KEITH AND KEITH v WAERENGA LAND COMPANY LIMITED [2015] NZHC 1192

KEITH AND KEITH v WAERENGA LAND COMPANY LIMITED [2015] NZHC 1192 [8 May 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-128[2015] NZHC 1192BETWEEN JOHN BLOY KEITH ANDROBYN MARY KEITHPlaintiffAND WAERENGA LAND COMPANYLIMITEDDefendantHearing: 8 May 2015Appearances: P J Magee for PlaintiffsZ Kennedy and A Kent-Johnston for DefendantJudgment: 8 May 2015ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELLSolicitors:Thomson Wilson, Whangarei, for PlaintiffsMinterEllisonRuddWatts, Auckland, for Defendant[1] In 2006 the plaintiffs sold 60 ha at Te Kauwhata to the defendant. The agreement gave the plaintiffs a right of first refusal if the defendant decided to put the property on the market. In 2014 the defendant sold the property to a third party without first giving notice to the plaintiffs and without giving the plaintiffs the opportunity to buy the property. The plaintiffs sue the defendant and apply for summary judgment as to liability.The agreement for sale and purchase[2] The agreement for sale and purchase is dated 28 June 2006. The property the plaintiffs sold to the defendant is in five titles – Lots 1-5 of DP90795 (South Auckland Registry). That had an area of 60.95 hectares more or less. The purchase price was $2,400,000 plus GST (if any). The agreement was on the Auckland District Law Society form (7th ed. July 1999 (3)). There is a standard non-merger clause:10.1 The obligations and warranties of the parties in this agreement shall not merge with the transfer of title to the land or with the delivery of the chattels (if any).[3] The agreement has a number of special conditions. The important one in this case is cl 18:18.0 Agreement for Sale and PurchaseThe purchaser, upon becoming the owner of the property, agrees to sell all or part of the subject property hereby agreed to be sold to John Bloy Keith and Robyn Mary Keith or their nominee subject to the following conditions:(a) The purchaser giving notice ("the Owners' Notice") that all orpart of the property is on the market.(b) The Owners' Notice shall specify the proposed price.(c) If John Bloy Keith and/or Robyn Mary Keith, or any person entitled to buy the land under this agreement, do not accept theproposed price specified in the Owners' Notice then they mayobject and obtain their own valuation, in which case the proposed price shall be the fair market value as assessed by two valuers, one acting for each party, and if the valuers do not agree, then the price shall be the average of the two valuations.(d) John Bloy Keith and/or Robyn Mary Keith may give notice that they will purchase the property at the value as fixed within one month of receiving notice of the price as determined by theOwners' Notice or as fixed by the valuers, or as fixed inaccordance with clause 18.0(c) (whichever is the later).(e) If John Bloy Keith and/or Robyn Marie [sic] Keith do not exercise their right to purchase the property, the purchaser may sell the property to a third party. If the property is not sold within a period of eighteen months, the purchaser must undertake the procedure set out in this clause before selling the property.(f) The purchaser may sell all or part of the property to any of the associated companies of the purchaser (being a company under the control of substantially the same shareholders as control Waerenga Land Company Ltd) or any shareholder of any such company provided that such purchaser enters into an agreement for sale and purchase with John Bloy Keith and Robyn Mary Keith on the same terms as are set out in this clause.(g) ...(h) The persons entitled to buy the land shall be John Bloy Keith, Robyn Mary Keith, their children, any trust of which any of such persons are beneficiaries, or any company in which any such person is a shareholder.(i) The matters in this clause shall be confirmed by a deed on settlement executed by the parties hereto.[4] As the agreement was originally drawn up, cl 18 contained a sub-cl (g), allowing the vendor to caveat the titles. That clause was struck out, with both sides initialling the deletion.[5] The sale settled in August 2006. While cl 18(i) provided for a deed to be executed by the parties on settlement to confirm the right of first refusal, the parties did not make any such deed.[6] In February 2014, Waerenga Land Company Ltd entered into an agreement to sell approximately 100 ha of land to R & T Pastoral Ltd. The land sold under that agreement included the 60 ha Waerenga had bought from the plaintiffs. Under the February 2014 agreement, the purchase price was $6,125,000 plus GST (if any). R & T Pastoral Ltd took title in May 2014. It is not disputed that Waerenga did not tell the plaintiffs that the 60 ha it had bought under the 2006 agreement were now onthe market again. Waerenga did not give the plaintiffs any opportunity to buy the property.[7] In June 2014, the plaintiffs' lawyers wrote to South Auckland lawyers acting for the defendant, raising the non-compliance with cl 18. The defendant's lawyersreplied on 12 June 2014. The letter includes this:Our clients instruct their failure to notify your client and give them the option to purchase the property is not an intentional or deliberate action; it was simply an oversight on behalf of our client company.The passage of time since our client acquired the property (years ago) , coupled with the fact that the original option did not allow your clients to register some form of formal notification of the option to purchase (such as a caveat) has meant that the matter simply slipped the minds of our clients.[8] With that letter the lawyers enclosed a copy of the agreement for sale and purchase to R & T Pastoral Ltd. There followed further correspondence but without resolution.[9] Later in 2014 Waerenga instructed Auckland lawyers. On behalf of Waerenga, the Auckland lawyers took the point that cl 18 was unenforceable because there had been no deed as provided under cl 18(i).[10] The matters I have set out so far are uncontested.Pleading[11] It is necessary to deal with the plaintiffs' pleading. The statement of claimhas three causes of action. The first and second causes of action are (as best I cantell) identical except that the first cause of action is headed "Contractual Remedies Act 1979" and the second cause of action is headed "Breach of contract". Underboth those causes of action the plaintiffs plead the obligations under cl 18, Waerenga's failures to notify and to provide the plaintiffs with the opportunity topurchase under cl 18, Waerenga's repudiation of the contract by its conduct; the plaintiffs right to cancel cl 18 of the agreement; and the court is requested to make orders granting relief. The loss is said to be the inability to obtain specificperformance. The plaintiffs have pleaded an inability at this stage to quantify their losses. The relief sought is:[a] Judgment as to liability; and[b] Costs[12] There is also a third cause of action which is headed "Proprietary estoppel"but I think it was intended to be instead a form of equitable or promissory estoppel. Mr Magee did not rely on the third cause of action for the summary judgment application. That was an appropriate concession. There is a conflict on the evidence between the parties as to what was said. The estoppel cause of action is said to be based on assurances that the plaintiffs would be adequately protected even if they could not have a caveat against the title. The defendant denies making any such representations. Such conflicts cannot be resolved in this application.[13] I revert to the first and second causes of action.[14] It is only necessary for the plaintiffs to establish a breach of contract. It generally does not matter that the defendant's conduct also gives grounds for acancellation under the Contractual Remedies Act. Cancellation will generally relieve parties of further performance, but now that the land has been on-sold there are no obligations under the agreement requiring further performance. In short, the defendant made further performance of the contract impossible.[15] Cancellation of the contract will not revest any assets with the original parties. Whoever has obtained title to the property under the agreement remains owner of that property. Mr Kennedy did raise, as one possibility, that if there were a cancellation the plaintiffs might seek relief under s 9 of the Contractual Remedies Act, but Mr Magee indicated that he was not seeking such relief from this proceeding. He is content for the matter to be dealt with purely as a matter of breach of contract giving rise to a claim for damages.[16] It is open to me, on the pleadings, to deal with the case as a claim for damages without having separately to consider whether there are grounds for cancellation. It seems to me that cancellation is a rather barren enquiry in the circumstances of this case.[17] At this stage, the plaintiffs sought only judgment as to liability and costs. But Mr Magee made it clear that he did not intend that to be the final relief. He wishes later to have damages determined. Accordingly - assuming he is successful today - it will be necessary to give the plaintiffs the opportunity to amend their pleadings to show what damages they seek.What is the effect of cl 18(i)?[18] With those preliminary matters out of the way, the essential question to be approached is the effect of cl 18(i). The defence argument is that the obligations under cl 18 should not operate because they had not become binding on the defendant until the parties had made a deed on settlement. Their case is that until that was done, cl 18(i) did not require the defendant to advise the plaintiffs that the property was to be put on the market or that the plaintiffs should have the opportunity to buy in accordance with cl 18.[19] The parties have entered into a complete and binding agreement. The defendants accept that the agreement cannot be attacked as void for uncertainty. No further matters were to be left open for further negotiation. The parties were bound when they signed the 2006 agreement. But it provided for a further document which was to be signed later. The question is whether the parties were bound immediately when they signed the agreement for sale and purchase or whether cl 18 was to be held in suspension until a separate deed was signed later.[20] In his text on Sale of Land, Dr D W McMorland has set out the way these circumstances can be analysed, taking guidance from the decision of the High Courtof Australia in Masters v Cameron. D W McMorland sets out the position at paragraph 3.12 of his text: 13.12 Analysis of circumstances in which the parties intend that an informal agreement shall be given a formal expressionIn cases where the parties have completed their negotiations to the point where all the terms of their agreement are settled and the offer and acceptance are complete, they may also intend that their agreement shall be dealt with by a formal contract. This broad category of case has been analysed into three, m ore detailed situations. (Marsters v Cameron).(1) The parties have reached finality in arranging all terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a fuller or more precise form, but not different in effect. In these cases the parties are bound at once to perform the first bargain whether or not the restatement occurs. (citations omitted).(2) The parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to those which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. In these cases there is a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. (For example Goecke v Kirwan; Meredith v Anthony).(3) The parties do not intend to make a concluded bargain at all unless and until they execute a formal contract. Such cases are fundamentally different from the first two. The terms of the agreement are not intended to have, and do not have, any binding effect of their own. Cases in which the parties have said theiragreement is "subject to contract" come into this category, as dothose in which the inference applies that the parties do not intend to be bound unless and until their contract is in writing and signed by them both.A fourth situation has also been identified, that in which the parties are content to be bound immediately and exclusively by the terms they have agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.[21] It is a matter of construction to see into which category this case lies.[22] There is a preliminary point. The defendant submitted that the court should not make such an enquiry now because there is not sufficient evidence for the court1 D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [3.12] (footnotes omitted); Masters v Cameron (1954) 91 CLR 353 at 360.to make such a determination. The submission ran that the court ought to hear evidence from the parties as to their intentions. I accept, of course, that a contract is to be read within context and that appropriate contextual evidence can be provided. Notwithstanding that, it is also clear that the parties' subjective intentions do notcount in ascertaining the meaning of the contract. Here, the parties had put their agreement in writing. The relevant contextual information is quite apparent from the circumstances. Before the agreement for sale and purchase, the people behind Waerenga Land Company Ltd had been lessees of the land. The Keiths wished to have the option of regaining ownership of the land if Waerenga should ever sell the property. It is sufficient from that to understand the purpose behind cl 18. After that, the language of the agreement takes over.[23] Clause 18 was to take effect only when Waerenga had become owner of the property. It is clear from the introductory words that cl 18 would only operate after they became owners. That means that the non-merger clause would apply to prevent any arguments that the obligations merged on settlement. In any event, the obligations under cl 18 seem to be collateral and probably not subject to the merger doctrine.[24] Clause 18(i) requires the matters in the clause to be confirmed by a deed executed by both parties. I attach weight to the word "confirmed". It indicates that what has already been recorded in cl 18 is to be restated or affirmed. In other words, any fresh deed would simply restate what has already been agreed between theparties. As a matter of general usage, we do not "confirm" something if the subject matter to be confirmed does not already exist. When we "confirm" something, wedo not bring something new into existence. We simply restate something that is already the case. In providing for cl 18(i) for a confirming deed on settlement, the parties were simply undertaking that they will, on settlement, re-document the provisions of cl 18 of the agreement. It seems to me that there is a reasonable business purpose behind that. That is to ensure that the right of first refusal in cl 18 is re-documented, in a separate stand-alone document, which can be held separately and referred to independently of the agreement for sale and purchase. As such, I find that cl 18 falls within the first of the categories identified by Dr McMorland at [3.12] of his text.[25] Against that, the defendant submitted the case should appropriately come within the third class. The defendant's argument refers to cases such as Carruthers v Whitaker,2 where the courts accepted that provisions such as were subject to contract, indicated that obligations should not take effect until the matter had been formally documented on a later occasion.[26] I do not regard those submissions as providing helpful guidance in this case. In the circumstances, the Keiths would have certainty at the time of signing the agreement that they would have a right of first refusal. Arguments along the lines of"subjective to contract" suggests that the Keiths should have to engage in fresh negotiations where the lots they had been assured of under the initial agreement for sale and purchase might be open to re-negotiation. That runs against the clear word"confirmed" which shows that the deed was not intended to alter the substance of what had already been agreed.[27] A deed under cl 18(i) not being necessary for the Keiths to sue the defendant under the breach of cl 18, I see no ground for the defendant to resist the summary judgment application on liability.[28] I accordingly find that the defendant is liable for breach of contract in failing to give notice to the plaintiffs that the property was on the market and failing to give them the right of refusal provided in cl 18. I grant the summary judgment application as to liability.Further directions[29] The plaintiffs want time in which to calculate damages. I direct a case management conference on the first available date no earlier than 1 July 2015. Ahead of that conference, Mr Magee is to file and serve an amended statement of claim setting out the basis for claiming damages. It should show the legal theory on which the claim for damages is made (for example, loss of opportunity) and also the amount sought for damages so that the defendant understands clearly the basis for the claim of damages.2 Carruthers v Whitaker [1975] 2 NZLR 667 (CA).[30] It would be helpful if the parties could confer ahead of the conference as to the scope of discovery required. The case management conference will consider what, if any, pleadings may be required from the defendant. If the proceeding is no more than a damages enquiry and the defendant does not wish to raise any affirmative matters in reduction of damages, it may not be necessary to require the defendant to plead further. The parties should also provide estimates as to time required for the hearing. If the case will concern damages only, it may be heard by an Associate Judge. The parties should provide estimates of required hearing time, taking into account the number of witnesses to be called.Costs[31] I make an order for costs against the defendant on the summary judgment application. Costs are on a 2B basis. If counsel cannot agree costs, they may file a memorandum...............Associate Judge R M Bell