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Court of Appeal of New Zealand |
Last Updated: 13 January 2015
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellants |
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AND
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First Respondents
GARY DAVID COX
Second Respondent
CONVEYANCING SHOP LAWYERS LIMITED
Third Respondent |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by Miller J)
Introduction
[1] This appeal concerns a property swap that was badly negotiated and documented, and went wrong in consequence.
[2] Michael Coughlan and Annemarie Wilson own one of the two properties, a tenanted home at Army Bay, Whangaparaoa. The first respondents, who are the trustees of Gary Cox’s family trust, own the other, at Pauanui. In December 2012 the parties agreed to exchange properties on the basis that no money would change hands and vacant possession would be given at Pauanui but Army Bay would remain tenanted.
[3] Agreements for sale and purchase were signed, but they did not accurately record the parties’ agreement. The parties addressed most of these deficiencies informally, by email or in dealings with one another, but they overlooked a mistake about price: through a solicitor’s error the agreements provided for a small price differential in Mr Cox’s favour. This caused trouble when it came to light at settlement. Mr Cox conceded, but not before Mr Coughlan and Ms Wilson had announced their intention to withdraw. They maintain that no binding contracts were ever formed; alternatively, that they cancelled the agreements in exercise of their rights. Rodney Hansen J in the High Court disagreed, ordered that they perform the agreements, and awarded damages.[1]
Narrative
[4] The material facts narrated in the judgment of Rodney Hansen J are not in dispute. We substantially adopt that narrative.
[5] Negotiations for the swap began in May 2012 and in October of that year solicitors were instructed. The Cox interests instructed Tara Wratten, of Daniel Overton & Goulding, and Mr Coughlan and Ms Wilson instructed Paul Jennings, of Conveyancing Shop Lawyers.
[6] On 7 December 2012 Mr Jennings sent to Ms Wratten agreements for sale and purchase for each property, using the Ninth Edition (2012) of the familiar REINZ/ADLS form. Mr Coughlan and Ms Wilson had signed them. The purchase price for Pauanui was specified as $425,000, and for Army Bay $419,000, a difference of $6,000. It is now common ground that those prices were wrong; the parties had agreed to swap properties with no money changing hands, but the Conveyancing Shop inserted the properties’ capital valuations. The evidence does not explain why. In her emailed instructions Ms Wilson had listed the capital values but added that no money would change hands.
[7] The agreements also provided that settlement was to take place on 12 December 2012. The swift settlement was attributable to the desire of Mr Coughlan and Ms Wilson to take possession at Pauanui in time for Christmas.
[8] On 5 December Ms Wratten had advised Conveyancing Shop by email that Mr Cox would purchase Army Bay in his own name. That advice appears to have been overlooked, for the agreement named the trustees as purchasers.
[9] The Army Bay agreement also omitted any reference to an agreement that Mr Coughlan and Ms Wilson would arrange for the withdrawal of an Auckland Council building consent for works that were never carried out. In an email of 20 November Ms Wratten had asked the Conveyancing Shop to include a provision to that effect. It may have been omitted because Ms Wilson had already taken steps to have the consent removed from the property file and it was seen as a formality.
[10] Nor did the Pauanui agreement reflect the parties’ negotiations about chattels to be included in the sale. They had agreed that certain chattels, which Ms Wilson recorded in a list, would be disposed of by the Cox interests before settlement. It seems she did not want them. The agreement provided in its standard printed terms that the stove, fixed floor coverings, blinds, curtains, drapes and light fittings were included in the sale; this provision was not struck out.
[11] Ms Wratten made handwritten amendments to the agreements to correct the three omissions just mentioned. She altered the Pauanui agreement to delete the chattels listed and substituted “chattels as agreed”, and she altered the Army Bay agreement to substitute Mr Cox as purchaser and to add a special condition that before settlement the vendors would provide written confirmation that the building consent had been withdrawn. She did not alter the prices; it seems Mr Cox had not told her that no money was to change hands.
[12] Mr Cox signed both agreements, the Pauanui agreement on behalf of the trustees. The agreements were dated 10 December 2012, the date on which he signed them.
[13] On 11 December, Ms Wratten sent the two agreements to Mr Jennings. She asked him to:
Please confirm the amendment to the contracts (requiring withdrawal of consent) is agreed and countersigned.
[14] Mr Jennings immediately sent the agreements electronically to Ms Wilson. She and Mr Coughlan were resident in Sydney and Ms Wilson conducted all their dealings with Mr Jennings via telephone or email. His email to Ms Wilson read:
Please see the attached signed agreements.
Settlement is currently scheduled for tomorrow however we are unsure if this will be sufficient time for your bank to arrange the transfer. Can you please confirm the contact details for the person at your bank who will be dealing with this matter?
It appears that he did not draw his clients’ attention to the changes and did not ask them to sign the agreements to signify acceptance. Neither he nor Ms Wratten gave evidence at trial. Nor did Ms Wilson, though a brief of evidence had been exchanged for her and she was present.
[15] There is no record of a response by Ms Wilson, but on the following day she told Mr Jennings that she had spoken to the Auckland Council about the building consent and the Council would, that day, email confirmation that the consent had been withdrawn. So she was proceeding on the basis that she and Mr Coughlan were to attend to that requirement. As it happens, withdrawal of the consent was a little less straightforward than anticipated. It was not attended to before Christmas.
[16] Mr Jennings did not respond to Ms Wratten’s request that he confirm that the amendment requiring withdrawal of consent had been agreed and countersigned. He turned to settlement, advising on 12 December that he was waiting to hear from Mr Cox’s bank and asking whether settlement could be delayed until 14 December.
[17] At that point a new development forced a delay in settlement. As noted, the parties had agreed that the Army Bay property would be transferred subject to an existing tenancy. On 12 December Ms Wilson learned that the tenant had given notice. This was problematic, because Mr Cox had arranged finance on the basis that the property would generate rental income. The tenancy had not been reflected in the signed agreement, the standard terms of which provided for vacant possession. It may be that the respective solicitors knew nothing about the tenancy; in a subsequent email to Mr Jennings Ms Wilson said she would deal direct with Mr Cox as “the rental side of things has nothing to do with Solicitors...”.
[18] It was swiftly agreed that settlement would be delayed until Ms Wilson had arranged a new tenant and the agreement would be conditional on a tenancy suitable to Mr Cox. The solicitors negotiated the term. On 12 December Ms Wratten sent the following email to Mr Jennings:
My client advises that it was agreed between him and your client that the property would be purchased tenanted. He understood that the tenant had been in there a year and recently signed a new agreement. He was not aware of any issues with paying rent.
He has obtained finance for the purchase based on the rental.
Can we please agree that the agreement should be conditional upon a new tenant being in the property and exchange of a tenancy agreement. My client will not be able to settle in the present situation.
Please keep us informed of progress.
[19] Mr Jennings replied shortly afterwards as follows:
Thanks for the email. I have updated my client and they will try to secure a new tenant once they sort out the issues with the current tenant.
We will keep you updated but we don’t expect any news prior to the end of year break.
[20] Early the following day, Ms Wratten sought confirmation of the proposed variation, writing to Mr Jennings as follows:
I’ve spoken again to my client. Can we please confirm a variation to the agreements that the property swap is conditional upon my client being satisfied in all respects with the tenancy arrangements regarding the property.
This may be in relation to the existing tenant or a new one, depending on the reasons for the current default and how it is being remedied.
My client understands that your client was planning on spending the Xmas period at the Pauanui property. He is happy to consider a rental arrangement for this purpose and suggests a rental of $400 per week (equating I understand to the rental on your client’s own property). Can you please take instructions and advise on this also.
[21] Mr Jennings sought instructions from Ms Wilson, writing as follows:
The purchaser of your property has asked if we can vary the agreement to add a clause that the agreement is conditional upon the approval of a tenancy (either the current one or any new one).
Additionally they have asked if you would still like to use the property over the Christmas period. They have suggested a rental of $400.00 per week should you wish to.
[22] Ms Wilson responded:
This is exactly what we were thinking also.
With the fact that we have already set up Electricity to the house, I will buy a cheap lounge suite to get us through just in case the deal falls over after Xmas.
This sounds fair. As the rental side of things has nothing to do with Solicitors or Real Estate Agents I will call Brenda to ask for Gary’s direct details to organise.
[23] This led Mr Jennings to tell Ms Wratten:
Our client agrees to make the arrangements conditional upon the approval of the tenancy for the property.
Our client is interested in renting your clients property for the Christmas period. They have said they will contact your client directly to try and arrange something.
[24] The parties agreed on a rental of $390 per week for Pauanui over the holiday period. Mr Cox’s evidence was that the market rate was $225 per night. The lesser figure was agreed because it corresponded to the rent Mr Cox could have expected to receive from the Army Bay property had settlement taken place before Christmas.
[25] The tenancy condition was not recorded in written amendments to the agreements for sale and purchase or signed, but it is not in dispute that it was agreed and that the parties agreed to delay settlement, without fixing a new date.
[26] Mr Coughlan and Ms Wilson occupied Pauanui over the summer break. They also arranged a new tenant for Army Bay. The tenancy agreement was signed on 17 December and the term commenced on 27 December, at a rent of $380 per week. It was a fixed term tenancy, expiring on 29 January 2014.
[27] Ms Wratten contacted Mr Cox on 23 January 2013 to ask what agreement the parties had reached about a settlement date and to inquire whether Ms Wilson had “sorted the tenancy situation”. Mr Cox then contacted Ms Wilson, and they agreed that settlement could take place on 8 February 2013. Mr Cox emailed Ms Wratten as follows:
Have heard back from [Ms Wilson] and its all on for Feb 8, what do we need? Copy of rent agreement? ANZ still OK?
[28] It appears from this email that Mr Cox knew a new tenancy existed but may not have seen the tenancy agreement. That inference finds support in an email of 4 February in which Ms Wilson sent him the tenancy agreement, writing in terms which took it for granted that the agreement was acceptable to him, and his evidence at trial, in which he stated that Ms Wilson had told him they had a new tenant (although in oral evidence he could not recall how she had communicated this information).
[29] In the same email Ms Wilson also told Mr Cox that the building consent issue had finally been resolved. She evidently understood that there were no further obstacles to settlement on 8 February.
[30] Also on 4 February, Ms Wratten emailed Mr Jennings, asking for a copy of the tenancy agreement and seeking confirmation that he had instructions to settle on 8 February. Mr Jennings responded:
I have just spoken to our client. They agree everything is on track to settle Friday 8 February 2013.
[31] He added that his client (he seems to have written habitually in the singular, perhaps because he took his instructions from Ms Wilson) had had “verbal” confirmation that the outstanding building consent would be withdrawn that day, and that they had advised they had the new tenancy agreement and would forward it to him shortly. He duly emailed it to Ms Wratten on 5 February. She responded that day, saying:
Thanks Paul, I think he is going to continue with them to begin with.
It is not in dispute that this was a reference to the tenant at Army Bay.
[32] Clause 9.8(4) of the agreement provided that a condition was deemed unfulfilled until notice of fulfilment was given in writing.[2] Ms Wratten did not formally notify Mr Jennings that the tenancy condition had been satisfied.
[33] Settlement statements were exchanged in anticipation of settlement on 8 February. Ms Wratten sent hers on 4 February and Mr Jennings sent his the following day. The statements disclosed the price differential of $6,000 in the agreements.
[34] Instructions were taken. Mr Jennings told Ms Wratten that his client understood the transaction was to be a “straight swap”. Although Mr Cox conceded at trial that it was indeed to be a straight swap, he chose at the time to exploit the error, telling Ms Wratten that there had always been a difference in price because the capital values differed. Ms Wratten passed that instruction to Mr Jennings by email of 7 February. Mr Jennings insisted, but Mr Cox would not concede; Ms Wratten advised that he was “adamant that the figures as recorded in the agreements are correct”. In consequence of this dispute, settlement did not proceed on 8 February.
[35] Mr Cox proposed to split the difference, but that proposal was rejected and Ms Wilson told him they were “walking away”. On 13 February Mr Jennings advised Ms Wratten that his clients:
... no longer wish to go through with the property swap due to the number of issues that have arisen.
[36] In an email of 14 February Ms Wratten interpreted this as an attempted repudiation, to which Mr Cox took exception, having rented the Pauanui property to Mr Coughlan and Ms Wilson “at a discount all summer”. She advised that Mr Cox was now prepared to settle on the basis of equal values, and proposed to settle on 15 February.
[37] But Mr Coughlan and Ms Wilson were no longer prepared to settle. They maintained that the agreements were at an end, they returned the keys to the Pauanui property, and they ignored settlement notices issued on 19 February. Mr Cox soon lodged a caveat over the Army Bay property and sustained it after a defended hearing before Associate Judge Bell, setting the scene for the trial.[3]
The High Court judgment
[38] The trial was held before Rodney Hansen J on 4 February 2014. Mr Cox gave evidence, as did Mr Coughlan, who maintained that he authorised neither Ms Wilson nor the Conveyancing Shop to commit him to any agreement. As noted, Ms Wilson could have given evidence but did not. Noting that Ms Wilson had all their dealings with the Conveyancing Shop, and most of their dealings with Mr Cox, and invoking the rule in Jones v Dunkel,[4] the Judge inferred that her evidence could not have helped the defence case.[5] It is not in dispute that that inference was available to him. Mr Illingworth QC, who was not trial counsel, wisely did not contest the Judge’s finding that Ms Wilson had full authority to instruct the Conveyancing Shop on the couple’s behalf. There was no appearance for the Conveyancing Shop, and no evidence from the respective solicitors.
[39] The Judge held that agreements were concluded; Mr Jennings had authority to agree to the amendments and the words and conduct of Ms Wilson provided compelling evidence that she actually accepted them. That was sufficient to displace the presumption that parties who contemplate a signed agreement do not intend to be bound before execution. There was also a sufficient record in writing for purposes of s 24 of the Property Law Act 2007; it comprised the signed agreements and the connected series of emails that followed. He found on the facts that Ms Wratten had impliedly given notice of fulfilment of the tenancy condition, and that Mr Cox made it clear that he wished to settle.[6]
[40] The Judge accordingly ordered that Mr Coughlan and Ms Wilson specifically perform the two agreements for sale and purchase on a straight swap basis. He also awarded damages calculated by reference to the rental that would have been paid under the new Army Bay tenancy, less interest on the purchase price. He declined to award interest on damages.
The issues
[41] The parties are agreed on the issues. The first general issue is whether enforceable contracts were created when all of the terms were not recorded in a written agreement and signed by both parties. In the High Court it was argued that there was no sufficient writing and signature for purposes of s 24 of the Property Law Act, but that point is not pursued on appeal. The question rather is whether the parties did not intend to be bound until all the terms of their agreement had been reduced to writing and signed.
[42] The respondents say that although amendments to the agreements for sale and purchase were not initialled by the appellants, the omission was bridged by the conduct of their solicitor. That raises a subsidiary issue; whether Mr Jennings had authority to bind his clients in that way, or was merely instructed to document an agreement.
[43] We record that it was not argued that mistakes in the written agreements, notably over price, vitiate concluded agreements or afford a remedy in themselves. Mistake was not pleaded, and Mr Illingworth recognised that it is too late to raise it now. Rather, he submitted that the parties never formed agreements.
[44] The second general issue relates to the amendment which excluded the two trustees originally named with Mr Cox as purchasers at Army Bay. The appellants say that for that reason alone no binding agreement was concluded; the identity of the parties was essential, they did not agree to the change, and their solicitor’s conduct did not “bridge the offer and acceptance gap”.
[45] The third general issue is whether the respondents’ solicitors ever gave notice that the tenancy condition for the Army Bay property was satisfied. There is a subsidiary question; whether, the condition not having been satisfied, the appellants were entitled to avoid the agreement pursuant to cl 9.8(4) and (5) of the agreement.
[46] The final issue is whether damages should have been quantified in accordance with cls 3.13(2)(b) and (5) of the agreements; that is, on the basis of amounts actually paid and received.
Was a contract formed?
[47] Mr Illingworth argued that no contract was formed, for the evidence confirmed that the parties did not mean to be bound until all of the terms of their agreement had been reduced to writing and signed. He cited the well-known authorities which establish that in New Zealand conveyancing practice an agreement for sale and purchase is normally concluded by having vendor and purchaser sign the document on which their agreement is recorded.[7] Counsel emphasised that the parties had their solicitors draw up agreements in accordance with the normal practice but also correctly treated the amended agreement which Ms Wratten forwarded to Mr Jennings on 11 December 2012 as a counter-offer.
[48] It is well-established that where parties arrange to reduce their agreement to writing for signature they do not ordinarily intend to be bound until they have signed the document. But as this Court held in Carruthers v Whitaker, that is a presumption which can be displaced on the facts.[8] The question in any given case is whether, viewed as a whole and objectively, the evidence discloses a completed agreement.[9]
[49] Rodney Hansen J held on these facts that there was “compelling evidence” that the counter-offer was accepted and a binding contract concluded from no later than 12 December 2012.[10]
[50] We agree. We begin by observing that both parties did affix their signatures to the agreements for sale and purchase, and nothing that happened in the period between execution and settlement date derogates from the inference that they intended to be bound. The conduct of the parties after execution is admissible for this purpose.[11] Further, some of the amendments, such as the chattels list and the building consent withdrawal, were mere corrections. The identity of the purchaser might have been material in other, indeed most, circumstances but it was not in this case (a point to which we will return). The tenancy condition was a correction – it had always been agreed that Army Bay would be sold tenanted – and was undoubtedly confirmed in the post-contract negotiations. We agree with the trial Judge that the objective evidence establishes that both parties understood from 12 December that they were bound, and behaved accordingly
[51] We do not find it necessary to rest this conclusion on the authority of Mr Jennings to bind his clients to the counter-offer, but we agree with Rodney Hansen J that he had that authority.[12] Of course a solicitor may be engaged merely to document a transaction.[13] Indeed, that was the function for which Mr Jennings and Ms Wratten were primarily engaged; the parties negotiated the substance of the agreement before engaging solicitors, and afterward they continued to negotiate with one another, notably about the tenancy. We also accept that an agent cannot confer authority on himself merely by asserting it.[14] But on the facts, the trial judge held that Mr Jennings did have the necessary authority:
[31] It is also clear that the authority of the Conveyancing Shop was not simply confined to preparing the documents and presenting them for execution, as it was initially instructed to do. That task was carried out with such conspicuous carelessness that matters already agreed and documented were omitted. I refer in particular to the requirement to withdraw the building consent and the omission of the tenancy of Army Bay. What is clear, however, from the subsequent course of dealing is that the Conveyancing Shop’s agency extended well beyond the preparation of documents and included authority to bind their clients. That is clear from the exchanges which led to Mr Jennings confirming that the agreement was conditional on approval of the new tenancy of Army Bay.
[52] We accept that the specific tenancy condition was negotiated after 12 December 2012, but it nonetheless justifies the Judge’s inference that the solicitors’ role was not confined, as Mr Illingworth would have it, to preparing formal agreements for the parties to peruse and sign. The parties had signed the agreements and it was now a question of negotiating amendments. It is not surprising that the parties would allow their solicitors to do that, and the evidence confirms that they did.
[53] By way of an alternative argument, Mr Illingworth contended that an estoppel arose when Ms Wratten asked Mr Jennings to have his clients sign the amendments, such that it would now be unreasonable to rely on informal and ambiguous email communications as evidence of agreement. This seems to us misplaced. The question is whether legal rights exist, not whether equity should intervene to prevent their exercise. We readily accept that Ms Wratten’s email is evidence that the parties did not mean to be bound until the amendments were initialled. Had the parties stopped there the email might have been conclusive. But they continued to transact in unmistakeable pursuit of settlement, notably by allowing Mr Coughlan and Ms Wilson into possession at Pauanui. On the facts the trial Judge held, and we agree, that the parties’ conduct between 12 December and 8 February provides compelling objective evidence that they intended to be bound by the amended agreements.
[54] This ground of appeal fails.
Was an enforceable contract created although the identity of the Army Bay purchaser changed?
[55] Mr Illingworth submitted that no document shows the change of parties was brought to the appellants’ attention, considered by them, and accepted. He observed that Ms Wratten’s email forwarding the amended agreements did not mention the change of parties, and argued that the subsequent emails do not sufficiently evidence the appellants’ agreement to the change of parties. He emphasised that the identity of the purchaser is an important, indeed essential, term of a contract.
[56] On the facts, however, this was a property swap and there is no reason to suppose that the identity of the respective purchasers mattered, so long as the respective vendors were bound. There is nothing to suggest that Mr Coughlan and Ms Wilson attached significance to the presence of the two trustees, in addition to Mr Cox. Mr Cox was known to be in a weak financial position – there were arrears of rates at Pauanui – but Mr Coughlan and Ms Wilson were not taking a credit risk on him.
[57] In these circumstances, we think Rodney Hansen J was right to find inconsequential the removal of Mr Cox’s co-trustees as purchasers at Army Bay.[15] For the reasons already given, we agree that the objective evidence of subsequent conduct shows that the amendments were accepted, including the change of parties.
Was the tenancy condition satisfied, and could the appellants
cancel for
non-fulfilment?
[58] Clause 9.8 of the standard form agreements provided relevantly:
9.8 If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:
(1) The condition shall be a condition subsequent.
(2) The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.
(3) Time for fulfilment of any condition and any extended time for fulfilment to a fixed date shall be of the essence.
(4) The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.
(5) If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other. Upon avoidance of this agreement the purchaser shall be entitled to the immediate return of the deposit and any other moneys paid by the purchaser under this agreement and neither party shall have any right or claim against the other arising from this agreement or its termination.
(6) At any time before this agreement is avoided the purchaser may waive any financial condition and either party may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.
[59] As Rodney Hansen J recorded, the parties did not specify the date by which the condition must be satisfied and it was common ground that the settlement date, being the latest available date, became the relevant date. It is not in dispute that fulfilment is effective if it occurs after that date but before the other party has avoided the agreement. For this purpose we take Mr Jennings’ email of 13 February 2012 as notice of avoidance.
[60] The Judge found that notice was implicit in Ms Wratten’s email of 5 February.
[49] Neither Mr Cox nor his solicitor gave express notice that the condition had been fulfilled. However, following receipt of the tenancy agreement, Ms Wratten advised Mr Jennings that she thought Mr Cox “is going to continue with them to begin with”. The reference to “them” is clearly to the new tenant, to whom Mr Cox had the right to give four weeks’ notice. In my view, it was implicit in Ms Wratten’s advice that the tenancy agreement was accepted, notwithstanding that Mr Cox had not made a final decision to continue with the tenancy. That is plainly how Ms Wratten’s advice was understood as Mr Jennings responded by sending an amended settlement statement in anticipation of settlement on 8 February.
[61] As the Judge also found, at no time before Mr Coughlan and Ms Wilson gave notice on 13 February that they did not intend to proceed was there any suggestion that Mr Cox had failed to give notice of fulfilment.[16] It was only the controversy over the price differential that prevented settlement.
[62] The Judge noted that although notice of fulfilment must be in writing, a recipient of an oral notice may be estopped by conduct from denying the validity of the notice.[17] He did not find that Mr Coughlan and Ms Wilson were estopped in this case, apparently content to rest his decision on his finding that notice of fulfilment was implicit in Ms Wratten’s email.
[63] Mr Illingworth argued the Judge was wrong: in particular, Ms Wratten said only that she thought Mr Cox would continue with the tenancy to begin with, which was equivocal, and the exchange of settlement statements means nothing; that might happen in anticipation of a condition being fulfilled. In the circumstances, Ms Wratten’s email could not amount to written notice that the tenancy condition had been fulfilled.
[64] Non-fulfilment of the tenancy condition was not pleaded, but Mr Parmenter pragmatically did not object when it was raised at trial. He argued that the Judge was correct to find that notice of fulfilment had been given; alternatively, by their conduct Mr Coughlan and Ms Wilson became estopped from denying fulfilment, for the tenancy agreement was provided and was in fact acceptable, and Mr Coughlan and Ms Wilson then confirmed settlement for 8 February. The point we understand counsel to be making here was that the settlement date had remained flexible, 8 February being nominated only because every precondition to settlement, including satisfaction of the tenancy condition, had been satisfied; that being so, an estoppel arose when Mr Jennings sent the amended settlement statement and arranged for settlement on 8 February.
[65] We are not persuaded that the Judge was wrong to find that Ms Wratten’s email was sufficient notice of fulfilment in the circumstances. We emphasise several points. First, the settlement date was flexible; it awaited satisfaction of the preconditions to settlement, namely the tenancy and the building consent withdrawal. 8 February was agreed precisely because those things had been attended to. Second, the parties had agreed, without relying on their solicitors to communicate on their behalf, that they were now ready to settle. Ms Wilson had arranged the tenancy, clearly confident that it would be suitable to Mr Cox. She agreed with him that, the tenancy being in place, the parties could settle on 8 February. Mr Jennings then confirmed that everything was on track to settle. Third, in these circumstances the equivocation in Ms Wratten’s email may be interpreted not as evidence that the condition remained to be satisfied – as a matter of fact the tenancy plainly was acceptable, and she must have known the clients had discussed it – but as an intimation, of no contractual significance, that Mr Cox might or might not carry on with that particular tenant. Fourth, the tenancy condition was agreed for Mr Cox’s benefit and he was plainly willing to waive written notice; it is a short step to an inference that the appellants were equally content. Fifth, we agree with the Judge that the parties’ subsequent behaviour is consistent with an understanding that the condition had been satisfied; it is only because of the dispute over price that they did not settle on 8 February. Finally, there is a sense in which the appellants are exploiting an ambiguity in the evidence which may well be attributable to their pleading. Had they pleaded non-fulfilment before evidence was exchanged, Mr Cox could have been expected to elaborate in evidence-in-chief upon his discussions with Ms Wilson about the tenancy.
[66] In the result, it is we think immaterial whether the evidence is interpreted as notice of fulfilment in writing or by oral agreement coupled with waiver of written notice. This ground of appeal fails.
Damages
[67] Mr Cox sought damages corresponding to rental “not received” for the Army Bay property for the period from 8 February 2013 until settlement pursuant to specific performance, at the rate of $380 per week. That was the rate agreed in the new tenancy established in December 2012, the term of which expired on 29 January 2014.
[68] As it happened, Mr Coughlan and Ms Wilson allowed the tenant to terminate the December 2012 tenancy; that suited them because they decided in February 2013 to resell the Army Bay property with vacant possession. The resale fell through, presumably when Mr Cox caveated the title. The appellants then re-let the property on 18 July 2013, at $420 per week. It appears that tenant then fell into substantial arrears of rent, so that the amount actually received by way of rent at trial was $11,760. The appellants argued that only rent actually received is recoverable.
[69] Clause 3.13(5) of the agreements for sale and purchase provides:
If this agreement provides for the property to be sold tenanted then, provided that the purchaser provides reasonable evidence of the purchaser’s ability to perform the purchaser’s obligations under this agreement, the vendor shall on settlement account to the purchaser for incomings which are payable and received in respect of the property during the default period less the outgoings paid by the vendor during that period. Apart from accounting for such incomings, the vendor shall not be liable to pay any other moneys to the purchaser but the purchaser shall pay the vendor the same amount as that specified in subclause 3.13(2)(b) during the default period.
[70] The “default period” is the period from settlement date until the date on which settlement actually occurs.[18] The clause establishes an offsetting obligation for the purchaser to pay the amount specified in cl 3.13(2)(b), which provides:
(b) the purchaser shall pay the vendor an amount equivalent to the interest earned or which would be earned on overnight deposits lodged in the purchaser’s lawyer’s trust bank account on such portion of the purchase price (including any deposit) as is payable under this agreement on or by the settlement date but remains unpaid during the default period less:
(i) any withholding tax; and
(ii) any bank or legal administration fees and commission charges; and
(iii) any interest payable by the purchaser to the purchaser’s lender; during the default period in respect of any mortgage or loan taken out by the purchaser in relation to the purchase of the property.
[71] However, Rodney Hansen J accepted Mr Parmenter’s submission that Mr Cox was entitled to damages at common law, because cl 3.13(6) preserves that entitlement.[19] The clause reads:
The provisions of this subclause 3.13 shall be without prejudice to any of the purchaser’s rights or remedies including any right to claim for any additional expenses and damages suffered by the purchaser.
[72] Accordingly, the Judge awarded damages calculated by reference to the rental that would have been paid under the December 2012 tenancy, less (by analogy with cls 3.13(5) and (2)(b)) interest which would or could have been earned on the purchase price.[20] He left it to the parties to calculate that sum. As noted, he refused interest on damages. He also refused Mr Coughlan and Ms Wilson a credit for rent that had been earned on the Pauanui property, which had been let since 5 September 2013.
[73] Mr Illingworth argued that the statement of claim pursued damages for rent actually not received; it did not extend to rent that would have been received had the appellants not terminated the December 2012 tenancy. If common law damages were to be awarded, a deduction should have been allowed for the costs of earning the rent, notably rates and insurance. He also argued that there was no evidence establishing the market rent or, for that matter, amounts payable by the purchaser under cl 3.13(2)(b).
[74] The pleading point does not appear to have been taken at trial, and it does not appear that Mr Cox’s claim for rent he ought to have received at Army Bay took anyone by surprise. In the circumstances it is too late to take the point now.
[75] With respect to the evidential point, we reject the submission that there is no evidence of market rent; the two tenancy agreements establish that $380 was a market rent. That does not seem to have been in dispute at trial, where the issue was simply whether cl 3.13(5) limited Mr Cox to rent actually received.
[76] Equally, it is we think too late for Mr Cox to complain that there was no evidence of rent arrears under the tenancy entered in July 2013. The evidence is contained in a schedule which is in the bundle of documents, but Ms Wilson was to produce it and of course she did not give evidence. Mr Parmenter took the point before us that Mr Coughlan, who did give evidence, knew nothing about the details. But Mr Coughlan was cross-examined on the schedule on the basis that it was in the bundle, and the Judge relied on the schedule without opposition.
[77] We accept, as Rodney Hansen J did, that the agreements for sale and purchase preserve the right to claim damages at common law, so that Mr Cox was not limited to the remedy in cl 3.13(5).[21] Indeed, Mr Illingworth did not dispute that. The question is how those damages ought to be quantified. To the extent that the record does not permit us to fix them, Mr Illingworth invited us to remit damages to the High Court for further evidence.
[78] It is not in dispute that delay in settlement foreseeably caused Mr Cox loss, in the form of lost rent from the Army Bay property. The measure of damages at common law is the rental value of the property from settlement date until actual completion.[22] It includes not only rent received but also rent that would have been received but for the vendor’s default.[23] Damages may be reduced by the amount of expenses that the purchaser would have incurred earning that income but has in fact avoided.[24] This may include rates, for example.[25]
[79] Accordingly, subject to the offsetting liability discussed below, Mr Cox is entitled to damages based upon rent at $380 per week until completion. That entitlement is subject to the proviso that the vendors are not liable to pay any amount that they failed to earn in fact where such failure is not attributable to their default. On the facts, their decision to allow the tenant to terminate the December 2012 tenancy without re-letting is attributable to their default, but defaults by the subsequent tenant may not be. A deduction must be made for costs that Mr Cox would have incurred when earning the rent but has in fact avoided. This includes rates and insurance on the property but not mortgage interest, the latter being a cost that Mr Cox has continued to pay under the mortgage which he was to transfer from Pauanui to Army Bay.
[80] The Judge also directed that Mr Coughlan and Ms Wilson would have a credit for interest which was or could have been earned on the purchase price. When this formula is used, the offsetting credit for the notional net interest cannot exceed the rent less expenses, on the principle that the vendors may not benefit from their own default.[26]
[81] We were troubled that this formula for calculating the net loss recoverable by a purchaser not in default was artificial when applied to one side of a property swap. Mr Cox depended on the Pauanui property to settle the Army Bay purchase, so he would not have been able to place the amount required to pay for the Army Bay property on deposit to earn interest pending the delayed settlement.
[82] At the same time, whilst the Pauanui property was not being sold subject to tenancy, it clearly was tenantable and there was evidence of the market rent for it. Putting aside the specific formula for calculating damages in the agreement for sale and purchase, the obligation to mitigate loss that applies at common law would arguably oblige Mr Cox, in the circumstances of this property swap, to make all reasonable endeavours to recover rent throughout the period in which he continued to own the Pauanui property. If that were so, and if the rent he could have received from the Pauanui property exceeded the credit that the Judge gave Mr Coughlan and Ms Wilson for interest notionally earned on the purchase price, then a form of unjust enrichment could result.
[83] This alternative formula for quantifying damages was not argued before us and the reservation we have identified is not sufficient, either as a matter of principle, or in view of the likely amounts involved, to justify imposing a different outcome. Our sense is that the difference is not likely to be significant in financial terms. Further, the parties have conducted the proceedings throughout on a basis that ignores the status of their obligations under the contemporaneous contract in relation to the Pauanui property. It would not be appropriate to attribute a common law obligation for Mr Cox to mitigate his loss by taking all reasonable steps to let the Pauanui property throughout the entire period, when that issue was not tested at trial.
[84] We accordingly approve the formula for quantification of damages as formulated in the High Court judgment and qualified above. There was no
cross-appeal against the Judge’s decision that Mr Cox would be denied interest on the damages, but we record our agreement with his reasons.
[85] The case must be remitted to the High Court to fix damages. The trial Judge has now retired. We observe that an Associate Judge may determine quantum under s 26I(1)(d) of the Judicature Act 1908, but that is of course a matter for the High Court. We urge the parties and their advisers to reach agreement on quantum. The measure is tolerably clear and the scope for disagreement should be limited.
Result
[86] The appeal against the order for specific performance fails. We order that settlement take place on 23 January 2015 or within 10 working days of the appellants notifying Mr Cox’s solicitor that they are ready to settle, whichever is the sooner.
[87] Mr Cox is entitled to damages calculated in accordance with this judgment. We are not in a position to quantify damages. The proceeding is remitted to the High Court for that purpose.
[88] The first and second respondents are entitled to one set of costs as for a
standard appeal on a band B basis, with usual
disbursements.
Solicitors:
Simpson Dowsett Mackie,
Auckland for Appellants
Daniel Overton & Goulding, Auckland for First and
Second Respondents
[1] Cox v Coughlan [2014] NZHC 164 [High Court decision].
[2] Per cl 1.3(1) of the standard form agreement, all notices must be served in writing.
[3] Cox v Coughlan [2013] NZHC 973.
[4] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298. See also Ithaca (Custodians) Ltd v Perry Corp [2004] 1 NZLR 731 (CA) at [146]–[156].
[5] High Court decision, above n 1, at [28].
[6] At [50].
[7] Carruthers v Whitaker [1975] 2 NZLR 667 (CA); Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd [1981] 2 NZLR 385 (CA); and Wilmott v Johnson [2002] NZCA 309; [2003] 1 NZLR 649 (CA).
[8] At 672. See also Concorde Enterprises Ltd, above n 7, at 389.
[9] Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 (CA) at 566.
[10] High Court decision, above n 1, at [33].
[11] Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 (CA) at [56].
[12] At [30]–[31].
[13] Smith v Webster (1876) Ch D 49 (CA) at 58 per Lush J cited with approval in New Lynn Borough v Auckland Bus Co Ltd [1964] NZLR 511 (SC) at 514.
[14] Savill v Chase Holdings (Wellington) Ltd [1988] NZCA 113; [1989] 1 NZLR 257 (PC); Armagas Ltd v Mundogas SA [1985] UKHL 11; [1986] 1 AC 717 (HL). See too Pascoe Properties v Attorney-General [2014] NZCA 616.
[15] At [32].
[16] At [50].
[17] At [47].
[18] Clause 3.13(1)(a)(iii) of the standard form agreement.
[19] High Court decision, above n 1, at [57].
[20] At [57].
[21] Raineri v Miles [1981] AC 1050 (HL) and D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [11.20].
[22] Royal Bristol Building Society v Bomash (1887) 35 Ch D 390 (Ch).
[23] Howell v Howell [1837] EngR 869; (1837) 2 My & Cr 478, 40 ER 722 (Ch).
[24] Cottrill v Steyning & Littlehampton Building Society [1966] 1 WLR 753 (QB).
[25] McLean v Grace [1953] NZLR 566 (SC) at 573.
[26] Fraser v Perpetual Trustees Estate & Agency Co of New Zealand Ltd [1978] 1 NZLR 620 (SC) at 624; Esdaile v Stephenson (1822) 1 Sem & St 122[1822] EngR 637; , 57 ER 49 (Ch).
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