Zhou v Grasshopper Farms Limited

[2010] NZCA 621

IN THE COURT OF APPEAL OF NEW ZEALAND

CA59/2010
[2010] NZCA 621

BETWEENLINAN ZHOU

Appellant

ANDGRASSHOPPER FARMS LIMITED

Respondent

Hearing:18 November 2010

Court:Chambers, MacKenzie and Simon France JJ

Counsel:N Tabb and D Liu for Appellant

D M O'Neill for Respondent

Judgment:16 December 2010 at 4.30 pm

JUDGMENT OF THE COURT

A            The appeal is allowed.

BThe summary judgment is set aside.  The order for specific performance is quashed.

CThe proceeding is remitted to the High Court for hearing.

DThe respondent must pay the appellant’s costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Simon France J)

Introduction

[1]        This is an appeal against an order for specific performance.  Mr Zhou, the appellant, had agreed to purchase a block of land that was part of a much larger development.  The particular block of land was to be subdivided into 27 lots; the purchaser was required to settle 30 days after the new titles became available.

[2]        On 5 August 2008 the vendor gave notice that title was available.  The nominated settlement date was 16 September 2008.  Mr Zhou declined to settle, and instead issued requisitions in relation to conditions that had been placed on some of the titles as part of obtaining subdivision approval.  Grasshopper Farms Ltd, the vendor/developer, disputed that the requisitions were valid and brought proceedings for specific performance of the contract.

[3]        Following a summary judgment hearing, Associate Judge Doogue ordered specific performance.  Mr Zhou appeals, submitting there is an arguable case that the requisitions are valid.  It is also submitted that the Court should not have rejected as unarguable a misrepresentation claim.

Further facts

[4]        To one side of the subdivision block in question is a hill.  Originally owned by the developer, as part of the overall project it was transferred to Tauranga City Council for a reserve.  At the base of the hill there is a formed public walkway which runs alongside some of the new lots Mr Zhou was purchasing.

[5]        Grasshopper Farms had earlier commissioned a geotechnical report about the site.  That report recommended that Grasshopper Farms establish land mounds (bunds) along the boundary of some of the intended lots.  The purpose of the bunds was to address concerns that water might run off the adjacent hill and onto some of the new lots.  There was also a concern that the water might bring with it loose debris from the hillside.

[6]        Grasshopper Farms did this work in accordance with the report’s recommendations.  The supervising engineer deposes that the work began in 2005 and was completed by June 2007.  This deponent says the bunds would have been visible to Mr Zhou when he inspected the land after that date.

Conditions on titles

[7]        As noted, as part of the subdivision consent, the relevant local council required various conditions to be imposed on the titles to some of the lots under s 221 of the Resource Management Act 1991.  The conditions read:

For Lots 405, 406, 409–411 & 415–417:

a)The owners are required to meet the full cost of any fencing along the common boundary between the lot and the adjoining land that is vested in the Tauranga City Council.

Lots 400–426:

b)That the fencing shall be maintained in accordance with the fencing plan contained in Harrison Grierson’s drawing 125595‑RC06 dated 30 April 2008.

c)The design and construction of any structures requiring a building consent in accordance with the Building Act 2004 shall fully comply with the recommendations contained in the geotechnical completion report compiled by S & L Consultants Ltd for Stage 2A dated June 2008, reference 18264. Any development of the property shall also be undertaken in accordance with the above report.

For Lots 406, 409–411, 415 & 416:

d)These lots contain debris protection earthfill bunds formed as part of the subdivisional works.  No excavations shall be made into the bund which would result in a reduction in mass or height without the approval of a Category 1 Chartered Professional Engineer.  The bunds shall be inspected and maintained regularly at the property owner’s expense to ensure that they are kept clear of upslope debris accumulation and that stormwater runoff routes remain in place.  Any accumulated material in the reserves behind the bunds shall be removed immediately after deposition.

[8]        The Council later agreed the wording of condition (d) could be modified so as to limit the maintenance obligation.  It now reads:

(d)These lots contain debris protection earthfill bunds formed as part of the subdivisional works.  No excavations shall be made into the bund which would result in reduction in mass or height without the approval of a Category 1 Chartered Professional Engineer.  The area of bund that falls within each Lot shall be inspected and maintained regularly at the property owner’s expense.

[9]        The change in condition (d) was made at the request of the vendor once the issue of requisitions arose.

Agreement for sale and purchase

[10]       The requisitions were made by Mr Zhou under cl 9.1 which provides:

Any objections to or requisitions on the title to the lots which the purchaser shall be entitled to make must be stated in writing to the vendors’ solicitors within five (5) working days from the date the vendors or their solicitors have notified the purchaser or his solicitor that the title is available (time being essential) and in default thereof the same shall be held to be waived and the title to have been absolutely accepted by the purchaser.  In the event of the vendors being unable or unwilling to remove or comply with any such objections or requisitions the vendors shall be at liberty notwithstanding any intermediate negotiations by notice in writing to the purchaser to cancel the agreement for purchase in which case the purchaser shall receive back all moneys paid to the vendor in accordance with the terms hereof but shall have no other claim whatsoever on the vendors for the expense of investigating the title or for compensation or otherwise howsoever;

Mr Zhou required removal of all four conditions that were imposed on the title.

[11]       The vendor contends that Mr Zhou was not entitled to requisition concerning the conditions on the title.  First it is said that cl 4.1 of the agreement for sale and purchase applies.  That provision contemplates that various types of condition might be imposed, and expressly provides that the requisitions clause is not to apply to any such conditions.  Second, it is noted that Mr Zhou, through his agents, was involved in the preparation of the application for resource consent.  The conditions that have been imposed are said to flow directly from that application and were to be expected.  The purchaser’s involvement in the subdivision application is argued to give rise to a waiver of the right to requisition.

[12]       Concerning the second of these propositions, Mr O’Neill accepted during the hearing that an allegation of waiver involves matters that need to be the subject of evidence, and are not suitable for resolution by summary judgment.  Accordingly the primary issue before us is whether cl 4.1 of the agreement so clearly permits the conditions that it is not arguable that the requisitions power under cl 9.1 is available to Mr Zhou.

[13]       Clause 4.1 in its relevant parts provides:

4.1THE vendors retain the following rights in respect of land shown on the annexed plan and/or the Subdivisional Plan up until the Possession Date:

(i)To grant to the Tauranga City Council and/or any State owned Enterprise or other Local Authority and/or any other person such rights as they may properly require in connection with the land including in particular but not by way of limitation a public pedestrian accessway, service vehicle accessway, right of way, the right to lay telephone and power cables, sewerage, gas and water pipes and other connections underground and to construct any transformer or supply box.

(ii)To provide for any rights in respect of water, stormwater, sewerage, gas, drainage, electricity, telecommunications and any rights-of-way and other requirements by way of easement or otherwise howsoever.

(iii)        To store soil in the course of development works.

(iv)To cut away and remove the soil and sub‑strata of the land and to kerb and fill adjacent to roads accessways and rights of ways.

(v)To excavate lower contour fill landscape and plant any part of the land.

(vi)To enter upon any lot themselves or by their servants, agents or workmen and do such work as shall in the opinion of the vendor be necessary or desirable for the formation, construction or laying of any road, footpath, drain, pipe, cable, line and other connection and any transformer or supply box or as may otherwise be in the opinion of the vendor necessary or desirable to complete the subdivision of all or any part of the land.

AND no such matter shall entitle the purchaser to compensation or damages nor shall it annul the sale or entitle the purchaser to make any objection or requisition pursuant to Condition 9 hereof PROVIDED ALWAYS that if any such matter substantially reduces the value of any lot as a residential building site then the purchaser of that lot shall be entitled to cancel the agreement for purchase thereof by notice in writing given to the vendors within five (5) working days after the date that the vendor has notified the purchaser or his solicitor that title is available whereupon all moneys paid by the purchaser in accordance with the terms hereof shall be refunded in full and neither party shall have any further claim upon the other.

[14]       Associate Judge Doogue considered cl 4.1 applied.  He noted the width of paragraphs (i) and (ii) and was of the view that the clause was designed to cover the type of standard conditions imposed here.  The protection for a purchaser against oppressive conditions was contained in the last part of cl 4.1 which allows cancellation of the agreement if the conditions lead to a “substantial reduction” in value.

[15]       Concerning whether there was such a reduction in value, his Honour noted that the purchaser had led no evidence that this had happened.  Nevertheless, each condition was considered by the Court in order to assess whether a reduction in value could be inferred from the nature of the condition itself.  Associate Judge Doogue ruled none of the conditions met that standard so in the absence of direct evidence of a loss in value, the purchaser had no arguable case that he had a right to cancel.  Hence specific performance was ordered.

Decision

[16]       The conditions that have been placed on the title can be summarised in this way:

a)to meet the full cost of fencing as set out in a plan submitted with the consent application, and thereafter to maintain that fence;

b)when building houses, to comply with the geotechnical completion report obtained and supplied by the developer;

c)not to excavate into the bunds without prior approval of an engineer, and to maintain the bunds that are on the owner’s land.

[17]       The first of these conditions removes from the Council any obligations and liabilities it might have under the Fencing Act 1978 as an adjoining land owner.  It also puts on the title an on‑going maintenance requirement.  The second condition relates to the foundations of any house, and it seems common ground that the requirements set out in the report are only the minimum requirements for any house.  The condition concerning bunds is now much less onerous than its original form.  It does still, however, limit the landowner’s capacity to work with his or her land in that the bunds cannot be modified without engineering approval.  The remaining maintenance obligation is relatively modest.

[18]       In our view the conditions that have been imposed on the title could be seen as defects in title.  This in turn means that the power to requisition in cl 9.1 could apply, unless ruled out by cl 4.1.  On a summary judgment application the vendor must show that indisputably cl 4.1 authorises these conditions and rules out the availability of the requisition power.  Otherwise the application for summary judgment must fail.

[19]       The wording of clause 4.1(i) is important:

a)the vendor is authorised to grant to the Council/a State owned enterprise or local authority and/or any other person

b)such rights as that person may properly require in connection with the land

c)examples being rights of way, rights to lay cables or pipes for gas, sewerage and electricity.

[20]       None of the conditions set out at [7] obviously fit within this description.  It is not apparent that any third party has been given any rights by the vendor.  Rather, the conditions obligate subsequent owners of the land to do certain things.  Although the examples given in cl 4.1 are expressly noted to not limit the scope of the clause, they nevertheless indicate the apparent purpose of the provision.  The subdivision type conditions that have been imposed here are somewhat different from the contemplated range of conditions set out in cl 4.1.

[21]       The same analysis applies to the other paragraphs of cl 4.1.  Concerning (ii) Mr O’Neill suggested that the obligations imposed on the landowner could come within a generously interpreted “rights in respect of water and stormwater”.  Consistent with taking a very constricted role on the appeal, we respond only that it is an argument that the vendor may choose to advance at trial, but it is not one which could support a summary judgment for specific performance.  Overall, as was plain at the hearing, we preferred the interpretation of cl 4.1 that was advanced for the purchaser, but we do not comment beyond that.

[22]       Nor is it now necessary to address the misrepresentation claim, or the concept of waiving the right to requisition.  Those matters are for the parties to pursue at the trial if they wish.

[23]       Before concluding the judgment, we note there was an alternative argument advanced for the purchaser which we consider had merit.  The safeguard for a purchaser fixed with onerous conditions imposed under cl 4.1 is that if the conditions “substantially reduce the value of the land”, the purchaser is entitled to cancel.

[24]       Before the Associate Judge neither party led evidence on this point.  The Associate Judge viewed this as a deficit in the purchaser’s case as it was an exception clause on which the purchaser was seeking to rely.  However, we see merit in the appellant’s submission that this approach wrongly reversed the onus on a summary judgment application.  The vendor applicant led no evidence that there was no reduction in value, and it is doubtful that this could be assumed in relation to conditions on a title such as these.

[25]       Again it is not necessary to comment further on this issue.  For the reasons previously given, the appeal is allowed and the order for specific performance quashed.  The matter is remitted to the High Court for hearing.  The respondent must pay the appellant’s costs for a standard appeal on a Band A basis together with usual disbursements.

Solicitors:

Yu Lawyers, Auckland for Appellant

Fenton McFadden, Te Puke for Respondent