Waitarere Rise Ltd v Rangi HC Auckland CIV 2009-454-872
[2010] NZHC 403
•16 March 2010
IN THE HIGH COURT OF NEW ZEALAND
PALMERSTON NORTH REGISTRY
CIV-2009-454-872
BETWEEN WAITARERE RISE LIMITED
Plaintiff
ANDROBERT EDWARD RANGI AND SARAH JANE RANGI
Defendants
Hearing: 3 March 2010
Appearances: TM Horder - Counsel for the plaintiff
IA McCulloch & D Hickman - Counsel for first-named defendant
DJ O'Connor - Counsel for the second-named defendant
Judgment: 16 March 2010 at 4.00 pm
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by Associate Judge Gendall on 16 March 2010 at 4.00
pm pursuant to r 11.5 of the High Court Rules.
Solicitors: Bell Gully, PO Box 1291, Wellington 6140
Max Tait Legal, PO Box 50565, Porirua 5240
Elvidge & Partners, Solicitors, PO Box 609, Napier 4140
WAITARERE RISE LIMITED V RE RANGI AND SJ RANGI HC PMN CIV-2009-454-872 16 March 2010
Introduction
[1] The plaintiff seeks an order for summary judgment for specific performance of an agreement for sale and purchase it has entered into as vendor with the defendants as purchasers.
[2] The defendants have each filed a notice of opposition. They accept that they have defaulted in completing settlement and are liable under the agreement, but oppose specific performance on the ground of impossibility of performance.
Background
[3] In 2006, the defendants, Robert Edward Rangi (Mr Rangi) and Sarah Jane Rangi (Mrs Rangi) entered into two agreements for sale and purchase as purchasers with the plaintiff, Waitarere Rise Limited as vendor. The agreements were for two adjoining sections, Lots 11 and 12, in a large residential development at Waitarere Beach in Horowhenua. Each section had a purchase price of $207,000.00. The present application however only concerns one of those sections, Lot 12, and the agreement for sale and purchase for that section dated 25 July 2006 (“the Agreement”). The defendants have already paid a $20,700.00 deposit for Lot 12 under the Agreement, but they have defaulted in completing final settlement of this purchase. As to the other section, being Lot 11, Mr Rangi has himself completed settlement under the agreement to purchase this section in his own name alone with substantial vendor mortgage finance left in.
[4] With respect to Lot 12, which this judgment addresses, on 15 April 2009 given the purchasers’ settlement default under the Agreement, the plaintiff issued the defendants with
a settlement notice. The defendants however have failed to settle.
[5] Pursuant to cl 9.4 of the Agreement, the plaintiff now seeks against the defendants
by way of summary judgment an order for specific performance of the Agreement. The outstanding amount of the purchase price to be paid by the defendants including penalty interest, is a total of approximately $206,512.00 being effectively $103,256.00 for each defendant.
[6] The defendants claim that they are not in a position to proceed with settlement of the Agreement. Having separated about 15 months ago, they argue that their financial circumstances make specific performance of the Agreement impossible.
Principles
[7] The present summary judgment application is brought pursuant to Rule 12.2(1) of the High Court Rules which provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[8] The principles of summary judgment have been recently summarised by the Court
of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187:
[26]The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[9] An accepted defence to a proceeding for specific performance exists where enforcement of the order would be “impossible”. There is no dispute between the parties as to the legal principles that are applicable here. A well-cited description of the defence appears in I C F Spry The Principles of Equitable Remedies (7th ed, Lawbook Co, 2007) at 128-129:
It is clearly established that the courts will not require that to be done which cannot be done ... But this is not to say that the mere anticipation of possible difficulties leads to
a refusal of relief. If, on the materials before the court, performance may or may not
be able to be completed, the various probabilities will be taken into account in deciding on the order that is most just in all the circumstances. Thus is may be most appropriate to order specific performance in the ordinary manner, so that if necessary the defendant may later approach the court for a modification or variation by reason of subsequent difficulties or may rely upon them in any subsequent proceedings in relation to the enforcement of the order. Again, if at the time of the original application there is shown to be a substantial risk that performance will not be possible, it may be most appropriate to make a conditional order or else to adjourn the proceedings until the position becomes more clear. Finally, if a sufficiently great likelihood is shown that performance will not be possible, and especially if no strong considerations of hardship appear on the part of the plaintiff, it may be most just to grant no order for specific performance at all, whether absolute or conditional, and so
to confine the plaintiff to remedies in damages.
[10] This formulation of impossibility of performance was adopted in Colson v Jensen
HC Auckland CP652/90, 18 September 1990, Matarangi Beach Estates Ltd v Dawson
(2008) 6 NZ ConvC 194,667 (HC) and Ngai Tahu Property Ltd v Dykstra HC Christchurch, CIV-2009-404-809, 29 October 2009.
[11] Based on these authorities, it follows that the defendants must establish a very substantial probability that they would not be able to comply with an order for specific performance. In Ngai Tahu Property Ltd v Dykstra, for example, the Court commented that:
[12] ... Anything less than a very substantial probability that performance will be impossible is insufficient – anticipation of possible difficulties or even a demonstrated difficulty in finding purchase money is unlikely to constitute a defence of impossibility. In such cases and subject to any other overriding equitable considerations a Court in equity is likely to order specific performance in the ordinary manner (with or without conditions) – the defendant may then later approach the Court for a modification or variation of the order.
[12] Mere difficulty to pay on the part of a defendant as purchaser is unlikely to amount
to a defence of impossibility: Gilbert v Manninen (2009) 10 NZCPR 209 (HC) at [49], referring to Pasedina (Holdings) Pty Ltd v Khouri [1977] 1 BPR 9460.
[13] Where a defendant raises an impossibility defence to a summary judgment application for specific performance, the plaintiff must establish that there is no arguable defence that there is a very substantial probability that the defendant will be unable to comply with an order for specific performance. Once the plaintiff has shown that there is a contract which, on its face, entitles the plaintiff to the remedy of specific performance, the evidential onus shifts to the defendant to demonstrate a tenable defence: Ngai Tahu Property Ltd v Dykstra at [12] (but see Haines v Carter [2001] 2 NZLR 167 at [97] for the proposition that the term “evidential onus” is best avoided). However, it is to be noted that the overall onus on the application remains on the plaintiff:
[52] Once a defendant satisfies the Court in relation to a summary judgment application for specific performance that the defendant has an arguable case based on impossibility, it is not open to the Court to order specific performance upon the basis that the defendant may or may not be able to comply. There will be occasions where the evidence is equivocal and the defendant does not satisfy the evidential burden of demonstrating a very substantial probability that the defendant will be unable to comply with the specific performance order.
[14] Counsel for the plaintiff referred me to a number of cases in which impossibility was raised as a defence to an application for specific performance and argued that, in comparison with those cases, the combined financial position of the defendants here is sufficiently strong to enable them to raise the required finance. In particular, reliance was placed on Matarangi Beach Estates v Dawson (2008) 6 NZ ConvC 194,667 (HC), where Hole AJ granted an order for summary judgment for specific performance on the basis that, given time, the defendants were able to meet their obligations under the contracts through
selling other property and arranging mortgage finance over the purchased properties. The defendants were given six months to put their financial affairs in order.
Factual Background and Argument
[15] In the present case, the defendants submit that their previous applications for mortgage finance have all been rejected and there is thus a substantial likelihood that an order for specific performance of the Agreement will not be complied with. Both Mr and Mrs Rangi claim that they have insufficient assets or income to raise the funds required.
[16] Mrs Rangi contends that at least two banks have rejected her loan applications because they would not make a joint loan to a separated couple. Mr Rangi also says he has attempted to procure finance from several institutions, but his applications related to finance with respect to both Lot 11 and Lot 12. He says that the banks required “two incomes” and would not lend to him as a “sole income earner” with no security or an adequate level of equity. He further argues that at least one bank required a 50 per cent equity deposit because the lots were not fully serviced sections, and that this also affected his ability to raise finance.
[17] Referring to Gilbert v Manninen, counsel for the plaintiff submits that it is a significant factor weighing against the defendants here that, although they have provided some evidence of attempts to obtain finance, none of this evidence shows that the applications were made on appropriate terms. Based on the evidence available to the Court, it seems that Mrs Rangi’s applications were for $207,000.00, and Mr Rangi’s applications were for $200,000.00. However, effectively, each party’s half share of the outstanding component of the purchase price and penalty interest amounts to only approximately $103,250.00.
[18] The plaintiff it appears has made enquiries itself with a number of banks for an indication as to how much persons in the position of the defendants would be able to borrow, and it submits that banks would generally be willing to lend between 50 per cent and 75 per cent of the purchase price. However, the only evidence to this effect that is before me is comprised in an affidavit by the plaintiff’s solicitor.
[19] Nevertheless, in my view there is substance in the plaintiff’s submission that this evidence of the defendants’ inability to raise finance is insufficient here to raise an arguable defence. The defendants’ attempts as I see it would have been significantly affected by the size of the loan that was specified in their respective loan applications, and there is no evidence to support Mrs Rangi’s assertion that the applications were rejected because she and her husband are now separated. Subject to Mr and Mrs Rangi’s financial position, taking a broad overview, there is therefore no evidence to suggest that they would be unable to raise loans effectively of about $103,250.00 each, secured by a mortgage over Lot 12 and other assets.
[20] Turning to the defendants’ respective financial positions, it appears that Mrs Rangi has a weekly net income of $824.34 and net assets of approximately $40,000.00. She owns a section in Foxton with a forced sale value of $65,000.00, and her car is said to be worth about $7,000.00. Her debts amount to about $31,600.00.
[21] Mr Rangi’s weekly net income from his main occupation as a restaurant manager is approximately $650.00 - $700.00. In addition, he receives $10,000.00 a year for his role as a trustee. The value of his net assets is unclear, but the plaintiff contends that they total between $60,000.00 and $80,000.00. Mr Rangi is the sole owner of a cafe business, Waikikorangi Limited, which has a book value of $99,582.00. The business has approximately $52,000.00 worth of debts, but the plant and machinery is worth $60,000.00.
[22] Despite these figures, Mr Rangi says that he will likely sell the cafe business for a total sale price of approximately $50,000.00 (or $40,000.00, as stated in his affidavit), but that the purchase price does not include most of the $52,000.00 debt. However, his affidavit also refers to a disputed debt of $52,000.00 in relation to Waikikorangi Limited that is apparently owed to him. Although no further details are provided on this matter, it may be that it is in fact the previous owner of the business who is ultimately liable for the business debts, as it seems these were incurred before the business was taken over by Mr Rangi.
[23] Mr Rangi states that he bought a car for $33,000.00 two years ago, which he now considers to be worth $17,000.00. He obtained two loans in relation to this purchase, and the remaining level of debt appears to be approximately $22,000.00. His credit card debt is $3,112.36.
[24] It appears he also currently owes $186,300.00 plus default interest as a result of the loan agreement with the plaintiff as mortgagee for the purchase of Lot 11. As I have already noted, this lot is in Mr Rangi’s sole name.
[25] This Lot 11 has been on the market for sale through a real estate agent since May
2009 apparently. The initial asking price was $250,000.00, but it appears that Mr Rangi subsequently dropped the purchase price to $195,000.00 in an attempt to “get a quick sale”.
[26] The plaintiff has raised some points regarding the quality of Mr Rangi’s evidence. In particular, the plaintiff complains that Mr Rangi has not provided a sufficiently clear statement of his weekly incomings and outgoings to establish his general financial situation, that the stated value of his assets and debts shows inconsistencies or is incorrect, that his statement refers to the same debt more than once, and that it is unclear whether his debts have already been paid.
[27] On that basis, the plaintiff contends that the defendants’ evidence is ambiguous and fails to assure the Court that there is a very substantial probability that they would be able to obtain funding. It submits that the defendants would be able to raise sufficient funds to satisfy the outstanding component of the purchase price and penalty interest if Mr Rangi
sold his interest in Waikikorangi Ltd, his car and Lot 11, if Mrs Rangi sold the section in
Foxton, and if both Mr and Mrs Rangi obtained a loan for the remaining amount secured by
a mortgage over Lot 12. Further, the plaintiff argues that there is evidence to suggest that a bank would be willing to lend between 50-75 per cent of the outstanding amount to persons
in the defendants’ position. The defendants could thus each obtain mortgages for $51,628.00
- $77,442.00, with weekly repayments of approximately $75-$112 over 25 years.
[28] Although the information provided by Mr Rangi regarding his financial position is rather unclear, it does appear to me that there is sufficient evidence before the Court to suggest that the defendants may well be able to contribute 25 per cent to 50 per cent of their respective share of the outstanding purchase price in order to obtain a mortgage over Lot 12. Even if Mr Rangi sold his business for only $50,000.00, the business debts of $52,000.00 would still be cancelled out by the debt of $52,000.00 that is apparently owed to him. There is no evidence to suggest that Mr Rangi has attempted to enforce repayment of this debt. Assuming that Mr Rangi sold Lot 11, and taking into account his personal debts, his net assets would come to approximately $40,000.00.
[29] It is true that this figure would of course depend on the purchase price able to be obtained for Lot 11. It will already be evident, however, that the exercise of assessing Mr Rangi’s ability to specifically perform the Agreement is based on a significant level of speculation. It is unclear whether Mr Rangi will be unable to sell his business for more than what may well be a conservative estimate of $50,000.00, or whether enforcement efforts will result in repayment of the debt of $52,000.00. The essential point is that, looking at the evidence as a whole, the plaintiff has succeeded here in showing that there is no arguable defence of impossibility, as there is no arguable defence that there is a very substantial probability that the defendants will be unable to comply with an order for specific performance. Anything less than this very substantial probability of non-compliance is insufficient – Ngai Tahu Property Ltd v Dykstra at [12].
[30] Counsel for the plaintiff referred me to D’Arcy-Smith v Stace (2003) 4 NZ ConvC
193,771, in support of the contention that the sanctity of the law of contract requires the Court to hold the parties to their bargain wherever this is possible. In that decision, I noted at [30]:
[30] There is a further matter which the plaintiffs raise before me. This is the contention that to allow the defendant’s own default here to resist specific performance of her obligations would threaten to emasculate the solemnity and sanctity of the law of contract. The parties here entered into a bargain and the courts have generally gone to some lengths to hold the parties to their bargains. The plaintiffs contend that to do otherwise would set the tone for the slippery slope of perception that contracts can be entered into without taking the necessary care and the consequences of entering into a contract escaped from just as easily. In my view there is merit in this suggestion.
[31] There are two further factors which to my mind go some way to support my conclusion that specific performance is the appropriate remedy here. First, the defendants
have already paid the deposit and thus partly performed the Agreement. In Colson v Jensen
at 13, it was held that a Court would go to any length it reasonably could in order to compel performance by the defendant where there had been part performance by a plaintiff. Although part performance here was by the defendants and not the plaintiff, it is arguably to some extent a relevant consideration in favour of granting specific performance.
[32] Moreover, I accept the plaintiff’s submission that damages would not be an adequate remedy in this case, as this would place the burden of selling the property (perhaps on a falling market) back onto the plaintiff and, given that the plaintiff’s financier evaluates its performance on the basis of settlement rates, this is likely also to have a detrimental effect on the plaintiff’s continued ability to obtain refinancing for its development. This Court has in the past attached importance to a plaintiff’s real choice of remedy under freely negotiated contracts and in particular to the choice of a vendor to have a contract performed where that vendor has potentially lost the opportunity to sell the property in question in a more buoyant market through the existence of the contract with a defendant – Ngai Tahu Property Limited v Dykstra and Matarangi Beach Estates v Dawson. In the present case the plaintiff is entitled to seek specific performance under cl. 9.4 of the Agreement and these matters affecting its choice of remedy in my view come directly into play.
[33] For the same reasons, there can be no suggestion that specific performance should not be ordered here because this would cause great hardship to the defendants: see, for example, Baker v McLaughlin [1967] NZLR 405 at 414. Not only is it doubtful whether “mere financial inability” can amount to great hardship (Nicholas v Ingram [1958] NZLR 972), but the Court must also consider whether on the other hand an order for specific performance would cause hardship to the plaintiff. In my view, in this case, it would cause considerable unfairness to the plaintiff if it was deprived of its right to choose the remedy of specific performance, a right I described in D’Arcy-Smith v Stace at [31] in the following way:
[31]Further, as I see it, the plaintiffs as innocent parties here, should not be deprived of their ability to exhaust the range of remedies open to them under the Sale Agreement. The plaintiffs should be free to make an election between all the alternative remedies open to them, which include the order for specific performance they seek. If indeed the purchaser is still unable to comply with an order for specific performance if one is to be made, then the plaintiffs have their alternative remedies at that point to cancel the contract and claim damages ... .
[34] Therefore, I do not consider that an order for specific performance would cause “great hardship” to the defendants, even though both Lots may have decreased in value since the Agreement was entered into and Lot 11 may yet have to be sold at a loss.
Conclusion
[35] In my view, the plaintiff has done enough on its present summary judgment application to show that the appropriate remedy to be granted to the plaintiff in these
proceedings is an order for specific performance. It follows that the plaintiff’s application before the Court for summary judgment has succeeded. However, to enable the defendants
to put their financial affairs in order, they are to be given three months from the date of this judgment to comply with the order for specific performance which is to follow.
[36] Both Mrs and Mr Rangi have expressed concerns that an order for specific performance would put them at risk of being in contempt of Court. In order to alleviate these concerns, it is appropriate to reserve leave to the parties to apply for a variation of the order in the event that they should encounter any difficulties in its full implementation: see, for example, Colson v Jensen at 15.
Orders
[37](a) An order is now made by way of summary judgment in favour of the plaintiff against the defendants for specific performance of the Agreement (dated 25 July 2006).
(b)In particular, orders are now made that the defendants are to perform their obligations under the Agreement with the plaintiff within three months after the date of this judgment, including:
(i)performing their obligations under clause 3.5 to prepare, at their expense, a Memorandum of Transfer of the property being Lot 12, executed by them if necessary, with that Memorandum to be tendered to the plaintiff’s solicitors, at the latest, one week prior to the conclusion of the three month period following the date of this judgment.
(ii) performing their obligation under clause 3.7(1) to pay on the settlement date (being, at the latest, three months after the date of this judgment) the purchase price, interest and other moneys, if any, due as provided in the Agreement, including:
a. the balance of the purchase price of $186,300 (inclusive of
GST); and
b.penalty interest at 12% on the balance of the purchase price from the settlement date of 8 April 2009 (being $61.25 per day) until payment in full of the purchase price.
[38] Leave, however, is reserved to either party to apply further on 48 hours notice in the event of any difficulty in the implementation of the order.
[39] As to costs, the plaintiff has succeeded in this application and is entitled to costs on
a 2B scale, together with disbursements as fixed by the Registrar. An order to this effect is now made. This order however does not include costs for the defendants’ application to transfer the proceeding to Wellington. It appears that the plaintiff wrongly filed the
proceeding in the Palmerston North Registry. Costs on the application for transfer of the proceeding were reserved on 4 February 2010, and are now awarded to the defendants on a
2B basis (plus disbursements as fixed by the Registrar) to be offset against the costs award now made in favour of the plaintiff.
‘Associate Judge D.I. Gendall’
2
0
1