WHETTON AND ORS V HARDY AND ANOR HC AK CIV 2005-404-004404

WHETTON AND ORS V HARDY AND ANOR HC AK CIV 2005-404-004404 9 July 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-004404BETWEEN GARY WILLIAM WHETTON, JANE MARGARET WHETTON, MARK KENNETH SISAM, JOHN WILLIAM BOSWELL BURNS Plaintiffs AND AIDAN EDWARD HARDY First Defendant AND KAREN MARIE HAMMOND Second Defendant Hearing: 18 and 20 June 2007 Appearances: A M Swan for Plaintiffs P T Finnigan for First Defendant Judgment: 9 July 2007JUDGMENT OF COOPER JThis judgment was delivered by Justice Cooper on 9 July 2007 at 2:30 p.m., pursuant to r 540(4) of the High Court Rules Registrar/Deputy Registrar Date: Solicitors: Mark Sisam, PO Box 21079, Henderson Howard-Smith & Co, PO Box 5386, Wellesley Street, Auckland Copy to: A M Swan, PO Box 5444, Wellesley Street, Auckland P T Finnigan, PO Box 2697, Auckland[1] The plaintiffs in this proceeding seek specific performance of an agreement for sale and purchase under which they were to acquire land in Birkenhead. [2] While that claim remains unresolved, the first defendant has made application for interlocutory orders that the plaintiffs withdraw a caveat that they have registered on the title to the land, or, alternatively that they consent to registration of a new first mortgage securing the sum of $389,500 from which the first defendant would be able to satisfy debts owed to the second defendant and third parties, including the existing mortgagee.Background[3] The land is in one title, but comprises two parts. One part consists of the dwelling house which was the defendants' former family home. The second part is a separate leased building from which a retail business was operated. [4] The second defendant is the first defendant's former partner. They have been in dispute about their respective entitlements under the Property (Relationships) Act 1976. There was a proceeding in the Family Court and an appeal to this Court from the judgment of the Family Court. Although the plaintiffs commenced the proceeding in August 2005, it has not been practical for their claim to be progressed because the property to which the claim relates was the subject of a notice of claim lodged with the District Land Registrar by the second defendant under s 42(2) of the Property (Relationships) Act 1976. In addition, the second defendant sought and obtained an occupation order from the Family Court entitling her to reside in the family home with her son. Consequently, although the proceeding has been mentioned on a number of occasions before an Associate Judge, no steps have been taken to advance the matter until comparatively recently. [5] The dispute between the first and second defendants about their relationship property has now been determined. In a judgment delivered on 17 April 2007, Priestley J dismissed an appeal that the first defendant had filed against the decision of the Family Court. The result was orders terminating the second defendant's right to exclusive possession of the family home and requiring the first defendant to pay tothe second defendant the sum of approximately $135,000. In addition, Priestley J ordered that the notice of claim was to be withdrawn on settlement of the second defendant's entitlement, or alternatively, on completion of the sale of the property. Plainly, and properly, he was concerned about the second defendant's position if the Notice of Claim were to be discharged before the second defendant received the moneys that were her due under the judgment. [6] Following delivery of Priestley J's judgment, the first defendant has now filed a statement of defence and counterclaim. He intends to argue, amongst other things, that there was a collateral agreement between the plaintiffs and him pursuant to which, if the agreement for sale and purchase was not settled on or before 6 April 2005, the purchase price would be renegotiated. If that argument does not succeed, the first defendant will assert at the trial that the plaintiffs breached the term of the agreement that required payment of the deposit, that the plaintiffs should have settled (as required by the agreement) on or before 6 May 2005, and that, because there has been a substantial increase in the value of the property since execution of the agreement, if the plaintiffs are now to secure an order for specific performance of the agreement then it would have to be on terms that they pay a purchase price adjusted to reflect the increase in value. [7] The parties have yet to take any interlocutory steps other than filing the initial pleadings. It is possible that 12 months or even more will elapse before the proceeding can be brought to trial. [8] In the meantime, the first defendant is under pressure from the mortgagee who is threatening to institute recovery proceedings in respect of $116,929.15, being the principal and accumulated interest due under its mortgage. He has arranged a new loan, sufficient both to repay the existing mortgagee, and to meet other debts he has. His ability to borrow for that purpose requires the consent of the plaintiffs, because they have lodged a caveat on the title to protect their interest under the agreement for sale and purchase. [9] He sought the plaintiffs' consent to the new arrangements that he proposed, but they declined to give it. They consider that their position would be adverselyaffected if the indebtedness of the first defendant were increased, and that indebtedness were secured against the title to the property. [10] The first defendant's application for interlocutory orders has resulted. The plaintiffs oppose the making of the orders sought. Counsel for the second defendant appeared when the matter was first mentioned in the Duty Judge's list on Monday 18 June, and the fixture for 20 June was established. However, Counsel subsequently filed a memorandum indicating that the second defendant would abide the order of the Court on the application, and seeking to have her position protected in the case of any other party seeking costs against her. That has not eventuated.Approach[11] The parties accepted that the proper approach to the first defendant's application is that set out in the well known decision of the Court of Appeal inKlissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1989] 2 NZLR 129. It requires the Court to be satisfied that the applicant for interlocutory relief has shown that there is a serious question to be tried, and that the balance of convenience favours the grant of relief. Those considerations however should be seen as guides to the resolution of what is the ultimate issue: in each case it is necessary to stand back and ask what course will best meet the overall interests of justice. [12] As Cooke J observed in that case, at 142:Whether there is a serious question to be tried and the balance of convenience are two broad questions providing an accepted framework for approaching these applications. As the NWL speeches bring out, the balance of convenience can have a very wide ambit. In any event the two heads are not exhaustive. Marshalling considerations under them is an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question. At this final stage, if he has found the balance of convenience overwhelmingly or very clearly one way - as the Chief Justice did here - it will usually be right to be guided accordingly. But if the other rival considerations are still fairly evenly poised, regard to the relative strengths of the cases of the parties will usually be appropriate. We use the word "usually" deliberately and do not attempt any more precise formula: an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities.A serious question?[13] I have summarized above the first defendant's contentions. Insofar as the alleged collateral agreement is concerned it will be helpful to set out the way in which it is alleged in the statement of defence:14. Between September 2004 and October 2004, the first defendant entered into negotiations with Jane Margaret Whetton ["Jane Whetton"], in particular directed to purchase of the property by the plaintiffs ["negotiations"]. 15. During the negotiations, the first defendant advised the plaintiffs, represented by Jane Whetton, that the first defendant could not sell the property unless the following pre-conditions were satisfied: (a) The second defendant agreed to the sale because of her interest in rem in the property; (b) the relationship property dispute between the first and second defendant had been resolved; and (c) the Family Court discharged Karen Hammond's order for exclusive possession of the property or Karen Hammond agreed to its discharge. ["pre-conditions"] 16. In response, Jane Whetton advised the first defendant that in order to allow for satisfaction of the pre-conditions, the agreement would provide for a date of possession to be "6th May on or before by mutual agreement by providing clear title", meaning that if the pre- conditions remained unresolved by 6 May 2005, the agreement would be subject to a renegotiation of the price between the parties ["collateral term"] (original emphasis)[14] It appears that the filing of the statement of defence and counterclaim was the first time that the first defendant had raised the alleged collateral agreement on which he now seeks to rely. In his initial affidavit in support of the present application, sworn on 14 June 2007, he gave a brief history of the dispute between the defendants about relationship property, and attached correspondence that had passed between the solicitors for the parties once the decision of Priestley J had become available. At one stage, the plaintiffs' solicitor Mr Sisam stated in writing that the plaintiffs consented to the arrangement for refinancing that the first defendant proposed. However, one week later, the position was reversed, this time by a letter from counsel, Mr Swan, stating simply that the plaintiffs would notconsent to the removal of the caveat to enable the refinancing to proceed. At the time, no explanation was given for the change in position. At the hearing, Mr Swan suggested that there had simply been a breakdown in communication. [15] Mr Hardy's affidavit did not attempt to set out the facts relied on to support the claimed collateral agreement. Rather, the approach taken was to attach the statement of defence and counterclaim (only filed on the date the affidavit was sworn) and then to assert in the main body of the affidavit that the facts that had been pleaded in the document were "true in every respect". [16] This prompted the response from Mrs Whetton, in her affidavit of 19 June that:Last week was the first time in almost two years Mr Hardy has raised any dispute or opposition relating to the agreement. He now talks of collateral terms (of which there were none) and seeks compensation for the increase in value of the property over the last two years. Mr Hardy is trying to avoid the agreement because the property has increased in value.[17] Mrs Whetton also attached to her affidavit a copy of a letter that had been written by the first defendant's solicitor, Mr Howard-Smith, to the second defendant's solicitor on 8 September 2005 in which the stance adopted had been that the agreement for sale and purchase should proceed. Amongst other things, it was said in the letter that "the purchase price exceeds the valuation and no agents commission is payable." Mr Swan pointed out that the terms of the collateral agreement, although said to have been made during the negotiations leading to the execution of the agreement for sale and purchase, had not in fact been incorporated into that agreement. [18] Mr Finnigan took the position that there was plainly a contest of fact on the issue of the collateral agreement, which it was inappropriate for the Court to try to resolve on an interlocutory application, without cross-examination. Often, of course, the Courts take that approach, although a dispute of fact must be a real one and not one which is simply manufactured for the purpose of obtaining interim relief. The Courts are not bound to accept uncritically assertions made about facts where an issue is to be determined on the basis of affidavits. As was observed by the Court ofAppeal in Mission Bay Pharmacy Ltd v Drive Holdings Ltd (CA98/05, 29 June 2006) at [42]:[42] It is well established that a court determining a summary judgment application is not bound to accept uncritically every assertion made in a defendant's affidavit. This court has on several occasions (Pemberton v Chappell [1987] 1 NZLR 1 at 4 and Bilbie Dymock Corporation Limited v Patel (1987) 84 and 86) adopted "the familiar words" of Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC): Although in the normal way it is not appropriate for a judge to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a disputed fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.[19] Although the Court of Appeal's observations were made in a case concerning an application for plaintiff's summary judgment, they apply with equal force in the present context. Taking that approach, I have nevertheless concluded for present purposes that, albeit by a narrow margin, the first defendant has raised a sufficiently serious issue concerning the alleged collateral contract to cross the threshold on the present application. The matters that have led me to that view include the fact that when the agreement for sale and purchase was being negotiated it would have been obvious, from the fact that the first and second defendants were involved in litigation about their respective shares in the relationship property, that many months might pass before the purchase of the property would be able to be completed. [20] Then, the agreement was executed on 11 October 2004 and provided for settlement on 6 May 2005: or "before by mutual agreement on providing clear title"[21] It seems plain in the circumstances that the long period between execution and settlement was intended in part to reflect the relationship property dispute between the defendants. Moreover, paragraph 15 of the statement of defence and counterclaim alleges that Mr Hardy told Mrs Whetton during the negotiations that the property could not be sold unless the second defendant agreed to the sale, the relationship property dispute between the defendants had been resolved, and theFamily Court had discharged the order that the second defendant had, by then, already obtained for exclusive possession of the property or alternatively the second defendant agreed to that discharge. Mrs Whetton did not deny that she had been advised by Mr Hardy of those matters. Given the context, it is not implausible that the parties adopted the wording they did in relation to the date for possession on the assumption that by then, matters might have been resolved and, if not, envisaging that some re-negotiation of price might then occur as the first defendant now asserts was the case. [22] There are of course difficulties with that argument not the least of which is the fact that the agreement for sale and purchase itself did not make a direct provision to that effect when it could have done. [23] Another difficulty, on which Mr Swan placed some reliance, is that Mr Howard-Smith's letter of 8 September 2005 was written after the execution of the agreement for sale and purchase, after the alleged collateral agreement had been reached, and after the possession date provided for in the agreement for sale and purchase. However, as the letter itself stated, it was premised on the facts that the purchase price exceeded the valuation, and that no agent's commission was payable under the agreement. The letter was written to the second defendant's solicitors and in context it can be seen as plainly urging her to agree to proceed with the transaction. While that might have involved waiving a right that the first defendant now alleges exists, it may well have been his view at that stage that it would suit his own personal interests and perhaps also that of his wife to complete the transaction at that point. [24] Although I agree with Mr Swan that the letter is inconsistent with the first defendant's present stance, it is possible that the inconsistency may be able to be explained at a substantive hearing. The Court's present task is not to resolve the dispute between the parties but merely to assess whether the first defendant has raised a serious question to be tried. In my view he has, albeit only just, on the alleged collateral term.[25] The other basis upon which Mr Finnigan sought to assert that there was a serious question to be tried assumed, in the alternative, that the agreement remained on foot and that the plaintiffs were entitled to insist upon its completion. Here, Mr Finnigan points to the fact that the property now has a current market value of $833,000 (GST inclusive), in accordance with a valuation by registered valuers dated 7 June 2007, which was one of the attachments to the first defendant's affidavit. By contrast, the purchase price provided in the agreement for sale and purchase was $660,000 inclusive of GST, some $173,000 less than the current valuation. Mr Finnigan then referred to the fact that the plaintiff's claim is one that seeks specific performance of the agreement and argued that the discretionary remedy of specific performance would not be granted in circumstances where the enforced performance would occasion hardship due to a grossly inadequate contractual price. He referred in that respect to the cases collected and briefly discussed in "Civil Remedies in New Zealand" (Blanchard ed., Brookers, 2003) at para 7.8.5. The cases referred to included Jacobs v Bills [1967] NZLR 249 and Dell v Beasley [1959] NZLR 89. In the former, McGregor J referred, at 253, in general terms to the discretionary nature of a decree of specific performance, stating that although the Court is not entitled to act in an "arbitrary or capricious manner", it is nevertheless entitled to consider the "general fairness of the transaction". Later, also at 253, McGregor J held that the discretion of the Court to grant specific performance would not be exercised if a contract were not "equal and fair". [26] In Dell v Beasley, specific performance of a contract to purchase a building was declined in circumstances where the purchaser had entered into the contract in the belief, fostered by the plaintiff and her agents, that the building would be able to be used for a commercial purpose when that was not in fact the case. The purchaser had acted under a misconception, and McCarthy J held that hardship would have been caused if specific performance had been ordered. Plainly, part of his reasoning was based on the price that the purchaser had agreed to pay. He observed, at 97:I consider, too, that the high figure which the defendant has agreed to pay and which, on the evidence available at the moment seems substantially in excess of the market valueis a matter, which when linked with the other matters to which I have referred, assists to justify this course. Excessive price of itself does not amount to hardship, but it is a matter which can contribute to that ground.[27] Both of those cases are, it seems to me, very different from the present. McGregor J's observations in Jacobs v Bills were in the context of facts which he found showed undue pressure applied to the defendant whose mental state did not enable her to resist it. Again, there is nothing on the present facts in the nature of the misconception that McCarthy J held was significant in Dell v Beasley. [28] However, another case to which Mr Finnigan referred was Patel v Ali [1984] 1 Ch. 283. In that case Goulding J held that specific performance could, in an appropriate case, be refused because of a change of circumstances supervening after the making of a contract, which change was not in any way attributable to the conduct of the plaintiff. At 287 – 288 he observed:Thus, I am satisfied that the Court's discretion is wide enough, in an otherwise proper case, to refuse specific performance on the ground of hardship subsequent to the contract and not caused by the plaintiff.[29] This is very close to another observation made by McGregor J in Jacobs v Bills, at 253:A form of oppressiveness which may prevent specific performance may simply consist of the fact that performance would involve great hardship even though without any impropriety on the part of the plaintiff.[30] In view of the conclusion that I have already come to on the collateral agreement argument, I do not need to express any firm view on the availability of an argument based on hardship on the present facts. It is an issue which will need to be addressed at the substantive trial and it is better left until then. For present purposes however, I simply observe that the possible arguments under this head reinforce my earlier conclusion that there are serious issues to be tried.Balance of convenience[31] It will be appropriate at this point to say a little more about the background facts. Although the position has only been addressed in his affidavit in general terms, it appears that approximately in late April or early May, Mr Hardy was served with a Property Law Act notice by the ANZ Bank. In response, he sold his business and reduced the principal sum owing to the bank to $115,000. However, by 8 June2007, the amount owing had grown again to almost $117,000, and the bank's solicitors advised then that if he did not pay the amount outstanding the bank would commence action to sell the property by mortgagee sale. [32] It was in response to those events that the first defendant arranged to re- finance the first mortgage. In addition, and consequent upon the judgment of Priestley J, the first defendant must pay the second defendant the sum of approximately $135,000 in respect of her relationship property entitlement. The re- financing that the first defendant has arranged will enable him to do that as well as meeting certain debts to third parties and paying legal fees. In a second affidavit, sworn on 19 June 2007, he referred to debt to his family of $25,000, to "trade debts" of $50,000 and legal fees of $25,000. [33] The first defendant argues that the balance of convenience favours the grant of the orders sought on the basis that: a) The agreement for sale and purchase entitles the plaintiffs to acquire the property for $660,000; b) The total indebtedness secured against the property if the first defendant's proposals for re-financing are able to proceed will be $389,500; c) That sum includes $40,000, representing 12 months interest on the principal amount to be borrowed of $349,500 thereby reducing any risk that the first defendant might default on interest payments; d) The plaintiffs will be able to obtain a fixture for their claim within about 12 months. However, even if a fixture is not available within that period, they will in any event be kept out of the property until their claim is able to be determined; e) There is sufficient value in the property for there not to be significant risk of detriment to the plaintiffs pending the fixture from the increasein the first defendant's indebtedness as secured against the property. That is so, whether regard is had to the $660,000 contract price, or to the significantly greater value of $833,000 which is said to be the property's value as at June 2007. I note here that, according to Mr Hardy's first affidavit, when the agreement for sale and purchase was executed in October 2004, the indebtedness secured by the ANZ mortgage was about $370,000. On the face of it, the arrangements now proposed would add to the indebtedness as it was in October 2004, a sum of $29,500. [34] Mr Finnigan also pointed out that the plaintiffs would have entered into the agreement for sale and purchase in October 2004 with notice of the second defendant's claim, knowing in fact that she had an interest in the property that might need to be satisfied out of the proceeds of sale. That interest has now been fixed at $135,000. That amount should be added to the existing mortgage debt in order to paint a realistic picture of the present position and the risks faced by the plaintiffs. There is no suggestion that the first defendant will be in a position either to pay the ANZ Bank or the second respondent unless the re-financing proceeds. On the evidence, in the absence of the re-financing proposal, it appears that the ANZ Bank will indeed proceed with mortgagee sale proceedings. [35] For the plaintiffs, Mr Swan was critical of the extent of the evidence as to Mr Hardy's financial situation. He pointed out that the re-financing proposals would take existing debt of approximately $117,000 up to $389,500, significantly increasing Mr Hardy's exposure. He argued that this would potentially add to the risk to the plaintiffs as a result. He contended further that there was no evidence that the first defendant could not borrow money from another source, criticised the lack of any explanation as to why the first defendant had failed to pay the second defendant from the proceeds of the sale of his business, and argued that the plaintiffs' case was very strong, while that of the first respondent lacked merit. [36] Notwithstanding the lack of evidence criticised by Mr Swan, I think it unlikely, on the basis of the evidence that has been adduced, that Mr Hardy could borrow money from elsewhere. Even if he could, it could not be secured against theproperty unless the plaintiffs were prepared to consent to that course being followed. Insofar as his failure to pay the first respondent from the proceeds of the sale of his business is concerned, Mr Hardy explained in his second affidavit that the money had actually been applied to reduction of the ANZ mortgage to its current level. It is hard to criticise that action, which would have had the effect of benefiting not only the first respondent (while preserving the second respondent's position) but notionally also the plaintiffs, having regard to the prospect of an imminent mortgagee sale. [37] Mr Swan contended also that damages would be an adequate remedy for the first respondent, if he was successful at the trial. That might be the case insofar as the claimed collateral agreement is concerned. However, the first respondent's argument about hardship is an argument couched as a defence to the plaintiff's claim for specific performance. That argument does not sound in damages. Further, it seems to me that the plaintiffs' contention entirely overlooks the position of the second respondent who, on the current state of the evidence, would be unlikely to be paid out her entitlement pending the fixture for the present matter. [38] Considering the various contentions put on both sides, I have come to the view that the balance of convenience quite clearly favours the grant of the first defendant's application, essentially for the reasons to which Mr Finnigan referred. That makes a close evaluation of the respective merits of the parties' cases at the trial inappropriate. Standing back and looking at the overall justice of the situation, I am confirmed in that view. There will I think be little risk or detriment to the plaintiffs if the proposed re-financing is able to proceed. On the other hand a mortgagee sale would potentially result in significant detriment both to the first and second defendants.Result[39] For the reasons I have given, I am prepared to make the orders sought by the first defendants. There will be orders accordingly, pending further order of the Court, in accordance with paragraphs 1 – 4 inclusive of the first defendant's application for interlocutory injunction dated 14 June 2007 save that, in the case ofthe third order, requiring the second defendant to provide a registerable discharge for withdrawal of her notice of claim, the following words should be added:provided that such registerable discharge or withdrawal shall not be registered by the first defendant until such time as notice is given by the second defendant's solicitors that they have received clear funds in the sum of $135,694.20 from the first defendant.[40] Questions of costs are reserved pending the trial of the plaintiffs' claim.