Yu v Bradley
[2017] NZHC 2816
•16 November 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-1125 [2017] NZHC 2816
BETWEEN JIN JUN YU
First Plaintiff
ANDREW INVESTMENTS (2004) LIMITED
Second Plaintiff
AND
DALE GORDON BRADLEY AND JILLIAN ANNE BRADLEY Defendants
Hearing: 1 November 2017 Appearances:
Mr T J G Allan for Plaintiffs
Ms R S Reed QC for DefendantsJudgment:
16 November 2017
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
16.11.17 at 3.30 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
YU & Anor v BRADLEY & Anor [2017] NZHC 2816 [16 November 2017]
[1] The plaintiffs apply for summary judgment under r 12.2(1) of the High Court Rules (“HCR”). In particular, the plaintiffs claim the return of a deposit of $230,000 paid pursuant to a contract for the sale of land entered into on 13 November 2016.
[2] The defendants, who were the vendors, claim to retain the deposit. They invoked the provisions of cl 11.4 of the contract, which provides as follows:
11.4If the purchaser does not comply with the terms of the settlement notice served by the vendors then, subject to subclauses 11(1)(3):
(1) without prejudice to any other rights or remedies available to the vendors at law or in equity, the vendors may;
(a) cancel this agreement by notice and pursue either or both of the following remedies namely:
(i) forfeit and retain for the vendors own benefit the deposit paid by the purchaser, but not exceeding in all 10% of the purchase price; and
(ii) Sue the purchaser for damages.
[3] The plaintiffs claim that they can avoid the above provision. They do so on the basis that the defendants were not entitled to cancel the agreement. In answer to that assertion, the defendants say that they were entitled to cancel and that the various arguments which the plaintiffs put forward are unsustainable.
[4] I must examine the validity of the cancellation notice which the defendants served on the plaintiffs on 10 March 2017, as well as the further cancellation notice that the plaintiffs gave on 13 April 2017.
[5] The disputes between the parties that led to the eventual cancellation were three in number. The plaintiffs had served a notice on the defendants on 13 February
2017 pursuant to cl 8.1 of the contract, claiming:
a) that there had been a misrepresentation of the extent of the property which was being sold by the defendants in the promotional marketing
literature, which was issued on behalf of the defendants as vendors in late 2016;
b) that the defendants did not disclose the existence of a Fencing Act
1978 notice which had been served by the owners of a neighbouring property; and
c) a wastewater system on the property was not functioning properly.
[6] The plaintiffs sought compensation for the above matters. In other words, they wanted an amount of money removed from the purchase price pursuant to cl
8.1.
[7] In response, the defendants issued a settlement notice insisting on payment of the settlement price in full without deduction.
[8] As the dispute between the parties developed, it was the first of the above matters that assumed primary importance. Before delving into the first matter, I will outline the relevant summary judgment principles.
Principles
[9] The plaintiffs apply for summary judgment under r 12.2(1) of the HCR. The rule states that “[t]he court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.”
[10] The plaintiffs must prove on the balance of probabilities that the defendants have no arguable defence. As the Court of Appeal in Krukziener v Hanover Finance Ltd phrased it, there must be no real question to be tried.1 It further commented:
[26] … The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].
or other statements by the same deponent, or is inherently improbable … In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it …
Misrepresentation of the area
[11] The marketing information showed that the property stood on a long sweeping lawn descending away to the north. However, part of the lawn area fell outside the title of the property. The defendants had occupied it by virtue of an informal agreement entered into with the neighbouring owners 10 years or so previously.
[12] The plaintiffs claim that when they entered into the agreement for sale and purchase on 13 November 2016, in terms of which they agreed to pay $2,300,000 for the property, they were not aware of the encroachment onto the neighbours’ property.
[13] The defendants, for their part, say that the plaintiffs had in fact been provided with pictorial representations of the land area, which on their face were inconsistent with what they apparently assumed was the extent of the property comprising the defendants’ title. The plaintiffs initialled those documents by way of acknowledging that they had been provided with them.
[14] In my view, it is beyond argument that for the purposes of this summary judgment application, there is a substantial dispute as to whether or not the plaintiffs entered into the contract in circumstances where they were materially misled by the marketing information that they had been provided with.
[15] The plaintiffs, however, say that the real issue in this case is not whether there was a misrepresentation inducing the plaintiffs to enter into the agreement. The key to understanding the case, in the lucid argument which Mr Allan put forward on behalf of the plaintiffs, lies in understanding what remedies the parties have available to them in circumstances where there is a dispute as to the extent of the area of the land sold.
The issue concerning the legitimacy of the cancellation by the plaintiffs
[16] A substantial issue in this proceeding is whether the plaintiffs legitimately cancelled the contract. The argument involves considerations of whether the plaintiffs were entitled to cancel at a point where they were asserted to be in breach of the contract themselves. In specific terms, the argument is that the plaintiffs were subject to a notice to settle which required settlement at the full purchase price.
[17] The defendants submit that the plaintiffs could have sought an abatement of the purchase price payable. But they were not able to and did not qualify for an abatement regardless.
[18] The case for the defendants is that the foregoing contention is justified on the following grounds:
a) there was in fact no misrepresentation of the land area which was the subject of the land;
b)any misdescription of the kind that is alleged by the plaintiffs2 does not qualify as a misdescription which would justify the plaintiffs cancelling the agreement; and
c) the plaintiffs did not particularise the claim for compensation as required by cl 8.
Defendants entitled to serve settlement notice requiring settlement at full price?
[19] The case for the plaintiffs is that when the defendants served their settlement notice, they were not compliant with their obligations under the agreement. That was because they were attempting to enforce a settlement on the basis that the plaintiffs would pay the full price for the property without abatement. The plaintiffs submit that they were not entitled to do that because of the misrepresentation and
other matters they allege.
2 That is, arising extra to the agreement for sale and purchase.
[20] For their part, the defendants say that they were entitled to ask for the full price because the plaintiffs had not taken the necessary steps to justify an abatement of the purchase price.
[21] The question of whether the plaintiffs are correct or not depends upon matters of background which now need to be further analysed.
The position of the plaintiffs in regard to a claim for abatement
[22] The contentions that Mr Allan put forward on behalf of the plaintiffs were that he did not need to establish that there had been a misrepresentation in this case. Mr Allan said that it is enough that, being of the view that there had been a misrepresentation, the plaintiffs invoked the compensation provision in cl 8 of the agreement. He further submitted that the fact that the actions on the part of the plaintiffs, in so doing, did not result in an amount being put forward for compensation was because of the defendants’ further breaches of their contractual obligations. The plaintiffs allege that they could not form an estimated cost of remedying the breaches in accordance with the agreement because their valuer was denied access to the property to form an estimate on that subject.
[23] In not dissimilar circumstances where a purchaser was prevented from accessing a property for the purpose of evaluating a claim for abatement in Property Ventures Investments Ltd v Regalwood Holdings Ltd, the Supreme Court concluded that the purchaser could not be reproached for not providing a reasonable estimation of the extent of compensation sought when that failure was due to the actions of the vendor.3 I shall examine this issue next.
The alleged obstruction by the defendants preventing compliance with cl 8
[24] The plaintiffs’ contention is that on 14 February 2017, which was the day before settlement, their solicitor together with a registered valuer visited the property. They visited with a view to forming an estimate of the loss to the plaintiffs resulting from the claimed overstatement of the area of land that was comprised in
the title. However, the plaintiffs say that they were declined entry.
3 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3
NZLR 231 at [79].
[25] A number of questions arise from this evidence.
[26] In the first place, the plaintiffs contend that it must have been the intention of the parties when agreeing to the plaintiffs having a right to inspect the property pursuant to cl 3.2 of the contract, that the right extended to the plaintiffs being entitled to bring an expert onto the property to assist them formulate their position in regard to the dispute that had arisen over the alleged overstatement of the area of land that was included in the contract.
[27] Clause 3.2 of the contract provides:
3.2If the property is sold with vacant possession, then subject to the rights of any tenants of the property, the vendors 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 or with any agreement made by the vendor to carry out any work on the property and the chattels and fixtures.
[28] The plaintiffs take the view that the literal wording of this clause, referring as it does to an entitlement on the part of the plaintiffs to authorise any person in writing to come onto the property on reasonable notice, entitled the plaintiffs to bring with them to the property a valuer, which is exactly what they did. Arguments may exist concerning the scope of that right. Was it for the purpose of checking to ensure that what the plaintiffs had bargained to buy would actually pass under the contract or could it extend to inspections for the purpose of formulating the right to compensation by way of abatement? In the end, it is not essential for me to provide a definitive answer in respect to that matter but had I been required to do so, I would have taken the view that a reasonably expansive meaning should be attributed to the provision. If there was a right generally to visit the property for the purposes of the contract, and if the contract contains an entitlement to claim an abatement, it could hardly be claimed that the presence of the valuer on the property for the latter purpose was extraneous to the subject matter of the contract.
[29] However, it needs to be borne in mind that the present claim is one for summary judgment. In that context, there is another aspect of the dispute which in my view defeats the claim of the plaintiffs.
[30] The reason why the plaintiffs make reference to the right to inspect is the following. Arguments have been put to the court by Ms Reed QC that no figure for compensation was ever put forward by the plaintiffs. She says that it was essential, if the plaintiffs wanted to raise a valid claim for compensation and have that claim determined by the machinery provisions in cl 8, for the plaintiffs to actually state what amount was sought in regard to compensation.
[31] In answer to those contentions, Mr Allan submitted that while it might generally be so that a definite figure needed to be put forward, in the present case, the plaintiffs were absolved from doing so because the conduct of the defendants, in breach of the contract, prevented them from so doing. The substance of this submission was that the defendants could not have given a valid cancellation of the contract on these grounds because they would be taking advantage of their own wrong, namely denying the plaintiffs’ valuer access to the property.
[32] I agree that it is necessary for a party who wishes to claim an abatement of the purchase price to put forward its claim.4 It is at least arguable that a purchaser in the position of the plaintiffs in this case is excused from so doing where he has been prevented from formulating a figure for compensation because of a possible breach of the contractual obligation to allow him and his expert to visit the property.
[33] I consider that it is not reasonably arguable on the part of the defendants that they did not prevent the valuer obtaining access to the property. However, there is a factual dispute between the parties as to whether the denial of access actually led to an inability of the plaintiffs to formulate a claim for abatement of the purchase price by way of compensation. Brief consideration of the evidence is required in order to
determine this point.
4 Property Ventures Investments Ltd v Regalwood Holdings Ltd, above n 3, at [78].
Compliance with cl 8
[34] If a party to an agreement for sale and purchase claims that there has been a misrepresentation, he or she is able to set in motion the procedures under the standard form agreement for settlement subject to an abatement of the purchase price. The party doing so must comply with cl 8, which sets out the procedure that is to be followed.
[35] Part of the procedure involves giving a notice which must:
(o) comprise a genuine pre-estimate of the loss suffered by the purchaser; and
(p) be particularised and quantified to the extent reasonably possible as at the date of the notice
[36] Before considering whether the defendants caused a failure on the part of the plaintiffs to comply with cl 8, it is necessary to observe that the procedure which is set out in cl 8.1(2)(p) is not a particularly stringent one. It speaks of reasonableness being the yardstick. As well, if the estimate which the purchaser adopts ultimately turns out to be too little, that is not fatal to its position.
[37] The procedure which the parties are required to follow is that they will either agree on the extent of the deduction from the settlement money that is required on account of compensation or they will invoke the processes in cl 8 which cater for the situation where the parties are unable to agree on the matter. If they do invoke the dispute mechanism, and it later turns out that a greater amount of compensation was required than was directed by the person carrying out the interim assessment, that will be no bar to the purchaser claiming a higher amount. That is because cl 8.4(6) states that the amount of compensation determined to be payable shall not be limited by the interim amount. The process is designed to provide for the retention of an amount that approximately represents the loss of the purchaser, and is not intended to represent a last opportunity to assess the amount of contribution required.
[38] If a party in the position of the purchaser underestimates the amount of interim compensation that ought to be provided, that is likely to provide a ceiling which the referee to be appointed under cl 8.4(3) would be unlikely to exceed. That
would mean that the interim protection obtainable by the purchaser receiving an amount from the settlement price may not fully protect the purchaser in the sense of securing his or her position at settlement. There may still be an additional claim available to the purchaser pursuant to cl 8.4(6) but in regard to that amount the purchaser would be, in a sense, “unsecured”. This confirms the provisional or approximate nature of the amount to be deducted from settlement.
[39] As well, the “genuine pre-estimate” and the requirement to prepare an estimate particularised and quantified to the extent reasonably possible would not seem to require the purchaser to run the risk of erring on the side of conservatism when giving his estimate.
[40] In this case, the plaintiffs discovered, they allege, on 8 February 2017 that the extent of the property that they understood they were buying was overstated, in that part of the land shown to them as being what they would acquire under the contract instead belonged to a neighbour, the Bramwells. The plaintiffs then had up until the settlement date, which the parties agreed was 15 February 2017, to give a notice claiming compensation under cl 8.
[41] The plaintiffs did not provide the notice by 15 February 2017. On 16
February 2017, their solicitor served on their behalf a notice which, amongst other things, required the defendants to:
(c) comply with your obligations pursuant to clause 8.0.
[42] It is accepted for the plaintiffs that there was no compliance with the cl 8 time limit for making a claim for abatement, namely 14 February 2017. The plaintiffs say that they were not able to comply with the time limit because when their solicitor and nominated valuer, Mr Sprague, called at the property on 14 February, the defendants told them that they were not welcome and must leave.
[43] On 15 February 2017, the solicitor for the plaintiffs sent a notice which dealt with, amongst other things, a claim for compensation in regard to the asserted encroachment. The notice said so far as significant:
(r) in respect of the encroached area of the land value is $120,000. 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…
...
(s) the above compensatory claim will not apply if the neighbour will not sell the encroached land stop 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 than our client will exercise its rights pursuant to s 7.
[44] Subsequently, the valuer who had been engaged for the plaintiffs swore an affidavit. Mr Sprague said that when he visited the property on 14 February:
18. In order to give a genuine estimate of loss (if any), I had to undertake a site visit of the property. This is because, quite aside from this being a requirement of the Valuers’ Code of Ethics , I also had to be able to place myself in the position of seeing and experiencing feeling the view perspective which an interested purchaser visiting the property, armed with the marketing literature distributed by the vendor or, would have adopted. I would not have provided an estimate unless I first undertook a site visit.
[45] Subsequently, after having to leave the defendants’ property, Mr Sprague was able to view the property from the neighbours’ property, that is the Bramwells. Mr Sprague attempted to envisage what the property would look like on the basis that the neighbour would take back the encroached area and would fence it in deer fencing. He described the view with that eventuality in mind, citing an intrusion into the lawn in a V shape. He concluded that:
35. While not then in a position to then genuinely assess how it would do so, I did form the impression that the fence would comprise the ambience and amenity value of the property to some degree. Certainly it would do so by comparison to its presentation on the marketing literature compared to how I imagined it would present.
[46] He said that, on 15 February 2017, he informed the solicitor for the plaintiffs
that “subject to an inspection of the property, the range of loss was likely to be
$100,000-$125,000 and suggested the figure of $115,000 be adopted if required for
the time being”.
[47] As it turned out, Mr Sprague was able to return to the property on 20
February 2017 and was able to carry out the inspection of the site. After he had done
so, Mr Sprague said that he came to the view that a correct estimate of the loss of use and loss of amenity ranged between $100,000 and $125,000.
[48] For the defendants, Ms Reed criticised the claims that the plaintiffs had been unable to provide the genuine estimate of loss by the date when it was due, 14
February 2017. She said that the plaintiffs had been provided with copies of survey plans and diagrams of the property long before 14 February 2017, which would have shown them, if they had considered them properly, that there was an incursion into the property which was shown as being the lawn. She said that the evidence was such that it must be accepted that the plaintiffs had this material before they committed themselves to making a counteroffer and before the time had expired for their solicitor to approve the contract.
[49] Overall, Ms Reed made two broad submissions. The first was that the plaintiffs had had more than adequate time to form a view about the effect of the encroachment onto the land and the fact that they had elected to leave it until the last minute to obtain an estimate of loss of value, with the result that they missed the deadline of 14 February 2017, was entirely their fault and not that of the defendants. The second point was that all that the plaintiffs had to do to activate the cl 8 procedures was to provide a genuine estimate and, even without having access to the property, which would have enabled the valuer to look down the slope of the lawn, it would have been possible for him to reach a view of what loss of value would have resulted from the encroachment. She said the fact that the estimate, which he gave following his inspection on 14 February, coincided with his final position that he arrived at after viewing the property prove the point. Even if the defendants had owed an obligation to allow Mr Sprague to come onto the property on 14 February, that did not frustrate the operation of cl 8.
[50] It was her contention, therefore, that even if there had been a theoretical obligation on the part of the defendants to allow the valuer onto the property, it was quite possible for the plaintiffs to put forward a genuine estimate of loss even in the absence of access to the property. Therefore, the failure to comply with the time requirements for cl 8 did not result from the breach of contract argued for by the plaintiffs.
[51] My conclusion is that it is not unreasonable to interpret the contract in such a way that a purchaser who is exercising the right to inspect the property ought to be able to do so in the company of an expert such as a valuer. It is difficult to see that there could be any argument justifying a restrictive interpretation of the contract to the contrary. It is possible to imagine cases where an expert brought onto the property might cause detriment or harm to the land. For example, a good argument could be mounted that the right of access should not be construed as extending to a building expert who carried out invasive testing while on the property. But it is difficult to see that there is any objection of a similar kind in regard to a registered valuer visiting the property.
[52] However, in my view, despite the protests of the plaintiffs, the fact that the valuer was asked to leave the property did not materially affect his ability to carry out the required genuine estimate of the degree of financial loss which the plaintiffs were likely to have suffered. I consider that the submissions which Ms Reed has put forward are correct and that it was not impossible for Mr Sprague to prepare an estimate which satisfied the not altogether onerous requirement that the purchaser provide a genuine estimate of loss.
Availability of defence of equitable set-off
[53] The complaint which the plaintiffs brought was at least arguably not a matter of an error or misdescription within the meaning of cl 6.4. That left open to them, though, a right to require a deduction from the settlement amount to be tendered on the ground that they had an equitable set-off.
[54] But the entitlement to claim an equitable set-off as a basis for compensation requires that notice must be given on the last working day prior to settlement. This was not done. Therefore, even if the plaintiffs could have potentially overcome the difficulty that the misrepresentation was not caught by cl 6.4, not being an error or misdescription, they still needed to formulate their estimate of loss for the purposes of an equitable set-off in the time limit prescribed in cl 8.1. They did not do so and in my judgement, it is arguable that they cannot complain that they were prevented from complying with that time limit because of a breach of contract on the part of the defendants.
The effect of the cl 8 issue on the outcome of the proceeding
[55] This matter comes before the court by way of a summary judgment application. It would be wrong for the court to enter judgment on that application in circumstances where the defendants have a reasonably arguable defence. A question that needs to be resolved, therefore, is whether the dispute over cl 8 gives rise to such an arguable case or whether the issue should be resolved by accepting that there was no reasonable answer to the contentions which the plaintiffs put forward.
[56] The plaintiffs eventually served a notice on the defendants on or about 10
March 2017. The notice recorded a number of matters which went beyond simply stating what the position of the plaintiffs was. It included a lengthy justification of the plaintiffs’ position.
[57] The document asserted in effect that the defendants had placed themselves in breach of their contract by failing to cooperate in the process of fixing an amount by which the purchase price could be abated, for the purposes of settlement in recognition of the disputes between the parties concerning the encroachment and the other issues. I will deal with the other issues shortly, which involve the effect of warranties concerning a fencing notice and the wastewater plant.
[58] However, in relation to the encroachment matter, the cancellation notice stated that the case was covered by the authority of Property Ventures.5 It was said that by issuing a settlement notice for the full unabated price, the defendants were not in material respects ready, willing and able to settle in accordance with their contractual obligations. It was said that the defendants were not therefore entitled to issue a settlement notice. In turn, the defendants had not complied with the
plaintiffs’ settlement notice which called upon them to, amongst other things, “comply with the vendor’s obligations under clause 8 of the agreement”.
[59] In my assessment, it is arguable for the defendants that the basis for cancellation is not sufficient having regard to the matters that I have noted that Ms
Reed put forward concerning the failure to comply with cl 8. It may be that in due
5 Property Ventures Investments Ltd v Regalwood Holdings Ltd, above n 3, at [83].
course if the matter goes to trial, the plaintiffs will prevail on this point in that the court would agree that any non-compliance with the time limit in cl 8 came about as a result of the breach of contract of the defendants, who should not therefore be entitled to take advantage of their own wrong. If that were to happen, it would seem that the components in the argument which the plaintiffs put forward justifying cancellation could be upheld. But as I say, on a summary judgment basis, I am not prepared to accept that there is no dispute in regard to the non-compliance with cl 8.
[60] Clause 11.4 sets out the entitlement of the vendor to forfeit the deposit, a right which comes into existence where the purchaser does not comply with the terms of the settlement notice served by the vendor. It would seem to be arguable that the position of the defendants on the settlement notice is correct, rather than that of the plaintiffs. They would be able to establish their entitlement to forfeiture of the deposit. That is to say, if the defendants were entitled to issue a settlement notice which called for settlement on the basis that there be no deduction from the purchase price, then the conclusion is likely to be that the plaintiffs had no right to cancel the agreement. That in turn would support the position of the defendants as set out in the notice of cancellation, which they served on or about 13 April 2017, and in which the following statement was made:
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…
[61] In my assessment, it may well be possible for Mr Sprague to put forward what would pass muster as a reasonable estimate of the loss of value after the visit on 14 February 2017. I agree that there is force in the fact that when he had additional time to consider the matter, and had actually visited the property to assess the effect on the view which the fence would have, he came to approximately the same opinion that he had after the visit on 14 February.
[62] Even on the basis of the limited material presently before the court, it becomes apparent that a decision about which party is in the right on the question of whether the defendants prevented the plaintiffs from complying with the requirements of cl 8 is not a matter that can be appropriately determined on a summary judgment application.
The settlement notices
[63] The settlement notices which were issued on either side lie at the heart of the question of whether the defendants were in breach of the contract or repudiated its terms by not complying with the settlement notice which the plaintiffs provided.
[64] The argument for the defendants is that they were not the parties who were in default. Their contention is that they served a valid settlement notice which the plaintiffs did not comply with.
[65] The settlement notice required payment in full. This settlement notice left the plaintiffs with no doubt as to what was required in order to settle.
[66] The notice which the plaintiffs served on the defendants was not what would usually be regarded as a settlement notice. It apparently intended to make time of the essence for the defendants to provide access to the property for what the plaintiffs considered was a further inspection which was mandated by the terms of the agreement.
[67] The notice that the plaintiffs served required the defendants to conform to what the plaintiffs considered was the requirements incumbent upon the defendants, namely allowing an inspection of the property by the plaintiffs together with their valuer. The reasoning of the plaintiffs and their advisers was that unless such an inspection was carried out, it would be impossible for them to activate the mechanism which provided for retention of part of the settlement funds pending resolution of the dispute between the parties.
[68] Whatever the reason for issuing a notice in the form which the plaintiffs adopted, it did not assist the plaintiffs in establishing that the defendants were
repudiating their obligations under the contract. That is because the failure of the defendants to permit a second inspection was arguably not the cause of the plaintiffs failing to activate the cl 8 procedure. Putting it another way, the plaintiffs’ settlement notice purported to impose a requirement which was not justified and therefore the defendants by disregarding that notice were within their rights. Arguably, they were not in breach of any contractual obligation.
The wastewater and fencing notice issues
[69] There remains to be discussed what effect the issues about the wastewater system and the fencing notice have on the dispute.
[70] The Fencing Act notice requires the party served to contribute the sum of
$3,000 as part of the cost of reinstating the fencing between the encroaching section of the neighbouring property and the defendants’ property. The wastewater system, I accept, was not operating effectively prior to and as at the settlement date provided for in the agreement.
[71] The plaintiffs have advanced the claim that the purchase price should likewise be abated on account of these two matters. The plaintiffs invoke the provisions of cl 6.4 of the contract.
[72] In this case, there is no dispute that if the notice were effective, it was given in adequate time, namely on the day before settlement. The notice required the reduction of the purchase price by an amount equivalent to the amount claimed in the fencing notice and, in regard to the wastewater system, the cost of replacement thereof, which was stated to be $13,403.15.
[73] It is disputed for the defendants that the plaintiffs were entitled to claim an abatement of the purchase price in regard to these two matters. An abatement can only be justified on the grounds that the matter involved falls within the provisions of cl 6.4 of the agreement, which provides:
6.4 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.
[74] I agree with counsel for the defendants that any warranties in respect of these two matters come within cl 7 of the contract and are warranties that speak from the date of settlement, not from the date of the contract, which is what cl 6 is concerned with. Therefore, the right to claim abatement under cl 6.4 does not apply.
[75] The provision which generally governs the right to compensation is to be found in cl 8, to which reference has already been made. Clause 8.1 provides that there is an entitlement for compensation because the matter which is the subject of the claim comes within cl 6.4. But it also extends to claims for compensation pursuant to an equitable set-off. It is still necessary to give a notice requiring compensation on the last business day prior to settlement in the case of an equitable set-off. In the present case, that appears to have been done at least in regard to the wastewater issue and the Fencing Act notice.
[76] The question is whether the plaintiffs could rely upon those matters as grounds for cancelling the contract, as a result of the defendants not accepting that they had any responsibility on settlement to make a deduction in regard to them.
[77] Mr Allan submitted that this was plainly a case where there was an entitlement to an equitable set-off.
[78] At the point where the plaintiffs served the settlement notice on 16 February
2017, it was clear that it was their intention that settlement would not be for the full amount of the purchase price less the deposit.
[79] What the contract contemplated was that when settlement took place, there would be one amount tendered by the plaintiffs. There would be deducted from that settlement all, and not just some, of the deductions which were available to the plaintiffs. However, that point was never reached. It was the case for the plaintiffs that they were able to make deductions for three separate items. Once they had reached the point where they could total what those deductions came to, they would be in a position to activate the dispute mechanism, which would then have the effect
of requiring them to pay the disputed amount to a stakeholder. It would not be until all of those items had been made the subject of a genuine estimate, that the plaintiffs would be able to settle the sum of money that they would tender on settlement.
[80] The estimate of what was required to be deducted in regard to the wastewater and fencing notice may have been rather more straightforward than the question of deduction in regard to the alleged misrepresentation. But the key point is that it was the total of all the deductions which had to be arrived at. The fact that the plaintiffs claim that they had a separate deduction available in respect of the wastewater system, and another one in respect of the fencing notice, does not mean that they had other reasons which would justify their failure to settle which were separate from and additional to the misrepresentation of area claim. It was never the case that the plaintiffs gave notice to the defendants that they would settle for a sum reduced by the amount of the Fencing Act and wastewater claims only. It was always intended that they would only be part of a composite set-off. However, the amount of that intended set-off was never reduced to monetary terms. So, even if the plaintiffs may have had an entitlement in regard to the Fencing Act and wastewater claims, that did not on its own arguably justify them not complying with the settlement notice that the defendants’ solicitor served upon them.
[81] For those reasons, it does not seem to me that there is any need to consider the other set-off’s in regard to the wastewater and fencing separately. They do not materially alter the entitlement of the plaintiffs to seek cancellation of the agreement for sale and purchase and return of the deposit.
Conclusion
[82] The conclusion that I have come to is that it is reasonably arguable for the defendants that responsibility for the plaintiffs’ failure to comply with the requirements of cl 8 rested with them alone. Because they did not successfully invoke the provisions of cl 8 in the time allowed for that to happen, they were not entitled to insist on a deduction from the settlement amount required under the contract. The fact that they did so meant that they were evincing an intention not to settle in accordance with the contract. An entitlement thereby arose on the part of the defendants to cancel the contract, which they did. If it is arguable that the
contract was correctly cancelled by the defendants, then it is not open to the plaintiffs to seek the return of the deposit. Stating matters conversely, it is arguable that the defendants have the right to retain the deposit.
[83] For all of those reasons, the summary judgment application is dismissed. The parties should confer on the question of costs. It would be helpful if they also conferred on the steps that are going to be necessary in order to progress this proceeding from this point and that they advise the court on both these points by a
concise memorandum/a within 15 working days of the date of this judgment.
J.P. Doogue
Associate Judge
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