Zhang v Zhao
[2019] NZHC 526
•21 March 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-1357
[2019] NZHC 526
BETWEEN YAPING ZHANG
Plaintiff
AND
JUNJIE ZHAO
Defendant
Hearing: 18 March 2019 Appearances:
D K Wilson for the Plaintiff
B P Rooney for the Defendant
Judgment:
21 March 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 21 March 2019 at 4.00pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel: Loo & Koo, Auckland B Rooney, Auckland
ZHANG v ZHAO [2019] NZHC 526 [21 March 2019]
[1] This is an application for summary judgment by the plaintiff (Mr Zhang). He says that he sold a property to the defendant (Mr Zhao) under an unconditional sale agreement, but Mr Zhao failed to complete the purchase. Mr Zhang says that he then cancelled the contract and resold the property. He sues Mr Zhao for the loss he incurred on the resale, and various other losses. He says that Mr Zhao has no defence to his claim, and asks for summary judgment on it.
Background
[2] Mr Zhang was at all material times the registered proprietor of a property situated in The Drive, Epsom (the property). On 10 November 2016 Mr Zhao agreed to purchase the property from Mr Zhang. The agreement for sale and purchase (the Agreement) was made immediately following an auction conducted on 10 November 2016, at which the property had been passed in after the bidding had reached a figure of $3.1 million. Mr Zhao agreed to purchase the property for $3.16 million, and paid a deposit of $158,000.
[3] Mr Zhao says that he had only been taken to see the property on the day of the auction. Barfoot & Thompson were the agents, and Mr Zhao says that Owen Zheng of that firm took him to see the property. Mr Zhao knew Mr Zheng from an earlier auction sale at which he had not been the successful bidder. Mr Zheng knew that he was interested in large residential subvisible sites. Mr Zhao says he had no prior knowledge of the property.
[4] Mr Zhao's evidence is that he received marketing material from Barfoot & Thompson before the sale, in which the property was described as "Your next development project to build multiple brand new houses". He says that Mr Zheng told him that three stand-alone houses, or five townhouses, could "definitely" be built on the property, which had an area of 1,053 square metres.
[5] Mr Zhao says that he was not provided with any information memorandum or LIM report before or at the auction.
[6] Owen Zheng was unable to attend the auction, so he introduced Mr Zhao to a Barfoot & Thompson colleague, Mr Wayne Guo. Mr Guo accompanied Mr Zhao to
the auction. Mr Zhao said that Mr Guo repeatedly told him, throughout and following the auction, that the property could be subdivided into three stand-alone houses or five terraced houses.
[7] On 13 November 2016 Mr Zhao met with Mr Ivan Siu, a licensed surveyor, to discuss subdividing the property. Mr Siu immediately raised the issue of the property being subject to flooding. He told Mr Zhao that he would undertake a topographical survey of the site, and he recommended that Mr Zhao obtain a flood risk assessment from a Mr Li of EQ Engineers Consulting Ltd.
[8] Mr Li's flood risk assessment was sent to Mr Zhao on 16 January 2017. It showed that the flood level was about 2 metres higher than the ground level over most of the site. Mr Siu's view, given to Mr Zhao on 1 March 2017 after he had reviewed Mr Li's flood risk report, was that Mr Zhao would not be able to construct any new buildings on the front of the site. Mr Siu then discussed the matter with Mr Li, and confirmed to Mr Zhao his view that no building could be constructed on the front part of the section. That meant that it would not be possible to construct three stand-alone houses, or five terraced houses, on the property.
[9] Mr Zhao had Mr Li's flood risk assessment peer-reviewed by Babbage Consultants, but the result was the same — if anything, the flood risk was worse than that assessed by Mr Li.
[10] Mr Zhao sought further advice from a land development consultant, Mr Knarston. The advice was the same as that given by Mr Siu, but Mr Knarston also said that it would not be possible to construct a driveway from the street frontage to give access to the rear part of the site, because the driveway would have to be 2 metres higher than the level of the street.
[11] Mr Zhao said that he did not know what to do. He asked Mr Zhang to put the property back on the market for sale, which Mr Zhang agreed to. Mr Zhao then put the property on the market, but he could not sell it.
[12] After he found out about the present claim against him, Mr Zhao contacted Owen Zheng. Mr Zheng told him that Barfoot & Thompson had a copy of a LIM report, which referred to the flooding issue, before the auction. Mr Zheng gave him a copy of the LIM report. It was dated 14 October 2016, and was addressed to Mr Guo's Barfoot & Thompson branch.
[13] The date fixed for settlement under the Agreement was 28 April 2017, but it appears that the parties had been communicating directly about a possible extension before that date. On 28 April 2017 Mr Zhang's solicitors wrote to Mr Zhao's solicitors saying:
We are advised that [Mr Zhao] is unlikely to be able to arrange the settlement funds to settle today, and that the parties are still currently negotiating the terms of deferring settlement.
In the meantime, we advise that our client is ready, willing, and able to settle.
[14] Mr Zhao did not settle, and on 1 May 2017 Mr Zhang's solicitors served a settlement notice under cl 12 of the Agreement.
[15] Mr Zhao did not settle in accordance with the notice, and on 24 May 2017 Mr Zhang's solicitors wrote to Mr Zhao's solicitors noting the failure to settle. Their letter reserved Mr Zhang's rights to sue Mr Zhao for damages and claim interest on the unpaid portion of the purchase price at the contract rate of 15 per cent per annum. They further reserved Mr Zhang's right to claim costs and expenses reasonably incurred in any resale or attempted resale.
[16] Mr Zhang then re-listed the property, and on 14 June 2017 he gave notice to Mr Zhao cancelling the Agreement.
[17] Mr Zhang entered into an agreement to re-sell the property for $2,900,000, on 11 September 2017 (the resale agreement). The resale agreement was due for settlement on 29 January 2018, but in the event settlement was delayed and was not effected until 5 April 2018.
Further Evidence
[18] In a supplementary affidavit provided on 13 December 2018, Mr Zhao produced a copy of the McKay Knarston report. Referring to the Babbage Consultants peer review on the engineering issues affecting the property, Mr Knarston concluded that habitable floors of proposed dwellings would need to be between 1.9 and
2.4 metres above ground level on the front half of the site.
[19] There was one affidavit in reply, provided by Xin Zhang on 20 December 2018. Xin Zhang is the daughter of Mr Zhang. She held a power of attorney from Mr Zhang, and was involved in the original sale of the property to Mr Zhao. Xin Zhang said that on 1 March 2017 she received a text message from Mr Zhao (who she had never previously met or corresponded with). Further text correspondence followed. The tenor of the text communications was that Mr Zhao had funding problems, and wanted an extension of time to settle. The messages did not include any complaint or suggestion that the property had been misrepresented.
[20] Xin Zhang confirmed that, prior to 28 April 2017, Mr Zhao listed the property for sale through Barfoots, after first obtaining Mr Zhang's agreement to allow access to prospective purchasers. Xin Zhang produced copies of correspondence between Mr Zhao's solicitor and the Barfoot's real estate agent, Stephen Chang, to that effect.
[21] Xin Zhang said that when her father served the settlement notice on 1 May 2017, Mr Zhao sought to defer settlement to 4 August 2017. At no point did his solicitor raise any concern regarding misrepresentations made by Mr Zhang.
[22] The last of the affidavits was a supplementary affidavit sworn by Mr Zhao on 15 February 2019. In this affidavit, he said that he did not receive the Babbage peer review dated 21 April 2017 until it was emailed to him on 7 June 2017.1 He said that it was after that that he spoke to Mr Knarston, who told him about the impossibility of constructing a driveway onto the property. About the same time, Mr Zhang cancelled the Agreement. Mr Zhao said that, prior to that, he had been trying to keep the
1 He did not explain why the report, which was addressed to him c/- Mr Knarston's firm, was apparently not sent to him for nearly seven weeks after it was written.
Agreement alive, in the hope that Mr Knarston would be able to come up with a solution which would have allowed a development of the property in the nature of what had been represented to him in Mr Zhang's advertising material, and by the real estate agents representing him.
Mr Zhang's claims
[23] Mr Zhang claims damages for the loss on the resale, together with the commission on the resale ($66,700) and legal costs on the resale ($2,877.50). He also claims for the costs of continuing insurance on the property and ongoing rates (in the respective sums of $1,147.35 and $6,023.89), and interest on the unpaid portion of the purchase price ($3,002,000 after deducting the deposit of $158,000) from 28 April 2017 to the date originally scheduled for settlement of the resale agreement (29 January 2018). The interest claim for this period, calculated at the contract rate of 15 per cent per annum for late settlement ($1,233.70 per day), is $340,501.20. Further interest is claimed for the period from 29 January 2018 to 5 April 2018, when the resale agreement was settled, on the difference between the respective purchase prices payable under the Agreement and the resale agreement (less the deposits), in the sum of $13,344.65. The total claim is for the sum of $532,374.20.
Mr Zhao's notice of opposition and statement of defence and counterclaim
[24] In his notice of opposition, Mr Zhao refers to the alleged misrepresentations relating to the property being at risk of flooding. He then refers to s 37 of the Contracts and Commercial Law Act 2017 (the Contracts Act), being the section which sets out the terms on which a party may cancel a contract if the party has been induced to enter into it by a misrepresentation. He also referred to s 43 of the Fair Trading Act 1986 (the FTA).
[25] In his statement of defence, Mr Zhao admits service of the settlement notice, and that Mr Zhang then listed the property for sale. He also admits that, when he had continued to fail to settle, Mr Zhang gave notice of cancellation, reserving his rights under the Agreement. However, he then pleads that Mr Zhang had no entitlement to cancel the Agreement "because [Mr Zhao] was under no obligation to settle by reason of the matters pleaded herein". "The matters pleaded herein" appears to be a reference
to the alleged misrepresentations made by Mr Zhang's agents relating to the property being suitable for subdivision into three stand-alone houses or five terraced houses.
[26] Mr Zhao goes on to plead that the alleged misrepresentations made the benefit of the agreement substantially different from that represented to him, and caused him to incur wasted costs in consultants' fees in investigating subdividing the property. He pleads that, by reason of those matters, the Agreement was void ab initio (ie that he was not bound by it from the beginning), and it cannot be enforced against him.
[27] In his counterclaim, Mr Zhao claims damages for losses allegedly caused by the misrepresentations. The losses pleaded are the deposit retained by Mr Zhang ($158,000), and the wasted costs incurred in paying consultants (details to be quantified before trial).
[28] Mr Zhao pleads in the alternative that Mr Zhang was at all material times a dealer or investor in property, and was thus acting in trade for the purposes of the FTA. He says that the alleged misrepresentations constituted false representations or misleading conduct in relation to the property, in contravention of Part 1 of the FTA. He asks for an order declaring the Agreement to be void ab initio, and an order directing Mr Zhang to refund the deposit and pay him the wasted consultants' fees.
Counsel's submissions
Mr Wilson
[29] Mr Zhang denies the allegations of misrepresentation, but accepts that, for the purposes of the summary judgment application only, it may be assumed that there were misrepresentations as claimed by Mr Zhao.
[30] Mr Wilson noted Mr Zhao's pleading that the Agreement was void ab initio. He submitted that that is not a correct statement of the law (although he acknowledged that one possible remedy available under s 43 of the FTA is that the Court may fix a time from which a contract is to be regarded as having become void). Mr Wilson submitted that it was not open to Mr Zhao to contend that there was a misrepresentation, but that he did not need to cancel because Mr Zhang had already
cancelled. If that were so, it would mean that Mr Zhang's cancellation was agreed to be valid.
[31] Mr Wilson's principal written submission was that Mr Zhao cannot rely on his pleaded claims of misrepresentation, because he affirmed the contract. He submitted that Mr Zhao affirmed the contract by the following steps:
(a)By a letter from his solicitor dated 28 February 2017, he advised that he wished to list the property for sale before settlement, and sought cooperation in providing access to prospective purchasers.
(b)On 1 March 2017 in a text to [Mr Zhang's] daughter, he indicated that he might need to delay the settlement due to funding problems.
(c)On 11 April 2017 in a further text he said that "we really want to settle the land".
(d)In a text on 26 April 2017, [Mr Zhao] said he had put four properties on the market which he expected to have settled within 98 days, and he asked for an extension of settlement through to August 2017.
(e)In a text of 28 April 2017 or soon thereafter, he said that he had a solution and that he had assigned the purchase contract to a company, that he would guarantee it, and that the company had procedures to complete the purchase.
(f)The settlement notice had been served on 1 May 2017, and on 17 May 2017 by his solicitor's email [Mr Zhao] asked for settlement to be deferred to 4 August 2017.
[32] Mr Wilson also submitted also that Mr Zhao's conduct which gave rise to the affirmation also strongly indicates that his contention that he was induced to enter into the contract by the claimed misrepresentations is not credible.
[33] At the hearing, Mr Wilson placed less weight on the issue of affirmation, submitting that Mr Rooney had acknowledged in his written submissions that the Agreement was cancelled by Mr Zhang. In any event, it was common ground that the Agreement had come to an end. The issue was essentially one of how the Court should deal with Mr Zhao's claim for damages.
[34] Mr Wilson accepted for the purposes of the summary judgment hearing that Mr Zhao had a counterclaim that should go forward for trial. That counterclaim has been put at $158,000, plus an unspecified sum for consultants' fees. Mr Wilson
submitted that Mr Zhao has not mounted any challenge to the losses claimed by Mr Zhang, and he invited the Court to enter judgment for Mr Zhang for the amount of his claim, less the $158,000 (plus an appropriate allowance for consultants' fees) claimed by Mr Zhao, on the basis that the balance of Mr Zhang's claim, and Mr Zhao's counterclaim, would go forward for trial in the usual way.
Mr Rooney
[35] In his written submissions, Mr Rooney submitted that, as the Agreement has been cancelled by Mr Zhang, no question of a right to cancel arises on the application. However, he accepted that Mr Zhao could only have been justified in failing to settle if grounds existed which were analogous to the sort of grounds that would have been sufficient to justify him cancelling the agreement.
[36] Mr Rooney referred to the provisions of s 37 of the Contracts Act, which codifies the law relating to a contracting party's ability to cancel. He submitted that it is clearly arguable for Mr Zhao that there were misrepresentations that induced Mr Zhao to enter into the Agreement (that the site could be developed into multiple dwellings, when at best only one new dwelling could be built on the property), and that the effect of those misrepresentations was to substantially reduce the benefit of the Agreement to Mr Zhao, and/or to increase the burden of the Agreement for him. Alternatively, the inducing representations made it arguable for Mr Zhao that the burden or benefit of the Agreement was substantially different from what he was entitled to expect.
[37] Mr Rooney submitted that the summary judgment application cannot be decided against Mr Zhao on the basis of the credibility of his position, particularly since the oral representations have not been denied and they were confirmed by the online advertising of Mr Zhang's agents. Similarly, the flood risk and technical evidence produced by Mr Zhao supports the conclusion that he has an arguable defence. Mr Rooney referred to the decision of the Court of Appeal in Golden Garden Ltd v Zhao, where the Court of Appeal concluded that the defendant's evidence "cannot safely be disregarded as failing to meet the threshold of credibility … The vendor's claim cannot be determined without resolving the critical evidential contests. This can
only be done at trial."2 He submitted that Mr Zhao's defence in this case falls precisely into the Golden Garden category — it cannot safely be disregarded.
[38] In his written submissions Mr Rooney submitted that the doctrine of affirmation has no relevance in a case where the defendant is not seeking to impugn a "live" contract. In this case, the contract is not "live", because it was cancelled by Mr Zhang. He submitted that in practical terms, affirmation can only be relevant where a plaintiff is seeking an order for specific performance against a defendant. That is not the case here, where Mr Zhang is seeking damages from Mr Zhao arising from a contract which he cancelled.
[39] In any event, Mr Zhang's affirmation arguments fail on the facts. The key requirements of affirmation are unequivocality of the conduct said to constitute affirmation, and the cancelling party's full knowledge of the facts that created an entitlement to cancel. Mr Rooney submitted there has been no unequivocal act in this case that could amount to affirmation. What Mr Zhao was doing was no more than trying to keep the Agreement alive while he was waiting for the engineering peer review, which he hoped would give him a solution. He did not receive the peer review until after the last act relied upon by Mr Zhang as constituting affirmation of the contract (which occurred shortly before Mr Zhang cancelled the Agreement).
[40] The series of text messages passing between Mr Zhao and Mr Zhang's daughter do not amount to affirmation of the Agreement by Mr Zhao. When read message by message, it can be seen that they are consistent with Mr Zhao's evidence that he "did not know what to do" once he had found out about the flooding issue. He told Mr Zhang's daughter at two points in the course of the communications that the price for the property was inflated, and he tried his best to make the Agreement and the development work.
[41] Finally in his written submissions, Mr Rooney submitted that Mr Zhao has statutory defences to the damages claim under the FTA, and there is nothing in the FTA to suggest that affirmation will compulsorily detract from or negate those defences.
2 Golden Garden Ltd v Zhao [2017] NZCA 227.
[42] In his oral submissions, Mr Rooney endeavoured to clarify the apparent acknowledgment in his written submissions that Mr Zhang had brought the Agreement to an end by cancelling it.3 He maintained the position that, having regard to the misrepresentations, Mr Zhang was not entitled to cancel. He suggested that the Agreement might not have come to an end until Mr Zhao eventually accepted what would have been Mr Zhang's repudiation of the Agreement. At latest, that would have occurred when Mr Zhao served his statement of defence and counterclaim.
Legal principles applicable to summary judgment applications
[43]Rule 12.2 of the High Court Rules materially provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The 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.
…
[44] The proper approach to be taken to such applications was considered by the Court of Appeal in Krukziener v Hanover Finance Ltd, where the Court said:4
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Young v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
3 In his written submissions, Mr Rooney had said:
Affirmation as a doctrine has no relevance in a case, such as here, where a defendant is not seeking to impugn a "live" contract. The contract in issue here is not "live" because it has been cancelled by [Mr Zhang].
4 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].
[45] The Supreme Court has held fairly recently that the fact that the Court may be required to determine questions of law does not preclude summary judgment. In Zurich Australian Insurance Ltd v Cognition Education Ltd, the Court said:5
… in other situations falling within the broad test (that is, the "no arguable defence" test applied on summary judgment), there will be what can properly be described as "disputes" even though they are ultimately capable of being determined by a summary process.
[37] To explain, it has been well established in New Zealand since Pemberton v Chappell that a court can properly determine questions of law on a summary judgment application, and that this includes issues of contractual interpretation. The Court of Appeal has accepted that such a determination may be made even though the question of law is difficult and requires argument (including reference to authority). In International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd, a case under the old bill writ procedure, Cooke P, by analogy with the summary judgment procedure which had just been introduced in New Zealand, said that where the facts were adequately ascertained and the Court could be confident that the point at issue turned on pure questions of law or interpretation, it should be prepared "to determine, on adequate argument, even difficult legal questions". Similarly, in Jowada Holdings Ltd v Cullen Investments Ltd, McGrath J, delivering the judgment of the Court of Appeal, said that a court should be prepared to grant summary judgment "even if legal arguments must be ruled on to reach the decision".
Discussion and conclusions
Did Mr Zhao affirm the contract?
[46] There was some doubt at the hearing whether it matters whether or not Mr Zhao affirmed the contract, and thus lost his right to cancel it.6 It was (and remains) difficult to reconcile Mr Rooney's statement in his written submissions that the contract was cancelled by Mr Zhang, and the pleading in Mr Zhao's statement of defence that Mr Zhang had no entitlement to cancel "because [Mr Zhao] was under no obligation to settle by reason of the matters pleaded herein".
[47] In view of the lack of clarity over Mr Zhao's position on how the contract came to an end, I will deal with the issue of affirmation.
5 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 (footnotes omitted).
6 Under s 38 of the Contracts & Commercial Law Act 2017, a party is not entitled to cancel the contract if, with full knowledge of the repudiation, misrepresentation, or breach, the party has affirmed the contract.
[48] The doctrine of election is concerned with the situation where a contracting party, having a right to bring the contract to an end because of breach by the other party (or misrepresentation by the other party), is obliged to make an election between two alternative courses. Either the innocent party may cancel the contract, he or she may affirm the contract. In the latter case the innocent party is obliged to continue the contract by discharging his or her own obligations that remain undischarged.
[49] The concept of election in these circumstances was described by Lord Goff of Chieveley in Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India, in the following terms:7
[The innocent party's] decision, being a matter of choice for him, is called in law an election. Characteristically, this state of affairs arises where the other party has repudiated the contract or has otherwise committed a breach of the contract which entitles the innocent party to bring it to an end, or has made a tender of performance which does not conform to the terms of the contract. But this is not necessarily so. An analogous situation arises where the innocent party becomes entitled to rescind the contract, ie to wipe it out altogether, for example because the contract has been induced by a misrepresentation …
In all cases, he has in the end to make his election, not as a matter of obligation, but in the sense that, if he does not do so, the time may come when the law takes the decision out of his hands, either by holding him to have elected not to exercise the right which has become available to him or sometimes by holding him to have elected to exercise it.
[50] Motor Oil Hellas (Corinth) Refineries SA was referred to in the judgment of Randerson J in Jansen v Whangamata Homes Ltd, where the learned Judge described the requirements for affirmation in the following terms:8
… it must be shown that the electing party made a firm and settled choice and does not intend to go back on it. Putting it another way, the electing party must be shown to have committed irrevocably to one of two inconsistent courses of action.
[51] Randerson J also noted that an election may take the form of a deliberate or conscious act by the electing party, or may be imputed by the law treating the electing party as having exercised an election irrespective of actual intention.9
7 Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 Lloyd's Rep 391 (HL) at 398.
8 Jansen v Whangamata Homes Ltd HC Hamilton CIV-2003-419-1511, 29 November 2004 at [27].
9 At [26].
[52] On appeal in Jansen, the Court of Appeal accepted the analysis of the law relating to affirmation given by Randerson J.10
[53] The final case I will mention, referred to by counsel, is the judgment of Harrison J in Nectar Ltd v SPHC Operations (NZ) Ltd.11 The learned Judge noted that election is concerned with the treatment of a party's choice between alternative rights or remedies available in a particular situation. Unlike other situations where the law might require someone to make an election between alternative causes of action, the law of contract does not require proof that the elector had actual knowledge of his or her legal rights. That is because in a contract case the parties have actual knowledge of the rights available to them under the contract, from inception. In that situation, the law fixes them constructively with that knowledge for the duration of the contract. For that reason, it is unnecessary to prove at a given time during the contract's life that a party actually knew of his or her rights when electing to pursue a particular course.
[54] In this case, Mr Zhao had Mr Li's flood risk assessment on 16 January 2017, and he had the views of his surveyor, Mr Siu, on 1 March 2017. The peer review conducted by Babbage is dated 21 April 2017, and as Mr Zhao said in his affidavit, the peer-review effectively endorsed Mr Li's assessment that the flood risk was substantial.
[55] I find it difficult to accept that Mr Zhao did not know at least the main conclusions of the Babbage peer-review shortly after it was written, and in any event before the scheduled date for completion under the Agreement. Mr Zhao commissioned the peer-review, and with settlement day fast approaching he must have been anxiously waiting to hear Babbage's views. The 21 April 2017 Babbage peer-review document was addressed to Mr Zhao care of Mr Knarston's firm, and it is difficult to believe that Mr Zhao would not have chased it up and obtained a copy of it long before early June 2017.
10 Jansen v Whangamata Homes Ltd [2006] 2 NZLR 300 at [18]. Leave to appeal to the Supreme Court was refused on 3 November 2005 (Whangamata Homes Ltd v Jansen [2005] NZSC 71).
11 Nectar Ltd v SPHC Operations (NZ) Ltd HC Auckland CL20/2002, 7 May 2003.
[56] The text messages between Xin Zhang and Mr Zhao show that on 1 March 2017 Mr Zhao advised "We might need to delay the settlement due to flood funding problem. … Could you please ask your lawyer to contact my lawyer, to discuss putting this property on market for sale in advance before settlement. We can only do so with your permission."
[57] Thereafter, the evidence is that Mr Zhao was given permission to market the property, and did so, albeit unsuccessfully.
[58] On 11 April 2017 Mr Zhao sent a text message to Xin Zhang saying "… we really want to settle the land, so that these efforts were made, not trying to keep postponing. … the value of this piece of land is only $2.8 million approximately, our price is still the best in the market, it is most beneficial to you to have extension … our loan has been approved … there are funds, it is only a matter of time to settle. … this is not a big thing …".
[59] On 25 April 2017 Mr Zhao sent a further text message asking to delay the settlement date and saying "we will pay the interest during the extension period".
[60] On 26 April 2017, Mr Zhao sent a further message to Xin Zhang advising that he had four properties listed for sale in April and May, with settlement dates in July. He said the he was hoping to extend the settlement period for the property for 98 days to 4 August, and he agreed to pay interest for the extended period. He said he would ask his lawyer to draft an agreement with such a clause. He said that, apart from waiting for the sales of the four properties to settle, he had no cash resources to settle: he could not borrow cash to pay for more than the deposit.
[61] The text messages appear to show that Mr Zhang might have agreed to extend the settlement date if Mr Zhao had paid a higher deposit. However, negotiations over an increased deposit payable in exchange for an extended settlement date never came to anything.12
12 Mr Zhang would have taken an additional $1 million to extend the settlement date to August 2017, but apparently Mr Zhao could not find that sort of money.
[62] On 28 April 2017, being the scheduled settlement date, Mr Zhao sent a further message, asking for a change in the final total price. The deposit would remain the same, but there would be a settlement extension in order to allow time for Mr Zhao to fund the purchase. Mr Zhao would also bear the cost of interest over the extension period.
[63] A further message from Mr Zhao, apparently also on 28 April 2017, advised that Mr Zhao had a solution: he said he had assigned the sales agreement to a company, on the basis that he would guarantee settlement with the properties under his name. The previous agreement at $3,160,000 would be cancelled, and resigned at
$3,200,000 with Mr Zhao's company. The deposit would still be $158,000, and settlement would be delayed to 4 August 2017.
[64] I do not consider it is necessary for me to make any finding on whether or not Mr Zhao affirmed the Agreement in this case, and in circumstances where I cannot be sure that all relevant evidence is before the Court I refrain from doing so. However, looking at the text messages, it seems fairly strongly arguable for Mr Zhang that Mr Zhao did affirm the contract. With advice from Mr Li and Mr Siu of the exact nature and seriousness of the flooding issue, he asked for and received permission to put the property on the market himself, and he proceeded to try to sell the property. On 11 April 2017 he said that "we really want to settle", and later he said that he had assigned the Agreement to his company. On a number of occasions he asked for an extension of time to settle. On 27 April 2017 his solicitors wrote to Mr Zhang's solicitors enclosing a Notice of Sale form and advising that they had arranged an e-dealing number. On the face of it, those steps appear to indicate an intention to continue with the Agreement, notwithstanding Mr Zhao's (apparently) full knowledge of the flooding issues.
What was the effect if Mr Zhao affirmed the Agreement?
[65] If Mr Zhao affirmed the Agreement, both he and Mr Zhang remained liable to perform it. As Tipping J said in Holmes v Booth:13
13 Holmes v Booth (1993) 2 NZ ConvC 191,633 at 191,648.
Under the general law if one party is in breach of contract, either actual or anticipatory, which breach justifies cancellation, but the innocent party (A) elects to keep the contract alive, he keeps it alive for the benefit of the party in breach (B) as well as for his own benefit. Thereafter A remains subject to all his own obligations and liabilities under the contract. He may well have a right to claim damages for breach, but having elected to proceed he must proceed in terms of the contract. If he fails to do so he may thereby give B grounds for cancellation, thus putting an end to his own right to require performance. …
[66] If Mr Zhao affirmed the Agreement, and thereafter remained liable to perform his (undischarged) obligations under it, I think it is clear that Mr Zhang would have been entitled to cancel the Agreement, and that he validly did so (there being no issue over the failure to settle, the service of the settlement notice, Mr Zhao's failure to comply with it, or Mr Zhang's notice of cancellation). I reject Mr Rooney's submission that the Agreement was or could arguably have been void ab initio because of the alleged misrepresentations.
What were Mr Zhang's rights following the cancellation?
[67] Section 34 of the Contracts Act says that if a contract expressly provides for a remedy for misrepresentation, repudiation, or breach of contract, the subsequent sections in the Contracts Act (which provide for an array of possible remedies for the innocent party) have effect subject to the relevant contractual provisions.
[68]In this case, the following provisions in the Agreement may be relevant:
8.0 Title, boundaries and requisitions
…
8.3 Except as provided by section 7 of the Contractual Remedies Act 1979,14 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 10.1 but not otherwise, shall be made or given as the case may require.
…
14 The relevant provisions of this section are now contained in s 37 of the Contracts & Commercial Law Act 2017.
10.0Claims for compensation
10.1If the purchaser claims a right to compensation either under subclause 8.3 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 8.3, 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 set at the date of the notice.
10.2For the purposes of subclause 10.1(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 12.1.
10.3If the amount of compensation is agreed, it shall be deduced on settlement.
10.4If the amount of compensation is disputed:
…
12.0 Notice to complete and remedies on default
…
12.4If the purchaser does not comply with the terms of the settlement notice served by the vendor then, subject to subclause 12.1(3):
(1)Without prejudice to any other rights or remedies available to the vendor at law or in equity the vendor may:
…
(b)cancel this agreement by notice and pursue either or both of the following remedies namely:
(i)forfeit and retain for the vendor's own benefit the deposit paid by the purchaser, but not exceeding in all 10% of the purchase price; and/or
(ii)sue the purchaser for damages.
(2)Where the vendor is entitled to cancel this agreement the entry by the vendor into a conditional or unconditional agreement for the resale of the property or any part thereof shall take effect as a cancellation of this agreement by the vendor if this agreement has not previously been cancelled and such resale shall be deemed to have occurred after cancellation.
(3)The damages claimable by the vendor under subclause 12.4(1)(b)(ii) shall include all damages claimable at common law or in equity and shall also include (but shall not be limited to) any loss incurred by the vendor on any bona fide resale contracted within one year from the date by which the purchaser should have settled in compliance with the settlement notice. The amount of that loss may include:
(a)interest on the unpaid portion of the purchase price at the interest rate for late settlement from the settlement date to the settlement of such resale; and
(b)all costs and expenses reasonably incurred in any resale or attempted resale; and
(c)all outgoings (other than interest) on or maintenance expenses in respect of the property from the settlement date to the settlement of such resale.
(4)Any surplus money arising from a resale as aforesaid shall be retained by the vendor.
…
[69] Mr Wilson referred to cls 8 and 10 of the Agreement, but he disavowed any contention that Mr Zhao is precluded from pursuing a counterclaim for damages for the alleged misrepresentations because of the requirements of cl 10 relating to the service on the vendor of a notice of any compensation claim. He invited me to proceed on the basis that Mr Zhao is entitled to pursue his counterclaim, but that it should be treated only as a counterclaim for the amount quantified ($158,000), plus some reasonable amount to cover Mr Zhao's consultants' fees.
[70] For his part, Mr Rooney disavowed any reliance on the doctrine of set-off: the Agreement having been void from the beginning, there can be no valid claim by Mr Zhang against which any claim by Mr Zhao could be set-off. On that basis, he submitted that Mr Zhao's claims could only be brought as counterclaims.
[71] Of course I have found against Mr Rooney on the argument that the Agreement was void ab initio, and it seems likely that if Mr Zhao had formulated his defence and counterclaim on the basis that he had affirmed the Agreement and was liable to complete the transaction, his losses would have been put at higher figures than those stated in his counterclaim.
[72] Mr Wilson has invited me to effectively "tie" Mr Zhao to the losses so far quantified in his counterclaim (at least for the purposes of the summary judgment application), and enter judgment for Mr Zhang for the balance of his claim. But in circumstances where it must be accepted for summary judgment purposes that Mr Zhao was arguably induced to enter into the Agreement by misrepresentations which would have made the transaction far less attractive for him than it appeared to be, and where his claimed losses have been formulated on an apparent misapprehension as to the legal position on the law of affirmation and its consequences, I do not consider that would be a just result. I think Mr Zhao is entitled to rely on his notice of opposition, which referred to the alleged misrepresentations and the evidence generally, with the present quantification of his counterclaims to be regarded as capable of such reasonable amendments as the evidence might require.
[73]Rule 12.12(2) of the High Court Rules provides:
12.12 Disposal of application
…
(2) If it appears to the court on an application for judgment under rule
12.2 or 12.3 that the defendant has a counterclaim that ought to be tried, the court—
(a)may give judgment for the amount that appears just on any terms it thinks just; or
(b)may dismiss the application and give directions under subclause (1).
[74]In Roberts' Family Investments v Total Fitness, McGechan J noted:15
As to counterclaim, it is not in itself a defence, although the rules provide for offsetting judgments. Without more, therefore, the existence of a mere counterclaim does not foreclose summary judgment. This is where [the forerunner of r 12.12(2)] comes in. Rather than give an immediately enforceable judgment to the plaintiff on the plaintiff's claim, perhaps allowing the plaintiff to bankrupt the defendant before the latter's counterclaim can be brought to judgment and offset, the Court may and commonly does grant the plaintiff summary judgment accompanied by a stay of execution of such judgment pending resolution of the counterclaim, or occasionally dismisses the summary judgment application, directing trial of both claim and counterclaim …
[75] I think this is a case where there would be a risk of a miscarriage of justice if judgment were entered for Mr Zhang as proposed by Mr Wilson, and that the summary judgment application should either be dismissed under r 12.12(2)(b) or a stay of execution of any judgment for Mr Zhang should be granted, pending the hearing and determination of Mr Zhao's counterclaims.
[76] The marketing material for the property produced by Mr Zhao did include the statement "Make this your next development project to build multiple brand new homes? So many options!", and Mr Zhang has not replied to Mr Zhao's evidence that Mr Guo's office had a copy of the LIM report (which referred to the flooding issue16) before the auction but did not provide a copy to Mr Zhao. On the face of it then, the allegations of misrepresentation cannot be dismissed as clearly lacking credibility. And if Mr Zhao was induced by that material (and/or the oral statements allegedly made by Mr Owen Zheng and Mr Guo) to enter into the Agreement, the possibility that Mr Zhao may have agreed to pay significantly more for the property than it was worth is a real one. If that is right, Mr Zhao's claim (on the basis that he was bound by the Agreement, but is entitled to claim damages for misrepresentation under s 35
15 Roberts' Family Investments v Total Fitness [1989] 1 NZLR 15, at 20-21.
16 The LIM report included the following, under the heading "Flood risk":
This site is potentially at risk of flooding during heavy rainfall events. The extent of this flooding is shown on the attached special land features maps as "Overland flowpath". The Overland flowpath has been determined after detailed hydraulic analysis and/or modelling of the stormwater system and represents the general overland route that stormwater may take.
…
Any proposed development on this site may require a detailed flood risk report … Proposed development must have regard for established flood flows and levels and the need to ensure that flood plains and flow paths are not impeded. …
of the Contracts Act) may well be higher than the claims which have so far been identified.
[77] If Mr Zhao's claim were a set-off case, there would be an arguable defence to the extent of the amount of the set-off. However, it has been put by both sides as a counterclaim, and I think I am obliged to deal with it as such. But if it is truly a counterclaim, it appears to have many of the features one normally associates with set-off. For example, it arises out of the same transaction as Mr Zhang's claim, and (as Mr Wilson's proposed disposition of the application implicitly acknowledges) it would arguably be unfair to allow Mr Zhang to enforce his claim without bringing Mr Zhao's claims to account. The fact that those claims have so far been put on the basis of what appears to have been a misrepresentation as to the law does not change any of that.
[78] In the end, I am of the view that the justice of the case requires that I exercise my discretion under r 12.12(2)(b) to dismiss the application. There will be an order accordingly.
[79] Any amended statement of defence and/or counterclaim by Mr Zhao is to be filed and served within 15 working days, and any reply and/or statement of defence to counterclaim is to be filed and served within 10 working days after service of any amended statement of defence and counterclaim. The Registrar is to allocate a first case management conference for the first practicable date after 1 June 2019.
[80] In accordance with usual procedure where a plaintiff's summary judgment has been dismissed, costs are reserved.
Associate Judge Smith
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