JACKS POINT VILLAGE HOLDINGS NO 2 LIMITED v LONG CAPITAL HOLDINGS NZ LIMITED[2019] NZHC 1405

JACKS POINT VILLAGE HOLDINGS NO 2 LIMITED v LONG CAPITAL HOLDINGS NZ LIMITED[2019] NZHC 1405 [19 June 2019]IN THE HIGH COURT OF NEW ZEALANDINVERCARGILL REGISTRYI TE KŌTI MATUA O AOTEAROAWAIHŌPAI ROHECIV-2019-425-12[2019] NZHC 1405BETWEEN JACKS POINT VILLAGE HOLDINGSNO 2 LIMITEDPlaintiffAND LONG CAPITAL HOLDINGS NZLIMITEDDefendantHearing: 6 June 2019Appearances: M Hammer and S McArthur for plaintiffN Hall for defendantJudgment: 19 June 2019JUDGMENT OF ASSOCIATE JUDGE JOHNSTONIntroduction[1] Ultimately, the dispositive issue in this case will be whether a purchaser undertwo contracts for the sale and purchase of blocks of land is entitled to cancel the same,and reclaim deposits, on the grounds that the purchaser itself failed to comply with anobligation to present to the vendor a development plan for approval.[2] The vendor commenced this proceeding alleging that the purchaser breachedthe contracts and has therefore forfeited the deposits it paid. The vendor seekssummary judgment for the release of the deposits. Accordingly, the immediate issuebefore the Court is whether the defence advanced by the purchaser is a tenable onethat should go to trial or whether it can be dealt with on a summary basis.Background[3] The plaintiff, Jacks Point Village Holdings No 2 Ltd, is the primary developerof a subdivision at Jack's Point near Queenstown in Central Otago. Jacks Point Villageowns two blocks of land within the subdivision, which are referred to in the pleadingsas Areas 1 and 2. Both blocks are around 2.5 hectares.[4] On 2 June 2017, Jacks Point Village as vendor entered into agreements to sellthese properties to the defendant, Long Capital Holdings NZ Ltd. For all practicalpurposes the agreements were in identical terms. The sale and purchase price for Area1 was $14,200,000 and Long Capital Holdings paid a 10 per cent deposit of$1,420,000. The sale and purchase price for Area 2 was $11,950,000 and Long CapitalHoldings paid a 10 per cent deposit of $1,195,000. In both cases, the deposit was paidto Jacks Point Village's solicitors as stakeholder.[5] The agreements contained the following key provisions:(a) Clause 10.8(2) (General Conditions):The party or parties for whose benefit the condition has been includedshall do all things which may reasonably be necessary to enable thecondition to be fulfilled by the date for fulfilment.(b) Clause 10.8(5) (General Conditions):If the condition is not fulfilled by the date for fulfilment, either partymay at any time before the condition is fulfilled or waived avoid thisagreement by giving notice to the other. Upon avoidance of thisagreement, the purchaser shall be entitled to the immediate return ofthe deposit and any other moneys paid by the purchaser under thisagreement and neither party shall have any right or claim against theother arising from this agreement or its termination.(c) Clause 20.3(b)(iii) (Special Conditions):This agreement is further subject to and conditional upon thepurchaser providing a Development Plan for all of the property andfor the area shown as Area [1 or 2] on the attached plan within 40Working Days of the date of execution of this agreement(d) Clauses 26.1(b)(i) (Special Conditions):The purchaser will pay the deposit to the vendor's solicitor .The deposit will be held by the vendor's solicitors, as stakeholder, inan interest bearing trust account in the name of the vendor and thepurchaser; and in the event that this agreement is cancelled as aresult of a default by the purchaser, the Net Deposit will be releasedto the vendor (e) Clause 32.2 (Special Conditions):32.2 The Purchaser will provide:(a) the vendor with a development plan (Development Plan) forthe property and the Purchaser's Development for approval(not to be unreasonably withheld if the Development Plan issubstantially in accordance with the development planapproved in accordance with clause 20.3), which includes(without limited):i. engineering, cross sections and survey plans andspecifications of the location and dimensions of theroads, open spaces and/or footpaths (Roads) whichthe purchaser proposes to vest in the Society;ii. the location and size of any common areas, beingareas apart from Roads, which can be used by theowners of Developed Properties and are proposed tovest in Society (Common Areas);iii. the landscape plan (prepared by a New Zealandregistered landscape architect) for the Purchaser'sDevelopment (but excluding areas within theDeveloped Properties, which is covered below),including, without limitation, the materials to be usedwithin the Common Areas;iv. the number, location and dimensions of theDeveloped Properties to be created from the property,the footprint of all buildings and the location ofdriveways and vehicle access to Roads androads/lanes which do not form part of the property;andv. a design and specification by a qualified New Zealandregistered engineer (Water/Waste Proposal) forinfrastructure (Water/Waste Infrastructure) forconveying potable water to, and waste water andstorm water from the Developed Properties within theproperty and connecting them to the point ofreticulation at the boundary of the property. Thepurchaser acknowledges that the waste water may bedisposed of either:(1) through the existing Society sewage disposalsystem. If so, the purchaser will be required(at its own costs) to install a primary wastewater treatment system using the STEPsystem, on the property prior to connecting tothe reticulated waste water system; or(2) if the vendor gives the purchaser noticewithin 6 calendar months of the date of thisagreement, through a new Council sewagedisposal system, in which case theWater/Waste Proposal must connect to thatnew system, and that STEP system will notbe required.(b) In respect of the design of dwellings for the property and thePurchaser's Development, the Southern Village DesignReview Board, an application (DRB Application) which willinclude floor plans, elevations, the height above ground levelof all buildings, all building materials and colours (preparedby an approved architect) and including a landscape plan foreach Developed Property (prepared by an approved landscapearchitect).(f) Clause 42.1 (Special Conditions):Each party will make all applications, execute all documents and door procure all other acts and things reasonable and necessary toimplement and carry out its obligations under, and the intention of,this agreement.[6] After the parties entered into these agreements, there was correspondencebetween their solicitors, the outcome of which was that the period provided for incl 20.3(b)(iii) was extended so that Long Capital Holdings had until 25 August 2017to submit a development plan (or development plans) to Jacks Point Village forapproval.[7] It is common ground that Long Capital Holdings did not submit a developmentplan.[8] On 25 August 2017, Long Capital Holdings' solicitors wrote to Jacks PointVillage's solicitors saying that, as cl 20.3(b)(iii) had not been satisfied, the agreementswere " at an end for non-satisfaction of that condition " and requesting therepayment of the deposits it had paid.[9] There followed correspondence between the parties' solicitors in whichdiametrically opposed interpretations of the contract were advanced.[10] Jacks Point Village now sues Long Capital Holdings seeking an order that it isentitled to retain the deposits (together with interest) under cl 26.1(b)(i). It seekssummary judgment. Long Capital Holdings denies that Jacks Point Village is entitledto the remedy it seeks, counterclaims for an order entitling it to the return of thedeposits it paid pursuant to cl 10.8(5), and of course opposes the application forsummary judgment.Summary judgment[11] The principles relating to summary judgment are well settled.[12] The leading case is the Court of Appeal's judgment in Krukziener v HanoverFinance Ltd, in which the Court summarised the position in these terms:1The question on a summary judgment application is whether the defendant hasno defence to the claim; that is, that there is no real question to be tried:Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The Court must be leftwithout any real doubt or uncertainty. The onus is on the plaintiff, but whereits evidence is sufficient to show there is no defence, the defendant will haveto respond if the application is to be defeated: MacLean v Stewart (1997) 11PRNZ 66 (CA). The court will not normally resolve material conflicts ofevidence or assess the credibility of deponents. But it need not acceptuncritically evidence that is inherently lacking in credibility, as, for example,where the evidence is inconsistent with undisputed contemporary documentsor other statements by the same deponent, or is inherently improbable: EngMee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the court'sassessment of the evidence is a matter of judgment. The court may take arobust and realistic approach where the facts warrant it: Bilbie DymockCorporation Ltd v Patel (1987) 1 PRNZ 84 (CA).The competing arguments[13] The essential submission advanced on Jacks Point Village's behalf byMs Hammer is that Long Capital Holdings breached a contractual obligation to submita development plan for approval and is not entitled to rely on its own breach to avoidits contractual obligations.1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].[14] That submission is developed on two inter-related bases:(a) first, that a party seeking to rely on its own failure to comply with acondition must be able to establish that it has met the relevantcontractual standard for the fulfilment of that condition and been unableto do so, and Long Capital Holdings is not in a position to establish this;(b) second, even if Long Capital Holdings could establish that it had metthe relevant contractual standard, it was not entitled then to elect not tosubmit a development plan on any ground not provided for in thecontract, and the ground on which the company elected not to do so inthis case is not so provided for.[15] In relation to the first of those contentions, Ms Hammer relied on the Court ofAppeal's judgment in Scott v Rania.2[16] Here is how the Court of Appeal expressed the principle in Scott v Rania:3Notwithstanding that a condition, such as "subject to my being able to arrangemortgage finance", has not been fulfilled, a party through whose default thatnon-fulfilment has occurred, if that is the case, may not assert non-fulfilment,for it is a settled principle of law of great antiquity and authority that in thesematters no one can take advantage of the existence of a state of things whichhis default has produced [17] As Ms Hammer submitted, the contractual standard to which the party relyingon the non-fulfilment of the condition must adhere is that expressed in the contract. Ifno such standard is expressed, then the courts will require the party to meet areasonable standard. She cited Connor v Pukerau Store Ltd as an example of thecourts doing just this.4[18] Ms Hammer referred me to cl 42.1 of the contracts in which she submitted theparties had agreed on the standard to be applied.2 Scott v Rania [1966] NZLR 527 (CA).3 At 534 per McCarthy J.4 Connor v Pukerau Store Ltd [1981] 1 NZLR 384.[19] I am not sure how much further this clause takes matters. In it the partiesagreed that each of them would do everything "reasonable and necessary" — which Itake to mean reasonably necessary — to discharge their obligations under the contract,which is simply the obligation that the courts would impose had the contracts beensilent on the point.[20] In any event, this issue resolves itself into whether Jacks Point Village canestablish that Long Capital Holdings took all reasonably necessary steps to submit adevelopment plan.[21] Long Capital Holdings' letter of 25 August 2017, to which I have alreadyreferred, was silent on what steps had been taken. However, in support of itsopposition to Jacks Point Village's application for summary judgment, Long CapitalHoldings has filed and served an affidavit sworn by its National Manager ofAcquisitions and Sales/Marketing, Mr Alan Ye, in which Mr Ye outlines the stepstaken. I quote from Ms Hall's submission on Long Capital Holdings' behalf, whichappears to me fairly to summarise Mr Ye's evidence:Mr Ye sets out in some detail in his affidavit the steps that LCH took towardsfulfilling the Development Plan Conditions, including:(a) engaging Mr Dean Franklin as a consultant;(b) retaining MATZ Architects to undertake design work includinghigh level schemes for Areas 1 and 2;(c) retaining Barker & Associates to provide planning advice;(d) having numerous discussions and meetings with JPVH (and itsconsultants) regarding matters relating to the preparation of theDevelopment Plans;(e) preparing a master plan;(f) undertaking impact testing as a result of changes made byJPVH to boundaries;(g) engaging Thompson Construction & Engineering to costprecast concrete panels;(h) discussions with the local authority;(i) engaging Southern Projects, a local Queenstown quantitysurveyor to provide a costing study;(j) seeking further extensions of the time for fulfilment of theDevelopment Plan conditions;(k) incurring expenditure of over $35,000 on external consultants;and(l) spending over 160 hours of Mr Ye and Mr Franklin's timeworking on the development (including working towardsfulfilling the Development Plan Condition).[22] Ms Hammer's submission on behalf of Jacks Point Village in relation to thisevidence is that: a robust and realistic analysis of Mr Ye's evidence makes it abundantlyclear that the defendant has not done all things reasonable and necessary toimplement and carry out its obligations to provide a development plan.[23] That does not strike me as a fair submission. Mr Ye's unchallenged evidenceindicates that Long Capital Holdings went well down the path towards the preparationof a development plan, and indeed appears to have prepared one. I accept Ms Hall'ssubmission that Mr Ye's evidence establishes that, at the very least, it is open toLong Capital Holdings to contend that it took all reasonably necessary steps to putitself in a position to submit a development plan for approval.[24] The difficulty for Long Capital Holdings is that its obligation to take allreasonably necessary steps to submit a development plan for approval as articulatedin cl 32.2 must surely include the obligation to take the final step of submitting thesame, and, on its own evidence, it elected not to do so.[25] Prima facie, then, Jacks Point Village has established that Long CapitalHoldings breached its contractual obligation when on 25 August 2017 it declined tosubmit a development plan for approval and effectively repudiated the contract.[26] I turn to the second submission advanced on behalf of Jacks Point Village byMs Hammer that, even if Long Capital Holdings did take all reasonably necessarysteps to put itself in a position to submit a development plan, it was not entitled to electnot to do so on the ground that it did.[27] Again, Long Capital Holdings' letter of 25 August 2017 did not identify thebasis upon which the company was electing not to submit a development plan forapproval.[28] However, in its statement of defence and counterclaim, Long Capital Holdingspleads expressly that the reason for its decision was that "any compliant developmentwould not be economically viable".[29] In his affidavit, Mr Ye says:However, notwithstanding all of this work, in late August 2017, it becameclear to LCH that no amount of refinement or reworking could overcome thefact that LCH could not feasibly develop the land in a manner which satisfiedthe requirements imposed under the Agreements and that LCH could notproceed with the development. This was due to the level of risk associatedwith the development (particularly in relation to planning issues) and limitedreturn which it would produce for LCH's investors (primarily as a result of thehigh costs of construction required to build a development that met theJack's Point development standards.[30] As Ms Hall contends, this issue comes down to the proper interpretation of thecontracts.[31] The starting point is to record that the parties here are two significantcommercial concerns, both vastly experienced developers that have, with theassistance of two leading commercial firms of solicitors, negotiated detailedcommercial agreements for the sale and purchase of valuable blocks of primedevelopment land. Certainly, those agreements are based on the Real Estate Instituteof New Zealand and Auckland District Law Society's standard agreement for the saleand purchase of land. But they have been extensively modified, and in each caseinclude 19 pages of unique terms.[32] As already recorded, Jacks Point Village is the principal developer of thesubdivision. What was happening here is that Jacks Point Village was effectivelysubcontracting out the development of Areas 1 and 2 to Long Capital Holdings. Theunchallenged evidence is that Jacks Point Village had residual obligations orentitlements to ensure that these two properties were developed within certainparameters. Against that background, it is not difficult to discern that the centralpurpose of cls 20.3(b)(iii) and 32.2 was to enable Jacks Point Village to ensure thatLong Capital Holdings would develop the properties within those parameters.[33] In those circumstances, it is entirely unsurprising that the exclusive focus ofcl 32.2 is the physical characteristics of the development — what Long CapitalHoldings is proposing to do, and would be obliged to do if its development plan wereapproved.[34] Had Long Capital Holdings taken all reasonably necessary steps to prepare adevelopment plan addressing all of the matters referred to in cl 32.2 but been unableto come up with a technically feasible plan — say as a result of geotechnical evidenceindicating that the land was unstable — there is little doubt that it could have taken theposition that it was unable to produce a development plan and that this would havebrought the contract to an end and entitled it to the return of its deposits.[35] But that is not what happened here. It is clear from the pleading to which Ihave referred, and Mr Ye's evidence, that the reason why Long Capital Holdingsdeclined to present a development plan for approval was that, having reached the pointwhere it was in a position to do so (and it seems having prepared one), it concludedthat the return it would receive on the development was not satisfactory.[36] In my judgement, prima facie at least, in doing so, the company breached thecontracts and in terms of cl 26.1(b)(i) became liable to forfeit its deposits.[37] Clause 32.2 is expressed in mandatory terms. It says: "The purchaser willprovide the vendor with a development plan ". It then goes on to identify whatthe development plan will cover in sub-cls (i)-(v). These, as already said, focusexclusively on the physical characteristics of the development. Nowhere in the clauseis there any reference to economic feasibility. Nor can I identify any other provisionin the contract that puts a different complexion on this.[38] For Long Capital Holdings, Ms Hall submitted:15. Importantly, the relevant clauses also did not require LCH to providea Development plan at any cost as JPVH seems to suggest. To do sowould flout commercial common sense. As Mr Ye explains in hisaffidavit, LCH could not undertake a development of the land that wasnot economically viable. Given the stringent design and othercontrols in the Agreement (to maintain the look and feel ofJack's Point as an "upmarket" emerging settlement and resort), itwould have been in neither parties' interests for LCH to have beencompelled to submit a plan for a nonviable Development Plan thatwould ultimately fail. It follows too, that no party would go throughthe exercise of producing a Development Plan without at the sametime building feasibility issues into the Development Plan.16. The need for any Development Plan to be feasible (not only ineconomic terms but in terms of planning and other requirements) wassomething that was clearly discussed by the parties while LCH wastaking steps to prepare the development plans. This conduct on thepart of the parties (including JPVH) is consistent with LCH'scontended interpretation of the Agreements.[39] As she developed this submission in argument, it became clear that the defenceLong Capital Holdings contends must go to trial is that the Court should imply intothe contract a term to the effect that Long Capital Holdings could elect not to presenta development plan (and terminate the contract) if it emerged that proceeding wouldnot be economically feasible (that is to say, would not achieve a return that it regardedas satisfactory) provided all reasonably necessary steps preparatory to submitting adevelopment plan had been taken — as I have concluded was the case here.[40] As I understood Ms Hall's argument, the basis for implying such a term is thatit is so obvious that it goes without saying, or that it is necessary to give businessefficacy to the contracts.[41] In my recent judgment in John Young Farming Ltd v Ngāi Tahu Farming Ltd,I canvassed the development of the law relating to the implication of terms incontracts.5 I do not propose to repeat that analysis in full here. In broad summary,there are two different circumstances in which the courts will imply a term into acontract: where the term represents the obvious but unexpressed intention of theparties; and where the term is necessary to give business efficacy to the contract.65 John Young Farming Ltd v Ngāi Tahu Farming Ltd [2019] NZHC 1333.6 See H G Beale (ed) Chitty on Contracts: Volume 1 General Principles (33rd ed, Sweet andMaxwell, London, 2018) at [14-006] and McNeil v Gould (2002) 4 NZ ConvC 193,557 at [26] perHammond J.[42] The principle that governs the first category of case is still that articulated byMacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd:7Prima facie that which in any contract is left to be implied and need not beexpressed is something so obvious that it goes without saying; so that, if, whilethe parties were making their bargain, an officious bystander were to suggestsome express provision for it in their agreement, they would testily suppresshim with a common "Oh, of course!"[43] Despite some controversy, the leading case relating to when a term will beimplied into a contract on business efficacy grounds is still BP Refinery (Western Port)Pty Ltd v Shire of Hastings, where the Privy Council said:8 for a term to be implied, the following conditions (which may overlap)must be satisfied: (1) it must be reasonable and equitable; (2) it must benecessary to give business efficacy to the contract so that no term will beimplied if the contract is effective without it; (3) it must be so obvious that "itgoes without saying"; (4) it must be capable of clear expression; (5) it mustnot contradict any express term of the contract.[44] Both in this country and in the United Kingdom subsequent decisions havecommented on the BP Refinery test.[45] In Attorney-General of Belize v Belize Telecom Ltd, the Privy Council observedthat the BP Refinery tests are:9 best regarded, not as series of independent tests which must each besurmounted, but rather as a collection of different ways in which judges havetried to express the central idea that the proposed implied term must spell outwhat the contract actually means ...[46] In Hickman v Turn and Wave Ltd, the Court of Appeal adopted the approachsuggested by the Privy Council.10[47] Finally, the United Kingdom Supreme Court has recently revisited Attorney-General of Belize v Belize Telecom Ltd in Marks and Spencer plc v BNP ParibasSecurities Services Trust Co (Jersey) Ltd, emphasising that the courts will only imply7 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227.8 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 (PC) at 376.9 Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [27]per Lord Hoffmann.10 Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 318 at [247]–[248].a term into contract if it is necessary to make the contract work, and not merely becauseit would be reasonable to do so.11[48] The contention advanced on behalf of Long Capital Holdings is that, in theabsence of a term along the lines propounded by it, a conditional purchaser under thesecontracts would effectively be forced to present a development plan and then go aheadwith the development even if it were uneconomic, which defies commercial sense.[49] It appears to me that that contention is problematic in a number of respects:(a) First, and most obviously, that is simply the terms on which theseparties, commercially astute and well advised as they were, settled. Itwould have been quite open to Long Capital Holdings to insist on beinggiven the opportunity to analyse the scope of the development andmake an assessment of its economic feasibility before entering into thecontract, or alternatively negotiate for the inclusion in the contract of aterm expressly entitling it to cancel in the event that it assessedproceeding with any approved development plan would beeconomically unfeasible.(b) Additionally, it seems to me that this may be a situation of the sort thatthe United Kingdom Supreme Court contemplated in Marks andSpencer, that is to say that the term propounded might be reasonablebut is not one that is necessary to make the contract work.(c) Finally, here it is contended, in effect, that, in the absence of a term ofthe sort it submits should be implied into the contract, Long CapitalHoldings would face an impossible conundrum. If, having prepared adevelopment plan and an analysis of the economic viability of theproject, it concluded that proceeding would not produce a return, thecompany would be faced with having to proceed nevertheless. But ofcourse, that is not the position. It was quite open to Long Capital11 Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72,[2016] AC 742 at [23] per Lord Neuberger, [59] per Lord Carnwath and [77] per Lord Clarke.Holdings to do exactly what it has done; decline to proceed, albeit thatsuch a course of action involves forfeiting its deposits.[50] In my judgement, this is the agreement that these two sophisticated commercialparties, with the assistance of their solicitors, concluded, and they must be held to it.In short, I am satisfied that Jacks Point Village has established that the defenceLong Capital Holdings wishes to run cannot succeed.The defendant's counterclaim[51] For completeness, I record that Long Capital Holdings' counterclaim proceedson that basis that it is entitled to recover the deposit it paid pursuant to cl 10.8(5).[52] As Ms Hammer submitted, that term is one of the general conditions in thecontract. It conflicts directly with cl 26.1(b)(i), which is one of the special conditions.[53] Clause 37.1 provides that in the event of a conflict between a general and aspecial condition, the latter is to prevail.[54] Accordingly, it is cl 26.1(b)(i) that governs the way in which deposits paid willbe dealt with, so the counterclaim cannot succeed.Conclusion[55] The plaintiff is entitled to summary judgment and I make the orders sought inits statement of claim, releasing the deposits to the plaintiff with interest.[56] Costs are reserved as I did not hear counsel as to these. In case it assists, mypreliminary view is that there is no obvious reason why the plaintiff should not haveits costs on a 2B basis. If counsel are unable to resolve costs, as I would expect themto be able to do, then they may revert to me by memoranda and I will deal with themon the papers.Associate Judge JohnstonSolicitors:Anderson Lloyd, Queenstown for plaintiffSimpson Grierson, Auckland for defendant