McLean Tower Limited and anor v Ash Road Investments Limited and anor [2007] NZCA 307 (23 July 2007)

Last Updated: 21 August 2007

IN THE COURT OF APPEAL OF NEW ZEALAND

CA284/06

[2007] NZCA 307

BETWEEN

AND

AND

MCLEAN TOWER LIMITED AND MICHAEL JOHN BEGLEY Appellants

ASH ROAD INVESTMENTS LIMITED First Respondent

JOHN DAVIS Second Respondent

AND BETWEEN

AND

AND

MICHAEL JOHN BEGLEY Appellant

ASH ROAD INVESTMENTS LIMITED First Respondent

JOHN DAVIS Second Respondent

Hearing: 16 July 2007
Court: Hammond, Randerson and Chisholm JJ
Counsel: M C Black for Appellants

M J Tingey and D F Elliott for Respondents

Judgment: 23 July 2007 at 12 noon

JUDGMENT OF THE COURT

A The appeals are dismissed.

B The respondents will have costs of $8,000 and usual disbursements. We certify for second counsel.

MCLEAN TOWER LTD And Anor V ASH ROAD INVESTMENTS LTD And Anor CA CA284/06 [23 July 2007]

REASONS OF THE COURT

(Given by Hammond J) Table of Contents

Para No

Introduction [1]

Background [5]
The issues on this appeal

Introduction [15]

An entitlement on the ongoing sales? [23]

Specific performance [25]

The order against Mr Begley [34]

Conclusion [37]

Introduction

[1] McLean Tower Ltd (MTL) and its director, Mr Begley, appeal against two judgments of Associate Judge Christiansen in the High Court at Auckland.

[2] The first judgment (CIV 2005-404-7127 15 March 2006) concerned an application made by the appellants to remove a caveat placed on two apartments by the respondents, Ash Road Investments Ltd (ASH) and its director, Mr Davis. Dismissing this application, the Associate Judge allowed the respondents' counterclaim for summary judgment and ordered the appellants to specifically perform the agreement by undertaking all steps necessary to effect the transfer of the two apartments in question. Judgment was entered against MTL and Mr Begley as parties agreeing to convey title.

[3] In his second judgment (CIV 2005-404-007127 11 October 2006), Associate Judge Christiansen varied the order by requiring the apartments to be transferred to ASH by 10 November 2006. To enable this to be done, ASH and Mr Davis were ordered to co-operate to ensure that, for their part, they would do nothing to hinder that process. The Judge also confirmed that penalty interest at the rate stipulated in the agreement (13%) was payable on the sum of $375,000 from 31 October 2005 until the apartments were transferred. This sum was the amount of the purchase price which was treated as paid or credited to the purchase under a collateral agreement we will shortly mention. MTL and Mr Begley were held to be jointly and severally liable. The respondents had also served on Mr Begley a bankruptcy notice claiming the interest payable as at 7 July 2006 ($33,390). The Associate Judge ordered that Mr Begley's application to set aside the bankruptcy notice be dismissed if, by 10 November 2006, the penalty interest remained unpaid.

[4] The appellants now appeal against the Associate Judge's order of specific performance and the imposition of liability against Mr Begley personally.

Background

[5] MTL agreed to sell to ASH two apartments at 3 Shakespeare Road, Napier. The purchase price was $375,000. This agreement, dated 9 February 2005, represented the culmination of a series of transactions embodied in a written sale and purchase agreement and collateral letter. Before setting out the terms of that agreement, it is necessary to briefly rehearse the nature and history of those transactions.

[6] In November 2002, Allwin Properties Ltd (APL), a company in which ASH held shares, agreed to sell to Mr Begley's company, Water Jump Bar & Grill Ltd (now Begley Properties Ltd), the Manchester Unity Building. Mr Begley's company paid APL $940,000 by way of credit given for the equity in two properties owned by Water Jump at Angle Street, Penrose and Station Road, Onehunga. APL acquired the equity in these properties subject to mortgages in favour of entities associated with Mr Begley. Caveats were subsequently lodged by APL to secure its interest in these properties.

[7] The Angle Street property was sold in November 2003 for almost $500,000. This money was used to repay creditors of APL, which by now was embroiled in a shareholder dispute. The $445,000 left as available equity in the Station Road property was less than the money owed to ASH by APL.

[8] Rentals for the Angle Street property failed to meet all its operating costs. Mr Begley, wishing to repay the mortgage on the property, found a buyer. To sell it however he needed APL to remove its caveat.

[9] Mr Begley then enlisted Mr Davis and ASH to procure the removal of APL's caveat on the Station Road property, and therefore cancel the sale and purchase agreement between Mr Begley's company and APL. In return, Mr Begley would pay ASH $17,500. Further, the equity in the Station Road property (now held by ASH) would be transferred at a reduced value of $375,000 to two apartments at 3 Shakespeare Road being developed by MTL and Mr Begley.

[10] Mr Davis was concerned that the transfer, in its effect, represented a diminution of $75,000 in ASH's interest (the difference between $375,000 and $445,000, less the $17,500 payment). A definite date for settlement (31 October 2005) was therefore given. Further, it was agreed that the apartments would be onsold by MTL and that any proceeds above $375,000 would be shared equally between MTL and ASH.

[11] This history is reflected in the sale and purchase agreement for the Shakespeare Road apartments and the collateral letter which forms part of the agreement.

[12] The agreement relevantly provides:

14. The purchaser shall not be entitled to a transfer of the apartment or
to cause settlement or possession in accordance with the provisions of this
agreement until all the following are fulfilled.

i) All conditions precedent (if any) have been satisfied or

waived.

ii) The apartment's certificate of title has been issued.

iii) All moneys due under this agreement have been paid to the vendor.

15. This agreement is conditional upon:

a) Stage Two: The issue of the unit title for the subject unit.

Condition 15(a) is included for the sole benefit of the vendor and may be waived by the vendor at any time. If the vendor elects to waive this condition the purchaser shall not be entitled to question or challenge the vendor's ability to do so. ...

19. The purchaser shall not lodge any caveat against the vendor's title or interest to the land unless after the issue of a separate registered Unit Certificate of Title and the vendor is in default under this Agreement.

[13] The collateral letter, also dated 9 February 2005, provides:

In consideration of Mike Begley, Begley Properties Limited and McLean Tower Limited (MB), (BPL), (MTL), entering into the agreement to purchase the apartments 4 and 10, Level 3, 3 Shakespeare, Napier (Napier Apts) with Ash Road Investments Limited and Allwin Properties Limited (ASH), (APL).

(1) ASH, APL will grant MB, BPL, MTL the release of the caveat and
they all agree to cancel the agreement for sale and purchase of 6/F 101
Station Road, Penrose, Auckland.
(2) MB via McVeagh Fleming will pay ASH $17,500 for the settlement
of 101 Station Road, to Thackery.
(3) The Equity of the Station Rd Deal of $375,000 is transferred as the
purchase consideration for the Napier Apts.
(4) The vendor of the Napier Apts, MTL agrees to on-sell these and the
net proceeds above $375,000 will be shared at 50% each. This profit-
sharing arrangement will exist for a period of three months after the date of
settlement of the apartments.

MB undertakes the performance of all the above matters and in particular if the apartments are not delivered to ASH by 31st October 2005, then MB will pay ASH $375,000 at that date. and the sale of the Nap Apts is cancelled.

(Emphasis added: this final line was a handwritten addition)

[14] The apartments were not onsold by the appellants within three months of the settlement agreement and separate unit titles for the apartments in question were not available by 31 October 2005. There was a purported cancellation of the agreement by MTL which was not accepted by ASH. Mr Begley did not make any payment to the respondents of $375,000.

The issues on this appeal

Introduction

[15] In the High Court, the Associate Judge held that because no payment had been made on 31 October 2005 the agreement was not at an end. We have to say that the Associate Judge was patently correct. First, that holding was entirely consistent with the wording of the collateral letter. The clause in question is conjunctive: if the apartments were "not delivered to ASH by 31 October 2005 then MB will pay ASH $35,000 at that date" (emphasis added). Seen in this way, the 31 October 2005 date did not signify the end of the agreement in all circumstances. Only if payment of $375,000 had been made on 31 October 2005 would the obligation to transfer the property have ceased to exist.

[16] We agree with MrTingey that the final clause in the collateral letter was intended to give the appellants only a limited opportunity to avoid the agreement. In the event that the apartments were not delivered on 31 October 2005 Mr Begley was required to pay ASH $375,000 "at that date", ie 31 October 2005.

[17] The history of this transaction further confirmed the parties' intentions. Understandably, and as the Associate Judge accepted at [20] of his first judgment, Mr Davis was keen to ensure that there was an element of certainty in the transaction, having agreed to relinquish ASH's equitable interest over the Station Road property. The alternative construction advanced for the appellant in the High Court - indeed throughout the appeal and right up to the hearing before us -lacked commercial sense. To read the agreement as only providing for an effective remedy against Mr Begley for $375,000 would mean that ASH had contracted to give up its equitable interest in the Shakespeare Road apartments (as well as the Station Road property) in favour of an unsecured debt, in the event that the apartments were not transferred on 31 October 2005. There was therefore irresistible force in the Associate Judge's observation that this would mean that ASH "would end up with no apartments and no cash payments" at the conclusion of the agreement.

[18] In the Notice of Appeal and the written submissions which were filed, the appellant nevertheless persisted in an argument that the Associate Judge was wrong to reach the conclusion that the contract was still on foot. It was further said that the Associate Judge should not have ordered specific performance and that the only remedy now open to ASH was a monetary claim for $375,000.

[19] In his oral submissions before us Mr Black completely changed course. With no prior notice to the Court, or to Mr Tingey apparently, he expressly abandoned the argument that the agreement had indeed come to an end at 31 October 2005. Mr Black now accepts that the Associate Judge was correct that the agreement remained on foot. But he then advanced an argument that the consequence of the agreement remaining on foot is that subclause 4 of the letter of 9 February 2005, which provides that the apartments were to be onsold (see [13] above), means that the position now is that his client is entitled to a 50 percent share of the onsales (that is, over and above the $375,000, which he accepts is payable to ASH).

[20] Mr Black continued to maintain the argument that he has made throughout the proceeding that specific performance was not correctly decreed and further, that judgment should not have also been entered against Mr Begley.

[21] In consequence, the issues as they were framed in the appeal as lodged have now altered dramatically, and distinctly narrowed. It now being accepted that the Associate Judge was correct to say that the agreement remained on foot, the general issue before the Court is simply the consequences of the application of that agreement to the facts of this case. The addendum to the collateral letter never came into play and can be put to one side.

[22] We can deal shortly with the issues as they now stand, under three heads. First, is Mr Black correct as to what he now sees to be his interests' entitlements under subclause 4 of the collateral letter; second, should specific performance have been granted; and third, should judgment have been entered against Mr Begley, personally. We will take each of these issues in turn.

An entitlement on the ongoing sales?

[23] This involves a consideration and application of clause 4 of the letter (see [13] above).

[24] The profit-sharing arrangement was limited to a period of three months "after the date of settlement of the apartments". There was some discussion in oral argument as to what the words "the date of settlement" here meant. The words could conceivably mean the date titles to the apartments became available; they could also conceivably mean the date that the sale of those apartments was actually settled. However, whatever the correct construction is, on the facts of this case the three month period had expired on either of those possibilities. When we put this proposition to Mr Black he was unable to give us a response to this point. It is fatal to his newly developed argument under this head.

Specific performance

[25] Given the view he had taken of the agreement, the Associate Judge thought this was a clear case for specific performance. In our view the Associate Judge was correct to take this view.

[26] First, the parties did not expressly agree, nor as Mr Tingey said, could it be implied, that payment for damages was to be the only remedy for a breach of this agreement. The final clause of the collateral letter did not give the appellants a distinct general choice between performing the agreement or paying the stipulated amount of $375,000 after 31 October 2005. What the appellants had was only a limited opportunity to avoid the full consequences of the agreement by making a cash payment of $375,000 on 31 October 2005. It was only in that very limited circumstance that the appellants could escape from their obligations to perform the agreement in accordance with its terms. For their part, the respondents had performed all their obligations prior to 31 October 2005.

[27] Secondly, the order for specific performance was made to specifically perform an agreement for parcels of land, which the law has always viewed as being

unique. In Foreman v Hazard [1984] 1 NZLR 586 at 594 Richardson J said for this Court:

Land is always treated as being of unique value in respect of which the common law remedy of damages is inadequate so that the remedy of specific performance is available to the purchaser as a matter of course unless, following settled principles, the Court refuses the remedy.

[28] The appellants had specific obligations (see clause 14) to get on with the works, submit and then deposit a unit plan, and obtain registered certificates of title. It was their obligation to advance these matters and then to convey the apartments to the respondents. They did not do so.

[29] Thirdly, there were no sound countervailing reasons to refuse the remedy in this case. As at 31 October 2005, the agreement had already been partly performed by ASH through the release of the caveat (and equity) over the Station Road property (at [33] of the first judgment). Due to the non-payment of the $375,000, the agreement was not at an end and specific performance was still available as a remedy. The Associate Judge held (at [33] of his first judgment) that MrBegley's claims of potential loss and hardship caused by an order of specific performance were overstated. We can see no proper basis for interfering with that finding.

[30] Mr Black suggested that ASH is getting a disproportionate benefit through decrees of specific performance. This because the apartments at the date of transfer were valued at $585,000 and were subsequently sold for more than that sum. Reduced to essentials, in Mr Black's submission, ASH has had a kind of "unjust enrichment". This completely overlooks that the parties themselves had resolved this sort of issue. First, Mr Begley had the opportunity to make an "early" payment of $375,000; and secondly, the appellants' ability to engage in profit sharing was temporally limited by the agreement itself to the three-month period we have already discussed. The subsequent increase in value in the properties, accruing to the respondents, was a natural consequence of the transfer of the properties envisaged by the continuing agreement itself.

[31] Fourthly, Mr Black pointed to difficulties Mr Begley was said to have had in obtaining code compliance for the apartments to enable transfer of the apartments as

separate units and hardship caused by demands made by MrBegley's mortgagee to reduce a loan made against the apartments in question. The argument at its simplest is that it is not Mr Begley's fault that he has not complied. Indeed, Mr Black went further and endeavoured to sheet aspects of these matters home to ASH. As to that, the Associate Judge did not accept (see at [23] of the second judgment) that the failure to convey the apartments to ASH "has been due in any measure to actions or default by that company or Mr Davis".

[32] Mr Black said there was a clause in the agreement prohibiting ASH from lodging a caveat. However, the caveat was not lodged before the purported cancellation of the agreement by MTL. Given that event, ASH had to protect its position given that it had effectively paid, or been credited as paying, the entire purchase price and the vendor was refusing to convey. The caveat was limited to the interest that ASH had in the property.

[33] The Associate Judge noted that no request had been made to remove caveats over the development property to permit a dealing with apartments other than those affected by the agreement for sale and purchase. Further, ASH had been prepared to accept a transfer of the apartments notwithstanding code compliance issues which still remained outstanding. As the Associate Judge said, the only reason the apartments had not been transferred was due to issues between the appellants and their mortgagees (at [24] of the second judgment). The Associate Judge was not satisfied by the evidence under that head. And as he rightly said, even if there were difficulties of that character it was for the appellants and MrBegley's interests to address them "to ensure a release of apartments 4 and 10 from any mortgagee security" (at [24] of the second judgment). In short, if the appellants and MrBegley's interests were in difficulty with their mortgagees then that was self-induced and cannot be sheeted home to ASH.

The order against Mr Begley

[34] Mr Black raised one final matter for the appellants. The Associate Judge ordered that Mr Begley be held liable as a principal party pursuant to the terms of the agreement (at [54] of the first judgment). This meant that Mr Begley was liable to

ensure performance of the agreement and, subsequently, was liable to pay penalty interest at the contract rate on the sum of $375,000 from 31 October 2005 until the apartments were transferred (see [29] of the second judgment).

[35] Mr Black's argument was that the order should have been limited to MTL as the vendor of the property.

[36] In our view there is nothing in this appeal point. The Associate Judge's orders were clearly envisaged by the agreement in the collateral letter, which specifically provided that Mr Begley "undertakes the performance of all the above matters". In a loose sense he was a "guarantor"; more precisely, he assumed distinct contractual obligations which he has not complied with.

Conclusion

[37] The appeals are dismissed.

[38] The respondents will have costs of $8,000 and usual disbursements. We certify for second counsel.

Solicitors:
McVeagh Fleming, Auckland for Appellants
Hucker & Associates, Auckland for Respondents