BANGERTER, AND ANOR V RETAIL ON MAIN LIMITED HC AK CIV2005-404-4403

BANGERTER, AND ANOR V RETAIL ON MAIN LIMITED HC AK CIV2005-404-4403 12 September 2005IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV2005-404-4403IN THE MATTER OF the Land Transfer Act 1952 and Caveat No. s 6102467.1 and 6356348.1 (North Auckland Registry) BETWEEN ROBERT JAMES BANGERTER, AS TRUSTEE FOR THE TIME BEING OF THE WERRIBEE TRUST BLUE SKY HOLDINGS LIMITED Applicants AND RETAIL ON MAIN LIMITED Respondent Hearing: 5 September 2005 Appearances: M A Chisholm for Applicants C F Foote for Respondent Judgment: 12 September 2005 at 9.30 amJUDGMENT OF ASSOCIATE JUDGE DOOGUE[1] This is an application for orders under s 145 of the Land Transfer Act that two caveats that were filed by the applicants not lapse. The first is Caveat 6102467.1 which was registered against the title to what are known as "the Arthur Street Units". The other, 6356348.1, relates to units known as "the Galway Street Units". There were four units in the Arthur Street Property Group being Units 5, 8, 9 and 10 situated at 148 Arthur Street. The applicants had also purchased nine other units at this address but no dispute arises as the agreements for sale and purchase in relation to those properties. The Galway Street properties comprised four units 1-4 at 116 Galway Street, Onehunga. By agreement, the sale and purchase of unit 1 was cancelled and so the dispute centres on the remaining units, 2, 3 and 4, at 116 Galway Street, Onehunga.[2] Separate issues arise in respect of the Arthur Street and Galway Street units and I will treat those transactions separately in this judgment.Principles[3] The principles to be applied in applications such as this are well established through the decisions of the Court of Appeal in cases such as Sims v Lowe [1988] 1 NZLR 656, Pacific Homes Limited v Consolidated Joineries Limited [1996] 2 NZLR 652, and Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104. [4] I propose to apply the following principles in reaching my decision: a) The onus is on the caveator to demonstrate that it holds an interest in the land which is sufficient to support the caveat. b) The caveator must put forward a reasonably arguable case to support the interest it claims. c) Extensions of caveat will be refused only where it is plain that the caveator has no prospect of supporting the interest claimed. d) The present proceedings are unsuitable for the determination of disputed questions of fact.The Arthur Street Units[5] The agreements for sale and purchase of units 5, 8, 9 and 10 were entered into on 10 April 2003. The settlement date was to be 9 July 2003. [6] In common with the arrangements that were made in respect of the Galway Street Units, the applicants had entered into agreements to on-sell the Arthur Street properties, with such agreements being entered into in May 2003. They depose that they had insufficient funds to enable them to settle the purchase from the respondent of the Arthur Street Units. In order to complete the settlement, they were dependent upon obtaining payment from those who were going to buy the units from them.[7] A difficulty emerged in 2003 because of the problems that were becoming apparent to the local territorial authority, the Auckland City Council, arising out of a widely experienced problem commonly referred to as "leaky building" syndrome. This affected the transaction between the applicants and the respondent. The purchasers under the "on-sale" agreements from the applicants were all dependent upon obtaining finance in order to complete their transactions. The lending institutions from which they intended to borrow, themselves had concerns over the construction of the units and they were not prepared to lend money until the respondent obtained from the City Council a Certificate of Code Compliance for the building. This I understand is a certificate from the local authority certifying that the property complies with the Building Code promulgated under the Building Act 2004. [8] Indeed, it was a condition of the agreements for sale and purchase that the respondent warranted and undertook that at the giving of possession, a Code Compliance Certificate would be issued for those works. The respondent accepts that it had an obligation to obtain such a certificate. [9] As a preliminary to obtaining a certificate, the respondent had the properties inspected by the City Council. The City Council inspectors declined to grant a certificate because of defects in the building. [10] The settlement date was extended by agreement until 13 July 2004 for reasons not relevant to this judgment. [11] The respondent served settlement notices for each of the units on the applicants on 14 July 2004. The settlement notice stated amongst other things:You are hereby required to settle in accordance with the agreement within 12 working days (as by the said agreement for sale and purchase defined) after the date of service of this notice (excluding the day of service) being the 30 thday of July 2004, time being of the essence.[12] On 18 October 2004 the City Council issued a notice to the Respondent to rectify building work on the Arthur Street properties. An accompanying letter indicated that there were concerns about the susceptibility of the cladding to entry ofwater. The City Council in its letter of 18 October 2004 said that that information had not been available at the time the Council originally issued the building consent. The Council said it had introduced "some significant changes to what is required for buildings using monolithic cladding" and therefore work would be required to rectify the buildings. [13] On 2 August 2004 the solicitors for the applicants wrote to the solicitors for the respondent in the following terms:We confirm our earlier advice that the above transactions cannot be settled as our client's purchasers are unable to complete draw down of the mortgages until such time as the Code Compliance Certificates have issued and a copy of same forwarded to their respective mortgagees. Your client's failure to provide the Code Compliance Certificate to ours is a breach of the vendor warranty set out at 6.2(5)(c) of the sale and purchase agreement. More importantly your client always knew that ours was relying on on-sales and that the lenders for such on-purchases may require Code Compliance Certificates. As such, we consider the same to be an implied condition of the agreement. Accordingly, until such time as your client can provide ours with Code Compliance Certificates then it is in breach of the agreement itself and your settlement notices are invalid and our client is not obliged to complete settlement of these transactions.[14] The letter went on to say that the applicants were intending to lodge caveats on the titles. The caveats were in fact lodged on 3 August 2004. [15] On 4 August, Kendall Sturm and Foote, the solicitors for the respondent in a fax letter to the solicitors for the applicants recorded that it was their view that the inability of the purchasers to on-sell the units was of no relevance to the respondent, the respondent having no contractual obligation concerning that matter. The respondent's solicitors accepted that the failure to provide a Code Compliance Certificate was a breach of the vendors' warranties, however, the fax went on to refer to clause 6.5 which provided:Breach of any warranty or undertaking contained in this clause does not defer the obligation to settle. Settlement shall be without prejudice to any rights or remedies available to the parties at law or in equity, including but not limited to the right to cancel this agreement until the Contractual Remedies Act 1979.[16] The fax went on to express the opinion that the applicants were obliged to complete settlement of the remaining units. [17] The next relevant letter was a fax from Kendall Sturm & Foote to the applicants' solicitors of 20 August 2004. This stated:As you are obligated by the terms of the contracts to complete settlement, our client has instructed us to advise you that failure to settle the above properties by next Friday 27 August 2004 may result in steps being taken which will lead to cancellation of the contracts after that date.[18] The applicants never in fact settled the contract relating to units 5, 8, 9, and 10. On 19 May 2005, the respondent purported to cancel those agreements. [19] The case for the applicants is that they had caveatable interests in the four units, that estate or interest arising under the agreements for sale and purchase. The applicants submit that it logically follows that their contractual rights survived the purported cancellation of 19 May 2005. The applicants' position is that although on the face of it they did not comply with the settlement notice issued on 14 July 2004, any breach of the contract on their part did not entitle the respondent to cancel. They said the respondent had prior to the date of cancellation affirmed the contract. The applicants say that the election to affirm, as they describe it, arose out of two matters. First, the terms of the notice that the respondent gave on 20 August 2004 which I have set out above was to the effect that:The Respondent, with full knowledge of the Applicants' inability to settle without Code Compliance Certificates, affirmed the Agreements for the remaining units.Secondly:By the respondent's words and conduct between 20 August 2004 and 18 May 2005 the respondent acted consistently with its election to affirm the agreements.[20] This second heading to the basis for affirmation then refers to a number of meetings and discussions that took place between 20 August 2004 and 11 May 2005 which the applicants say show the respondent acting consistently with the election to affirm.[21] The respondent says it did not affirm the contract. First of all, Mr Foote submitted that the faxed letter of 20 August 2004 was an extension of the date for compliance of settlement notice to a later fixed date; and that clause 9.6 of the relevant agreements entitled the respondent to give such an extension of time before or after the expiry of the original notice. Mr Foote referred to a passage from D W McMorland Sale of Land paragraph 12.13 at p 409 to the following effect: where the time originally of the essence has already passed without performance, so that there is a present right to cancel and the innocent party is put to their election, an extension to a future fixed time is not regarded as an election to affirm, but as a statement of intention to refrain from electing until the new time has passed.[22] The authority cited in support of this proposition is Tropical Traders Ltd v Goonan (1964) 111 CLR 41 (HCA) at 53-55. Mr Foote says that that is exactly what happened here. Mr Foote, while accepting that a party can affirm a contract in the face of an event which entitles it to cancel, submitted that affirmation involves waiving a right of cancellation. In that regard he referred to the Court of Appeal decision in Cullinane v McGuigan (CA 172/99, 29 September 1999). The Court of Appeal in that case (paragraph 19) stated that a right of cancellation is not waived unless the advice to that effect is unequivocal. [23] It is a matter of interpreting what was intended by the letter sent to the applicants' solicitors on 20 August 2004. Mr Foote characterised that letter as not containing an unequivocal affirmation. The letter extended the time for settlement and indicated that should there be no compliance, cancellation may follow. The letter could be seen as a conditional affirmation of the contract or that the respondent was aware of the breach and was reserving his right to cancel without making a decision to that effect. In this case, the terms of the settlement notice given were rather different from that in the Cullinane case. For good reasons, the settlement date here had to be extended. This had to do with other difficulties with the contract which are not presently relevant. Mr Foote's submission was that the giving of a notice of a date when settlement would take place but also referring to the possibility of cancellation (which would only occur where settlement did not take place), could be seen as equivocal in the sense that at that point the purchaser might well resort tocancellation if the applicants persisted in their refusal to settle based on the lack of a Code Compliance Certificate. [24] I agree with Mr Foote's submission to that effect. In my view the notice of 20 August 2004 did not amount to an affirmation of the contract. The respondent was clearly reserving its right to cancel, which is not consistent with an unequivocal affirmation. [25] Then there is the phase which followed the document of 20 October which is also relied upon by the applicants. Essentially the applicants rely on the events following 20 August 2004 consisting in a series of meetings and interactions between representatives of the applicants and the respondent. The subject matter of those meetings was that the respondent was being asked for assurances that progress was being made to get the Code of Compliance issues finalised with the Council so that a Certificate of Compliance could be issued. In particular, a Mr Bill Ritchie, representing the respondent, gave progress reports. These were to advise what the requirements of the Council were and, after those were known, to also advise that a building company had been contracted to carry out the necessary remedial work in order to get a Certificate of Compliance. [26] One significant event was a phone call between a Mr Woodworth, representing the applicants, and Mr Ritchie for the respondent, which took place on 11 May 2005. Mr Ritchie, according to Mr Woodworth, told him that the Council had advised that the properties needed to be re-clad, that he had applied to the Council for a building consent and other matters. He also said, according to Mr Woodworth again, that there was no way that the respondent could settle the last remaining four units without the Code of Compliance Certificate, and to get this, the properties needed to be re-clad. [27] This last exchange seems to me to found a reasonably strong inference that the respondent was intending to carry the agreement for the four units through to settlement. To some extent, this meets a point which was made by Mr Foote when he said that any discussions that took place during the period I have mentioned about getting Code Compliance Certificates have to be seen in the context that there wasanother group of units at Arthur Street which were not the subject of dispute and which, it was agreed on both sides, were always going to be settled. They too were involved in the uncertainty over the issue of a Certificate of Code Compliance. Mr Foote therefore said that the discussions that took place between Mr Ritchie and Mr Woodworth, amongst others, might have been referable to this group of units rather than to those which are the subject of the caveats. [28] In my view the evidence of Mr Woodworth concerning the discussion of 11 May 2005 cannot be dismissed so easily. There is evidence on oath which, if accepted at trial, points to nothing less than an intention on the part of the applicants to take further steps to move the transactions involving the four disputed units towards settlement. That evidence in turn could well be seen as justifying the conclusion that the respondent affirmed the contract. If that affirmation took place on 11 May 2005 (and there does not seem to be any dispute about the date), it pre- dated the date when the respondent purported to cancel the agreements. If that is so, the purported cancellation might well have been unjustified with the further consequence that the agreements for sale and purchase of the four units survived the notice of cancellation and so found the estate or interest in the land which is the subject of the caveats. I am reminded that the present application is not the forum to decide disputed questions of fact: Sims v Lowe (supra) at 659. [29] Applying the principles to the application so far as it relates to the Arthur Street caveat, I conclude that the caveat should not lapse. I will make appropriate orders below.Galway Street Units[30] Four agreements for sale and purchase were entered into on 15 October 2003. Amongst other conditions contained in the Galway agreements was clause 25. By clause 25.1 the Applicant had the right to undertake a due diligence investigation within five working days of the date of the agreement. By clause 8.7(3), time was of the essence. That condition, together with some other conditions in clause 25, was stated to be inserted for the sole benefit of the applicants.[31] Clause 25 contained two other clauses which the applicants relied upon. These were 25.2 which required the respondent to provide to the applicants a valuation of the property not less than 15 working days after the date of the agreement, and clause 25.3. The last required the respondent to provide the applicants certificates by an independent building inspector and the respondent's architect to the effect that the residence on the property was fit for the purpose of personal occupation and other matters. Those certificates were to be provided less than 15 working days after the date of the agreement. In its notice of application, the applicants set out in their grounds an assertion that the respondent:Has not provided the valuations and certificates to the applicants as it was required to do under the conditions.[32] In answer to a question from me, Mrs Chisholm said that the relevance of this ground was that the applicants would not be able to complete their due diligence enquiries without the valuations and certificates. I do not think that any such submission could be supported given that the due diligence had to be completed within five working days of the agreement whereas the valuation and the certificates were not required to be provided until 15 days after the date of the agreement. That points away from any interpretation that the applicants were entitled to wait until the certificates and the valuation came to hand before satisfying the due diligence requirements in the agreement. [33] The date for completion of due diligence was extended by agreement until 31 October 2003. Notwithstanding that extension, the applicants still did not volunteer any information to the respondent as to whether or not they were satisfied with due diligence. On 11 November the respondent explicitly asked the applicants to confirm the due diligence provision. No reply was or has been received. On 9 December 2003 the respondent cancelled an agreement in respect of unit 1 because no confirmation was received. Unit 1 is not one of the agreements that is the subject of the present application. But the applicants accepted that it could not quarrel with that cancellation.[34] The applicants submit though that they waived the requirement for confirmation of satisfaction of the due diligence provision by notice in writing or by their conduct. [35] Clause 8.7(6) of the agreement provided:At any time before this agreement is avoided the purchaser may waive any financial condition and either party may waive any condition inserted for the sole benefit of that party. Any waiver must be by notice.[36] Mr Foote submitted to me that the applicants could not rely upon a waiver by conduct. The conditions of the agreement expressly provided that notice was to be given and anything short of that would not suffice. He said that the provisions of the agreement to that extent depart from the common law rules which recognised implied waiver from conduct as efficacious. I accept his submission that waiver can only have been effective in this case if notice of same was given in accordance with the agreement for sale and purchase. [37] Mrs Chisholm said that a notice in writing was in fact given because on 27 April 2004 Mr Brian Rankin, representing the applicants, sent Mr Ritchie, representing the respondent, an e-mail which included the following:To Arthur Street and Galway Street Anticipated settlement date please and progress update asap.[38] Mr Richie replied:As to Arthur and Galway St you should have all your purchasers set up to settle say that last week in May.[39] Mrs Chisholm submitted that that amounted, in effect, to a notice in writing to the vendors that the purchasers were going to be completing the purchase of the units. She said Mr Ritchie certainly saw that as being the meaning and intent of the email, given the terms in which he replied. She also submitted that by telling Mr Ritchie that the purchasers wanted to know when they would be settling, it would have been obvious to him that the purchasers impliedly waived the due diligence provisions.[40] Mrs Chisholm referred me to clause 1.2 of the provision regarding notices in the general terms of sale included in the agreement for sale and purchase. Clause 1.2(2), she pointed out, provided that notices may be served by a number of means including by e-mail. She also pointed out that service was deemed to be served in accordance with clause 1.2(3)(b) when acknowledged by the party by return e-mail or otherwise in writing. She said that Mr Ritchie's e-mail back to Mr Rankin satisfied the requirements of the rule in that respect. [41] I note that there is no requirement that the notice expressly use clear wording that a condition is waived. A notice which states certain matters which in turn give rise to an implication that a condition is waived, would seem to me to suffice. Applying those considerations, in my view the applicants have a reasonably arguable case that they had waived the due diligence compliance prior to the date when the respondent purported to cancel the agreements. That being so, the cancellation is likely to have been of no effect and the further result is that the applicants have a reasonably arguable case to support the interest that they claim. [42] Applying the principles set out above which govern the determination of applications for orders that caveats not lapse, I conclude that the applicants have made out a sufficient case to support each of the caveats.OrdersA. There is an order that Caveat 6102467.1 and Caveat 6356348.1 shall not lapse. B. This order is conditional upon the applicants Robert James Bangerter issuing substantive proceedings in this Court within 21 days of this judgment seeking orders requiring the respondent to specifically perform the agreements on which the caveats are based. C. The order is further conditional upon the applicant Robert James Bangerter pursuing the substantive proceeding with due diligence. To this end theRegistrar is to allocate an initial telephone conference in that proceeding before me by the end of October 2005. D. Leave is reserved to the respondent to require the Registrar to arrange a telephone conference before me on 24 hours notice in the event that the applicant fails to comply with either of the above conditions, or in the event that he requires this order to be heard for any other reason.Costs[43] In accordance with the usual practice, costs are to follow the event. The applicant Robert James Bangerter is therefore entitled to costs on a category 2B basis with disbursements as fixed by the Registrar. The costs and disbursements are not, however, to be payable until such time as the substantive issues between the parties have been finally resolved. J P Doogue Associate Judge Signed at: _________am/pm on: ___________________________________Solicitors: Walters Law, P O Box 1972, Auckland – facsimile 921 0242 Kendall Sturm & Foote, P O Box 659, Auckland – facsimile 377 1713