ARCADIA HOMES LIMITED (IN LIQUIDATION) V MORE TO THIS LIFE LIMITED AND ANDREW GEORGE CLARK AS TRUSTEES OF THE ULTIMATE LIFESTYLE TRUST CA149/2012, [2013] NZCA 286

ARCADIA HOMES LIMITED (IN LIQUIDATION) V MORE TO THIS LIFE LIMITED AND ANDREW GEORGE CLARK AS TRUSTEES OF THE ULTIMATE LIFESTYLE TRUST CA149/2012, [2013] NZCA 286 [5 July 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA149/2012[2013] NZCA 286BETWEEN ARCADIA HOMES LIMITED (INLIQUIDATION)AppellantAND MORE TO THIS LIFE LIMITED ANDANDREW GEORGE CLARK ASTRUSTEES OF THE ULTIMATELIFESTYLE TRUSTRespondentsHearing: 21 May 2013Court: Ellen France, Wild and Ronald Young JJCounsel: G P Curry and R A Harrington for the AppellantC S Withnall QC for the RespondentsJudgment: 5 July 2013 at 2.30 pmJUDGMENT OF THE COURTA The appeal is dismissed.B In the event the respondents file a memorandum in terms of [81] of the judgment, costs are reserved. If no such memorandum is filed, then theappellant is to pay the respondents' costs for a standard appeal on a band A basis with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Wild J)Introduction[1] By an agreement for sale and purchase, a company purchases a property"subject to and conditional upon approval of the directors". Is that a conditionprecedent effectively giving the purchasing company an option? Or is it a condition subsequent in a binding agreement? If the latter, what if anything must thepurchasing company's directors do to satisfy the condition?[2] Those are the main issues on this appeal from a judgment delivered by French J in the High Court at Dunedin on 16 February 2012.1 French J noted that itappears this is the first time a "subject to directors' approval" clause has come before a New Zealand Court.2 Our own research confirms that.3Facts[3] Shortly before Christmas 2007 Mr Andrew Guest travelled down from Auckland to Wanaka to look at residential properties for his company Arcadia Homes Ltd, the appellant (Arcadia). Mr Guest's aim was to purchase a holiday home for himself and his family.[4] On 24 December 2007 Mr Guest entered into an agreement with the respondents for the sale and purchase for $2 million of a residential property the respondents owned at 21 Waimana Place, Wanaka. Below his signature for thepurchaser on the Agreement, Mr Guest added 'Director'. We will refer to this as 'theAgreement', and to the property as 'the Waimana property'.[5] The Agreement was in the standard REINZ/ADLS 8th Edition 2006 form save in these three respects:(a) On the first page of the Agreement, in the box giving details as to the payment of the deposit of $200,000, the printed words had been1 More To This Life Ltd v Arcadia Homes Ltd [2012] NZHC 165.2 At [87].3 We have located two cases featuring directors' approval clauses: Tepe Holdings Ltd v The Commissioner of Inland Revenue HC Wellington CIV-2010-485-489, 13 September 2010 andSavill v Chase Holdings [1989] 1 NZLR 257 (CA). In neither of these cases was theinterpretation of the directors' approval clause in issue.altered so that the deposit was to be paid upon the confirmation of the Agreement to "The Vendor Directly".(b) Clause 11 was altered so that the purchaser, not the vendor, paid theagent's charges.(c) In the box making provision for further terms of sale there was this clause:15. THIS AGREEMENT IS SUBJECT TO AND CONDITIONAL UPON Prime Approval of the Directors of Arcadia Homes Ltd 4pm on 25thJanuary 2008 AND notifying the Vendor or theVendor's Solicitor in writing that this condition hasbeen satisfied. This condition is inserted for the sole benefit of the Purchaser.[6] As relevant to this appeal, (standard) cl 8.7 of the Agreement provided:8.7 If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:(1) The condition shall be a condition subsequent.(2) The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.[7] Having signed the Agreement Mr Guest made some inquiries. We will need to consider these in detail.[8] On 6 January 2008 Arcadia entered into an agreement to purchase another residential property, at 49 Ridgecrest, Wanaka, for $1.4 million (the Ridgecrest property). That agreement contained this further term of sale:15.0 This agreement is conditional upon the Directors of Acadia [sic] Homes Ltd approving all aspects of this purchase on or before January 18th2008.[9] On 9 January 2008 Arcadia's solicitors faxed the vendor's solicitors:A G CLARK AND MORE TO THIS LIFE LIMITED – ARCADIA HOMES LIMITED21 WAIMANA PLACE, WANAKAWe act for Arcadia Homes Limited and have received a copy of the Agreement for Sale and Purchase between our respective clients dated 24 December 2007. We are now advised by the directors of our client company that following inspection, valuation advice and ancillary due diligence investigations the directors are unfortunately not satisfied as to the property purchase and accordingly the Agreement is at an end. Our client has asked us to convey its thanks to your client for entering into the conditional Agreement.[10] The vendors did not accept that Arcadia was, in the circumstances, entitled to avoid the Agreement. They served a settlement notice. When Arcadia refused to settle the vendors cancelled the Agreement. The property was resold for $1.41 million on 7 November 2008.High Court proceeding and judgment[11] On 19 December 2008 the vendors sued Arcadia for the losses they had sustained on that resale. That was the claim that came before French J. French J held Arcadia was in breach of the Agreement. She awarded the respondents damages of $632,000 plus contract interest (15 per cent on the sale price of $2 million) to the date of resale, and interest under s 87 of the Judicature Act 1908 on the $632,000 from then to the date of judgment.[12] This appeal was filed on 15 March 2012.Clause 15 – a condition precedent or subsequent?[13] In the High Court Arcadia unsuccessfully sought rectification of cl 15 of the Agreement by substituting the word "prior" for "prime" and by inserting the word "by" before the time "4 pm". Although French J declined rectification, she held that the word "by" was implicit in the clause.4 There is no appeal against the refusal of rectification, so the issue is whether the Judge erred in interpreting cl 15 as it appeared in the Agreement, with the implicit addition of the word "by".4 More to This Life Ltd, above n 1, at [42].[14] Approaching the interpretation task on the principles outlined by the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd, French J held that cl 15 was a condition subsequent in a binding agreement for sale and purchase.5 She gave 11 reasons for that conclusion.6 They can be summarised thus:(a) use of the REINZ/ADLS form of agreement, which includes above the signature spaces:WARNING ... This is a binding contract. Read the information set out on the back page before signing.(b) cl 8.7(1) which made cl 15 a condition subsequent "unless otherwise expressly provided";(c) cl 15 itself referring to "This Agreement ";(d) the provision in cl 15 that it was for Arcadia's sole benefit, entitlingArcadia to bind the vendors by waiving cl 15;(e) the words in cl 15 "subject to and conditional upon" being equally consistent with either a condition precedent or a condition subsequent;(f) the use as an adjective of the word "prime" in cl 15 – "main, or of first importance";(g) the fact that the vendors would be free at any time to resell their property to another buyer if cl 15 was a condition precedent;(h) the phrasing of Arcadia's solicitor's letter of 9 January 2008 – "theAgreement is at an end", and conveying thanks to the vendors "for entering into the conditional Agreement";(i) Arcadia's solicitor's correspondence throughout 2008 consistentlyaccepting that a conditional contract had come into existence;5 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.6 At [84].(j) Arcadia's first statement of defence, admitting the existence of acontract; and(k) Mr Andrew Guest's own evidence.[15] Mr Curry took issue with this reasoning. He submitted cl 15 was a condition precedent which effectively converted the Agreement into an option. Clause 15 did not oblige the directors of Arcadia to do anything and, had they done nothing, the Agreement/option would have lapsed at 4 pm on 25 January 2008. In the event, Mr Curry contended the 9 January fax brought the Agreement/option to an end.[16] Mr Curry categorised French J's reasons (a)–(c) as "untenably circular". As cl 15 was a condition precedent, other clauses could have no bearing on its interpretation. We reject this. It invites us to look at cl 15 and nothing else. That begs the question of what cl 15 means in its context in the Agreement, which, in turn, is to be set in "the commercial or other context in which [it] was made and [in the context of] all the facts and circumstances known to and likely to be operating on theparties' minds ".7 We consider the Judge's reasons (a)–(c) support her conclusion.[17] Mr Curry dealt with the Judge's reasons (d) and (e) together, focusing on thelatter. If Mr Curry's interpretation of cl 15 were correct it renders the words "thiscondition is inserted for the sole benefit of the Purchaser" in cl 15 otiose, because Mr Curry rightly accepted that they entitled Arcadia to waive cl 15. A party does not need to waive an option. So French J was right to treat the inclusion of those words as an indication that cl 15 was a condition subsequent in a binding agreement.[18] As to the Judge's reason (e), Mr Curry sought to equate cl 15 with the clausesin issue in this Court's judgment in BS Developments No 12 Ltd v PB & SF Properties Ltd8 and in the High Court's judgment in Prime Property Group v Amtrust Pacific Properties Ltd.9 Both those cases involved an agreement on the REINZ/ADLS form. It is not clear from the judgment what edition was used in7 Vector Gas Ltd, above n 5, at [19] per Tipping J.8 BS Developments No 12 Ltd v PB & SF Properties Ltd (2006) 7 NZCPR 603 (CA).9 Prime Property Group Ltd v Amtrust Pacific Properties Ltd HC Wellington CIV-2003-485-208, 25 March 2004.Prime Property. In BS Developments the form used was the seventh edition, July 1999.[19] In Prime Property the purchaser had requested the addition of a clause making the Agreement "conditional" upon it completing: 10within 20 working days of confirmation of clause 15 entirely to its satisfaction in all respects, a due diligence investigation of the property including (without limitation) leases, certificate of title, valuation,management contracts [etc].At issue in Prime Property was whether the notice given by the purchaser to the vendor that the contract had become unconditional was effective and, if it was, what remedies were available to the purchaser.[20] The parties agreed, as did the Judge, that the combination of that clause and cl 8.7(1) meant the purchaser effectively had an option subject to the vendor cancelling the contract in writing.11[21] The clause in the BS Developments case provided:1214. Due Diligence14.1 This agreement is conditional upon the purchaser being entirely satisfied with the property as a suitable property investment at the agreed purchase price following the Purchaser carrying out a due diligence investigation of the property, including (but not limited to) an investigation of the following:(a) The proposed physical use of the property;(b) The state of the title of the land;(c) The overall financial suitability of the Purchaser's proposedinvestment in the property and business;(d) The overall financial suitability and commercial viability ofthe Purchaser's proposed involvement of the property.14.2 The parties acknowledge that the condition in clause 14.1 above is inserted for the absolute and sole benefit of the Purchaser and may at any time prior to this agreement being avoided, be waived by the Purchaser giving written notice of waiver to the Vendor.10 At [22].11 At [32]–[33]. Clause 8.7(1) was in identical terms to that in the present agreement.12 At [4].14.3 The parties agree that satisfaction of the condition contained in clause 14.1 shall be at the sole and absolute discretion of the Purchaser and that if the condition is not fulfilled due to the Purchaser not being satisfied with any aspect of the property, the Purchaser shall not be obliged to state any reasons for thePurchaser's lack of satisfaction.14.4 The date for satisfaction of the condition in clause 14.1 shall be the date being 10 working days from the date of this agreement.[22] Of that clause this Court observed:13Clause 14 is worded in a way which makes the satisfaction or non-satisfaction of that condition entirely a matter of the subjective judgment of the purchaser. In that sense, it is not really a condition at all, and the requirement of cl 8.7(2) that the purchaser "must do all things which may reasonably be necessary to enable a condition to be fulfilled" seemshollow. Read literally, it requires the purchaser to convince itself to be satisfied. Read realistically, it provides little room for the vendor to criticise the purchaser for failing to comply with cl 8.7(2).[23] The Court noted that the clause was very similar to that considered in Prime Property, and observed that the resulting undesirable uncertainty "could be avoidedif the arrangement were documented as an option".14 On the appeal to this Court inBS Developments, no issue was taken with the High Court Judge's conclusion thatthe agreement was voidable and not void at the end of the 10 day due diligence period. This Court agreed with the High Court, calling the agreement "an effective option".15 This Court then went on to consider whether a particular fax had the effect of avoiding the agreement – that was the core issue in BS Developments.[24] We do not accept that cl 15 can be equated in its effect with the clauses inPrime Property and BS Developments. Although the word "conditional" is also used in cl 15, these two key aspects of the clauses in the other two cases are absent:(a) a due diligence investigation of the property, unlimited in its scope; and(b) the purchaser being entirely satisfied with the property in all respects.13 At [34].14 At [35].15 At [35].[25] So the clause in the other two cases was directed to the purchaser investigating and being satisfied about the property; cl 15 is directed to thepurchaser's directors approving the Agreement. We refer in [58] and [68] to [72]below to what we consider is the much more limited scope of cl 15.[26] We agree with Mr Curry that the Judge's reason (f) has no bearing on whether cl 15 is precedent or subsequent. As to reason (g), we accept Mr Curry's point thatMr Clark did not state in evidence that he considered he was bound by the Agreement. But that is the whole tenor of his evidence. For example, in a 10 January 2008 email to Arcadia's solicitor he made this request, which is consistent only with Mr Clark treating the Agreement as binding on both parties – as obliging Arcadia to put the Agreement to its directors for their approval:I would like a copy of the directors resolution from their meeting or a copy of the letter sent to you.[27] The Judge's reasons (h) to (j) all involve evidence of Arcadia's conduct. On the approach taken by Tipping J in Vector Gas, such evidence is only admissible "ifit tends to establish a fact or circumstance capable of demonstrating objectively what meaning both or all parties intended their words to bear" (our emphasis).16[28] The Judge did not elaborate on her reason (k), but she obviously had in mind passages such as the following in the evidence-in-chief of Mr Andrew Guest:17Louise [Ms Louise Walker-Hughes, the real estate sales person] told me that Andrew Clark was a property developer and I asked her to explain to the vendor that I would not waste his time and that I was genuine with regard to the purchase but that I had enquiries to make and that the deal would remain conditional but I would try and make it unconditional as early as I could. I assumed that the vendor would accept the clause in good faith.I insisted that the deposit payable under the agreement was only to becomepayable upon the agreement "becoming unconditional" and that the clausewas to state that it is inserted for the benefit of the purchaser and would specify the date of which the condition is to be satisfied.That evidence is consistent with a conditional agreement but not with an option.16 At [31].17 Brief of Andrew Guest, 15 June 2011 at [30]–[31].[29] To summarise, we agree with French J that cl 15 was a condition subsequentin a binding agreement. The Judge's reasons (a) and (b) are the most compelling. Toescape the operation of cl 8.7(1), cl 15 needed to provide expressly that it was a condition precedent. It did not so provide.Did Arcadia have more than one director?[30] Clause 15 made the Agreement subject to and conditional upon approval of the Directors of Arcadia (our emphasis). However, French J held:[78] It follows that as at 24 December 2007 (and indeed at the time of the purported avoidance) the correct position is that Arcadia had only one director, and I so find. Mr Andrew Guest was in fact and in law the only director. Mr Bill Guest may have agreed to become a director, but at the relevant time he was not one.[31] The Judge made those holdings against the following undisputed chronology of events:Date EventNovember or December 2007Mr Andrew Guest asks his brother Bill Guest to be a director of Arcadia. Bill verbally agreed.On or after 25 January 200818Mr Bill Guest signed a form consenting, pursuant to s 152 of the Companies Act 1993, to appointment as a director of Arcadia (for unexplained reasons the form was backdated 3 January 2008).7 October 2009 By unanimous resolution of shareholders pursuant to s 177 of the Companies Act 1993, Mr Bill Guest is appointed a director of Arcadia (such a resolution was required because Arcadia had no constitution and so directors were required to be appointed by ordinary resolution: s 153(2). As this had not happened, the shareholders ratified the appointment by unanimous resolution).[32] Mr Curry submitted the Judge erred because Mr Bill Guest was a de facto director of Arcadia throughout. He submitted that the relevant date for assessing who was a director of Arcadia was 25 January 2008 (the date by which cl 15 was to be satisfied) and not 24 December 2007 (the date of the Agreement). That seems an unnecessary submission, because Arcadia's position is that Mr Bill Guest became a18 In [71] of her judgment, French J stated "It was not disputed that the consent form had beenprepared on 25 January 2008".de facto director of Arcadia as soon as he agreed to accept appointment back in November or December 2007.[33] Mr Curry submitted that s 126(1)(b) of the Companies Act 1993 expressly provides that "director" includes a de facto director in defined circumstances. Thosecircumstances include the prohibition in s 136 on a director agreeing to the company incurring an obligation unless the director believes the company will be able to perform the obligation when required to do so. Mr Curry submitted "by extension,this clause contemplates that a de facto director is empowered to agree to thecompany incurring an obligation".[34] We do not accept this argument. First, s 126(1)(b) has the aim of treating as a director of a company a person who acts in the ways set out in s 126(1)(b) for the purposes of the sections of the Act specified in s 126(1)(b). To understand that aim it is necessary to set out the relevant part of the section.126 Meaning of director(1) In this Act, director, in relation to a company, includes—(b) for the purposes of sections 131 to 141, 145 to 149, 298, 299, 301, 383, 385, 386A to 386F, and clause 3(4)(b) of the Schedule 7,—(i) a person in accordance with whose directions or instructions a person referred to in paragraph (a) of this subsection may be required or is accustomed to act; and(ii) a person in accordance with whose directions or instructions the board of the company may be required or is accustomed to act; and(iii) a person who exercises or who is entitled to exercise or who controls or who is entitled to control the exercise of powers which, apart from the constitution of the company, would fall to be exercised by the board.[35] The sections specified include the provisions about directors' duties (s 136 isone of those sections),19 the provision which makes directors liable on liquidation for transactions for inadequate or excessive consideration,20 the provision allowing securities and charges granted in favour of directors to be set aside on liquidation,21the provision allowing orders to be made against directors for repayment of money or return of property,22 disqualification of directors,23 and prohibitions on certain people from managing companies.24 So the purpose of s 126(1)(b) is to hold liable, or treat as a director, a person who comes within its provisions, not to invest that person with directorial authority. Section 126(1)(b) is not intended to cut across the steps set out in the Act for the appointment of a director. The "extension" part ofMr Curry's argument is a misconceived attempt to constitute Mr Bill Guest a director– to "empower" him to act as a director – for the purposes of cl 15 of the Agreement.[36] Secondly, the evidence does not establish that Mr Bill Guest was a person caught by s 126(1)(b), at least not in respect of the Agreement. French J made thesefindings about Mr Bill Guest's involvement in the Agreement:[110] I also gained the strong impression from the evidence that any consultation with the de facto director, Mr Bill Guest, was perfunctory. It consisted of little more than Mr Andrew Guest verbally advising his brother that he had had second thoughts,25 and Mr Bill Guest rubber-stamping that decision.[37] That finding was based on this evidence-in-chief from Mr Andrew Guest:35. I did not have to consult Bill too greatly on the conditional purchase of the Waimana house before getting to a point where the additionalvaluation evidence I had received along with my concerns withregard to obstruction of the view by the new building in south front of the house presented too much risk to Arcadia and a loss of confidence in that purchase and as a result we felt that Arcadia should not (and in fact then must not) proceed with the purchase. Bill considered that unless there was some huge relief of the uncertainty on those issues I should not proceed and he offered assistance on the assessment of any further properties that may come up. We agreed that this deal was to be brought to an end.19 Companies Act, ss 131—141 and ss 145—149.20 Section 298.21 Section 299.22 Section 301.23 Section 383.24 Section 385.25 Their discussion(s) was never minuted, and there was no resolution.[38] Under cross-examination Mr Andrew Guest added:26 I know the process I went through with my brother in terms of theassessment, I know I spoke to him for almost an hour for January the 9th andthat wasn't to talk about the weather I also, ah, I also had sent him two pix texts earlier in the day with photographs, um, and ah spoke to him for just under an hour on the 8th of January.[39] Mr Bill Guest's evidence-in-chief was:13. In respect of the purchase of a property in Wanaka by Arcadia Homes Ltd, Andrew described the key attributes of the properties he had seen, including the Clark property. Although I did not visit Wanaka myself and see the properties, it was clear to me that Andrew had, after investigation, formed the view that the Clark property had problems from his perspective. I listened to his analysis, and as I had no reason to suggest any further investigation, I supported a decision not to proceed with the purchase of the Clark property.[40] The cross-examination of Mr Bill Guest ended with this exchange in relationto the purchase of the respondents' property:Q And so you say, "I listened to his analysis and as I had no reason tosuggest any further investigation I supported a decision not toproceed with the purchase of the Clark property?"A YesQ So Andrew made the decision and you saw no reason to disagree with it?A Correct.[41] Sections 126(b)(i) and (ii) catch those people who are often referred to as"nominator" or "shadow" directors: that is, those people who direct or have thepower to direct the actions of the appointed director or directors.27 The evidence outlined above at [37] to [40] clearly establishes that Mr Andrew Guest was in no26 Case on Appeal at 328.27 An example of where these subsections may be engaged is where an employee is nominated bytheir employer to be a director on a particular board in order to represent their employer'sinterests on that board. If the employee is required to or accustomed to act on the directions orinstructions of their employer, the employer may be classed a director for the purposes ofs 126(1)(b).way, in terms of s 126(b)(i) and (ii), "required to or accustomed to act" in accordancewith the directions or instructions of Mr Bill Guest. Section 126(b)(iii) catches those people who are not directors but who have managerial powers conferred on them by the company constitution. That subsection has no application in this case because Arcadia did not have a constitution.28 It therefore cannot be said, therefore, that Mr Bill Guest was a person who acted in any way which resulted in him being caught by s 126(b) of the Companies Act.[42] It follows that we agree with the conclusions of French J set out in [30]above. The two steps necessary formally to appoint Mr Bill Guest a director of Arcadia were not complete until 7 October 2009. He was thus not a de jure director at any of the times that could have any relevance to the Agreement, and in particular its cl 15. The last of those times was 4 July 2008 when, by written notice, the respondents cancelled the Agreement, after Arcadia had refused to settle the transaction. Furthermore, for the reasons just outlined, Mr Bill Guest was not at any time a director in terms of s 126(1)(b) of the Companies Act.How did the fact that Arcadia had only one director affect the operation of cl 15?[43] French J viewed cl 15 as a third party approval clause. She explained:29 The purpose of this clause, as represented to Mr Clark and confirmed by its wording, was to accommodate the purchaser's need to consult with thirdparty directors who would not be able to consider the contract until after theChristmas vacation. The word "approval" only makes sense in the contextof an intention to refer the merits of the contract to other directors. The clause implies that there were third party directors who could approve the contract.28 In Fatupaito v Bates [2001] 3 NZLR 386 (HC) at [46]–[47], O'Regan J held that the phrase "which apart from the constitution of the company would fall to be exercised by the board"implies a requirement that, for s 126(1)(b)(iii) to apply, there needs to be a provision in the constitution giving that person powers which would have otherwise been exercised by directors. We note that recently in Britton Built Ltd v Managh [2012] NZHC 2949, Gendall AJ said, in thecontext of an interlocutory application to have liquidation proceedings struck out, "it is not reallycontested here that Mr Bruce Greville could be considered a de-facto or deemed director pursuant to s 126(1)(b)(iii) Companies Act 1993, if he is found to have exercised powers akin tothose of directors of the Company, even if that was not provided for in the Company's constitution."29 At [91].[44] The Judge was satisfied that the word "directors" in cl 15 meant directors lawfully appointed and able to act at the time the Agreement was made.30 The Judge then stated:[93] It follows that at the time the contract was formed, there was in fact no one else whose approval was required. Mr Andrew Guest was the only director, and it was he who signed the document in his capacity as director, having personally selected the property and negotiated the terms of the purchase. It was he who offered the price of $2m. As sole director, he had the power to enter into a contract binding on the company. He had already communicated his approval by signing a formal written agreement.[100] There being no other directors, and Andrew Guest having already approved the agreement, I accept Mr Withnall's further submission that theconditions necessary for cl 15 to operate according to its terms were never present. Clause 15 was, in the circumstances, never operative. It was forArcadia's sole benefit, and is severable from the balance of the contract, leaving an unconditional contract. That contract remained on foot until cancelled for repudiation by Arcadia in refusing to settle.[45] Mr Curry advanced several arguments in an effort to expose this reasoning as erroneous. First, he argued that the reference to "directors" in cl 15 should beinterpreted as encompassing Arcadia's sole director, if there was only one. This argument invoked s 127 of the Companies Act which provides that the terms "board" and "board of directors", in relation to a company, mean the company's director if ithas only one director. We do not follow that argument. The Judge was not concerned with the meaning of either of the two terms defined in s 127. They are not used in cl 15.[46] Secondly, Mr Curry argued that French J was not justified in implying into cl 15 a term that the words "other than Mr Guest" were required after the referenceto Arcadia Homes Ltd. We do not follow this argument either. It is directed to [91] of the judgment, which we have set out in [43]. What the Judge was saying in the last sentence of that paragraph is that cl 15 conveyed to a person reading it that Arcadia had directors other than Mr Andrew Guest because:(a) the clause used the plural – "directors"; and30 At [92].(b) Mr Andrew Guest had signed the Agreement and added the word"director" after his signature.[47] The Judge was not implying a term, nor any words, into cl 15. She was merely interpreting the words that were in the clause, in the light of the fact that Mr Andrew Guest had signed the Agreement as director.[48] Thirdly, Mr Curry submitted French J had conflated Mr Andrew Guest and Arcadia, treating them as the same entity and overlooking that company law specifically allows for a company to have only one director. This criticism was directed to paragraphs [95], [98], [99] and [100] of the judgment. To take [98], Mr Curry argued the conflation was in the wording:It would involve attributing to Mr Guest an intention to require Mr Guest to seek his own approval for something he had already done.(Mr Curry's emphasis.)[49] We should immediately point out that what the Judge in fact said in that part of [98] was:It would involve attributing an intention to them [the parties] to require Mr Guest to seek his own approval for something he had already done [50] Unlike the previous two arguments, we follow this third one, but we do not accept it. In the paragraphs criticised by Mr Curry French J focuses, in relation to the operation of cl 15, on the fact that Mr Andrew Guest was the only director of Arcadia. It was, after all, the directors of Arcadia who were to approve the Agreement. Arcadia as a legal entity separate from Mr Andrew Guest does notfeature in the Judge's reasoning because it has no relevance to it.[51] Fourthly, Mr Curry submitted that Mr Andrew Guest had signed the Agreement as the authorised signatory of Arcadia. He pointed out that the Judgeaccepted this because she stated "[the Agreement] was signed on behalf of Arcadia by Mr Guest ".31 That is surely correct. But it does not follow that Mr Guest did not sign the Agreement in his capacity as a director of Arcadia or, as the Latin31 At [14].succinctly puts it, qua director. As we pointed out in [4] above, before his signature Mr Guest added 'Director'. The correct position is that Mr Andrew Guest signed the Agreement both as the director of Arcadia and as its authorised signatory.[52] Whether cl 15 had any practical effect given that Mr Andrew Guest hadsigned the Agreement and was Arcadia's only director is a nice question. On the onehand, there is force in French J's view that it made no sense to interpret cl 15 as affording Mr Andrew Guest an opportunity to approve what he had agreed to. TheJudge's interpretation is supported by the post-agreement conduct of both parties. What each did is consistent only with an interpretation that cl 15 envisaged approvalby a board of at least two directors. Arcadia's conduct comprised its attempts toformalise, with retrospective effect from 3 January 2008, the appointment of Mr BillGuest as a director. On the respondent's part, on 10 January 2008 Mr Clark emailed Arcadia's solicitors making this request:I would like a copy of the directors resolution from their meeting or a copy of the letter sent to you.That was Mr Clark's initial response on receiving the 9 January fax from Arcadia'ssolicitors advising the Agreement was at an end.[53] The alternative view – and the one we prefer – is that cl 15 did operate to give Mr Andrew Guest a month to consider whether he should approve the Agreement on behalf of Arcadia. That involves drawing a distinction between Mr Andrew Guest signing the Agreement as director, and his approving it as director. The approach envisages Mr Andrew Guest making or commissioning inquiries or investigations, or obtaining reports or information, and resulting consideration of the Agreement in the light of that, all of which had not been possible – or at least had not been undertaken – when the Agreement was signed.[54] If this alternative approach is accepted, then the question arises, what sort of investigations or inquiries or information gathering by Mr Andrew Guest did cl 15permit? Or, put more shortly, what did Arcadia's director need to do to satisfy cl 15?Against the event that she was wrong in saying that cl 15 had no legal effect, French J did consider this further question. We now turn to it.What did Arcadia's director need to do to satisfy cl 15?[55] French J answered this question in the following passage in her judgment (though she does so on the assumption – which she had rejected – that Mr Bill Guest was also a director of Arcadia):[102] Clause 8.7 of the agreement required Arcadia to do all things that may be reasonably necessary to enable the condition to be fulfilled by 25 January 2008.[103] In the circumstances, that means in my view as follows.32 First, that Mr Andrew Guest was obliged to report to his fellow director in good faith on the details of the transaction to which he had conditionally committed the company. His briefing would be required to objectively provide sufficient information and background for the director(s) to be able in turn to make a bona fide independent decision on the merits based on objective consideration. As Mr Withnall acknowledged, the scope of the matters able to be considered by them would be broader than say the matters which asolicitor is able to take into account under a "subject to solicitors' approval"clause.33 Nevertheless, the consideration must still be within the confines of their role as director. The sorts of matters to be taken into account must be the sorts of matters which directors usually take into account when considering the acquisition of a major asset.[56] In considering the "sorts of matters" the Judge referred to at the end of her [103], a good starting point is to look at the matters Mr Andrew Guest himself had in mind when he inserted cl 15 into the draft Agreement. We say that, not only because Mr Andrew Guest put the clause in, but because what he said at that stage has cogency, given his credentials. We first outline what those credentials were.[57] Mr Andrew Guest said in evidence that he had been admitted as a barrister and solicitor in 1999, and had held a practising certificate for the last 11 years. He said he had been involved in property investment and management for the past 25 years. He was an executive director of the Viranda Group of companies. He agreed that: Among the services that Group offers to its clients are research, theproperty investment market, selecting those propositions that best suit the client requirements.32 Relying by analogy on decisions such as Provost Developments v Collingwood Towers Ltd[1980] 2 NZLR 205 (CA) and Lerner v Schiehallion Nominees Ltd [2003] 2 NZLR 671 (HC).33 Mr Withnall acknowledged, for example, that if the directors were to obtain a registered valuation that was significantly lower than the purchase price, then that was capable of being a valid reason for withholding approval.He said that Viranda had a staff of 10 and managed 400 buildings. He was a directorof "close to 100 companies" and – we think describing the Viranda Group's asset base – stated "the wider estate's worth a bit over $10 million".[58] When the Agreement was being drawn up by the estate agent, Ms Walker-Hughes, of Professionals Real Estate in Wanaka, Mr Andrew Guest told her that he wanted a "subject to directors' approval" clause put in the Agreement, and dictated cl 15 to her over the telephone. He said he outlined to Ms Walker-Hughes the inquiries Arcadia would need to make before its directors were in a position to consider approving the Agreement. They were these:34(a) asking its lawyer to "look at the title issues";(b) "enquiries with regard to the title on the empty Lot in the front of the property whether it was one Lot or two potentially resulting in thepotential of either one house or two which might obstruct views to thelake";(c) "to look at the plans for the house that was starting to be constructed on the Lot to the south;(d) "to see if I could also negotiate the purchase of chattels from the vendor";(e) "to check on financing from the bank as bridging finance would berequired pending the sale of the Queenstown apartment"; and(f) "to be quite sure that the selling figure that the vendor was expecting represented true value and could be supported".[59] We interpolate here that Ms Walker-Hughes recalled Mr Andrew Guest mentioning to her (b) and (c) and also that "the purchaser wanted to check into the34 These are drawn from paragraph 20 of Mr Andrew Guest's brief of evidence.zoning and that also he had to figure out if the internal layout would work for him". She did not recall Mr Andrew Guest mentioning (a), (d), (e) or (f).[60] In the course of cross-examination, Mr Guest was asked about most of these matters. As to (a) he agreed that he had never requested either a LIM or a guaranteed title search. He explained – twice – "it wasn't required". As to (b), he agreed that he had not done that either. He stated "I didn't need to make those enquiries". Similarly with (c), he stated "I didn't need to do that, no". He agreed he hadcommenced a process to see if he could purchase the chattels – (d). As to (e), he agreed that he needed substantial bridging finance because the Queenstown apartment property sold for $690,000, but intimated that bridging finance was not anissue. It was at that point that he mentioned Viranda's $10 million plus asset base. Somewhat out of the blue in the course of re-examination he stated "I contacted my bank about Waimana". Finally, on (f), he agreed that he had not consulted a valuer atany stage in relation to the property. Again he stated "I didn't need to".[61] In re-examination Mr Andrew Guest was asked why he had not obtained a title search for the Waimana property. He answered:Because the information that I was receiving about valuation, other transactions that had gone on in the district, what potentially could happen on the very sizeable lot to the west of the subject property and the extent of the building platform on the house being built to the south told me that thisproperty had considerable risk associated with it. It certainly wasn't worththat figure.Then, asked why he did not need to consult a valuer, he explained:Because I had sufficient evidence from the discussions with the agents, thediscussions with the particular vendor's agent in this case and more researchbeing in Wanaka on the transactions that had taken place. The, the property was well under that, that sum which I now know is confirmed by Mr Clark'sown valuation the following month. So my assessment was correct and it was detailed, you know, barring the odd social occasion, this was the projectfor this break. I, I took it seriously. Not frivolously. [62] Also in re-examination he explained for the first time that he had obtained some information from the Internet:Ah, one was Google [E]arth searching so that I could take a, ah, topographical view of the house, the lines to the lake, the distances to thelake, measurements and the size of the lot in front to see if it was subdividable as of right, which it is. And the size of the building platform on the – what I now know to be the very substantial house to the southwest. I also did searches with regard to, um, Terralink.co.nz to find how long MrClark had owned the place which would be fairly standard for me. Can't recall the information but he'd owned it for some time. I also did, ah,TradeMe and real estate agency type site to get a comparison so I could determine a comparison between rate per square metre of freehold land, rate per square metre of building cost, because a relevant factor in valuation is the comparison between replacement cost and second-hand value. So I put a lot of information together and it wasn't a, a labour of burden, it was alabour of love. I was enjoying this process.[63] To summarise thus far, of the six matters set out in [58] above, Mr Andrew Guest accepted under cross-examination that he had only embarked on (d). In re-examination he attempted to counter that in respect of (b), (c) and (e). We note that French J made the following credibility findings about Mr Andrew Guest:"I did not find Mr Guest a particularly credible witness."35"I also found other aspects of Mr Guest's evidence inherently implausible."36[64] In the passage in his evidence-in-chief set out in [37] above, Mr AndrewGuest referred to "additional valuation evidence" he had received. Undercross-examination it emerged that this comprised an email sent to Mr Guest by Ms Cecily Anderson of Professionals Real Estate in Wanaka (Ms Walker-Hughes'firm) on the afternoon of Saturday 5 January 2008. That is the day before Mr Andrew Guest signed the Agreement to purchase the Ridgecrest property. The content can be summarised thus:it advised she would need to check with the Council on Monday about the set-backs in Waimana Place, as the zoning is rural residential and the districtplan "isn't that clear";it advised no properties had sold in Waimana Place in 2005 or 2007;35 At [50], repeated at [54].36 At [53].it gave the sale prices of three sales in Waimana Place in May and August 2006;it advised that Ms Walker-Hughes had spoken to Mr Clark "re the furniture and we should have a decision by Monday".[65] It was put to Mr Andrew Guest that the 5 January email contained sale figures for three other properties in Waimana Place over a year earlier, and was not valuation evidence relating to 21 Waimana Place. He did not accept that, although he did accept that the content of the email was "not conclusive". Mr Andrew Guestagreed that the Wanaka property market had been very buoyant between the dates of the three 2006 sales recorded in the 5 January email and the end of 2007. There followed this cross-examination:Q Okay, what other valuation evidence did you have apart from this?A From the 18th of December I'd embarked on quite an extensiveexercise visiting five agencies, making comparisons of 12 propertiesand I'd carried out as much Internet research as I could. And when you look at, ah, the area of freehold lots, when you look at comparable sales, even ones 12 months beforehand, and when you have discussions with other agencies collectively who have all of the listings in Wanaka, you can form a competent view about value.Q All right. And you had done all that on the 19th, the 18th and the 19thof December hadn't you?A No.Q You had had all those discussions with agents on your 24 hour visit?A No. That's absurd. How would I have set up those meetings if Ihadn't been in contact with the agents beforehand? My interest inhaving a property down there, um, was born really in about November and from that point it was probably in the forefront of mymind over my lifestyle move, my family's lifestyle move in Central Otago. The idea of arriving on the 18th and embarking on the exercise is nonsense. I embarked on a considered, careful, research exercise to locate a suitable property.Q So you'd done all that before you arrived in Wanaka on the 18th?A I had. It wasn't conclusive or 100% but it was as much time as Icould allocate and I felt I had a reasonable knowledge.[66] The somewhat obvious point about that "other valuation evidence" is thatMr Andrew Guest had all of it by the time he entered into the Agreement on 24 December 2007.[67] French J noted that Mr Andrew Guest had also sought advice from two Wanaka property owners.37 This refers to the following part of an answer Mr Andrew Guest gave on 7 October 2009 to an interrogatory. Mr Guest deposed:Between 24 December 2007 and about 5 January 2008:9.2 I showed the property to my brother, Michael Guest, a Wanaka property owner, and sought his opinion of the value of the property.9.3 I also showed the property to a friend and long-time Wanaka resident, Mr John Laidlaw, and sought his opinion of the value of the property.[68] In relation to cl 15, cl 8.7(2) of the Agreement obliged Arcadia to "do allthings which may reasonably be necessary to enable the condition to be fulfilled bythe date for fulfilment".[69] In Lerner v Schiehallion Nominees Ltd Potter J considered whether the words"satisfactory to the purchaser" in a contractual clause imported a subjective orobjective test.38 Having considered the views expressed in the leading texts and a number of decided cases, Her Honour held:39 A party will be bound by the contract to which he has committed unlesson the basis of a fair and reasonable decision in terms of a condition subsequent inserted in the contract for the benefit of the party seeking to rely upon it, he is entitled to be relieved of his obligations under the contract.[70] In order to make "a fair and reasonable decision" under cl 15 as to whether ornot to approve the Agreement, we consider Mr Andrew Guest needed to have at least a guaranteed title search for the Waimana property, a LIM and a valuation from a registered valuer. He did not have any of those three things.37 At [108].38 Lerner v Schiehallion Nominees Ltd [2003] 2 NZLR 671 (HC).39 At [38].[71] It is significant – indeed quite telling – that on Monday 7 January 2008 he contacted his solicitor to arrange an urgent LIM and a guaranteed title search for the Ridgecrest property he had purchased conditionally the previous day.[72] Mr Andrew Guest claimed for the first time in re-examination that he had done some searching on the Internet but there had been no discovery, nor was there anything else, to substantiate that. The only "hard" information Mr Andrew Guest obtained after signing the Agreement was the sales information in the 5 January 2008 email summarised above in [64].[73] In their 9 January 2008 fax to the respondents' solicitors (set out at [9]),Arcadia's solicitors stated:We are now advised by the directors of our client company that following inspection, valuation advice and ancillary due diligence investigations the directors are unfortunately not satisfied as to the property purchase and accordingly the Agreement is at an end.[74] When questioned about that letter Mr Andrew Guest stated "They're his [the solicitor's] words but they're my instructions". He said he had not used the words"inspection or valuation advice" but "very likely" had, in instructing his solicitor,mentioned "due diligence".[75] French J observed:[109] My general impression from the evidence was that any further enquiries undertaken between 24 December 2007 and 9 January 2008 were limited.40That impression, if anything, understates the position.[76] What actually happened or did not happen emerges fairly clearly from all the evidence. Having signed the Agreement, Mr Andrew Guest took few of the steps he had himself said would be necessary to enable him to comply with cl 15. And he took none of the important steps. To be fair to him, there were only seven workingdays between the signing of the Agreement on Christmas Eve and the solicitor's40 The evidence does not support the claim in Arcadia's solicitors' letter of 9 January 2008 that thedecision not to approve was made following valuation and due diligence.letter of 9 January 2008. On 6 January he purchased a different property conditionally, and immediately set about taking proper steps to enable him to make this other agreement unconditional. Three days later on 9 January he purported to terminate the Agreement. What French J concluded in the following passage in her judgment is well justified:[95] It is an inescapable inference from the evidence that Mr Guest employed cl 15 as a device to lock the plaintiffs into holding the property over the critical summer period without providing any consideration, while he looked around to see if he could find something better.41 In effect, what was to all outward appearances a third party approval clause was in reality a cover to obtain an option which he must have known Mr Clark would be unlikely to give having regard to the time of year.[77] The evidence also well supports French J's conclusion:[111] On anyone's view of it, that is not what was contemplated by cl 15.42[78] We agree. If cl 15 operated at all, it was breached by Arcadia because it did not comply with cl 8.7(2) as it related to cl 15.Result[79] The appeal is dismissed.Costs[80] Mr Withnall invited us to award costs against the liquidator personally, on the basis that he is indemnified by the funder of this appeal. Mr Withnall did not elaborate.[81] If Mr Withnall wishes to pursue that request, then he is to file and serve a memorandum by 19 July 2013. The memorandum should provide us with details of the funding arrangement, and refer us to any authorities Mr Withnall relies on. Any memorandum in response is to be filed by 2 August.41 As to the effect of which, see La Rosa v MacEnnovy Trust Ltd (2011) 11 NZCPR 930 (HC).42 By "it", French J was referring to Mr Bill Guest rubber-stamping Mr Andrew Guest's decision,which was made on the basis of only a few of the inquiries Mr Andrew Guest himself contemplated making at the time he inserted cl 15 into the Agreement.[82] In the event that Mr Withnall does not file a memorandum in terms of [81], then our order is that the appellant is to pay the respondents' costs for a standardappeal on a band A basis with usual disbursements.Solicitors:McVeagh Fleming, Auckland for the AppellantLucas & Lucas, Dunedin for the Respondents