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Grace Pacific Limited v Noy Holdings Limited & Ors [2005] NZCA 151 (14 June 2005)

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Grace Pacific Limited v Noy Holdings Limited & Ors [2005] NZCA 151 (14 June 2005)

Last Updated: 29 June 2005

IN THE COURT OF APPEAL OF NEW ZEALAND

CA168/04

BETWEEN GRACE PACIFIC LIMITED
Appellant

AND NOY HOLDINGS LIMITED
First Respondent

AND JOHN TROON
Second Respondent

AND ESPLANADE VILLAS LIMITED
Third Respondent

Hearing: 9 June 2005

Court: Glazebrook, Hammond and William Young JJ

Counsel: F B Barton and C M Bashford for Appellant
A J Forbes QC and G J Ryan for First Respondent
C S Withnall QC and C R Allan for Second and Third Respondents

Judgment: 14 June 2005

JUDGMENT OF THE COURT

A The appeal is dismissed.

B Costs of $6,000 plus usual disbursements are awarded to the first respondent. Costs of $6,000 plus usual disbursements are awarded to the second and third respondents. In each case we certify for two counsel.

____________________________________________________________________

REASONS

(Given by Glazebrook J)

Introduction

[1] This appeal concerns a block of land in Queenstown formerly owned by Noy Holdings. The land is notionally divided into three lots. There are three sale and purchase agreements related to the land at issue in this case.
[2] The first agreement was entered into by Mr Troon as agent and eventually settled by the transfer of the land to Esplanade Villas. Grace Pacific, however, claims that the first agreement never became unconditional and that the property should have been transferred to it in terms of a back up sale and purchase agreement. The third agreement at issue is an agreement for the sale of Lot 1 to Grace Pacific by Mr Troon as agent. Grace Pacific asserts that Mr Troon was not entitled to treat the condition contained in clause 21 of that agreement as not having been satisfied.
[3] On 14 July 2004 Keane J found against Grace Pacific in relation to the back up agreement and the agreement for the purchase of Lot 1. Grace Pacific appeals against that decision.

Background

[4] On 15 October 2003 Noy Holdings entered into an agreement for the sale and purchase of the land. The purchaser under that agreement was described as "John Troon as agent". Mr Troon was a partner in the law firm of Macalister Todd Phillips Bodkins in Queenstown and was acting at the time as agent of Mrs Eva Russell-Jove. The purchase price under the contract was $15,350,000. The agreement was conditional on the purchaser being satisfied that the property was suitable for the purchaser’s purposes at the agreed price. The purchaser had 20 working days in which to undertake due diligence on the property, that period expiring on 13 November 2003.
[5] Noy Holdings also entered into a back-up agreement with "Grace Pacific or nominee". The purchase price was $50,000 less than the first agreement. This second agreement was specifically acknowledged as a back-up agreement which was contingent on the Troon contract not becoming unconditional.
[6] The third agreement at issue in this case is one in relation to Lot 1, entered into on 24 October 2003. The purchaser was "Grace Pacific or nominee" and the vendor was described as "John Troon as agent for a company to be formed". The purchase price for Lot 1 was $10,000,000. The contract was conditional upon the Troon purchase contract becoming unconditional prior to 5.00 pm on 12 November 2003. There was a further condition set out in clause 21. The clause read:

This agreement is subject to and conditional upon the Vendor being satisfied, in the sole discretion of the Vendor, that the sale of the property and the Purchaser’s proposals to develop the property are compatible with the Vendor’s proposal to develop its land adjoining the property and the Vendor communicating its satisfaction or dissatisfaction as the case may be to the Purchaser or the Purchaser’s Solicitor by 4.00 pm on the 31^st of October 2003. The condition contained in this clause is inserted for the sole benefit of the Vendor who may waive reliance upon it at any time.

[7] On 28 October 2003 Mr Troon gave notice to Grace Pacific that the contract was terminated on the basis that his principal had decided that the "sale of the property and the purchasers proposals to develop the property are not compatible with the vendors proposal to develop its adjoining land." On 29 October 2003, Grace Pacific gave notice to Mr Troon that it did not accept the validity of that decision. It has since, however, accepted what it calls the repudiation of the contract by Mr Troon and seeks damages.

Correspondence in relation to the first agreement

[8] It is necessary to set out the correspondence between Noy Holdings and Mr Troon in relation to the first agreement. The respondents assert that it is clear from that correspondence that the first agreement became unconditional and that, therefore, the back up agreement never became unconditional. Grace Pacific maintains the contrary position.
[9] On 28 October 2003 Mr Troon wrote to Mr Jack, the partner in his firm acting for Noy Holdings, in the following terms:

The principals of our client purchaser are well advanced with their due diligence enquiries and their feasibility study for the development of the sites.
As a result of our client’s investigations and development feasibility study it has determined that the present proposal to amalgamate the existing titles and then subdivide them into three parcels would not assist our client’s proposals to develop the property.
Accordingly and entirely without prejudice to the purchasers rights under the agreement for Sale and Purchase dated 15^th October 2003 (including the right to satisfy the conditions contained in clause 15 of the contract) our client seeks the vendors agreement to vary the terms of the contract as follows:

1. The vendor withdraws its application for resource consent to amalgamate and subdivide the existing titles to the property and permits the purchaser to proceed at the purchasers cost, with its own proposal to amalgamate and subdivide the existing titles, the Vendor executing all documents requisite to completion of the purchasers subdivision proposal.
2. The vendor agreeing to permit the purchaser to have immediate access to the property to clear the property and to erect signage advertising the purchaser’s proposals to develop the property, all at the purchasers cost.
3. Settlement date to be amended to 30 June 2003.
4. The Purchaser to render the purchase contract unconditional and to pay the deposit on or before the 13^th of November 2003 subject to the variations above proposed.

Kindly obtain your client’s instructions and advise us whether the proposed variations to the contract are acceptable to it.

[10] After taking instructions from his client, on 11 November 2003 Mr Jack replied as follows:

Further to our previous correspondence we confirm that we have today received instructions to agree to certain amendments to the terms of the Agreement as follows:

1. Our client is to withdraw its application for resource consent to amalgamate and subdivide the existing titles but solely on the basis that the purchaser proceeds at its own cost with its own plan of subdivision which must include a new title for Lot 4 shown in our client’s present plan of subdivision. Such title is to issue in the name of Noy Holdings Limited and be delivered to ourselves without cost to our client. Such Lot 4 is to contain 396 m² and to be as per our client’s current plan.
2. Our client is prepared to allow your client access to the property to clear the same and erect signage advertising your client’s proposals to develop the property. Such access is to be on the basis that your clients completely indemnify Noy against all and any third party claim which may arise by virtue of your client’s occupation of the property.
3. Settlement date is to be amended to 30 June 2004.
4. Your clients are to confirm the Agreement is unconditional immediately and at the same time name the principals of the purchasing entity who will personally guarantee the performance of the Agreement.
5. Your clients are to immediately pay a 10% deposit to ourselves and pay a further 5% deposit on 29 February 2004. Both such deposits are to be released to the vendors upon receipt.

We look forward to hearing from you that the above is agreed and that the Agreement is confirmed as unconditional.

[11] On the same day , Mr Troon replied as follows:

We acknowledge receipt of your letter of 11 November 2003 and confirm the variations to the contract contained therein.
The Principals of the purchasing entity (Esplanade Villas Limited) are:

1. Roderick William Guthrie Nielson;
2. Paul Wayne Burton;
3. Eva Maria Russell-Jove and Aqua Viva Limited as trustee of the Hogan’s Gully Family Trust and the Equity Development Trust.

Messrs Burton and Nielson are prominent Auckland property developers and the Equity Development Trust and the Hogan’s Gully Family Trust hold substantial interests in land and business in the Otago region.
We are anticipating receipt of our Auckland based clients share of the deposit in the next twenty-four hours. The trust’s portion of the deposit is held in trust by this firm.
We enclose a Deed of Nomination (in quadruplicate) containing the Principal’s guarantee of the purchaser nominee’s obligation under the contract for execution by the Vendor.
Thank you for your assistance.

[12] The enclosed Deed of Nomination nominated Esplanade Villas, which at that stage had not been incorporated, as purchaser under the agreement and released Mr Troon from liability. It also provided for Mrs Russell-Jove, Aqua Viva Limited, Mr Nielson and Mr Burton to guarantee the performance of Esplanade Villas. We understand that Aqua Viva Limited, Mr Nielson and Mr Burton had been brought in by Mrs Russell-Jove as additional investors. The deed was dated 11 November 2003 and had been signed by Mr Troon, by Mr Nielson for and on behalf of Esplanade Villas, and by the guarantors. It was signed and returned by Noy Holdings, without changing the date on the Deed, on 12 November 2003. On that date Mr Troon gave notice to Grace Pacific that the first agreement had become unconditional and that the back up agreement was therefore at an end.

The High Court judgment

[13] The first issue for Keane J was whether the exchange of correspondence on 11 November 2003 within MacAlister, Todd, Phillips Bodkins can be read as confirming that the first agreement had become unconditional.
[14] The Judge saw the issue as being on whose behalf Mr Troon had purported to confirm the contract and whether that was effective having regard to the attached Deed of Nomination. He held that, as at 11 November, the Deed of Nomination was inoperative as it had not been executed by Noy Holdings Limited. In his view the exchange of correspondence on 11 November confirmed the Agreement between Noy Holdings and Mr Troon as agent. The Judge held that, in confirming the contract, Mr Troon had assumed not merely the purchaser’s rights under the agreement but the liabilities as well. Therefore, on 11 November 2003, the first agreement had become unconditional and the back up agreement had fallen away.
[15] The second cause of action in the High Court was that, in the circumstances in which the back-up agreement was entered into, Noy Holdings owed to Grace Pacific a fiduciary duty not to vary the first agreement. This was rejected by the Judge and this finding is not the subject of appeal.
[16] With regard to the agreement for the sale and purchase of Lot 1, the Judge held that clause 21 entitled Mr Troon’s principal to decide whether the very sale of Lot 1 was compatible with the development of Lots 2 and 3, irrespective of what Grace Pacific may have intended to do to develop Lot 1. He also found as a fact that the notice Mr Troon gave on behalf of his principal on 28 October 2003, avoiding agreement for the sale of Lot 1 in terms of clause 21, rested on an analysis made fairly and reasonably within the terms allowed for by that clause.
[17] The Judge accepted that Mr Troon’s principal had accepted the advice of Mr Nielson, as an experienced property developer, that development of the remaining lots would be less profitable and even uneconomic without Lot 1. The Judge considered that the principal could make this decision without consulting Grace Pacific or knowing what its plans were. In his view, Grace Pacific’s position only became relevant if Mr Troon’s principal decided that Lot 1 was not essential to develop Lots 2 and 3 economically. In that case, unless Grace Pacific’s proposals to develop Lot 1 were incompatible with the development of Lots 2 and 3, the sale might proceed.

Appellant’s submissions

[18] With regard to the first agreement, Mr Barton’s submission was that it never became unconditional as there was never a specific confirmation that it was unconditional. He submitted that the first sentence of the Troon letter of 11 November 2003 only confirms agreement to the variations to the contract and that it cannot by implication be taken to mean that all of the conditions have been fulfilled. In addition, Mr Barton submitted that the sending of the Deed of Nomination meant that any confirmation was conditional upon the deed being executed by Noy Holdings and Mr Troon’s release from the contract. In his submission, the execution of the deed on 12 November by Noy Holdings created a novation of the contract without it ever having become unconditional.
[19] With regard to the agreement for the sale of Lot 1, Mr Barton submitted that clause 21 did not involve two separate criteria that can stand on their own. The clause was in fact conjunctive and not disjunctive. It was thus not open to the vendor to cancel, in terms of that clause, unless and until it had asked the purchaser what its proposals were in respect of the land and had considered these.

Discussion

[20] We examine first whether the first agreement became unconditional. In our view, it is absolutely clear that the agreement was confirmed to be unconditional by the exchange of correspondence on 11 November 2003. The letter of 11 November 2003 from Noy Holdings to Mr Troon, (see at [10]) above) sets out a list of five amendments to the terms of the agreement. Point 4 reads, "Your clients are to confirm the Agreement is unconditional immediately".
[21] Mr Troon’s reply of 11 November 2003 (see at [11] above) confirms the variations to the contract contained in Mr Jack’s letter. The letter cannot sensibly be read as doing other than confirming all of the variations to the agreement, including that which provided for the agreement to become unconditional immediately. Mr Barton’s submission that the acceptance of that variation was somehow conditional on the Deed of Nomination being executed is also unsustainable. Mr Troon’s letter says nothing of the sort. Although Mr Troon clearly anticipated that the deed would be executed by Noy Holdings, the confirmation that the agreement was unconditional was not made conditional upon that execution.
[22] This ground of appeal must fail.
[23] We now turn to the agreement for the sale of Lot 1 and the proper interpretation of clause 21 of that agreement. We consider that it is clear that the vendor had to be satisfied, in its sole discretion, of two matters: that the sale of Lot 1 was compatible with the vendor’s proposal to develop its land adjoining the property and that the purchaser’s proposal to develop Lot 1 was compatible with the vendor’s proposal to develop its land adjoining the property. In this sense the clause was conjunctive. The vendor was not satisfied that the sale of Lot 1 was compatible with its proposals for the development of Lots 2 and 3. It was thus not satisfied with regard to one of the matters it had to be satisfied about. The clause 21 condition could therefore not be fulfilled, whatever Grace Pacific’s plans for the development of the property might have been.
[24] This ground of appeal also fails.

Result

[25] It follows that the appeal must be dismissed.
[26] Costs of $6,000 plus usual disbursements are awarded to the first respondent. Costs of $6,000 plus usual disbursements are awarded to the second and third respondents. In each case we certify for two counsel.

Solicitors:
Anderson Lloyd Caudwell, Dunedin for Appellant
Duncan Cotterill, Christchurch for First Respondent
Ross & Whitney, Auckland for Second and Third Respondents

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[1]	This appeal concerns a block of land in Queenstown formerly owned by Noy Holdings. The land is notionally divided into three lots. There are three sale and purchase agreements related to the land at issue in this case.
[2]	The first agreement was entered into by Mr Troon as agent and eventually settled by the transfer of the land to Esplanade Villas. Grace Pacific, however, claims that the first agreement never became unconditional and that the property should have been transferred to it in terms of a back up sale and purchase agreement. The third agreement at issue is an agreement for the sale of Lot 1 to Grace Pacific by Mr Troon as agent. Grace Pacific asserts that Mr Troon was not entitled to treat the condition contained in clause 21 of that agreement as not having been satisfied.
[3]	On 14 July 2004 Keane J found against Grace Pacific in relation to the back up agreement and the agreement for the purchase of Lot 1. Grace Pacific appeals against that decision.

[4]	On 15 October 2003 Noy Holdings entered into an agreement for the sale and purchase of the land. The purchaser under that agreement was described as "John Troon as agent". Mr Troon was a partner in the law firm of Macalister Todd Phillips Bodkins in Queenstown and was acting at the time as agent of Mrs Eva Russell-Jove. The purchase price under the contract was $15,350,000. The agreement was conditional on the purchaser being satisfied that the property was suitable for the purchaser’s purposes at the agreed price. The purchaser had 20 working days in which to undertake due diligence on the property, that period expiring on 13 November 2003.
[5]	Noy Holdings also entered into a back-up agreement with "Grace Pacific or nominee". The purchase price was $50,000 less than the first agreement. This second agreement was specifically acknowledged as a back-up agreement which was contingent on the Troon contract not becoming unconditional.
[6]	The third agreement at issue in this case is one in relation to Lot 1, entered into on 24 October 2003. The purchaser was "Grace Pacific or nominee" and the vendor was described as "John Troon as agent for a company to be formed". The purchase price for Lot 1 was $10,000,000. The contract was conditional upon the Troon purchase contract becoming unconditional prior to 5.00 pm on 12 November 2003. There was a further condition set out in clause 21. The clause read:

[8]	It is necessary to set out the correspondence between Noy Holdings and Mr Troon in relation to the first agreement. The respondents assert that it is clear from that correspondence that the first agreement became unconditional and that, therefore, the back up agreement never became unconditional. Grace Pacific maintains the contrary position.
[9]	On 28 October 2003 Mr Troon wrote to Mr Jack, the partner in his firm acting for Noy Holdings, in the following terms:

1.	The vendor withdraws its application for resource consent to amalgamate and subdivide the existing titles to the property and permits the purchaser to proceed at the purchasers cost, with its own proposal to amalgamate and subdivide the existing titles, the Vendor executing all documents requisite to completion of the purchasers subdivision proposal.
2.	The vendor agreeing to permit the purchaser to have immediate access to the property to clear the property and to erect signage advertising the purchaser’s proposals to develop the property, all at the purchasers cost.
3.	Settlement date to be amended to 30 June 2003.
4.	The Purchaser to render the purchase contract unconditional and to pay the deposit on or before the 13^th of November 2003 subject to the variations above proposed.

1.	Our client is to withdraw its application for resource consent to amalgamate and subdivide the existing titles but solely on the basis that the purchaser proceeds at its own cost with its own plan of subdivision which must include a new title for Lot 4 shown in our client’s present plan of subdivision. Such title is to issue in the name of Noy Holdings Limited and be delivered to ourselves without cost to our client. Such Lot 4 is to contain 396 m² and to be as per our client’s current plan.
2.	Our client is prepared to allow your client access to the property to clear the same and erect signage advertising your client’s proposals to develop the property. Such access is to be on the basis that your clients completely indemnify Noy against all and any third party claim which may arise by virtue of your client’s occupation of the property.
3.	Settlement date is to be amended to 30 June 2004.
4.	Your clients are to confirm the Agreement is unconditional immediately and at the same time name the principals of the purchasing entity who will personally guarantee the performance of the Agreement.
5.	Your clients are to immediately pay a 10% deposit to ourselves and pay a further 5% deposit on 29 February 2004. Both such deposits are to be released to the vendors upon receipt.

1.	Roderick William Guthrie Nielson;
2.	Paul Wayne Burton;
3.	Eva Maria Russell-Jove and Aqua Viva Limited as trustee of the Hogan’s Gully Family Trust and the Equity Development Trust.

[13]	The first issue for Keane J was whether the exchange of correspondence on 11 November 2003 within MacAlister, Todd, Phillips Bodkins can be read as confirming that the first agreement had become unconditional.
[14]	The Judge saw the issue as being on whose behalf Mr Troon had purported to confirm the contract and whether that was effective having regard to the attached Deed of Nomination. He held that, as at 11 November, the Deed of Nomination was inoperative as it had not been executed by Noy Holdings Limited. In his view the exchange of correspondence on 11 November confirmed the Agreement between Noy Holdings and Mr Troon as agent. The Judge held that, in confirming the contract, Mr Troon had assumed not merely the purchaser’s rights under the agreement but the liabilities as well. Therefore, on 11 November 2003, the first agreement had become unconditional and the back up agreement had fallen away.
[15]	The second cause of action in the High Court was that, in the circumstances in which the back-up agreement was entered into, Noy Holdings owed to Grace Pacific a fiduciary duty not to vary the first agreement. This was rejected by the Judge and this finding is not the subject of appeal.
[16]	With regard to the agreement for the sale and purchase of Lot 1, the Judge held that clause 21 entitled Mr Troon’s principal to decide whether the very sale of Lot 1 was compatible with the development of Lots 2 and 3, irrespective of what Grace Pacific may have intended to do to develop Lot 1. He also found as a fact that the notice Mr Troon gave on behalf of his principal on 28 October 2003, avoiding agreement for the sale of Lot 1 in terms of clause 21, rested on an analysis made fairly and reasonably within the terms allowed for by that clause.
[17]	The Judge accepted that Mr Troon’s principal had accepted the advice of Mr Nielson, as an experienced property developer, that development of the remaining lots would be less profitable and even uneconomic without Lot 1. The Judge considered that the principal could make this decision without consulting Grace Pacific or knowing what its plans were. In his view, Grace Pacific’s position only became relevant if Mr Troon’s principal decided that Lot 1 was not essential to develop Lots 2 and 3 economically. In that case, unless Grace Pacific’s proposals to develop Lot 1 were incompatible with the development of Lots 2 and 3, the sale might proceed.

[20]	We examine first whether the first agreement became unconditional. In our view, it is absolutely clear that the agreement was confirmed to be unconditional by the exchange of correspondence on 11 November 2003. The letter of 11 November 2003 from Noy Holdings to Mr Troon, (see at [10]) above) sets out a list of five amendments to the terms of the agreement. Point 4 reads, "Your clients are to confirm the Agreement is unconditional immediately".
[21]	Mr Troon’s reply of 11 November 2003 (see at [11] above) confirms the variations to the contract contained in Mr Jack’s letter. The letter cannot sensibly be read as doing other than confirming all of the variations to the agreement, including that which provided for the agreement to become unconditional immediately. Mr Barton’s submission that the acceptance of that variation was somehow conditional on the Deed of Nomination being executed is also unsustainable. Mr Troon’s letter says nothing of the sort. Although Mr Troon clearly anticipated that the deed would be executed by Noy Holdings, the confirmation that the agreement was unconditional was not made conditional upon that execution.
[22]	This ground of appeal must fail.
[23]	We now turn to the agreement for the sale of Lot 1 and the proper interpretation of clause 21 of that agreement. We consider that it is clear that the vendor had to be satisfied, in its sole discretion, of two matters: that the sale of Lot 1 was compatible with the vendor’s proposal to develop its land adjoining the property and that the purchaser’s proposal to develop Lot 1 was compatible with the vendor’s proposal to develop its land adjoining the property. In this sense the clause was conjunctive. The vendor was not satisfied that the sale of Lot 1 was compatible with its proposals for the development of Lots 2 and 3. It was thus not satisfied with regard to one of the matters it had to be satisfied about. The clause 21 condition could therefore not be fulfilled, whatever Grace Pacific’s plans for the development of the property might have been.
[24]	This ground of appeal also fails.

[25]	It follows that the appeal must be dismissed.
[26]	Costs of $6,000 plus usual disbursements are awarded to the first respondent. Costs of $6,000 plus usual disbursements are awarded to the second and third respondents. In each case we certify for two counsel.