ROCHIS LTD V CHAMBERS HAM CIV 2005-419-1028

ROCHIS LTD V CHAMBERS HAM CIV 2005-419-1028 17 May 2006IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY CIV 2005-419-1028BETWEEN ROCHIS LIMITED Plaintiff AND ZACHERY ANDREW CHAMBERS, JULIAN DAVID CHAMBERS, JOCELYN ZELPHA CHAMBERS AND KIMBERLEY FAITH CHAMBERS Defendants Hearing: 27 February 2006 Appearances: D K Wilson for Plaintiff J A MacGillivray for Defendants Judgment: 17 May 2006JUDGMENT OF KEANE JSolicitors: McKay Hill Gale, Taupo Tompkins Wake, Hamilton[1] On 9 July 2003 Adele Holdings Limited, which held 22 lots in a subdivision close to the edge of Lake Taupo, and the Chambers family, which held four lots, each lot subject to a separate certificate of title, joined in a single agreement for sale and purchase to sell all the land in the subdivision, 2.4661 hectares, to Rochis Limited as trustee for the Rochis Trust, or a nominee, for NZ$6,750,000. [2] The agreement first signed on 9 July 2003 was replaced by a nearly identical version, also dated 9 July 2003, when Rochis sought greater access to the property in anticipation of settlement. It is the latter which is governing. [3] A deposit of NZ$400,000, payable on or before 29 August 2003, was duly paid. The nominal balance payable, NZ$6,350,000, was to be paid on settlement on 9 July 2004, 12 months later. A defining feature of the agreement was that the price was set in a fixed relation to the US dollar and was capable of increasing. In the first agreement NZ$1 was to equal US$0.60; in the second US$0.63. The result was that under the first agreement Rochis was to receive at least US$4,050,000 and under the second US$4,252,500. [4] Settlement did not take place on 9 July 2004. It happened on 23 July 2004 and, when it did, Rochis paid Adele and the Chambers family NZ$6,634,138 under protest. Rochis did not dispute paying on late settlement 18% interest for 14 days, NZ$43,841. It did dispute paying NZ$236,701 to compensate for the fall in the NZ dollar, relative to the US dollar, between the agreed and the actual dates of settlement. [5] On 9 July 2004, the NZ dollar stood at US$0.6595. On 23 July it stood at US$0.6358. Though on both dates it stood above US$0.63 and thus above the minimum price that Adele and the Chambers family were assured, they contended on 23 July for the NZ dollar sum that would give them the amount in US dollars that they could have obtained on 9 July 2004. Rochis contended that all they were entitled to was the balance in NZ dollars nominally outstanding but, to settle, paid the further sum demanded, reserving the right to recover it by action.[6] In this action Rochis seeks to recover that entire payment from the Chambers family alone. By special resolution, dated 21 June 2004, the two offshore shareholders of Adele resolved that the Registrar of Companies be asked to remove Adele from the Register on the basis that it had ceased business, had discharged its liabilities and had distributed its surplus assets. That happened on 2 August 2004 and shortly afterwards Adele was deregistered. [7] The claim Rochis makes, then, entails three issues. Can the payment to compensate for the fall in the worth of the NZ dollar, relative to the US dollar, between the agreed and actual dates of settlement, be seen as a pre-payment of damages to which Adele and the Chambers family would have been entitled had Rochis resisted the demand? Is any such right extinguished or reduced by the interest sum paid for late settlement? Can the Chambers family be wholly liable?Context[8] Rochis did not attempt, as it was entitled to do, to settle before 9 July 2004. It intended, as did Adele and the Chambers family, to settle on 9 July. But on 2 July Adele's and the Chambers family's solicitors invoked cl 16 of the agreement, which set the minimum total price and thus the amount payable on settlement; and they confirmed that on settlement both Adele and the Chambers family intended to purchase US dollars immediately. [9] Clause 16, which then became the point of debate, stipulated this:The purchase price of the property is determined by the vendors and agreed with the purchaser on the basis that NZ$1.00 = US$0.63c with the intent that on settlement date or such earlier date as the purchaser may elect, after giving five clear working days notice to the vendors of its intention to do so, the vendors will receive no less than US$4,252,500 or the equivalent in NZD from the purchaser of the property. The purchaser will pay the vendors no less than US$4,252,500 or the equivalent in NZD for the above property on or before settlement date, on the basis set out above.[10] In the 2 July letter, the solicitors said also, they understood that on 29 August 2003, when the NZ$400,000 deposit was paid, the NZ dollar had stood below US$0.63. It was then US$0.5682 and that equated to a payment of US$227,280.[11] In a letter, dated 7 July 2004, Rochis' solicitors assured the solicitors for Adele and the Chambers family that they would receive on settlement no less than US$4,252,500, or the equivalent in NZ dollars less the deposit. In reply on 8 July 2004, the solicitors for Adele and the Chambers family required the payment in NZ dollars:The agreement provides clearly that the settlement monies are to be paid in NZ$. If on the settlement date the NZ$ buys less than 63 cents, then the amount to be paid in NZ$ will increase – i.e. if on the day the $ buys US62 cents then the balance required on settlement date would be NZ$6,492,290.00 as opposed to $6,350,000.00.[12] With this letter was a settlement statement, stating the balance to settle to be NZ$6,350,000, but subject to a note stating that this assumed that the NZ dollar would stand sufficiently above US$0.63 to compensate for the extent to which, when the deposit was paid, it had stood below:The balance set out above is calculated on the basis that the buy rate for US$ is no less than 0.6338929 on the settlement date – this relates to the exchange rate on 29.08.03 (the date upon which the NZ$400,000.000 deposit was paid) and paragraph 16 of the agreement. If it is less than 0.66338929 then the additional balance is to be determined in accordance with paragraph 16 of the agreement.[13] In a second letter on 8 July Adele's and the Chambers family's solicitors said again:The background, purpose and intent of Paragraph 16 was to define a formula for setting the purchase price. If the $NZ1.00 was below $US0.63, then the amount payable on the settlement would increase –i.e. in $NZ. If the $NZ1.00 was greater than $US0.63, then the amount to be received is the purchase price, namely $6,750,000.00 payable in $NZ.[14] Rochis' solicitors, in reply, adhered to the position that payment could be made in either currency. In a letter on 9 July the solicitors for Adele and the Chambers family adhered to theirs that payment had to be in NZ dollars. There was a stalemate. [15] On 12 July Adele's and Chambers Family's solicitors confirmed that on 9 July they had forwarded a proposal for interim settlement, that there had been no counter-proposal, and that Adele and the Chambers family had been ready to settlesince the preceding Friday. On 14 July they gave Rochis notice under cl 9.1(1) that, unless it settled on or before 2 August 2004, Adele and the Chambers family would invoke the vendor's remedies in that clause. [16] On 21 July, Rochis' solicitors said again that Rochis was entitled to settle in either US or NZ dollars, but said also that it would settle in NZ dollars without prejudice to its right of claim for breach. It required NZ$800,000 be held in escrow. That was rejected. The solicitors for Adele and the Chambers family supplied to Rochis' solicitors an amended settlement statement, taking the stance that Rochis had been default since 9 July and was liable to pay interest for late settlement, and damages and costs. Taking as the exchange rate at 9 July, the agreed date of settlement, US$0.6595, the settlement statement ended with this note:If the $NZ/US exchange rate as at the date of settlement is less than 0.6595, then the difference between the 0.6595 and the exchange rate is to be calculated and added to the amount required to settle – para 3.9(i) (sic) of the agreement.[17] In a letter, dated 22 July 2004, Adele's and the Chambers family's solicitors said that they understood that, relative to the US dollar, the NZ dollar had dropped considerably overnight. They anticipated that, to compensate, a further NZ$220,000 - $260,000 would be payable. In another that day they confirmed the shortfall to be US$160,020, making, at the day's exchange rate, US$0.6343, the compensating payment called for NZ$252,278. Rochis' solicitors said they would settle on that basis under duress, reserving Rochis' right of challenge. [18] The ultimate settlement statement, dated 23 July 2004, claimed NZ$236,701, to compensate for the NZ dollar reducing from US$0.6595 on the agreed date of settlement, 9 July 2004, to US$0.6358. It was this sum that Rochis paid under protest. Just before the hearing the Chambers family's solicitors advised Rochis' solicitors that the 9 July 2004 exchange rate used had been incorrect. According to the ASB Bank, the inter-bank rate that day, on average, would have been US$0.6565 and Rochis had overpaid NZ$29,962.25. The Chambers family refunded Rochis NZ$6,112.30. Rochis contends that the Chambers family is wholly liable for the refund called for, as for the entire additional sum paid on settlement.Currency exchange loss[19] The first issue is whether Rochis is precluded from recovering what it paid, because it pre-paid general damages to which Adele and the Chambers family would have been entitled had Rochis, instead of complying with the settlement notice and settling on 21 July, declined to settle on terms that gave Adele and the Chambers family everything that they were entitled to within the time required by cl 9.2 or at all. [20] In such an event cl 9.4(1)(b) entitled Adele and the Chambers family to cancel the agreement and to sue Rochis for general damages for failing to comply with the settlement notice; and cl 9.4.3 elaborates the latter aspect of that right:The damages claimable by the vendor under subclause 9.4(1)(b)(ii) shall include all damages claimable at common law or in equity and shall also include (but shall not be limited to) any loss incurred by the vendor on any bona fide resale contracted within one year from the date by which the purchaser should have settled in compliance with the settlement notice. The amount of that loss may include: (a) interest on the unpaid portion of the purchase price at the interest rate for late settlement from the settlement date to the settlement of such resale; and (b) all costs and expenses reasonably incurred in any resale or attempted resale; and (c) all outgoings (other than interest) on or maintenance expenses in respect of the property from the settlement date to the settlement of such resale.[21] The damages that Adele and the Chambers family could have claimed under cl 9.4(1)(b) extended notionally to any losses they would have suffered flowing from Rochis' failure to comply with the settlement notice. The heads of loss on resale identified in cl 9.4.3 are merely instances arising on one contingency. If an exchange rate loss flowed from Rochis' default then that notionally could have founded a claim in damages, unless it was foreign to the contract and too remote, or precluded by any other term of the agreement.Opposed positions[22] Rochis contends that Adele and the Chambers family had no basis under the contract for claiming such damages. The contract was for the sale and purchase of land in New Zealand. The vendors and the purchaser were New Zealand entities. The purchase price was payable in New Zealand currency. [23] Clause 16 of the contract, which required that the NZ dollar stand in a fixed relation to the US dollar to protect the vendor, Rochis contends, did not alter that reality. The NZ dollar stood above that floor on both the agreed and actual dates of settlement. All that Adele and the Chambers family were entitled to was the balance nominally outstanding in NZ dollars. [24] As against that, the Chambers family contends, the definitive feature of the agreement was that the price payable was in a fixed relation to the US dollar. That, they contend, had two effects, one explicit and one implicit but no less definite. If on the date the deposit was payable, or settlement date, or both, the NZ dollar was worth less than US$0.63, the price in NZ dollars increased to compensate. If, however, the NZ dollar then stood higher than US$0.63, the price in NZ dollars remained the same. Adele and the Chambers family could, if they chose, immediately exchange the sum paid for US dollars and take the benefit of the margin above US$0.63. [25] Rochis, the Chambers family say, had actual knowledge that they intended, immediately on settlement, to exchange the purchase price for US dollars. That indeed is why cl 16 was included in the contract. They were entitled, they say, to be compensated in NZ dollars for the gain in US dollars they were denied by Rochis' default.Principles and instances[26] Exchange rate losses can found a claim of damages in contract where, as Cooke J said in Isaac Naylor & Sons Ltd v New Zealand Co-operative Wool Marketing Association Ltd [1981] 1 NZLR 361, 366 (CA), there is an 'internationalelement' to the contract; and 'unless the claim fails on ordinary remoteness principles.' For as Richardson J said at 376:Except where the contract itself determines the matter and subject to the ordinary rules as to remoteness, damages are recoverable in the currency which most truly expresses the loss. That accords with the principle of restitution and allows recovery in the ordinary way for the kind of loss which the parties must be taken reasonably to have had in contemplation.[27] That case concerned exchange rate losses which New Zealand Co-operative had suffered when Isaac Naylor, an English company, paid late in England in pounds sterling because it took delivery late. But the principle it expresses is general. As Henry J said in Volk v Hirstlens (NZ) Ltd [1987] 1 NZLR 385, 400, where a US resident claimed exchange rate losses for royalties short paid in New Zealand in NZ dollars, why the payment is late is incidental. The question is whether, as a result of late payment, an exchange rate loss was predictably incurred. [28] In neither case was the fact that the contract sum was payable in the currency of the country in which it was paid fatal. In Volk v Hirstlens Dr Volk was a United States national and the contract adverted to the possibility that royalties might be exported from New Zealand, requiring Reserve Bank approval. In Isaac Naylor, even though the contract said nothing, Isaac Naylor knew that New Zealand Co- operative invariably remitted the payments made to New Zealand. In neither case were the exchange rate losses suffered too remote to found an award of damages.Conclusions[29] In this case, in contrast to those, Adele was a New Zealand entity, albeit with offshore shareholders, and the Chambers family New Zealand nationals though some were overseas. But a defining feature of the contract, even the defining feature, was the minimum price payable expressed in US dollars. [30] If, on settlement, the NZ dollar had stood below US$0.63, Rochis had to pay more than the face value owing in NZ dollars to compensate. If, by contrast, the NZ dollar, relative to the US dollar, had stood above US$0.63 Rochis did not obtain the correlative benefit. It had still to pay the face sum owing in NZ dollars. The marginby which the NZ dollar stood above US$0.63 went to Adele and the Chambers family if they elected to purchase US dollars. [31] When settlement occurred not on 9 July 2004 as agreed, but on 23 July, that logic did not change. Had the NZ dollar increased in value, relative to the US dollar, Adele and the Chambers family would have been entitled to the windfall. Rochis' liability would have remained the face sum owing in NZ dollars. When, as happened, the NZ dollar fell, relative to the US dollar, Adele and the Chambers family were denied by Rochis' default the opportunity to buy on 23 July as many US dollars as they could have bought on 9 July. [32] Their right to be compensated by Rochis for that loss was close to a right in debt. The contract made the value of the NZ dollar relative to the US dollar pertinent to the payment to be made on the agreed date of settlement, and contemplated that the payment could be more than the nominal sum outstanding in NZ dollars. It could perhaps be said that, even if the NZ dollar then stood higher than US$0.63, it was implicit that Adele and the Chambers family were entitled to the benefit. But the contract does not go that far and the implication is not essential. [33] Their right lay rather, I consider, as the Chambers family have contended it to be, in general damages under cl 9.4(1)(b), because their loss, far from being remote, was entirely foreseeable. The sole function of cl 16 was to secure to Adele and the Rochis family the ability to exchange NZ dollars for US dollars in a fixed ratio, but allowed them the benefit of any more favourable rate. Seven days before settlement their solicitors gave Rochis' solicitors notice that they intended to act on their right. The loss to which they were vulnerable, if Rochis delayed, could not have been more completely foreshadowed. [34] Adele is entitled, I consider, to retain the sum claimed on settlement, corrected by the part payment back, unless that right conferred by cl 9.4(1)(b) is negated by any other term of the agreement.Damages excluded[35] The particular question is whether, even if Adele and the Chambers family would have been entitled to such damages under cl 9.4.(1)(b), they waived that right or it became denied them, when they claimed and received interest for late payment under 3.9(1). [36] The right to general damages for failure to settle on due date can co-exist, as it is said in McMorland, Sale of Land, 2000 edition, para 11.20, with a right also to liquidated damages in the form of interest, but not universally. Everything depends on how the rights are expressed:The right exists both under an open contract and where there is a clause requiring the purchaser to pay interest on the unpaid purchase price, provided there is no express prohibition on a claim. Any amount received by way of interest or rents and profits must be credited against the claim.[37] Clause 3.9(1), in conferring the right to interest for late payment, where the vendor is not in default does not expressly qualify the right to general damages given by cl 9.4(1)(b). It does not claim to confer an exclusive remedy. Clause 3.9(1) preserves other rights and remedies:The purchaser shall pay to the vendor interest at the interest rate for late settlement of the portion of the purchase price so unpaid for the period from the due date for payment until payment ('the default period'); but nevertheless this stipulation is without prejudice to any of the vendor's rights or remedies including any right to claim for additional expenses and damages.[38] I agree then with Dr McMorland, in para 11.19(c), where in a passage on which the Chambers family and Adele rely he says of cl 3.9(1):This stipulation is without prejudice to the vendor's rights or remedies including any right to claim for additional expenses or damages. This prevents the purchaser from arguing that the clause, while giving the vendor a right to interest, removes the right to recover damages. It also negatives any suggestion that the vendor cannot sue for specific performance, interest and specific performance being compatible.[39] To be reconciled with that, however, is a second gloss in paragraph 11.19(c) on which Rochis relies. It is this: the vendor cannot recover specific items of loss or expense incurred as a result of the delay as well as the interest as provided by the clause as liquidated damages. It is a matter of election. The vendor can claim only the liquidated damages as provided for by way of interest in the agreement, or may sue for general damages, but not both. The vendor will be assumed to be relying upon the contractual remedy unless there is clear evidence to the contrary.[40] I do not see these two glosses as opposed. I understand the second to say only that the vendor cannot claim twice over, by way of general damages under cl 9.4(1)(b), any loss compensated for by payment of interest for late settlement under cl 3.9(1); a possibility that the two, read together, preclude anyway. [41] Nor does Hoskins v Rule [1952] NZLR 827, FB Adams J, which underpins the second gloss, I consider, call for any different conclusion. I do not understand that case to state that rights to liquidated and general damages cannot coexist. Were that to be so, it would be incompatible with the tendency of authority, for instance,Aktieselskabat Reidar v Arcos [1926] All ER Rep 140; [1927] 1 KB 352, CA. It turns rather on one singular contractual term; and clss 9.4(1)(b) and 3.9(1) require, I consider, the opposite conclusion. [42] In Hoskins v Rule a vendor, faced with a purchaser in default, instead of claiming general damages on the basis that the purchase had repudiated, or rescinding and re-entering, elected to exercise the right of resale given by the agreement. That right, like the other rights conferred, was expressed to be 'without prejudice to other remedies' but the right to damages on resale was closely prescribed. It was expressed in this way: all expenses attending a resale or attempted resale shall be made good by the purchaser and shall be recoverable by the vendor as liquidated damages the purchaser receiving credit for any payments made in reduction of the purchase money. Any increase in price on resale after deduction of expenses shall belong to the vendor.[43] FB Adams J held that the vendor, having elected to resell, could only recover those damages that went expressly with the right. The vendor had, he held, abandoned any right to general damages. That, I consider, is as far as his judgment can be taken.[44] Clause 9.4(1)(b), as I said earlier, by contrast, confers on a vendor, at least notionally, a plenary right to damages for losses flowing from a purchaser's delay or default. It confirms also that this right extends to costs and expenses incurred on resale but they are merely instances of the right and in no sense can curtail it. Also, and conversely, cl 3.9(1) preserves to the vendor the right to general as well as liquidated damages in the form of interest. It does not, as does cl 3.10(2)(a) where a purchaser responds to a vendor's default, impose any explicit duty to elect. Rather, it precludes a vendor from recovering twice over by general damages under cl 9.4(1)(b) losses it compensates for by interest. Any general damages must be 'additional'. [45] Losses which cl 3.9(1) could be expected to compensate are those usual on delayed settlement like a loss of return on the purchase price, or extra interest costs for bridging finance, or extra legal fees or expenses. So, even though cl 9.4(1)(b) expressly preserves the right to claim such losses by way of general damages, that could only be to the extent that when interest is claimed under cl 3.9(1) the cl 9.4(1)(b) right falls away. But that complication does not arise in this case. Exchange rate losses stand in a different category. [46] Such losses cannot be compensated by way of liquidated damages for late settlement, fixed as interest when the agreement is entered into. What loss there might be, if any, cannot then be sensibly predicted, let alone where, as here, the default required to trigger the right lies in excess of 12 months later. At the date of any such default there might be no loss. The exchange rate might prove favourable. But if it were to prove unfavourable, to what degree could only be quantified after the event. [47] I see no reason, therefore, to deny the Chambers family under cl 3.9(1) the damages to which I consider they and Adele became entitled to claim on the actual date of actual settlement.Joint and several liability[48] The final issue of whether, in the absence of Adele, the Chambers family can be made wholly liable for Rochis' claim is not one that I need to resolve. In case I am wrong in my two principal conclusions, however, I should add that Rochis still seems to me precluded from retrieving from the Chambers family more than they obtained on that account for the four lots that they contributed to the sale. [49] The Chambers family chose, it is true, to enter with Adele as co-vendor into a single agreement for sale and purchase when it could have entered with Rochis into a separate agreement for the four lots in the subdivision within its title. It is true also that the agreement they entered into as vendors, on the face of it, attracts the liability that Rochis contends for. Clause 1.3(1), which was not struck out, Rochis says speaks for itself:If there is more than one purchaser or vendor, the liability of the purchasers or the vendors, as the case may be, is joint and several.[50] Rochis seeks also to invoke s 65(1) of the Property Law Act 1952, but that confirms that a surviving joint covenantee, or a successor to the right, is entitled to the benefit of a covenant. It does not confirm that a surviving covenantor assumes the entire liability, whatever the genesis of the covenant may have been. Furthermore, s 65(1) requires that the covenant have been created expressly or impliedly by that Act or another, or by deed, and the covenant in this case falls into none of these categories. [51] Rather, cl 1.3(1), I think, as the Chambers family contends, applies only where two or more vendors share concurrent interests in the land transferred as is apparent immediately one considers how that liability arises in the first place. Chitty on Contract (29th ed) says at 17-003:Joint and several liability arises when two or more persons in the same instrument jointly promise to do the same thing and also severally make separate promises to do the same thing. Joint and several liability gives rise to one joint obligation and as to as many several obligations as there are joint and several promissors.[52] Such shared liability is a natural incident where the vendors have concurrent interests in the whole of the land transferred. Where they are joint tenants they share the four unities of title, time, interest and possession. Where they hold a tenancy a common they share still unity of possession. Joint and several liability makes no sense, however, where, as in this case, there are two vendors but each contributes different land and assumes no duty to take a concurrent interest in the whole before transfer. [53] What then is the effect of cl 1.3(1)? The meaning and effect of a contract in writing must, I accept, normally be gathered from every aspect of its terms and each term given some sensible effect. No term is ever simply to be ignored. Where, however, a term, especially a term in standard form, is incompatible with the essence of the contract, it may be relegated to surplusage or rejected as repugnant: Chitty, 12-077, 12-078. [54] I am inclined to think that cl 1.3(1) is surplusage: that Adele and the Chambers family cannot be vendors to whom cl 1.3(1) would attribute joint and several liability. But if that is not so I consider that it ought to held repugnant. Otherwise clause 1.3(1), on a fiction, would impose on the Chambers family a liability quite disproportionate to its contribution and its gain. It would turn the contract into something that it never was.Result[55] There will be judgment for the Chambers family, who will be entitled to costs, as I should have thought, at scale 2B and disbursements as fixed by the Registrar. Should the Chambers family or Rochis contend otherwise they are to file and serve any memorandum within ten days of the issue of this decision and, if any reply is called for, that is to be within the succeeding ten days. _____________ P.J. Keane J