CHEN & LAI V FONG & ORS HC AK CIV 2005-404-7017

CHEN & LAI V FONG & ORS HC AK CIV 2005-404-7017 2 May 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-7017BETWEEN MUYUN CHEN AND WENYOU LAI Plaintiffs AND ANDREW WAI LOONG FONG, KENNETH WAI KAY FONG AND FONG SEOW YUEN Defendants Hearing: 28 April 2006 Appearances: NR Campbell for Plaintiffs JA Wickes for Defendants Judgment: 2 May 2006 at 2pmJUDGMENT OF ASSOCIATE JUDGE D.H. ABBOTTSolicitors: Wang & Associates, PO Box 4338, Auckland Loo & Koo, PO Box 99687, Newmarket, Auckland[1] The plaintiffs have applied for summary judgment against the defendants for an order for specific performance and equitable damages in relation to the sale and purchase of a property at 932-934 New North Road, Auckland. [2] The defendants are the registered proprietors of this property. The plaintiffs say that they entered into an agreement to purchase the property from the defendants on 3 December 2004. [3] It is not in dispute that the plaintiffs (as purchasers) signed a written agreement in which the defendants were named as vendors or that one Carol Fong (Mrs Fong) signed it in place of the vendors. The plaintiffs say that Mrs Fong signed the agreement as agent for the defendants (she is the mother of the first and second defendants and separated wife of the third defendant). However, the defendants say she was not authorised to sign on their behalf. [4] In the alternative, the plaintiffs say that if the defendants had not authorised Mrs Fong to enter into the agreement, they subsequently ratified it. The defendants say that they did no more than attempt to negotiate a compromise to avoid stress for Mrs Fong. [5] The plaintiffs sue both for breach of contract and for breach of equitable duty. They seek summary judgment in respect of the claim for breach of contract only. The defendants say that they have arguable defences, and a set-off and counterclaim in respect of unpaid rent due from the plaintiffs for a part of the property that they lease.Background[6] The property at 932-934 comprises two commercial and one residential premises. One of the commercial premises (at 934 New North Road) has been let to Powernet Computers Limited since December 1998. The defendants are the sole shareholders and directors of Powernet.[7] From time to time Mrs Fong has dealt with tenants of the property on the defendants' behalf. She also holds a general power of attorney for the third defendant, given in December 1996 when the third defendant apparently took up fulltime residence in Singapore. [8] It appears that in late 2004 Mrs Fong listed the property with the local real estate agent, for sale. The defendants learned of this, and through the real estate agent negotiated the agreement that is now in issue. They understood that Mrs Fong had the authority to sign any agreement on behalf of the defendants. [9] The agreement was dated 3 December 2004. It required payment of a deposit. It was subject to three conditions. It provided for settlement on 14 January 2005. [10] Following signature of the agreement, the plaintiffs paid a deposit of $35,900 to the real estate agent, and shortly afterwards had their solicitor write to the solicitor named in the agreement as acting for the defendants (a Mr Seton) to advise that all conditions in the agreement were satisfied. [11] The defendants say that they learned in December 2004 that Mrs Fong had signed an agreement. They say that she had done this without consulting them, and without their authority to list the property for sale let alone sell it. They say they told her they did not wish to sell it, and subsequently she instructed both Mr Seton and another firm of solicitors (the solicitors acting for the defendants in this proceeding) to attempt to cancel the agreement. [12] The defendants also say that they consulted Mr Seton in January 2005 about their concerns, and that Mr Seton subsequently informed the plaintiffs' solicitors that the agreement had been signed without the defendants' authority. [13] The defendants did not settle the agreement on 14 January 2005. The defendants had arranged a loan for the purchase. The funds were returned to the lending bank on the settlement date. On 20 January 2005, through their solicitors, the plaintiffs issued a settlement notice addressed to the defendants.[14] The defendants say that a dispute erupted between the plaintiffs, the real estate agent and Mr Seton as to the status of the agreement. They say that Mrs Fong became very stressed and upset. They say that they wanted to save her further unpleasantness, so decided to sell the property to the plaintiffs for the amount specified in the agreement that she had signed. They were not prepared, however, to be responsible for any penalty that might arise under that agreement, nor for any of the plaintiffs' legal costs. They say they took the view that the plaintiffs' solicitor should have queried Mrs Fong's authority. [15] On 28 February 2005 Mr Seton wrote to the plaintiffs' solicitors by fax. The opening paragraph read:"My client now instructs me that she is agreeable to the sale proceeding. Accordingly, the Agreement is back on track."[16] Mr Seton proposed that the sale be settled on 4 March 2006. He asked that the plaintiffs advise whether any part of the deposit had been paid to the plaintiffs by the real estate agent and said that he would show a credit in the settlement statement for the full amount if no part of the deposit had been received. [17] The solicitors for the plaintiffs wrote back to Mr Seton (by fax) on 3 March 2005 proposing a deferral of settlement for one working day, and seeking a credit in the settlement statement for legal costs incurred by the plaintiffs, and a claim for penalty interest under the agreement. Mr Seton responded in a faxed letter dated 3 March 2005 but apparently transmitted on 4 March 2005. As the plaintiffs' case on rectification is based on this letter, I set out the body of the letter in full:"I enclose Settlement Statement as at 4 March 2005. I undertake to forward to you the executed Transfer that I hold following settlement in accordance with my statement (see copy herewith). My client instructs me that they are unwilling to contribute any funds towards your clients' legal costs. There is no provision in the Agreement requiring them to do so. My clients instruct me that they are unwilling to pay any penalty."[18] The settlement statement enclosed with Mr Seton's letter of 3 March 2005 showed the agreed purchase price, gave credit for the full amount of the deposit ($35,900). It adjusted rents received or payable as at 4 March 2005. The basis for apportionment of outgoings is not clear. [19] Also enclosed with Mr Seton's letter was a transfer apparently signed by the first and second defendants, and Mrs Fong. The latter's signature is not expressed to be as attorney for the third defendant, but that is not material for the purposes of this application. What is material is that the defendants proposed a settlement excluding any penalty interest or a contribution towards the plaintiffs' legal costs. [20] In anticipation of settlement Mr Seton contacted the real estate agent and arranged for the deposit (less the commission claimed by the agent) to be forwarded to him. The agent did so. In its covering letter of 7 March 2005 the agent stated:"This sum is tendered to you on the basis that it settles all matters."[21] The settlement did not take place. [22] Subsequently the defendants instructed their present solicitors (Loo & Koo) and negotiations continued. The plaintiffs also changed solicitors. Their new solicitors wrote to Loo & Koo on 11 April 2005 requesting a response to a proposal that settlement proceed with a sum being retained by a stakeholder. They threatened issue of proceedings for specific performance if there was no response by 13 April 2005. On 13 April 2005 Loo & Koo responded in the following terms:"We acknowledge receipt of your fax of 11 April 2005. We have been instructed to act on behalf of the registered proprietors. Our instructions are that the person who signed the agreement did not have authority to bind the three registered proprietors. We are instructed to advise that our clients would be prepared to enter into an agreement for the sale of the property to your property on the following basis: 1. All rent is brought up to date by your client's company, Powernet Computers Ltd.2. The purchase price is $718,000.00. 3. Settlement in say two weeks. Please advise whether the above is acceptable to your clients or not."[23] Although the defendants replied accepting that offer, and the plaintiffs and the defendants subsequently entered into an agreement recording it, a further issue arose as to whether the settlement would be a compromise of any claims under the agreement of 3 December 2004. This could not be resolved and the new agreement did not proceed. [24] The plaintiffs now sue on the basis of the agreement of 3 December 2004. They say that they have always been ready, willing and able to settle and are unaware of any reason why specific performance should not be ordered. They also claim that they have suffered a loss of $21,296.05 as a consequence of the defendants' failure to settle comprising: a) Wasted legal costs on the attempt to settle the agreement on 14 January 2005; b) Costs of lodging a caveat to protect their interest; c) Wasted costs on attempting to settle the agreement on 7 March 2005; d) Wasted valuation fees incurred in seeking mortgage finance for the purchase; e) Wasted costs in obtaining a certificate under s 36 Unit Titles Act for one of the security properties; f) Wasted insurance cost as part of the mortgage security; g) Increased interest costs by reason of an increase in the rates available from their bank.Applicable principles[25] The defendants apply under r 136, which reads:136 Judgment where there is no defence or where no cause of action can succeed (1) The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a claim in the statement of claim or to a particular part of any such claim.[26] The general object of a summary judgment is to enable a plaintiff to obtain judgment where there is really no defence to the claim made, to put an end to the "spectacle of a worthless defence being raised and pursued for the purposes of delay": Pemberton v Chappell [1987] 1 NZLR 1, 2-3. However, it has also been said that parties should not be shut out from presenting a defence which the court considers they should be allowed to present: Pemberton v Chappell, quotingWallingford v Mutual Society (1880) 5 App Cas 685, 693, per Lord Selborne LC. [27] The onus of establishing that there is no defence is on the plaintiffs. They must satisfy the Court that there is no real question to be tried. Satisfaction requires that the Court must be confident, sure, convinced, persuaded to the point of belief or left without any real doubt or uncertainty: Pemberton v Chappell at 4. [28] Where the defence raises questions of fact upon which the outcome of the case may turn, it will not usually be right to enter summary judgment. Where the only arguable defence is a question of law which is clear-cut and does not require findings on disputed facts, or the ascertainment of further facts, the Court will normally decide it on the application for summary judgment: Pemberton v Chappellat 4. [29] The Court of Appeal has restated the test in the following terms (Jowada Holdings Ltd v Cullen Investments Ltd CA248/02 5 June 2003 at [28]):"In essence, the Court must be persuaded that on the material before the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant. Once theplaintiff has established a prima facie case, if the defence raises questions of fact, on which the Court's decision may turn, summary judgment will usually be inappropriate. This is particularly so if resolution of such matters depends on the assessment by the Court of credibility or reliability of witnesses. On the other hand, where despite the differences on certain factual matters the lack of a tenable defence is plain on the material before the Court, to the extent that the Court is sure on the point, summary judgment will in general be entered."[30] Summary judgment may be given in respect of a particular part of a claim both as to liability and quantum: Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA).Opposing arguments[31] For the purpose of their application for summary judgment, the plaintiffs concede that the defendants have an arguable case as to whether Mrs Fong signed the agreement without their authority. However, they say that there is no such arguable case on the alternative claim that the defendants ratified her entry into the agreement on their behalf. [32] In their statement of claim the plaintiffs plead five acts as constituting ratification. Again, for the purpose of this application, they rely on only three of those acts. These all relate to the steps taken towards settlement of the agreement in March 2005: a) Mr Seton's letter to Davies Law of 3 March 2005, and its enclosed settlement statement; b) The execution by the defendants on 3 March 2005 of a transfer in favour of the plaintiffs; and c) Mr Seton's instruction to the real estate agent to pay the (net) deposit to him, and receipt of that (net) deposit on 7 March 2005.[33] The plaintiffs argue that the defendants have ratified the agreement of 3 December 2004 and are bound by it. Counsel submitted the plaintiffs are prima facieentitled to an order for specific performance and the defendants have not advanced any discretionary considerations for refusing to make an order. [34] The plaintiffs also claim equitable damages, arguing that the ratification operates retrospectively, entitling the plaintiffs to claim damages for breaches prior to ratification. [35] As to the defendants' alleged set-off or counterclaim, the plaintiffs argue that any claim lies against their company, Powernet Computers Limited, as lessee. [36] The defendants say that it is a question of fact whether there has been ratification or adoption of the agreement by the defendants. They say that the actions relied on by the plaintiffs do not amount to ratification or adoption. They say, at best, they constitute an offer to adopt the agreement or a conditional adoption of the agreement (and either the offer was not accepted or the condition was not met or waived). [37] The defendants also argue that ratification can only be of an act undertaken on behalf of that principal party. Counsel argue that there is nothing in the agreement to show that Mrs Fong was purporting to sign the agreement on behalf of the first and second defendants as distinct from the third defendant (for whom she held a power of attorney). This point (on whose behalf did she sign) could not determined on this application. [38] The defendants also challenge the factual basis for the claim for damages in respect of valuation fees and increased interest costs. [39] Finally, the defendants claim that the plaintiffs owe them at least $8,700 for rent of part of the property and that that sum should be set-off against any damages.Issues[40] The Court has to decide the following issues on this application: a) Whether the defendants have ratified the agreement; b) Whether this case is appropriate for summary judgment.Did the defendants ratify or adopt the agreement?[41] The defendants acknowledge that they learned in December 2004 that Mrs Fong had signed the agreement purportedly on their behalf. That signature is the act needing to be ratified. I accept the submission of counsel for the plaintiffs that the defendants initial refusal to recognise the agreement (evidenced by Mr Seton's letter of 14 January 2005) does not prevent them later ratifying the agreement: Bowstead and Reynolds on Agency (17 ed, 2001) art 18(1); Akel v Turner [1926] GLR 574 (CA). [42] The plaintiffs rely on two acts of Mr Seton, as distinct from actions of the defendants themselves. Again, I accept the submission of counsel for the plaintiffs that ratification can be effected by a duly authorised agent. The defendants expressly acknowledge (in their affidavit in opposition) that they instructed Mr Seton to forward a settlement statement to the plaintiffs' solicitors on 3 March 2005. Although they make no comment about the covering letter, I do not consider it now open to the defendants to deny that Mr Seton did not have their authority to write that letter, in the terms in which it was expressed. In the context of a summary judgment application, it is encumbent upon the defendants to take issue with the terms in which the letter is couched: Van Beek v Phillips (HC Chch, CP 339/90, 29 October 1990, Master Hansen). They have not done so. [43] The same applies to Mr Seton's instructions to the real estate agent to pay the deposit to him. The defendants have not denied Mr Seton's authority to call for the deposit. I accept the submission of counsel for the plaintiffs that he must have received that deposit as agent for the defendants. They had authorised him to forwarda settlement statement, that settlement statement acknowledged receipt of the deposit, and the deposit could only have been payable to the defendants (Mrs Fong had no entitlement to it). [44] Counsel for the defendants submitted that the following propositions of law were relevant: a) The defendants' reasons for adopting the agreement are irrelevant. He submitted that ratification or adoption is to be determined on the objective appearance of the defendants' actions and those of Mr Seton. As authority for this he relied on Frank Harris & Co Ltd v Hakaraia (1914) 33 NZLR 1074; Harrisons & Crossfield Ltd v London and North-Western Railway Co [1917] 2 KB 755, 758;Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyd's Rep 225, 235; b) Ratification may be expressed or be implied from words or conduct. The words or conduct must be unequivocal and not capable of some other interpretation: Bowstead at para 2-073, and Harrisons & Crossfields Ltd v London and North-Western Railway Co; c) Receipt or retention of money with knowledge of the circumstances of the contract under which it was paid will usually constitute ratification of that contract unless there is some other basis upon which the purported principal is entitled to receive or retain the money: Hunter v Parker (1840) 7 M&W 332, 342; Frank Harris & Co Ltd v Hakaraia; McEwan v Johnstone [1918] 37 NZLR 49. [45] I do not understand counsel for the defendants to take issue with any of these principles. Rather, the defendants say that the actions were not an unequivocal adoption of the agreement but were evidence of an offer to adopt it on terms, or conditionally.[46] Counsel for the plaintiff argued that the only plausible explanation for Mr Seton's letter of 3 March 2005 and its enclosures was the recognition and adoption by the defendants of the 3 December 2004 agreement. He took me carefully through the history of correspondence and the wording used from time to time. He said that the letter, settlement statement and transfer were clear, and amounted to an unequivocal adoption of the agreement. He also argued that the request for, and receipt of, the deposit were not explicable on the basis of negotiation of a new agreement, and the fact that the defendants had never returned the deposit was further endorsement of ratification. [47] Counsel also pointed to the difference between Mr Seton's letter of 3 March 2005 and Loo & Koo's letter of 13 April 2005 which expressly referred to a new agreement. [48] I accept that Mr Seton's letter did not expressly state that the defendants were seeking to vary the terms of the 3 December 2004 agreement, or negotiate a new agreement. However, having regard to the exchange of correspondence between solicitors on 3 March 2005 and the terms of the settlement statement, I am satisfied there is another explanation and that the defendants were not ratifying or adopting the 3 December 2004 agreement in its entirety. A contract cannot be ratified in part and repudiated in part. If ratified it must be ratified as a whole: Laws NZ, Agency para 51. [49] Counsel for the plaintiffs invited me to read Mr Seton's letter of 3 March 2005 in the context of his earlier letter of 28 February 2005 advising that the agreement was again on foot. However, quite properly, he acknowledged that there were factual issues in relation to that letter, which leave open the argument that it was written on behalf of Mrs Fong only. For that reason he did not rely on it as one of the acts of ratification. In my view, Mr Seton's letter of 3 March 2005 needs to be read as a reply to the letter from the plaintiffs' solicitors of the same day. In that, the plaintiffs sought a contribution towards costs and penalty interest, and stated their expectation that those matters should be addressed in the settlement statement. The settlement statement which Mr Seton sent omits any provision for either. In his covering letter he states explicitly that the defendants are unwilling to pay theseitems. In respect of legal costs, he justifies the defendants' position on the basis that the agreement does not provide for it. [50] If that was all, there would be a case for ratification. However, it is not. The agreement contains express provision for penalty interest. It was required under the settlement notice issued on 20 January 2005. The defendants said that they would not pay it. [51] The plaintiffs place great weight on Mr Seton's request for the deposit and the defendants' retention of it. There is no evidence before the Court of what has happened with that deposit. If it was paid out to the defendants that might amount to a sufficient act of ratification. If it is held still pending resolution of this dispute, the position is not so clear. The request for payment of the deposit may have been made in anticipation of the plaintiffs accepting the terms of Mr Seton's letter of 3 March 2005. It is not necessarily an unequivocal act. Unfortunately, there is no evidence before the Court to assist with this. [52] For the sake of completeness, I will also with deal counsel for the defendants' second significant point on ratification, namely whether ratification is possible given that Mrs Fong did not specifically sign the agreement on behalf the first and second defendants. Counsel submitted that as holder of his power of attorney, Mrs Fong could be said to have signed for the third defendant. There was nothing in the agreement, however, to show that she was signing on behalf of the first and second defendants. She relied on Hindley Game Ltd and Ors v Love and Ors (HC Invercargill CP 47/98 17 February 1999, Master Venning). In that case, the Court found that mere naming of a party as a vendor, with no indication that the purported agent was signing on behalf of that party, was insufficient in a summary judgment context to show that the agreement was signed on behalf of that party. The Court held that there was no act to ratify. [53] The difficulty with this argument, in the present case, is that there is evidence from the plaintiffs that they were told by the real estate agent that Mrs Fong was signing on behalf of all vendors. There is also evidence from the first defendant from which it is possible to infer the defendants' acceptance that she had signed on behalfof all defendants. Perhaps more importantly, there is no evidence from the defendants that Mrs Fong had signed only on behalf of the third defendant. There is no indication that this point has been raised prior to counsel's submission.Decision[54] The plaintiffs have not persuaded me that this is an appropriate case for summary judgment. I am not satisfied that there is not an arguable defence available to the defendants. [55] Having come to this conclusion, I do not need to consider whether this is an appropriate case for ordering specific performance, or giving summary judgment for the damages sought. I will add, however, that had I found that there was no defence on the argument of ratification or adoption, I could see no reason not to order specific performance. However, I consider that there are disputes of fact in relation to the claim for damages. [56] Finally, and without making a finding on this, I have serious doubts as to whether the defendants have a claim for set-off for unpaid rent. That claim would appear to lie against the plaintiffs company.Orders[57] I make the following orders: a) The plaintiffs' application for summary judgment is dismissed; b) Costs on the application for summary judgment are reserved; c) The defendants are to file and serve their statement of defence within 28 days of the issue of this judgment;d) The Registrar is to allocate a first case management conference for the proceeding at the first available date after the expiry of 28 days. ________________________________Associate Judge D.H. Abbott