Wishart v Fetherson HC Auckland CIV-2011-404-2870
[2011] NZHC 1167
•29 September 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-2870
BETWEEN ALISTER JOHN WISHART, JENNIE MARGARET WISHART AND HARBOUR TRUSTEES LIMITED AS TRUSTEES OF THE WISHART FAMILY TRUST
Plaintiffs
ANDDENIS JOHN FETHERSON Defendant
Hearing: 29 September 2011
Appearances: B M Stewart and P Hall for plaintiffs
J A R Cox for defendant
Judgment: 29 September 2011
(ORAL) JUDGMENT OF LANG J [on application for summary judgment]
WISHART V FETHERSON HC AK CIV-2011-404-2870 29 September 2011
[1] The present case is yet another example of the pitfalls that await a vendor who allows a purchaser to enter into possession of a property prior to the date of settlement.
[2] The plaintiffs in this proceeding are the owners of a house property situated at 225 Beach Road, Campbells Bay. On 18 February 2010 they entered into a conditional agreement for the sale of that property to Mr Fetherson. On 31 March
2010 the parties agreed to vary the terms of the earlier agreement as follows:
(a) The purchase price was to be $1,675,000 inclusive of GST, if any;
(b) Mr Fetherson was entitled to possession of the property on 16 April
2010;
(c) Settlement was set down for 31 March 2011;
(d) The purchase price was to be payable in two instalments:
(i) A deposit of $125,000 was to be payable immediately.
(ii)The balance of $1,550,000 was to be paid on the date of settlement; and
(e) The parties agreed that the agreement was unconditional.
[3] Mr Fetherson, who entered into the agreement on his own behalf or on behalf of his nominee, duly paid the deposit of $125,000 on 31 March 2010. The plaintiffs then gave him possession of the property on 16 April 2010.
[4] On 15 March 2011 the plaintiffs provided Mr Fetherson with a settlement statement setting out the amount that he needed to pay to complete the purchase of the property on 31 March 2011. Mr Fetherson’s solicitors responded on 25 March
2011 by indicating that Mr Fetherston sought an extension of one month to complete the purchase of the property. The plaintiffs declined to grant that extension.
[5] Mr Fetherston failed to pay the balance of the purchase price to the plaintiffs on 31 March 2011. As a result, the plaintiffs served a settlement notice on Mr Fetherson the following day in compliance with s 29 of the Property Law Act 2007. Mr Fetherson failed to comply with that notice, and has failed to complete the purchase of the property since that date.
[6] The plaintiffs now seek an order under s 28 of the Property Law Act 2007 (“the Act”) granting them possession of their property. They do so in order to obtain the benefit of the statutory cancellation that s 28(4) provides.
Section 28 Property Law Act 2007
[7] Section 28 provides:
28Restriction on vendor's right to cancel agreement, etc, if purchaser in possession
(1) This section applies—
(a) to any right—
(i) to cancel an agreement for the sale and purchase of land;
and
(ii) that is exercisable by the vendor because of a breach of the agreement by the purchaser; and
(b) only after the purchaser has, under the agreement, entered into possession of the land.
(2) The vendor may exercise the right to cancel the agreement— (a) only if subsection (3) has first been complied with; and (b) only in 1 of the 2 ways specified in subsection (4).
(3) This subsection has been complied with if—
(a) the vendor serves on the purchaser a notice that complies with section 29; and
(b) at the expiry of the period specified in that notice, the breach complained of has not been remedied.
(4) The 2 ways (referred to in subsection (2)(b) and in section 29(2)(b)) of exercising the right to cancel the agreement are—
(a) by obtaining from a court an order for possession of the land (in which case the agreement is cancelled from the making of, or from a later time specified for the purpose in, the order); or
(b) by re-entering the land peaceably (and without committing forcible entry under section 91 of the Crimes Act 1961).
[8] Section 28 applies in the present case because Mr Fetherston is a purchaser in possession. As a result, the normal rules relating to cancellation do not apply. Instead, a vendor may only cancel an agreement where the purchaser has entered into possession of the land if:
(a) The vendor has served a notice on a purchaser that complies with s 29 of the Act; and
(b)The notice so served on a purchaser has expired and the breach has not been remedied; and
(c) The vendor obtains an order for possession from the Court or peaceably re-enters the land.
[9] There is no dispute in the present case that the plaintiffs have served a notice on Mr Fetherston that complies with s 29 of the Act. There is no dispute, either, that the notice has expired and that the breach alleged in the notice has not been remedied. The plaintiffs now seek to complete the final piece of the jigsaw by obtaining an order for possession so that they can regain possession of their property.
Summary judgment: relevant principles
[10] The principles to be applied in considering an application for summary judgment have been clearly established through decisions of the Court of Appeal such as Pemberton v Chappell;[1] Grant v New Zealand Motor Corporation Ltd;[2]
Westpac Banking Corporation v MM Kembla New Zealand Ltd[3]and Krukziener v
Hanover Finance Ltd.[4]
[1] Pemberton v Chappell [1987] 1 NZLR 1.
[2] Grant v New Zealand Motor Corporation Ltd [1989] 1 NZLR 8.
[3] Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298.
[4] Krukziener v Hanover Finance Ltd [2010] NZAR 307 at [26].
[11] In considering the plaintiffs’ application I propose to apply the following general principles, which apply to all applications by a plaintiff for summary judgment:
a) The plaintiffs must satisfy the Court that Mr Fetherston has no arguable defence to the claim brought against him. The issue is whether there is a real question to be tried.
b)It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, even though they may be complex, can, however, be determined in an application for summary judgment.
c) Although the Court should adopt a robust approach, nevertheless summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.
Grounds of opposition
[12] Mr Fetherson opposes the application for summary judgment on several bases. He contends:
(a) The plaintiffs and their real estate agent failed to disclose to him at the time that he entered into the agreement that there were weathertightness issues affecting a neighbouring property at 227
Beach Road, Campbells Bay;
(b)The plaintiffs failed to disclose to him at the time that he entered into the agreement that the property at 225 Beach Road was a leaky building and that remedial works had been carried out on it in 2006;
(c) The plaintiffs breached contractual warranties in the agreement by failing to disclose to Mr Fetherson that renovation works they had
carried out in 1998 were not the subject of a code of compliance certificate;
(d)Mr Fetherston has a claim to set-off as a result of the above matters, and requires time to quantify that claim so that the transaction can
proceed to settlement.
Issues
[13] I accept the plaintiffs’ submission that the grounds that Mr Fetherson
advances require the Court to consider three key issues. They are:
(a) What are the obligations incumbent on parties to an agreement for sale and purchase regarding settlement in circumstances where a purchaser raises a claim to equitable set-off?
(b)Have the parties to this proceeding complied with their respective legal obligations regarding settlement in light of the claim for set-off raised by Mr Fetherston:
(c) Are the plaintiffs entitled to an order for possession and thereby to obtain cancellation of the agreement?
The obligation to settle
[14] The Supreme Court has recently considered this issue in Property Ventures Investments Limited v Regalwood Holdings Ltd[5]. In that case the Court made it clear that a purchaser who wishes to claim a right of set-off prior to settlement must exercise one of two options. The purchaser can cancel the agreement based on the claim to set-off. Alternatively, the purchaser can affirm the agreement and then reach some form of accommodation with the vendor regarding the manner in which settlement is to take place. Blanchard J said:
[5] Property Ventures Investments Limited v Regalwood Holdings Ltd [2010] 3 NZLR 231.
[72] … while the contract remains on foot, the existence of a breach of warranty is not a licence for a purchaser simply to sit on its hands refusing to proceed to settlement until the breach is remedied. To adopt Tipping J’s metaphor from Holmes v Booth, a purchaser who has come to a fork in the road is faced with only two possible routes, cancellation or performance, and once the latter is chosen is bound to perform in accordance with the contract when called upon. There is no intermediate road available.
…
[15] Tipping J agreed with these observations and said:
[96] … What the purchaser could not do was simply defer settlement on an indefinite basis. When the time for settlement arrived, the purchaser was faced with the fork in the road, to which Blanchard J referred. He could choose either the cancellation route or the performance route. But there was no third route available to him.
…
[101] In Lingens v Martin the Court of Appeal said that in such a situation the parties must agree on some sensible arrangement to protect their respective interests so that settlement can proceed.114 The parties may, of course, reach some arrangement as the Court of Appeal indicated, but in the absence of such an arrangement I consider the legal position, which is reinforced by cl 6.5, is as I have earlier described it. The purchaser should tender an amount representing the full purchase price less a genuine pre- estimate of the loss the purchaser will suffer on account of the vendor’s breach of warranty. By that means the purchaser demonstrates unequivocally that he is ready, willing and able to perform the contract on a basis which makes appropriate allowance for the vendor’s breach. When the exact loss occasioned by that breach is established, a final accounting between the parties can take place. If the vendor declines to accept a valid tender by the purchaser on this basis, the purchaser may cancel, subject to taking whatever procedural steps may be necessary to establish that right. Alternatively, the purchaser may sue for specific performance of the contract, with the issue of loss for breach of warranty being addressed as an ancillary part of that proceeding.
[16] The plaintiffs also refer me to comments made by D W McMorland, the learned author of “Sale of Land”, where he observes that the usual way in which an arrangement between vendor and purchaser is achieved in these circumstances is for the parties to agree on an estimated sum for compensation to be set aside and placed into the hands of a stakeholder.[6] This enables settlement to proceed, with the underlying dispute being left for resolution or determination at a later date. This
[6] D W McMorland “The Sale of Land” (2nd ed, 2000) at para 11.13.
type of arrangement protects the vendor in the event that the purchaser is
impecunious, and also protects the purchaser in the event that the vendor proves to be impecunious.
Have the parties complied with their obligations?
[17] In the present case, it is common ground that Mr Fetherson never sought to cancel the agreement to purchase the property. Instead, he affirmed it and, ostensibly at least, he has indicated that he wishes to complete the purchase. The problem that has arisen, however, is that the parties have not been able to agree on a way forward.
[18] In order to understand this issue it is necessary to have regard to the factual background underlying Mr Fetherston’s claims to set-off.
Non-disclosure of issues relating to the property at 227 Beach Road,
[19] Mr Fetherston alleges that, at all material times, the plaintiffs were aware that the neighbouring property at 227 Beach Road was subject to weathertightness issues. He contends that they were also aware that the problems affected this property to such an extent that it needed to be demolished. He contends that the real estate agent who marketed the property was also aware of these issues.
[20] The demolition of the house next door has caused problems for Mr Fetherston because it has resulted in spores being released into the air, thereby affecting the health of Mr Fetherston and his family. In addition, their ability to quietly enjoy their own property has been significantly reduced because of dust in the air and the noise and intrusion caused by the building of a new dwelling on the neighbouring property.
[21] There is no evidence, other than Mr Fetherston’s own assertion, that the plaintiffs were ever aware of weathertightness issues in relation to the neighbouring property. The plaintiffs say that they had no knowledge of these issues. They say that their neighbours were extremely private persons who did not discuss issues such as this with them. Their real estate agent also deposes that he had no knowledge of these issues at the time he dealt with Mr Fetherston.
[22] The owners of 227 Beach Road have also provided affidavits, and they confirm the plaintiffs’ evidence on this point. They acknowledge that their property suffered from weathertightness issues, and that it ultimately had to be demolished. They deny, however, that they discussed this aspect of their personal affairs with any of the plaintiffs. There is therefore no factual foundation for Mr Fetherston’s claim that the plaintiffs were aware of the problems affecting the neighbouring property.
[23] There is also a wider issue as to whether, in any event, the plaintiffs were under an obligation to disclose factors relating to the neighbouring property even if they had been aware of them. Mr Fetherston may find it difficult to establish a duty on the part of the plaintiffs to disclose factors relevant to a neighbouring property unless they were aware that those factors could have some significant impact on their own property.
[24] Finally, there is doubt regarding the genuineness of this claim. On 25 March
2011, when Mr Fetherston’s solicitors sought an extension of time within which to complete the purchase of the property, they made no mention of the issues relating to the neighbouring property. The letter seeking an extension referred only to the fact that Mr Fetherston was having difficulty raising finance, and that he sought an extension for that reason.
[25] The first mention of the weathertightness issues at 227 Beach Road arose on
8 April 2011, by which stage the date for settlement had already passed. Mr
Fetherston accepts that he had been aware of the existence of this issue since mid-
2010. If he proposed to raise it as a genuine issue, one would have expected him to do so when his solicitor sought an extension of the date of settlement.
[26] A second aspect to this claim is that Mr Fetherston says that the property at
225 Beach Road has diminished in value as a result of the fact that an inferior dwelling has now been built at 227 Beach Road.
[27] The plaintiffs and the owners of 227 Beach Road deny that the original dwelling on that property has been replaced with an inferior structure. The plaintiffs contend that the value of their property has not been affected at all by the new
dwelling that their neighbours have erected next door. The plaintiffs’ valuers also
say that the construction of the new dwelling has not diminished the value of 225
Beach Road.
[28] Mr Fetherston has obtained a letter from a firm of valuers who say that 225
Beach Road has reduced in value by approximately $75,000 as a result of the erection of the dwelling next door. There is some doubt as to the validity of the information that the valuers have relied upon in giving this opinion. They appear to have relied to a large extent on information given to them by Mr Fetherston regarding the effect that the new dwelling has had on the property at 225 Beach Road.
[29] In order to resolve this issue the plaintiffs suggested that the sum of $75,000 should be set aside from the settlement proceeds. Mr Fetherston has not been prepared to agree to that suggestion.
Failure to disclose that 225 Beach Road has had weathertightness issues
[30] This issue was raised substantively for the first time by Mr Fetherston in his third affidavit sworn and filed on 21 September 2011. It did not form any part of his refusal to settle the purchase of the property on 31 March 2011. It arises because there is no dispute that the second storey of the plaintiffs’ property was subject to weathertightness issues in 2006. They obtained a building consent to address these issues by re-cladding the exterior of the house. Once that had been completed, the relevant local authority issued a code of compliance certificate in respect of the work.
[31] On the face of it, the plaintiffs have done all that they were required to do to rectify the issue of weathertightness. There was no obligation on them, so far as I am aware, to disclose to Mr Fetherston the fact that they carried out repairs on the property in 2006 to deal with those issues.
[32] Mr Fetherston’s real complaint in relation to this issue is that there remains some doubt regarding the extent to which the weathertightness issues have been
addressed. He has obtained a report from a firm of consulting engineers that contains the following passage:
The Durability Team at Auckland Council have indicated that any outstanding building consent issues should have been identified, inspected and closed off during the subsequent building consent inspections, i.e. for the remedial works. However, at the time North Shore City Council did not have a durability team to undertake these inspections and close off any outstanding building consent.
The Durability Team at Auckland Council responsible for issuing Code Compliance Certificate on properties over 5 years old have confirmed that an inspection of the property by Auckland Council will be required on the remaining elements of the original additions and alterations. At which point Auckland Council would likely to be in a position to issue a back dated Code Compliance Certificate with a durability waiver. We recommend this process is undertaken.
[33] Mr Fetherston is concerned that the property may still be subject to weathertightness issues, and that the true extent of these issues will not be known until the Council’s durability team conducts its inspection as suggested in the engineer’s letter. He says that the property may need extensive repairs before it can be declared properly weathertight. In addition, if it is subject to significant issues it may, in its current state, be worth far less than he has agreed to pay for it. The property may also suffer ongoing diminution in value because of the stigma attached to a property that has been identified as a leaky building.
[34] Mr Fetherston does not accept that he has been “sitting on his hands”, to use the words of Tipping J in Regalwood. He points out that it will not be possible to know what state the building is in until such time as the durability team has completed a proper assessment. Only then, he says, will he be in a position to put forward a proposal to enable the settlement of the property to proceed.
[35] I accept that these issues might potentially form part of a claim that Mr Fetherston may wish to bring against the plaintiffs. It was not, however, a matter that was apparent as at the date of settlement, and it did not justify Mr Fetherston refusing to settle the purchase of the property on that date. It arose well after 31
March 2011, and is now relied upon by him as a reason for continuing to delay settlement.
[36] I do not consider that this particular issue provides Mr Fetherston with grounds to delay in completing settlement in terms of the principles enunciated in Regalwood.
Failure to obtain code compliance certificate for work carried out in 1998.
[37] The plaintiffs acknowledge that they carried out reasonably extensive renovations to the property in 1998. They obtained a building consent for those works but, by oversight, failed to obtain a code compliance certificate. In early March 2011 they made enquiries with the Council regarding this issue. They then discovered that it was not possible for the Council to issue a code compliance certificate retrospectively. The most that the Council could do was issue a letter of acceptance, and it has done that.
[38] The plaintiffs appear to accept that a claim for breach of warranty may lie in relation to the failure to obtain a code compliance certificate. They have obtained an opinion from a valuer to the effect that the property may have diminished in value by up to $75,000 as a result of this factor. They have suggested that that sum be set aside from the settlement funds until this issue can be resolved. Again, however, Mr Fetherston does not accept this proposal.
Are the plaintiffs entitled to an order for possession and thereby to obtain cancellation of the agreement?
[39] The parties have now reached an impasse. Mr Fetherston has been in possession of the property for 18 months pursuant to the varied agreement that he and the plaintiffs reached on 31 March 2010. During that time he has paid no rent, and the only outgoings on the property that he has paid are the rates. The plaintiffs have been left to meet their mortgage payments and to meet the cost of insurance.
[40] Mr Fetherston has never indicated that he is in a position to settle the purchase of the property, either in full or in part. It now transpires that he is an undischarged bankrupt. He has not disclosed any details as to how he proposes to fund the purchase of the property. The manner in which the present claims came to
light, and have been subsequently developed, suggests that so long as he remains in the property he will continue to find fault with it.
[41] As Regalwood confirms, it was open to the parties to reach agreement prior to the date of settlement regarding a way forward. They did not do that. Mr Fetherston did not raise any claim for set-off prior to the date of settlement. Thereafter he was left with two possible courses of action. The first of these was to cancel the contract. He did not do that. The second was to complete the performance of the contract, which he has now failed to do.
[42] I have concluded that it would be inappropriate to prolong matters further by declining summary judgment. The only claim known to Mr Fetherston as at the date of settlement was extremely weak. The parties should now be free to go their separate ways unless they can reach some form of accommodation within the very near future.
[43] Counsel for Mr Fetherston seeks a short period within which to enable his client to obtain alternative accommodation and to move his furniture and possessions out of the property. Counsel for the plaintiffs is content with the order being made now, but taking effect in three weeks time.
Order
[44] I make an order under s 28(4)(a) of the Property Law Act 2007 granting the plaintiffs possession of the property at 225 Beach Road, Campbells Bay. That has the consequential effect of cancelling the existing agreement for sale and purchase.
[45] I direct that the order is to take effect as from 5 pm on Thursday 20 October
2011.
Costs
[46] The plaintiffs have succeeded and are entitled to costs against Mr Fetherston on a Category 2B basis, together with disbursements as fixed by the Registrar.
Lang J
Solicitors:
Simpson Western, Auckland
Blomkamp Cox , Auckland
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