TAURANGA ENERGY SERVICES LIMITED V P J NICHOLS AND J A NICHOLS AND YRW TRUSTEES LIMITED HC TAU CIV 2006-470-328

TAURANGA ENERGY SERVICES LIMITED V P J NICHOLS AND J A NICHOLS AND YRW TRUSTEES LIMITED HC TAU CIV 2006-470-328 19 June 2006IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY CIV 2006-470-328UNDER the Land Transfer Act 1952 IN THE MATTER OF a caveat against dealings on 87 Courtney Road, Tauranga (Identifier SA4A/1320 and Deposited Plan Lot 3 2174) BETWEEN TAURANGA ENERGY SERVICES LIMITED Applicant AND PAUL JOSEPH NICHOLS AND JUDITH ANN NICHOLS AND YRW TRUSTEES LIMITED Respondents Hearing: 14 June 2006 Appearances: ND Smith for Applicant P Crombie for Respondents Judgment: 19 June 2006 at 4.45pmJUDGMENT OF ASSOCIATE JUDGE D.H. ABBOTTThis judgment was delivered by me on [ 19 June 2006 ] at [ 4:45 am/pm ], pursuant to Rule 540(4) of the High Court Rules. Registrar / Deputy Registrar (A.M. Mattock) Date: 19 June 2006Solicitors: Sharp Tudehope, Private Bag 12020, Tauranga Cooney Lees Morgan, PO Box 143, Tauranga[1] The applicant and respondents are tenant and landlord respectively of commercial premises in Tauranga, under a lease which commenced in February 2003. [2] The applicant says that the lease contains an option for it to purchase the property. It says that it exercised that option in July 2003 but the respondents refused to sell. The applicant claims that the option gives it an equitable interest in the property. It lodged a caveat in November 2003 to protect that equitable interest, but took no steps to pursue its claim until September 2005. Following an exchange of correspondence, in which it claimed the right to exercise the option, and the respondents denied that it had any continuing entitlement; the applicant invoked an arbitration clause in the lease. It seeks a caveat to protect its interest until the dispute is resolved. [3] The respondents oppose the application. They say that the clause in the lease on which the applicant relies is not an option to purchase and so does not create the necessary equitable interest in the property to support the caveat. In the alternative they say that there is no reason to sustain the caveat as specific performance will not now be granted (because the clause that the applicant relies on is too uncertain, and because of the applicant's delay). [4] The day after the plaintiff invoked the arbitration clause the respondents took steps to remove the caveat. The applicant applied for an order to sustain it pending resolution of the dispute. Through an administrative oversight the application was not served on the District Land Registrar within the statutory time period and the caveat lapsed. The applicant has applied to lodge a second caveat on the same basis as the first. The respondents have agreed not to deal with the property until a decision is made on this second application.Background[5] The parties entered into a lease of 87 Courtney Road, Tauranga for a period of three years commencing on 24 February 2003 (with a right of renewal allowing the lease to extend to 2009). It was drawn up on the standard Auckland District LawSociety form, but with some additional clauses. Two of them, clauses 46 and 47 gave the applicant further rights in relation to the property:46. The Tenant has the option to purchase the property on or before 22 August 2003 at an agreed consideration of $190,000.00 plus GST. In order to exercise this option the Tenant must: (a) Give notice in writing to the Landlord at least two weeks prior to settlement. (b) Submit an Agreement for Sale and Purchase in the Auckland District Law Society standard form, 7 th edition (2) July 1999. (c) Pay a deposit to the Landlord of $19,000.00 as at the date of signing the Agreement. (d) Obtain the agreement of the Landlord to the sale. (e) Complete settlement on or before 22 August 2003. 47. At any time after 22 August 2003 and prior to the expiration of the term of this lease (24 February 2009) if the Landlord wishes to sell the property they must first offer the property for sale to the Tenant on such terms and conditions as the Landlord intends to commence marketing the property on the open market. If the Tenant does not present the Landlord with an offer for the purchase of the property on these terms and conditions within a period of 10 working days of the Tenant being notified by the Landlord of the Landlord's intention to market the property, then the Landlord shall be entitled to forthwith commence marketing the property on the open market PROVIDED HOWEVER the landlord shall not enter into any sale or any other disposition of the property subsequent to this without "in each of the separate incidents" first offering the same to the Tenant upon identical terms and conditions. Such offer or offers to be in writing and to be accepted by the Tenant within three working days of receipt of offer. If such acceptance is not forthcoming then the Landlord shall be entitled to complete the sale with the third party.[6] The applicant's director, Mr Wood, says that on 28 July 2003 he handed one of the respondent trustees (Mr Nichols) a letter from the applicant's solicitors advising that the applicant wished to exercise the option under clause 46, and enclosing an agreement for sale and purchase. Mr Wood also says that either that day or the following day he sent a cheque to the respondents for the deposit of $19,000. [7] The following day (29 July 2003) the respondents sent the cheque back to the applicant under cover of a letter in which the respondents said:"The Trustees of Courtney Trust do not presently wish to sell their property at 87 Courtney Road, Tauranga."[8] Mr Wood sent a copy of this letter to his solicitors by fax on 4 August 2003 with a covering note which read (in part):"Please find in response to our agreement. The [sic] have kept the agreements. We need to act reasonably quick as our time is running out."[9] Neither party did anything further until the applicant lodged a caveat against the title on 10 November 2003. The estate or interest claimed in the caveat was "as optionee/purchaser by virtue of an enforceable option to purchase " [10] The respondents took no steps at that time to challenge the caveat. [11] On 22 September 2005 the applicant's solicitors wrote to the respondents, referring to the caveat and expressing the view that the applicant satisfied all requirements under clause 46 for purchase. A further agreement for sale and purchase was enclosed with a cheque for $19,000 for the deposit. The solicitors advised that they had instructions to issue proceedings, with a claim for specific performance, if the agreement was not signed and returned. [12] The respondents replied promptly through their solicitors. They challenged the statement that the applicant had satisfied the requirements of clause 46, in particular the requirement under 46(d) that the applicant obtain the respondents' agreement to the sale. They also said that clause 46 did not grant a unilateral right of purchase but required the applicant to submit an agreement for sale and purchase, obtain the landlord's agreement and complete settlement by 22 August 2003, none of which had happened. They returned the agreement for sale and purchase and the deposit cheque. They also took issue with the lodging of the caveat. They said that that was in breach of clause 43.1 of the lease and asked for its immediate removal. [13] Clause 43.1 of the lease is a standard term which reads:Land Transfer Title or Mortgagee's consent43.1 THE Landlord shall not be required to do any act or thing to enable this lease to be registered or be required to obtain the consent of any mortgagee of the property and the Tenant will not register a caveat in respect of the Tenant's interest hereunder.[14] Further correspondence took place between solicitors later that month and early in 2006. On 4 April 2006 the applicant exercised a right under the lease to refer the dispute to arbitration. [15] The following day the respondents took steps to remove the caveat. The applicants filed and served an application to sustain it but overlooked advising the District Land Registrar within the 14 day statutory period for doing so. As a result the caveat lapsed. The applicant filed the present application immediately upon receiving notice of the lapse.Issues[16] The ultimate question for the Court to decide is whether the applicant has an arguable case for lodging a caveat. This raises the following issues: a) Does the applicant have an enforceable option to purchase under clause 46; and b) Does clause 43.1 preclude lodging of the caveat; and c) Does the applicant still have an arguable case for specific performance (so as to warrant sustaining the caveat).Applicable principles[17] The application is brought under s 148 of the Land Transfer Act 1952 which prevents a second caveat being lodged without an order of the High Court where a caveat protecting the same interest has lapsed. The Court has an unfettered discretion, but in exercising it will have regard to the strength of the applicant's case to an interest in the land, to the reason that the first caveat lapsed, and whetherunavoidable prejudice has been suffered by anyone acting in the belief that the claim to the interest was not being pursued: Muellner v Montagnat (1986) 2 NZCPR 520 and Lowther v Kim [2003] 1 NZLR 327. [18] The applicant is required to show a reasonably arguable case for its claim to an interest in the land: Sims v Lowe [1988] 1 NZLR 656 (CA). It is also important to keep in mind that the making of the order is an indulgence and the case must be given careful scrutiny: Cotton v Keogh [1996] 3 NZLR 1 (CA). [19] In the present case the respondents accept that the applicant has established a reasonable explanation for the lapse of the first caveat, and have not argued any unavoidable prejudice. The dispute between the parties on this application is confined to whether or not the applicant has made out a reasonably arguable case for the equitable interest claimed. Does the applicant have an enforceable option to purchase [20] Counsel agree that a binding option to purchase gives rise to an equitable interest capable of supporting a caveat. They differ, however, as to the interpretation of clause 46. [21] The applicant says that the clause, read as a whole, was clearly intended to give the applicant a direct right to purchase the property at the agreed price, provided it exercised its right by 22 August 2003. Although there is some dispute on the affidavit evidence as to whether the steps taken by the applicant were a sufficient exercise of the option, the applicant argues that it has nevertheless established an arguable case that it gave notice and delivered an agreement for sale and purchase. There is no dispute that a cheque for the deposit was provided. There is dispute, however, over the remaining two steps in the exercise of the option, namely obtaining the agreement of the landlord (the respondents) and completing settlement on or before 22 August 2003. [22] Counsel for the applicant submitted that these two requirements were in conflict and irreconcilable with the clear intention of the parties (expressed in clause 46) to give the applicant an enforceable right against the respondent. Counsel reliedon Chitty on Contracts 26th Edition at para 833 in submitting that the requirement in clause 46(d) that the applicant "obtained the agreement of the landlord to the sale" was so inconsistent with, and repugnant to, the true intention of the clause that it should be rejected. He cited Hay v Laurent Construction Limited & Ors (1991) 1 NZ ConvC 190,387 as an illustration of a word being ignored as it would otherwise have an absurd or repugnant result, contrary to the parties' intention. [23] Counsel also relied on Stinson v Gainford (1993) 2 NZ ConvC 191,586 as illustrative of the distinction between an option to purchase and a right of first refusal or pre-emption, with the former usually being expressed in a positive manner (a right to take a step) and the latter in a negative manner (a party being precluded from action until the happening of an event to trigger exercise of the right). Counsel argued that clause 46 was clearly intended to create a right to act on the part of the applicant. He compared it to clause 47 of the lease which followed the usual form of a right of first refusal or pre-emption. [24] Counsel also submitted that the contra proferentem rule applied. The clause had been drafted by the respondents' solicitors and should be construed against them. [25] Finally, the applicant argued that whether or not it has a valid option to purchase the property is a matter for determination by the Arbitrator, and it need establish only an arguable case on its interpretation for the purpose of the present application. [26] The respondents argued that on its true construction clause 46 merely gives the applicant a pre-emptive right. They say it would only become an enforceable right (giving rise to an equitable interest) if and when the respondents agreed to sell. They say that this is consistent with clause 43.1 (which they say indicates that the parties did not intend equitable interests to arise in the absence of further agreement). They say that the Court can and should determine the construction of clause 46 on this application.[27] Counsel for the applicant based his argument on what he submitted was an irreconcilable conflict within clause 46, between the opening phraseThe Tenant has the option to purchase the property .and the subsequent wording –In order to exercise this option the Tenant must: (d) Obtain the agreement of the Landlord to the sale.[28] Although counsel referred me to a number of cases where other Courts have considered whether clauses gave an option to purchase (under which an equitable interest arises) or merely gave a right of first refusal or pre-emption (which required a triggering event to give rise to an enforceable right and hence an equitable interest), the issue turns not on precedent but on the wording of the particular clause. That is a matter of construction involving analysis of the language used by the parties in the context of their transaction. It is the overall intention of the clause, rather than specific words used within it, that should govern. [29] Clauses 46 and 47 are contained within a lease that is otherwise unremarkable in its commercial terms. The clauses provide an interesting contrast. Clause 46 operates for the first six months of the lease. Clause 47 applies thereafter (to the end of the lease, including any renewal). Clause 46 sets a price and the terms (the standard terms of the ADLS Agreement for Sale and Purchase) whilst clause 47 allows the landlord to determine both price and other terms. [30] The applicant argues that it is inconsistent with an option to impose a requirement for the respondents' agreement. I agree, but consider that this begs the question whether this is indeed a binding option to purchase. I have to have regard to the very specific requirement that the applicant "obtain the agreement of the [respondents]". [31] In my view that is a condition on the exercise of the option. The option is not binding on the respondents until they give that agreement. I do not consider theimposition of that condition inconsistent with or repugnant to the remainder of the clause, read in the context of the lease as a whole. The condition was not met by 22 August 2003, at which point the applicant's rights under clause 22 fell away. In order to accept the applicant's submission (that subclause (d) was inconsistent or repugnant to the true intention of clause 46) I would have to have come to the view that it completely destroyed the option being given. I do not see that making the option conditional does that.Does clause 43.1 preclude lodging of the caveat[32] I am also of the view that this construction is more consistent with clause 43.1 of the lease (no caveats to be lodged) than the applicant's construction. Once the condition was met, and a binding option created, the applicant would have an equitable interest. The respondents' agreement would amount to a variation of clause 43.1, or an implied waiver of it.Does the applicant still have an arguable case for specific performance[33] Given the view I have reached on the interpretation of clause 46, I do not need to determine this. As counsel for the respondents, in particular, has spent some time arguing the point, I will add that on the evidence before me on this application a claim for specific performance would seem barely arguable. The applicant was clearly surprised by the respondents' advice on 29 July 2003 that they did not now wish to sell. Notwithstanding that, the applicant took no steps either to tender settlement on or before 22 August 2003, or to take the dispute to arbitration (as it has subsequently done). The applicant's director Mr Wood has said in evidence that he suffered a stroke in September, and was unable to face litigation until reviving the matter last year. That does not explain the lack of any response between 29 July 2003 and the time of the stroke, particularly in light of the fact that he was able to give instructions (and sign the document) for lodging of a caveat in November 2003. These matters may be explicable, but for the purpose of the present application, I would have been of the view that the applicant had not met its onus of proof.Decision[34] For the reasons I have given, the application to lodge a second caveat is dismissed. [35] The respondents having succeeded are entitled to costs on a 2B basis with disbursements as fixed by the Registrar. _____________________________Associate Judge D.H. Abbott