MGH TRAH LIMITED, LIONEL JOHN HART AND JUDEE LOUISE HART AS TRUSTEES OF THE ANDRE AND JOSHUA HART TRUST v FOX MORTIMER TRUSTEE COMPANY LIMITED [2021] NZCA 59 [11 March 2021]

MGH TRAH LIMITED, LIONEL JOHN HART AND JUDEE LOUISE HART AS TRUSTEES OF THE ANDREAND JOSHUA HART TRUST v FOX MORTIMER TRUSTEE COMPANY LIMITED [2021] NZCA 59[11 March 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA164/2020[2021] NZCA 59BETWEEN MGH TRAH LIMITED, LIONEL JOHNHART AND JUDEE LOUISE HART ASTRUSTEES OF THE ANDRE ANDJOSHUA HART TRUSTAppellantsAND FOX MORTIMER TRUSTEE COMPANYLIMITEDRespondentHearing: 2 December 2020Court: Goddard, Lang and Hinton JJCounsel: A R B Barker QC and A Lenard for AppellantsM A Keil for RespondentJudgment: 11 March 2021 at 11.00 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants must pay the respondent costs for a standard appeal ona band A basis, with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Goddard J)Introduction[1] This appeal raises a short point about the construction of an agreement for saleand purchase of a residential property (the ASP) entered into by the appellants(the vendors) and the respondent (the purchaser). It concerns payment of interest fora proportion of the purchase price that the purchaser paid to a stakeholder, rather thanto the vendor, in accordance with the mechanism set out in the ASP for dealing withdisputed claims to compensation and equitable set-off made by a purchaser beforesettlement is due to take place.[2] The vendors were ultimately held to be entitled to receive the withheld amount,and (as a result) were also entitled to the interest earned on that amount. But thevendors say that under the ASP they are entitled to default interest at 14 per cent perannum on the withheld amount. In the High Court they made an unsuccessful claimfor interest on that basis.1 They now appeal to this Court.[3] We consider that the High Court was right to conclude that default interest wasnot payable by the purchaser to the vendors in these circumstances. Our reasons(which differ from those of the High Court Judge) are set out below. It follows thatthe appeal should be dismissed.Background[4] The ASP was entered into on 29 March 2018. The purchaser agreed topurchase a substantial residential property in Coatesville. The property was Lot 2 ina four-lot subdivision that had been developed by the vendors. The purchase pricewas $5,600,000. Settlement was to take place 12 months after the date of agreement.That date was subsequently extended by agreement to 18 April 2019.1 Fox Mortimer Trustee Co Ltd v MGH Trah Ltd [2020] NZHC 321 [High Court judgment].[5] The vendors retained ownership of two lots in the subdivision, including Lot 1.The ASP included cl 21, a further term of sale negotiated by the parties, which read:The vendor warrants that any future dwelling to be constructed on theproposed LOT 1 (as per the attached plan) will only be single level and willbe positioned on the land so as to minimise any impairment to the view of thedwelling situated on LOT 2.[6] The relevant plan identified a 400 square metre area marked "X" where a singlelevel home could be built on Lot 1, in a natural bowl where it would have little effecton views from Lot 2.[7] After the ASP had been entered into, the vendors decided to subdivide Lot 1,and to build a two-level dwelling on one of the sections created by that subdivision(at a location other than X). When the purchaser discovered the vendors' plan tosubdivide Lot 1 and build a further dwelling, the purchaser issued proceedings in theHigh Court claiming that cl 21 of the ASP precluded the vendor from proceeding withthat plan. The purchaser sought a permanent injunction restraining the vendors fromproceeding with subdivision of Lot 1 or construction on Lot 1 other than at locationX. In the alternative, the purchaser claimed damages for breach of that clause.[8] The purchaser applied for an interim injunction. On 20 February 2019 thevendors gave an undertaking in relation to construction work on Lot 1, pendinghearing of the injunction application. The interim injunction application was set downfor hearing on 2 May 2019. It was then resolved (without the need for a hearing) byconsent orders which restricted construction on Lot 1 pending a substantive trial, orfurther order of the court.[9] On 16 April 2019, two days before settlement was due to occur, the purchasergave the vendors notice of a claim for compensation and an equitable set-off in relationto the loss they claimed they would suffer if two substantial dwellings were built onLot 1. They provided a "pre-estimate" of that claim of $1,680,000. They advised thatthey intended to withhold this amount on settlement.[10] The vendors did not consent to the purchaser's claim for compensation.In these circumstances the ASP provided (in cl 8.4, set out at [22] below) for an"interim amount" to be deducted on settlement and held by a stakeholder. The partiesdid not agree on an interim amount to be withheld. The ASP provided that in theabsence of agreement, the interim amount would be determined by an independentproperty lawyer. Mr Nolan was appointed to perform that role and to act as thestakeholder.[11] Settlement proceeded on 18 April 2019 on the basis that $1,680,000 would bededucted from the purchase price on settlement and held by Mr Nolan as stakeholder,pending a determination by him as to the interim amount to be withheld.[12] On 7 May 2019, after receiving submissions from the parties, Mr Nolandirected that $1,120,000 should be held as the interim amount. He paid the differencebetween that sum and the $1,680,000 he had initially received to the vendors.[13] The result was that from 7 May 2019 through to trial:(a) Court orders were in place preventing any construction work on Lot 1that would be inconsistent with the interpretation of cl 21 contended forby the purchaser.(b) The sum of $1,120,000 was held by Mr Nolan as stakeholder pursuantto cl 8.4 of the ASP. The balance of the purchase price was received bythe vendors.High Court judgment[14] The High Court proceedings were heard in February 2020. Downs J held thatcl 21 precluded subdivision of Lot 1, and prevented a house being built other than atlocation X.2 The Judge granted the declaration sought by the purchaser that cl 21 wasa restrictive covenant over Lot 1, which could be registered against its title.3 The Judge2 High Court judgment, above n 1, at [45] and [54].3 At [78].also granted a permanent injunction restraining the vendors from building on Lot 1other than in accordance with cl 21.4[15] The Judge went on to hold that as a result of the interim and final orders made,cl 21 had not been breached in a manner that caused any loss to the purchaser. So nocompensation was payable by the vendors to the purchaser, and no question ofequitable set-off against the purchase price arose. It followed that the balance of thepurchase price, which was held by the stakeholder, should be paid to the vendors.5[16] The vendors had filed a counterclaim seeking default interest under cl 3.12 ofthe ASP on the amount withheld on settlement and paid to the stakeholder. The Judgerejected that claim. He summarised the argument before him on that issue, and hisresolution of it, as follows:[74] Mr Barker emphasises that by settlement, the [vendors] hadundertaken not to build any home on Lot 1 pending trial. Consequently, theplaintiff was wrong not to pay [them], and in full.[75] Mr Bigio acknowledges the principles identified by Mr Barker butargues the [purchaser] should not be liable for interest as the [vendors] acted unreasonably. Fault on this analysis lies with the [vendors], not the[purchaser].[76] I agree with Mr Bigio. The [purchaser] reasonably apprehended[the vendors were] intending to subdivide Lot 1 even though clause 21prevented that. Indeed, despite the clause, [the vendors] had been planning todo just that. The [purchaser] settled on time while identifying possible loss iftwo homes were constructed. The [purchaser] was not required to make anelection between injunctive relief and damages. Expressed positively, the[purchaser] was entitled to reserve its position on remedy. Mr Nolanconsidered a large sum should be withheld given totality of circumstance.The mix vindicates the [purchaser].(Footnote omitted.)Relevant provisions of the ASP[17] The ASP was entered into on the Ninth Edition of the Real Estate Institute ofNew Zealand Inc/Auckland District Law Society Inc (REINZ/ADLS) standard formagreement, which was issued in November 2017.4 At [80].5 At [63] and [84].[18] As noted above, the purchase price under the ASP was $5,600,000. A depositof 10 per cent of the purchase price was payable by instalments. The ASP providedfor the balance of purchase price "to be paid or satisfied as follows: (1) By paymentin cleared funds on the settlement date".[19] Clause 3.8 set out the parties' obligations on settlement. As relevant, it read:3.8 On the settlement date:(1) The balance of the purchase price, interest and other moneys,if any, shall be paid by the purchaser in cleared funds orotherwise satisfied as provided in this agreement (credit beinggiven for any amount payable by the vendor undersubclause 3.12 or 3.14);(2) the vendor's lawyer shall immediately thereafter:(a) release or procure the release of the transferinstrument and the other instruments mentioned insubclause 3.7(1) so that the purchaser's lawyer canthen submit them for registration;(b) pay to the purchaser's lawyer the LINZ registrationfees on all of the instruments mentioned in subclause3.7(1), unless these fees will be invoiced to thevendor's lawyer by LINZ directly; and(c) deliver to the purchaser's lawyer any other documentsthat the vendor must provide to the purchaser onsettlement in terms of this agreement.[20] The vendors' claim for default interest was made under cl 3.12:Purchaser Default: Late Settlement3.12 If any portion of the purchase price is not paid upon the due date forpayment, then, provided that the vendor provides reasonable evidenceof the vendor's ability to perform any obligation the vendor is obligedto perform on that date in consideration for such payment:(1) the purchaser shall pay to the vendor interest at the interestrate for late settlement on the portion of the purchase price sounpaid for the period from the due date for payment untilpayment ("the default period"); but nevertheless, thisstipulation is without prejudice to any of the vendor's rightsor remedies including any right to claim for additionalexpenses and damages. For the purposes of this subclause,a payment made on a day other than a working day or afterthe termination of a working day shall be deemed to be madeon the next following working day and interest shall becomputed accordingly; and(2) the vendor is not obliged to give the purchaser possession ofthe property or to pay the purchaser any amount for remainingin possession, unless this agreement relates to a tenantedproperty, in which case the vendor must elect either to:(a) account to the purchaser on settlement for incomingsin respect of the property which are payable andreceived during the default period, in which event thepurchaser shall be responsible for the outgoingsrelating to the property during the default period; or(b) retain such incomings in lieu of receiving interestfrom the purchaser pursuant to subclause 3.12(1).[21] The interest rate for late settlement at the relevant time was 14 per centper annum.[22] Clause 8.0 of the ASP established a mechanism for addressing claims forcompensation and equitable set-off by a purchaser prior to settlement. Because it iscentral to the issue before us, we set it out in full:8.0 Claims for compensation8.1 If the purchaser claims a right to compensation either undersubclause 6.4 or for an equitable set-off:(1) the purchaser must serve notice of the claim on thevendor on or before the last working day prior tosettlement; and(2) the notice must:(a) in the case of a claim for compensation undersubclause 6.4, state the particular error,omission, or misdescription of the property ortitle in respect of which compensation isclaimed;(b) in the case of a claim to an equitable set-off,state the particular matters in respect of whichcompensation is claimed;(c) comprise a genuine pre-estimate of the losssuffered by the purchaser; and(d) be particularised and quantified to the extentreasonably possible as at the date of thenotice.8.2 For the purposes of subclause 8.1(1), "settlement" means thedate for settlement fixed by this agreement unless, by reasonof the conduct or omission of the vendor, the purchaser isunable to give notice by that date, in which case notice maybe given on or before the last working day prior to the date forsettlement fixed by a valid settlement notice served by eitherparty pursuant to subclause 11.1.8.3 If the amount of compensation is agreed, it shall be deductedon settlement.8.4 If the amount of compensation is disputed:(1) an interim amount shall be deducted on settlement andpaid by the purchaser to a stakeholder until theamount of the compensation is determined;(2) the interim amount must be a reasonable sum havingregard to all of the circumstances;(3) if the parties cannot agree on the interim amount, theinterim amount shall be determined by an experiencedproperty lawyer appointed by the parties.The appointee's costs shall be met equally by theparties. If the parties cannot agree on the appointee,the appointment shall be made on the application ofeither party by the president for the time being of theNew Zealand Law Society;(4) the stakeholder shall lodge the interim amount oninterest-bearing call deposit with a bank registeredunder the Reserve Bank of New Zealand Act 1989 inthe joint names of the vendor and the purchaser;(5) the interest earned on the interim amount net of anywithholding tax and any bank or legal administrationfees and commission charges shall follow thedestination of the interim amount;(6) the amount of compensation determined to be payableshall not be limited by the interim amount; and(7) if the parties cannot agree on a stakeholder, theinterim amount shall be paid to a stakeholdernominated on the application of either party by thepresident for the time being of the New Zealand LawSociety.8.5 The procedures prescribed in subclauses 8.1 to 8.4 shall notprevent either party taking proceedings for the specificperformance of the contract.Vendors' submissions on appeal[23] The vendors' primary argument was that the High Court judgment establishedthat no compensation was ever payable by the vendors to the purchaser. It followedthat the whole of the purchase price should have been paid on the settlement date.Under cl 3.12, default interest was payable on the portion of the purchase price thatshould have been, but was not, paid to the vendors on the due date for payment: namelythe amount paid to, and held by, the stakeholder. The obligation to pay interest turnedon the construction of the relevant provisions in the ASP: the reasonableness orotherwise of each party's actions was not relevant. The Judge had erred in determiningentitlement to interest under cl 3.12 by reference to whether one or other party hadacted reasonably.[24] Expanding on this approach, Mr Barker QC for the vendors submitted that:(a) The deductions that can be made on settlement are expressly set out incl 3.8. The amount withheld in this case was not a deductioncontemplated by cl 3.8.(b) Clause 3.12(1) provided that if "any" portion of the purchase price isnot paid on settlement, the purchaser is liable for default interest on latesettlement.(c) Nothing in cl 8.0 affects the obligation to pay interest under cl 3.12(1).It does not purport to do so expressly, nor is there any reason to read insuch a restriction in relation to compensation claims.(d) All the compensation procedure under cl 8.0 does is allow forsettlement of the property transfer to proceed in a way that protects thepositions of the parties. But there is nothing to suggest that the clausealters the underlying obligations of the parties in terms of settlement,or in respect of other claims that might be brought.(e) Where the drafters of the ASP intended to displace the obligation to payinterest under cl 3.12(1), they did so expressly, as in cl 3.12(2)(b).The absence of any similar provision in cl 8.0 points againstdisplacement of the obligation to pay interest under cl 3.12(1) incircumstances where cl 8.0 applies.[25] Mr Barker submitted that where an amount has been withheld under cl 8.0, anda vendor considers (rightly) that it should not have been withheld, the vendor's claimfor payment of the balance of the purchase price is a claim under cl 3.8 of the ASP tothe effect that on the date of settlement, the purchaser was required to pay thesettlement price and failed to do so. If that claim succeeds, an entitlement to interestunder cl 3.12 necessarily follows.[26] Mr Barker referred us to two authorities which, in his submission, supportedthe approach he contended for.[27] In Pacific Basin Education Foundation Ltd v Richina Ltd, the purchaser, onthe eve of settlement, raised issues in respect of the property being purchased andmade a claim for an equitable set-off.6 The parties agreed that the amount of $550,000would be paid to a stakeholder in accordance with the compensation provisions in cl 7of an earlier edition of the REINZ/ADLS standard form agreement, which were inessentially the same terms as cl 8.0 of the ASP in this case. The vendor subsequentlyissued proceedings to recover the amount held in the stakeholder account. The Courtordered payment of the amount held by the stakeholder, together with default interestunder cl 3.12:[96] Although the point was not directly taken in the notice of opposition,and not developed in Miss Hadlee's written synopsis, Miss Hadlee submittedthat the interest rate for late settlement no longer applies because (through thestakeholding arrangement) the parties have introduced a substituted interestrate. I took her to refer to such interest as accrued on the sum held on depositthrough the stakeholding account. Having regard to current interest rates,I take judicial notice of the fact that the rate which will be recovered throughan interest-bearing deposit will be substantially below 15 per cent per annum.[97] It is not arguable that the setting up of the stakeholding pursuant toclause 7 of the contract extinguished [the vendor's] entitlement to interestat the full measure of 15 per cent per annum for the period during which[the vendor] was not paid the full purchase price. There is nothing in thewording of the standard provisions of the contract to preclude a vendor6 Pacific Basin Education Foundation Ltd v Richina Ltd [2016] NZHC 2193, (2016) 19 NZCPR390.claiming the balance of the late settlement interest rate where the interest onany stakeholding under clause 7 falls short of that rate.[28] In Arranmore Developments Ltd v Zeeland Developments Ltd (No 2), thevendor sought specific performance of an agreement for sale and purchase of land.7The purchasers alleged various misrepresentations giving rise to a right to cancel.Those claims were rejected. However, the Court held that they had an arguable claimfor damages for the misrepresentations. It ordered specific performance of the saleand purchase agreements, but with an amount that represented the value of themisrepresentation claims to be secured pending determination of the validity orotherwise of those claims. The Court held that the amount secured should include anallowance for default interest under the agreement:[34] If the plaintiff establishes that there is no equitable set-off, the plaintiffis entitled to the benefit of all the contractual provisions giving it a remedywhen the purchaser has defaulted in paying the full purchase price onsettlement. That includes the right to interest under the agreements for saleand purchase. Accordingly, the appropriate interim arrangement is that theamount that should be secured is the sum of $26,500, plus interest on that sumat 15% per cent from 22 May 2009 to 2 July 2010.[29] Mr Barker submitted that this approach is also supported by academiccommentators, in particular, Dr McMorland. He referred us to two extracts fromDr McMorland's text, Sale of Land, that were referred to by the Judge:8Where settlement is delayed because of a dispute between the parties over thesum to be set aside in trust to await the quantification of a compensation claimto satisfy the requirements of the Court of Appeal in Lingens v Martin, or anequitable set-off, it would seem that, for the purposes of the late settlementprovisions, it should be the party who ultimately proves to have been actingunreasonably, and thus unwilling to settle in accordance with the contract, whoought to be in default causing late settlement.The penalty interest provisions are compensatory and only incidentallya sanction for enforcement. They are not a remedy for default. Thus, wherethe parties agree to postpone the purchaser's obligation to settle whilea dispute as to the purchaser's obligation to complete under the contract isresolved, the arrangement may well be construed merely as a suspension ofthe remedies for default, and not as releasing the purchaser from the obligationto pay interest if it is eventually found that the purchaser must complete.7 Arranmore Developments Ltd v Zeeland Developments Ltd (No 2) (2010) 11 NZCPR 825 (HC).8 High Court judgment, above n 1, at [73], quoting D W McMorland Sale of Land (3rd ed, CathcartTrust, Auckland, 2011) at [11.17(b)] and [11.19(a)].To find otherwise would be to transfer the financial risk of the purchaser'sdefault, as it was found to be, to the vendor.[30] Mr Barker submitted that the High Court had misunderstood, and incorrectlyapplied, the first of these passages. In this passage Dr McMorland is addressing thesituation that may arise between the date of settlement and the actual settlement, andwhether a party could be in default in the situation. The issue in the present caseconcerns the situation after settlement, where a claim for compensation has beenmade. The passage is not suggesting there is a requirement for "reasonableness" bythe parties in the period after settlement in order to determine whether a party has beenin default, and whether the purchaser is required to pay post-settlement default interest.[31] In any event, Mr Barker submitted, neither cls 3.8 nor 3.12 refers to the conceptof default. The obligation to pay interest on late settlement depends only on whetherthe purchase price was paid.[32] Mr Barker submitted that the second passage set out at [29] above is nota reference to the compensation provisions themselves, but to the underlyingcommercial logic of the transaction. The point Dr McMorland is making is that ifa party advances a claim that later proves not to be established, it must be unlikely thatthe parties would have agreed to release that party from all the consequences of theirasserted position being wrong.[33] Mr Barker also referred us to a New Zealand Law Society seminar presentedby Dr McMorland on the REINZ/ADLS sale and purchase agreement, where the issueof interest on an interim amount paid to a stakeholder was more directly addressed.After referring to the difficulties of equitable set-off in respect of claims formisrepresentation, he said:9These issues may involve: (i) evidence and proof of the facts;(ii) compliance with the legal requirements to establish the cause ofaction; and (iii) proof of the quantum of loss. For example,misrepresentations obviously precede the making of the contract andare frequently oral, made perhaps by the vendor's real estate agent.A vendor may well deny such a misrepresentation was made.That would likely be only the first evidential problem.9 Don McMorland and Julian Smith "ADLS Sale & Purchase Agreement" (paper presented toNew Zealand Law Society, May 2016) at 78 (emphasis added).If the parties are unable to agree on the resolution of these matters,there are various means available for the determination of suchdisputes: mediation, arbitration, or court proceedings. The parties thenhave either to agree on one of the first two, or one of them must takethe initiative to commence proceedings.In such cases, probably the only advantage of acting under cl 7 insteadof commencing proceedings after settlement in full may be that theinterim amount is held by the stakeholder, presumably earninginterest, which will pay, or contribute to the payment of the damagespayable by the vendor in the event of a successful claim by thepurchaser, or complete payment of the settlement moneys in the eventthat is needed.However, a claim under cl 7 carries a risk. It might be found that theclaim does not come within cl 5.4 or the right to equitable set-off, inwhich case the purchaser had no right to withhold settlement in full.In that event, the interest rate payable on the bank deposit of theinterim amount will undoubtedly be a great deal less than the latesettlement interest rate under the ASP.[34] Mr Barker also submitted that if, contrary to his primary argument,the reasonableness of the parties' actions is relevant, the purchaser acted "entirelyunreasonably, and indeed oppressively, in the actions that they took". The claim forcompensation was made at a very late stage. It was a claim for loss that had not yetbeen suffered and that would not be suffered if they obtained the injunction theysought. There was no basis on which they could claim an equitable set-off at the dateof settlement, when they had the benefit of an interim injunction which protected theirposition.Purchaser's submissions on appeal[35] Miss Keil, for the purchaser, submitted that the purchaser had paid the amountrequired to settle in full on the settlement date: it had been paid either to the vendorsor to the stakeholder as required by cl 8.0 of the ASP. No portion of the purchase priceremained unpaid. So no default interest for late settlement was payable.[36] Miss Keil submitted that the interim amount held by the stakeholder securedthe legitimate interests of both parties. It would be inappropriate for late settlementinterest to be payable, in addition to the interest earned by the stakeholder on thedeposit.[37] Miss Keil said that the correctness of this approach was supported by theTenth Edition of the REINZ/ADLS agreement issued in 2019, which provides thatapart from the net interest earned on the interim amount, no interest is payable byeither party to the other in respect of the claim for compensation once the amount ofthe claim has been determined. She submitted that this represented a rejection of theapproach adopted by the High Court in Pacific Basin Education Foundation Ltdv Richina Ltd.Discussion[38] The issue raised by this appeal turns on the interpretation of the ASP, and inparticular the interplay between cls 3.8, 3.12 and 8.0. Those provisions need to beread together in a manner that is consistent with their text and their commercialpurpose. In particular, they need to be read in a way that ensures that cl 8.0 achievesthe purpose for which it was inserted in the standard form agreement for sale andpurchase.[39] Clause 8.0 was designed to fill a gap in earlier editions of the standard formsale and purchase agreement that was identified by the Supreme Court inProperty Ventures Investments Ltd v Regalwood Holdings Ltd.10 Blanchard, McGrathand Wilson JJ discussed in some detail the ability of a purchaser to make a deductionof an estimated amount of compensation at the time of settlement:[74] From the perspective of a vendor, it is undesirable if a purchaser,perhaps short of funds to settle in full, has the opportunity of manufacturingor inflating a claim for breach of warranty and thereby seeking to settle ona basis which would leave the vendor as an unsecured creditor or perhaps toforce the vendor to postpone the settlement pending resolution of thepurchaser's claim. On the other hand, it is also undesirable that a purchaserwith a valid claim to a set-off should have to pay in full and thus be left in theposition of an unsecured creditor of an impecunious vendor. We have alreadyadverted to the difficulties for a purchaser required to settle in full incircumstances like the present where its borrowing capacity and/or insurancemay be affected by the vendor's breach. The balance of these considerations,coupled with the fact that the practical result in Lingens upholding the right toa deduction appears to be broadly supported by commentators, providessupport for a reading of cl 6.5 which does not remove any remedy availableto the purchaser exercisable on or before settlement. That approach also10 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47,[2010] 3 NZLR 231.avoids any inconsistency with the operation of cl 5.4 if and when a warrantyunder cl 6 also implicitly misdescribes the property.[75] The potential difficulty and delay for a vendor can be mitigated if thevendor brings the matter to a head by suing for specific performance, askingthe court to resolve the question of the disputed amount of the purchaser'sclaimed deduction. If necessary, the court should be able to give theproceeding urgency and to devise interim orders intended to protect thelegitimate positions of both parties while settlement proceeds. As Lord Eldonsaid in Wood v Griffıth, the court "will arrange the equities between theparties". It should also not be beyond the wit of the drafters of standard-formreal estate contracts to devise a mechanism which will enable speedyresolution of bona fide and reasonable purchasers' claims for equitablecompensation or set-off and protect each of the contracting parties whilstdoubt about the correct position remains.(Footnotes omitted.)[40] It appears that cl 8.0 in the Ninth Edition of the REINZ/ADLS standard form(like its precursor in the Eighth Edition) was intended to respond to the Supreme CourtJudges' suggestion that an appropriate mechanism should be capable of being devisedto "enable speedy resolution of bona fide and reasonable purchasers' claims forequitable compensation or set-off and protect each of the contracting parties whilstdoubt about the correct position remains". The purpose of cl 8.0 is to ensure thatsettlement can proceed on the due date despite an unresolved dispute about equitablecompensation or set-off, on a basis that protects each party's reasonable interestspending resolution of that dispute.[41] In the present case, the purchaser gave notice prior to settlement claimingcompensation and an equitable set-off, as contemplated by cl 8.1. The purchaser'sright to compensation and to an equitable set-off was disputed. The amount of anycompensation was also disputed. It is common ground that in these circumstancescl 8.4 applied. Clause 8.4(1) required an interim amount to be deducted on settlementand paid by the purchaser to a stakeholder until the amount of any compensation wasdetermined. The parties could not agree on the interim amount, so it was determinedby Mr Nolan under cl 8.4(3).[42] It seems to us that the purchaser's obligation under cl 3.8(1) must be read ina manner that is consistent with the provisions of cl 8.0, in particular, the requirementin cl 8.4(1) that the interim amount "shall be deducted on settlement and paid toa stakeholder". The argument that the purchaser has failed to comply with cl 3.8(1) incircumstances where part of the purchase price is paid to a stakeholder in accordancewith cl 8.4(1) would defeat the purpose of the cl 8.0 regime. By paying the interimamount to the stakeholder, the purchaser must be taken to have met their obligationsunder cl 3.8(1) regardless of the underlying merits of the claim to compensation.Otherwise it would remain open to the vendor to argue that the disputed claim wasunfounded and that they were excused from settling by transferring the property"immediately" after payment in accordance with cl 3.8(1), as required by cl 3.8(2).That would result in the very stalemate at the time of settlement that cl 8.0 is designedto avoid.[43] The approach contended for by Mr Barker would also have the unsatisfactoryconsequence that compliance by the purchaser with cl 8.4(1) would amount to a breachof cl 3.8(1) in cases where it is subsequently determined that the claim to an equitableset-off was not made out (in part or in full). On his approach, the ASP would imposeinconsistent obligations on the purchaser in such cases: an obligation under cl 3.8(1)to pay the full price to the vendor on settlement date, and an obligation under cl 8.4(1)to pay the interim amount to the stakeholder on settlement date pending resolution ofthe dispute. That makes no sense commercially, or as a matter of contract law.The obligation to pay the interim amount to the stakeholder on the settlement dateunder cl 8.4(1) must displace any obligation to pay the same amount to the vendor onthe same date under cl 3.8(1), even in cases where the claim to an equitable set-off isnot ultimately made out. Put another way, if paying the interim amount to thestakeholder under cl 8.4(1) on the date of settlement is consistent with the purchaser'sobligations under the ASP, as it plainly is, it cannot be the case that after the claim forcompensation has been determined the purchaser's conduct on the settlement date maybe retrospectively reclassified as a breach of cl 3.8(1), and thus a breach of the ASP.That would be absurd.[44] It follows that the reference in cl 3.8(1) to the balance of the purchase pricebeing "paid by the purchaser in cleared funds or otherwise satisfied as provided in thisagreement" must be read as extending to payment by the purchaser in cleared funds toa stakeholder under cl 8.4(1). If on the settlement date the purchaser pays the interimamount to the stakeholder and the balance of the purchase price to the vendor, thepurchaser's obligation under cl 3.8(1) is satisfied and the vendor must "immediatelythereafter" take steps to transfer the title to the property under cl 3.8(2).[45] It also follows that in those circumstances, the interim amount has been paidby the purchaser on the due date for payment for the purposes of cl 3.12, albeit to thestakeholder rather than to the vendor.[46] Thus cl 8.0 must be read as:(a) providing for payment of the interim amount to the stakeholder ratherthan the vendor on the settlement date; and(b) deferring the due date for payment of the interim amount to the vendoruntil the claim for compensation has been resolved.[47] We agree with Mr Barker's submission that a claim by the vendor to be paidthe whole or part of any interim amount withheld under cl 8.0 is a claim for paymentof the purchase price under the ASP. But we doubt it is helpful to describe it as a claimfor payment under cl 3.8, which has as its primary focus the parties' obligations at thetime of settlement. Clause 8.0 defers the obligation to pay the vendor on the settlementdate. But it does not discharge the underlying obligation of the purchaser to pay thepurchase price to the vendor under the ASP. Because the obligation to pay on thesettlement date has been deferred pursuant to cl 8.0, the purchaser is not in defaultunder cl 3.8(1) in respect of the interim amount paid to the stakeholder on settlement,and interest on that amount is not payable under cl 3.12. But the vendor remains ableto sue for payment of the amount withheld following settlement, and if the purchaserwishes to oppose that claim, they will need to make out an entitlement to compensationwhich they are entitled to set off against the obligation to pay the purchase price.[48] This reading of the ASP will generally achieve a commercially reasonable andpractically workable balance between the interests of the parties. Where the interimamount has been paid to a stakeholder, the purchaser does not obtain a windfall asa result of claiming compensation. They are required to come up with the fullpurchase price. But they are not exposed to the risk involved in settling in full, andpursuing a monetary claim against a vendor who may not have the means to meet thatclaim. The vendor's interests are also protected: they can settle without being exposedto the risk of pursuing a claim for the balance of the purchase price against a purchaserwho may not have the means to pay that amount. And a measure of protection for theinterests of both parties in relation to the time value of money is provided by therequirement that the interim amount be held on interest-bearing call deposit, withentitlement to the interest earned following the destination of the interim amount.[49] A vendor who considers that the cl 8.0 mechanism is not adequate to protecttheir interests in relation to timely payment of the purchase price can bring proceedingsseeking specific performance: the right to do so is expressly preserved by cl 8.5. If thecourt is not satisfied that the purchaser's claim to make a deduction from the purchaseprice is made in good faith and is reasonably arguable, the court can direct settlementon the basis that the purchase price is paid in full. If the court is satisfied that thepurchaser's claim is made in good faith and is reasonably arguable, the court can directperformance of the agreement on terms that are designed to preserve the position ofthe parties. The terms settled by the court to "arrange the equities between the parties"may in some cases differ from those set out in cl 8.0 of the ASP. But that is not theapproach that was adopted by the vendors in this case. The parties proceeded underthe cl 8.0 regime.[50] We do not consider that the authorities referred to by Mr Barker provide anysupport for a different approach. In Pacific Basin Education Foundation Ltdv Richina Ltd the question of interest for late settlement does not appear to have beenargued by counsel in any detail.11 In particular, the parties do not appear to have drawnthe Judge's attention to the practical and theoretical difficulties identified at [42]–[43]above that result from the approach contended for by the vendor in that case.We respectfully disagree with the Judge's view in that case, reached without thebenefit of full argument, that the provisions in the agreement in issue in that case didnot preclude a vendor claiming the balance of the late settlement interest rate wherethe interest earned by the stakeholder falls short of the default interest rate.11 Pacific Basin Education Foundation Ltd v Richina Ltd, above n 6.[51] Nor are we assisted by the decision in Arranmore Developments Ltd v ZeelandDevelopments Ltd (No 2).12 That was a claim for specific performance, brought undera different form of the standard REINZ/ADLS agreement that did not include the cl 8.0mechanism. The passage that Mr Barker referred us to was concerned with the termson which specific performance would be awarded. In that context, the court candetermine the appropriate approach in all the circumstances of the case, which as notedabove may differ from the cl 8.0 mechanism.[52] For the sake of completeness, we record that we accept Mr Barker's submissionthat it is not necessary for the court to determine whether one or other of the partiesacted reasonably, in this context. That is not the test under the relevant provisions ofthe ASP. The first passage from Dr McMorland's text set out at [29] above is, asMr Barker said, concerned with a different issue that may arise between the date ofsettlement provided for in an agreement for sale and purchase, and the date on whichsettlement actually occurs. That is not the issue in this case. Nor, in our view, is thesecond passage set out at [29] above relevant to the issue before us. That passage isconcerned with the circumstances in which there is a dispute as to whether thepurchaser is obliged to settle. If a purchaser claims to be entitled to decline to settle,and fails to make out that argument, then the purchaser is in default. The normalconsequences in relation to default interest follow. But that was not the case here.The purchaser made payment in full as contemplated by the ASP, on the agreedsettlement date.[53] As noted above, the Tenth Edition of the REINZ/ADLS standard formexpressly provides that no interest is payable on an interim amount withheld under theprovision corresponding to cl 8.0 of the ASP, apart from the net interest earned on thestakeholder deposit. We do not consider that any inference about the interpretation ofthe ASP can safely be drawn from the changes made in the Tenth Edition, as Miss Keilinvited us to do. But the need for clarification of how the mechanism works isillustrated by this litigation, and the substance of those changes is unsurprising in lightof the purpose of the cl 8.0 mechanism identified at [40] above.12 Arranmore Developments Ltd v Zeeland Developments Ltd (No 2), above n 7.[54] For the reasons set out above we agree with the result reached in theHigh Court, albeit for different reasons. The appeal must be dismissed. Costs shouldfollow the event in the usual way.Result[55] The appeal is dismissed.[56] The appellants must pay costs to the respondent for a standard appeal ona band A basis, with usual disbursements.Solicitors:Malloy Goodwin Harford, Auckland for AppellantsLane Neave, Christchurch for Respondent