NEW ZEALAND HOME BONDS LIMITED v GILL [2014] NZHC 312

NEW ZEALAND HOME BONDS LIMITED v GILL [2014] NZHC 312 [27 February 2014]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2013-409-001585[2014] NZHC 312BETWEEN NEW ZEALAND HOME BONDSLIMITEDAppellantAND BERNADETTE GILLFirst RespondentAND SANGEET GILLSecond RespondentAND SURINDER GILLThird RespondentHearing: 4 February 2014Appearances: R W Raymond and R J Lynn for AppellantM Foley and E D Peers for RespondentsJudgment: 27 February 2014JUDGMENT OF PANCKHURST JThe issues[1] This appeal concerns homebonds. The first respondent Bernadette Gill entered into sale and purchase agreements in relation to two apartments in Auckland. A deposit was not paid, but rather application was made to the appellant, Home Bonds, for the issue of two homebonds. The homebonds guaranteed payment of the deposit to the vendor when the apartments were constructed and payment fell due. By that time a dispute had arisen as to the validity of the sale and purchase agreements. Nonetheless, Home Bonds paid the deposits, totalling $86,240, to the vendor. It now seeks to recover that sum from the respondents, together with interestand costs. The second and third respondents are Mrs Gill's son and daughter whoprovided properties by way of security for the issue of the homebonds.[2] It is no simple matter to define the appeal issues. The parties adopted divergent approaches to the case. Home Bonds contended that it was contractually bound to pay the amount of the homebonds when it did so, although by then it was on notice that the validity of the agreements for sale and purchase was in issue. Home Bonds regarded that dispute as not its concern. The respondents on the other hand argued that the agreements were conditional at inception and, indeed, had been cancelled by the time Home Bonds paid the deposits. Hence, the respondents contended that absent subsisting sale and purchase agreements Home Bonds was the author of its own misfortune.[3] I consider there are two major issues:(a) whether unconditional agreements for sale and purchase were concluded, and(b) whether Home Bonds was bound to pay out under the homebond when it did so.These broad questions will provide the answer to the dispute. But along the way it will be necessary to consider various sub-issues which arise in relation to these two major questions.Some background[4] The MacKelvie Trust through a corporate trustee, MacKelvie Trust Limited (MacKelvie), proposed to develop a multi apartment complex in Grey Lynn, Auckland. On 2 August 2008 MacKelvie and Home Bonds signed a project agreement whereby Home Bonds agreed to provide homebonds to purchasers to secure their deposit obligations to MacKelvie.[5] In October 2006 Brian Cutfield, a real estate agent, was in Brisbane selling apartments in the MacKelvie complex off the plans. He sold two apartments to the first respondent, Bernadette Gill, on terms to which I will refer shortly.[6] On 1 March 2007, Mrs Gill applied to Home Bonds for two homebonds to meet the 10 percent deposits payable on the two apartments she had agreed to purchase. The total sum of the two homebonds was $86,240.[7] On 17 May 2007 Home Bonds accepted the homebond applications. The second respondent, Sangeet Gill, provided part of the security, a charge over property in Australia required as a condition of the homebonds. The third respondent, Surinder Gill, became involved sometime later as a security provider when Home Bonds required added security.[8] By mid-2009 the apartment complex was at the stage of practical completion and 33 Mac Trust Company Limited (33 Mac), which had acquired MacKelvie'sinterest in the complex, sought payment of the purchase prices and subsequently arranged for its solicitors to send settlement notices to Mrs Gill's solicitors. Thenotices were served on 15 June 2009. Settlement did not eventuate.[9] On 30 June 2009 33 Mac made demand of Home Bonds for payment of thedeposits totalling $86,240. On 3 July 2009 Home Bonds wrote to Mrs Gill'ssolicitors advising that it was bound to pay out unless Mrs Gill immediately obtained an injunction restraining this course of action.[10] On 6 July 2009 Mrs Gill's solicitors responded stating that the twoagreements for sale and purchase had never become unconditional and that, accordingly, settlement notices should never have been served and the sums payable under the homebonds should not be paid out. On 7 July 2009 Home Bonds nonetheless made payment to 33 Mac. The next day Home Bonds registered caveats over the Australian properties provided as security by Mrs Gill and her two children. Later that month Home Bonds filed proceedings in the District Court seeking to recover the total amount it had paid out.[11] Home Bonds sought summary judgment for the amount of its claim. On 22 June 2010 Judge Neave delivered a written decision in which he granted summary judgment for the full amount claimed1. However, the Gills successfully1 New Zealand Home Bonds Ltd v Gill DC Christchurch CIV-2009-009-2114, 22 June 2010appealed to this Court. On 1 December 2010 Fogarty J held that the summary judgment should be set aside and the case remitted back to the District Court2. He concluded that there were arguable defences and that a witness hearing was required to enable these defences to be properly considered.[12] The witness hearing occurred over two days in September 2013. On 2 October 2013 Judge O'Driscoll delivered a judgment in which he found that the agreements for sale and purchase never became unconditional and that the settlement notices were invalid3. Accordingly the Judge considered that Home Bonds was in error in paying out the deposit amounts. He considered that Home Bonds should look to 33 Mac for recovery of the amount paid, not to the Gills.[13] Dissatisfied with this outcome Home Bonds filed this further appeal.The agreements for sale and purchaseSome further factual background[14] In 2006 Mr Cutfield was an agent working for a real estate agency called Key2. He was one of two approved listing agents recorded by Home Bonds in its approval of the MacKelvie apartment project as one for which it would provide a homebond facility.[15] In October 2006 Mr Cutfield contacted Surinder Gill concerning the apartment project. A short time later he met her at a coffee shop in Brisbane.Bernadette Gill, Surinder's mother, also attended the meeting. Both women sworeaffidavits and were cross-examined at the District Court hearing. Mr Cutfield was not a deponent or a witness.[16] Mrs Bernadette Gill said that initially she was not interested in owning apartments in New Zealand and that she did not have funds to invest in apartments anyway. Mr Cutfield responded that finance was not a problem, provided Mrs Gill had equity in a property or properties. He said that the apartments were undervalued2 Gill v New Zealand Home Bonds Ltd (No 2) HC Christchurch CIV-2010-409-1587, 1 December 20103 New Zealand Home Bonds Ltd v Gill DC Christchurch CIV-2009-009-2114, 2 October 2013and that there would be a healthy profit available from on-selling them. He explained that if an apartment, or apartments, were purchased the deposit could be secured by way of a homebond and the only upfront commitment would be the bond fees. When the apartments were built he would attend to their on-sales at a profit, and hence Mrs Gill would not have to meet the purchase price. If for any reason an on-sale was not achieved prior to the settlement date Mr Cutfield said that he would purchase the apartment or apartments.[17] In the course of the meeting Mrs Gill became interested in the proposal,provided that her interest was "temporary" and this was recorded in writing. Mr Cutfield readily agreed to this and provided a letter dated 18 October 2006 headed Investment Directions Limited with company contact details in Parnell, Auckland. The letter addressed to Mrs Gill, stated:This is to verify that should the unit you intend to purchase is not on-sold (sic) before settlement is required in July 2008 that I personally will take the sale over at your purchase price that is reflected in the contract for the initial purchase.[18] Mr Cutfield signed the letter over the title "Financial Administrator",although there is no evidence concerning his role with Investment Directions Limited. Mr Cutfield provided two cards to the Gills confirming his connections with Key 2 and Investment Directions Limited.[19] The next day there was a further meeting at which Mrs Gill produced a second letter addressed to Mr Cutfield in his capacity as financial administrator of Investment Directions Limited. The letter read:Dear Mr CutfieldRe: Your letter dated 18-10-06 regarding the Home Bonds and the Contract dated ............... For agreement for sale and purchase of real estate, 33-35 MacKelvie Street, Grey Lynn, Auckland Units ..................................... Contract MacKelvie Trustee Ltd, as Corporate Trustee of the MacKelvie Trust.After our discussions yesterday in connection with the purchase of Home Bonds, we understand that we are purchasing the units only on the condition that they are resold – or on-sold prior to settlement possibly in March 2008 and that there would be a substantial profit for us in doing this transaction.We have not had time to consult any solicitor here as your stay is short. However, we do understand from your letter that there will not be any responsibility on our part to incur any charges or penalties listed in the contract received only yesterday ie. 12.1 Settlement Notice, 12.2 Service and 12.3 Vendor Remedies Clauses or any other penalties or charges other than the usual commission and costs. Please list and advise us of costs involvedThe balance of the letter covered disbursement of the sale profits, utilisation of homebonds to cover the deposits and the need for ongoing updates from Mr Cutfield. The letter was signed by Mrs Gill and countersigned by Mr Cutfield alongside theword "agreed".[20] The letter also had some handwritten additions at the top, including a date"2/11/06" and the words "attachment to contract dated 1/11/06". Mrs Gill madethese additions and said in evidence that they appeared on both her copy and on the copy of the letter given to Mr Cutfield. She accepted that the agreements for sale and purchase had not been signed by the vendor at the time of the discussions in Brisbane as Mr Cutfield was to attend to this on his return to Auckland. She could not explain why the date of 1 November 2006 was attributed to these agreements. Mr Cutfield also obtained signatures to two Home Bonds application forms for the issue of homebonds in lieu of the payment of cash deposits.Previous evaluations of the Gill/Cutfield arrangement[21] In entering summary judgment Judge Neave found that the two letters gave rise to a collateral agreement whereby Mr Cutfield agreed to purchase the apartments if on-sales could not be achieved. Regardless that the second letter said that the purchase of the apartments was "only on the condition" that they were on-sold prior to settlement, this did not render the sale and purchase agreements themselves conditional. Properly analysed the agreement was that Mr Cutfield would either arrange an on-sale or purchase himself, and this presupposed the existence of underlying agreements for the sale and purchase of the apartments. Hence, the Judge characterised the suggestion that the sale and purchase agreements with MacKelviewere rendered conditional, a "nonsense". He also commented that "business arrangements that appear too good to be true, usually are" – an observation with which I agree.[22] Fogarty J, however, disagreed with this analysis. He concluded that the letters did not give rise to a collateral agreement, because Mrs Gill's letter toMr Cutfield, the vendor's agent, proposed conditions to be presented to MacKelvie as terms of the purchase agreements. He said that the letter required the "removal"of standard clauses 12.1, 12.2 and 12.3 from the agreements for sale and purchase. This was an aspect of her offer. He added:The fact that it (removal of the clauses) was a "nonsense" does not mean thatit was not being sought by Mrs Gill as an offeror at the time she was making an offer to purchase the two units.Finally, Fogarty J considered that merely because parties mistakenly assume that agreements for sale and purchase came into existence did not mean that they did.[23] These findings, and others, led the Judge to the view that the summary judgment should be set aside and the case remitted back to the District Court for afull hearing. In light of the evidence at that hearing Judge O'Driscoll focussed uponMr Cutfield's failure to attach the second letter to the agreements for sale andpurchase when they were presented to MacKelvie for acceptance. He found4:It is not disputed that Mr Cutfield did not attach the defendants' conditions tothe sale and purchase agreement. These conditions were not brought to the attention of the vendor. The vendor did not accept the conditions in the amended contract for sale and purchase. In those circumstances there was no contract. If there was no contract then the vendor could not issue a valid settlement statement and require [Home Bonds] to pay the [deposit] to them.This, I note, was one of several findings contained in a lengthy judgment.[24] Unfortunately, before me counsel did not confront the contractual dispute. Mr Raymond's argument was focused on Home Bonds' position, it being obliviousto the Cutfield arrangements. He contended that the case was to be decided solely on the basis of the terms of the homebond contracts between Home Bonds and the Gills. He argued that any arrangement, or agreement, between Mr Cutfield and the Gills was of no relevance. Mr Foley, on the other hand, relied upon JudgeO'Driscoll's no contract finding and the absence of any challenge to that finding.4 At [99].Hence, he contended that the appeal must fail because a pivotal finding of fact reached by the trial Judge was not challenged.Analysis[25] I do not accept Mr Foley's submission that Judge O'Driscoll's finding of nocontract is a finding of fact and necessarily determinative of this appeal. The finding was one of law from essentially undisputed facts derived from the documents and supplemented by Mrs Gill's evidence. Further, I think it is necessary to decidewhether the sale and purchase agreements were conditional or not, despite the much narrower approach taken by Mr Raymond.[26] Adopting a traditional offer and acceptance analysis, the first step is to examine whether there was an offer made intended for acceptance by the other party. This requires an assessment from the perspective of an objective and reasonable bystander observing all the relevant conduct of the parties, including the oral discussions and the documentary exchanges. The latter are the most reliable and also, I think, determinative.[27] Two judges were of the view that the letter prepared by Mrs Gill and signed by Mr Cutfield gave rise to an offer to the vendor, MacKelvie. With respect, I do not accept this analysis.[28] To my mind the necessary starting point is that the two letters must be readtogether. The letter on Investment Directions Limited's letterhead contained apromise from Mr Cutfield to personally purchase the apartment, or apartments, at cost if an on-sale was not achieved before settlement fell due. This offer set the scene for the second letter prepared overnight by Mrs Gill. The heading to that letter leaves no doubt that it is to be construed against the background of Mr Cutfield's18 October letter, and the discussions of the previous day. The letter states "we arepurchasing the units only on the condition that they are resold – or on-sold prior tosettlement ...". This is clearly a reference back to Mr Cutfield's letter. Although there is no express reference to the essence of Mr Cutfield's promise, that he wouldpersonally purchase the apartments at cost if the need arose, any objective reader of the letters would construe the sentence to mean this. It follows that the gist of thebargain created when the parties signed the second letter was that Mr Cutfield would purchase at cost if he failed to negotiate an on-sale. Hence, Mr Cutfield was the promisor and Mrs Gill the promisee.[29] I agree with Judge Neave that the letters gave rise to a collateral contract in the sense that in anticipation of the main agreements for sale and purchase between MacKelvie and Mrs Gill, Mr Cutfield and Mrs Gill entered into a collateral or side agreement. But for the existence of the main contracts there would have been no occasion for the side agreement. The timing of its performance hinged on the terms of the main agreements, in particular the construction of the apartments and settlement falling due.[30] The consideration for the side agreement was Mrs Gill's entry into theagreements for sale and purchase. Thereby Mr Cutfield received the benefit of commissions from the sale of the two apartments. In return he promised to purchase the apartments at cost if the need arose. Presumably Mr Cutfield's letter would alsofound a promissory estoppel. The requirements of a promise, reliance upon it and detriment (when Mrs Gill was called upon to settle) are all clear enough, so that equity would hold Mr Cutfield to account.[31] By contrast, Mrs Gill's letter cannot be intelligibly construed as containing anoffer to the vendor, MacKelvie, although she obviously intended that the terms of the side agreement would be known to the vendor, indeed to that end attached to the sale and purchase agreements. But there was nothing in the letter that constituted an offer, much less an offer capable of acceptance by MacKelvie.[32] With respect, I disagree with Fogarty J's view that the letter "require(d) removal" of standard clauses 12.1, 12.2 and 12.3 from the sale and purchaseagreements. The letter does not speak of removal, rather it records Mrs Gill'sunderstanding that she (and her children) would not bear responsibility for a default in settlement. Clause 12 provides for the service of a settlement notice and, in the event of non-compliance, defines the vendors remedies, including seeking specific performance, cancellation, retention of the deposit and the right to sue for damages.The operative sentence seeks Mr Cutfield's confirmation that the effect of the sideagreement was to shield the Gills against responsibility from the vendor's remedies - if Mr Cutfield measured up to his promise.[33] As to that Mrs Gill deposed that in late 2008 when the settlement date was approaching she contacted Mr Cutfield. Initially he said that he would start the process of on-selling the apartments in January 2009. Nothing eventuated. In early June 2009 when settlement was imminent, Mrs Gill's solicitor wrote to Mr Cutfield.In a short email response on 5 June 2009 he denied personal liability by saying that the principal of Investment Directions Limited had gone bankrupt, so that a purchaseby that Company was not an option and this "just leaves the miracle of selling (theapartments) which looks very unlikely in this market". How the demise of theCompany could affect his personal promise was not explained.[34] It may well be that a further term of the side agreement was that its existence would be brought to the attention of MacKelvie. If the handwritten notation,"attachment to contract dated 1-11-06", was on the letter when Mr Cutfield signed itthen he was bound to do this. The evidence shows that MacKelvie, 33 Mac and Home Bonds knew nothing of the side agreement until settlement of the sales was approaching in 2009. Importantly for present purposes the contractual arrangements between Home Bonds and the Gills were concluded without reference to the side agreement. The Gills did not provide copies of the letters to Home Bonds, or otherwise refer to the side agreement.[35] Mr Foley argued that Mr Cutfield's knowledge of the side agreement must be imputed to MacKelvie, regardless of Mr Cutfield's failure to attach the lettersevidencing the agreement to the sale and purchase agreements. Counsel relied upon the principles of agency whereby knowledge of an agent may be imputed to his or her principal. This area of law is complex,5 but I need not go there. As noted MacKelvie had no actual knowledge of the side agreement and could not inform Home Bonds of its existence. And this case ultimately depends upon the contractual terms relating to the homebonds. Obviously these terms paid no heed to the side agreement because Home Bonds was oblivious to its existence.5 P Watts, FMB Reynolds and W Bowstead, Bowstead and Reynolds on Agency (19th ed, London, Thomson Reuters, 2010) at [8-208.][36] I turn, therefore, to the second question, whether Home Bonds was contractually bound to pay out the sum of $86,240 when it did so in July 2009.Was Home Bonds contractually bound to pay out the amount of the homebonds?The District Court findings[37] Judge O'Driscoll held that Home Bonds was wrong to pay out the sum secured by the homebonds to 33 Mac on 7 July 2009 because:(a) there were no agreements for sale and purchase in existence when 33 Mac issued settlement notices in June 2009 and, accordingly, the notices were not valid,(b) alternatively, MacKelvie was in breach of contract when it informed Home Bonds that the agreements for sale and purchase were unconditional and valid settlement notices could not be issued by 33Mac to trigger Home Bonds' obligation to pay out the sums securedunder the homebonds, and(c) that prior to the payment out there was "a challenge to the validity of the settlement notice(s)",6 and Home Bonds was bound to inquire into that challenge before making payment.[38] It is convenient to consider the three findings in turn. The first two findings are affected by the conclusions already reached concerning the Cutfield side agreement, and can be dealt with quite briefly.No agreements for sale and purchase[39] Judge O'Driscoll's finding in relation to this aspect is set out at [23] of thisjudgment. This reasoning is based on the proposition that Mrs Gill's letter that wassigned by Mr Cutfield in Brisbane contained conditions (or a counter offer) which had to be conveyed to the vendor, MacKelvie. My finding, however, that the letter6 Sim v New Zealand Home Bonds Limited [2010] NZCA 192 at [57].did not contain conditions, or a counter offer, to be communicated to MacKelvie is fatal to the conclusion reached in the District Court.The vendor was in breach of contract[40] Clause 17 of the Agreement to Market a Project using Development Bonds concluded between MacKelvie and Home Bonds on 2 August 2006 relevantly provided:Issue of development Homebonds17 The Vendor undertakes not to declare any Agreement to be unconditional until:(a) ...(b) All Vendor and Purchaser conditions precedent or subsequent are satisfied, except for any condition there for the sole benefit of the Vendor or any conditions relating to completion of the Project or the issue of title.[41] By this agreement Home Bonds agreed to provide a homebond facility topurchasers of apartments in MacKelvie's project. Obviously, the issue of homebonds to individual purchasers was subject to the purchaser meeting financial criteria and satisfying other terms and conditions. Judge O'Driscoll, on account of his finding that Mrs Gill's letter contained conditions which Mr Cutfield was required to refer to MacKelvie, concluded that MacKelvie must have been in breachof cl 17(b) by declaring Mrs Gill's agreements to be unconditional when that was notthe case. My finding that the letter contained no such conditions, or counter offer, to MacKelvie is fatal to this finding as well.[42] With respect, I consider there are other problems in relation to the Judge'sfinding. Firstly, condition 1 of the homebond terms and conditions required thepurchaser to deliver to Home Bonds "... a copy of the agreement for sale andpurchase to which this application relates". Why this was not done, or if it was, whycopies of the Cutfield letters were not attached to the agreements, is not explained. Clause 17 of the homebond agreement required the vendor's solicitor to give notice to Home Bonds of the "unconditional date". This was done on 5 May 2008 being advice that "the purchaser's conditions have been met". But, this cannot have been areference to the Cutfield "conditions", because the vendor and its solicitor were oblivious to their existence. Against this background the Judge does not explain how a supposed breach of clause 17(b) of the project agreement between the vendor and Home Bonds invalidated the sale and purchase agreements between the vendor and Mrs Gill.Did the Gill's challenge the validity of the settlement notice(s)?The homebond terms and conditions[43] To understand Judge O'Driscoll's finding it is first necessary to brieflyoutline the homebond terms and conditions. Home Bond application forms also contained the terms and conditions that governed the relationship between Home Bonds and a purchaser following approval of an application. Of relevance in this case is cl 27:Purchaser Default:27. Following failure by a Purchaser to settle an Agreement, the Purchaser acknowledges that the Vendor may, before the last day of the Anticipated Bond Period (as extended) deliver to NZHB a written demand which (a) confirms the failure of the Purchaser to settle the Agreement and (b) attaches a certified copy of an expired settlement notice and proof of valid service on the Purchaser. The Purchaser further acknowledges that NZHB will within 7 days of receipt of a claim pay the amount, of the Development Homebond("the Amount") to the Vendor. NZHB may, if requested by theVendor, delay payment of the Amount without prejudicing NZHB'sobligation to make that payment.Hence, the trigger for payment of the amount secured by the homebond is proof of service of an expired settlement notice.[44] The standard form agreements for sale and purchase signed by Mrs Gill contained terms tailored to the option of securing payment of the 10 percent deposit by way of a homebond. Clause 5.1 provided that the settlement date was five business days after the purchaser received a certificate of practical completion, a certificate of title or a code of compliance certificate, whichever was the latter. Upon settlement the purchaser was required to pay the full settlement price, including the deposit. If this did not occur the purchaser was in default and a settlement noticecould be served (cl 12.1). This provided the purchaser five business days within which to settle (cl 12.2), failing which the vendors remedies came into play (cl 12.3).[45] The combination of cl 27 of the homebond terms and conditions and the clauses of the sale and purchase agreement to which reference has been made, ensured that when Home Bonds received a demand for payment from the vendor, together with an expired and validly served settlement notice, the settlement date must have passed and an opportunity to repair the initial failure to settle had been provided via the settlement notice process.Sim v New Zealand Home Bonds Limited[46] Clause 27 of the homebond terms and conditions has been authoritatively considered by the Courts. Sim contains a detailed outline of homebond terms and conditions and how they interact with operative clauses in the standard agreements for sale and purchase used in conjunction with homebonds. As in this case, Ms Sim did not settle the purchase of apartments and then defended a proceeding filed by Home Bonds seeking recovery of the amount of the deposits paid out to the vendor. Ms Sim contended that Home Bonds was wrong to pay out to the vendor because it was on notice that Ms Sim disputed the validity of the sale and purchase agreements on a number of grounds. Her defence failed in the District and High Courts, but she was granted leave to appeal.[47] In dismissing her appeal the Court of Appeal said:[55] ... . But in our view the use of the words "settlement notice" in bothcl 8 of the bond and cl 27 of the application form must contemplate the existence of a valid settlement notice in terms of the sale and purchase agreement. For a notice to be valid, the settlement date must have occurred through proof of both practical completion and the availability of title. Absent either there can be no valid settlement notice, as defined by the agreement.[56] To this extent the use of the word "failure" in cl 27 (and "fail" in cl 8) requires an element of fault. A default occurs only if there is a failure to settle in response to a valid settlement notice. Hence, should NZHB be put on notice that the settlement date has not occurred and that the settlement notice was not therefore valid, it would be obliged to inquire into the aspects of practical completion and availability of title. Thereby the word failure is accorded substance. The purchaser must be shown to have failed to settle inthe face of a valid settlement notice, at least in any case where validity is put in issue.[57] The exception of a challenge to the validity of the settlement notice aside, we are satisfied that NZHB was bound to pay the bond regardless of protest by the purchaser or her solicitors. As Mr Lester submitted, NZHB is not required to become embroiled in disputes between the vendor and purchaser. ...[48] Judge O'Driscoll relied upon this passage in reaching his conclusion that the Gill's had mounted a challenge to the validity of the settlement statement and, therefore, Home Bonds was wrong to payout when it did so. In short, the Judge relied on his earlier finding that Mrs Gill made conditional offers to MacKelvie in concluding that no agreements for sale and purchase existed and, hence, that settlement notices could not be served. In terms of Sim he accepted there was a direct challenge to the validity of the settlement notice in this case.[49] This line of reasoning suffers from the problem that I do not accept the opening premise, namely that Mrs Gill proposed terms of contract and these were not conveyed to the vendor by Mr Cutfield. Despite that problem I shall consider theJudge's conclusion that there was a challenge to the validity of the settlement noticeso that the reasoning of the Court of Appeal in Sim applied. Mr Raymond disputed this, his primary argument being that the appeal could be dismissed on this ground alone.The challenge in this case[50] Mrs Gill's New Zealand solicitors wrote to Home Bonds on 4 June 2009stating that the agreements for sale and purchase were conditional upon the apartments being on-sold prior to settlement, that this had not occurred and that Mrs Gill was about to cancel the agreements. The letter noted that upon cancellation, deposits would not be payable. A similar letter was sent to the vendor advising that if Mr Cutfield did not promptly secure on-sales, or purchase the apartments himself, Mrs Gill would cancel the agreements.[51] The solicitors for 33 Mac immediately requested copies of the agreements containing the Cutfield condition. The letter noted that the vendors' copies of thesale and purchase agreements contained no such conditions. Home Bonds respondedto Mrs Gill's solicitor on 5 June 2009 stating that the matters raised were contractual issues between Mrs Gill and the vendor, and pointing out that Home Bonds was not aparty to those agreements. The letter added that nor was Mr Cutfield Home Bonds'agent.[52] On 9 June 2009, following receipt of Mr Cutfield's negative response,Mrs Gill's solicitors purported to cancel the agreements for sale and purchase. 33 Mac disputed the cancellation. Settlement was required, and on 15 June 2009 settlement notices were served.Analysis[53] Once the facts are understood, it is clear that the contentions raised on Mrs Gill's behalf were not a challenge of the kind discussed in Sim. The Court in thatcase held that there was a "failure" in terms of cl 27 of the homebond terms andconditions where a purchaser had failed to settle following the valid service of a settlement notice. The Court accepted that if Home Bonds was put on notice concerning issues pertaining to the settlement process (for example, that practical completion of the apartments had not occurred, or that title was not available) the Company was bound to inquire. But challenges of this kind aside, the Courtaccepted that Home Bonds was not required to become "embroiled in disputes between the vendor and purchaser".[54] The claim that both agreements remained conditional in 2009 was a vendor/purchaser dispute, not a challenge limited to the validity of the settlement notice as explained in Sim. For these reasons I am satisfied that Judge O'Driscollwas in error in concluding that the settlement notice was invalid in this case.[55] In passing I note, as is discussed in Sim, that where Home Bonds pays thesum secured by the homebond to a vendor, the purchasers' position is no differentfrom that of a purchaser who has paid a cash deposit. In both cases the purchaser must win the vendor/purchaser contractual dispute in order to recover the deposit. This places the outcome in this case in proper perspective.Conclusion[56] That said, I have a real measure of sympathy given the present predicamentof the respondents. Mr Cutfield's assertions that the apartments were undervalued, that Mrs Gill would reap a handsome profit and that there was no element of risk because he would on-sell or purchase the apartments before settlement were simply too good to be true. Mr Cutfield was not to be trusted. It was unfortunate that the respondents did not take legal advice before the agreements for sale and purchase were signed.[57] But as I have endeavoured to explain, Mr Cutfield's conduct provides no answer to Home Bonds' claim. Accordingly, the appeal is allowed and judgment isentered against the appellants for $86,240, together with interest and costs. If costs are not a matter of contract, I indicate that 2B costs for a half day hearing are appropriate in relation to the appeal. Memoranda may be filed if this indication does not suffice.Solicitors:R W Raymond, Barrister, ChristchurchGCA Lawyers, ChristchurchHon M Foley, BrisbaneBuddle Findlay, Christchurch