor by fax on 4 September setting out what is now his current position.

6. On 9 September Mr Stewart wrote to the bank. In this letter he said:-

“Settlement is set down for the 3rd October 1997. We may move this forward to the 30th September 1997 if the IRD will not zero rate the transaction, so that we can file a GST claim on the 1st October 1997.”

Again there is no mention of the GST dispute with TDCL which was then current. As at 9 September 1997, TDCL had not given its response to Mr McGregor’s complaint about the alterations to the GST provision. TDCL’s refusal to budge on the GST issue was not, in fact, conveyed until 10 September. So it is very odd that in his 9 September letter to the bank, Mr Stewart did not refer to what was then the live issue (which was whether the contract price was GST inclusive or not) but did refer to an issue which had not previously been raised as to whether the transaction might be zero-rated. I have to say that I find the reference in this letter to possibility that the IRD might “zero-rate the transaction” very difficult to follow, at least literally, as I can see no credible basis upon which Mr Stewart, an experienced property trader, could have thought that this transaction could be zero-rated. I am, in fact, very suspicious that this was an oblique reference to the GST issue which was then current with TDCL and that Mr Stewart, for reasons, perhaps associated with his earlier communications with the bank, did not wish to discuss in detail with the bank the stance which he, at this stage, was taking with TDCL.

7. Finally in this list of factors I note that on 28 September Mr Stewart wrote again to Mr Bushell and the bank:-

“The loan documents have been signed and will be returned by courier to Harman & Co tomorrow (Monday), and our discussion of Friday the 25th September 1997 for all other matters refers. I wonder how many trees went into producing them? The IRD will not allow the transaction to be “zero rated” and therefore it will be necessary to draw fully against the advance, with a credit for GST to be refund[ed] to the account. The GST is in the order of $200,000.00 plus.”

I rather think that this reference to GST is another oblique reference to the GST issue with TDCL.

[85] These factors are not all of the same weight. Most, and perhaps all of them, can be explained away in a manner which is consistent with Mr Stewart’s evidence although I have to say that such explaining away is very difficult with respect to some of the factors I have mentioned. But what is more significant is that they all point in the same direction and, in their totality, they are heavily inconsistent with what Mr Stewart says.

[86] It follows from what I have said that I think that Mr Stewart is something of an opportunist, in that he took advantage of what he perceived to be an opportunity to secure a financial saving as a result of a mistake made by Mr Hunter. It also follows that I do not accept he was a candid witness.

[87] Overall I am confident, that is persuaded on the balance of probabilities but by a very comfortable margin, that Mr Hunter’s key evidence is correct, that the intention throughout was that the offer made on 26 June was to be on a plus GST basis, and that Mr Stewart had believed the resulting contract was on a plus GST until 27 August 1997. This was certainly the understanding of TDCL.

[88] It is inescapable that if the underlying contractual arrangements between WVEL and TDCL had not been varied as I think they were in the period 23 July to 27 August, they would have to be rectified to provide that the price was on a plus GST basis, cf Westland Savings Bank v Hancock [1987] 2 NZLR 21.

Is WVEL estopped by the actions of Mr Hunter in assuring TDCL that the price was on a plus GST basis from contending to the contrary?

[89] Mr Pearce said in his brief of evidence :-

“27. The December Company agreement, as presented to me by Mr Hunter, is document 31 (pages 97-100) in the bundle (“the Agreement”). Mr Hunter told me that it was the same deal as before, $1.6m plus GST. It had been signed by Mr Stewart on
behalf of Wairau Valley. Annexed to the front of the agreement were the same documents as annexed to the front of the Maryville Courts agreement namely:-

27.1 Don Hunter’s business card;

27.2 The counter offer from The December Company which I signed on the company’s behalf;

27.3 The site plan; and

27.4 The fax from Wairau Valley to Rolle Hillier dated 25 June 1997.”

[90] Mr Hunter, in paragraph 20 of his brief of evidence said:-

“The next day I took the two offers to Bryan Pearce (ADB76-87). I chased a response over the next two days as I knew Ron Stewart was about to leave the country.”

[91] Mr Pearce was cross-examined on what seems to have been his contention that Mr Hunter told him, at the time the REINZ/ADLS form was presented to him that the price was still on a plus GST basis:-

“Did you have discussions with Mr Hunter about the price being $1.6m plus GST ?. . .yes.   okay. Can you recall where and when ?. . .I can’t recall exactly what dates but this had been going backwards and forwards for weeks.”

[92] When Mr Hunter gave evidence it was not put to him, explicitly, that he told Mr Pearce on 26 June that the agreement he had drafted included a purchase price that was on a plus GST basis. Mr Hunter’s position throughout was that he intended that the price be on a plus GST basis and that all his dealings with Mr Pearce had been on that footing. But he was not required, in his evidence, to address specifically the question whether this is what he said when he presented the REINZ/ADLS form.

[93] I did not take Mr Pearce seriously when he asserted, in his brief of evidence, that he could recall the detail of what was said to him on 26 June when the REINZ/ADLS form which had been signed by Mr Stewart was given to him by Mr Hunter. Indeed, that such recollection is simply not possible became apparent when Mr Pearce came to be cross-examined.

[94] In those circumstances, I am not prepared to make a finding that there was a representation as alleged by Mr Pearce. I say that notwithstanding that I accept that, in the broader sense, it was entirely understandable that TDCL should think that it was dealing with WVEL on a plus GST basis.

Disposition of case as between plaintiffs and defendants

[95] It follows from the conclusions I have reached that the plaintiffs’ claim must fail. There is accordingly judgment for the defendant against the plaintiffs.

Issues between defendant and third and fourth parties

[96] In view of my conclusions in respect of the claim as between plaintiffs and defendant, I can deal briefly with the remaining issues in the case. This is because the only relief sought by TDCL against the third and fourth parties, other than costs, is by way of indemnity for any liability it may have to the plaintiffs. As it has no such liability there will be judgment for the third and fourth parties against the defendant.

[97] I will, however, briefly discuss the merits of the competing claims in respect of this aspect of the case.

[98] All relevant claims by TDCL against the real estate agents involve allegations of negligence, that is claims in tort for negligence (in various forms) or for breach of contractual duties to take reasonable care. As between the real estate agents the real issues are as to contribution. So if liability was in issue, in other words if I found that the defendant was liable to one or other of the plaintiffs, the ultimate burden of that liability could be adjusted between the defendant and third and fourth parties on the basis of contributory negligence and an assessment of the comparative responsibility of all the parties.

[99] As to this, I note that it was common ground that Mr Pearce was acting for JCREL and any negligence on his part should be attributed to that entity and not to TDCL (in which he was entrepreneurially involved as a shareholder and a director).

[100] All of these parties, in my view, were significantly negligent. If it had been necessary for me to attribute responsibility, the bulk of that responsibility would have been shouldered by RAL - that is 60%. I would have attributed 30% to JCREL and 10% to TDCL.

[101] Mr McCullough was foolish to sign the agreement without reading it and while having dinner at a restaurant. He was, however, the client and the agents between them were paid over $32,000 in commission. So the primary responsibility for all of this must be regarded as lying with them.

[102] Mr McCullough plainly relied on Mr Pearce. Mr Pearce plainly did not go through the form with him as he should have done. He also ought to have ensured that the contract was properly scrutinised before Mr Hunter retrieved it and took it to Mr Stewart to initial the alterations.

[103] It is inescapable that Mr Pearce, and thus JCREL, are significantly more responsible in terms of a comparative assessment of fault than TDCL. On the other hand, the primary blame for this whole fiasco can fairly be placed at the door of Mr Hunter whose drafting and attention to detail in this transaction were lamentable and who was the agent principally involved.

[104] There is no liability to be passed on so all of this is by the by. As I have indicated, the result is that there will be judgment for the third and fourth parties against the defendant.

Costs

[Discussion with counsel]

[105] As to costs I am told that a Calderbank offer was made last year and plainly not accepted. The defendant is obviously entitled to costs against the plaintiff. The third and fourth parties are entitled to costs either against the defendant or the plaintiffs although my present inclination is to make a direct order as to costs in favour of the third and fourth parties against the plaintiffs.

[106] The third and fourth parties and the defendant are to submit memoranda as to costs within 7 days. The plaintiffs are to respond in 7 days. I will then deal with outstanding issues of costs by way of minute.