THE THREE SISTERS VINEYARD LIMITED v TRUSTEES OF THE STOREY FAMILY TRUST [2014] NZHC 471

THE THREE SISTERS VINEYARD LIMITED v TRUSTEES OF THE STOREY FAMILY TRUST [2014] NZHC 471 [14 March 2014]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV 2014-409-000122[2014] NZHC 471BETWEEN THE THREE SISTERS VINEYARDLIMITEDPlaintiffAND CARL DAVID STOREY, JEANETTEHELEN HOY STOREY AND STEPHENDAVID HOBDAY AS TRUSTEES OFTHE STOREY FAMILY TRUSTDefendantsHearing: 13 March 2014Counsel: E St John for PlaintiffMAJ Elliott for DefendantsJudgment: 14 March 2014JUDGMENT OF WHATA J[1] The Three Sisters Vineyard Limited (Three Sisters) sold a commercial vineyard to the Trustees of the Storey Family Trust (Trustees). A long period of settlement was agreed to 30 June 2014. In the interim the Trustees leased and operated the vineyard. Rental payments were not made and the Trustees raised various issues. A variation to the sale and purchase agreement was reached and a new settlement date agreed of 24 January 2014.[2] The Trustees did not settle on the 24th or subsequently pursuant to a notice to settle. Three Sisters has now sought an injunction allowing it to re-enter the property for the purposes of harvesting and selling the grapes. Three Sisters also seek, by way of summary judgment, a declaration that the sale and purchase agreement and attached lease agreement is cancelled together with damages equal to the difference in the value of the property and the price agreed in the sale and purchase agreement.[3] The Trustees admit that they breached the sale and purchase agreement in that they did not settle. However they seek relief under s 33 of the Property Law Act 2007 referring to various problems including the initial poor state of the property, and the works undertaken by them to put the property, plant and machinery into operation. They also complain that the property was worth less than the purchase price.[4] The relief sought includes reinstatement of the settlement date to 30 June 2014, payment of outstanding rent to date, payment of rent on time and (in short) harvesting by the Trustees subject to the oversight of Three Sisters.[5] This matter comes to me under urgency given the prospect of an impending harvest. Abridgment of the time to file papers was agreed.Background[6] The plaintiff, Three Sisters, is the owner of a 17.6 hectare block of land in Canterbury located at 167 MacKenzies Road, Waipara Valley. The defendants are the Trustees of the Storey Family Trust.[7] By agreement dated 15 January 2013, Three Sisters, agreed to sell the property to the Trustees on the following terms:1(a) That the Trust would pay the total sum of $1.25 million for the Property.(b) That the sale would include the vineyard as a going concern (clauses 18 and 21).(c) That the Trust would pay a deposit of $250,000.(d) That settlement would take place on 30 June 2014, or earlier by mutual agreement.(e) That, pending settlement, the Trust would lease the property from the plaintiff, including g the vineyard and associated plant and equipment, at the rate of $4,000 plus GST per month (clause 20(a)).(f) That the Trust would pay all the operating costs associated with the Property and the vineyard (clause 20(b)).1 As recorded in the statement of claim and admitted by the Trustees.[8] The Trustees also contend, however, that the agreement included the cottage on the property and they would receive the rent from it.[9] The Trustees paid the plaintiff a deposit of $250,000 and a deed of lease was concluded between the plaintiff and the Trust requiring a rent of $4,000 plus GST per month.[10] There were problems with the payment of rent and various discussions between the parties ensued about the cause and resolution of these problems. In September 2013 the Trust stopped paying rent altogether and as at 1 November 2013 rent of approximately $12,000 was overdue.[11] Matters escalated to the point where proceedings for possession of the property appeared likely and were threatened. However, the parties reached an agreement on how to resolve matters. This involved varying the sale and purchase agreement so that:(a) The settlement date was brought forward from 30 June 2014 to 24 January 2014.(b) On settlement the Trust would retain a sum equal to the alleged set off for items of concern identified by the Trust, but without prejudice to the plaintiff to claim that sum from the Trust. It was also agreed that the Trust would pay the full amount of outstanding rent in the sum of $16,118.23.[12] In early January the plaintiff's solicitors made contact with the Trust'ssolicitors for the purposes of securing settlement on the due date. Then, by letter dated 22 January 2014 the plaintiff wrote to the Trust's solicitor with a settlementstatement showing the sum of $1,000,517.02 as due and subject to a reduction of $13,415 for alleged set off items.[13] The Trustees did not settle on 24 January and Three Sisters' solicitor issued a settlement notice by email requiring settlement on or before 13 February 2014.There was no response until 11 February 2014 where the Trustees' solicitor noted that settlement notice was invalid because it did not contain sufficient information. This was accepted by the plaintiff and a revised settlement notice was issued to theTrust's solicitor under cover of letter dated 13 February 2014. This meant thatsettlement had to occur on 4 March. The Trust did not settle as required on 4 Marchand so the agreement was purportedly cancelled by the plaintiff's solicitor.Disputed matters[14] Three Sisters alleges, and the Trustees deny, that:(a) A harvest is expected in the week of 24 March;(b) Steps have been taken to sell the grapes;(c) The agreement was cancelled on 4 March 2014;(d) Three Sisters has suffered loss.[15] The Trustees also allege, and Three Sisters denies, that they are entitled to relief, given the nature of the agreement, the initial poor state of the property, the work done by them, and the inflated purchase price.The relief sought[16] The plaintiff seek the following relief by way of summary judgment:(a) A declaration that the sale and purchase agreement and lease are cancelled;(b) A order that the Trustees vacate and hand possession of the premises to Three Sisters;(c) An award of damages by way of summary judgment; or(d) A mandatory injunction enabling the plaintiff to re-enter the property and complete the harvest.[17] The Trustees counterclaim under s 33 for relief from cancellation. They no longer oppose any interim injunction.[18] I will deal first with the applications for summary judgment and relief. If necessary I will turn to the application for mandatory injunction.Summary judgment and relief[19] The jurisdiction to grant summary judgment is well settled. I may grant summary judgment if there is no arguable defence.[20] In the present case the failure to settle in breach of the agreement is admitted and no arguable defence is proffered in response.[21] The Trustees, however, seek relief under s 33 of the PLA.[22] Section 33 states:33 Relief against cancellation of agreement for sale of land(1) A purchaser may apply to a court for relief against cancellation of an agreement for the sale and purchase of land only if-(a) the purchaser has, under the agreement, entered into possession of the land; and(b) the vendor has served on the purchaser a notice that complies with section 29; and(c) the vendor has, after serving that notice, applied to a court for an order for possession of the land, or peaceably re- entered the land.(2) The application may be made either in the proceeding on the vendor's application for an order for possession (the possession order proceeding), or in a separate proceeding brought for the purpose by the purchaser-(a) before an order for possession has been made in the possession order proceeding; or(b) if the vendor has peaceably re-entered the land, within 3 months after the date on which the vendor re-entered the land.(3) The court may, on the application, grant any relief against cancellation, on any conditions, it thinks fit.(4) In particular, the court may grant relief under this section even though either or both of the following apply:(a) the cancellation is for breach of an essential term of the agreement:(b) the breach is not capable of being remedied.(Emphasis in original)[23] The case law on this section is sparse.2 Plainly, the Court's discretion to grantrelief is wide, but not unfettered. There must be a clearly unjust factor demanding relief. Whether such a factor exists will be informed by a range of matters commonly employed in forfeiture cases, including:3(a) The nature, form and gravity of the breach (though breach of an essential term is not by itself a disqualifying reason);(b) The conduct of the purchaser/tenant;(c) The conduct of the vendor/landlord;(d) The ability of the purchaser/tenant to remedy the breach or breaches;(e) Proportionality or fairness as between the parties – the outcome should not be disproportionate to the breach or the loss suffered.[24] This case gives rise to a related factor, namely whether the Landlord will benefit unjustly from the cancellation.2 In Sherman Ltd v Harlow (2009) 11 NZCPR 387 at [62] Rodney Hansen J appeared to suggest that relief under s 33 was only available where there is an issue of "harsh or unconscionableconduct." Overturned on appeal but on an unrelated point: See Harlow v Sherman Ltd [2010] NZCA 627.3 Refer by analogy to Studio X v Mobil Oil New Zealand Limited [1996] 2 NZLR 697 (HC) at 701, Pike River Coal Limited (In Receivership) & Ors v O'Malley Farming Limited HC Wellington CIV 2011-418-66 14 October 2011 at [41]-[45].[25] I commence by observing that Three Sisters has demonstrated ample good faith in the way that it has approached the difficulties arising. This is not a case where Three Sisters has acted pre-emptively. Rather, it appears to me that Three Sisters has endeavoured as best it could to make arrangements that suit the Trustees. Mr Elliot did not seek to suggest otherwise.[26] Having said that, it is equally plain to me that the Trustees have expended considerable resource in giving effect to the agreements and making the operation of the vineyard viable, and in light of the evidence of Mr Storey, I am prepared to accept that the property has been considerably enhanced as a result of the time and money invested in it by the Trustees.[27] Mr Storey carefully essays what he says are improvements to the property undertaken by him including the buildings, plant and machinery, grounds and grapes. He says that $180,000 has been spent on the property as a result of the work and expenses described above. Attached to his affidavit is an exhibit which he says is a list of the bills paid by Leopardi Estate Wines Limited (being the company operating the lease).[28] Balanced against this, Mr Leopardi for the plaintiff maintains in his reply affidavit that the enhancements (to the extent there were any) undertaken by Mr Storey were required in any event by a lessee. He also observes that any improvements needed the prior approval of the landlord, so that the Trustees cannot complain if any unapproved improvements are now enjoyed by Three Sisters. Finally he says (as does his counsel) that the exhibit does not reveal expenditure of $180,000.[29] At first blush, much of the work undertaken falls with the ordinary requirement to maintain the premises, and I accept that strictly speaking all improvements needed prior approval. But it would be divorced from reality to proceed on the basis that the tenants only did what was necessary to maintain the property - they were also aspirant purchasers of the property seeking to forge a new life as vintners. Furthermore, Three Sisters will, in fact, benefit in a substantial way from the work undertaken by the Trustees. The evidence that the vineyard neededconsiderable work to bring it up to standard was not seriously disputed. I am told from the bar that the next harvest will reap $20,000 in grapes.[30] The extent to which the benefit just mentioned is unjust in a legal sense is not capable of resolution in this context. But, for the purposes of s 33 I am prepared to proceed on the basis that cancellation might have a disproportionate adverse effect on the Trustees corresponding to a disproportionate benefit to the vendors. This is a factor favouring relief.[31] I think, nevertheless, that the conduct of the Trustees in failing to meet their contractual requirements, combined with their parlous financial position,4 means that overall, the greater unfairness lies with the grant of relief.[32] As Mr Leopardi attests (and it is not seriously disputed) there must be some doubt about the capacity of the Trustees to comply with the terms of the proffered relief (including full payment of rental and full settlement (at $1,000,000) in four months), given a long history of non-compliance. For example, the Storeys have suggested they might sell their property at Coromandel. But as Mr Leopardi notes, the listing price is $370,000 leaving a substantial shortfall in what is required tosettle. Perhaps more significantly, as Mr St John pointed out, Mr Storey's secondaffidavit reveals that the equity in the property is less than $80,000. Furthermore, the income of the Trust is barely covering its expenses and the Trust's companyrunning the vineyard is operating at a loss.[33] Mr Elliot also mooted the potential for the Trustees to obtain a $800,000 loan which would enable the discharge of the mortgage over the Coromandel property, which then could be offered as part of the package (ie together with the balance of the loan monies) to the plaintiff. This was rejected by the plaintiff as a possible solution. But more significantly it reveals the difficulties confronted by the Trustees in being able to meet their contractual obligations any time soon.4 As to the relevance of impecuniosity see QT Hospitality Limited v Oxford Holdings HC Invercargill CIV 2007-425-178 1 May 2007.[34] In summary, like Mr Leopardi, I have little confidence that the Trustees will be able to comply with any conditions of relief, let alone settle by the due date. The likely effect of any relief therefore would in my view unfairly impose the burden of subsidising the Trustees' vineyard business for a further four or so months. There is also the risk that the Trust will be unable to meet the ultimate debt, including penalty interest of about $136,000 (to June 2014). I do not think this is what is contemplated in terms of the relief afforded by s 33.[35] As to the prospect of unjust enrichment (or similar claim in equity or contract), if such a claim is available to the Trustees, they are not debarred by cancellation or re-entry from making such a claim.[36] Accordingly there shall be the following orders in terms of the first cause of action:(a) The sale and purchase agreement and lease are cancelled;(b) The defendants must vacate the property and surrender the property to the plaintiff; and(c) An order restraining the defendants from harvesting, selling or in any way dealing with the grapes on the property.[37] My expectation is that the parties will be able to agree the period by which the premises must be vacated, but leave is granted to seek further assistance of the Court in this regard. In addition, nothing in this judgment precludes the parties from reaching agreement on, for example, the harvesting of the crops.[38] It is unnecessary for me to address the application for interim injunction.[39] The parties agreed that costs should be reserved at this stage.Addendum[40] Since finalising this judgment but prior to its release, counsel for the defendants has advised that the ANZ Bank is not prepared to advance or lend money to the defendants unless and until the beach house is sold.[41] I am grateful for that indication. Given where I have got to it simply confirms the difficulties faced by the trustees in achieving settlement.Solicitors:Alan Jones Law, AucklandAshley Law Limited, Rangiora