Yu v Bradley
[2022] NZCA 378
•15 August 2022 at 2:30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA477/2020 [2022] NZCA 378 |
| BETWEEN | JING JUN YU |
| AND | ANDREW INVESTMENTS (2004) LIMITED |
| AND | DALE GORDON BRADLEY AND |
| Hearing: | 14 October 2021 (further submissions received 25 May 2022) |
Court: | Cooper P, Clifford and Goddard JJ |
Counsel: | L J Taylor QC and E J Watt for Appellants |
Judgment: | 15 August 2022 at 2:30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants must pay the respondents’ costs for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Cooper P)
| Table of Contents | |
| Para No | |
| Introduction Was Mr Yu’s right to inspect under cl 3.2 of the Agreement breached? Damages | [1] [76] [117] |
Introduction
This is an appeal from a High Court judgment arising out of a dispute between the parties to an agreement for the sale and purchase of land situated on Whitford‑Maraetai Road, to the south-east of Auckland (the Agreement).[1] The Property, referred to in evidence as No 471 Whitford-Maraetai Road, is a substantial one, comprising 2.4 ha, and has been developed by the construction of a two-storey, four-bedroom house of approximately 256 square metres. The first appellant, Mr Yu, who is the sole director of the second appellant, Andrew Investments (2004) Ltd, made an offer to purchase the Property from the respondents, the Bradleys, for $2.3 million. The Bradleys accepted the offer and the Agreement was executed on 12 November 2016. The Agreement became unconditional on 30 November 2016 and Mr Yu subsequently paid the deposit of $230,000. He later exercised his right to nominate Andrew Investments (2004) Ltd to complete the purchase.[2]
[1]Yu v Bradley [2020] NZHC 1822, (2020) 21 NZCPR 220 [Judgment appealed].
[2]The issues arising for determination do not require us to distinguish between Mr Yu and Andrew Investments (2004) Ltd and for simplicity we refer throughout to Mr Yu as the person having the rights and obligations of the purchaser.
However, the transaction did not settle, due to the circumstances we address below. Mr Yu sued for the return of the deposit and the Bradleys counterclaimed for damages suffered when the Property was resold at a lower price to a third party, and various associated costs. The High Court entered judgment for $575,672.99, less deductions for the $230,000 deposit the Bradleys retained.[3] Mr Yu now appeals alleging the High Court made various factual and legal errors in its assessment of liability. It is also said the Court erred in determining the quantum of the damages.
[3]Judgment appealed, above n 1, at [87] and [89]. See also at [79].
We refer to the disputed factual issues in the course of the narrative below.
Narrative
The Property was advertised for sale in 2016. The promotional material emphasised the spectacular sea and coastal views that could be obtained from it. In front of the house on the Property is a steeply sloping lawn leading down to native bush.
The kernel of the present dispute is that part of what appeared to be the front lawn of the Property was in fact on the title of a neighbouring property. Palmer J described the position as follows:
[5] In 2016, there was nothing physically indicating that the boundary of the [Property] stopped before the sloping lawn reached the native bush. But, in fact, a V-shaped wedge of the lawn, pointing upwards and reaching about half way up towards the house, was part of a neighbouring property below. The sloping lawn was visible from the upstairs master bedroom in the house; but not from the downstairs or the lawn immediately outside the house, due to a hedge and the slope. The distance between the apex of the V and the hedge was 18 metres. …
(Footnotes omitted.)
The Property was listed for sale with Mr Tzong-Wen (Daniel) Huang, an agent of the real estate company, Barfoot & Thompson, and his associate salesperson, Ms Yangling (Helen) Han. The Bradleys had owned the Property since 2000. Mr Bradley gave evidence that he and his wife had never treated the sloping lawn in the neighbouring property as their own, but had kept it tidy by agreement with the neighbours. The neighbours, Mr and Mrs Bramwell, acquired the neighbouring property in 2016.
It was Mr Bradley’s evidence that he had shown Mr Huang the position of the boundary on site. Mr Bradley said he made it clear that not all of the sloping lawn was part of the Property, but that he mowed it and kept it looking tidy.
In October 2016, another adjoining landowner, Mr Kelvin Mackie, offered to purchase the Property for $2.1 million. Mr Mackie owned the properties adjacent to three of the Property’s boundaries and was in the process of subdividing that land into lifestyle blocks. The Bradleys made a counter-offer of $2.3 million, but agreement was not reached.
Mr Yu first visited the Property on 9 November 2016, accompanied by Ms Han. There is a conflict in the evidence of Mr Yu and Ms Han about what happened during that visit. Mr Yu said that they walked down the sloping lawn to the line of trees at the bottom and through bushes which, unbeknownst to him at the time, were in fact part of the neighbour’s property. They were agreed that Ms Han showed Mr Yu a map of the Property. That map showed the Property’s boundaries, and Ms Han claimed she texted a screenshot of it to Mr Yu. Ms Han also claimed she had pointed out the boundaries to Mr Yu and had specifically told him that the relevant part of the lawn was not part of the Property. The Judge found on the balance of probabilities that Ms Han had not specifically pointed out the boundaries of the Property to Mr Yu.[4]
[4]Judgment appealed, above n 1, at [2] and [11].
On 10 November 2016 Mr Yu made a written offer to purchase the Property for $2.15 million. Mr Mackie also made an offer and on 12 November 2016 Ms Fitzpatrick, the manager of the relevant branch of Barfoot & Thompson, chaired a meeting at which two offers were presented to the Bradleys, now both in the sum of $2.3 million. Mr Mackie’s proposed settlement date was too soon for the Bradleys; Mr Yu’s offer was conditional on obtaining solicitor’s approval within two days.
Mr Huang advised the Bradleys that Mr Yu wanted to settle on 15 February 2017, but was prepared to delay settlement or allow the Bradleys to occupy the house paying rent until they were able to purchase a new home. Ms Fitzpatrick emailed Mr Huang stating that it was:
… paramount that [Mr Yu is] aware that the proposed subdivision may result in seven properties sharing the driveway to [the Property] … Please also ensure that [Mr Yu] is aware of the boundaries for the said property …
The email attached a boundary map and a map of the proposed subdivision, asking that they be “disclosed to [Mr Yu] prior to the [Bradleys] accepting the offer”.
Mr Yu said that he then met Mr Huang at a café in the afternoon of 12 November 2016. However, Mr Huang said he did not meet Mr Yu then, and Ms Han said that Mr Yu’s meeting was with her. Mr Bradley’s evidence was that Ms Han had called him from a café saying she was meeting with Mr Yu, and had invited the Bradleys to meet her there, which they subsequently did. The Judge found on the balance of probabilities that Mr Yu met with Ms Han. In any event, Mr Yu agreed that at that meeting he was shown and initialled a hard copy of the subdivision plan and a map of the Property from the Property Guru website.[5] The Judge accepted Ms Han’s evidence that she discussed both maps with Mr Yu and at the same time pasted a solicitor-approval clause into the Agreement. The Judge said:[6]
Mr Yu’s evidence is that he understood the only purpose of the meeting was to make sure he knew about the subdivision, not the boundaries of the [Property]. On this issue, I accept Ms Han’s evidence. The boundaries of the [Property] are clearly shown on the map Mr Yu initialled, which was the same one he was shown on his visit on 9 November 2017. Mr Yu may not have assimilated the information but I find, on the balance of probabilities, the boundaries were pointed out to him at this meeting.
[5]At [14]. Both the subdivision plan and map had been superimposed on aerial photographs of the Property and its surrounds.
[6]At [15].
The Bradleys then arrived at the café and met with Ms Han, who showed them the subdivision plan and the map initialled by Mr Yu. Mr Bradley then signed the Agreement, accepting Mr Yu’s offer.
Mr Yu went to the Property again on 14 November 2016, with Ms Han. He said that Ms Han on this occasion gave him the impression that the land proposed to be subdivided was past the tree-line, beyond the lawn area. His evidence was that he thought that even if the adjacent land was subdivided it would not affect the view. Ms Han was unable to recall pointing out the location of the proposed subdivision but accepted she had walked Mr Yu around the Property and said that Mr Yu was carrying the signed subdivision plan and the Property Guru map with him during this inspection.
The Agreement became unconditional on 30 November 2016. Mr Yu requested that a rental appraisal be carried out, and Mr Bradley agreed that could occur. Representatives of Barfoot & Thompson went to the Property for that purpose and a rental appraisal report was finalised on 13 December 2016 and provided to Mr Yu.
The Judge found the deposit was paid “by 13 January 2017”.[7]
[7]At [18].
On 20 December 2016, Mr Bramwell sent a text to Mr Bradley seeking to ensure that Mr Yu clearly understood the boundaries of the Property. Mr Bradley responded that he had made the boundaries very clear to Mr Yu. Mr Bradley said in evidence that he believed he had done so because of the advice he had given to Mr Huang and because he had seen the boundary map which Mr Yu had signed. Subsequently, Mr Bramwell organised for a survey of the land to be carried out. This resulted in the discovery that a birdcage owned by the Bradleys, which housed white fantail pigeons, was situated a metre over the boundary. In late January 2017 Mr Bramwell told Mr Bradley he did not wish him to continue mowing the sloping lawn and asked Mr Bradley to remove the birdcage, which Mr Bradley subsequently did. Then, on 8 February 2017, the Bramwells served a fencing notice on the Bradleys (the Notice), requiring that they pay for a fence between the properties. Barfoot & Thompson provided a copy of the notice to Mr Yu on the same day.
On 9 February 2017 the Bramwells’ solicitor provided a photograph to Mr Yu’s solicitor depicting the sloping lawn leading up to the house, but locating on it the V‑shaped portion of the lawn owned by the Bramwells. Next, on 14 February 2017, the Bradleys’ solicitors informed Mr Yu’s solicitors that they were willing to pay for half the costs of a new fence.
Mr Bradley had also emailed Mr Yu on 22 December 2016 to advise him about a problem with the wastewater system, which Mr Bradley said was not functioning properly. He told Mr Yu he was going to have the system serviced, and raised the issue as to whether Mr Yu would like to replace the system with a new one. Mr Bradley raised this again with Mr Yu in mid-January 2017, when Mr Yu responded saying he had forwarded the email to his solicitors.
Settlement was due to take place on 15 February 2017. On 13 February, Mr Morrison of the law firm Grove Darlow & Partners, acting for Mr Yu, wrote to the Bradleys’ solicitor, Ms Alison Tait of Wells & Co. The letter implied the Bradleys had not been completely clear with Mr Yu, and that there had been a material misrepresentation concerning the location of the boundary, which would entitle Mr Yu to cancel the contract. The letter stated that Mr Yu wished to visit the Property on 14 February 2017 at 3 pm, and sought confirmation that that time would be suitable.
Mr Morrison instructed a valuer, Mr Michael Sprague. On the morning of 14 February 2017, when Ms Tait spoke on the phone to Mr Morrison confirming that the 3 pm inspection time was appropriate, Mr Morrison told her that a valuer would also be present “in order to provide a genuine pre-estimate of loss in respect of the encroached area”.[8] According to Mr Morrison, Ms Tait objected to that and said she would have to take instructions.
[8]The expression “encroached area” was used by Mr Morrison to refer to the V-shaped area of the lawn that was part of the Bramwells’ property. There was no encroachment in a legal sense.
Mr Bradley said he was shocked by the allegation of misrepresentation in Mr Morrison’s letter. After meeting with Ms Tait and receiving her advice, he “decided that Mr Yu should not bring a valuer [onto] the land as [he] understood [Mr Yu] had no right to”, but he and his wife would have been “happy to provide the normal inspection with a lawyer present”. However, Mr Bradley accepted Ms Tait did not advise Mr Morrison of that stance before the inspection; a letter setting out the position was sent later that day, after 3 pm. The letter recorded the Bradleys’ strong denial that there had been any misrepresentation, and referred to the map initialled by Mr Yu showing the boundaries of the Property. Ms Tait wrote:
We consider your client’s initials on the diagram are an acknowledgment by him of the indicative boundaries of the [Property] such that he could not have been relying on an alleged misrepresentation in the marketing material.
The letter also put Mr Yu on notice that the vendor of the new property purchased by the Bradleys was relying on funds received on settlement to purchase another property. Consequently, Ms Tait advised that any decision by Mr Yu to cancel the Agreement should be carefully considered as the damages that might flow from a wrongful cancellation could be extensive. On the issue of the proposed inspection, Ms Tait wrote:
We understand your client wishes to inspect the [Property] today with a valuer at 3pm today. We are not aware of what right your client has to bring a valuer with him to the [Property] and accordingly our client does not consent to the proposed inspection. However, your client is entitled to inspect the [Property] on his own today at 3pm if he wishes.
As noted, this letter was sent after 3 pm. However, Mr Bradley had informed Mr Huang that Mr Yu would be conducting a purchaser’s inspection and Ms Fitzpatrick had emailed Mr Yu confirming the 3 pm appointment. Mr Huang duly arrived at about that time, shortly before Mr Yu, Mr Morrison and Mr Sprague. The Judge noted a conflict in the evidence as to what then transpired.[9]
[9]Judgment appealed, above n 1, at [25].
It was Mr Bradley’s evidence that he told Mr Morrison that Ms Tait had told him not to speak with Mr Morrison, and that the valuer could not attend the inspection but Mr Huang could conduct an inspection without the valuer. Mr Morrison however gave evidence that Mr Bradley did not offer any inspection, and that he (Mr Morrison) then tried without success to speak to Ms Tait over the phone. Mr Bradley said that, having observed Mr Sprague on his way toward the back of the Property, he told Mr Morrison that he and Mr Sprague should leave, and wait off the Property until Mr Morrison had spoken to Ms Tait. However, Mr Yu and his advisers understood they were being asked to leave and they did so.
The Judge found on the balance of probabilities that Mr Bradley had intended to allow a final inspection by Mr Yu without the valuer. However, he was not persuaded that had been communicated to Mr Morrison.[10] That conclusion drew support from the terms of a letter written that afternoon by Mr Morrison to Ms Tait, which began as follows:
Further to our telephone conversation this afternoon regarding access to the [Property] we have not heard back from you prior to the site visit at 3.20 pm today. We spoke to Mr Dale Bradley who was not willing to permit access to the [Property]. The writer telephoned your office and left a message to call me back. A message was also left with [another solicitor] who Mr Bradley informed the writer he could contact as well. When I advised Mr Bradley that neither yourself nor [the other solicitor] was available and that I would wait until I heard back from you we were then told to leave the [Property].
[10]At [26].
Before sending that letter, Mr Morrison had contacted Mr Bramwell, and together with Mr Yu and Mr Sprague went to the Bramwells’ property from which it was possible to view the Bradleys’ land. In the letter Mr Morrison also wrote:
In terms of clause 6.4 of the [Agreement] and without prejudice to the purchaser’s right pursuant to Section 7 [of the] Contractual Remedies Act [1979] we give notice as follows:
(a) Compensation in respect of the Fencing Act Notice served by the adjoining owner required to the extent of the amount particularised in that notice. This is without prejudice to any additional monies which may be required to satisfy the notice.
(b) In terms of the grey water system compensation is demanded to the extent particularised in the [vendor’s] emails of 22 December 2016 ($13,403.15 plus GST). This is without prejudice to any additional costs our client may incur.
As regards … the encroachment one of the purposes of today’s visit was to attempt to quantify the loss suffered. By your clients ordering the valuer from the [Property] we have been prevented from assessing the potential loss of view and other amenity values. The vendor’s neighbour has however permitted access via his property to the encroachment area. We have however been unable to access the view and amenity value. That will compromise the valuation.
We will endeavour to provide a reasonable estimate of loss in accordance with clause 8 of the [Agreement] however your [clients’] actions today have not assisted and have been preventative.
The claim for compensation in respect of the encroachment area is without prejudice to the purchaser’s rights under Section 7 of the Contractual Remedies Act. If our client elects to exercise that right.
It appears your clients were vacating the [Property]. Please confirm your clients will be able to provide vacant possession tomorrow.
The “grey water system” refers to the wastewater system previously mentioned at [19] above. Clause 8 of the Agreement provided for claims for compensation, establishing a mechanism for settlement to proceed and for the subsequent resolution of the claim.
Mr Sprague’s evidence was that it was not possible to assess loss of amenity value, as required by the cl 8 mechanism, without undertaking a site visit to the Property. Nevertheless, on 15 February 2017, having viewed the Property from the Bramwells’ land, Mr Sprague advised Mr Yu of an estimate of potential loss of amenity value of between $100,000 and $125,000, with a “midpoint” of $115,000. Subsequently, having been allowed eventually to inspect the Property on 20 February 2017, Mr Sprague confirmed that view.
Mr Bradley’s evidence was that he was in a position to provide vacant possession by 2.30 pm on 15 February 2017. A number of emails were exchanged between the solicitors acting for the parties on that day. Mr Morrison wrote that Mr Bradley had not permitted Mr Yu access to complete “either a valuation of the encroached area or a final inspection of the [Property]”. He said the Bradleys were in breach of their obligations, and that Mr Yu reserved his rights. Ms Tait countered claiming the Bradleys were not in breach of their obligations, and noted her instructions that Mr Yu had been offered a final inspection but had refused it. She recorded in any event that the real estate agent would be contacting Mr Yu directly to carry out a final inspection that day. Mr Morrison replied claiming the suggestion that Mr Yu had in fact been offered a final inspection was a “gross mistruth”. Then, under the heading “Encroachment”, he wrote:
(r) Without prejudice to our [clients’] rights pursuant to section 7 of the Contractual [Remedies] Act 1979 and on the assumption, which assumption may be entirely incorrect, that the neighbour would be willing to sell the encroached area to our client, our client claims further compensation pursuant to clause 8 as set out below:
(i) In respect of the encroached area the land value is $120,000.00. Given your client refused to allow the valuer to assess the amenity value from their property this amount may increase at a point in time when the valuer can properly reassess the amenity loss. The above is a genuine estimate of loss suffered;
(ii) Valuer’s costs of $3,579.38;
(iii) Estimated legal costs relating to the proposed acquisition of the encroached land $7,500.00 plus GST;
(iv) Estimated allowance for disbursements $1,000.00;
(v) Estimated survey costs $5,000.00 plus GST;
(vi) Estimated planning costs in respect of the resource consent application $5,000.00 plus GST;
(vii) Estimated Council fees $2,000.00;
(viii) Estimated mortgagee consent costs $250.00.
(s) The above compensatory claim will not apply if the neighbour will not sell the encroached land. We will make an approach to the neighbour to enquire as to whether they are willing to sell. If they are not willing to sell then our client will exercise [his] rights pursuant to section 7.
At 2.13 pm on 16 February 2017 Mr Morrison served on the Bradleys a settlement notice under cl 11.1 of the Agreement, asserting that Mr Yu was and had been ready, able and willing to complete settlement since the settlement date. The notice required access to the Property for the purposes of cl 3.2, that the Property be vacated in order to provide for vacant possession, compliance with the Bradleys’ obligations under cl 8, and payment to Mr Yu in accordance with cl 3.14(2)(a)(ii).[11] Twelve working days were allowed after the date of the notice so that compliance was required on or before 6 March 2017, referred to as the “Cancellation Date”.[12] The notice stated that failure to complete settlement before the Cancellation Date would enable Mr Yu to exercise his rights set out in cl 11.5 without prejudice to any other rights. Such rights included the right to sue for specific performance, or to cancel the Agreement with return of the deposit with interest.
[11]Clause 3.14(2)(a)(ii) provides for the payment of interest where vacant possession has not been given on the settlement date.
[12]The settlement notice dated 16 February 2017 actually provided “6 March 2016” as the final date of compliance. However the context makes clear this is meant to be “6 March 2017”.
At about this time, Mr Bradley instructed a new solicitor, Mr David Rooke. At 3.45 pm Mr Rooke sent an email to Mr Morrison recording that the Bradleys were agreeable to inspection of the Property “for the purpose of your further assessing the notified claim to compensation, with attendance by persons first notified on your behalf and a representative of our clients”. The email stated the inspection could be undertaken later that afternoon, or in the morning. After a further exchange, inspection was confirmed for 11.15 am on 20 February 2017. Mr Rooke, however, questioned whether there was a right of inspection for evidence-gathering purposes after a claim for compensation had been made (referring to a letter by Mr Morrison sent on 13 February 2017). In an email sent on 17 February 2017, Mr Rooke sought particulars of the claim for compensation, noting that it should have been notified before the last working day prior to settlement (14 February 2017) and “particularised and quantified to the extent reasonably possible” (quoting from cl 8 of the Agreement).
Inspection took place on 20 February 2017. Mr Yu was accompanied by Mr Morrison and Mr Sprague. Mr Bradley was not at the Property, and although he attempted to ensure that Mr Huang was present, the inspection took place in his absence also.
Mr Rooke issued a settlement notice on behalf of the Bradleys by email at 4.54 pm followed by a fax at 5.02 pm. It was common ground the email was not effective service on 20 February 2017 and the fax sent after 5 pm was to be treated as effectively served on the following day under cls 1.2(2) and 1.3(4)(d) of the Agreement. The settlement notice claimed the vendors were and had since 15 February 2017 been ready, able and willing to complete settlement. It required Mr Yu to complete settlement within 12 working days (that is, on or before 8 March 2017) and stated that if that did not occur, the Bradleys would be entitled to exercise their rights under cl 11.4 of the Agreement. Such rights are, as with cl 11.5, to sue for specific performance or to cancel the Agreement, with the right to retain the deposit and/or sue for damages.
In a letter accompanying the settlement notice, Mr Rooke wrote:
The settlement notice issued by you on 16 February 2017 is rejected:
(a)Your client was entitled to inspect the [Property] and offered this but not with a valuer present. Your client has completed another full inspection today, although I have no advice from you today on the same.
(b)The [Property] was vacated by the Vendors on the settlement date and remains vacant pending settlement;
(c)Clause 8.0 and the procedures provided therein are not available to your client. There is substantively no case in misrepresentation as alleged by the Purchaser, and procedurally, if there were a case, a failure by the Purchaser to give notice as prescribed in Clause 8.0 (required to be given on or before 14/2/17 the last working day prior to settlement. Notice was given after 5pm on 15/2/17), that would give rise to an obligation on the Vendors under that clause.
(d)The Vendors are not in breach of their obligations pursuant to the Agreement and no penalty arises to them.
On 21 February 2017, Mr Sprague wrote to Mr Morrison, saying:
Your instructions received 17 February 2017 are to provide an estimate [of] loss of value in terms of 350 s.m. of land.
Subsequent to our site inspection of Monday, 20 February 2017, we have now considered all relevant factors.
Having given this matter careful consideration we would estimate the loss of value in terms of the 350 s.m. of land at:
$115,000
(ONE HUNDRED AND FIFTEEN THOUSAND DOLLARS)
including GST, if any.
On 27 February 2017 Mr Morrison wrote to Mr Rooke responding to his letter of 20 February 2017. Mr Morrison claimed the misrepresentation and compensatory claims had been notified to the Bradleys on 13 February 2017, and that Mr Yu was entitled to inspect the Property on 14 February 2017 but the Bradleys had obstructed him from being able to provide a genuine pre-estimate of loss. Further, Mr Morrison’s letter dated 14 February 2017 had given notice of the compensatory claim (referring to the wastewater system and the Notice) “to the extent such claim could be quantified at the time”. That letter was “in furtherance” to a letter sent on 13 February 2017, which had notified the Bradleys of the misrepresentation claim. Mr Morrison asserted the Bradleys’ actions in preventing Mr Yu from quantifying the claim meant they could not claim Mr Yu was prevented from invoking the compensation claim procedures under cl 8 of the Agreement on the basis that a genuine pre-estimate of the loss had not been provided. Mr Yu had been ready, able and willing to settle since 15 February 2017, but the Bradleys’ obstruction continued until shortly after 1 pm on 17 February 2017 when notice was given by the Bradleys that the Property would be available for inspection. Subsequently however the Bradleys had given notice that they did not accept the cl 8 procedure was applicable; Mr Morrison claimed the Bradleys’ continued refusal to acknowledge the application of cl 8 rendered their settlement notice invalid. The letter ended with a reservation of Mr Yu’s rights in respect of his settlement notice served on 16 February 2017, and s 7 of the Contractual Remedies Act 1979.
On 1 March 2017, the Bradleys settled the purchase of the property which they had agreed to buy, relying on bridging finance and paying 12 days’ penalty interest.
On 6 March 2017, Mr Rooke wrote to Mr Morrison responding to the settlement notice he issued on Mr Yu’s behalf, pursuant to which settlement was required by that date. Mr Rooke’s letter recorded his view that the settlement notice was ineffective for a number of reasons, which we need not summarise at this point since they feature in the arguments we address below. Mr Rooke reiterated that the Bradleys remained ready, able and willing to settle as they had been on the settlement date, and the Property had been vacated on the settlement date and remained vacant. The amount due under the settlement statement remained the same, subject to the payment of penalty interest calculated at a rate of 13.27 per cent, resulting in a daily interest amount of $752.57 for the 21 days to the date of the letter. This meant that an additional $15,804.02 was to be added to the settlement sum. Mr Rooke also noted the Bradleys had previously agreed to reduce the price by $4,166 for the cost of servicing the wastewater system, and $1,500 in respect of a contribution towards fencing costs.
On 10 March 2017, Mr Morrison sent a detailed response to Mr Rooke’s letter of 6 March 2017. He repeated Mr Yu’s position that the Bradleys had not been ready, able and willing to settle on 15 February 2017 because they had refused to permit Mr Yu to inspect the Property.[13] After making various arguments, Mr Morrison asserted the Bradleys’ settlement notice was invalid. The letter concluded with the following:
[13]The settlement date was recorded in the letter as “15 October 2017”. However the context makes clear this is meant to be “15 February 2017”.
12. The vendor has not complied with the purchaser’s settlement notice in so far as the [Agreement] required the vendor to:
(a) comply with the vendor’s obligations under clause 8 of the [Agreement]; and
(b) pay the purchaser in accordance with clause 3.14(2)(a)(ii) with interest for late settlement calculated in accordance with clause 1.1(33)(a);
13. We refer you to clause 1.1(33)(b).
14. Accordingly, the purchaser cancels the [Agreement] in accordance with clause 11.5(2).
15. The purchaser hereby demands:
(a) interest on the purchase price at the interest rate for late settlement from … 15 February 2017 to 9 March 2017, clause 3.14(2)(a)(ii);
(b) $230,000.00;
(c) interest on the $230,000.00 at the interest rate for late settlement from 10 March 2017 until the date of actual payment, clause 11.5(2);
less an amount equivalent to interest earned on the purchase price funds in accordance with clause 13.14(2)(b) for the period 15 February 2017 to 9 March 2017. We will calculate this amount and advise you accordingly.
16. If payment is not made, our client intends [to issue] proceedings. …
That letter drew a response from Mr Rooke on 17 March 2017. He addressed the reasons why the Bradleys denied there had been any misrepresentation and why Mr Yu could not rely on cl 8 of the Agreement. Mr Rooke repeated his view that cl 8 contained no obligations on the part of the Bradleys; it simply provided the opportunity for Mr Yu to issue a notice to them, but the notice issued by Mr Yu had not met the requirements of cl 8 so as to require a response from the Bradleys under that clause. Mr Rooke stated the notice of cancellation issued by Mr Yu was a repudiation of the Agreement by him, with the consequence that under cl 11.4, and having regard to the settlement notice issued by the Bradleys, they could elect to sue for specific performance or cancel the Agreement. In that event, the Bradleys would be entitled to retain the deposit of $230,000 and sue for damages. The letter did not expressly cancel the Agreement, but stated the Bradleys were looking to place the Property on the market for sale.
Mr Morrison did not reply until 27 March 2017. His email confirmed that he was preparing summary judgment proceedings for the return of the deposit together with interest. It also indicated that if a without prejudice offer was made that recognised the misrepresentations, the uncertainty about whether the neighbour’s land could be acquired, the cost of acquisition (including resource consent, survey and legal costs), then it would be considered.
On 13 April 2017, Mr Rooke gave formal notice of cancellation. His letter noted:
As stated, the vendors read your prior notice of cancellation as a repudiation by the purchaser of the contract, meaning therefore that under clause 11.4 in the face of your non-compliance with the settlement notice issued by the vendor, the vendor must elect without prejudice to any other rights or remedies available, to either sue for specific performance or cancel the [Agreement].
Accordingly the vendor has elected to cancel this [Agreement] and in so doing to forfeit and retain for the vendor's own benefit the deposit paid by the purchaser of $230,000.00 being 10% of the purchase price.
(Original emphasis.)
Mr Morrison replied on 17 May 2017. He wrote that if for any reason the court determined that the cancellation in para 14 of his letter of 10 March 2017 was ineffective, then Mr Rooke’s letter of 13 April 2017 was a repudiation of the Agreement. Mr Morrison then gave notice of “acceptance of that repudiation”.
On 2 June 2018 the Bradleys entered into an agreement to resell the Property for $1.98 million, the transaction involving both a property swap and cash. At the time of the hearing in the High Court, the Bradleys were still trying to sell the property for which they had swapped No 471 Whitford-Maraetai Road. The Judge referred to evidence given by Mr Bradley that the situation had been “financially devastating”, causing immense stress, and resulting in the Bradleys’ “living conditions [being] the worst they [had] ever been”.[14] The resale transaction settled on 9 August 2018.
The proceeding in the High Court
[14]Judgment appealed, above n 1, at [36].
Mr Yu sued for return of the $230,000 deposit and interest. An application for summary judgment was declined by Associate Judge Doogue.[15] Moore J declined an application for leave to appeal in September 2018.[16] Mr Yu’s substantive claim came before Palmer J in March 2020. In his judgment, now on appeal, the Judge identified two main issues. The first issue was whether a misrepresentation had induced Mr Yu to enter into the Agreement.[17] The second issue in broad terms was the question of who repudiated and/or cancelled the Agreement.[18] The Judge analysed that issue by way of three sub-issues, which we mention below.
[15]Yu v Bradley [2017] NZHC 2816.
[16]Yu v Bradley [2018] NZHC 2312.
[17]Judgment appealed, above n 1, at [39]–[45].
[18]At [46]–[78].
On the first issue, the Judge found Ms Han had probably made a misrepresentation about the boundaries of the Property when she showed Mr Yu around it on 9 November 2016.[19] He thought the state of the Property did not invite the logical conclusion that its boundary formed a V in the middle of the sloping lawn, and a clear explanation would have been required to make that plain if misrepresentation was to be avoided. He was not persuaded that Ms Han had provided a clear explanation of the position on 9 November 2016.
[19]At [44].
The Judge nevertheless found that the true position had been explained to Mr Yu at the meeting in the café on 12 November 2016.[20] He was satisfied that on that day Ms Han corrected her misrepresentation of 9 November 2016 and this occurred before Mr Yu confirmed his offer to purchase. This meant there was no misrepresentation at the time Mr Yu entered into the Agreement and it followed that he had not been induced to enter into it by misrepresentation.
[20]At [45].
The appellants challenge this conclusion as being wrong in fact and law.
In addressing the second issue, the first of the three sub-issues was whether Mr Bradley had breached Mr Yu’s right to inspect the Property under cl 3.2 of the Agreement. Under that clause, the vendor is obliged to permit the purchaser or any person authorised by the purchaser in writing, upon reasonable notice, to enter the property on one occasion prior to the settlement date for the purposes of examining the property, chattels and fixtures which are included in the sale. Further, there is a right to re-enter the property on or before the settlement date to confirm compliance by the vendor with any agreement made by the vendor to carry out any work on the property and the chattels and fixtures. The Judge considered this clause gave Mr Yu the right to authorise a valuer in writing to inspect the Property for the purpose of checking that he was getting what he had agreed to buy.[21] However, the Judge noted that there was no evidence Mr Yu had authorised Mr Sprague in writing to inspect the Property.[22] Nor had Mr Yu authorised Mr Morrison in writing to inspect it, although Mr Bradley had been prepared to permit Mr Morrison to inspect it in any event. In the circumstances, the rights of inspection given by cl 3.2 had not been breached in respect of either Mr Sprague or Mr Morrison.[23] On the other hand, while Mr Bradley had intended to allow Mr Yu and Mr Morrison to inspect the Property, he had not communicated that in a way which Mr Morrison reasonably understood. The Judge found that from Mr Yu’s reasonable perspective, Mr Bradley was denying him inspection and to that extent Mr Bradley had breached Mr Yu’s right to inspect.[24]
[21]At [57].
[22]At [59].
[23]At [60].
[24]At [60].
Mr Yu challenges as wrong in law the Judge’s conclusion that the Bradleys did not breach his right to have Mr Sprague inspect the Property.
The next stage in the Judge’s analysis addressed, as sub-issue two, the status of Mr Yu’s claim for compensation. This required the Judge to consider the provisions of cl 8 of the Agreement, headed “[c]laims for compensation”, which we set out at [76] below. At this stage, it is sufficient that we summarise the Judge’s conclusions as follows:
(a)A claim for compensation under cl 8 must be genuine and reasonably arguable.[25]
(b)Although Mr Yu’s claim for misrepresentation was not sustained, he had a “genuine and reasonably arguable claim, which was not frivolous or vexatious or an abuse of process”.[26] It had taken a High Court trial to elicit the relevant evidence.
(c)It was necessary for any claim to be particularised and quantified to the extent reasonably possible.[27] Mr Yu had not been prevented from making his claim by Mr Sprague not being able to inspect the Property, or by Mr Bradley breaching his duty to allow Mr Yu to inspect the Property on 14 February 2017. That was so, because after inspecting the Property on 20 February 2017, Mr Sprague confirmed the assessment he had made prior to inspecting it.
(d)In order to comply with cl 8(1), it was necessary for Mr Yu to serve notice of his claim under cl 8 on the Bradleys on or before 14 February 2017.[28]
(e)Mr Morrison’s letter of 14 February 2017 had properly raised claims for compensation in respect of the Notice and the wastewater system. Mr Morrison’s further letter of 15 February 2017 expressed a claim in relation to the “encroachment area”, but it was conditional on the assumption (which might have been entirely incorrect) that the Bramwells would be willing to sell the encroached area to Mr Yu.[29]
(f)While claims for compensation in respect of the Notice and the wastewater system had been made in time, the purported claim in relation to the Property’s boundary was only ever made conditionally and it was not made in the time required by cl 8(1).[30]
(g)Consequently, for the purposes of cl 8, the claim in relation to the boundary issue was not made at all.[31]
[25]At [64].
[26]At [65].
[27]At [65].
[28]At [66].
[29]At [67].
[30]At [68].
[31]At [68].
The Judge framed the final sub-issue in terms of who had been ready, able and willing to settle and who had validly cancelled the Agreement. The Judge’s resolution of these issues was of course influenced by the findings he had already made. He determined the Bradleys had been willing to settle on the settlement date of 15 February 2017, minus deductions of $4,166 for the wastewater system and $1,500 for contributions to the fencing required under the Notice.[32] This position had been set out in Ms Tait’s letter to Mr Morrison on 14 February 2017. The purported claim to compensation for the encroachment advanced by Mr Yu was not an obstacle to settlement because it was not properly made. However, the Judge also found that Mr Bradley had not discharged his obligation to allow Mr Yu to inspect the Property under cl 3.2, which constituted a default in terms of cl 1.1(33)(b) of the Agreement.[33] The breach of the right of inspection was material and as a result Mr Yu was not required to settle on 15 February 2017. Mr Yu was not ready, able and willing to settle at that point, but only because the Bradleys were in default.
[32]At [72].
[33]At [72].
Having reviewed the events subsequent to 15 February 2017, the Judge considered the Bradleys were ready, able and willing to settle on 21 February 2017 when they issued the settlement notice to Mr Yu that was due to expire on 8 March 2017.[34] Both parties had made claims for penalty interest in the settlement notices they exchanged, but the Judge considered the claim for such interest did not disqualify either party from being considered ready, able and willing to settle having regard to the overall circumstances.[35] He said:[36]
As stated in Westpac Banking Corporation v Bhana, the amount the purchaser is required to pay to complete the purchase is governed by the contract itself, not by the settlement notice.[37] The settlement notice required Mr Yu to “complete settlement”. I consider the Bradleys were ready, able and willing to settle irrespective of penalty interest.
[34]At [77]. See also at [74].
[35]At [75].
[36]At [75].
[37]Westpac Banking Corporation v Bhana (2003) 5 NZCPR 73 (HC) at [27]–[28].
The Judge also held that the Bradleys’ settlement notice was not otherwise ineffective.[38] He noted it had been issued after the Bradleys allowed inspection and determined it was a valid settlement notice under cl 11.1(2) of the Agreement. That meant time became of the essence under the Agreement, and Mr Yu was required to settle. It was at this point, after inspecting the Property on 20 February 2017, when Mr Yu thought he might be able to purchase the “V” in the Property from the Bramwells and therefore did not cancel, but reserved his rights to do so. On the other hand, Mr Yu’s own settlement notice had made it clear he required a deduction for a claim under cl 8 that he had only made conditionally, and he had not attempted to fulfil that condition. In the Judge’s view, that did not constitute a claim for which the cl 8 process had to be followed, and the Bradleys were entitled to reject it.[39]
[38]Judgment appealed, above n 1, at [76].
[39]At [76].
In the result, Mr Yu was not ready, able and willing to settle on 21 February 2017, or thereafter.[40] He did not settle and was not entitled to cancel the Agreement. His purported cancellation on 10 March 2017 was in the circumstances ineffective.[41] The Bradleys were entitled to treat it as a repudiation, and to cancel the Agreement themselves as they did on 17 March 2017. This was in accordance with ss 36 and 37(1)(b) of the Contract and Commercial Law Act 2017.
[40]At [77].
[41]At [78].
The appellants argue on appeal that the Judge was wrong in fact and law to find that the notice given by the appellants in reliance on cl 8 was ineffective because it was “conditional” and had “not [been] properly made”.
The Judge dealt briefly with the issue of remedies at the end of the judgment.[42] He considered the various heads of loss that were claimed were reasonably foreseeable as naturally arising from Mr Yu’s breach of contract.[43] He deducted the $230,000 deposit retained by the Bradleys, and the respective sums of $4,166 for the costs of servicing the wastewater system and $1,500 for the potential costs of the fencing required under the Notice.[44] The net amount payable therefore came to around $340,006.99. Included in this sum was $104,013.49 for interest and bank charges to service bridging finance on the property the Bradleys had agreed to purchase, and $66,122.79 for interest and bank charges on the Property before it was sold. In addition, a sum of $2,389.85 was referable to transport and storage costs while awaiting settlement of the property the Bradleys had agreed to purchase, and $4,024.11 was in penalty interest paid to the vendor of that property.
[42]At [79]–[88].
[43]At [86].
[44]At [87]. The Judge further stated any costs incurred by the Bradleys from changing solicitors should also be deducted. The appellants do not appear to take issue with this head of deduction on appeal.
Mr Yu says the Judge awarded these sums in error, arguing the respondents had not claimed these costs as general damages; these had expressly been pleaded as “special damages” and special damages should not be awarded unless they were within the specific contemplation of the parties at the time of entry into the Agreement. Mr Yu also seeks to argue that the damages for bridging finance should not have been awarded because they were not in the specific contemplation of the parties when the Agreement was executed.
First issue — corrected misrepresentations?
As noted above, the Judge found that Ms Han did not specifically point out the boundaries of the Property to Mr Yu when they visited the site together on 9 November 2016. However, the Judge went on to find that the boundaries were explained to Mr Yu when he met with Ms Han at a café on 12 November 2016. Further, at that meeting Mr Yu was shown and initialled a hard copy of two maps on which had been superimposed, respectively, the subdivision plan for the neighbouring property and the boundaries of the Property. Mr Taylor QC, counsel for the appellants, acknowledged that Mr Yu initialled the two maps. However, Mr Taylor noted the circumstances in which Mr Yu did so were the subject of strongly conflicting evidence.
In this respect, Mr Taylor sought to emphasise Ms Fitzpatrick’s email to Mr Huang sent at 12.03 pm on 12 November 2016 stressing the importance of making Mr Yu aware of the proposed subdivision of the neighbouring property, as well as asking Mr Huang to ensure that Mr Yu was aware of the boundaries of the Property. Ms Fitzpatrick’s email ended with the words:
Would you request that the purchaser responds to you in writing (email) confirming that they have received the above information and understand the contents and are willing to proceed with the purchase
Mr Taylor noted Mr Yu did not at any stage provide the written confirmation that had been requested in Ms Fitzpatrick’s email confirming that he understood the matters she referred to and, in particular, understood that the location of the Property’s boundary was approximately 80 m up from the bottom of the “sweeping lawns” depicted in the advertising material.
Mr Taylor referred to evidence given by Mr Yu that the person he had met with at the café was Mr Huang despite the fact Mr Huang gave evidence that he did not attend the meeting. According to Mr Yu, the only purpose of the meeting was to inform him of the proposed subdivision. However, we consider that that seems contrary to the thrust of Ms Fitzpatrick’s email to Mr Huang and, more significantly, it seems inconsistent with the fact Mr Yu initialled the two maps at the meeting, one of which showed the proposed subdivision but the other depicting the boundaries of the Property. It seems unlikely Mr Yu would have signed the latter without discussion about what was represented on it.
Mr Taylor also sought to rely on the fact that it was Mr Huang who sent the signed Agreement (with the two initialled maps annexed) to Mr Morrison on 13 November 2016, stating that Mr Yu had requested Mr Huang to send it to Mr Morrison. This copy of the Agreement had been scanned to Mr Huang at 2.51 pm on the day of the café meeting, which took place shortly after 2 pm. It was also Mr Huang who sent the documents to Mr Yu on 14 November 2016. We do not think anything is established by Mr Huang’s involvement in this correspondence: both he and Ms Han were engaged as agents in respect of the transaction, and the fact Mr Huang sent the emails does not establish that it was he who had met with Mr Yu at the café rather than Ms Han.
The Judge found it was Ms Han who had met with Mr Yu at the café, preferring the evidence of Mr Huang and Ms Han on that issue. Mr Bradley also gave evidence that Ms Han called him from the café, saying she was meeting Mr Yu there, and inviting the Bradleys to also meet her there, which they subsequently did. When they got there, Ms Han showed the Bradleys the two maps Mr Yu had initialled. By that stage, Mr Yu had left. The Bradleys signed the Agreement. Mr Huang was not there. Ms Han also gave evidence that in discussing the two maps she offered to have Mr Bradley come and explain them to Mr Yu and suggested that Mr Yu go to the Property with the maps. But Mr Yu said he had no issues with them and initialled them at the meeting.
Mr Yu’s evidence was that he could not make out the boundaries of the Property from the map and had no idea of the extent of the land that was included in the Bramwells’ property. He said that if he had realised the boundary was in a different place to where he had been shown on his first visit on 9 November 2016, he would not have initialled the map. The Judge did not accept this evidence. He held the boundaries were clearly shown on the map that Mr Yu initialled, which was the same map he had been shown when visiting the site, and although Mr Yu may not have assimilated the information, the boundaries were pointed out to him at his meeting with Ms Han at the café.[45] Mr Taylor submitted these findings were not supported by the evidence Ms Han was able to give at trial, referring to passages in her cross‑examination which he said showed she did not know where the boundaries of the Property were at the time of the first visit. However, the Judge’s conclusions on this issue were based primarily on what he found had taken place at the subsequent meeting at the café, and Mr Yu’s initialling of the maps he was then shown.
[45]Judgment appealed, above n 1, at [15].
We have not been persuaded that the Judge erred in making those findings.
Second issue — who repudiated and cancelled the Agreement?
As noted above, the Judge described the second issue in broad terms as being who repudiated and/or cancelled the Agreement. He approached that issue by considering first whether Mr Bradley had breached Mr Yu’s right to inspect under cl 3.2 of the Agreement, secondly whether Mr Yu had established a right to compensation under cl 8 of the Agreement, and thirdly by analysing which party had been ready, able and willing to settle and who had validly cancelled the Agreement. We have already summarised the conclusions the Judge reached on each sub‑issue, and we turn now to Mr Taylor’s argument as to why the Judge’s conclusions were wrong.
Was Mr Yu’s right to inspect under cl 3.2 of the Agreement breached?
Clause 3.2 of the Agreement provided as follows:
If the [Property] is sold with vacant possession, then subject to the rights of any tenants of the [Property], the vendor shall permit the purchaser or any person authorised by the purchaser in writing, upon reasonable notice:
(1)to enter the [Property] on one occasion prior to the settlement date for the purposes of examining the [Property], chattels and fixtures which are included in the sale; and
(2)to re-enter the [Property] on or before the settlement date to confirm compliance by the vendor with any agreement made by the vendor to carry out any work on the property and the chattels and the fixtures.
As has been seen, the Judge considered the clause gave Mr Yu the right to authorise a valuer to inspect the Property for the purpose of checking that Mr Yu was getting what he had agreed to pay for, but the Judge held the right had to be exercised in writing. There was no evidence of written authority being given to Mr Sprague; nor was there written authorisation of Mr Morrison. But while Mr Bradley had intended to allow Mr Yu and Mr Morrison to inspect the Property, he had not communicated that in a way that Mr Morrison “reasonably understood”.[46] So, “[f]rom Mr Yu’s reasonable perspective, Mr Bradley was denying him inspection. To that extent, Mr Bradley breached Mr Yu’s right of inspection.”[47] In summary, Mr Yu had been denied the right to inspect, but there had been no breach of cl 3.2 in respect of the denial of entry to Mr Sprague.
[46]At [26] and [60].
[47]At [60].
Mr Taylor submitted the Judge’s finding in respect of Mr Sprague was wrong in law. He argued that a “technical failure” to provide written authority did not invalidate Mr Yu’s right under cl 3.2 to inspect the Property with a valuer. He noted that Mr Sprague was present at the time of the proposed inspection with both Mr Yu and Mr Morrison, and clearly had authority from them to carry out the inspection. Mr Taylor submitted that the refusal to allow inspection had prevented Mr Yu from making an informed and genuine pre-estimate of loss on 14 February 2017, which was an important consideration in respect of a claim for compensation under cl 8 of the Agreement.
Ms Lanham, counsel for the respondents, argued that the contractual obligation to permit another person to inspect under cl 3.2 arises only upon the provision of written authorisation to the vendor. Such written authorisation is required for the purposes of notifying the vendor who must be permitted entry to the property. The requirement to provide a written authorisation could not be properly characterised as a mere technicality. We accept Ms Lanham’s submission that the requirements of cl 3.2 are not properly characterised as “technical” in nature. However, we consider the arguments on this issue misread the effect of cl 3.2, and there was no failure to comply with its terms. Properly construed, we think the clause does not preclude purchasers from taking others with them when exercising their right to inspect. That means Mr Morrison and Mr Sprague were entitled to inspect the Property together with Mr Yu as part of the exercise of Mr Yu’s right to inspect. No written authorisation was required. Such an authorisation would only be needed if the purchaser did not intend to inspect personally, but wanted others to do so on his or her behalf.
On the facts found by the Judge, Mr Bradley had formed the view, apparently on legal advice, that Mr Yu should not bring a valuer onto the land because he had no right to do so. That is consistent with the fact that, although it arrived after the event later that day, Ms Tait’s letter challenged the right of Mr Yu to be accompanied by a valuer during the inspection. Then, when Mr Sprague, Mr Yu and Mr Morrison were present, Mr Bradley told them they should leave and wait until Mr Morrison had spoken to Ms Tait. In the event, this was interpreted as an instruction not to proceed with the inspection and they left.
As the Judge acknowledged, Mr Bradley may have intended to allow a final inspection by Mr Yu without the valuer, but the Judge was not persuaded that had been communicated to Mr Morrison.
As the events unfolded, we agree with the Judge that Mr Bradley’s conduct could reasonably have been understood by Mr Yu, Mr Morrison and Mr Sprague as a refusal to allow any of them to inspect the Property. For this reason, and the additional reason set out above, we consider that in these circumstances Mr Bradley failed to comply with his obligation under cl 3.2 of the Agreement.
We assess the significance of that in the following part of this judgment.
Did Mr Yu have a claim for compensation under cl 8 of the Agreement?
This part of the case turns on the proper interpretation and application of cl 8 of the Agreement, which provided as follows:
8.0 Claims for compensation
8.1If the purchaser claims a right to compensation either under subclause 6.4 or for an equitable set-off:
(1) the purchaser must serve notice of the claim on the vendor on or before the last working day prior to settlement; and
(2) the notice must:
(a) in the case of a claim for compensation under subclause 6.4, state the particular error, omission, or misdescription of the property or title in respect of which compensation is claimed;
(b) in the case of a claim to an equitable set-off, state the particular matters in respect of which compensation is claimed;
(c) comprise a genuine pre-estimate of the loss suffered by the purchaser; and
(d) be particularised and quantified to the extent reasonably possible as at the date of the notice.
8.2 For the purposes of subclause 8.1(1), “settlement” means the date for settlement fixed by this agreement unless, by reason of the conduct or omission of the vendor, the purchaser is unable to give notice by that date, in which case notice may be given on or before the last working day prior to the date for settlement fixed by a valid settlement notice served by either party pursuant to subclause 11.1.
8.3 If the amount of compensation is agreed, it shall be deducted on settlement.
8.4 If the amount of compensation is disputed:
(1) an interim amount shall be deducted on settlement and paid by the purchaser to a stakeholder until the amount of the compensation is determined;
(2) the interim amount must be a reasonable sum having regard to all of the circumstances;
(3) if the parties cannot agree on the interim amount, the interim amount shall be determined by an experienced property lawyer appointed by the parties. The appointee’s costs shall be met equally by the parties. If the parties cannot agree on the appointee, the appointment shall be made on the application of either party by the president for the time being of the New Zealand Law Society;
(4) the stakeholder shall lodge the interim amount on interest‑bearing call deposit with a bank registered under the Reserve Bank of New Zealand Act 1989 in the joint names of the vendor and the purchaser;
(5) the interest earned on the interim amount net of any withholding tax and any bank or legal administration fees and commission charges shall follow the destination of the interim amount;
(6) the amount of compensation determined to be payable shall not be limited by the interim amount; and
(7) if the parties cannot agree on a stakeholder, the interim amount shall be paid to a stakeholder nominated on the application of either party by the president for the time being of the New Zealand Law Society.
8.5 The procedures prescribed in subclauses 8.1 to 8.4 shall not prevent either party taking proceedings for the specific performance of the contract.
As has been seen, the Judge held that Mr Yu had not served notice of a claim in compliance with cl 8.1(1) on or before 14 February 2017. Mr Morrison’s letter of 14 February 2017 had properly raised claims for compensation in respect of the Notice and wastewater system issues, but in respect of the issue concerning the Property’s boundary, the claim had only ever been raised as a conditional one.
On 15 February 2017, the settlement date, Mr Morrison wrote again to Ms Tait, outlining a claim for compensation under cl 8 in which the land value of the “encroached area” was said to be $120,000. This was said to be a genuine estimate of the loss suffered, which might increase once an inspection might be able to take place. But the compensation claim was expressed to be without prejudice to Mr Yu’s rights under the Contractual Remedies Act 1979, “and on the assumption, which assumption may be entirely incorrect, that the neighbour would be willing to sell the encroached area to [Mr Yu]”.
This letter was not of course sent “on or before the last working day prior to settlement”, as was required by cl 8.1. But in any event, it was again contingent on the Bramwells being willing to sell the affected land.
The key factual conclusion on which this part of the judgment turned was that there had been no conduct by the Bradleys that entitled Mr Yu, in accordance with cl 8.2, to give notice of a claim for compensation by a date after the settlement date. The Judge’s essential reasoning was contained in the following paragraphs of the judgment:[48]
[67] Mr Morrison’s letter of 14 February 2017, faxed to Ms Tait at 4.15 pm, gave notice of claims for compensation for the Fencing Act notice and the grey water system and foreshadowed a claim for compensation “in respect of the encroachment area”, while reserving Mr Yu’s right to elect to cancel the contract. Mr Yu’s evidence is that these two claims were minor and were not his major focus compared with the “encroachment”. But Mr Morrison’s letter of 15 February 2017 did not make a further claim for compensation. It expressed a claim conditional on “the assumption, which assumption may be entirely incorrect, that the neighbour would be willing to sell the encroached area to our client” and, again, without prejudice to Mr Yu’s right to cancel the contract. The conditionality was reiterated in the last paragraph of the letter which said “the above compensatory claim will not apply if the neighbour will not sell the encroached land”. If the Bramwells were not willing to sell, the letter said “our client will exercise its rights pursuant to section 7”.
[68] So the notice of the cl 8 claims for compensation in respect of the Fencing Act notice and the grey-water system were made in time but the purported claim in relation to the property boundary was only made conditionally and was not made in the time required under cl 8(1). It was never made unconditionally. For the purposes of the procedures and requirements of cl 8, the claim in relation to the boundary was not made at all.
[48]Judgment appealed, above n 1 (footnotes omitted).
Given the circumstances we see no basis to depart from the Judge’s finding that there had not been a valid claim to compensation on or before 14 February 2017. But a further key aspect of the Judge’s reasoning was his finding that Mr Yu was not prevented from making a compensation claim by virtue of Mr Sprague not being allowed to inspect the Property or as a consequence of Mr Bradley breaching his duty to allow Mr Yu to inspect the Property. That was because, in the Judge’s words, “after inspecting the [Property], Mr Sprague confirmed the quantification he had made before inspecting the [Property]”.[49]
[49]At [65].
We have already set out above the narrative relevant to this issue. Importantly, having viewed the Property from the Bramwells’ property, Mr Sprague advised Mr Yu on 15 February 2017 of an estimate of potential loss of amenity value of between $100,000 and $125,000, with a “midpoint” of $115,000. The Judge thought it was significant that when Mr Sprague subsequently inspected the Property on 21 February 2017, he confirmed that view.
Differing from the Judge, we have found that Mr Bradley wrongly refused to allow an inspection by Mr Sprague. The question is whether that refusal meant it was not possible for Mr Yu to give notice by the settlement date, with the result that he could give notice subsequently, in accordance with a settlement notice, as contemplated by cl 8.2. The Judge’s finding that Mr Bradley was within his rights to prevent Mr Sprague from entering the Property because Mr Sprague had not been authorised in writing was one of the reasons he gave for concluding that Mr Yu could not extend the time for giving notice of a claim under cl 8.2. But there were also two others.
One was that it was in fact possible for a genuine estimate to be made of the likely amount of any loss for compensation.[50] Given the close approximation between the $120,000 loss of amenity value suggested by Mr Morrison on 15 February 2017 and what was eventually, following inspection, said to be the appropriate sum, this shows that it was possible on 14 February 2017 to make a genuine pre-estimate of the loss in accordance with cl 8.1(2)(c) and to particularise and quantify it in accordance with cl 8.1(2)(d). It may be noted that Mr Morrison, writing on 15 February 2017, described the $120,000 figure as a “genuine estimate” of the loss, while noting that it might increase once the valuer had a proper opportunity to assess the position on the Property.
[50]See at [65]–[66].
The other reason was the conditional nature of the claim presented, expressed as being dependent on purchasing the relevant part of the land from the Bramwells which, at the time, was not something that had been explored.[51]
[51]See at [67]–[68].
Mr Taylor argued the reasoning adopted by the Judge reflected a narrow and restrictive interpretation of cl 8. It was, Mr Taylor said, plainly wrong to conclude that the failure to give an estimate of loss in a letter sent on 14 February 2017 meant that Mr Yu had not complied with the provisions of cl 8. Mr Taylor developed this argument by reference to the Supreme Court’s decision in Property Ventures Investments Ltd v Regalwood Holdings Ltd, noting in particular the Court’s observation that:[52]
… a vendor who does not permit a purchaser access to the property in order to inspect it and see what works are necessary to remedy the vendor’s default can hardly expect the purchaser to particularise its claim.
[52]Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231 at [78] per Blanchard, McGrath and Wilson JJ.
Mr Taylor noted that what is now cl 8 of the Agreement was introduced in response to Blanchard J’s observations in Regalwood that it should be possible to devise a mechanism allowing for speedy resolution of bona fide and reasonable claims for equitable compensation or set-off to protect each of the parties where doubt exists about the correct position.[53] Mr Taylor argued that against this background, cl 8 should be construed and applied in accordance with the object and purpose of protecting a purchaser’s right to abatement of the purchase price where there has been a breach of contract by the vendor.
[53]At [75] per Blanchard, McGrath and Wilson JJ.
Mr Taylor submitted this approach was reflected in Regalwood itself, where a lack of cooperation on the part of the vendor had prevented the purchaser from being able to quantify its claim and the Court held it was sufficient that the claim had been raised in substance. Mr Taylor argued that the equitable nature of the remedy, whether considered from the point of view of specific performance or equitable abatement, meant that a technical or inconsequential failure to comply with the provisions of cl 8 should not be allowed to defeat the remedy. In this case, the omission of an estimate in the 14 February 2017 letter claiming compensation and invoking cl 8 was readily understandable and the direct consequence of the refusal by the Bradleys to allow a full and proper inspection by Mr Sprague. Moreover, any deficiency was remedied the following day when a sum was stated as the compensation figure. That was the settlement day, and the issues raised meant there was no prospect of settlement taking place on that day. Consequently the failure to include a genuine pre‑estimate in the letter had no material effect on the Bradleys’ rights or on Mr Yu’s claim to equitable abatement. Mr Taylor was also critical of the Judge’s conclusion that the conditional nature of the claim for compensation meant that no compensation claim had ever been made. This was again characterised as reflecting a “narrow approach” to the construction of cl 8.
We think there is force in Mr Taylor’s submission that it was the conduct of Mr Bradley that prevented Mr Yu from being in a position to make a claim for compensation complying with cl 8.1 on or before 14 February 2017, the “last working day prior to settlement”. While Mr Sprague was able to view the Property from the Bramwells’ property that afternoon, he did not provide advice to Mr Morrison about the value of the land affected by the boundary issue until the following day. He then informed Mr Morrison that, “subject to an inspection of the Property, the range of the loss [is] likely to be $100,000 – $125,000” and suggested a figure of $115,000 be adopted “if required for the time being”. Mr Sprague also gave evidence that without going onto the land he could not genuinely assess the effect of the proposed fence on the visual amenity of the Property. This meant that when Mr Morrison returned to his office later that afternoon and wrote the letter we have earlier summarised, he too was not in a position to give a genuine pre-estimate of loss on 14 February 2017.
The Judge apparently reasoned back from the fact that Mr Sprague was able to give the $115,000 estimate on the following day to infer Mr Sprague could have given that same advice on 14 February 2017, and that Mr Morrison could then have included the compensation sum in his letter. However, given the events of that afternoon, it is not clear to us that there would have been time for Mr Sprague to consider and give his advice, and for Mr Morrison to have then incorporated the figure in his letter prior to 5 pm, the time for compliance under cl 1.2(2) of the Agreement.[54] In fact, as we have noted, Mr Sprague’s advice was not given until the following day. In all the circumstances we consider that Mr Yu was entitled to rely on cl 8.2 of the Agreement: Mr Bradley’s conduct meant it had not been possible for Mr Yu to give notice of the claim by the date for settlement, which meant that notice of the claim could be given “on or before the last working day prior to the date for settlement fixed by a valid settlement notice served by either party pursuant to subclause 11.1”.
[54]Mr Morrison’s letter of 14 February 2017 was sent at 4.14 pm.
We agree with the Judge however that the compensation claim was expressed on a conditional basis, and that remained the case when, on 15 February 2017, Mr Morrison included the $115,000 figure as an estimate of loss. The claim’s wording was such that it could not be regarded as a proper claim for compensation. On the view we have taken, however, that is not necessarily the end of the matter. Once the original settlement date had passed, either party was in a position to serve a settlement notice as contemplated by cl 8.2, with the effect of establishing a new date by which Mr Yu must serve notice of a claim for compensation. Because the Judge took a different view on the question of whether there had been conduct by Mr Bradley entitling Mr Yu to give notice of the compensation claim at a later date, he did not need to consider the effect of the settlement notice aspect of cl 8.2.
On this issue, however, Ms Lanham pointed out that the terms of the 14 February 2017 letter could not qualify as a settlement notice, because the letter did not require the Bradleys to settle with a deduction, but effectively to await a decision from Mr Yu as to whether he was going to affirm or cancel the Agreement. Mr Yu’s stance was that he would cancel the Agreement if he could not acquire the affected land. If he chose to cancel there would be no equitable set-off to pursue. Ms Lanham also relied on the fact the 15 February 2017 letter stated that the cl 8 compensation would “not apply” if the Bramwells did not sell the affected land. She further pointed out that Mr Yu took no steps to fulfil the condition. While Mr Morrison made an initial telephone inquiry on the afternoon of 14 February 2017, he confirmed in cross‑examination that he had never been instructed by Mr Yu to make an offer to Mr Bramwell. For his part, Mr Yu could not recall making an offer to purchase the affected land. So the conditional compensation claim never became unconditional.
We consider a valid claim made pursuant to the settlement notice provision of cl 8.2 is a claim by notice before settlement for the purpose of cl 8.1(1). Such a claim was foreshadowed in the letter of 14 February 2017, but not in fact made. That meant that Mr Yu could not make a claim for compensation under cl 8.1.
The events that followed have earlier been set out. In summary, there was an exchange of settlement notices on 16 February 2017 (by Mr Yu) and 20 February 2017 (by the Bradleys). There was also an exchange of correspondence between the parties’ solicitors in which they recorded their respective positions. On 10 March 2017 Mr Yu purported to cancel the Agreement. On 17 March 2017 the Bradleys gave notice that they were treating the cancellation as a repudiation entitling them to cancel the Agreement, and on 13 April 2017 they purported to do so.
Mr Taylor argued on the basis of the majority judgment in Regalwood that the right to assert an equitable set-off provides a lawful basis for a purchaser to decline to settle unless the vendor is prepared to recognise the claim. Here, he contended, the Bradleys had refused to recognise any rights of Mr Yu under cl 8, or to equitable adjustment of the purchase price as recognised in Regalwood, and had insisted on payment in full together with penalty interest. He claimed the Judge was wrong in these circumstances to conclude the Bradleys were ready, able and willing to perform their obligations under the Agreement at the time they issued their settlement notice on 20 February 2017 (effectively served on 21 February 2017), or when they purported to cancel the Agreement on 17 March 2017.
The Agreement was in the standard form adopted in 2012 as the ninth edition of the agreement approved by the Real Estate Institute of New Zealand and the Auckland District Law Society. Mr Taylor was right to submit that the terms of cl 8 represented the drafters’ response to the observations made by Blanchard J in Regalwood about the desirability of the standard-form real estate contracts containing:[55]
… a mechanism which will enable speedy resolution of bona fide and reasonable purchasers’ claims for equitable compensation or set-off and protect each of the contracting parties whilst doubt about the correct position remains.
[55]Property Ventures Investments Ltd v Regalwood Holdings Ltd, above n 52, at [75].
Contrary to the implication of Mr Taylor’s argument, cl 8 does not contemplate the preservation of an independent claim for equitable set-off outside the procedure established by the contract for the resolution of disputes between vendor and purchaser. That is plain from the words used in the chapeau of cl 8.1, namely “[i]f the purchaser claims a right to compensation either under subclause 6.4 or for an equitable set-off”. It follows too from the different requirements in cl 8.1(2)(a) and (b) about the content of the notice, for claims respectively under cl 6.4 and for equitable set‑off.
Clause 6.4 was in the following terms:
Except as provided by section 7 of the Contractual Remedies Act 1979, no error, omission, or misdescription of the property or the title shall enable the purchaser to cancel this agreement, but compensation, if claimed by notice before settlement in accordance with subclause 8.1 but not otherwise, shall be made or given as the case may require.
As has been seen, Mr Morrison’s letter of 14 February 2017 sought to give notice of a claim based on cl 6.4, and it was in respect of that claim that the Judge considered whether there had been proper notice as contemplated by cl 8.1. In this Court, Mr Taylor advanced both the cl 6.4 claim and the right to an equitable set-off. He said the latter right meant the Judge was wrong to hold the Bradleys were ready, able and willing to settle when they issued their settlement notice on 20 February 2017. But we consider that in the case of either claim, the mechanism established by the Agreement had to be initiated by the service of notice of the claim in accordance with cl 8.1(1). In the absence of a claim properly made under that clause, Mr Yu was obliged to settle in accordance with his obligations under the Agreement without any allowance for compensation. He would of course still be able to bring a claim for compensation after settling — but he had not properly invoked the cl 8 mechanism, so could not rely on that clause to reduce the amount paid to the Bradleys at settlement.
As already noted, Mr Yu’s settlement notice of 16 February 2017 recited that he was ready, able and willing to complete settlement, and had been since 15 February 2017. It required the Bradleys to permit inspection, vacate the Property, comply with their obligations under cl 8.0, and pay Mr Yu in accordance with cl 3.14(2)(a)(ii) “on or before 6 March 2016”.[56] The reference to cl 8.0 was not accompanied by any detail, and the notice as a whole did not give any particulars of a claim for compensation under either cl 6.4 or by way of equitable set-off. While some of the Judge’s reasoning suggests that he regarded the settlement notice as an attempt to pursue the claim for compensation under cl 8, it was not couched in the language, and contained none of the details, required for that purpose.
[56]The reference to payment under cl 3.14(2)(a)(ii) was to a requirement to pay interest for late settlement.
We note that on 6 March 2017 Mr Rooke in fact wrote to Mr Morrison seeking an explanation of what the reference in the notice to compliance with the Bradleys’ obligations under cl 8 was intended to mean, as no notice under cl 8 had been given:
You may perhaps in the Settlement Notice mean that the vendor is required to comply with a [notice] issued by the purchaser pursuant to Clause 8.0, but as you are aware, no such notice was issued in accordance with the provisions of clause 8.0. There was a preliminary indication in your letter of 13 February 2017, which included advice that an issue had arisen because there “has been a material misrepresentation as to the extent of the property”.
….
What did not follow from you was a formal notice, although your letter of 16 February 2017 marked “without prejudice” indicated what was to be taken into account as a compensation claim although with no total, and you also made this subject to the availability of inspection, which in any event took place on the following Monday 20 February 2017.
(Original emphasis.)
Inspection was then arranged for and took place on 20 February 2017, with Mr Sprague present. The Judge held that because the Bradleys had not allowed inspection earlier, they were in default under cl 1.1(33)(b), which provides that “a party is in default if it did not do what it has contracted to do to enable settlement to occur, regardless of the cause of such failure”. This meant that Mr Yu was not required to settle on 15 February 2017 because he had not had the opportunity to inspect the Property: he was not ready, able and willing to settle at that point, only because of the Bradleys’ default.
But, after the inspection, the Bradleys rejected Mr Yu’s settlement notice, pointing out that he could not rely on cl 8, and raising the issue of failure to give a notice as prescribed in cl 8. They issued their own settlement notice. It required Mr Yu to settle on or before 8 March 2017 and advanced a claim for penalty interest. The Judge considered this was a valid settlement notice, even if there was no entitlement to penalty interest.
Counsel for Mr Yu in the High Court submitted that because the Bradleys had made an unjustified claim for penalty interest, they were not ready, able and willing to settle at the time they issued the settlement notice. The Judge rejected that argument, holding that the position of the Bradleys was to be assessed after considering all the circumstances.[57]
[57]Judgment appealed, above n 1, at [75].
Ms Watt argued this issue on appeal for the appellants. She submitted that the Judge’s approach was wrong in law, relying for that submission on Stewart v Davis, in which Tipping J said:[58]
When condition 8.1 speaks of the party serving the notice being ready able and willing to settle in accordance with the notice, the condition must be drafted on the premise that the notice is contractually correct. A party cannot rewrite the contract by giving an erroneous notice.
If the vendor gives an erroneous notice he can hardly be regarded as ready willing and able to settle. Willingness to settle must be willingness to settle in terms of a notice which accurately reflects the contract. Such a construction seems to me to be necessary to make sense of the condition.
[58]Stewart v Davis [1995] 3 NZLR 604 (HC) at 609.
Condition 8.1 referred to in the above passage was a precursor of cl 11.1(2) of the Agreement in the present case, which provides that a settlement notice shall be effective only if the party serving it is at the time of service either in all material respects ready, able and willing to proceed to settle in accordance with the agreement, or is not so ready, able and willing to settle only by reason of the default or omission of the other party.
Tipping J referred in the course of his judgment to a decision of the High Court of Australia in Neeta (Epping) Pty Ltd v Phillips, in which the vendor had made an untenable claim in a settlement notice for interest on purchase money.[59] It had been submitted that the notice was nevertheless valid, because it sought settlement “in accordance with the terms of the agreement”, and the purchaser could and should have ignored the claim for interest. Barwick CJ and Jacobs J said:[60]
But this cannot be right. By the notice the vendor made the assertion that she was ready and willing to complete but at the same time by a second clause claimed the interest from the purchaser as a condition of completion. … She plainly showed thereby that she was not willing to complete in accordance with the terms of the agreement.
[59]At 610, citing Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286.
[60]Neeta (Epping) Pty Ltd v Phillips, above n 59, at 301–302.
However, we are not persuaded in the circumstances of this case that the claim for interest in the settlement notice served by the Bradleys demonstrated that they were not ready, able and willing to settle. We say this for a number of reasons.
First, when they served their settlement notice, the Bradleys had shown they were ready, able and willing to settle in two respects:
(a)They had complied with their obligation to enable Mr Yu and his agents to inspect the Property.
(b)They had offered deductions from the sum required to settle in respect of two of the three issues raised by Mr Yu: $4,166 in respect of the wastewater system and $1,500 towards the fence that was required under the Notice.
In accordance with the third issue raised by Mr Yu, concerning the boundary of the Property, as the analysis set out above shows, Mr Yu had not made a claim for compensation. The only issue to which Mr Yu can point as evidence of the Bradleys not being ready, able and willing to settle is the fact that their settlement notice contained a claim for interest, which they were not entitled to make due to a failure to give vacant position on the settlement date. In respect of this issue, a number of points can be made:
(a)First, the service of the settlement notice by the Bradleys was itself an indication that they wished to proceed to settlement.
(b)Second, there is no suggestion on the facts as we understand them that the claim for interest was included in the settlement notice other than because it was a claim which they thought they were entitled to make. In the event, they were not right about that. But the making of the claim cannot be seen as an indication that they would not settle unless the claimed interest was paid on settlement.
(c)Third, we see the present facts as different from those in the cases on which Mr Taylor sought to rely. In Stewart v Davis, the vendor made a claim the purchaser in possession should pay rent for the time he had been in possession of the property. But entitlement to that rent was not provided for in the agreement.[61] Similarly, in Neeta there was a claim for interest on purchase money that was also not based on any term in the agreement.[62] It is much more difficult to reconcile the claims made by the vendors in those cases with an assertion that they were ready, able and willing to settle in accordance with the terms of the agreement than it is here.
(d)Fourth, we consider the Judge was correct to observe that the amount a purchaser is required to pay to complete the purchase is governed by the contract itself, and not by the settlement notice. For this the Judge relied on Westpac Banking Corporation v Bhana, which Mr Taylor sought to distinguish on the basis the purchase price stated in the settlement notice in that case was affected by an error that both parties acknowledged.[63] But the principle stated is plainly correct — the amount required to settle must be determined in accordance with the contract. A settlement notice, unilaterally emanating from one of the parties cannot alter rights given by the agreement, and the proper course to follow if there is a dispute as to the amount is for the purchaser to tender what it believes is the proper contractual sum. Mr Yu never tendered valid settlement, and is left attempting to establish the Bradleys would not have settled without payment of the wrongly claimed interest by inference from the fact the claim for interest was made. The Judge was right to decline to treat the incorrect claim for interest as showing the Bradleys would not have settled in accordance with the Agreement, without insisting on payment of the incorrectly claimed penalty interest. Absent an unequivocal indication to that effect, tender of the correct amount was required.
(e)Finally, we note that Mr Yu’s own settlement notice made an unjustified claim for penalty interest. The Judge found that neither Mr Yu’s interest claim nor that of the Bradleys was sufficient to establish they were not ready, able and willing to settle for that reason alone.[64] We agree.
[61]Stewart v Davis, above n 58.
[62]Neeta (Epping) Pty Ltd v Phillips, above n 59.
[63]Westpac Banking Corporation v Bhana, above n 37, at [24].
[64]Judgment appealed, above n 1, at [75].
The importance of tendering the contractual sum was emphasised and explained by Blanchard J in Bahramitash v Kumar.[65] Writing for the Supreme Court, Blanchard J noted that a vendor’s settlement obligation to convey the property was interdependent with the purchaser’s obligation to pay in accordance with the contract.[66] It was for the purchaser to begin the process of settlement by transmitting the settlement sum to the vendor:[67]
Ordinarily … the vendor cannot be shown to have breached the contractual obligation to convey the property unless there has been a proper tender by the purchaser, and in response to that tender, the vendor has exhibited an inability or unwillingness to deliver the title and other documentation required in terms of the contract.
[65]Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577.
[66]At [16].
[67]At [17].
While a vendor might indicate by words or conduct that a contractually proper tender would be futile, that conclusion is not one to be lightly drawn. Save in the clearest cases, the prudent course to follow is for the purchaser to carry out a formal tender. The purchaser must prove that tender would have been impossible or futile at the time the tender was due. What is required is an unambiguous indication on the part of the vendor of not being ready to settle.[68] Mr Yu’s reliance on the Bradleys’ interest claim to establish they were not willing to settle is in effect an attempt to assert that tender would have been futile, but we consider the Judge was right not to reach that conclusion.
[68]At [20].
For completeness, we note that when the Bradleys finally took the step of cancelling the Agreement by a letter dated 13 April 2017, they did so on the basis that the notice of cancellation issued by Mr Yu was a repudiation of the Agreement entitling them to cancel under cl 11.4. Although his failure to comply with the settlement notice was referred to, it seems clear the cancellation was based upon Mr Yu’s repudiation. Plainly it was not based upon any failure to pay the erroneous claim for penalty interest made in the notice: in the absence of tender by Mr Yu the Bradleys were never brought to the position in which they had to consider whether to persist with that claim.
For all these reasons, we are not persuaded that the unjustified claim for penalty interest in the settlement notice demonstrated that the Bradleys were not ready, able and willing to settle at the time they issued the settlement of notice. We see no reason to disturb the Judge’s finding that, considering all the circumstances, the Bradleys were ready, able and willing to settle when they served their settlement notice. But Mr Yu was not. He was maintaining the stance that he would have the right to cancel the Agreement while purporting to preserve his conditional right to claim compensation if he was able to purchase the relevant part of the neighbouring property. Yet Mr Yu was required to settle under the terms of the Bradleys’ settlement notice by 8 March 2017, time being of the essence under cl 11.2 of the Agreement. In these circumstances, Mr Yu was not entitled to cancel the Agreement as he purported to do on 10 March 2017.
Although we have differed from some aspects of the Judge’s reasoning, that has not led us to any different view as to the appropriate outcome. We consider the Bradleys were able to treat Mr Yu’s purported cancellation as a repudiation of the Agreement, entitling them to cancel it in accordance with ss 36 and 37(1)(b) of the Contract and Commercial Law Act.
We note finally that by a memorandum filed on 25 May 2022, Mr Taylor drew our attention to the decision of the Supreme Court in Melco Property Holdings (NZ) 2012 Ltd v Hall,[69] which was decided while this judgment remained reserved. Nothing in that case causes us to depart from the reasons or conclusions set out above.
Damages
[69]Melco Property Holdings (NZ) 2012 Ltd v Hall [2022] NZSC 60.
The High Court awarded damages in the sum of $575,672.99. That figure was subject to deductions in respect of the retained deposit ($230,000), the costs related to the wastewater system ($4,166), the share of the potential costs of complying with the Notice ($1,500), and any costs incurred by the Bradleys from changing solicitors.
No issues concerning the particular damages sought were raised in the notice of appeal. However, Ms Lanham did not suggest that we should not deal with the argument and we proceed to do so.
Mr Taylor challenged four elements of the award. They were the sums of:
(a)$104,013.49 for interest and bank charges to service bridging finance on the property the Bradleys had agreed to purchase;
(b)$66,122.79 for interest and bank charges paid in respect of the Property before it was resold;
(c)$2,389.85 for transport and storage costs incurred while awaiting settlement on the purchase of the new property purchased by the Bradleys; and
(d)$4,024.11 in penalty interest the Bradleys had to pay to the vendor of the new property.
Mr Taylor submitted the High Court erred in awarding these sums on the basis they were reasonably foreseeable losses naturally arising from Mr Yu’s breach of contract. In this respect the Judge clearly intended to apply the so-called first limb of Hadley v Baxendale, asking whether the damages claimed were “such as may fairly and reasonably be considered as arising naturally, i.e. according to the usual course of things, from [the] breach of contract”.[70]
[70]Judgment appealed, above n 1, at [81] and [86], citing Hadley v Baxendale (1854) 9 Exch 341, 156 ER 145 at 151. The “second limb” refers to damages that “may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”.
Mr Taylor advanced two alleged errors by the Judge. First, he submitted the Bradleys had not claimed damages in respect of those costs under the first limb of Hadley v Baxendale. His argument on this point turned on the fact the damages claimed were pleaded as “special damages”. Mr Taylor submitted that in contractual claims, special damages cannot be sought unless they were within the specific contemplation of the parties at the time of the contract.
Mr Taylor’s second point was based on the absence of authority that damages for bridging finance are available under the first limb of Hadley v Baxendale. He submitted that bridging finance costs have only been awarded in cases where they were in the specific contemplation of the parties at the time an agreement for sale and purchase was executed. Here, the bridging finance costs, the costs associated with the purchase of the Bradleys’ new property, and interest on the loan on the Property, were not within the specific contemplation of the parties when the Agreement was executed on 12 November 2016. At that point, Mr Yu did not know the Bradleys were intending to buy another house or what the terms of the arrangements were. Mr Taylor submitted the finding made by the Judge that Mr Yu knew the Bradleys were intending to buy another house when he made the offer was not supported by the evidence; Mr Yu had not been informed the Bradleys were relying on settlement to complete the purchase of a new home until February 2017. Other facts relied on by the Judge occurred after the Agreement was agreed to and were irrelevant to assessing remoteness of damage. The costs were not claimable as “special damages”; nor should there be a general proposition that a purchaser of a property must contemplate at the time of entering an agreement for sale and purchase that the vendor will require the proceeds to purchase another home and had entered into an agreement to purchase in reliance on the sale already concluded. Mr Taylor pointed out the Bradleys’ counterclaim was not pleaded on that basis.
We do not consider there is anything in the first point. The case was tried on the basis of a counterclaim by the Bradleys which alleged that, as a result of Mr Yu’s repudiation of the Agreement, various losses had been suffered exceeding the amount of the retained $230,000 deposit. Various items were then set out under a heading of “[p]articulars”. Next, an overall figure was provided under a heading of “[q]uantum (losses minus deposit)”. Then, in the prayer for relief, the Bradleys claimed a declaration that they were able to retain the deposit, “special damages” of at least $343,423.19, interest, such other orders as the Court thought fit, and costs.
We do not read the pleading as advancing a claim for losses other than those that should have been in the reasonable contemplation of Mr Yu as arising naturally from his breach of contract. The damages sought were all in the category of losses arising naturally from a breach of a contract for the sale and purchase of land. They were not losses arising out of “special and extraordinary circumstances beyond the reasonable prevision of the parties”, where liability for the loss depends on “special facts … communicated by and between the parties”.[71]
[71]Monarch Steamship Co Ltd v Karlshamns Oljefabriker [1949] AC 196 (HL) at 221 per Lord Wright.
We do not see the pleading as evoking the second limb of Hadley v Baxendale merely because the word “special” was used in the prayer for relief. As Ms Lanham observed, a reference to special damages is sometimes made in pleadings when it is possible to refer to damages that can be quantified as a specific amount. On this issue it is relevant to note the discussion in McGregor on Damages concerning cases where damages are pleaded as special damages but are clearly not within the second rule in Hadley v Baxendale:[72]
The reason why these various items of damage have been held to be special for the purpose of pleading, although general for the purpose of liability, would seem to be that where damage has become crystallised and concrete since the wrong, the defendant could be surprised at the trial by the detail of its amount, although it is of a type which the defendant could expect as a consequence of the wrong …
[72]James Edelman (ed) McGregor on Damages (21st ed, Sweet & Maxwell, London, 2021) at [3‑005].
It seems clear that is the way the matter was put at the trial when Ms Lanham, in closing, quoted from D W McMorland’s Sale of Land:[73]
In other cases, though the losses are special to that contractual situation and the particular parties, they are such as were in the contemplation of both parties without any need for communication by one to the other. In these cases, actual contemplation by the parties is not required; it is enough that a reasonable person in the position of the defendants would have realised that the damages being claimed were not an unlikely consequence of the breach. A purchaser, for example, could be taken to contemplate that the vendor would be using the proceeds of the sale to purchase another home, and would likely have entered into an agreement to purchase in reliance on the sale already concluded.
[73]D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [12.40] (footnotes omitted and emphasis added).
So the claim was not put on the basis that what was sought were “special damages”, claimed under the second limb of Hadley v Baxendale, and we are satisfied in fact that the disputed heads of damage were reasonably foreseeable as naturally arising from Mr Yu’s breach of the Agreement.
Ms Lanham referred to a comparatively recent decision of the High Court of England and Wales in Conway v Eze, in which 15 months of bridging finance pending a likely resale was held recoverable because it ought reasonably to have been within the contemplation of the parties notwithstanding that the particular financial limitations of the vendor were not known.[74] The Judge in that case noted that it is:[75]
… very common that persons selling their home will need to look to the proceeds of sale to pay the purchase price of a new property and will need recourse to bridging finance if their own sale falls through.
[74]Conway v Eze [2018] EWHC 29 (Ch); aff’d [2019] EWCA Civ 88.
[75]At [165].
In fact this had been recognised much earlier in Johnson v Agnew, where Lord Wilberforce observed that “[m]any sellers of one property commit themselves concurrently to buying another: indeed to do so is often the main reason for the sale”.[76] These observations certainly reflect the reality of conveyances of residential property in New Zealand and the way it has been for many decades.
[76]Johnson v Agnew [1980] AC 367 (HL) at 391.
To a similar effect, the Queensland Court of Appeal in Mullins v Kelly-Corbett allowed a claim for bridging finance following cancellation of a sale and purchase agreement.[77] Muir JA (with whom the other judges agreed) said:
[47] The contract was for the sale and purchase of a dwelling house in which the vendor resided. A reasonable person in the position of the respondent would have realised that: the appellant was likely to have been moving from one dwelling house to another; a replacement dwelling would be likely to be purchased; it was likely that the net proceeds of sale under the contract would be applied by the respondent towards the purchase price of the new dwelling and that a necessity to obtain bridging finance and/or to meet losses incurred by the vendor of the replacement premises could result from a failure to settle under the contract. All of these possibilities were ones which should have been in the reasonable contemplation of both parties at the time of the contract as the probable result of the breach of it.
[48] … it is not necessary for the appellant to have been aware of the respondent’s financial and other contractual arrangements. The principles operate in relation to types of loss which a reasonable person would have had in contemplation.[78]
[77]Mullins v Kelly-Corbett [2010] QCA 354.
[78]Christopher Hill Ltd v Ashington Piggeries Ltd [1969] 3 All ER 1496 (CA) at 1524; and Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 (NSWCA) at 365–366.
We agree with that approach. The case of Janes v Benney, on which Mr Taylor relied, does not persuade us to the contrary.[79] In that case, on an application for summary judgment, Associate Judge Bell referred to cases in which bridging finance costs had been allowed to vendors under the second limb of Hadley v Baxendale, where it had been shown that such costs were in the contemplation of both parties as a probable result of breach when the contract was formed.[80] On the facts the Associate Judge was not satisfied “for summary judgment” that the purchaser knew the vendor would buy another house and incur bridging costs if the transaction did not settle.[81] For the reasons we have expressed above, we are not satisfied the present case is one where the disputed heads of damage were not reasonably foreseeable as naturally arising from Mr Yu’s breach of the Agreement.
Result
[79]Janes v Benney [2019] NZHC 1911, (2019) 20 NZCPR 722.
[80]At [25], citing Wadsworth v Lydall [1981] 1 WLR 598 (CA); and Callander v Murphy [1986] 1 NZLR 202 (HC).
[81]At [25].
For the reasons we have given the appeal is dismissed.
The appellants must pay the respondents’ costs for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Carson Fox Legal, Auckland for Appellants
Powle & Hodson, Auckland for Respondents
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