West End Property Developments Limited v Prescott

[2022] NZHC 560

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

KIRIKIRIROA ROHE

CIV-2020-419-000253

[2022] NZHC 560

BETWEEN

WEST END PROPERTY DEVELOPMENTS LIMITED

Plaintiff

AND

RYAN PRESCOTT AND PAUL PRESCOTT

Defendants

Hearing:	8 March 2022
Appearances:	A R Gilchrist for Plaintiff K I Bond for Defendants
Judgment:	24 March 2022

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 24 March 2022 at 3.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar Date…………………………

WEST END PROPERTY DEVELOPMENTS LTD v PRESCOTT [2022] NZHC 560 [24 March 2022]

Introduction

[1]    West End Property Developments Ltd1 is a property development company based in the Waikato. It owns the property at 91 Avenue Road, Morrinsville.2 The defendants, Mr Ryan Prescott and Mr Paul Prescott,3 are the directors of Pat Prescott Ltd, a licensed motor vehicle dealer trading as Prescott Toyota Morrinsville.

[2]    Throughout 2014, the parties were engaged in negotiations for a lease and option to purchase the Property. The Prescotts were interested in acquiring the Property for their Toyota franchise business. No formal lease or option to purchase was ever signed and the Prescotts have never been in possession nor paid any rent.

[3]The amended statement of claim contains two causes of action:

(a)A claim by West End that the Prescotts breached a contract with West End for a lease and an option to purchase the Property for $1.8m; and

(b)On the basis of representations that were made by the Prescotts that they were committed to leasing and/or purchasing the Property, the Prescotts are estopped from resiling from their agreement to lease/buy the Property.

[4]    In the present interlocutory application, the Prescotts seek summary judgment against West End, contending that neither of the causes of action can succeed. In addressing that ultimate issue, I need to determine the following:

(a)Is it reasonably arguable that there was a binding mutual intention to be bound and, based on an agreement recorded in an email of July 2014, that the purchase price for the option to purchase would be $1.8m?

(b)Is the estoppel claim incapable of success?

1      West End.

2      The Property.

3      The Prescotts.

Factual background

[5]    The Property was purchased by West End in 2013 as an undeveloped piece of land.4

[6]    On 17 December 2013, West End and Ryan Prescott signed an agreement to lease, including an option to purchase the property, for $1.6m. One of the key terms was a commitment by West End to construct a building on the Property for the Prescotts’ Toyota dealership.5 That original agreement was conditional and came to an end in May 2014 when the relevant conditions were not satisfied.

[7]    Negotiations continued between the parties throughout 2014 and into 2015 on both the lease and an option to purchase. This included negotiations on the critical issue of a maximum build price. That was the key determinant of the maximum purchase price under the option to purchase.6

[8]In July 2014, the parties agreed that the purchase price could increase from

$1.6m to $1.8m. However, the defendants required a “final price from the successful builder to be locked in with no changes at the end to that price”. The defendants further indicated that it was their intention to buy but the price “may not allow this, as we indicated a lower figure to the bank some months ago”.

[9]    On 15 August 2014, West End’s lawyers provided a draft deed of lease to the solicitors for the defendants.

[10]   In an email dated 19 August 2014, the solicitor for the defendants advised West End’s solicitors that there should be an option to purchase included in the lease and that the tenant should be the defendants’ nominee, Hornbill Investments Ltd. The email also noted that the draft lease referred to “attached plans” and “attached building

4      The settlement date was May 2014.

5      The agreement also anticipated West End subdividing the Property into two lots and the plans and specifications for the building were to be approved by the Prescotts and Toyota NZ. West End committed to leasing the building and one of the two subdivided sections to the Prescotts.

6      In his affidavit, Mr Mead, for West End, describes the maximum build price and the maximum price as the same thing.

plans”, neither of which were in fact attached to West End’s solicitor’s correspondence.

[11]   On 19 August 2014, the solicitor for West End responded to the defendant’s solicitors confirming that Hornbill Investments Ltd was to be the tenant and stating that the original agreement to lease was at an end. The letter further indicated that the option to purchase could be negotiated as a separate agreement between the parties. The solicitor understood “that there is a dialogue between the parties regarding this possibility”.

[12]   On 22 August 2014, West End’s solicitor provided the defendants’ solicitors with a draft option to purchase. No maximum purchase price was specified.

[13]   The defendants’ solicitor responded by letter dated 26 August 2014, requesting an amendment to the option to purchase so as to include a maximum purchase price of $1.8m. The letter also advised that the defendants required evidence that the subdivision application had been lodged with the local authority before they would sign the lease. The letter emphasised that the defendants would only wish to proceed if they had an unconditional option to purchase.

[14]   On 25 September 2014, West End’s solicitors wrote to the defendants’ solicitors indicating that West End was “willing to enter a lease with an option to purchase” with a maximum build price of $2m. The letter further stated that if this proposal was agreed to then West End’s solicitors would forward a draft lease “on this basis”. Mr Mead, a director of West End, contends that he was not aware of this letter and cannot recall approving it.

[15]   On 15 October 2014, the defendants verbally advised West End that they would not be proceeding with the lease and option to purchase.

[16]   On 17 October 2014, Mr Mead, of West End, emailed the defendants referring to a previous telephone conversation “re Prescott not proceeding with the contract can you please email me confirmation of such”. Mr Mead concluded the email as follows:

Anyway I wish you both well in the future and hope we don’t all rue the day it fell over as it was a golden opportunity to secure a fantastic site.

[17]   On 20 October 2014, the defendants emailed West End confirming that they would not be proceeding.

[18]   There was further correspondence between the parties by email in late October and early November 2014. In his email of 31 October 2014, Mr Mead stated, as follows:

After meeting with both of you in separate locations my understanding is that you are both still very committed to getting this project sorted and completed.

We at our end will go through the entire build costs with a view of getting it down somewhat by taking out the non-essential products which have been added to the building solely to make it look great.

Going on from here if we can please keep in touch more regularly so that we know we are both heading in the same direction I would appreciate it.

[19]   On 3 September 2015, West End entered into a lease for the property with Ebbett Waikato Ltd trading as Ebbett Toyota.

[20]These proceedings were not filed and served until October 2020.

Relevant legal principles

[21]   The defendants’ summary judgment applications are governed by r 12.2 of the High Court Rules 2016. The principles to apply were set out by Elias CJ in Westpac Banking Corp v M M Kembla New Zealand Ltd:7

(a)It is not directly equivalent to a plaintiff’s application in that the defendant must satisfy the Court that none of the causes of action can succeed;

(b)An application for summary judgment will be inappropriate where there are disputed issues of material facts or material facts need to be

7      Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298; (2000) 14 PRNZ 631 (CA) at 631–632.

ascertained by the Court and cannot confidently be concluded from affidavits;

(c)It is not appropriate to decide the sufficiency of the proof of the plaintiff’s claim in anything other than clear cases. To do so allows the defendant to force the plaintiff’s claim prematurely;

(d)The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence, but if the defendant supplies evidence showing the claim cannot succeed, the plaintiff will normally have to respond with credible evidence of its own. Ultimately, the Court must be satisfied that no claim can succeed.

[22]   In Krukziener v Hanover Finance Ltd,8 the Court held that it may take a “robust and realistic approach” to contested evidence, including rejecting affidavit evidence, if it is inherently lacking in credibility, where it is inconsistent with undisputed, contemporary documents or other statements by the same deponent, or is inherently improbable.

Analysis and decision

Issue (a): Is it reasonably arguable that there was a binding mutual intention to be bound and, based on an agreement recorded in an email of July 2014, that the purchase price for the option to purchase would be $1.8m?

[23]This central issue is essentially one of formation of contract.

[24]The prerequisites to the formation of a contract are as follows:9

(a)An intention to be immediately bound (at the point when the bargain is said to have been agreed); and

8      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307, (2008) 19 PRNZ 162 at [26].

9      Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 at [53].

(b)An agreement, express or found by implication, or the means of achieving an agreement (e.g. an arbitration clause), on every term which:

(i)was legally essential to the formation of such a bargain; or

(ii)was regarded by the parties themselves as essential to their particular bargain.

[25]   In Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd, the Court of Appeal further held:10

A term is to be regarded by the parties as essential if one party maintains the position that there must be agreement upon it and manifest according to the other party.

Whether the parties intended to enter into a contract and whether they have succeeded in doing so are questions to be determined objectively. In considering whether the negotiating parties have actually formed a contract, it is permissible to look beyond the words of their “agreement” to the background circumstances from which it arose – the matrix of facts. This can include statements the parties made orally or in writing in the course of the negotiations and drafts of the intended contractual document.

[26]   The critical matters to address in determining whether there is an arguable case that a contract was formed, are whether there was an intention to be immediately bound and an agreement on the option to purchase price. It is clear and indisputable that the option to purchase price was an essential term of any bargain that was to be entered into. There needed to be a consensus on that matter and not just a unilateral commitment by one party.11

[27]   West End’s claim for a breach of contract has been an evolving one. In the original statement of claim, dated 7 October 2020, it contended that the option to purchase was agreed upon on 20 October 2014, the parties having earlier agreed to a lease of the Property.

[28]   In the amended statement of claim dated 23 July 2021, it is contended that on or about 22 September 2014, the parties discussed the final changes to the lease and

10     Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd, above n 9, at [53]– [54].

11     See Verissimo v Walker [2006] 1 NZLR 760, (2005) 6 NZCPR 939 (CA) at [26].

option to purchase and then agreed on all terms. West End then specifically pleads that through its solicitor on 25 September 2014 the parties reached an agreement to lease with an option to purchase. West End now disavows that letter contending, as noted above, that it was written without its authority.

[29]   Mr Gilchrist, for West End, only recently instructed, framed the claim for breach of contract on yet another basis. In his written submissions, Mr Gilchrist accepts that the original lease agreement of December 2013 came to an end in     May 2014 but says there were subsequent discussions about leasing and purchasing the property right through to September 2015. It is further argued, with particular reliance on the email of 16 July 2014 from Mr Paul Prescott to Mr Mead of West End, that a binding agreement was formed at that time (i.e. the earlier date of 16 July 2014) when the parties are said to have reached agreement on an option to purchase price of

$1.8m.

[30]   The matrix of facts, well documented in this case by the substantial correspondence between the parties, is all important. The clear undisputed evidence is that the parties engaged in extensive negotiations throughout 2014 on both a lease and an option to purchase and both parties were legally represented at the critical stages of that negotiation process. Despite that, no formal lease or option to purchase was ever signed. It is clear that there was enthusiasm for a deal on both sides. However, that is not the same as an arguable case that a binding agreement was reached.

[31]   I accept that the July 2014 email records a clear statement of intention from the Prescotts that they would agree to an option to purchase for the sum of $1.8m. However, neither on its own terms nor when viewed in the context of other undisputed correspondence, can that email be said, on any arguable basis, to constitute a binding agreement between the parties. It is abundantly clear from the subsequent correspondence between the parties’ solicitors that no binding agreement had been reached in July 2014. Indeed, West End’s own solicitors provided the Prescotts’ solicitors with a draft option to purchase on 22 August 2014. The option did not specify any maximum purchase price, clearly indicating that West End had not committed to one. The Prescotts’ solicitors responded by letter dated 26 August 2014,

requesting an amendment to the option to purchase so as to include a maximum purchase price of $1.8m. That letter emphasised that the Prescotts would only wish to proceed if they had an unconditional option to purchase. This correspondence makes it manifestly clear that there was no intention to be bound until this issue of a maximum purchase price, clearly an essential term of any bargain, had been agreed to.

[32]   It is equally apparent from the undisputed documentary evidence that both parties anticipated that there would be no binding agreement until such time as the formal documentation had been signed and executed. That is of course entirely consistent with the legal proposition that in a situation of this kind (i.e. involving the sale of land) correspondence which takes place between parties, particularly when legally represented, has no contractual effect until a formal agreement is executed.12 The fact that the parties had previously entered into a formal written agreement to lease in December 2013 reinforces this finding. Any new agreement also needed to be formally documented and signed.

[33]   I accept Mr Gilchrist’s submission that the focus of the negotiations was on the lease and an option to purchase, rather than an agreement for sale and purchase. However, the clear expectation of the parties, as documented in the correspondence, was for all of these legal arrangements, including the lease and option to purchase, to be formally documented and signed – and in the same way as the earlier agreement to lease had been.

[34]   I am sceptical about Mr Mead’s claim that his solicitor’s letter of 25 September 2014, proposing a maximum build price of $2m, was written without his authority. Despite that, I am prepared to accept, for the purposes of this application, that such allegation is correct. However, that does not assist West End’s case. It is abundantly clear from the correspondence between the parties’ solicitors in August 2014 (which is not challenged by Mr Mead) that no binding contract had been concluded. Indeed, it is apparent from Mr Mead’s own direct communications with the Prescotts in early September 2014, that he did not consider that a binding agreement had yet been reached. In his email of 4 September 2014, Mr Mead advised the Prescotts that he

12     Wallace v Studio New Zealand Ltd [2021] NZCA 392 at [33]; citing Carruthers v Whitaker [1975] 2 NZLR 667 (CA).

was having difficulty obtaining a maximum build price in order to finalise the agreement to lease or the option to purchase.   The maximum build price was, as    Mr Mead’s email makes clear, essential in order to finalise and reach agreement on the option to purchase price.

[35]   Further direct communications between the parties in October 2014 reinforce my finding that it is implausible that Mr Mead considered that the parties had reached a binding arrangement. They clearly had not. Mr Mead concluded his 17 October 2014 email to the Prescotts with the comment that he wished them both well for the future. He expressly acknowledged the deal had fallen over. If, as is now contended, there was a mutually agreed and understood binding contract entered into in July 2014, Mr Mead would clearly not have responded in the manner he did on 17 October 2014. His email of 17 October 2014 was of course a direct response to the Prescotts advising West End that they would not be proceeding with the lease and option to purchase.

[36]   I accept that there was further communication between the parties after the October 2014 exchange and that the parties continued to try and reach an agreement. However, the only tenable interpretation on the clear and undisputed documentary evidence before me is that no concluded bargain was ever struck because West End could simply not deliver a firm maximum build price which the Prescotts would accept. The critical documentation contradicts West End’s case.

[37]   I conclude, therefore, that there is no reasonably arguable case that a binding contract was formed. There was never any mutual intention to be bound. The breach of contract cause of action cannot succeed.

Issue (b): Is the estoppel claim incapable of success?

[38]The elements required to establish an estoppel are as follows:13

(a)A belief or expectation having been created or encouraged by words or conduct of the defendants;

13     Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567, (2014) 15 NZCPR 615 at [44].

(b)To the extent that an express representation is relied upon, it must be clearly and unequivocally expressed;

(c)The plaintiff reasonably relied, to its detriment, on the representation; and

(d)It would be unconscionable for the defendants to depart from the belief or expectation.

[39]   In the amended statement of claim, West End contends that the parties agreed in August 2014 on the terms of a lease and the drawing up of a sale and purchase agreement.

[40]West End contends that in September 2014, they agreed on the following terms:

(a)Land price;

(b)Management fee;

(c)Build costs on an open book basis plus 7.5 per cent; and

(d)A maximum build price of $2m.

[41]West End then pleads:

Based on the representations, the plaintiff committed to the construction of the building, to be used as a Toyota car dealership, consequently altering its position to its detriment.

[42]   Mr Gilchrist submitted that West End relies upon the entirety of the negotiations to support its claim of actionable representations giving rise to an estoppel.

[43]   I find that West End’s claim of estoppel is equally flawed and bound to fail essentially for the same reasons that the contract claim cannot succeed.

[44]   I accept that it is reasonably arguable that the Prescotts made it clear that they would commit to an option to purchase price of $1.8m and a lease. However, it is abundantly clear and the only tenable interpretation available on the extensive documentation that they would only do so on the basis that West End unequivocally committed to the same price of $1.8m and that the parties formally executed an agreement recording all of the essential details. In my view, there is no arguable departure from the basic assumptions underlying the transactions that amounts to unconscionability, a critical element of estoppel.14 West End cannot credibly claim reasonable reliance on the alleged representations when it knew that both parties required a formal written agreement and when Mr Mead knew that the Prescotts would not commit to any binding arrangement until such time as there was a consensus (a binding one) on the maximum purchase price. As noted above, West End was never able to deliver on that critical issue.

[45]   As Randerson J held in Wilson Parking New Zealand Ltd,15 the aim of the estoppel remedy is not to satisfy the claimant’s expectation but to satisfy the equity that has arisen in the claimant’s favour. There is no arguable equity that has arisen in West End’s favour here.

[46]   In National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd,16 Tipping J held that the broad rationale of estoppel is to prevent a party from going back on his word (whether express or implied) when it would be unconscionable to do so. Here there was no “going back” on their words, by the Prescotts. Their unequivocal position was that all matters had to be documented in formal written agreements and West End had to commit to the maximum purchase price of $1.8m. That never happened and that is why the deal fell over.

[47]I find that the second cause of action, namely estoppel, cannot succeed.

14 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd, above n 13, at [82], where Randerson J refers to Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

15 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd, above n 13, at [116].

16 National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd [1996] 1 NZLR 548 (CA) at 549, cited with apparent approval by the Court of Appeal in Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd, above n 13, at [74].

Conclusion and result

[48]    Neither of the causes of action in the amended statement of claim can succeed. The high threshold in r 12.2 of the High Court Rules has been established by the defendants. I grant the defendants’ application for summary judgment. These proceedings are now at an end.

[49]   Costs are reserved.17 If the parties cannot agree on costs then the defendants are to file and serve written submissions (no more than three pages) within 10 working days. The plaintiff is to then file and serve submissions five working days later.

Associate Judge P J Andrew

17     The defendants requested this.