EASTWOOD FARMS LIMITED V HENDERSON HC AK CIV2007-404-1237

EASTWOOD FARMS LIMITED V HENDERSON HC AK CIV2007-404-1237 17 September 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV2007-404-1237BETWEEN EASTWOOD FARMS LIMITED Plaintiff AND D S HENDERSON Defendant Hearing: 23 May 2008 Counsel: R B Stewart QC for Plaintiff M Ring QC and P McPherson for Defendant Judgment: 17 September 2008 at 11 amRESERVED JUDGMENT OF ASSOCIATE JUDGE H SARGISSONThis judgment was delivered by Associate Judge Sargisson 17 September 2008 on at 11 am pursuant to Rule 540(4) of the High Court Rules Registrar/Deputy Registrar Date .. Solicitors: Hornabrook Macdonald Lawyers, PO Box 91 845, Auckland Heskeith Henry, Private Bag 92093, Auckland[1] Eastwood Farms Limited owned two blocks of undeveloped land in Westhoe Road, Orewa, which it sold to Kitchener Group Management Limited in August 2006. The agreement for sale and purchase provided for the purchaser to pay a deposit of $1.5 million but Kitchener did not pay it. Eastwood apparently gave extensions of time for Kitchener to pay, but Kitchener did not pay. Eventually Eastwood cancelled the agreement for non-payment and sought to recover the deposit by serving a statutory demand on Kitchener. [2] The demand was not satisfied, and Eastwood commenced liquidation proceedings against Kitchener. Kitchener was placed into voluntary liquidation on 9 March 2007 before Eastwood's application came on for a Court hearing. [3] There is no money available in the liquidation to pay what Eastwood says it is owed for the deposit. Eastwood seeks instead to recover compensation equal to the deposit by this proceeding against the defendant, Mr Henderson, the director of Kitchener. Eastwood's claim raises two causes of action based on alleged breaches of sections 135 and 136 of the Companies Act 1993. [4] Mr Henderson has applied for summary judgment against Eastwood under r 136 of the High Court Rules. The summary judgment application is before me for determination. As contemplated by r136, the question Mr Henderson's application raises is whether, as he contends, he has demonstrated that neither cause of action in Eastwood's statement of claim can succeed and therefore that he has a clear answer to Eastwood's entire claim that cannot be contradicted. If he has demonstrated this then he will be entitled to the order he seeks. [5] In his formal application, Mr Henderson also seeks an order striking out Eastwood's claim as an alternative to summary judgment. However, Mr Ring QC confirmed at the hearing that Mr Henderson accepts that the application raises issues that are more appropriately dealt with by way of summary judgment application and that the request relating to strike out need not proceed. I deal with the application on that basis accordingly.[6] Eastwood opposes the application for summary judgment. Its position is that its claim is one that can only be dealt with properly at trial.Sections 135 and 136 of the Companies Act[7] Section 135 and 136 read:135. Reckless tradingA director of a company must not – (a) Agree to the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company's creditors; or (b) Cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company's creditors.136. Duty in relation to obligations:A director of a company must not agree to the company incurring an obligation unless the director believes at the time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.[8] These provisions impose statutory duties on a director owed to the company and its creditors. If breached, the Court has a discretion under s301 of the Act to make the director contribute to the assets of the company by way of compensation and to determine the extent of the contribution. [9] The summary judgment application is not concerned with matters that go to the question whether the court should exercise its discretion under s301. It is concerned simply with whether it is clear that Eastwood can not establish a breach of sections 135 and 136 and therefore is unable to lay the jurisdictional basis that triggers the exercise of the discretion.Background[10] Mr Henderson was the sole director of Kitchener. Before it was placed into liquidation Kitchener was a property developer. Mr Henderson was also engaged in property development through other companies related to Kitchener.[11] By an agreement dated 23 August 2006, Eastwood agreed to sell its property at Westhoe Road to Kitchener for $15 million. Relevant terms included: a) Kitchener would pay a deposit of $1.5 million immediately on execution of the agreement, "time being of the essence"; b) Cancellation for non-payment of the deposit was subject to the requirement that Eastwood first give 3 working days notice of intention to cancel by means of a deposit notice and Kitchener's failure within that time to make payment; c) Possession and settlement date were 30 June 2007; d) The agreement was conditional on due diligence being carried out and completed by both parties, as follows: i) Kitchener was to satisfy itself that the property was suitable for its intended development purposes. In other words it was to satisfy itself as to feasibility; ii) Eastwood was to satisfy itself that Kitchener had the financial ability to settle the transaction; iii) Each party had 10 days or until 6 September 2005 to complete due diligence and to declare itself satisfied. Should either party not be satisfied the agreement would be at an end and Kitchener's deposit would be refunded. [12] Kitchener did not pay the deposit on execution of the agreement, or within the period allowed by the deposit notice that Eastwood served on 6 October. On 18 October 2006 Eastwood issued notice cancelling the agreement. [13] The factual circumstances during the period of almost two months between 23 August and 18 October is subject to some dispute but it is clear that:a) On 23 August, the day the agreement was signed, Eastwood's solicitors requested payment of the deposit and Kitchener's solicitors relayed the request to Kitchener. Eastwood did not repeat the request or raise objection when the deposit was not received in the period before 6 September, but it did not expressly waive the requirement for payment either. b) On 6 September the agreement went unconditional, as each side had declared itself satisfied with the relevant due diligence condition. Eastwood decided to proceed notwithstanding that the deposit had not been paid and that it did not receive the financial information it had requested for the purpose of due diligence. Kitchener for its part decided to proceed notwithstanding that it did not have the funds to tender the deposit. c) On 8 September, the parties' solicitors conferred by telephone. Kitchener's solicitors indicated that the deposit would be paid on 11 September and Eastwood's solicitors sent a letter setting out the amount that would be payable with the deposit, by way of interest that had accrued from 23 August by reason of late payment. d) On 12 September Eastwood's solicitors advised that the deposit had not arrived and asked for urgent advice as to when they could expect payment. Around this time, Mr Henderson indicated that Strategic Finance Limited would be providing funding for the deposit and that he had been dealing with a Mr Fitzgerald at Strategic about the issue. e) On Wednesday 20 September Mr Fitzgerald, indicated in a telephone conversation to Eastwood that the deposit would be paid on or before 6 October.[14] What happened between the parties after the telephone conversation on 20 September is less clear:a) Eastwood contends that on 20 September it indicated it would refrain from taking further steps provided it received payment on or before 6 October. b) On 3 October when Eastwood and Strategic communicated by e-mail, Eastwood reminded Strategic it wanted payment by 6 October. However, Strategic responded that Mr Henderson's advice was that he had negotiated an extra two weeks with Eastwood to pay the deposit. Strategic indicated that it received the advice around 21 or 22 September. Eastwood took issue with the suggestion that there was an extension, but indicated it would not take further steps if the deposit was paid on 6 October as promised. Mr Fitzgerald in turn insisted he had no reason to doubt Mr Henderson's advice, but said he would see what Strategic could do "this week", that is by 6 October. c) On Monday 9 October Mr Abraham, a senior executive at Strategic, indicated that Strategic was still considering whether to provide funding for the development. Mr Fitzgerald advised that in the context of a wider review of its lending to Mr Henderson's interests he hoped to have an answer the following day. To protect its position, Eastwood issued a deposit notice to Kitchener later that day advising that it intended to give notice in writing to cancel the agreement unless the deposit was paid in full within three working days (on or before 12 October). d) On 12 October, Mr Henderson phoned Mr Herbert, a director of Eastwood, promising that the deposit would be paid the next day. Mr Herbert agreed to a day's extension of the deposit notice. The extension was recorded in an exchange of e-mails. Kitchener's solicitors confirmed Kitchener would arrange payment on 13 October. Kitchener did not pay the deposit on 13 October. [15] The parties do not agree on what happened between 13 October and 18 October:a) Eastwood says when on Friday 13 October, Kitchener failed again to pay the deposit and it rejected the request for a further extension. b) Mr Henderson says this is not what happened and points to an email dated 13 October that Kitchener's solicitors sent to Eastwood's solicitors:We understand someone from Strategic Group, which is arranging the funds to pay the deposit, has called your client and your client has agreed the deposit can be paid on Monday 16 October 2006 and the notice contained in your letter of 9 October 2006 is extended to that date. Please confirm.c) Eastwood points out that its solicitors responded late on Monday 16 October that no extension had been agreed. Eastwood did not however cancel. Apparently it waited to see what happened. d) On 17 October Kitchener's solicitors e-mailed in reply that Mr Henderson had been keeping Eastwood informed, and Mr Henderson requested an extension of the date for the expiry of the deposit notice to 18 October. On 18 October Eastwood's solicitors gave notice of cancellation, saying the deposit notice had expired and the deposit remained unpaid. e) On 19 October Kitchener's solicitors responded by e-mail that the cancellation was not accepted as Strategic and Eastwood had made mutually acceptable arrangements for the payment of the deposit. Strangely, given the importance of the alleged arrangements to Kitchener, the solicitors did not elaborate on what the arrangements were. Mr Henderson's evidence about the alleged arrangements is equally vague in relation to when they were made. By contrast it is precise about the time he alleges the deposit notice was extended to. He says the extension was to run to 20 October. He also deposes that sometime between 13 and 18 October at a time he can not recall, a request was made to Strategic for the deposit, but Kitchener was advised by Mr Fitzgerald that the deposit "could no longer befunded". He maintains the advice amounted to a totally unexpected shift in position, and was a "bolt out of the blue". He says nevertheless that Kitchener could still have arranged for funding from one of several other sources, if Eastwood had held to the extended date of 20 October and not cancelled two days before. The sources included his former wife, Mr Cameron Dargavill who was a colleague and several trusts of which Mr Henderson was a trustee but not the sole trustee. f) Eastwood wholly rejects Mr Henderson's contention that there were any mutually acceptable arrangements involving an extension of the deposit notice and a retraction of the notice of cancellation. [16] I cannot say, in the context of this present application, whose account about the disputed events and arrangements is true. However it is clear that in November 2006, when Eastwood served its statutory demand, Kitchener was in no position to pay the deposit. Nor however did Kitchener accept that it was obliged to pay and before Mr Henderson placed it in the hands of liquidators, Kitchener commenced its own proceeding apparently laying the blame for its difficulty at Eastwood's feet and seeking damages for wrongful cancellation of the agreement. The proceeding was filed on 24 January 2007. [17] On 12 March 2007 Eastwood commenced this proceeding and on 10 October 2007, after discovery, Mr Henderson filed his application for summary judgment together with an application for leave to bring that application out of time. In respect of the latter no issue arises between the parties. It is accepted that the summary judgment application should be considered on its merits and the leave application should be granted if the summary judgment application is granted.Defendant's Summary Judgment – Legal Principles[18] Rule 136(2) provides:The Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed.[19] The principles applicable to a summary judgment application by a defendant were conveniently stated by Elias CJ in Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298, 313-314 (CA), as approved by the Privy Council in Jones v Attorney-General [2004] 1 NZLR 433 at [5]: [60] R 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. (). [61] The defendant has the onus of proving, on the balance of probabilities, that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege. [62] Application for summary judgment will be inappropriate where there are disputed issues of material fact, or where material facts need to be ascertained by the Court, and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. [63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. (). [64] () It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then, it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Courts must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.[20] The Board went on to say that r 136(2) can save both time and costs by committing claims with no hope of success to be summarily dismissed at an early stage. But it also said at [5]: rarely, if ever, will the procedure be appropriate where the outcome of the action may depend on disputed issues of fact, and reliance on the rule in an inappropriate case may serve to increase both the length and the cost of proceedings. [21] At [10] the Board cautioned that the Court should not discount even a theoretical possibility which would provide support for the plaintiff's claim and which might be open to the tribunal of fact on the evidence. The Board went on to emphasise: Summary judgment should not be given for the defendant unless he shows on the balance of probabilities that none of the plaintiff's claims can succeed. That is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless is it quite clearly hopeless. [22] That brings me to the question whether Mr Henderson has established on the balance of probabilities that both causes of action against him are clearly quite hopeless and cannot succeed. For convenience, I deal first with the cause of action made under s 136.The action under s136[23] The cause of action under s136 will be hopeless if Mr Henderson has shown when Kitchener entered into the agreement for sale and purchase, he held an actual and reasonable belief that Kitchener was able to perform its obligation to pay the deposit when the agreement required. [24] There was no dispute between counsel that the time when Kitchener entered into the agreement for sale and purchase was 23 August 2006 and that time is the time when Mr Henderson was required to hold the relevant belief. In other words it is the belief Mr Henderson held on 23 August 2006 that is relevant. Counsel were not however agreed on what the required time for payment of the deposit actually was under the agreement. Eastwood contends the time for payment was 23 August but if it was 9 September, as Mr Henderson contends, he did not actually hold therelevant belief, or if he did he did not have reasonable grounds for the belief. Mr Henderson contends the time for payment was 9 September, and therefore what he believed could or could not happen on 23 August is not material for the purpose of establishing a breach of s136. Rather, what he believed would happen on 9 September is what is relevant. In that regard, the case counsel advanced was in effect that Mr Henderson did hold the belief that Kitchener would pay the deposit by that date, and he had reasonable grounds for the belief. Therefore the fact that Kitchener did not actually pay the deposit by that date does not matter. However, it is reasonable to infer from those grounds that Kitchener would have paid the deposit by 9 September had Eastwood required it to do so and not waived the requirement for payment by that date. [25] That brings me to the key issues arising out of the parties' positions.Was the required time for payment 23 August or 9 September?[26] The issue is important because if the required time for payment was 23 August, Eastwood's case could not be hopeless. This is because: a) Eastwood's case proceeds principally on the basis that Kitchener would not have been in the position to pay the deposit on 23 August, the same day that the agreement was signed, as it lacked the funds and had no arrangements in place to obtain them from any other source. Mr Henderson must therefore have known on 23 August when he signed the agreement that there was no prospect of Kitchener's performance on that day and there is no room to find that he had an actual or reasonable belief otherwise. b) Mr Henderson did not dispute that he allowed Kitchener to enter into the agreement for sale and purchase on 23 August in circumstances where it had no real prospect of meeting that obligation at that time, or that he did not believe it did.[27] Eastwood's argument that 23 August was the required date is based essentially on the express requirement in the agreement for payment immediately upon execution. [28] Mr Henderson's case recognises that he knew on 23 August that Kitchener was still in the process of seeking funding from its main lender, Strategic. However, it proceeds on the basis that the agreement, correctly viewed, allowed Kitchener to raise the deposit by 9 September, and that was the real date required for payment. Key reasons relied on were: a) Under the agreement 6 September was the date when the agreement was to go unconditional provided each side declared itself satisfied under the relevant due diligence condition, failing which the agreement would be terminated without any cost to Kitchener. Neither side was required by the agreement to establish the reason should it not declare itself satisfied; b) That meant that Kitchener could avoid liability for the deposit at any time until 6 September if it did not find the money for the deposit and without having to disclose the real reason; c) If Kitchener should decide to go unconditional the agreement gave it until 9 September to find the deposit because that date was the earliest time when a deposit notice, if served, could expire. [29] Contrary to Mr Henderson's contentions, I am not persuaded that the real or required date or time for payment was 9 September and not 23 August. Rather, I am satisfied that the agreement did require immediate payment of the deposit and therefore that Mr Henderson's knowledge of Kitchener's inability to pay the deposit on the day that the agreement was signed is material to the question whether he breached s136. [30] The agreement expressly states the date for meeting the obligation to pay the deposit. It is clear and unequivocal in its requirement that the purchaser is requiredto pay the deposit immediately on execution of the agreement, time being of the essence. [31] It is true as counsel for Mr Henderson pointed out, that if Eastwood had served a deposit notice on or before 6 September, Kitchener could simply have declared itself not satisfied with the feasibility of the project without the need to give reasons. It could then have walked away released from all liability. However, those possible outcomes are consequences that are only triggered by a decision not to declare the agreement unconditional. They are not determinative of what the plain words of the agreement required of Kitchener with respect to the deposit from the outset. This is highlighted by other provisions in the agreement that reinforce that express requirement for immediate payment was a real contractual obligation and not simply cosmetic. [32] The provisions include those that afford rights to Eastwood to take steps to terminate the contract in the event of non-payment and attract corresponding consequences for Kitchener. Those rights and consequences are real enough in contractual terms. Had Eastwood chosen, it could have served a deposit notice on 24 August and cancelled the agreement on the expiry of three days, all before 6 September irrespective of the desire that Kitchener apparently had to keep the agreement alive or any protest it might have made. Further provisions are those that cause penalty interest to actually begin to run on 24 August should the deposit not be paid on time. To say, in the face of such provisions, that there was no requirement to pay the deposit immediately, is I think wrong. [33] In reaching this view I have not overlooked Mr ring's submission that the Court of Appeal's decision in BS Developments No 12 Ltd v PB & SF Properties Ltd(2006) NZCPR 603 supports a finding that the real contractual date for payment of the deposit was 9 September. However, the question in that case was not what was the real contractual date for payment. It was whether the obligation to make payment became academic when the purchaser exercised a right not to declare the agreement unconditional.[34] Here, Kitchener did decide to declare the agreement unconditional having contracted to pay the deposit and penalty interest in terms of the requirements the agreement recorded on its face. Kitchener's obligation to make payment of the deposit together with penalty interest did not become academic and was not extinguished. Significantly, there is no hint that there was any suggestion made by Kitchener when it decided to declare the agreement unconditional that it was not liable for penalty interest calculated from 24 August or that 23 August was not the date that the contract required the deposit to be paid. [35] It follows that I am satisfied that it is arguable that Mr Henderson did breach s136 when he allowed Kitchener to enter into the agreement for sale and purchase and that Eastwood's case is not clearly hopeless. It is clearly arguable Mr Henderson must have known on 23 August when he signed the agreement that there was no prospect of Kitchener's performance on that day. Whether or not there are sufficient discretionary factors to justify or disallow an award of compensation for the alleged breach is of course a separate question but that has not been put in issue in the present application. [36] However, in case I am wrong in the above findings and the required time for payment was 9 September and not 23 August I turn to consider whether Mr Henderson has shown that he actually and reasonably believed that Kitchener could pay the deposit by 9 September.Did Mr Henderson have an actual and reasonable belief Kitchener could pay the deposit by 9 September?[37] This question lies at the heart of Mr Henderson's grounds for summary judgment. If the answer is not demonstratively positive, it would be a further reason making the case inappropriate for summary judgment. [38] Even assuming that counsel is correct and the real date that the agreement required payment was 9 September, I am not satisfied that Mr Henderson has demonstrated the question should be answered in the affirmative. I am not satisfiedhe has established that when he signed the agreement he had the relevant belief that or that it is beyond contention that there were reasonable grounds for such a belief. [39] It is notable that Mr Henderson does not say in evidence that at the time he signed the agreement on Kitchener's behalf he actually believed that Kitchener would be willing and able to pay the deposit by 9 September at the latest should Eastwood require compliance by that day. Mr Henderson deposed that he was confident that Kitchener would obtain funding to pay the deposit but he was far from specific about the timing. [40] However, counsel argued in effect that there was no need for express explicit statements about timing. He submitted that the evidence points to ample and reasonable grounds for the inference that when Mr Henderson signed the agreement he must have had the relevant and necessary belief. In other words, he must have or would have believed that Kitchener would be able to pay the deposit by 9 September had he anticipated Eastwood would insist on that and not be willing to allow further time. [41] I do not accept that the evidence is so clear that I can safely make such an inference. Indeed, it is arguable that the evidence points to the contrary as the only safe conclusion. There is a strong indication in the evidence, as it presently stands, that when Mr Henderson signed the agreeement he was relying on Strategic and he continued to do so until well into October, without any basis to believe that Strategic would make funding available as early as 9 September. Strategic had made clear it wanted to be satisfied about the feasibility of the Westhoe Road project and it did not put a time on when Mr Henderson might expect the answer. Arguably that position indicates the Mr Henderson could not reasonably assume that Strategic would necessarily make the funding available at all. Mr Henderson contends that he was confident based on his considerable experience and relationship with Strategic that he would demonstrate to Strategic that the project was feasible but his evidence on this point is also far from specific about timing. It is not surprising therefore that Mr Henderson stops short of asserting that he actually believed that Kitchener would be ready with its funding in order to pay the deposit by 9 September at the latest.[42] There are also a number of factors that indicate that Mr Henderson did not have a reasonable basis for believing that he would satisfy Strategic that the project would be feasible in the time required under the agreement, or at all. Those factors include some of the very factors Mr Henderson relied on as objective verification or justification for his having reasonable grounds for the relevant belief. [43] First, there was the advice given by Mr Fitzgerald, a Strategic director, to Eastwood on 20 September that the deposit would be paid. Mr Fitzgerald's advice is not in any way objective justification or vindication that Mr Henderson was entitled to be confident that Strategic would make the deposit available by 9 September. Nor is it conclusive evidence that Strategic was always going to be satisfied as to feasibility eventually. That would be to read too much into the advice and to ignore the message implicit in Mr Fitzgerald's earlier advice that Strategic would make up its own mind. [44] Furthermore, other factors suggest the possibility that Mr Fitzgerald's advice of 20 September cannot be treated as anything more than Strategic's means of holding Eastwood at bay while deciding what its answer would be. There was the indication given by Mr Abraham, a senior executive at Strategic, on 9 October that Strategic was still considering whether to provide funding for the Kitchener's developments. I can only assume that Mr Henderson knew this because he was providing Strategic with valuation and resource management reports that were relevant to the question of feasibility and would no doubt have a significant bearing on its decision. At the same time, Mr Fitzgerald advised Eastwood that he hoped to have an answer on the deposit question the following day, indicating that it would be given in the context of a wider review of Strategic's lending to Mr Henderson's interests. The inference is that Strategic concerns about the extent of its exposure to Mr Henderson's interests. The concerns are unlikely to have been something that arose overnight and I cannot safely assume that they did not arise until after 23 August or that Mr Henderson did not know about them when he signed the agreement. Given that situation, there must be at least a theoretical possibility that Mr Henderson knew that he could not take Strategic's position for granted, both with respect to feasibility of the project and its view of its own exposure to his interests. As indicated in the Jones decision I should not discount that possibility in thecontext of this summary judgment application. Rather I should take it as a need for caution. The need is emphasised by the absence of any direct evidence from Strategic and what appears to be a less that full disclosure by Mr Henderson of his own oral discussions with Strategic. In this last respect it is notable that he gives no adequate explanation why he says the advice Mr Fitzgerald gave sometime around 13-18 October was unexpected when Mr Abraham and Mr Fitzgerald were expressing concerns earlier. [45] Secondly, Counsel for Mr Henderson placed considerable weight on the valuation and resource management reports that Mr Henderson supplied to Strategic in October. He argued that they were strong and objective justification that Mr Henderson's confidence in Strategic was reasonable from the outset. I do not view the reports in that way. Rather, it seems to me that they are further indications that there was always the possibility that Stategic would not be satisfied at any stage. [46] The first of the reports was from Barker & Associates, resource management specialists, advising on the resource consent status of Kitchener's proposed development. It is dated 11 October 2006 and highlights the uncertain status attaching to a proposed district plan change that Kitchener was apparently relying on and it is not helpful as objective evidence that feasibility did in fact stack up. Mr Henderson deposes it was provided to Strategic. No doubt this was because Strategic's decision was in some way dependent on it and its contents were material to the question of funding. Indeed the uncertainty about the status of the resource consent matters referred to in the report would likely have been critical to the feasibility of Kitchener's project. [47] The report raises serious questions about what Mr Henderson knew on 23 August when he allowed Kitchener to enter into the agreement and to take on the obligation to pay the deposit. It would defy belief that Mr Kitchener did not know at the point when he signed the agreement that Strategic would be concerned about it, and it is difficult to see how the planning situation described by Barker & Associates' could ever have justified a high level of confidence on Mr Henderson's part that feasibility would stack up. Not only is it trite law that the outcome of a plan change is not something that can be taken for granted, Mr Henderson, as anexperienced developer, would have been well aware of that. That fact alone raises serious and substantial questions about the confidence Mr Henderson claims that he had that Strategic would provide the funding, and how he could possibly have assumed the funding would be available as early as 9 September, or indeed at all. [48] The second report was a valuation from Colliers dated February 2006. It assessed the current market value of the land as a block at $18 million but with the rider that the property was suitable and of adequate security for a maximum first mortgage advance of only $9 million. In that respect the report was not helpful to Kitchener because its exposure under the contract was not simply the amount of the deposit but the entire purchase price of $15 million. Clearly, Strategic's assessment of the feasibility of the project would have gone beyond the question whether the property was adequate security for the amount of the deposit. Strategic would almost certainly have been interested in what was to happen come settlement date, when Kitchener would have to have found the balance of the purchase price that was well in excess of $9 million. I do not overlook Mr Henderson's evidence to the effect that there were other projects coming to completion that would have released funds in due time, but he provides little in the way of supporting detail and it amounts to little more than mere assertion. Certainly, I am not satisfied that it contains sufficient to demonstrate that Strategic had been given sufficient information to ensure that it would be satisfied that it could positively approve funding of the deposit by 9 September. [49] These factors reinforce the importance of not rushing to any conclusion that Eastwood's case is hopeless. They suggest the substantial and real possibility that Mr Henderson was aware of factors that dictated the need for caution when allowing Kitchener to take on the obligation to pay the $1.5million deposit. They also reinforce the possibility that Mr Henderson could not reasonably have construed Mr Fitzgerald's early advice as an indication that Strategic would be satisfied as to feasibility and would provide the funding on time or at all. [50] There are yet further factors that point to the need for caution. It is not necessary to refer to all of them. Suffice it to mention Kitchener's own due diligence condition. That condition, by reserving the opportunity to assess feasibility, suggeststhat Mr Henderson knew that he needed until 6 September to persuade Strategic as to feasibility. Yet the evidence does not point to anything that happened or that Mr Henderson thought would happen in the days after the agreement was signed to show that he could reasonably assume that feasibility would be established. An inference is that Mr Henderson did not have sound reasons on 23 August to believe feasibility would be established by 9 September or to believe that Strategic would be satisfied, but somewhat recklessly elected to allow Kitchener to proceed to enter into the contract and to declare it unconditional. [51] For all of the above reasons I am not willing to make any conclusive finding that Mr Henderson held the actual and reasonable belief when he signed the agreement that Kitchener would be willing and able to pay the deposit by 9 September. Nor am I willing to find that it is reasonable to infer that Kitchener would indeed have paid the deposit by 9 September had Eastwood required it to and there had not been the waiver that Mr Henderson alleges. While a waiver of the contractual date for payment could not have changed the nature of the belief Mr Henderson had at the earlier point in time when he signed the agreement, equally it cannot be taken as evidence of an ability to pay on the contractual date. It is a counter indication of that fact and there are no other facts that prove that Kitchener could have paid at the time.Other arguments raised on behalf of Mr Henderson[52] Counsel raised a number of other factors as grounds for inferring that Mr Henderson could not be in breach of s136. They included: a) That at some stage around mid October Eastwood extended the notice period in the deposit notice to 20 October and had Eastwood not reneged Mr Henderson could have arranged funding from his other sources, and b) Eastwood's alleged willingness to assume the risk of Kitchener's default when it waived its right to inspect Kitchener's records.[53] Whether or not there was an extension of the notice period is not something that I can properly determine in the context of the present application. Even if there were conclusive evidence that Eastwood gave an extension until 20 October or somehow lulled Mr Henderson into a false sense of security about the need to stump up with the deposit that evidence would not assist Mr Henderson's attack on Eastwood's case under s136. It does not establish what his belief was at the relevant time. It is that belief that is key to establishing whether or not there was a breach of s136 and to triggering the court's jurisdiction to consider any discretionary factors. It is another matter whether such evidence should be given weight as one a number of possible discretionary factors going to the issue of compensation under s301, assuming the discretion is triggered. Conceivably, if Eastwood reneged on an agreed extension that could be very relevant to the discretion but that is not something I am concerned with in the context of this application. [54] Similarly, arguments based on Eastwood's alleged assumption of risk may well be relevant to the Court's discretion under s 301 to make Mr Henderson contribute to the assets of Kitchener by way of compensation and to determine the extent of the contribution if anything. So too may Kitchener's failure to provide Eastwood with the financial records that it asked for during the period of due diligence. However, the first of these factors does not obviously affect the question what Mr Henderson's belief was on 23 August 2006 when he signed the agreement on Kitchener's behalf and allowed it to agree to make immediate payment of a deposit. [55] Counsel also submitted that at a practical level, it would not have made sense if Mr Henderson were to voluntarily commit Kitchener to an agreement knowing that it would be unable to perform its obligations. While I accept that it would not have made sense, it does not follow that Mr Henderson could not have acted or did not act in a way that did not make sense on the particular occasion that is the focus of his summary judgment application. [56] Counsel also invited a finding that the Court should accept Mr Henderson's evidence that he knew the project would be feasible and that he could satisfy Strategic of that, because he was an experienced developer. However, evenexperienced developers are capable of forming beliefs that are not reasonable or objectively justified. As I have already indicated, there are factors that suggest the real possibility this is what happened on 23 August when Mr Henderson signed the agreement on Kitchener's behalf. [57] There is a final factor that should be mentioned for completeness. It is the ability counsel submitted that Mr Henderson had to call on other sources of funding in the event Strategic should unexpectedly decline to fund the deposit. He argued that this goes to Mr Henderson's frame of mind at the relevant time. A key difficulty with the submission is that Mr Henderson chose to put his eggs in Strategic's basket when he apparently knew that Strategic would not necessarily provide funds by 9 September or at all, and did not plan ahead. There were not any back-up arrangements. Indeed 9 September came and went without any suggestion of an approach to any source other than Strategic. Significantly there is no evidence that the alleged alternative sources for funding were even approached. Mr Henderson's own case was that he did not need to approach those sources because he had an honest belief that Strategic would come up with the deposit and it was not until between 13 and 18 September that Strategic changed its position. There is therefore no basis to conclude that Mr Henderson held the belief that the other funding sources would make money available on or before 9 September. [58] There must also be a question mark over the willingness of the other alleged lenders to provide funding. It would be surprising if they did not have the same requirement to be satisfied about feasibility as Strategic. In any case, if they were genuinely likely to provide funding had Eastwood not cancelled, then that too might be a discretionary factor going to the question whether the court should exercise its discretion to order compensation. However, it is not a factor that is determinative of the quite separate preliminary question whether there was or was not a breach of s136.Conclusion[59] For all the above reasons, I do not accept that Mr Henderson has demonstrated that the cause of action under s136 is hopeless. I am more thansatisfied that Mr Henderson has not raised a defence to the s136 cause of action that is unanswerable. That being so, the case for summary judgement must fail, and it is unnecessary to deal with the arguments Mr Henderson advanced to answer Eastwood's other cause of action under s135.Result[60] Mr Henderson's application for summary judgement must therefore fail and Eastwood's claim must be determined at trial. The application for an order for summary judgment is declined accordingly as is the application for leave. [61] The proceeding is adjourned for further direction to the chambers list on 25 September 2008 at 2 15 pm.Costs[62] Costs are reserved in accordance with the decision of the Court of Appeal inNZI v Philpott [1990] NZLR 403. ___________________________ Associate Judge Sargisson