Waterside Group Developments Limited v Kuo HC Auckland CIV 2010-404-2384

[2010] NZHC 1143

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-2384

IN THE MATTER OF     an application under section 145A of the

Land Transfer Act 1952

BETWEEN  WATERSIDE GROUP DEVELOPMENTS LIMITED

First Applicant

ANDPHOENIX PROPERTIES LIMITED Second Applicant

ANDHUANG-TING KUO AND CHUN- HSIUNG KUO

Respondents

Hearing:         24 June 2010

Appearances: Mr D Chisholm for Applicants

Mr N Campbell for Respondents

Judgment:      7 July 2010 at 4.30

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

07.07.10 at 4.30 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel:

Mr David Chisholm, Auckland – by email: [email protected]

Mr Neil R Campbell, P O Box 4338, Auckland – by email: [email protected]

WATERSIDE GROUP DEVELOPMENTS LIMITED AND ANOR V  KUO HC AK CIV-2010-404-2384  7

July 2010

Background

[1]      On 17 October 2003 the parties concluded an agreement between the Kuos (the   respondents)   as   vendors   and   Waterside   Group   Developments   Limited (“WGDL”)  as  purchasers  pursuant  to  which  WGDL  would  purchase  “1.4298 hectares more or less being the balance of that bare land yet to be surveyed from the existing title of 2.2283HA”.  The land was approximately defined in clause 18.  The purchase price was $90 per square metre.  Clauses 14 and 15 were as follows:

14.0This   agreement   is   conditional   upon   the   purchaser   receiving appropriate  resource  consent  and  residential  subdivision  consents with such consents being granted on or before the 23rd of December

2003 time being of the essence.

The purchasers will make available to the vendors’ nominated representative all correspondence between the purchaser and the appropriate territorial authority as regards to their applications. Additional  monthly  extensions  to  this  condition  will  be automatically given by the vendor to the purchasers in the event that the purchasers are delayed in being granted the said applications by the appropriate territorial authority by the 23rd  of December 2003 provided that any delay is not attributable to tardiness by the purchasers during this period.

15.0The purchasers warrant that they at their cost will have the block surveyed and prepare full subdivision plans to be submitted to the Council as part of their application and will assist the vendors to define the actual area that will be included in the sale as part of the zoning application.   Any charges including reserve contributions relating to the subdivision or any amalgamation of the said land is to be paid by the purchasers.

[2]      I assume that the reference in clause 14 to “resource consent” and “residential subdivision consents” is to one or more of the types of resource consent available under the Resource Management Act, and in particular, s 87 which provides:

87       Types of resource consents

In this Act, the term resource consent means any of the following:

(a)A consent to do something that otherwise would contravene section  9  or  section  13  (in  this  Act  called  a  land  use consent):

(b)A consent to do something that otherwise would contravene section 11 (in this Act called a subdivision consent):

(c)       A consent to do something in a coastal marine area that otherwise   would contravene any of sections 12, 14, [15, [[15A, and 15B]] ] (in this Act called a coastal permit):

(d)A consent to do something (other than in a coastal marine area)   that otherwise would contravene section 14 (in this Act called a water permit):

(e)A consent to do something (other than in a coastal marine area)   that otherwise would contravene section 15 (in this Act called a discharge permit).

[3]      The agreement was unusual in that the purchaser had the obligation to obtain sub-divisional consent.

[4]      A long period ensued in moving the transaction towards completion but the required consent to the plan of subdivision was obtained from the Manukau District Council on 21 October 2008.  Conditions were attached including that the section of land to be acquired by the purchaser was to be amalgamated with an adjoining lot, lot 5 which was owned by a company which I will refer to as WBC.  Another feature of the subdivision concerned the need for access.   The respondents, under the agreement, would be retaining the section of land closest to the road.  They had no obligation under the agreement to provide access to the block of land which the applicants were acquiring.  The applicants contended that access was to be achieved by  creation  of  a  strip  down  the  eastern  side  of  the  block  of  land  which  the respondents would be retaining (“the remaining block”).  That strip was to be created by means of a boundary adjustment between the remaining block and WBC’s land. WBC’s land would then be amalgamated with the rear block.  There was a further complexity to the arrangement in that the applicants were seeking a change of use of the land to commercial type use.

[5]      The applicants claim that from time to time there were discussions with one of the vendors, Mr Kuo, to advise him on progress.

[6]      On 23 July 2009 the solicitors acting for the respondents wrote to those acting for the applicants confirming their understanding that the resource consent for the subdivision was approved by the Council on 21 October 2008 and asking the

applicants to confirm that condition 14 was satisfied.  In their reply dated 6 August

2009 the applicants’ solicitors declined to confirm because a “plan change” relating to the property had not been finalised. This referred to the fact that the applicants were attempting to have effected a plan change which would result in land, which they owned or were acquiring in the area which was classified as rural use, being re- classified as future use.  The local authority approved the plan change but an appeal was brought against their decision.

[7]      On 24 November 2009 the deposited plan for subdivision was approved as to survey and the section 224C certificate was issued by the local authority on 13

January 2010.

[8]      On 10 December 2009 the respondents’ solicitors wrote in the following terms, inter alia:

In our view the purchaser has already had ample time to deposit the survey plan and we give notice that our clients are now making time of the essence for the plan deposit and settlement.   We regard a period of three months from the date of this letter as sufficient further time for your client to deposit the survey plan with settlement to follow 30 days Thereafter.

In reference to your e-mail dated 6 August 2009 ... it is our firm view, after having taken specialist opinion, that clause 14 of the parties’ agreement does not cover any application by the purchaser to rezone the subject property.

[9]      The letter went on to advise that the respondents were giving the applicants until 28 February 2010 to make the contract unconditional with settlement to follow in 30 days.

[10]     WGDL’s solicitors responded on 15 December 2009 explaining that:

a)       The subdivision consent granted depended upon an amalgamation of the land being purchased and that of a neighbouring property;

b)The applicants did not own the neighbouring property but the property was to be sold on to another entity who owned the neighbouring property;

c)        The agreement in “b” was conditional upon a plan change.

[11]     It was on this basis that the applicants had come to the view that the plan change was an integral part of the arrangements between the applicants and respondents.

[12]     On 18 March 2010 the applicants advised that the survey plan had been approved by LINZ.  On 31 March 2010 the respondents gave notice of cancellation.

[13]     The applicants did not accept the notice of cancellation and lodged a caveat which the respondents have sought to remove.

[14]     As the chronology set out above reveals, over six years had gone by from the point where the agreement for sale and purchase was entered into until the date when the vendors gave notice making time of the essence.  The period measured from the agreement of sale and purchase until the date of cancellation was close to 6 ½ years. It is the contention of the respondents that because of the time lapse they were justified in giving the notice making time of the essence on 10 December 2009. They further assert that giving the applicants a further three months approximately to complete the steps that they were required to take under the contract was reasonable.

[15]     While the most striking feature of the case is the delays which took place over the period 2003 until 2008 when the resource consent was obtained, the purchaser had a number of steps to perform.  They had to obtain the issue of titles: one title for the remnant block which the Kuos would retain and one for the new title which the applicant would obtain.  It did not finally get into a position where it could do so until March 2010.  No specific date was fixed for reaching that point. It was accepted that the applicant must have been subject to an implied obligation to reach that stage within a reasonable time.

[16]     The agreement that the parties entered into provided for “additional monthly extensions” to the condition that the purchasers obtain resource consent and residential subdivision consents on or before 23 December 2003.  Those extensions

were available in case there should be delay in obtaining the consents provided that

“Any delay is not attributable to tardiness by the purchasers”.

[17]     I am not entirely clear on the exact significance of the planned change and the precise effect that it had in delaying the applicant.  My broad understanding is that the applicant would not be in a position to obtain a separate title until the issue of access had been resolved and that could not be resolved until the title to the remnant land had amalgamated with the title to the eastern land; and that last step could not be taken until the agreement for sale and purchase, which enabled that to occur, was unconditional – that step being contingent upon the plan change being approved in terms that were acceptable to the various parties. The essence of the dispute between the parties concerns the question of what was a reasonable time for the purchaser to complete the various steps it had to take to obtain resource and residential subdivision consents.   Was the time taken to satisfy the contractual contingency of obtaining those consents to make allowance for such matters as the plan change or was such an additional step irrelevant?

Approach

[18]     The applicants will have to demonstrate that it is reasonably arguable that they have an interest in the land.  They will have to persuade the Court that there are grounds upon which they could establish at trial that the purported cancellation of the contract by the respondents did not effectively void the contract.

[19]     There was little discussion in the course of the hearing before me about the principles that govern applications for sustaining caveats.   Counsel sensibly proceeded on the basis that those principles are well known and that it was a matter of applying them to the circumstances of the present case which would hold the key to the Court’s decision.

Discussion

[20]     The argument for the respondents was that the very considerable delays came about because the applicants introduced additional complicating features into the procedures that they adopted to accomplish the subdivision overall.  What was in the respondents’ view  a simple two-lot subdivision had been turned into  something considerably more complex because the applicants had to synchronise steps in the subdivision  with  other  steps  that  they  were  taking  as  part  of  a  wider  land development in the area.   Mr Campbell’s submission was that these other contingencies or events  were not within the contemplation of the parties to the contract and they are therefore circumstances which do not absolve the applicants from the great delays in bringing the subdivision to completion.   Mr Campbell submitted that:

26.The delays that occurred were largely the result of decisions by WGDL,   or   sub-purchasers,   that   were   not   in   the   parties’ contemplation when they entered into the contract:

a.WBC  taking  the  view  that  settlement  of  the  WGDL agreement need only occur once the Plan Change was operative.

b.Obtaining a subdivision consent that required physical work on an adjoining property.

c.Deciding to effect the subdivision by way of a boundary adjustment, rather than by the way indicated in the WGDL agreement.

d.Preparing  a  survey  plan  for  approval  (LT424026)  that covered five lots (not just the two lots contemplated by the WGDL agreement), and which was therefore dependent on a resource consent in respect of a neighbouring property, and which required dealing with multiple parties.

[21]     Mr Campbell said that the essential reasons for delay were that rather than approaching the subdivision as a “simple” two lots subdivision the applicants linked it into a large scale subdivision which involved at least four other titles.  Further, the applicants delayed while an application for a change to the district plan was progressed.   As well, the decision by the applicants to proceed by way of an amalgamation of title NA 551/115 (the respondents’ property) and NZ 1072/227

(WBC’s title) was not something that had been contemplated by the parties.  All of these additional complexities were not within the contemplation of the parties when they signed their agreement.  All of them had caused the delays which had accrued to the point where the respondents served a notice making time of the essence.

[22]     Before I consider those submissions, some attention needs to be given to the standard  against  which  the  applicants’  conduct  should  be  judged  to  determine whether  or  not  any  delays  were  “inordinate”.      It  was  the  submission  for  the applicants that guidance could be obtained from s 225 of the Resource Management Act 1991 which provides as follows:

225     Agreement to sell land or building before deposit of plan

(1)Any agreement to sell any land or any building or part of any  building  that  constitutes  a  subdivision  and  is  made before the appropriate survey plan is approved under section

223, shall be deemed to be made subject to a condition that the survey plan will be deposited under the Land Transfer

Act 1952 or in the Deeds Register Office, as the case may be; and no such agreement is illegal or void by reason that it

was entered into before the survey plan was deposited.

(2)Subject  to  subsection  (1),  any  agreement  to  sell  any allotment in a proposed subdivision made before the appropriate survey plan is approved under section 223 shall be deemed to be made subject to the following conditions:

(a)that the purchaser may, by notice in writing to the vendor, cancel the agreement at any time before the end of 14 days after the date of the making of the agreement:

(b)       that  the  purchaser  may,  at  any  time  after  the expiration of 2 years after the date of granting of the resource consent or 1 year after the date of the agreement,  whichever  is  the  later,  by  notice  in writing to the vendor, rescind the contract if the vendor has not made reasonable progress towards submitting a survey plan to the territorial authority for its approval or has not deposited the survey plan within  a  reasonable  time  after  the  date  of  its approval.

(3)An agreement may be rescinded under subsection (2) notwithstanding that the parties cannot be restored to the position that they were in immediately before the agreement was made, and in any such case the rights and obligations of each party shall, in the absence of agreement between the

parties,   be   as   determined   by   a   Court   of   competent jurisdiction.

[23]     Counsel accepted that s 225 did not actually apply to the circumstances of this case because that section contemplates the situation where the vendor rather than the purchaser is undertaking the subdivision.  Nonetheless Mr Chisholm said that by analogy the timeframes contemplated by the section provided guidance as to what was reasonable in the circumstances of the present case.  He noted that under s 225, the purchaser could, at any time after the expiration of two years after the granting of the resource consent, cancel the agreement if the vendor had not made reasonable progress towards submitting a survey plan to the territorial authority for its approval etc.  The submission of the survey plan, in this case, occurred at the end of 2009 and if the two year standard was applicable, the applicants would be well within time at the point where the vendors purported to avoid the agreement.

[24]     Mr Campbell for the respondents disagreed with this approach.  He submitted that the agreement here focussed on delays in obtaining resource consent and “residential subdivision consents”.  That could easily have been achieved long before the notice of cancellation was given and the delays therefore were attributable to the tardiness of the purchasers.  All the matters that were put up to justify the delays, Mr Campbell said, related to matters that were extraneous to the contract.

[25]     I will not deal with all of the complexities and intricacies of the case that were identified by counsel in their submissions.   I will instead concentrate on a limited range of issues.  That is partly to ensure that the parties receive a judgment promptly  from  the  Court  and  partly  because  a  half-day  hearing  on  a  caveat application is simply not the appropriate forum in which to resolve the complicated, wide-ranging factual and legal disputes that this case raised.

Principles concerning provisions as to time in contracts

[26]     I intend to be guided by the following statement of principles on making time of the essence as taken from Parsot v Greig Developments Ltd [2009] NZCA 241 at paragraph 8:

[8]       The legal principles relevant to this appeal were not in dispute either before Allan J or before us. They were clearly set out in the Supreme Court’s decision in Steele v Serepisos [2007] 1 NZLR 1 at [61]-[62] by Tipping J, with whom Blanchard and Anderson JJ agreed. Where a clause in a contract does not specify a date for its completion, time is not originally of the essence. But the obligations under the provision must be completed, of course, within a reasonable time. If completion remains unfulfilled after what the promisee regards as a reasonable time, then what the promisee must do, in order to make time of the essence, is give a notice to the other party, making it clear that he or she regards a reasonable time as having elapsed and notifying the other party of the date by which he or she considers it reasonable for the contractual obligation to be performed. The purpose of the notice is, as Tipping J said, “to tell the recipient that he would be regarded as being in repudiation unless he performed by the stated date”. Of course, as the Supreme Court recognised, a court might find the notice was given prematurely or gave too short a period for compliance. In that case, the Supreme Court said, “repudiation would not be ascribed to a failing recipient”. If, however, the notice was good and the recipient failed to comply with it, then “the recipient would be at risk of being found in repudiation, entitling the giver of the notice to cancel the contract”.

[27]     The following passage from DW McMorland Sale of Land (2nd ed, Cathcart

Trust, Auckland, 2000) at [12.10](b) is also of assistance:

Previously it was the time at which equity would no longer grant specific performance to the defaulting party; now it is the time at which the Court will accept that the defaulting party has repudiated the contract.  Under the former theory, because the notice was not directed to achieving the performance of the contract, although the period of notice would normally be sufficient to allow the defaulting party to perform as required by the notice, that was not always necessarily so.  For example, if the defaulter had already delayed for a period in spite of the protests of the other party, and if there were a matter of urgency about the situation the equities of which lay with the innocent party, it might have been possible to give a valid notice which allowed less than sufficient time for performance.  However, now that the purpose of giving the notice is to define the time of repudiation, it is suggested that the giver of the notice should be careful to allow sufficient time for performance.  It is difficult to maintain that a party has repudiated if that party has not had sufficient time to perform.  For example, a vendor who had not deduced title on the date fixed for settlement cannot give notice making time of the essence by the same letter that advises that title is now available.  The purchaser is entitled to time to make requisitions, if any, and certainly could not be said to be in default on the very date the vendor first has title available.   However, if there has been an undue delay before the notice is given, and the innocent party has not acquiesced in that delay but has insisted on prompt performance, presumably the period of delay before the notice may be taken into account both in fixing the period of the notice and in subsequently determining its validity.

The significance of the steps the parties contemplated would be taken

[28]     When  the  Court  is  asked  to  determine  what  is  a  reasonable  time  for completion of steps under a contract, the exercise first involves the Court placing itself in the shoes of the parties so far as possible and determining what steps the parties would have expected they would have to take to satisfy a contractual condition.   This involves more than just the steps which a party had an explicit obligation under the contract to carry out.   This is relevant to the various steps referred to in clause 15.  These did not have to be achieved before the contract would become unconditional.   In that respect it differed from clause 14.   The object of clause 15 was to make it clear that the steps that were instrumental to any zone change application and any amalgamation were to be at the purchasers’ expense and to make it plain that the vendors would, where necessary, be required to cooperate with the purchasers in making those steps possible.    Nonetheless, the reference to the occurrence of those events throws light on what the parties understanding must have been of how long they could expect the process of approval to take.

[29]     While the agreement of the parties contemplated that the purchasers would apply for and obtain approval for the subdivision, clause 15 also referred to a zoning application being made. Thus the vendors were to “define the actual area that will be included in the sale as part of the zoning application”.  The fact that the agreement itself made reference to the zoning application cannot be overlooked.  At the least, it would seem to demonstrate that it was understood by both parties that such a zoning application would be made.

[30]     The respondents also point to the fact that amalgamation of titles were sought as being a cause for the delay.  The agreement, though, adverted to an amalgamation even though it is correct that the purchaser had no responsibilities to undertake such a step. The possibility of an amalgamation was in the parties minds when they signed the agreement and may well have been a matter that the parties might have factored into their expectations of how long subdivision was going to take.

[31]     Then there was the general issue of access to the new rear block.  It is correct that the respondents did not have any obligation to provide easements across their

property to provide access from the new rear section to the road.  That presumably raised the question of how access was to be achieved. It is reasonably arguable for present purposes that the combined effect of this factor, when considered with the express mention in the agreement of an amalgamation, points to a conclusion that the parties anticipated that these steps would have to be taken and impliedly accepted that the purchaser would have a reasonable time to complete those steps.

[32]     The next task that the Court would have following a substantive hearing would be to determine what was a reasonable time to allow the purchaser to carry out the various steps which the Court had concluded must have been within the parties’  contemplation at the point when they entered  the agreement.  There  are difficult matters of judgement involved at this stage of the enquiry.  Expert evidence will probably be required to assist the Court and no doubt there would have to be cross-examination on that evidence.

Conclusion

[33]     In the end, it is my view that the application must succeed.  That is because it is reasonably arguable that the respondents were not entitled to cancel the agreement when they did.   I therefore grant the application on terms that the caveat is to be sustained until further order of the Court and on further terms that I now mention.

[34]     The substantive dispute between the parties needs to be resolved.  I consider that there ought to be an onus on the applicants to progress that issue so that there is no temptation for them to allow matters to languish while their position is protected by the presence of the caveat.  I expressly reserve leave to the respondents to apply to the Court for the discharge of the order sustaining caveat in the event that the applicant’s do not make reasonable progress in commencing and prosecuting substantive proceedings for the determination of the parties’ rights under their contract.

[35]     The remaining matter is that of costs which the parties should confer on.   If they cannot resolve the issue consensually counsel should file concise memoranda and I will determine that issue without having to hear from counsel further.

J.P. Doogue

Associate Judge