SMADA GROUP LIMITED AND ANOR V MIRO FARMS LIMITED CA CA189/06

SMADA GROUP LIMITED AND ANOR V MIRO FARMS LIMITED CA CA189/06 11 December 2007IN THE COURT OF APPEAL OF NEW ZEALAND CA189/06 [2007] NZCA 568BETWEEN SMADA GROUP LIMITED First Appellant AND QUAYSIDE PROPERTIES LIMITED Second Appellant AND MIRO FARMS LIMITED Respondent Hearing: 23 October 2007 Court: William Young P, Robertson and Arnold JJ Counsel: R E Harrison QC and M S Sharp for Appellants R G Ronayne and H A Wrigley for Respondent Judgment: 11 December 2007 at 11.30 amJUDGMENT OF THE COURT A The appeal is dismissed. B The respondent is entitled to costs of $6,000 together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Robertson J)Introduction[1] Miro Farms Limited (Miro) offered to sell to Smada Group Limited (Smada), or nominee, 37 hectares of farmland near Te Puke for the sum of $1.75 million. It did so by signing as vendor an agreement in the ADLS/REINZ form ("the offer document"). The offer document stipulated a number of conditions. Condition 21 provided as follows:This agreement is conditional on the purchaser completing a Due Diligence exercise and notifying the vendor in writing before 5pm on 21 November 2003 that the purchaser is entirely satisfied that the property is suitable for the purchaser's requirements.The offer document which was signed named Mr Niccol as the vendor's agent. Smada did not sign the offer document and 21 November 2003 came and went without notification of compliance as provided for in condition 21. It was common ground that this meant that the original offer by Miro expired. [2] On 25 November 2003, Miro (through a director, Mr Abbott) told Mr Niccol that it was prepared to extend the time for performance of condition 21 to 27 February 2004 and to continue with the transaction. Mr Niccol went to Mr Adams of Smada who, in Mr Niccol's presence, altered the date in condition 21 of the original offer document from 21 November 2003 to 27 February 2004. Mr Niccol then took the offer document to Mr Smith, the solicitor for and a director of Smada, who executed it on 28 November 2003. [3] Smada and Quayside Properties Limited (Quayside), its nominee, sought to enforce what they maintained was the resulting contract for the sale of the land. They contended that they could rely on the authenticated signature fiction to avoid the apparent Contracts Enforcement Act 1956 problem that Miro had not executed the agreement after the date in condition 21 had been altered. But logically upstream of the Contracts Enforcement Act issue is the question whether there was a contract between Miro and Smada. On this point Baragwanath J found against Smada and Quayside and they now appeal. [4] The case gives rise to four issues:(a) Did Miro and Smada intend to be bound prior to the formal signing of the documentation? If so: (b) Did Mr Abbott authorise Mr Niccol, as agent for Miro, to enter into a binding oral agreement with Smada for the sale of the land? If so: (c) Did Mr Niccol do so? And if so: (d) Is the Contracts Enforcement Act a bar to the action? Since we consider that the appellants fail on the first of these issues, a failure which is necessarily fatal to the appeal, we will confine our consideration of the case accordingly. Given our assessment of the first issue, it is unnecessary to deal with the respondent's cross appeal which was, in fact, a fall-back position. But before we address the first issue in detail, it is necessary to explain the factual background and review the key findings made by the Judge.Background facts[5] The Western Bay of Plenty District Council and Western Bay of Plenty Regional Council were looking for land suitable for long term industrial use. Through their unincorporated joint venture unit, they retained Smada to act on their behalf to achieve this end. Smada is a company controlled by Mr Adams, an experienced property developer. Quayside, formerly Quayside BOP Enterprises Limited, is a company owned by the Western Bay of Plenty Regional Council, which was to become the registered proprietor of any land acquired. [6] Mr Niccol, a real estate agent, was asked by Mr Adams to sound out owners of strategic blocks to see whether they would be interested in selling. Mr Niccol approached Mr Abbott to see whether Miro was willing to sell a 37 hectare block of farmland at Te Puke which it owned. Mr Abbott indicated that it was, and signed the offer document on behalf of Miro on 6 August 2003.[7] Mr Smith was given the offer document on 13 November 2003. He noted that the date for satisfying condition 21 had little time to run. He asked Mr Niccol to inquire whether Miro would agree to an extension of time, but nothing was done before 21 November. [8] Mr Niccol said he met with Mr Abbott on 25 November. Mr Niccol did not have a copy of the offer document with him. Mr Niccol asserted that he obtained Mr Abbott's oral consent to extend condition 21 until 27 February 2004 (the same date as was critical in another condition, special condition 16). Mr Abbott denied there was a meeting. In the High Court, Baragwanath J found (HC TAU CIV 2004- 470-529 8 August 2006) at [37]: I do not accept Mr Abbott's evidence that there was no meeting on 25 November. I am prepared to accept that Mr Abbott advised Mr Niccol that he was prepared to proceed with the deal. It does not however follow that he was prepared to accept immediate commitment without the normal procedure of having the written document amended and intialled.[9] Mr Niccol subsequently met with Mr Adams. Mr Adams altered the date in condition 21 to 27 February 2004. The offer document with that amendment was signed by Mr Smith, on behalf of Smada, on 28 November 2003. [10] On 3 December 2003, Mr Smith sent a signed copy of this document to Carrus Corporation Ltd. That company, we were told, had a connection with Mr Adams. Carrus was requested to "forward the attached to the real estate agent being the vendor's copy". No communication was made with Miro, Mr Abbott or the vendor's solicitor. [11] On 16 February 2004, Quayside advised that, pursuant to a deed of nomination, it was the purchaser and that all the conditions in the sale and purchase agreement were satisfied or waived and that the agreement was unconditional in all respects. A cheque for the deposit of $175,000 was enclosed which was banked as a matter of routine. On 19 March 2004, a cheque for the amount of the deposit was returned by Miro's solicitor with a letter denying the existence of a contract and asserting that the offer made by the purchaser had never been accepted by the vendor.The applicable law[12] When parties are proposing to enter into a contract, the manner in which the contract is to be created so as to bind them must be gathered from the intentions of the parties as expressed or implied: Eccles v Bryant [1948] Ch 93 at 99 (EWCA), per Lord Greene MR. This is a question of fact: Wilmott v Johnson [2003] 1 NZLR 649 at [37] (CA). [13] Whether the parties intended to enter into a contract must be determined objectively: Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 at [54] (CA). In determining whether a contract has been formed it is permissible to look beyond the words of the agreement to the background circumstances in which it arose. [14] In Fletcher Challenge this Court stated that "[t]he Court has an entirely neutral approach when determining whether the parties intended to enter into a contract": at [58]. This suggests that the Court will not presume an intention to be (or not be) bound. [15] Beginning with Carruthers v Whitaker [1975] 2 NZLR 667 (CA), there is authority that the usual inference in the case of the sale and purchase of land is that the parties intend to be bound only by a formal document signed by both parties: see for example Shell Oil New Zealand Ltd v Wordcom Investments Ltd [1992] 1 NZLR 129 (CA); Dryden v Hemingway CA70/95 15 November 1995; Verissimo v Walker[2006] 1 NZLR 760 (CA); cf France v Hight [1990] 1 NZLR 345 (CA) – a case where there was evidence which displaced the inference. [16] In Carruthers the purchasers offered to buy the vendor's farm. The parties agreed on a price and instructed solicitors. The vendor's solicitor sent an unsigned agreement with a letter stating that the terms were agreeable to the vendor. The purchasers signed the agreement and sent it to the vendor, but the vendor then refused to sign the agreement. The purchasers argued that the unsigned agreement and letter from the solicitor were enough to form a binding contract. This Court found that there was no binding agreement (at 671-2) and stated:It is established by the evidence to which I have earlier referred that at the time when the parties instructed their respective solicitors they all had in mind only one form of contract which would govern the sale and purchase of the farm, namely, a formal agreement in writing prepared and approved by the solicitors. When parties in negotiation for the sale and purchase of property act in this way then the ordinary inference from their conduct is that they have in mind and intend to contract by a document which each will be required to sign. It is unreasonable to suppose that either party would contemplate that anything short of the signing of the document by both parties would bring finality to their negotiations. Furthermore both parties would expect their solicitors to handle the transaction in a way which would give them proper protection from the legal point of view. There is no evidence whatever in the present case to rebut this prima facie inference I would prefer to put it that the parties intended to contract in accordance with common practice, which in New Zealand is to obtain the signatures of both vendor and purchaser to both copies of the agreement, one copy being of course for the vendor and the other for the purchaser.[17] Unless the inference is displaced the result is that, even though all the terms to be included in the document have been agreed, there is no contract (and each party has the opportunity to withdraw) until at least the document is executed by both parties: Concorde Enterprises v Anthony Motors (Hutt) Ltd [1981] 2 NZLR 385 at 389 (CA). [18] In Shell Oil this inference was described as (at 132): a principle of some importance, for it provides a prima facie rule of some certainty in this field of commercial or vendor and purchaser law.(emphasis added). Later cases have not gone so far as to describe the inference as a prima facie rule, instead describing it as a "natural inference": Verissimo at [33]. [19] The key issue for this case is in what circumstances can such an inference be drawn. What facts are required before the inference can be engaged? [20] Carruthers suggests that where parties involve solicitors in negotiating and preparing an agreement for the sale and purchase of land then, absent evidence to the contrary, the Court can presume that the parties intended to form a binding contract only upon the parties executing the agreed document. This Court based its finding that the parties intended to be bound in this way on the following facts:(a) The purchaser's solicitor wrote to the vendor asking him to see his solicitor and to "ask him to let us have the agreement for sale" – thus it was clear the parties intended to be bound in accordance with the written document. (b) When the vendor's solicitor sent two copies of the agreement to the purchaser's solicitor for signing the attached letter stated "when returning sale agreements, please let us have cheque for deposit". The Court found that the word "agreements", in the plural, clearly called for a return of both documents so that, in accordance with usual practice, they could be signed by the vendor: at 672. [21] In Dryden the threshold for the inference was described as:Where negotiations have been conducted, partly between the solicitors with reference back to their respective clients and partly between the parties directly with a view to having executed by both parties an important commercial agreement of some complexity[22] In Dryden this Court did not rely on the inference. The Court found that the sequence of correspondence which contained phrases such as "details to be worked out", "arranging contract with lawyers" and "subject to formal documentation" were decisive in establishing a clear intention to be bound only upon the execution of formal documents. [23] Shell Oil noted that the inference can arise in circumstances where there have been a number of people (including solicitors) on each side of the bargain involved, from time to time, in the negotiations: at 129. [24] Verissimo comes the closest to holding that it is enough that a contract relates to the sale and purchase of land for the inference to be engaged. In that case this Court referred to Concorde Enterprises and Carruthers and held:The inquiry in that case [Concorde Enterprises] was whether there was anything sufficient to displace the natural inference as at the time of the negotiations. We adopt that test[25] The Court held, however, that it must appear that the parties have turned their minds to the question of when they intend to be bound and that the objective test of a common intention must be satisfied: at [34]. The Court reviewed the evidence and based its decision on the following facts: (a) the original tender had been in writing and subject to the execution of formal documentation; (b) correspondence from the vendors' solicitor and notes made by one vendor that indicated that the parties intended to be bound only on signing the agreement. [26] The assertion that the inference was only available in complex cases was rejected by this Court in Verissimo at [34]. [27] In order for the inference to be engaged, there needs to be some evidence that the parties were contemplating being bound by the ordinary and customary method of obtaining agreement – which is the signing of a document. Both the words used in the agreement and the factual matrix are relevant in making this determination.What was proved to have happened[28] The facts surrounding the meeting of 25 November 2003 (when the arrangement to extend the time for condition 21 are said to have been made) are thin. As noted in [8], there is a complete divergence in the evidence given by Mr Niccol and Mr Abbott about what occurred. Baragwanath J found against Miro, finding that Mr Abbott advised Mr Niccol that he was "prepared to proceed with the deal": at [37]. [29] The finding that Mr Abbott agreed to proceed with the deal is not decisive. In Dryden this Court said (at 10) that even though the parties had agreed that they "had a deal" this did not necessarily show an intention to enter into contractually binding obligations prior to the execution of the contemplated final documents.[30] The original offer had been in writing and subject to formal execution. In the absence of evidence to the contrary, it is reasonable to assume that the parties intended the same process to be followed before the lapsed offer could be revived. [31] In such circumstances, the inference is inescapable that the parties intended, in accordance with common practice, to be bound only upon execution of a document setting out the terms of their agreement. [32] Although the facts in the present case are different (in that Mr Abbott had signed an offer, but the offer expired) Carruthers should apply by analogy – that is where a previously signed offer lapses it may be inferred, in accordance with common practice in New Zealand, that the parties intend that the offer document be (re)signed by both parties before there is a binding contract. [33] There is no evidence before the Court that would displace this inference. As Baragwanath J held, Mr Abbott's agreement to proceed with the deal did not amount to an offer as the parties did not intend to be bound until a document with the new terms was signed by both Miro and Smada. The signing of the altered offer document by Mr Smith did not amount to a binding contract. [34] The effect of Mr Smith signing the document was to create an offer by Smada which would become binding only when accepted in a signing by Mr Abbot for Miro. Whether Mr Niccol was acting as agent for Miro is immaterial. There was no intention to be bound until the amended offer document was formally executed by the principals in accordance with normal practice. There is no evidential basis to conclude that Miro elevated Mr Niccol's role to enable him to form a contract on its behalf. Once the offer document, which neither Mr Niccol nor Mr Abbott had with them on 25 November, was altered it needed to be signed by both vendor and purchaser. This never happened on behalf of the vendor.Scope of Mr Niccol's authority[35] We accept that it was open to Mr Abbott, on behalf of Miro, to make a new offer which was in the terms contained in the offer document, but for condition 21which was to have an operative date the same as that in condition 16. We accept that Mr Niccol could have been vested with the power and authority to treat and deal with Mr Adams and with Mr Smith as if Mr Abbott himself was actually there doing these things himself. But has it been demonstrated that Baragwanath J was wrong when he found that, on the balance of probabilities, there was not an evidential base to support this scenario? He held that there was no authorisation for Mr Niccol to conclude a deal without reference back to Mr Abbott of the documentation. The Judge merely found that Mr Abbott was content for Mr Niccol to continue to act as a bridge, but that Miro would be uncommitted until Mr Abbott had initialled the alteration. [36] We agree with Mr Harrison that initialling an alteration is not a necessary legal requirement. Baragwanath J did not hold it was legally essential, however, merely that it was required on the facts of this case. Some time was spent before us in assessing the meaning and extent of concessions recorded by Baragwanath J in [19] of the judgment where he said:Special condition 21 provided that: This agreement is conditional on the purchaser completing a Due Diligence exercise and notifying the vendor in writing before 5.00pm on 21 November 2003 that the purchaser is entirely satisfied that the property is suitable for the purchaser's requirements. Mr Mabey accepts that failure to give timely notification would terminate the offer so that the offer had expired at 5.00pm on 21 November 2003. Mr Ronayne equally accepts that if Miro committed itself to extending the special condition 21 period that would renew the offer, which Smada could then accept. Such commitment could be expressed in writing or orally.Mr Ronayne told us that the final sentence was not part of the concession he had made, but were the Judge's words. [37] In our view it is immaterial. What counsel are calling "concessions" are merely elucidations of the legal position but the effect of each depended on the facts which were established. In our judgment, nothing turns upon either of these statements.[38] Mr Harrison may be right that at times Baragwanath J appeared to place undue emphasis on whether or not there had been an initialling and at times in his elucidation it could appear that he considered subjective views, as opposed to an objective overview, to be critical. But when the correct tests are applied, we are not persuaded that the outcome is any different.Conclusion[39] It has not been demonstrated that Baragwanath J was in error in any material way in his assessment of the critical issue so the appeal is dismissed. [40] The respondent is entitled to costs of $6,000 together with usual disbursements.Solicitors: Holland Beckett, Tauranga, for Appellants Ronayne Hollister-Jones Lellman, Tauranga, for Respondent