Design At Space Limited v Julian and anor [2006] NZCA 169 (19 July 2006)

Last Updated: 26 July 2006

19 July 2006     

IN THE COURT OF APPEAL OF NEW ZEALAND

CA149/05

BETWEEN DESIGN AT SPACE LIMITED
Appellant

AND IAN GRAEME JULIAN AND MARY BERNADETTE JULIAN
Respondents

Hearing: 8 March 2006

Court: Chambers, John Hansen and Baragwanath JJ

Counsel: K W Berman for Appellant
J L Foster for Respondents

Judgment: 19 July 2006

JUDGMENT OF THE COURT

A The appeal is dismissed.

B The appellant must pay to the respondents costs of $6,000, plus usual disbursements.

REASONS OF THE COURT

(Given by Chambers J)

Did the parties conclude a contract?

[1]	This appeal is concerned with the perennial problem of whether parties to negotiations have reached finality or not.
[2]	Ian and Mary Julian have owned a property at Snells Beach, near Warkworth, for a number of years. The land is over 4 ha in area, and potentially subdivisible. The Julians in fact looked at subdividing the land, but in the end decided it was going to be too difficult for them. Instead, they decided to keep part of the land on which they would build a house and sell the rest. They hoped that the proceeds of sale would be sufficient to fund the cost of building.
[3]	The Julians had a friend, Virginia Cowsill, who was a real estate agent. She became aware of the Julians’ intentions. Through her contacts, she arranged for Collin Elder to come and look at the property. Mr Elder is an experienced developer. Mr Elder, Mr Julian, and Ms Cowsill walked around the land together and discussed a possible sale and purchase agreement. The exact date of the walk is unclear, but it was sometime in the middle of January 2003. Mr Julian pointed out the approximate boundaries of what he and his wife would like to retain as their home block. At this stage, the potential subdivision had not been surveyed; consequently, the Julians were not in a position to obtain resource consent.
[4]	On or about 23 January 2003 the parties signed a document headed "Agreement for Sale and Purchase of Real Estate". The purchaser under that agreement was Design At Space Limited, the appellant. Mr Elder is the director of Design; it is one of the companies he uses for property development. It is that document which Design now asserts has become an unconditional agreement for sale and purchase. The Julians deny that. They say it was no more than a step in their negotiations with Design; crucially, the land to be sold had not been identified.
[5]	Some months after signing the document, the Julians decided to discontinue what they saw as their negotiations with Design. It was at that point that Design sued the Julians, seeking a declaration that there was a valid and binding contract between the parties for the sale of the residual land.
[6]	That proceeding came on for hearing in the High Court at Auckland. On 24 June last year, Courtney J delivered a reserved decision: HC AK CIV-2004-404-7116. She held that Design was not entitled to the declaration it sought. She found that "there was no concluded contract because there was no certainty as to the land being sold and the parties had specifically reserved that question for agreement at a later date": at [43]. Accordingly, she entered judgment for the Julians.
[7]	Design now appeals.

Issues on the appeal

[8]

The primary issue on this appeal is whether the judge was right in her finding that there was no concluded contract because there was no certainty as to the land being sold. If she was right on that matter, then Design’s appeal must fail. We think she was right, for the reasons to which we shall come. Because of our view on that central issue, we find it unnecessary to deal with the other matters Mr Berman raised on Design’s behalf.

Identification of the land to be sold

[9]	In the agreement form, as we shall refer to the document signed by the parties, the property being sold was described as being lot 2 on DP197757, as shown on certificate of title 126D/842. Its area was described as "4.4824 ha more or less". It is agreed on both sides that the area is a mistake: the area of lot 2, as shown on the title, is 4.6824 ha. Nothing turns on that discrepancy.
[10]	Clearly, the Julians never intended to sell the whole of their land. Clause 15 of the agreement form was an acknowledgement of that. It read:

The Vendor will identify a portion of land in mutual agreement with the Purchaser that will be retained by the Vendor for a home block. This will be identified in a draft survey plan provided by the Purchaser prior to the contract becoming unconditional.

[11]	The form of that clause suggests that the parties were yet to determine how much of the land the Julians were to retain – leaving an uncertainty as to a crucial matter. And that is what Courtney J found.
[12]	In his written submissions, Mr Berman developed two arguments in his attempt to show the judge had erred. During his oral address, he added a third possibility. Regardless of whether that course was open to him, we shall deal with that argument as well.
[13]	We shall deal with Mr Berman’s arguments in the order he explained them to us.

Future tense means past tense

[14]	Mr Berman’s first argument was that clause 15 should be read as if the future tense used at the start of the clause was a past tense. That is to say:

The Vendor has identified a portion of land in mutual agreement with the Purchaser that will be retained by the Vendor for a home block. This will be identified in a draft survey plan provided by the Purchaser prior to the contract becoming unconditional.

[15]	Such an interpretation, Mr Berman submitted, removed the uncertainty inherent in clause 15 if read according to its plain meaning; this interpretation was required so that the parties’ intention to be legally bound on signing could be given effect to. In this regard, Mr Berman cited Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand [2002] 2 NZLR 433 (CA).
[16]	The obvious retort to Mr Berman’s proposition is: well, when was the portion of land identified and agreed? Mr Berman’s response to that was: when Mr Elder, Mr Julian, and Ms Cowsill walked over the property.
[17]	We are clear that this argument cannot succeed. First, it involves a very strained interpretation of clause 15. If the precise area and boundaries of the home block had already been determined, then there would have been much simpler ways of recording the agreed position.
[18]	Secondly, there is no evidence that Mrs Julian, who had not been on the walk with Mr Elder, knew about or agreed to what had been discussed on that occasion. Any "matrix of fact" argument, such as Mr Berman tried to run, could include as part of the matrix only facts known to all parties to the alleged agreement.
[19]	Thirdly, in any event, the argument fails on the facts. While it is clear that Mr Julian did say that he would like to retain about two acres and three of the boundaries of the proposed home block were reasonably defined (by property boundaries or existing fence lines), the northern boundary was not. In those circumstances, it is simply wrong for Mr Berman to submit that the area and boundaries of the home block had been agreed, even by Mr Julian.
[20]	On this last point, Ms Cowsill’s evidence is particularly important. Courtney J accepted Ms Cowsill’s evidence "entirely": at [6]. Ms Cowsill was clear that no "firm agreement" was reached as to the area or boundaries. Her evidence was:

We met with Ian Julian and walked over the property. Ian indicated that he would like to keep a portion of the property to live on and Colin Elder indicated that he did not see a problem with them keeping a portion of the land. This area, which has been referred to as the home block, was discussed in general terms but I did not consider that there was any firm agreement as to the boundaries – particularly as regards the north boundary which was not defined by property boundaries or fence lines. There was a discussion that a surveyor would be required to specify the block to be retained. There were various plans available at this meeting on site. No attempt was made to define the "home-block" on a plan.

[21]	The uncertainty as to area and boundaries was evident even in the evidence Mr Elder gave. The following exchange took place during his cross-examination:

Your position is that the home block boundaries were agreed with Mr Julian on that day; is that correct?...My position is that Mr Julian indicated the area he wanted to retain. There was discussion not only of the fencing but of the topographical layout of the land, some plantings that he had made, some concerns for their privacy that were aided by what was already in place. They had concern for the right of way access. They had concern for the continued use and ownership of an unofficial boat ramp they used. We had also discussed an approximate size. We discussed the layout of the home block. The exact point of cut off along that eastern boundary was an issue for the survey drafting.

[22]	We think that too shows that the discussion was far from definite; Mr Julian clearly had a number of concerns that were not resolved in his mind.
[23]	For all these reasons, Mr Berman’s first argument fails. In our view, this case falls entirely within the principles of Willetts v Ryan [1968] NZLR 863 at 867-868 (CA) and Barrett v IVC International Limited [1995] 3 NZLR 170 at 173-174 (CA), as Courtney J found at [37]-[40]. Both those decisions have been followed on numerous occasions since they were decided. Mr Berman did not refer to them in his submissions.
[24]	Rather, he pinned his hopes on Fletcher Challenge. But that decision had only peripheral relevance to Mr Berman’s arguments. That was a case where the parties had definitely signalled there were matters on which they had yet to agree. That was not Mr Berman’s argument in the present case: his argument was that everything had been agreed by the time the agreement form was signed. In any event, we do not see our decision as in any way inconsistent with Fletcher Challenge. The following passage from that decision is apposite to the present case:

[62] We agree with Professor McLauchlan ("Rethinking Agreements to Agree" (1998) 18 NZULR 77 at p 85) that "an agreement to agree will not be held void for uncertainty if the parties have provided a workable formula or objective standard, or a machinery (such as arbitration) for determining the matter which has been left open". We also agree with him that the Court can step in and apply the formula or standard if the parties fail to agree or can substitute other machinery if the designed machinery breaks down. This is generally the approach taken by this Court in Attorney-General v Barker Bros Ltd.
[63] However, if essential matters (i.e. legally essential or regarded as essential by the parties) have not been agreed upon and are not determinable by recourse to a mechanism or to a formula or agreed standard, it may be beyond the ability of the Court to fill the gap in the express terms, even with the assistance of expert evidence.

[25]

In the present case, Mr Berman did not attempt to suggest that this was a case where the parties had provided "a workable formula or objective standard". That is why he had to fall back on the proposition that the parties had agreed the area and boundaries of the home block during the course of the walk over the property.

Clause 15 is a condition

[26]	Mr Berman’s second argument was that "clause 15 could be construed as creating a condition", which was satisfied. Mr Berman said that a solicitor "might have developed a clause along the following lines":
(a)	The vendor will within x days of the date of this agreement identify an area which they wish to retain as their home block;
(b)	This agreement is conditional upon the purchaser advising the vendors of its acceptance of the identified home block within a further x days, and providing to the vendor a draft survey plan thereof;
(c)	If the condition in (b) above is not satisfied, then this agreement may be avoided by either party giving written notice to the other.
[27]	Clause 15, he submitted, was "in substance, of the same effect". We cannot agree. Mr Berman’s redrafting is substantially to different effect. It is not a legitimate method of contractual interpretation to recast the provision into different language and then interpret the recast provision.
[28]	Mr Berman later developed this second argument in a slightly different way. He submitted that clause 15 required "three simple steps:

(a) The vendor identifying the home block;

(b) The purchaser finding it acceptable;

(c) The purchaser identifying it on a plan and providing [a draft survey] plan".

[29]

He submitted that all these steps had occurred, "the first two before the signing of the agreement and the third subsequent to the signing of the agreement". It will be seen that this version of the second argument shades into the first argument. It must fail for the same reasons the first failed; above all, the home block had not been identified before the agreement was signed.

A partly oral, partly written contract

[30]	In the course of his oral submissions, Mr Berman developed a third argument. It overlapped with his first and second arguments, although it was, at least to some extent, conceptually different. Both the first two arguments purported to involve how clause 15 should be construed. The third argument went further than that: under this argument, there was an additional term to the overall agreement.
[31]	The third argument, as we understand it, was essentially this. The agreement between Design and the Julians was partly oral, partly written. The written part of the agreement was that contained in the agreement form. The oral component was what was agreed during the walk over the property. At that time, it is submitted, the parties orally agreed the area and boundaries of the land to be retained, and hence the area and boundaries of the land to be sold.
[32]	We are quite satisfied that this argument must fail. First, the case was not pleaded in this way. The trial proceeded on the basis that the agreement form constituted the agreement which Design said was "valid and binding".
[33]	Secondly, the alleged oral term is contrary to a later written term, namely clause 15.
[34]	Thirdly, Mrs Julian was not present on the walk. There was no evidence that Mr Julian had authority to agree terms on her behalf.
[35]	Fourthly, the argument fails on the facts, for the same reason the first argument failed on the facts: see [19]-[22] above.
[36]	Finally, there would be significant problems in terms of the Contracts Enforcement Act 1956. There is no need to go into detail on that point.

A final note

[37]

We have not found it necessary to set out what happened between the parties and their respective solicitors after the agreement was signed. It is not relevant to the arguments Mr Berman ran. In any event, what happened is certainly not helpful to Mr Berman’s case. In particular, the correspondence sent by Design’s solicitor on 24 April 2003 is clearly inconsistent with a submission that the parties had agreed everything.

Result

[38]	We agree with the result and reasoning of Courtney J. Accordingly, we dismiss the appeal.

Solicitors:
Sue Stodart, North Harbour, Auckland, for Appellant
Dyson Smythe & Gladwell, Warkworth, for Respondent