INSPIRE HOLDINGS LIMITED v JSM PROPERTIES LIMITED [2022] NZCA 136

INSPIRE HOLDINGS LIMITED v JSM PROPERTIES LIMITED [2022] NZCA 136 [26 April 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA449/2021[2022] NZCA 136BETWEEN INSPIRE HOLDINGS LIMITEDAppellantAND JSM PROPERTIES LIMITEDRespondentHearing: 22 March 2022Court: Kόs P, Woolford and Dunningham JJCounsel: G M Illingworth QC and D G Collecutt for AppellantD R Bigio QC and J G Donkin for RespondentJudgment: 26 April 2022 at 9amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay costs to the respondent for a standard appeal ona band A basis with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Woolford J)[1] The appellant, Inspire Holdings Ltd (Inspire), claims that it has a legallyenforceable agreement to buy three properties owned by the respondent,JSM Properties Ltd (JSM). Associate Judge P J Andrew thought otherwise and, in adecision dated 7 July 2021,1 found that Inspire did not have a sufficient interest tosustain a caveat over the properties. Inspire now appeals.Background[2] Negotiations for the purchase of the properties took place by e-mail and textover a two-week period between 30 December 2020 and 11 January 2021. During thattime, four versions of the standard ADLS/REINZ Agreement for Sale and Purchase ofReal Estate were prepared and sent by one party to the other.[3] Version 1: On 30 December 2020, Version 1 was sent as an attachment to ane-mail from Inspire to JSM. The purchase price for the three properties was$2,400,000 inclusive of GST. The deposit was to be paid upon signing.[4] Version 2: On 5 January 2021, Version 2 was sent as an attachment to an e-mail from JSM to Inspire. The purchase price was $2,400,000 inclusive of GST (ifany) (the words "if any" having been inserted). The deposit was to be paid on29 January 2021 (the deposit date having been changed).[5] Version 3: On 8 January 2021, Version 3 was sent as an attachment in an e-mailfrom Inspire to JSM. The purchase price was $2,400,000 inclusive of GST (the words"if any" having been deleted). The deposit was to be paid on 29 January 2021 (nochange).[6] Version 4: On 11 January 2021, Version 4 was sent as an attachment in an e-mail from Inspire to JSM. Version 4 was a printout of Version 2, which had then beensigned by Inspire. The purchase price was $2,400,000 inclusive of GST (if any) (thewords "if any" having been reinstated). The deposit was to be paid on 29 January2021 (no change).[7] It is common ground that Version 2 was a rejection of Version 1 and amountedto a counter-offer. The parties differ as to whether Version 3 was a rejection ofVersion 2 and amounted to a counter-offer, or whether it was merely an enquiry about1 Inspire Holdings v JSM Properties [2021] NZHC 1688.a possible variation of terms. The difference arises because of communications arisingafter Version 2 had been sent to Inspire by JSM. On 6 January 2021 at 5.08 pm, Inspirewrote:The purchase price is inclusive of GST.If GST was not claimed and JSM properties is not registered for GST, no gstis payable to the IRD.I have sent to our company accountant and will check if "if any" after inclusiveof GST is an issue.I would prefer to have that removed if it is ok with you. Have a think and letme know.[8] JSM replied on 6 January 2021 at 9.11 pm, as follows:I think you are right and we are being over cautious, we just don't want IRDto try and claim it from us. We certainly did not claim GST on the purchaseand had no intention to. I will forward it to our Accountant and see if heagrees. If he does we will remove it.[9] Without waiting for advice from JSM about the attitude taken by JSM'saccountant to removal of the words "if any", Inspire sent Version 3 to JSM as anattachment to an e-mail on 8 January 2021 at 8.49 am, which read:Please find enclosed the signed and dated agreement.I have removed the (if any) part as after speaking to the accountant adding thisis bears no purpose for either party. This transaction will not be subject to anysort of gst tax as it was never claimed nor is the entity registered for it.[10] Inspire says that Version 3 was not a rejection of Version 2 and did not amountto a counter-offer but was merely an enquiry about a possible variation of terms. Onthe other hand, JSM says Version 3 was a rejection of Version 2 and did amount to acounter-offer.[11] Inspire further says that because Version 3 was not a rejection of Version 2,Version 2 remained open for acceptance later by Inspire.[12] Following receipt of Version 3 by JSM on 8 January 2021 at 8.49 am, furthercrucial communications occurred between the parties.[13] Having received advice presumably from its accountant, JSM replied on 11January 2021 at 10.19 am:Sorry, but we do not yet have an agreement. You have removed the "if any"on the purchase price, which we have to initial first for this to be an agreement.We initialled the removal of the "if any" prior to sending it to you.The advice we have received, is that the "if any" needs to stay.If the "if any" is deleted, it shows that GST is included in the sale, and removesall doubt. This effectively wipes off $313,043 off the purchase price.We understand that you will be claiming GST on the purchase, and that willspark a query from Inland Revenue as to our status. We are mainly residentialinvestors, but do own one commercial building that requires us to be GSTRegistered.Our intention with the land was to develop it into Residential Real Estate andretain it as a long term investment, meaning there was never any need for usto be GST registered for this land.From our point of view, the risk of leaving the "if any" part in is minor foryourselves.We need further clarification on this point before we have an agreement.[14] Inspire then replied on the same day, at 10.33 am:Lets leave in "if any" for now I am sure it will be ok.All residential property is inclusive of GST unless specified. I am not surewho is giving this advice.Writing "if any" is typical of a zero rated transaction and from my end I don'twant to be paying that on top.Give[n] it states it's inclusive of GST I am sure we can explain to the IRD.Can you send me the contract you sent the other day and I will sign as is.[15] Inspire did not wait for JSM to resend "the contract you sent the other day"(Version 2), but printed it out, signed it and returned it to JSM at the same time astexting JSM:10.58 amI am ok to leave in "if any". My accountant said it's important to ad[d] in agst warranty clause that should IRD make a ruling that JSM property shouldhave paid GST on the transaction that I am not impacted which I feel is fair.11.01 amWe can agree on the clause through the DD[.]11.09 amJust sent you through the agreement as it came through to me from you.[16] A minute earlier, Inspire had sent through Version 4 to JSM attached to an e-mail, which read:Enclosed signed dated agreement.[17] There were no further communications between the parties.Parties' positions[18] As noted above, Inspire says that Version 3 sent by it to JSM was not a rejectionof Version 2 and did not amount to a counter-offer, but was merely an enquiry about apossible variation of terms. Version 2 was therefore still open for acceptance, whichInspire did by printing it out, signing it and returning it to JSM on 11 January 2021.Alternatively, if Version 3 was a rejection of Version 2 and did not amount to acounter-offer, JSM, in effect, renewed their counter-offer not in the form of anADLS/REINZ Agreement for Sale and Purchase of Real Estate, but in the form of itse-mail of 11 January 2021 at 10.19 am, when JSM stated:We need further clarification on this point before we have an agreement.[19] On the other hand, JSM says that Version 3 sent to it by Inspire was a rejectionof Version 2 and did amount to a counter-offer. JSM made its position quite clear onits receipt:Sorry, but we do not yet have an agreement.[20] JSM also denies that its e-mail of 11 January 2021 amounted to a form ofcounter-offer.Associate Judge's decision[21] The Associate Judge set out the requisite elements for the formation of a legallybinding contract as being:22 Citing Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002]2 NZLR 433 (CA) at [53].(a) An intention to be immediately bound, at the point when the bargainis said to have been agreed; and(b) An agreement, express or implied, or the means of forming anagreement on every term which:(i) was legally essential to the formation of the contract; or(ii) was regarded by the parties themselves as essential to theirbargain. A term is to be regarded by the parties as essential ifone party maintains the position that there must be agreementupon it and manifests accordingly to the other party.[22] The Associate Judge then went on to say:[19] Whether parties intended to enter into a contract, and whether theyhave succeeded in doing so, are objective questions. The Court considers thesurrounding factual matrix which may include looking at the subsequentconduct of the parties towards one another and the statements the parties madeorally or in writing in the course of the negotiations. Any drafts of the intendedcontractual document can also be relevant.[20] In assessing whether an agreement has been reached, the Courttypically employs the language of offer and acceptance. The Court willexamine all the circumstances to see if one party may be assumed to havemade a firm "offer" and if the other party is taken to have "accepted" thatoffer.[21] The reaching of an agreement, however, is not the same as anassumption of an immediate legal commitment. The law recognises anabsence of intention to be bound both when the parties have made expressionto that effect and when such is to be implied by their conduct or as a naturalinference.(footnotes omitted)[23] The Associate Judge identified two issues for determination:3(a) Is it reasonably arguable that a legally binding agreement was formedwhen Inspire signed the agreement for sale and purchase on 8 January2021 with the words "(if any)" struck out?(b) If the answer to (a) is "no" is it reasonably arguable that a legallybinding agreement was formed when Inspire signed the agreement forsale and purchase on 11 January 2021, in a form originally signed bythe vendor JSM with the inclusion of the words "GST (if any)"?[24] On the first issue, the Associate Judge held that the deletion of the words "(ifany)" by Inspire in Version 3 can only sensibly be regarded as a rejection of JSM's3 At [4].offer in Version 2. By including the words "(if any)" in Version 2, JSM was sendinga very clear signal that there was an outstanding issue as to GST that requiredagreement before any binding contract was formed. There was clearly no mutualintention to be bound. The amended form returned on 8 January 2021 was acounter-offer from Inspire.4[25] Having answered the first issue "no", the Associate Judge turned to the secondissue. The Associate Judge thought that it was important to distinguish betweenagreement on all outstanding issues and an immediate intention to be bound. He foundas a matter of objective determination the correct view was that until such time as JSMsigned (by re-initialling) the agreement for sale and purchase in the form returned byInspire on 11 January 2021 (Version 4), there was no intention to be bound andtherefore no binding contract was formed. The consistent practice of the parties hadbeen, as is conventional, for any changes to the agreement to have been signed, byway of initialling, by both parties. He, therefore, answered the second issue "no" andconcluded that it was not reasonably arguable the parties formed a legally bindingagreement either on 8 or 11 January 2021.5Issues for determination[26] There is no dispute about the applicable legal principles. The issues areentirely factual.[27] The primary issue for determination is whether Inspire had a reasonablyarguable case that it entered into a legally binding contract with JSM such that Inspire'scaveat over the properties should be sustained. To answer this primary question, anumber of subsidiary issues need to be determined — the effect of (a) Inspire'scommunications on 6 January 2021, (b) Inspire's Version 3 sent on 8 January 2021,and (c) JSM's communications on 11 January 2021.4 At [27]–[31].55 At [34]–[40].Inspire's communications on 6 January 2021[28] In response to Version 2 sent to it by JSM on 5 January 2021, Inspire respondedby stating it had sent the draft agreement to its accountant who would advise Inspirewhether the words "(if any)" after the words "inclusive of GST" were an issue. Inspirethen stated, "I would prefer to have that removed if it is ok with you. Have a thinkand let me know". This is clearly not a rejection of JSM's offer. We agree with counselfor Inspire that this is not a counter-offer, but merely an enquiry about a possiblevariation of terms proposed by JSM in Version 2.[29] JSM responded by stating that it would also forward the draft agreement to itsaccountant to see if he agreed. JSM then stated, "If he does we will remove it". Thisis, however, not an unconditional agreement to make a change to Version 2. It isconditional on the agreement of JSM's accountant. JSM's accountant did not agree.6Inspire's Version 3 sent on 8 January 2021[30] On 8 January 2021, Inspire sent Version 3 to JSM with the advice:I have removed the (if any) part as after speaking to the accountant adding thisis bears no purpose for either party.This was sent by Inspire before JSM had responded finally to Inspire's proposal tovary the terms of the draft agreement. This is not another enquiry about a possiblevariation of terms proposed by JSM in Version 2. It was a rejection of JSM's offer andamounted to a counter-offer.[31] The parties had agreed by their course of conduct to formalise their offer andcounter-offers by amending and signing or initialling a standard ADLS/REINZAgreement for Sale and Purchase of Real Estate. It is a form in widespread use andwith which the parties were quite familiar.[32] Having made an amendment to Version 2 by the deletion of the words "(ifany)" and initialling that amendment before forwarding the amended agreement to6 See above at [13].JSM, Inspire had rejected JSM's earlier offer contained in Version 2. It was no longeropen for later acceptance by Inspire.JSM's communications on 11 January 2021[33] On 11 January 2021, JSM wrote to Inspire saying they did not yet have anagreement. JSM said the advice they had received (presumably from its accountant)was that the "(if any)" needed to stay. Reasons were given. The e-mail from JSMconcluded, "We need further clarification on this point before we have an agreement."Inspire argue that because JSM had already received advice from its advisers, thereference to "further clarification" was to the fact that clarification was needed fromInspire. Inspire says that this amounted to a renewal of JSM's offer contained inVersion 2, or otherwise represented an offer to immediately enter a legally bindingcontract, and if Inspire now accepted the need for the words "(if any)" to remain, therewas a concluded agreement.[34] We do not, however, accept that JSM's e-mail amounted to a renewal of JSM'soffer contained in Version 2, or otherwise represented an offer to immediately enter alegally binding agreement. Both the first and last sentences refer to the lack of anagreement and there is no formal offer made by JSM to conclude an agreement ifInspire accepts the need for the words "(if any)" to remain. "We need furtherclarification on this point before we have an agreement" is quite equivocal and cannotbe elevated to the renewal of a previous offer or a new offer.[35] In any event, there was no subsequent unconditional acceptance by Inspire. Inan e-mail in response, Inspire said "Lets leave in "if any" for now. I am sure it will byOk". "For now" is not unconditional acceptance. Inspire also texted JSM, "Myaccountant said its important to ad[d] in a gst warranty clause that should IRD make aruling the JSM property should have paid GST on the transaction that I am notimpacted which I feel is fair" and, "We can agree on the clause through the D[ue]D[iligence]." Inspire has here proposed a further provision to be inserted into the draftagreement. There was no concluded agreement.[36] JSM did not reply to Inspire's e-mail or text messages. Nor did it respondwhen Inspire sent Version 4 of the draft agreement to it.Conclusion[37] Whether approached on a traditional offer and acceptance analysis or viewedobjectively, all of the relevant exchanges between the parties did not result in theformation of a legally binding contract. JSM did not agree to contract on the termsproposed by Inspire. It did not negotiate with Inspire any further. The Associate Judgewas right to find that it was not reasonably arguable the parties formed a legallybinding contract either on 8 or 11 January 2021.Result[38] The appeal is dismissed.[39] The appellant must pay costs to the respondent for a standard appeal on aband A basis with usual disbursements.Solicitors:Conveyancing Shop, Auckland for AppellantBase Law, Drury for Respondent