Fraser v McHardy [2018] NZCA 545 (30 November 2018)

Last Updated: 7 December 2018

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA206/2018 [2018] NZCA 545

	BETWEEN	WAYNE FRASER Appellant
	AND	GRAEME REX MCHARDY AND IAN GEORGE MCHARDY Respondents

Hearing:	5 November 2018
Court:	Kós P, Lang and Moore JJ
Counsel:	G A Paine and M J Taylor-Cyphers for Appellant T G A Manktelow for Respondents
Judgment:	30 November 2018 at 4.00 pm

JUDGMENT OF THE COURT

1. The appeal is dismissed.
2. The appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Lang J)

[1] This appeal requires the Court to determine whether the appellant, Mr Fraser, entered into a binding agreement to purchase a rural property owned by the respondents, Ian McHardy and his brother, Graeme McHardy.
[2] Mr Fraser sought an order from the High Court requiring the respondents to specifically perform a contract for the sale of the property that he contended he had entered into with them in June 2016.
[3] Mr Fraser’s claim proceeded to trial in the High Court at Palmerston North on 5 and 6 March 2018. In a judgment issued on 27 March 2018 Thomas J dismissed Mr Fraser’s claim on the basis that no binding agreement for the sale of the property had come into existence.^[1] Mr Fraser appeals against the Judge’s decision.

Background

[4] The McHardy brothers had farmed the property, referred to at trial as the Hill Block, in partnership at the end of 2013. Mr Fraser became interested in purchasing the Hill Block after he carried out contracting work for the McHardy brothers on the property shortly after they acquired it.
[5] Mr Fraser initially discussed the purchase of the Hill Block with Ian during the latter part of 2015. Ian told him he expected the property would fetch around $440,000 if it was sold on the open market. It was common ground at trial that Mr Fraser never spoke to Graeme at any stage regarding the purchase of the property.
[6] These discussions were initially prompted by the fact that the McHardy brothers were interested in purchasing a block of land adjoining another property farmed in partnership by Ian’s wife, Diane, and their son Logan. The sale of the Hill Block provided a means by which they could finance the purchase of this property, which was to be the subject of an auction on 4 March 2016.
[7] In early 2016, Ian met with his bank manager to discuss funding for the proposed purchase. The bank manager told him any application for loan finance would need to be accompanied by a signed agreement for the sale and purchase of the Hill Block, together with a deposit equivalent to ten per cent of the sale price. Ian told Mr Fraser of the bank’s requirements but neither sale proceeded further at that stage.
[8] Mr Fraser and his wife Samantha remained interested in purchasing the Hill Block. In February 2016, he and his wife visited Samantha’s parents who lived in Cape Town. During their visit they told Samantha’s parents of their desire to purchase the Hill Block. This prompted Samantha’s parents to say they would sell a property they owned in Cape Town and advance the sale proceeds to Samantha and Mr Fraser so they could purchase the Hill Block.
[9] In April 2016, Samantha’s parents placed their property in Cape Town on the market. Mr Fraser and his wife also consulted a trust company at about this time to update their wills and form a trust that would be used if they purchased the Hill Block.
[10] In May 2016, the McHardy brothers became interested in purchasing another parcel of land adjoining the property farmed by Diane and Logan. This property had been advertised for sale with a closing date for tenders of 16 June 2016. This led Ian and Mr Fraser to resume negotiations regarding the sale and purchase of the Hill Block.
[11] The Judge found that at a meeting between Ian and Mr Fraser that probably occurred in June 2016, Ian handed Mr Fraser a note (the note) containing the following information:^[2]

Chattels

The purchase includes the Following Chattels

Woolsed [sic] and Shearing Plant $(1,000)

Water Pump ($400-00)

Agreed Price

$440,000-00

[12] At or about the same time, Ian provided Mr Fraser with copies of the certificates of title for the Hill Block. Mr Fraser said he took the note to be an offer by the McHardy brothers to sell the Hill Block and chattels to him for the sum of $440,000. He immediately accepted the offer.
[13] Samantha subsequently instructed an online law firm in relation to the proposed purchase of the Hill Block. The firm prepared an agreement for sale and purchase of the property (the written agreement). She said she believed this was necessary to satisfy the requirements of Ian’s bank. Mr Fraser and Samantha signed the written agreement and delivered it to Ian at his home on 5 July 2016. Ian told him that his brother Graeme was currently away, but that he would get Graeme to sign the written agreement on his return. Ultimately, however, neither of the brothers signed it.
[14] Mr Fraser said Samantha’s parents confirmed on 17 July 2016 that their property in Cape Town had been sold. He said he immediately sent Diane a text message advising her of this fact, and confirming that matters remained on track for the sale of the Hill Block to be completed in October.
[15] On the following day Ian advised Mr Fraser that another person was interested in purchasing the Hill Block. This person had advised Ian that he was prepared to make an unconditional offer to purchase the property for the sum of $520,000. Ian gave Mr Fraser an opportunity to match this price, but he was unable to come up with a better offer.
[16] The McHardy brothers subsequently entered into an agreement to sell the Hill Block to the third party. That sale was initially conditional on the resolution of any claim Mr Fraser might bring, but the McHardy brothers subsequently waived that condition. The sale to the third party has now been completed, meaning that an order for specific performance could not now be made if Mr Fraser’s claim is successful. His only remedy at this stage lies in damages.

Mr Fraser’s claim

[17] As originally pleaded, Mr Fraser’s claim was based on a “partly written and partly oral contract” to purchase the Hill Block from the McHardy brothers. The statement of claim then alleges:

5. The defendant prepared a memorandum in writing and forwarded same to the plaintiff together with copies of the Certificates of Title ...
6. The memorandum in writing stated the chattels to be sold with the purchase and the price for the chattels and noted are the agreed price of the purchase at $440,000.00.
7. The plaintiff and defendants agreed that the plaintiff would provide some form of documentation to the defendants to enable the defendants to borrow money from their bank.
8. The plaintiff and the defendants agreed that the agreement was conditional on the plaintiff entering into an unconditional agreement for the sale of a property in Capetown, South Africa, and that settlement date would be extended by 30 days if the plaintiff’s property in South Africa had delays in settlement.

[18] It has always been common ground that the absence of any document signed by the McHardy brothers meant Mr Fraser could not satisfy the requirements of ss 24 and 25 of the Property Law Act 2007. These sections relate to the enforceability of contracts for the disposition of land or interests in land. In order to be enforced by action, such contracts must be in writing and signed by the person making the disposition.
[19] To overcome this hurdle Mr Fraser relied on the doctrine of part performance. The requirements as to enforceability under the Property Law Act do not affect the doctrine of part performance.^[3] The statement of claim therefore contained an allegation that, in part performance of the agreement, Mr Fraser “arranged by [sic] the sale of the South African property, at a lesser value than what was sought to enable [Mr Fraser’s] contract with [the McHardy brothers] to be declared unconditional.”
[20] During the hearing before us, Mr Paine, on behalf of Mr Fraser, initially argued that the contract was partly written and partly oral. The written portion of the contract comprised the note that Ian delivered to Mr Fraser in June 2016. The oral portion of the contract related to the agreement being conditional on Mr Fraser arranging the unconditional sale of the property in Cape Town.
[21] During the course of the hearing, however, Mr Paine altered his stance significantly. He contended that the note amounted to an unconditional offer by the McHardy brothers to sell the Hill Block and agreed chattels to Mr Fraser for the sum of $440,000. Mr Paine submitted that Mr Fraser’s acceptance of the terms set out in the note created an unconditional contract. As we read the Judge’s decision, this was also the basis on which Mr Paine had argued the case for Mr Fraser at trial.

Decision

[22] Mr Paine’s argument faces several obstacles. First, it proceeds on the basis that Ian had the ability to bind his brother to an agreement to sell the Hill Block even though his brother had never been a party to the discussions with Mr Fraser. We do not consider the evidence established any actual authority on Ian’s part to bind his brother in that way. Furthermore, Mr Fraser confirmed he knew Graeme was one of the owners of the Hill Block and would need to agree to the terms of the sale for that reason. Mr Fraser also knew Graeme would need to sign the written agreement he delivered to Ian on 5 July 2016. Mr Fraser said he believed Ian had obtained his brother’s agreement to sell the property to Mr Fraser, but he did not say why he believed that was the case.
[23] Section 8 of the Partnership Act 1908 provides that a member of a partnership will bind the remaining partners where he or she “does any act for carrying on in the usual way business of the kind carried on by the firm”. As the Judge observed, Mr Fraser conceded in cross-examination that a transaction such as the sale of the Hill Block did not come within the ordinary course of business of the partnership.^[4]
[24] Although the issue was not traversed at trial or before us, there may also be a distinction for the purposes of s 8 between a farming operation conducted through a partnership and the terms on which individual members of a partnership own the land on which the partnership conducts its business. The application of s 8 in the latter situation may depend on whether the land is a business asset of the partnership rather than an asset of the individual owners.
[25] Putting that issue to one side, the note contains a very limited amount of information. That fact is not determinative because the first question to be determined is whether the parties intended the note to have contractual force. In order to determine this issue, the court may consider the circumstances of the transaction, the conduct of the parties after any alleged agreement has been concluded and any evidence from the parties themselves regarding their intentions.^[5]
[26] Where the court concludes the parties had the necessary contractual intention, it will endeavour to give effect to that intention by finding ways to remove, or reduce to a tolerable level, any uncertainty as to the terms of the agreement.^[6] The court may be assisted in this task where there is appropriate machinery, or reference points, to define the scope of the obligations created by the contract. In the absence of these, the contract may fail for lack of certainty.
[27] The note relied upon by Mr Paine in the present case does not set out the identity of the contracting parties and does not specify the land to which it relates. We do not consider either of those omissions to be fatal. The parties were obviously negotiating the sale of the Hill Block and, putting the agency issue to one side, it is also possible to proceed on the basis that any agreement was between Mr Fraser and the McHardy brothers.
[28] We consider, however, that the note failed to include several other essential terms. The absence of these suggests the parties did not intend the note to have contractual force. In particular, the note did not contain the date upon which possession was to be given and taken. There was no other mechanism or means by which the parties’ intention regarding this issue could be determined. That was obviously a very important issue for both parties.
[29] A contract for the sale and purchase of farmland would also generally provide for the payment of a deposit. This issue had been discussed by Ian and Mr Fraser before Ian gave Mr Fraser the note. Mr Fraser knew the bank had told Ian that any agreement for the sale of the Hill Block would need to make provision for a deposit equivalent to ten per cent of the purchase price. Importantly, however, the written agreement that Mr Fraser and Samantha delivered to Ian on 12 July 2016 required the payment of a deposit equivalent to just five per cent of the purchase price. Similarly, Mr Fraser had not raised the prospect that he might seek a condition requiring the deposit to be refunded if the transaction did not proceed for any reason at all. These issues demonstrate that the parties had not agreed on the terms relating to the deposit by the time Ian handed the note to Mr Fraser. In addition, no deposit was ever paid. This further undermines Mr Fraser’s assertion that he believed the note created a binding contract.
[30] An agreement of this type would also usually specify whether the sale price was inclusive or exclusive of GST. That issue was never discussed in the present case because the parties proceeded throughout on the basis of their understanding that the transaction would be zero-rated for GST purposes because it related to the sale of a going concern. It cannot be assumed, however, that the McHardy brothers were prepared to run the risk of this assumption being incorrect. Ian says he was not.
[31] Perhaps the most significant indicator of the parties’ intentions in the present case arises out of the manner in which Mr Fraser was funding the purchase of the Hill Block. It is clear that Mr Fraser was unable to complete the purchase of the Hill Block without the funds that were to come from the sale of the property owned by Samantha’s parents in Cape Town. The written agreement prepared subsequently by Mr Fraser and Samantha’s solicitors was conditional on the purchasers obtaining an unconditional agreement for the sale of that property within 60 days of the date of the written agreement. It also contained a clause extending the settlement date by 30 days if the funds from the sale of the Cape Town property were not available by the proposed settlement date of 31 October 2016. We consider these terms were included in the written agreement because Mr Fraser did not wish to be bound to purchase the Hill Block until he knew he would be receiving the funds from the sale of the property in Cape Town. On Mr Paine’s argument, however, Mr Fraser would have been contractually bound to complete the purchase of the Hill Block regardless of whether the funds from South Africa were available. We do not accept Mr Fraser would have been prepared to place himself in that position.
[32] Ian also gave evidence on this point. He knew Mr Fraser was relying on the funds from South Africa to complete the purchase. He said that when he saw the written agreement prepared by Mr Fraser and Samantha’s solicitors, he was concerned that the agreement might fall through because the contract was conditional on the sale of the South African property.
[33] We consider these factors point unequivocally to the conclusion that the parties were still at a relatively early stage of their negotiations when Ian handed Mr Fraser the note on which Mr Paine now relies. Although they had agreed on price, they had not reached agreement regarding other important conditions. The reality is that neither party intended to be contractually bound at that time. Each anticipated subsequently signing a written agreement in the usual way.
[34] This is confirmed by the fact that Samantha subsequently obtained the written agreement from her and Mr Fraser’s solicitors containing all the terms usually found in agreements of this type. When Mr Fraser and Samantha delivered the written agreement to Ian on 5 July 2016 it constituted their offer to purchase the Hill Block on the terms set out in the written agreement. The McHardy brothers could have entered into a binding contract for the sale of the property on those terms by signing the written agreement and returning a copy to Mr Fraser or his solicitors. The fact that neither did so means we agree with the Judge that no binding contract came into existence. In the absence of a binding contract Mr Fraser is unable to rely on the doctrine of part performance.

Result

[35] The appeal is dismissed.
[36] The appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Brittens Lawyers, Palmerston North for Appellant
Innes Dean Taraua Law Ltd, Palmerston North for Respondents

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^[1] Fraser v McHardy [2018] NZHC 535.

^[2] Fraser v McHardy, above n 1, at [16]. Mr Fraser’s evidence was to the effect that he believed the meeting occurred in May 2016. The Judge considered it probably made no real difference whether the meeting was in May or June 2016. Nothing turns on the point for the purposes of this appeal.

^[3] Property Law Act 2007, s 26.

^[4] Fraser v McHardy, above n 1, at [61].

^[5] Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [3.7.1].

^[6] Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 (CA) at [58]; and Attorney-General v Barker Bros Ltd [1976] 2 NZLR 495 (CA) at 498–499.