Wealth Buy Property Limited v Stevenson

[2012] NZHC 1609

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-006269 [2012] NZHC 1609

BETWEEN  WEALTH BUY PROPERTY LIMITED Plaintiff

ANDMARTIN STEVENSON AND BELLA MAY STEVENSON

Defendants

Hearing:         27 January 2012

Counsel:         B R Prewett for plaintiff

D M Grindle for defendants

Judgment:      9 July 2012

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 9 July 2012 at 4pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

B Prewett, Gilbert Walker, PO Box 1595, Shortland Street, Auckland

D Grindle, Webb Ross Lawyers, Private Bag 9012, Whangarei 0148

WEALTH BUY PROPERTY LIMITED V MARTIN STEVENSON AND BELLA MAY STEVENSON HC AK CIV 2011-404-006269 [9 July 2012]

[1]      This proceeding involves a dispute about the ability of the defendants (the Stevensons) to complete an agreement to purchase a residential property in Invercargill. They entered into the agreement as an investment.

[2]      The plaintiff company (Wealth Buy) has applied for summary judgment for an order for specific performance of the agreement.

[3]      The Stevensons acknowledge that they are in breach of the agreement but oppose summary judgment. They contend that  they are financially incapable of performing the agreement and that they will be unable to comply with any order for specific performance.  They say that Wealth Buy should be confined to the remedy of damages.

[4]      It is common ground that Wealth Buy has a prima facie entitlement to an order for specific performance, and that the Stevensons need to persuade the Court that it will be impossible for them to comply with an order.  Wealth Buy contends that the Stevensons have failed to establish the evidential basis for their defence. The Stevensons say they have provided sufficient evidence, and that the matter should not be determined by summary judgment.

Background

[5]      There is no dispute as to the background facts.

[6]      The Stevensons agreed on 30 March 2011 to purchase a residential property at 62 McQuarrie Street, Invercargill, for $298,000 (“the McQuarrie Street agreement”).  The McQuarrie Street agreement was in substitution for an agreement reached in November 2007 to purchase another property in Invercargill “off the plans”.   Settlement of the earlier agreement was due three working days after the code compliance certificate was provided to the Stevensons’ solicitor.  There were significant delays in completing that property.   In the meantime Wealth Buy had entered into an agreement to buy 62 McQuarrie Street, with a view to on-sale.  In light of the delays in completing the other property, Wealth Buy offered the McQuarrie  Street  property  to  the  Stevensons  at  the  same  price.    At  that  point

McQuarrie Street was complete and a code compliance certificate had been issued for it.

[7]      Although the Stevensons did not have finance arranged at the time of signing the McQuarrie Street agreement, that agreement did not contain a condition as to finance (nor was there a finance condition in the earlier agreement). The terms of the McQuarrie Street agreement included:

(a)      The deposit paid on the other property ($14,900), at that time held by a stakeholder, was to be applied to the new agreement.

(b)      Settlement was to take place on 15 April 2011.

(c)       Settlement was to be contemporaneous with Wealth Buy’s settlement

of its purchase of the McQuarrie Street property.

(d)Immediately upon execution of the McQuarrie Street agreement, the earlier agreement was deemed to be at an end.

(e)      In addition to the purchase price the Stevensons were to pay Wealth Buy $4,269.38 for a heat pump that Wealth Buy was to install prior to settlement.

[8]      The Stevensons did not seek legal advice before entering into the McQuarrie

Street agreement.

[9]      The Stevensons were not in a position to settle on 15 April 2011.   On the following working day (18 April 2011) their solicitor advised Wealth Buy’s solicitor that  an  application  for  finance  had  been  approved  subject  to  the  lender  being satisfied with valuations of properties that the Stevensons owned in Kaitaia and Whangarei (the Kaitaia property is the Stevensons’ home; there is no evidence as to the Whangarei property).  The Stevensons requested an extension of settlement and Wealth Buy agreed to extend the date to 27 April 2011.

[10]     It appears that the Stevensons’ properties did not come up to the values that were expected.  In June 2011 the Stevensons’ mortgage broker informed Wealth Buy

that there was a shortfall of approximately $10,000 between the finance that the

Stevensons could obtain and the balance to pay on the McQuarrie Street agreement.

[11]     Wealth Buy’s solicitors wrote to the Stevensons’ solicitors on 23 June 2011 recording their understanding that a loan offer had been received and conveying an offer of vendor finance to make up the shortfall:

We refer to our previous correspondence in this matter.  We understand that you have now received loan instructions and anticipate being in a position to settle.

Our client advises that there may be a shortfall of approximately $10,000.00. As  a  gesture  of  goodwill,  our  client  would  be  prepared  to  leave  in

$10,000.00 on settlement by way of Vendor finance.  The $10,000.00 would

be secured by way of an acknowledgement of debt and agreement to mortgage,  and  would  be  repayable  within  one  year.    Pending  payment interest would be paid at the rate of 10% being $83.33 per month in advance.

Please obtain your [clients’] instructions and confirm that you will be in a position to settle on this basis.

The Stevensons did not accept Wealth Buy’s offer, and did not settle.

[12]     On 12 July 2011 Wealth Buy’s solicitors served a settlement notice.   In response, the Stevensons’ solicitors wrote to Wealth Buy’s solicitors on 15 July 2011 advising that the Stevensons’ application for finance had been approved subject to the term of the vendor finance being extended to two years from settlement.  They also referred to concerns held by the Stevensons as to their ability to refinance the vendor finance, and the potential impact of future interest rate rises on their ability to meet payments on their borrowings.  They asked if they could be released from the agreement:

Further to your letter of 12 July 2011 we advise as follows:

1.    Our clients have been approved finance subject to your client providing vendor  finance  of  $10,000.00  such  finance  to  be  repaid  within  24 months of settlement.  The interest rate during this period will be 10% payable monthly in advance.

2.    Our clients are concerned that there is no certainty that they would be able to refinance the vendor finance with the bank when the loan becomes due given that they are currently supporting a child through university.

3.    Our clients are further concerned that interest rate increases may impact on their ability to manage their loans going forward.

4.    On the basis of the above our clients ask that they be released from the agreement and will consent to the forfeit of the deposit.  We understand your [client] will incur additional costs and our clients are prepared to pay a further $10,000.000 compensation to your client on the basis that their bank would agree to the additional lending.

[13]     Wealth Buy’s solicitors wrote back the same day, rejecting the Stevensons’ proposal.  They pointed out that Wealth Buy was obliged to settle its purchase of the McQuarrie Street property, and indicated that it would look at extending the terms of the vendor finance beyond 24 months if interest was up to date:

We refer to your letter of 15 July 2011.   Our client’s instructions are that although your [clients’] proposal is not unreasonable, our client is contractually required to complete the settlement of the purchase of this property.   Accordingly,  our  client is obliged  to hold  your  clients  to  the contract signed on 30 March 2011. We note that settlement is already late.

We note your [clients’] concerns that they may not be able to refinance the vendor finance. We are instructed that our client would look at extending the term of the vendor finance beyond 24 months if payments of interest are up to date. We note that our client is also supporting a child through university.

Your  clients’  concern  regarding  future  interest  rate  increases  may  be

addressed by fixing the interest rate for three or five years.

We look forward to receiving your further response.

[14]     On 25 July 2011 the Stevensons’ mortgage broker sent an email to Wealth Buy advising that the Stevensons were not going ahead with the purchase as they could not afford it.  Wealth Buy then issued this proceeding seeking the order for specific performance.

The issue

[15]     The   parties   are   agreed   that   Wealth   Buy   has   met   the   jurisdictional requirements for an order for specific performance: it has an entitlement under a valid agreement, the Stevensons are in breach for failing to pay the balance of the purchase price, and Wealth Buy was, and remains, willing and able to perform its part of the agreement.   The sole issue, therefore, is whether the Stevensons have established a sufficient evidential basis for their contention that:[1]

[1] Amended notice of opposition dated 19 December 2011.

...they are financially incapable of performing the agreement and will be unable to fulfil an order for Specific Performance.

Summary judgment principles

[16]     Counsel  were  agreed  that  the  principles  that  the  court  applies  on  an application for summary judgment are as succinctly stated by the Court of Appeal in Krukziener v Hanover Finance Limited:[2]

[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 at 3 (CA). 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 at 341 (PC). 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).

[2] Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

[17]     Counsel are also agreed that, as Wealth Buy has established a prima facie case, the Stevensons have to provide evidence which demonstrates the existence of a tenable defence:[3]

[3] Auckett v Falvey HC Wellington CP 296/86, 20 August 1986.

On a summary judgment application, the onus is on the plaintiff to show that there is no defence.  On the present facts the plaintiffs are able to pass an evidential onus to the defendants by exhibiting the contract which on its face, entitles them to the remedy they now seek.  The defendants are then in a position of having to demonstrate a tenable defence.  However, the overall position concerning onus on the application is that at the end of the day the question is whether the plaintiffs have satisfied the Court as to the absence of a defence.

The defence of impossibility

(i)       Applicable law

[18]     Once the jurisdictional thresholds have been satisfied, specific performance of a contract for sale of land will generally be granted as a matter of course unless

one of the established defences can be made out.[4]

[4] Andrew McIntyre “Specific Performance” in Rt Hon Sir Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Thompson Reuters, Wellington, 2011) at [8.6.1].

[19]     Impossibility of performance is an established defence to a claim for specific performance:[5]

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 it may be 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 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 make no order for specific performance at all, where absolute or conditional, and so to confine the plaintiff to remedies in damages.

[5] I C Spry, The Principles of Equitable Remedies (8th ed, Lawbook Co, Sydney, 2010) at 128-129. This passage has been adopted regularly in New Zealand cases: for recent examples see Ngai Tahu

Property Ltd v Dykstra (2009) 10 NZCPR 734 (HC) and Verano Properties Ltd v de Luen (2011) 11

NZCPR 859 (HC).

[20]     The principles that the Court applies when addressing an  application for specific performance by way of summary judgment have been addressed recently in Ngai Tahu Property Limited v Dykstra which set out the following propositions:[6]

[6] Ngai Tahu Property Ltd, above n 5, at [12].

a)         A Court of equity will not require that to be done which cannot be done.

Equity does not act in vain.

b)The defendant must establish a very substantial probability that it would not be able to comply with an order for specific performance....

c)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....

d)In an ordinary proceeding, pleading of impossibility is in the nature of an affirmative defence and the onus of proof rests upon the defendant as the person taking the point....

e)On  an  application  for  summary  judgment,  r  12.2(1)  High  Court  Rules applies. The plaintiff must prove that the defendant has no arguable defence to the claim for an order for specific performance. The onus on the application remains on the plaintiff although, when the plaintiff establishes its contractual entitlement, the evidential onus shifts to the defendants to demonstrate a tenable defence....

(citations omitted)

[21]     Other than in exceptional circumstances, impossibility is to be judged at the date of the contract, not the date for performance or the date of the hearing. Exceptional circumstances arising after the date of the contract must amount to hardship to the level of injustice, with injustice being assessed in relation to both

parties to the bargain.[7]

(ii)      Discussion

[7] Verano Properties Ltd, above n 5, at [40].

[22]     I turn now to consider the application of those principles to the facts of this case.

[23]     Counsel  for Wealth  Buy pointed  to  the  following  facts,  all  of  which  he submitted  evidenced  an  ability  on  the  part  of  the  defendants  to  perform  the agreement:

(a)      They entered into an unconditional contract, suggesting that they did not expect any difficulties in arranging the finance needed (and had done the same with the earlier agreement);

(b)They  partly  performed  the  agreement  by  paying  the  deposit  (by agreeing to transfer the deposit from the earlier agreement) and subsequently, through their solicitor, sought an extension of time for settlement;

(c)       The correspondence from their solicitors (in particular the letter of 15

July 2011) was couched in terms of doubts about the financial wisdom of the purchase rather than ability to complete it; and

(d)They had an offer from a financier, and offers from Wealth Buy (in terms  of vendor finance), which  together were  sufficient  to  allow them to complete the purchase.

All of these were considered relevant factors by this Court in Colson v Jensen[8] when ordering specific performance on a summary judgment application.

[8] Colson v Jensen HC Auckland CP 652/90, 18 September 1990.

[24]     The defendants accept that they entered into the contract unconditionally, that they paid the deposit and sought an extension of time, and that they received an offer of finance for all but $10,000 of the balance together with the offers of finance from Wealth Buy for the last $10,000 (although they say that they also have to find a further $4,269.38 to pay for the heat pump that Wealth Buy has to install on the property, on top of the purchase price).  They state in evidence that they do not have the funds, and that they cannot get the finance needed, to settle.   In his original affidavit in support of the defendants’ opposition, Mr Stevenson says:

(a)      They did not appreciate the true cost of the property until they found that they could not finance the whole of the balance of the purchase price without vendor finance;

(b)      They then realised that they could not afford the property; and

(c)      They  had  been  told  by  their  bankers  that  they  could  not  get  the required finance because the valuation of the McQuarrie Street property  was  less  than  Wealth  Buy  had  indicated  to  them  (he contended that they had agreed to pay approximately $50,000 more than the true valuation).

[25]     In a second affidavit filed with an amended notice of opposition after Wealth

Buy had filed its reply evidence, Mr Stevenson states that they entered into the

earlier agreement believing that their income and rent from the property were sufficient to obtain the necessary finance, and it was only after they had received a “tentative indication from a finance company” that they came to the view that they could not fund the repayments they would have to make.  He gives no evidence of the amount of funding offered or the terms, but says that the finance company was not prepared to fund the full amount because they had insufficient equity in their Kaitaia home.  He added that the offer of vendor finance (together with the money required to pay for the heat pump) further complicated their repayment position.  On that basis, Mr Stevenson says they realised they were unable to complete the purchase, and wrote to Wealth Buy offering to surrender the deposit and pay a further $10,000 as compensation “in the hope that they would release us”.

[26]     Mr Stevenson then set out particulars of their “personal financial situation” without the McQuarrie Street property, contending that the overall position was that they had assets of $263,000 (their home and two modest cars) and liabilities of

$231,000 (comprising a mortgage over their Kaitaia home, other personal loans and a student loan). The Stevensons also have hire purchase commitments of $100 per month.    These  commitments,  along  with  ordinary household  outgoings  and  the support  of  a  child  at  university,  are  met  out  of  a  combined  annual  income  of

$112,000.  In those circumstances, Mr Stevenson asserts that they would be unable to comply with any order for specific performance.  He gives no detail, however, of the repayment obligations under the existing mortgage, or to support his contentions in any way.   There is no reference to the Whangarei property mentioned by his solicitors when seeking an extension of time for settlement.

[27]     On the strength of this evidence, counsel for the Stevensons submitted that it would be wrong to prevent the defendants from pursuing a defence of impossibility. He argued that an order for specific performance would not result in implementation of the McQuarrie Street  agreement, but  would have the inevitable effect of the defendants having to default (and therefore theoretically going into a position of contempt), and would add to costs for both parties in terms of having to return to Court to have the order rescinded.

[28]     I am not persuaded that the Stevensons’ evidence raises a tenable defence of

impossibility, both because the evidence does not go beyond mere assertion on this

point and because, in any event, when considered as a whole it does not demonstrate a substantial probability that they would not be able to complete the agreement At most the evidence indicates a potential difficulty in complying with all obligations under the loan agreements within the term of those arrangements this is clearly the concern  underlying  the  Stevensons’  opposition).     I  will  address  each  aspect separately.

[29]     I  accept  the  submission  of  counsel  for Wealth  Buy that  the  Stevensons’

evidence is vague, incomplete and conflicts with other evidence:

(a)      Mr Stevenson refers briefly in his first affidavit to communications with his bankers, but has given no detail of those communications. He refers in his second affidavit to his dealings with a finance company,  and  approval  being  given  for  funding  of  the  balance required other than $10,000.   Again, he gives no evidence of those dealings, nor documentary support for the terms of the finance company’s offer.  He has not referred to any other approaches that he may  have  made  to  other  banks  or  financial  institutions.    Mere assertion of an inability to obtain finance is not enough to establish an

arguable defence of impossibility.[9]

[9] Great Northern Land Co Ltd v Crowley HC Auckland CIV 2009-404-7683, 1 October 2010 at [47].

(b)In his first affidavit Mr Stevenson contended that his bankers had advised him that they could not get finance “given the nature of the market and that the actual valuation for the property is less than what was purported”.  There is no evidence of that advice, and the assertion about the valuation is contradicted by a valuation obtained by Wealth Buy  in  June  2011  showing  a  value  for  mortgage  purposes  of

$320,000, which is significantly above the purchase price.   Mr Stevenson  has  not  produced  a  copy  of  the  valuation  which  he contends was supplied to the Stevensons by Wealth Buy prior to the purchase, nor of any support for the view that actual valuation was

less than the purchase price, let alone by some $50,000.

(c)      Mr Stevenson has not provided any evidence of the valuation of his Kaitaia home, nor of the outgoings that the Stevensons have either on existing debts or on the other commitments which they contend leave them with no ability to service the borrowing required to complete the agreement.

[30]     In my view the Stevensons’ evidence goes no further than establishing an “anticipation of possible difficulties or ... a demonstrated difficulty in finding purchase money” which this Court has said falls short of meeting the test of a substantial likelihood that they will be unable to comply with the order:[10]

[10] Ngai Tahu Property Ltd, above n 5, at [12].

(a)      Their solicitors acknowledged in their letter of 15 July 2011 that they had approval for finance, subject to vendor finance of $10,000 over a

24 month period, thus allowing them to settle.   The same letter expressed their concerns as regarding their ability to meet obligations under the vendor finance when that loan became due, and their ability to manage their loans should interest rates rise.   Neither of  these matters bears upon their ability to settle.  I also note the evidence that Wealth Buy indicated a willingness to discuss terms and interest rate for the vendor finance to assist the Stevensons to settle.

(b)The McQuarrie Street property was being purchased as an investment, to be rented out.  Wealth Buy produced evidence of market rental in the range $285 - $295 per week.   In his submissions, counsel for Wealth Buy put forward workings to show that the net cost to the Stevensons of all borrowing for the purchase (after allowing for an available tax credit) was in the order of $136 per week.   The Stevensons have given evidence that their combined income is in the order of $112,000.  Although Mr Stevenson does not state this, I will assume for present purposes that that is a gross amount.   On a reasonably conservative calculation (a net tax rate of 30%) that produces a net weekly amount of approximately $1,500.   Taken at face  value,  these  figures  indicate  an  ability  to  meet  the  cost  of

funding.  There is support for this view in the fact that they received

an offer of finance of approximately 95% of the balance of funding required.  The calculation of counsel for Wealth Buy was based on the higher end of the rental assessment ($295), but even if the lower end was taken that would only add a further $9 per week.

(c)      On the basis of the valuation evidence provided by Wealth Buy, the Stevensons’ overall  equity  position  will  not  be  worsened  if  they complete the purchase.   They will be acquiring an asset valued at

$320,000, against which there would be secured indebtedness in a sum a little over $283,000.  This ignores any equity that may exist in any Whangarei property in which the Stevensons may have an interest (on the basis that their solicitor’s reference to that property may have been  an  error,  given that  Mr Stevenson  did  not  refer to  it  in  his evidence).

[31]     The risk of contempt proceedings is not a factor operating against the grant of specific performance.[11]

(iii)     Conclusion

[11] Great Northern Land Company Ltd v Crowley HC Auckland CIV 2009-404-7683 at [49].

[32]     I  am  satisfied  on  the  evidence  before  the  Court  that  the  defence  of impossibility is not available to the Stevensons.  The evidence indicates that as at the date of the entry into the contract there was a substantial likelihood that the Stevensons would be able to complete the purchase.   I regard the Stevensons’ evidence as indicating a concern as to their ability to maintain their obligations under any borrowing, rather than their ability to complete the purchase.  If that proves to be the case (and there is no evidence before the Court to indicate that it is a likelihood) it remains open to the Stevensons to sell the property.  I do not regard their concerns about the future, which clearly have arisen since they entered into the contract, to amount to hardship at the level of injustice, particularly when weighed against the fact that Wealth Buy has a significant financial exposure under its obligation to purchase the property (now from the mortgagee of the vendor, which has gone into

liquidation).

Decision

[33]     I order that the Stevensons specifically perform the agreement for sale and purchase.   Settlement is to take place within 25 working days of the date of this judgment.   That time is fixed to allow time for the Stevensons to revive the arrangements for finance, given the length of time since those arrangements were made.  In this respect Wealth Buy is expected to continue to offer vendor finance as indicated in its solicitor’s letter of 18 July 2011.

[34]     Leave is reserved to apply for further directions in the event of any difficulty in the implementation of this order.

[35]     I award costs to Wealth Buy, as the successful party, on a scale 2B basis, together with disbursements as fixed by the Registrar.

Associate Judge Abbott