LOVE, LOVE AND TRUSTS LIMITED AS TRUSTEES OF THE BARCLAY TRUST V AUBURN APARTMENTS LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) COA CA170/2011

LOVE, LOVE AND TRUSTS LIMITED AS TRUSTEES OF THE BARCLAY TRUST V AUBURN APARTMENTS LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) COA CA170/2011 22 February 2012IN THE COURT OF APPEAL OF NEW ZEALANDCA170/2011[2012] NZCA 34BETWEEN DOUGALL LOVE, PATRICIA LOVEAND TRUSTS LIMITED AS TRUSTEESOF THE BARCLAY TRUSTAppellantsAND AUBURN APARTMENTS LIMITED (INRECEIVERSHIP AND INLIQUIDATION)RespondentHearing: 24 November 2011Court: Ellen France, Stevens and Wild JJCounsel: E St John for AppellantsS R G Judd for RespondentJudgment: 22 February 2012 at 3:30 PMJUDGMENT OF THE COURTA The appeal is allowed.B The judgment of the High Court is set aside.C The respondent is to pay the appellants' costs for a standard appeal on aband A basis and usual disbursements. The respondent is also to pay theappellants' costs in the High Court on the 2B basis allowed by thatCourt, with disbursements to be fixed by the Registrar of that Court failing agreement.____________________________________________________________________REASONS OF THE COURT(Given by Wild J)Introduction[1] The issue on this appeal is whether a judgment of Ellis J correctly interpreted a special condition in an agreement for the sale and purchase of an apartment purchased off plans, and not yet built.1[2] Before considering her Honour's interpretation of the agreement, andexplaining why we disagree with it, we outline what happened between the parties.The factsThe background[3] The agreement in issue on this appeal was for the sale and purchase of anapartment in a proposed development called ―Maison Apartments on Huron Street,Takapuna, in Auckland. A resource consent for this development had been granted to a company called Burns Properties Ltd early in 2005. Subsequently the respondent (Auburn) took over the development and marketed it through PremiumReal Estate Ltd (Premium) on the basis of revised architects' plans (the 2006 plans).[4] The Loves were real estate agents working for Premium when it began marketing the Maison Apartments. Neither of the Loves was directly involved in the selling of the Apartments. However, the Loves were interested in purchasing an apartment suitable for them to shift into and live in after their children had left their existing family home. They wanted an apartment with two good sized bedrooms and a balcony for outdoor entertaining. Their professional advice was that a balcony, to be useable for outdoor living, needed to be at least 1.8 metres wide. The Loves became interested in the Maison Apartments.[5] The promotional material for Maison Apartments comprised a glossy marketing brochure and the 2006 plans. The latter was a series of scaled architectural floor plans for each of the different types of apartment on offer. After1 Love v Auburn Apartments Ltd HC Auckland CIV-2009-404-725, 28 February 2011.examining this material the Loves decided Unit 211, an apartment type E, met theirneeds and budget. Unit 211 was one of the ―model apartments featuring in thepromotional material. That material described ―typical apartment E as having a floor area of 88 square metres and a ―terrazze of 23 square metres. That ―private and spacious terrazze was referred to in the brochure as one of the ―key features ofthe apartment. Despite the promotional material referring to ―typical apartment E,there was only one such apartment. There was also one apartment type E1, but it had a floor area of 75 square metres and an 18 square metre terrace.[6] The 2006 plans were drawn to scale, although the scale was not recorded onthe plan for the type E apartment. Using that scale, the ―terrazze or deck of theapartment type E measures 1.8 metres wide excluding the planter box. Similarly scaled, the deck is 23 square metres and the planter box (separately drawn on the plan) is seven square metres.[7] Three points about the 2006 plan of the inside of the apartment type E aresignificant. First, the plan showed a table situated on the ―terrazzo with six chairsplaced comfortably around it. Secondly, two dotted lines were marked on the planwith the notation ―joinery line as per sept 2004 [resource consent] — may have to be re-enstated. Thirdly, the plan showed a small pillar against the wall in the masterbedroom, but with space easily to move around the bed and in particular to move between the pillar and the queen size bed which was also shown to scale on the plan.[8] The notes on the 2006 plans include these:Note:all areas preliminary only, subject to final measurementsMethod used to measure areas as followsAll areas measured from the centreline of common walls or the outside of exterior walls. Deck areas measured from outside of the deckline.Dimensions may change.Every attempt has been made for accuracy the information portrayed in this document is subject to resource consent, structural and service coordination and compliance to any statutory or legal requirement. Images are artists impressions only. Please refer to sale and purchase agreements for details, finishes and specifications.[9] This background is important because the Loves purchased apartment 211―off the plans. Although the building at Huron Street was there at the time theLoves entered into the agreement, its development into residential apartments had not begun. Resource consent for the development as per the 2006 plans was not granted until May 2007. The construction work then began, with practical completion around November 2008.The agreement[10] As trustees of Barclay Trust, their family trust, the Loves and their co-trustee,Trusts Ltd (we will refer to the trustees simply as ‗the Loves'), entered into a writtenagreement with Auburn for the sale and purchase of Unit 211. The agreement was in writing dated 11 September 2006. The purchase price was a net $707,750 ($745,000less a 5 per cent or $37,250 discount for the Loves' commitment ―prior to the official launch date). Although the Loves were shown on the agreement as ―Sales Person,they shared the discount with the Premium agent who in fact secured the sale.[11] Ellis J rightly described the agreement as ―not a particularly elegant document because ―it was cobbled together from three different sources. Toward its start, the agreement contained an ―Operative Clause which provided:It is agreed that the Vendor sells and the Purchaser purchases the Units, fixtures and fittings and chattels, upon the particulars set out above and the terms of this within sale and purchase agreement, including the general conditions, the special conditions and specifications enclosed.[12] There followed the printed general conditions 3.8–13.2 from the seventh edition (2) of the form approved by the Real Estate Institute of New Zealand and Auckland District Law Society (REI/ADLS form), then special conditions numbered 14.0 through 38.1. We will revert to some of these. Finally, the agreement contained this special condition, on its own page, in a different and bolder type, in a differentformat than the preceding special clauses, and with the number ‗39' handwritten in:39. This agreement is conditional on Apartment 211 being built as per the attached layout and plan.Should the joinery line be re-enstated as per September 2004 Resource Consent, the developer shall notify the purchaser. The purchaser shall then have the right to withdraw from this agreement or re-negotiate with the developer a new pricing structure, which will reflect the difference in total area.The ―attached layout and plan referred to in this clause is attached also to thisjudgment. We will revert both to condition 39 and to the layout and plan attached to the agreement.Agreement not unconditional[13] On 14 December 2008 the Loves' solicitors faxed Auburn's solicitors. The fax referred to the Loves' earlier cancellation of the agreement. Without prejudice tothat, it stated that the agreement ―was entirely conditional upon apartment 211 being built as per the plan attached to the agreement. The fax stated that the Loves hadinstructed that apartment 211 had not been built in accordance with the plan attached to the agreement, and provided detail including the following:1. The deck area is 15.97 sq/m, not 23 sq/m as declared on the agreed plans and in the unit specifications. The plans attached show the deck as providing for a 6 seat outdoor dining table but the reduction of over 30% from the original plans makes the deck unusable with outdoor furniture.2. In respect of the internal structure pillars:The as built pillars are 500 x 700 not 150 x 150 (approx) as shown on the agreed plans. As such they intrude significantly into the rooms unlike the agreed plans.The enlarged size of the pillar in the master bedroom renders access to a queen sized bed impractical on one side and the location of a bedside cabinet impossible.The Northern most pillar is located with an unusable and unsightly void between it and the end wall. The agreed plan shows this pillar located unobtrusively in the room corner.The letter concluded by asserting that Auburn was ―in no position to call forsettlement because of its failure to comply with the express condition contained inclause 39.[14] Ellis J's judgment chronicles earlier events. We mention two briefly. In July2008 the Loves had inspected the unfinished apartment complex. Although Mrs Love deposed in evidence that she was ―shocked and gutted at what she saw,the Loves took no action. The second event was a 10 October 2008 fax sent by theLoves' solicitors to Auburn's solicitors purporting to cancel the agreement pursuantto the sunset clause 26.1 because it could not be settled by the Estimated Completion Date of 30 September 2008. We need not go further into these earlier events because they are not relevant to this appeal. Auburn does not contend that the Loves waived their right subsequently to rely on condition 39, and the Loves no longer rely on theground of cancellation asserted in their solicitors' 10 October 2008 fax.The Judge's interpretation of condition 39[15] Ellis J began by expressing the view that the first sentence of condition 39was ―clear enough on its face. She added that it was reasonable to assume that theterm ―layout and plans could be regarded as more or less synonymous with ―plans and specifications as defined in clause 14.1(3). That definition provided:"Plans and Specifications" means the plans and specifications for the Works to be lodged with the Territorial Authority for the purpose of obtaining a building consent and being substantially in accordance with the outline drawings, plans and specifications supplied to the purchaser by the vendor prior to the purchaser signing this agreement but subject to any variations or amendments made from time to time in accordance with this agreement.[16] The Judge then recorded Mr Judd's submission, notwithstanding this ―surface clarity, that the first sentence of condition 39 should be read down, and its scope limited by and to the specific issue dealt with in the two sentences that follow, namely the reinstatement of the 2004 joinery line. Of this submission the Judge said:[69] I confess that my initial response to Mr Judd's position was not afavourable one. However with the benefit of reflection I have formed the view that he is correct, for reasons I shall now give.[17] Before we consider the Judge's reasons, we mention two preliminary mattersrecorded by Ellis J as relevant to the interpretation of condition 39. The first was that if any ambiguity as to its interpretation arose, the construction that favoured Auburn was to be preferred since the Loves had drafted condition 39. It does notappear from the judgment that Ellis J considered the contra proferentem principle was actually engaged. Although Mr Judd argued for the construction of condition 39 referred to in [16] above, he did not contend there was an ambiguity in condition 39. And we do not see any.[18] Second, the Judge recorded that she took no account of the Loves' evidenceas to their reasons for including condition 39 in the agreement or the meaning they intended it to convey. That is correct and uncontentious: Vector Gas Limited v Bay of Plenty Energy Ltd.2[19] The Judge's first reason for accepting Mr Judd's interpretation of condition39 involved the different contractual consequences it contained. She noted that the first sentence made the agreement conditional on the apartment being built to plan. But the consequences for failure to meet that condition were specified in the next two sentences, which were limited to the possible reinstatement of the 2004 joinery line. The Judge considered that that gave rise to an inference that those latter two sentences were intended merely to elucidate or explicate the first sentence and that the ambit of the first was therefore limited by the latter two.[20] We disagree. As the Judge stated, the first sentence of condition 39 ―is clearenough on its face: the agreement is conditional on apartment 211 being built asper the layout and plans attached to the agreement. That makes straightforward sense where the Loves were agreeing to buy, off the plans, an apartment that had not yet been built.[21] Strictly viewed, the rest of condition 39 was unnecessary. It reiterated theLoves' right to withdraw from the agreement if the 2004 joinery line was ―re-enstated. What it added was the alternative right for the Loves to re-negotiate the price in that event.3 Reinstatement of the 2004 joinery line would have had the2 Evidence that is simply declarative of the subjective intentions of one party must be disregarded:Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [14] per Blanchard J. This is the most recent and authoritative New Zealand statement of principles that can be traced back through a legion of cases, particularly Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL), at least to Prenn v Simmonds [1971] 1 WLR 1381 (HL).3 We accept that the second point of condition 39 was arguably unenforceable, since it was essentially an agreement to re-negotiate.consequence that the area of the deck increased by nine square metres to 32 square metres, at the expense of a reduction in the area of the interior of the apartment from 88 square metres to 79 square metres. Given the Loves' requirements for anyapartment they bought as their future home, and they are set out in [4] above, this part of condition 39 also made sense. Apartment 211 with the 2004 joinery line reinstated may still have been acceptable to the Loves, though at a reduced price.[22] The Judge's second reason, or perhaps an expansion of her first, was to inferthat the first sentence of condition 39 was merely intended to constitute a heading, or a broad-brush summary of the substantive content that followed. She considered that that was arguably supported by the typographical layout of the clause. Her Honour considered it reasonable to assume that condition 39 was intended to mirror the drafting of the other ―special conditions which immediately preceded it. Shepointed out that each of these began with a summary heading in bold, followed by a separate substantive paragraph or paragraphs. Condition 18, which we have set out in [26] below, illustrates what her Honour was referring to.[23] Again, we disagree. Unlike all the other special clauses that preceded it, condition 39 did not have a bold heading. The first sentence of condition 39 is not a heading. Unlike the headings in all the other special conditions it ended with a fullstop. Nor does condition 39 follow the ―bullet point approach of the precedingspecial conditions. Further, we have already made the point that all of condition 39 is in the same, bold typeface, contrasting to that of the preceding special conditions. For those reasons, we do not see condition 39 as an attempt to emulate the structure— a heading followed by operative clause(s) — of the preceding special conditions.[24] Ellis J's third reason for favouring the narrow interpretation of condition 39 contended for by Mr Judd related to the preceding special conditions. Given themeaning that the Judge had held was ―clear enough on its face, the first sentence ofcondition 39 contradicted some of the earlier special conditions. While that―contradicting interpretation of condition 39 was accepted by the Judge to be openas a matter of law, she preferred to interpret condition 39 as limited to the joinery line issue, because then it was consistent with the earlier special conditions.[25] We disagree with that approach. If and to the extent that condition 39 conflicts with the earlier special conditions, we consider it must prevail. The printed REI/ADLS form conditions in the agreement were standard in this agreement, as they are in most New Zealand agreements for the sale and purchase of property. The special conditions in the agreement were special to the Maison Apartments development. They were in each agreement for the purchase of an apartment in thedevelopment. But special condition 39 was specific to the Loves' agreement withAuburn for the purchase of the only apartment type E in the development. In thatsense, it was a ―special special condition. It was added by the Loves, and acceptedby Auburn, and has the effect we have outlined in [20] above. Acknowledging that, Mr Judd conceded that condition 39 must be given priority over the preceding special conditions in the agreement, insofar as they conflict. We consider thatconcession correctly reflects the parties' intention.[26] Our conclusion, that condition 39 prevails, renders it unnecessary to examine the suggested conflicts between condition 39 and the earlier special conditions. However, we point out that the conflicts are not as extensive as contended for, or as found by Ellis J. For example, the Judge considered that the interpretation we have adopted put condition 39 in conflict with condition 18.1 and rendered condition 18.1 otiose. Including its heading, condition 18.0 provides:18.0 Variations18.1 Variations to or departures from the Plans and Specifications (including substitutions for any materials which may not be available) may be made by the vendor in the course of construction of the Works, provided that the substitutions, variations or departures do not make any appreciable reduction in or have any material adverse effect on the value, appearance or usefulness of the completed Works.[27] We accept that condition 39 overrides condition 18.1 insofar as both deal with the Plans. But, unlike condition 39, condition 18.1 refers also to variations to ordepartures from ―the Specifications. In that respect, Mr Judd accepted thatcondition 18.1 has contractual work to do notwithstanding condition 39. That concession is correctly made. Take this example. The hardware specified for apartment 211 turns out to be unavailable. Consequently, the specification is varied, substituting hardware that does not materially affect the value, appearance orusefulness of the apartment. Condition 18.1 entitles Auburn to make that variation and substitution. Condition 39 does not engage.[28] Another ―very clear conflict contended for by Mr Judd was betweencondition 39 and special condition 18.5:18.5 No errors or misdescription of the Property or the Units shall annul the sale and neither party shall be entitled to compensation for any error or misdescription of the Property or the Units.[29] We do not agree with Mr Judd. Condition 18.5 is limited to misdescriptions of the Property or the Unit. The Property is defined in two places in the agreement, both giving the legal description by reference to the underlying certificates of title(or title identifiers, as they are now called). The ―Unit is similarly defined in the agreement, as the unit described in the Summary of the agreement.4[30] We accept that condition 39 irreconcilably conflicts with, and therefore overrides, special conditions 18.3 (dealing with alterations to the draft Unit Plan) and 20.1 (dealing with variations to measurements and areas).[31] Mr Judd submitted that the parties' post-agreement conduct supported the interpretation of condition 39 he contended for. In Vector Gas Ltd v Bay of Plenty Energy Ltd, Tipping J stated that the key to the admissibility of evidence of post-contract conduct is that it ―tends to establish a fact or circumstance capable ofdemonstrating objectively what meaning both ... parties intended their words tobear.5[32] Mr Judd had unsuccessfully urged the parties' post-contractual conduct on Ellis J. Although the Judge considered that conduct could not in any sense bedeterminative, on balance she viewed it as tending ―somewhat to reinforce herconclusions on the interpretation of condition 39.64 The definition in special condition 14.1(9) also refers to the definition contained in cl 1.1 of the agreement, but there is no cl 1.1. It is errors or misdescriptions in those legal descriptions that are encompassed by condition 18.5. Any such error or misdescription would not necessarily engage condition 39.5 At [31].6 At [81].[33] We agree with Ellis J that the parties' post agreement conduct is anything butdeterminative. Mr Judd relied first on a letter dated 18 April 2008 sent by the Loves' solicitors to Auburn's solicitors containing this inquiry:I refer you to Clause 39 of the Sale and Purchase Agreement. Are you able to confirm that the joinery line is not going to be re-enstated as per September 2004 Resource Consent?[34] We do not consider that letter, written while the apartments were under construction, much supports the interpretation Mr Judd contended for.7 For a start,the letter was a response to one dated 15 April 2008 in which Auburn's solicitorsconfirmed that the area of apartment 211 had not altered with the consequence thatcondition 39 ―is no longer capable of being exercised by [the Loves]. So Auburnitself had not viewed condition 39 as confined to the joinery line.[35] Mr Judd relied also on the Loves' receipt of part of the real estate agent'scommission, and their acceptance in April 2008 that the development home bond could be issued, as indications that the Loves treated the agreement as unconditional. We do not agree. That was conduct on the part of the Loves only, and we view it as equivocal in terms of their view of condition 39.[36] Finally, Mr Judd relied on the Loves' inaction between July 2008 (when they inspected the unfinished apartment and gave evidence that they were dismayed at what they saw), and their purported cancellation of the agreement pursuant to condition 26.1 on 10 October 2008.8 But we agree with Ellis J that the most likely explanation for that inaction is the Loves' belief that they would be able to cancel theagreement for non-compliance with condition 26.1.9[37] Our upholding of the interpretation of condition 39 contended for by the Loves makes it unnecessary to rule on their alternative application, to amend their statement of claim to plead a breach of special condition 18.1 of the agreement. It issufficient to record that we would have allowed the Loves' application to amend, had7 Construction began around March 2007 and was completed in about November 2008.8 Condition 26 was a sunset clause enabling the Loves to cancel if Auburn was unable to settlewithin six months of the ―Estimated Completion Date.9 At [80].we been required to rule on it. Our reasons would have been substantially those advanced by Mr St John. The amendment sought would not prejudice Auburn because all evidence relevant to condition 18.1 was before the High Court. Indeed, as Mr St John pointed out, Auburn itself relied on condition 18.1 (in paragraphs 3 and 10 of its statement of defence and counterclaim of 16 March 2009). Mr Judd did not accept that all evidence relevant to condition 18.1 was before the High Court, and that amendment would not prejudice Auburn. To meet this, in allowing the amendment, we would have given Mr Judd the option of remission of the case to the High Court so that Ellis J could hear any further evidence relevant to condition 18.1.[38] In case she was found to be wrong in her interpretation of condition 39, Ellis J helpfully answered the question: was apartment 211 built ―as per the attached layout and plan? She dealt first with the differences in the floor areas of thebalcony and interior of the apartment, as between the layout and plan attached to the agreement and the apartment as built. She then continued:[87] Even aside from the question of mathematical size, however, conformance with layout and plans seems to me necessarily to import considerations of both appearance and usability. In my view the appearance and usability of both the deck and the master bedroom were more thanminimally compromised in the ―as built apartment. The photos that were produced at trial show a ―deck that is no more than a balcony which isovershadowed by a large, monolithic, planter running down the outside edge. In the bedroom, access to the right hand side of the queen size bed issignificantly impeded by the intrusion of the pillar. There is no ―flowaround the bed and the layout/appearance of the bedroom is disjointed by virtue of the odd-shaped space created around the pillar area cavity.[88] For these reasons, and if it were not for my conclusion as to the narrow interpretation of clause 39, I would have held that the apartment wasnot built ―as per the attached layout and plans and that Auburn wasaccordingly in breach of that clause.[39] Mr Judd argued, we think somewhat faintly, against these findings. Having looked at the photographs referred to by the Judge, we can but wholeheartedlyendorse her findings. The Judge's description of the balcony as ―overshadowed by a large, monolithic, planter running down the outside edge is accurate. Even morefundamentally, the 1.2 metre width of the balcony deprives it of its utility as an outdoor living area. Whilst it would accommodate a person who feels the need tosmoke a cigarette outside, it certainly would not accommodate the outdoor table and chairs depicted on the plan and layout attached to the agreement.[40] The photograph of the master bedroom shows the very large pillar (500 x 700 mm as opposed to the 150 x 150 mm shown on the plan) intruding into the bedroom, seemingly leaving very little space between pillar and bed. Indeed, counsel told us that there was scarcely enough space for a person to squeeze through.Summary and result[41] We have held that the first part of condition 39 means what it says: the agreement was conditional on apartment 211 being built as per the attached layout and plan.[42] We have endorsed the findings of Ellis J that the apartment was not built as per the attached layout and plan.[43] The result is that the agreement never became unconditional, and thus never became enforceable by Auburn against the Loves. The Loves were thus entitled totake the position they did in their solicitors' 14 December 2008 letter: that Auburn was unable to call for settlement because of its failure to comply with condition 39. That letter can only be construed as the Loves giving notice that they avoided the agreement. Condition 8.7(5) of the agreement provides that: Upon avoidance of this agreement the purchaser shall be entitled to the return of the deposit and any other moneys paid by the purchaser and neither party shall have any right or claim against the other.[44] We therefore allow the Loves' appeal. We set aside the judgment of Ellis J.[45] Auburn is to pay the Loves' costs for a standard appeal on a band A basis with usual disbursements. Auburn must also pay the Loves' costs in the High Court,on the 2B basis allowed by Ellis J in her judgment, with disbursements to be fixed by the Registrar of that Court failing agreement.Solicitors:Palmer & Associates, Auckland for AppellantsCarter Atmore Law, Auckland for Respondent