Strack v Grey [2019] NZCA 432 (13 September 2019)

Last Updated: 18 September 2019

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

CA339/2018 [2019] NZCA 432

	BETWEEN	MATTHEW FRANCIS STRACK, TRACEY LEIGH STRACK AND WMC TRUSTEE LIMITED Appellants
	AND	DAVID HARVEY GREY Respondent

Hearing:	31 May 2019
Court:	French, Miller and Lang JJ
Counsel:	D R Tobin and R M Reeve for Appellants L A Andersen and C M Andersen for Respondent
Judgment:	13 September 2019 at 1.30 pm

JUDGMENT OF THE COURT

1. The appeal is allowed. Mr Grey must pay damages to the Stracks in accordance with [79] of this judgment.
2. We will receive memoranda on the question whether we should decide the claim for interest or remit it to the High Court for decision.

100. Mr Grey must pay costs to the Stracks for a standard appeal on a band A basis with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Miller J)

[1] The respondent, Mr Grey, agreed to buy a property in Maori Hill, Dunedin, the family home of the two of the appellants, whom we will collectively call the Stracks, for $1.2 million.
[2] The agreement for sale and purchase was entered on 24 February 2014. It was conditional on Mr Grey obtaining both finance and a written building report to his satisfaction. Both conditions had to be satisfied by the 10th working day after the agreement was signed; that is, by 10 March 2014.
[3] Two days after signing Mr Grey purported to cancel the agreement because the property had retrofitted insulation in wall cavities. He had taken a building inspector to look at the property but the inspection had identified no concerns and no written report had been prepared. Mr Grey’s decision resulted rather from remarks by a valuer and his own internet research, which led him to think the insulation might admit moisture into the house. It later turned out that his concerns were ill-founded.
[4] Mr Grey had wanted to borrow the entire purchase price on a bridging loan pending the sale of his existing home. Before purporting to cancel he had made preliminary enquiries of his bank about finance, but no loan application was ever made.
[5] Having established that Mr Grey was resolute, the Stracks cancelled the agreement on 3 March. They resold the property for a loss of $150,000 and sued to recover that sum with interest and costs.
[6] In the High Court Davidson J found Mr Grey in breach of contract for failing to obtain a written report that met the agreement’s requirements.^[1] Faced with his repudiation, the Stracks had lawfully exercised their own right to cancel and sue for damages. Those findings are not in dispute on appeal. What is in dispute is the Judge’s decision to award the Stracks nominal damages only on the ground that Mr Grey’s prospects of obtaining finance were so remote as to be negligible.^[2]

The building report and finance conditions

[7] We begin with the relevant terms of the agreement, which was in the standard ADLS form (9th edition). The building report condition stated:

9.3 ... this agreement is conditional upon the purchaser obtaining at the purchaser’s cost on or before the tenth working day after the date of this agreement a report on the condition of the buildings and any other improvements on the property that is satisfactory to the purchaser, on the basis of an objective assessment. The report must be prepared in good faith by a suitably-qualified building inspector in accordance with accepted principles and methods. Subject to the rights of any tenants of the property, the vendor shall allow the building inspector to inspect the property at all reasonable times upon reasonable notice for the purposes of preparation of the report. The building inspector may not carry out any invasive testing in the course of inspection without the vendor’s prior written consent. If the purchaser avoids this agreement for non-fulfilment of this condition pursuant to subclause 9.8(5), the purchaser must provide the vendor immediately upon request with a copy of the building inspector’s report.

[8] The finance condition, described as a further term of sale, was in these terms:

20 This offer is subject to and conditional upon the purchaser obtaining finance on terms and conditions suitable to themselves in all respects by 2pm on the 10th working day after the signing of this agreement by both parties and notifying the vendor or vendors’ solicitor of same.

[9] The Stracks had a valuation from a Mr Warwick Reid, the valuer who caused Mr Grey to investigate the insulation issue. Clause 21 required them to supply it to Mr Grey:

21 The vendor agrees to provide the current registered valuation to the purchaser by 4pm on the 1st working day after the signing of this agreement by both parties.

It is common ground that the Stracks complied with this condition.

[10] The general conditions of sale recorded that:

9.1 If particulars of any finance condition(s) are inserted on the front page of this agreement, this agreement is conditional upon the purchaser arranging finance in terms of those particulars on or before the finance date.

[11] The agreement also regulated the operation of the finance and building report conditions:

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 finance condition and either party may waive any other condition which is for the sole benefit of that party. Any waiver shall be by notice.

[12] It will be seen that the two conditions were conditions subsequent and Mr Grey, as the party for whose benefit they were included, had to do all things that might reasonably be necessary to enable their fulfilment within the 10 working days agreed.^[3] If despite those reasonable efforts the conditions were not fulfilled within time either party might by notice avoid the agreement under cl 9.8(5) without incurring any liability to the other.

Narrative facts

[13] Mr Grey is a businessman who owns an appliance company and a kitchens franchise. In 2014 he and his family owned a home in Mosgiel. He saw that the Stracks’ home was for sale and was strongly attracted to it. He inspected the property three times and had a builder who sometimes worked for him inspect it. He was given to understand that the Stracks had a previous registered valuation for $1.7 million.
[14] Mr Grey wanted to make an unconditional offer. He and his business banked with Westpac. He approached his bank manager, Craig Ross, for bridging finance pending sale of his Mosgiel home. The loan would have been secured against both properties. Mr Ross told him that he should not assume he would get a loan for the full amount he intended to offer, $1.2 million, and should make his offer subject to finance.
[15] On Monday 24 February 2014 Mr Grey made an offer for $1.2 million, subject as noted to finance and a building report. It was accepted on the same day.
[16] A number of events happened in quick succession two days later, on 26 February. They culminated in Mr Grey “cancelling” the agreement on the ground that he had an unsatisfactory building report.
[17] At about 9.30 am Mr Grey inspected the property with his builder, Vaughan Linwood, who did not identify any issues with the property at that time.
[18] Mr Ross visited Mr Grey at the latter’s business premises at about 11.30 am. Mr Ross recorded in a diary note that he had obtained financial information to assess the lending proposal.
[19] Mr Grey had been told about the retrofitted insulation by the real estate agent. He became concerned after speaking to Mr Reid, the valuer who had prepared the Stracks’ valuation. The Stracks had given Mr Grey the valuation, which was dated 19 October 2010 and was in fact for $1.55 million.^[4]
[20] On receiving the valuation Mr Grey contacted Mr Reid to ask if it could be re‑addressed to Westpac. It appears that Mr Reid, who was not called at trial, declined to do so and told Mr Grey that there was an issue with insulation. This must have happened on the morning of 26 February.
[21] Mr Ross gave evidence at trial that he too had spoken to Mr Reid, who stated that he would not re-address the valuation to Westpac and claimed that he had not known of the insulation issue when he prepared the valuation. (If reported accurately this latter claim was incorrect; the valuation stated that insulation had been retrofitted to the wall cavities.) The record does not establish when this conversation was held.
[22] On the afternoon of 26 February Mr Grey researched the insulation issue for himself. He discovered a Building Research Association of New Zealand report which identified a potential risk that foam insulation placed into the cavity between external and internal brick walls of bungalow housing might create a bridge that introduced moisture into the house.
[23] The Judge found that in fact the risk of moisture ingress had been identified and addressed successfully, by waterproofing the “skin” of the house when the insulation was installed.^[5] Further, there appeared to be no evidence of failure “in the field” with this type of insulation,^[6] which is widely used in some other countries that also experience high rainfall.^[7]
[24] It seems Mr Grey did not know these things when he did his research. He immediately “went off” the house and decided he would not buy it. At 3.40 pm on 26 February his solicitor gave notice avoiding the agreement on his instructions, stating that the building report was unsatisfactory.
[25] At that time Mr Grey did not have the written report that the agreement envisaged. He later got a written report from Mr Linwood. It identified an issue with the type of insulation but dealt with it in general terms only. The Judge held that the agreement required a written report that addressed risk and its mitigation at the actual property. He concluded that Mr Grey was not entitled to avoid the agreement in reliance on the building report condition.^[8]
[26] Under Westpac’s processes Mr Ross would have prepared a loan application and sent it to the bank’s credit division for approval. Because Mr Grey told him that the agreement was at an end he did not prepare an application. He gave evidence that he did not assess the financial information that Mr Grey had provided.
[27] The Stracks initially sought to persuade Mr Grey that the property was sound, without success. They then accepted his repudiation and cancelled the agreement on 3 March 2014.

The issue on appeal: what loss did the Stracks suffer?

[28] As noted at [6] above, Mr Grey no longer claims that he complied with the building report condition. He does not say that he made reasonable efforts to secure finance either. He does say that after the Stracks cancelled on 3 March, within the 10 day period that expired on 10 March, he was excused the obligation to seek finance, but nothing turns on that; he cannot be permitted to take advantage of a state of affairs he wrongfully brought about,^[9] and in fact he would not have complied no matter how much time he was given. He had already decided that he would not seek finance, believing it unnecessary because he had lawfully cancelled the agreement.
[29] In any event, we are not directly concerned with the question whether Mr Grey breached his obligations under the finance clause. He was already in breach of contract and liable to pay damages following his repudiation and the Stracks’ cancellation. The question posed on appeal is different, although the answer must traverse much of the same factual ground. It is whether the Stracks suffered the expectation loss that they plead. Their claim supposes that but for Mr Grey’s breach of the building report condition the agreement would have been performed. Mr Grey’s defence is that they suffered no loss because he would have failed to secure finance in fact.
[30] Before scrutinising that defence we will outline the Judge’s findings about finance and his treatment of damages.

The evidence and the Judge’s findings about finance

[31] Mr Grey’s evidence at trial focused on the building report. He did not give evidence about his financial position, beyond stating that he needed to obtain 100 per cent finance as he proposed to sell his Mosgiel home to purchase the property. Specifically, he gave no evidence about the amount of security he could offer, or the amount of his existing business borrowings, or what the interest cost of the additional borrowings would be, or whether his income could service all his borrowings. The information he gave Mr Ross to assess his loan application was not in evidence either.
[32] Mr Grey relied instead on the opinion of the bank manager, Mr Ross, whose evidence the Judge summarised as follows:

[114] When Mr Grey visited Mr Ross on 26 February 2014 the latter made a diary note and he said he wanted to borrow 100 per cent finance with security over both properties, and sign over his present home and the subject property. He told Mr Ross of the $1.7 million valuation and that it would be re‑addressed to the bank (Westpac). Mr Ross rang Mr Reid to ask that it be re-addressed to Westpac but he would not do so.

[115] Mr Ross said he was never “keen” on 100 per cent finance from the bank. Mr Grey had a property to sell. He had borrowings so to “chuck another $1.2 million at him” meant he [Mr Ross] would have struggled to meet the bank’s servicing criteria, and probably he “wouldn’t have sent it up” for approval. In other words, he would have likely declined the 100 per cent finance sought.

[116] In his prepared written brief, he said that he thought it would be “touch and go” as to whether he could borrow $1.2 million with approval from the Westpac Credit Division if he recommended that the application proceed. It did not go further of course because he was told that the building report indicated the insulation was an unsatisfactory feature and Mr Grey had withdrawn from the contract. He says that if Mr Grey continued with his application for finance he does not know if the bank would agree to advancing him $1.2 million but he thinks there were two main hurdles. The first was that Mr Grey would have to have satisfied him he would have sufficient income to service both the $1.2 million borrowings plus existing business borrowings. The second hurdle was that the bank needed a valuation and the $1.7 million valuation would not have been addressed to Westpac, as Mr Reid refused to do so.

[117] However, under further examination Mr Ross said the valuer referred to the insulation as an unsatisfactory feature and that had a negative effect on the value of the property, so there was a “question mark around how acceptable that property would have been as security”. His evidence was that “If we’d had to actually do a formal application for the finance, I probably would have cut it off ... and I wouldn’t have sent it out.”

[33] We have noted that Mr Reid did not give evidence. Mr Ross was allowed to recount what he had said without objection.
[34] Davidson J held that the onus of proving finance could not be obtained lay on Mr Grey, who had discharged it.^[10] The Judge based this conclusion on two findings.^[11] First, Mr Reid’s valuation had not been readdressed and so would not have been available to Mr Grey’s bank. The Judge accepted that Mr Grey might have looked elsewhere, but he had only 10 working days to arrange finance. Secondly, the Judge found, relying on Mr Ross’s evidence, that Mr Grey had no real chance of obtaining finance.
[35] The Judge did not refer to evidence that the Stracks were in fact willing to provide finance, presumably because it was not examined before him. The evidence of that in the record is a letter from the Stracks’ solicitor to Mr Grey’s solicitor advising that the new purchasers were offered vendor finance and a copy of the agreement providing for it.^[12]

The Judge’s assessment of damages

[36] The Judge characterised this as a lost chance case. He followed The Golden Victory,^[13] which he cited for the proposition that Mr Grey must pay an amount proportionate to the likelihood that the finance condition would have been fulfilled. Damages should be nominal only “[i]f the evidence establishes that there is no real chance that Mr Grey would have secured finance”.^[14] Had the evidence shown that there was a real chance, the Stracks would have recovered that proportion of their loss. But the likelihood of the agreement proceeding was so low that no percentage could sensibly be assigned to the lost chance. The Judge awarded nominal damages of $100 and reserved costs.^[15]

The appeal

[37] On appeal, Mr Tobin for the Stracks emphasised that Mr Grey had to do all things reasonably necessary to satisfy the finance condition. He submitted that reasonable steps included engaging more than one bank or financial institution, utilising a mortgage broker, and in some instances seeking vendor finance. The Stracks were willing to provide vendor finance; there was provision for it in a backup offer. Their willingness to do so was not made known to Mr Grey, but he did not ask.
[38] On the facts, Mr Tobin submitted, Mr Grey did no more than speak to his bank manager, Mr Ross, who never advanced or even prepared a loan application. Further, Mr Reid’s valuation was addressed to another bank, ANZ, and expressly referred to the retrofitted insulation, so it is not plausible that he refused to address his valuation to Westpac. Mr Ross’s evidence that Mr Reid told him otherwise was hearsay and inadmissible. We are inclined to think that this last point must fail because the trial might have played out differently had it been taken there, but on our view of the case we need not deal with it.
[39] Finally, Mr Tobin submitted the Judge erred in his approach to damages. The Golden Victory does not govern the case.^[16] Rather, the normal contractual measure of expectation damages was payable unless it was certain that the finance clause could not be satisfied.
[40] For Mr Grey, Mr Andersen submitted that the key issue is whether he could have raised the money needed in the time available. The Judge’s findings were open to him. The Judge was correct to assess damages on the basis that at the date of termination the agreement was still conditional on finance and there was a risk that finance would not be obtained.

The Golden Victory

[41] The Golden Victory stands for the uncontroversial proposition that where the interests of justice require it a court may assess damages not at the date of breach but at a later date.^[17] The case concerned a charterparty under which the respondents chartered an oil tanker for a period of years only to repudiate by delivering the vessel to its owners before the term had expired. The charterparty was terminable in the event of war involving the United States and Iraq. On repudiation in December 2001 that was no more than a possibility for which damages would not have been discounted if assessed then. War became a fact in March 2003, before damages had been fixed. The question for the House of Lords was whether the Bwllfa principle applied.^[18] That principle holds that where necessary to ensure that damages serve their compensatory purpose a court may account for subsequent events; in such a case the court need not “listen to conjecture on a matter which has become an accomplished fact”.^[19]
[42] The House of Lords held, by majority, that the Bwllfa principle did apply and the outbreak of war could be taken into account. The case appears to have occasioned difficulty largely because certainty matters in commerce, there was a market in which the charterparty could have been sold in December 2001, and the arbitrator would have assessed damages at that date on the basis that war was no more than a possibility and need not be accounted for.
[43] The date at which expectation damages ought to be assessed is not in dispute in this case. It is the date of repudiation. It might be otherwise had Mr Grey made reasonable efforts to secure finance only to learn after the Stracks accepted his unlawful repudiation that those efforts had failed. But that is not what happened. There was no subsequent event in the form of a financier’s rejection of his application. He precluded any possibility of that by deciding not to apply.
[44] As noted above, the Judge cited The Golden Victory for the proposition that this was a lost chance case.^[20] The House of Lords recognised that if damages were assessed at the date of repudiation it might be necessary to discount damages for any future event that was a real possibility and would allow the respondent to terminate the charterparty if it happened.^[21]
[45] In the present case the agreement was conditional on the decisions of financiers to grant or refuse Mr Grey a loan and when the agreement was entered that event lay in the future. But it need not follow that this is a lost chance case, as we next explain.

When damages are assessed on a lost chance basis in contract

[46] As this Court remarked in Benton v Miller & Poulgrain (a firm), the law as to when judges choose between an all-or-nothing and a lost chance approach to damages is difficult and the cases are not easy to reconcile.^[22] But some general propositions may be derived from them.
[47] To begin with, it is well established that lost chance damages may be awarded in contract.^[23] Parties may contract for a chance, as happened in Chaplin v Hicks.^[24] There the contract gave the applicant, an aspiring actress, the opportunity to participate in a contest that would gain her employment were the judges to select her from published photographs as one of 12 winners among the 50 short-listed contestants. The chance was held to be something of value, for the loss of which she might be awarded damages. As Professor Coote explained, the question in such cases is whether the parties contract for a chance; if so, “that loss is a breach and would be actionable per se even if it had no economic value; a fortiori if it did have quantifiable value or resulted in consequential loss”.^[25] Markholm Construction Co Ltd v Wellington City Council provides another example. There a contract gave the plaintiff the opportunity to participate in a ballot for the purchase of land being subdivided and sold by the defendant.^[26]
[48] Parties may also contract on the basis that chance has a part to play in realising an economic gain that is the object of their bargain. The Golden Victory offers an example. The element of chance may arise where the gain depends on some future event, or on an hypothetical past event that might have occurred but for the defendant’s breach.^[27] To be taken into account it must be more than a mere possibility, and the court makes an allowance not by treating damages as a pure question of probability but by discounting, to the extent thought appropriate, the damages that would be payable but for the contingency.^[28]
[49] Damages may be assessed on a lost chance basis when a future outcome depends, or a past hypothetical outcome would have depended, on the independent decision of a third party. Chaplin v Hicks also illustrates this point;^[29] there the decisionmakers were the judges. Another leading example is Davies v Taylor, in which a wife’s claim for damages rested on the prospect of reconciliation with the husband from whom she was estranged at the time of his death.^[30] In Gregg v Scott, a negligence case, Lord Hoffmann explained:^[31]

The law treats human beings as having free will and the ability to choose between different courses of action, however strong may be the reasons for them to choose one course rather than another. This may provide part of the explanation for why in some cases damages are awarded for the loss of a chance of gaining an advantage or avoiding a disadvantage which depends upon the independent action of another person: see Allied Maples Group Ltd v Simmons & Simmons [1995] EWCA Civ 17; [1995] 1 WLR 1602 and the cases there cited.

[50] Cases in which the outcome depended on a third party’s decision need not be treated as lost chance cases, however. A court will adopt a lost chance analysis where it characterises the third party’s decision as unknowable, as it plainly was in Chaplin v Hicks and Davies v Taylor. But, as the Court of Appeal of England and Wales explained in The Law Debenture Trust Corporation Plc v Elektrim SA, a third party decision may be susceptible of proof on the balance of probabilities and a court should not too readily treat it as a matter of chance:^[32]

45. ... It does not follow that merely because the court has to assess what a third party would be likely to have done that the case must be regarded as a “loss of a chance” case and a percentage of damages thus be awarded. It is different from being deprived of the chance to participate in a beauty contest (such as Chaplin v Hicks [1911] 2 KB 786) where the outcome is not dependent on a legal assessment. Nor is it like having to assess the outcome of negotiations which would have taken place if a solicitor had not (negligently) failed to give correct advice because that depends on many extra‑legal factors, as was the case in Allied Maples Group v Simmons & Simmons [1995] EWCA Civ 17; [1995] 1 WLR 1602. In that case Stuart-Smith LJ was careful (page 1611A) to introduce his third category of case (namely where the claimant’s loss depends on the hypothetical action of a third party and can therefore be evaluated on a loss of a chance basis) with the words “in many cases”. He is not saying that all such cases must be evaluated on that basis.
46. Indeed we rather doubt whether the present case should be categorised as a “loss of a chance” at all. Dr Harvey MacGregor QC has pointed out (Damages 16^th ed para 8-032) that the “loss of a chance” concept has been extended well beyond the kind of case in which it was originally developed. In the present type of case the court has to assess what a banker would have concluded as to the valuation of certain shares. That may not be easy but if something of value has been lost, the court must do its best to estimate that value and should not too readily decide that it is a matter of chance what the true value of something as concrete as a share is likely to be.

[51] That passage indicates that the decision whether damages are assessed on a lost chance or all-or-nothing basis ultimately depends on whether the relevant event is susceptible of proof on the balance of probabilities, which may well be possible. As Lord Hoffmann went on to explain in Gregg v Scott:^[33]

The fact one cannot prove [as a matter of necessary causation] that someone would have done something is no reason why one should not prove that he was more likely than not to have done it.

The bracketed words may be omitted for our purposes. Gregg v Scott was a negligence case, in which the House of Lords held that causation must be established when proving the injury which is an element of the cause of action.^[34] In contract, loss is presumed once breach is established on the balance of probabilities and a lost chance analysis may be employed when valuing the loss.

[52] As Helen Reece explained in her leading article, recovery on a lost chance basis is permitted when the outcome is indeterministic — that is, unknown because incapable of proof even given “unlimited time, resources and evidence” — or quasi‑indeterministic.^[35] The outcome in Markholm Construction was indeterministic because the contract conferred entry into a ballot in which winners were chosen at random. Jeffries J fixed damages accordingly.^[36] Chaplin v Hicks was quasi‑indeterministic; the decisions of the judges depended on their opinions as to the attributes of all 50 contestants.^[37] Elektrim was not at all indeterministic; the Court of Appeal reasoned that the value that a banker might assign to a company’s shares was in principle susceptible of proof. Similarly, in Nestle v National Westminster Bank plc, where the plaintiff complained that she had lost money because a trustee failed to diversify her investments, the Court held that it was in principle possible to prove what she would have earned had a substantial part of the fund been invested in equities.^[38]
[53] In this case the outcome on which the claim for expectation damages rests was contingent on the decisions of financiers on Mr Grey’s loan applications. Those decisions lay in the future when the agreement was entered and the time for compliance had not yet expired when it was terminated. We are now considering an hypothetical past event. Nonetheless, damages will be assessed on the normal all‑or-nothing basis if the outcome of his loan applications was susceptible of proof to the civil standard.

The purchaser’s obligations under the finance condition

[54] Before answering the question we have just posed we must examine the purchaser’s obligations under the finance condition in the familiar standard form agreement for sale and purchase of land.

What reasonable efforts did the finance condition require?

[55] The agreement contemplates that the purchaser must do all things reasonably necessary to seek finance and may avoid the agreement if those efforts fail.
[56] We observe that cl 20 envisages decisions not only by financiers but also by Mr Grey himself. He might choose to reject an offer of finance made on terms and conditions not suitable to him. That decision introduces an additional element of chance, viewed at the date of contract. However, we need not consider what Mr Grey might have done had he secured an offer. Having made no effort, he cannot seek shelter by claiming that he would have found any offer unsatisfactory.^[39] There is good reason for the law to take that stance: when an offer has been made a court can examine the bona fides of any claim that it was unsatisfactory.^[40] In fairness to Mr Grey, he does not claim that any offer would have been unacceptable. His position is rather that none would have been received.
[57] Turning to the obligation to seek offers of finance, the authorities establish that what is reasonably necessary depends on the circumstances.^[41] It may include approaching more than one lender,^[42] seeking a solicitor’s advice about alternative sources of finance,^[43] and approaching the vendors for finance.^[44]
[58] In this case Mr Grey plainly ought to have pursued an application with Westpac. We accept Mr Tobin’s submission that if there was any doubt about Westpac’s willingness to finance the transaction he ought also to have gone to the market by approaching other lenders or a mortgage broker. If those sources did not produce an offer to finance the entire purchase price he ought to have made inquiries of the vendor. We infer in the absence of evidence to the contrary that all of these steps could have been taken in the 10 working days available to him.
[59] A court may excuse a purchaser’s failure to make reasonable efforts if satisfied they would have been futile.^[45] For reasons given at [72]–[77] below, we are not satisfied of that in this case.

The burden and standard of proof

[60] We must examine this issue because the authorities establish that in some circumstances, or for some issues arising under a given cause of action, the burden of proof may lie with the defendant and such burden is sometimes characterised as evidential rather than legal.
[61] The authorities about finance conditions under an agreement for sale and purchase of land in New Zealand recognise that, speaking generally:

• (a) A finance condition normally exists for the sole benefit of the purchaser.^[46] This distinguishes it from conditions which sometimes exist for the benefit of both parties.^[47]
• (b) It is the purchaser who must do everything reasonably necessary to seek finance, and the purchaser who must give notice that those efforts have failed.^[48]
• (c) The facts about the purchaser’s compliance are usually known only to the purchaser and its agents.^[49]

[62] By reference to these considerations the courts have long held that the purchaser bears a burden of proof. The rationale for doing so is part legal and part policy: legal because the finance condition provides that a purchaser who wants to avoid the agreement must invoke the failure of reasonable efforts, and policy because better decisions result when the party who holds the facts is obliged to prove them.^[50]
[63] The leading New Zealand authority is the judgment of Cleary J in Barber v Crickett.^[51] After finding that a finance clause exists for the purchaser’s benefit he adopted the following passage from the judgment of Denning LJ in Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd, a case about a contract for the sale of piassava (palm fibre) that was conditional on the Brazilian vendors having an export licence:^[52]

The answer to all these questions is, I think, that this clause is a special exemption inserted in favour of the sellers. In order to enable them to take advantage of it they must show that, notwithstanding that all reasonable steps were taken by them, they could not obtain a licence to export during any part of the shipment period, or, alternatively, that it was useless for them to take such steps, or any further steps, because it was quite impossible for them to obtain a licence.

[64] This Court recorded in Ansley v Prospectus Nominees Unlimited that Barber v Crickett appears to have been consistently adopted in New Zealand.^[53] The Court went on to state that the burden is evidential in nature and does not reverse the burden of proof:^[54]

... it is merely an evidential burden on that party arising when there has been put in issue whether the non-fulfilment of the condition arose from its default. That qualification to the general principle of “who asserts must prove” is not to be treated as if it reversed the legal burden of proof.

[65] The Court also referred to its then recent decision in Ithaca (Custodians) Ltd v Perry Corporation.^[55] In that case the Court explained that “evidential burden” may be used in two senses, one legal and the other tactical:^[56]

In the first sense it means the burden of adducing evidence on an issue on pain of having the trial Judge determine the issue in favour of the opponent. This is a question of law. The second sense in which the phrase is used refers to the burden resting upon a party who appears to be at risk of losing on a given issue at a particular point in a trial. This merely involves a tactical evaluation of who is winning at a particular point which can obviously shift depending on the trial dynamics. It has been called the “tactical burden” or the “provisional burden”.

[66] Contrary to Mr Andersen’s submission, it is in the first of these senses that a burden of proof attaches to the purchaser with respect to a clause inserted for the purchaser’s sole benefit.^[57] It attaches as a matter of law once the purchaser has invoked the finance condition and the vendor has put in issue the question whether non-compliance arose from the purchaser’s default. To categorise it as evidential is to distinguish it from the overall legal burden, which rests with the party whose cause of action it is. It is the latter point that the Court was seeking to emphasise in Ansley, in the last sentence quoted at [64] above.
[67] Once the nature of the purchaser’s burden under the finance condition is properly understood, it can be seen that the standard of proof is the ordinary civil standard. To establish that the agreement was lawfully avoided the purchaser must persuade the fact-finder that reasonable efforts failed to secure an offer of finance.

Inability to borrow is ordinarily provable on the balance of probabilities

[68] For several reasons, a person’s eligibility for a given amount of finance at any given time ought to be verifiable. First, there exists a market in which money is lent for the purchase of residential real estate. Major banks such as Westpac compete in it, and we take judicial notice of the fact that mortgage brokers also operate. The authorities recognise that vendors are an available source of finance.^[58] Second, lending criteria for financial institutions and the market cost of money at any given time are known, as the evidence of Mr Ross indicated. The criteria include security cover and debt servicing capability. Third, property offered as security has a value that can be estimated, and the customer’s income and outgoings are matters of fact. Fourth, one would expect professional lenders to measure all of these things objectively. It is noteworthy that Westpac’s practice was to have loan applications approved not by the branch manager, with whom the customer may have a working relationship, but by a separate credit division.
[69] We assume that intangible considerations may play a part. For example, they may include the customer’s character, credit history and importance to the lending institution. But the criteria and information mentioned above are plainly important, as Mr Ross’s evidence confirmed; it was servicing capability rather than intangible considerations that he cited when doubting that an application would have succeeded. We conclude that eligibility ought to be provable on the balance of probabilities.
[70] We find support for this view in the judgment below. We have explained that the Judge characterised this as a lost chance case. But in his reasons he did not treat the prospect of obtaining finance, and hence the plaintiff’s losses, as indeterminate; that is to say, incapable of proof. Rather, he placed a burden of proof on Mr Grey and found by reference to the evidence that there was no real chance that finance would have been secured.^[59]
[71] This brings us at last to the question on which, as Mr Andersen submitted, this case ultimately turns. It is whether that finding of fact was correct.

Did Mr Grey prove that applications for finance would have failed?

[72] As noted at [34] above the Judge gave two reasons for deciding that Mr Grey was unable to borrow $1.2 million. The first was that he doubted a new valuation could have been obtained in time.^[60] In our opinion the evidence does not support that conclusion. In his oral evidence the bank manager, Mr Ross, accepted that it could have been done.
[73] The Judge’s second and principal reason was that an application to Westpac would have failed. As noted at [32] above, the only financial evidence was that of Mr Ross. We have referred to the Judge’s summary of this evidence. In his brief of evidence Mr Ross stated that he was concerned about whether Mr Ross’s income would service the loan and said that he did not know whether an application would have succeeded but thought it might have been “touch and go”. When questioned he went a little further, stating:

And servicing, because it was already, Mr Grey already had borrowings with the bank, so to chuck another $1.2 million and, I think I would have struggled to have met the bank’s servicing criteria, so the short answer is or the long answer is that if the building report hadn’t come out satisfactorily and if I’d had to, if we’d had to actually do a formal application for the finance, I probably would have cut it off at the...and I wouldn’t have sent it up.

[74] The evidence establishes that Mr Grey signed the agreement believing he could secure finance. Indeed, he seems to have thought that Westpac would back him immediately, allowing him to make an unconditional offer. Mr Ross told him to make the offer subject to finance, recognising that the Bank might not be prepared to fund a fully financed transaction.
[75] The evidence about what would have happened next is unsatisfactory. No loan application was ever prepared and Mr Ross did not consider the financial information needed to recommend a loan to the bank’s credit division. In our opinion it is far from clear that Mr Ross would have refused to advance an application that he never analysed or completed. Still less do we know what the decisionmakers in the credit division would have made of it. The financial information to which Mr Ross referred presumably included existing borrowings and the information that Mr Grey had given him to support the application. None of that was in evidence. If servicing capability was in issue, Mr Grey ought to have adduced both the information needed to support a loan application and the criteria against which it would have been assessed. We observe that in Johnstone v Bhikha, Henry J dismissed a similar claim, holding that the purchaser could not establish inability to borrow by tendering a set of annual accounts.^[61] In this case the Court did not have even that much to go on.
[76] Mr Ross’s evidence indicates that security cover would also have been an issue because Mr Grey was borrowing the full purchase price. We have noted earlier that he offered security over his Mosgiel home and he also had business assets. We know nothing about their value or his existing borrowings. We do not know what a new valuation of the Maori Hill property would have shown either. The parties accept that the sale price of $1.05 million realised on resale was reasonable, but there is no evidence that the property would have been valued at that sum, rather than the contract price, had the transaction proceeded. Nor is there evidence that a valuation of $1.05 million would have precluded borrowing $1.2 million against the combined security of the property and Mr Grey’s existing home and businesses.
[77] We have explained that a purchaser must be prepared to test the market by approaching more than one lender. There is no evidence about the likely responses of other lenders to an application by Mr Grey. Mr Ross’s evidence is limited to his opinion about the attitude that Westpac might have taken. There is sufficient evidence to show that the Stracks would have been receptive to a request to leave money in.
[78] For these reasons we find that Mr Grey failed to discharge the burden of showing on the balance of probabilities that he would not have succeeded in raising finance. As explained earlier, damages are payable on an all-or-nothing basis.

Decision

[79] The appeal is allowed. Mr Grey must pay the Stracks $150,000, being the difference between the contract price and the price realised on resale.
[80] The Stracks sought interest under cl 3.12 of the agreement and s 87 of the Judicature Act 1908. The Judge did not need to deal with that claim and it was not the subject of argument before us. He has now retired. In the circumstances we will receive memoranda on the question whether we should decide the claim for interest or remit it to the High Court for decision.
[81] Mr Grey must pay costs for a standard appeal on a band A basis, with provision for one counsel and usual disbursements. Costs in the High Court are to be fixed there.

Solicitors:
Wilkinson Rodgers Lawyers, Dunedin for Appellants
Guest Carter, Dunedin for Respondent

---

^[1] Strack v Grey [2018] NZHC 1254, (2018) 19 NZCPR 687 [HC judgment] at [99] and [106].

^[2] At [128].

^[3] In accordance with cl 9.8 of the agreement.

^[4] We note in passing that there is no suggestion that the value of the property had been misrepresented or that Mr Grey would not have made his offer had he known the valuation was $1.55 million rather than $1.7 million. We were given to understand that there may have been an earlier valuation at the higher figure.

^[5] HC judgment, above n 1, at [76].

^[6] At [102].

^[7] At [77].

^[8] At [106]–[107].

^[9] Barber v Crickett [1958] NZLR 1057 (SC) at 1060.

^[10] HC judgment, above n 1, at [118] and [128].

^[11] At [128].

^[12] The provision of vendor finance to the later purchaser is mentioned in a letter of 4 March 2014 between solicitors for the parties and the executed sale and purchase agreement is in evidence.

^[13] HC judgment, above n 1, at [127]–[128] citing Golden Strait Corp v Nippon Yusen Kubishika Kaisha [The Golden Victory] [2007] UKHL 12, [2007] 2 AC 353.

^[14] At [125(b)].

^[15] At [132]–[133].

^[16] The Golden Victory, above n 13.

^[17] Leading New Zealand cases are Stirling v Poulgrain [1980] 2 NZLR 402 (CA) at 420 and 424; and McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39 (CA) at 44 and 52.

^[18] Bwllfa and Merthyr Dare Steam Collieres (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426 (HL).

^[19] At 431 per Lord Macnaghten.

^[20] HC judgment, above n 1, at [125(b)] at [128].

^[21] The Golden Victory, above n 13, at [22] per Lord Bingham, at [46] per Lord Walker, and at [76] per Lord Brown.

^[22] Benton v Miller & Poulgrain (a firm) [2004] NZCA 385; [2005] 1 NZLR 66 (CA) at [44].

^[23] See Hugh Beale (ed) Chitty on Contracts (33rd ed, Thomson Reuters, London, 2018) at [26-077]–[26-080]. See also 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 832–834.

^[24] Chaplin v Hicks [1911] 2 KB 786 (CA).

^[25] Brian Coote “Recovery for Loss of a Chance: Could it be for All or Nothing at All?” (2006) 12 NZBLQ 127 at 128. See also Brian Coote “Chance and the Burden of Proof in Contract and Tort” (1988) 62 ALJ 761.

^[26] Markholm Construction Co Ltd v Wellington City Council [1984] NZHC 232; [1985] 2 NZLR 520 (HC).

^[27] Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 350 and 365–366.

^[28] The Golden Victory, above n 13, per Lord Scott, Lord Carswell, and Lord Brown; Maredelanto Cia Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1970] EWCA Civ 4; [1971] 1 QB 164 (CA) at 196; Schilling v Kidd Garrett Ltd [1977] 1 NZLR 243 (CA) at 268; and Benton v Miller & Poulgrain, above n 22, at [50].

^[29] Chaplin v Hicks, above n 24. The record is unclear whether it was the defendant himself or a tribunal chosen by him that decided the winners.

^[30] Davies v Taylor [1972] AC 207 (HL). See also Fink v Fink [1946] HCA 54; (1946) 74 CLR 127, in which the contingencies affecting reconciliation were held to be so numerous and substantial as to render the opportunity valueless: at 143.

^[31] Gregg v Scott [2005] UKHL 2, [2005] 2 AC 176 at [82].

^[32] The Law Debenture Trust Corp Plc v Elektrim SA [2010] EWCA Civ 1142.

^[33] Gregg v Scott, above n 31, at [83].

^[34] By way of example, see Martelli McKegg Wells & Cormack v Commbank International NV CA75/96, 7 November 1996.

^[35] Helen Reece “Losses of Chances in the Law” (1996) 59(2) MLR 188 at 194.

^[36] Damages were assessed by reference to the mathematical probability that the plaintiff would win: Markholm Construction Co Ltd, above n 26, at 528.

^[37] One commentator has suggested that the damages of £100 awarded to Ms Chaplin differed from the sum payable based on the simple mathematical probability that she would win, but that may be explained by the fact that the jury had seen her give evidence: Weiwen Miao and Joseph L Gastwirth “Case Comment: estimating the economic value of a loss of a chance: a re-examination of Chaplin v Hicks” (2018) 17(4) Law, Probability & Risk 279. See also Adam Kramer The Law of Contract Damages (Hart Publishing Ltd, Oxford, 2014) at 271–272.

^[38] Nestle v National Westminster Bank plc [1992] EWCA Civ 12; [1993] 1 WLR 1260 (CA) at 1269.

^[39] More to this Life Ltd v Arcadia Homes Ltd (in liq) [2012] NZHC 165, [2014] 2 NZLR 339 at [101]. An appeal was dismissed: Arcadia Homes Ltd (in liq) v More to this Life Ltd [2013] NZCA 286, [2014] 2 NZLR 339. This Court’s reasons differed, but not on this point.

^[40] As happened in Purewal BS & JK Ltd v Connell Street Ltd [2012] NZCA 42, (2012) 13 NZCPR 108, where it appears to have been assumed that finance must be on terms suitable to the purchaser and this Court scrutinised the reasons given for finding the offer unacceptable: at [19]–[20].

^[41] Starling v Edmonds (1990) 1 NZ ConvC 190,514 at 15.

^[42] Connor v Pukerau Store Ltd [1981] 1 NZLR 384 at 388.

^[43] At 388.

^[44] At 388; and Johnstone v Bhikha HC Auckland CP1978/91, 22 December 1992 at 5.

^[45] Support for the general proposition can be found in Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All ER 497 (CA) at 501; Nina’s Bar Bistro Pty Ltd (Formerly Mytcoona Pty Ltd) v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 619; and Parland Pty Ltd v Mariposa Pty Ltd [1995] TASSC 91; (1995) 5 Tas R 121 at 133. For examples see WR Clough & Sons Ltd v Martyn [1978] 1 NZLR 313 at 317; and Centaur Investments Co Ltd v Joker’s Wild Ltd (2004) 5 NZCPR 675 at [80]–[88].

^[46] Barber v Crickett, above n 9, at 1058.

^[47] Such as the resource consent condition in Ansley v Prospectus Nominees Unlimited [2004] NZCA 14; [2004] 2 NZLR 590 at [48] or a condition for acceptance of a second contract in Centaur Investments, above n 45, at [51].

^[48] Purewal v Connell St, above n 40, at [15].

^[49] Ansley v Prospectus Nominees, above n 47, at [47].

^[50] See CR Williams “Burdens and Standards in Civil Litigation” [2003] SydLawRw 9; (2003) 25(2) Syd LR 165 at 172; and Julius Stone “Burden of Proof and the Judicial Process: A Commentary on Joseph Constantine Steamship Ltd v Imperial Smelting Corporation Ltd (1944) 60(3) LQR 262 at 279–280.

^[51] Barber v Crickett, above n 9. p

^[52] At 1060 citing Brauer v James Clark, above n 45, at 501.

^[53] Ansley v Prospectus Nominees, above n 47, at [47].

^[54] At [47].

^[55] Ithaca (Custodians) Ltd v Perry Corporation [2003] NZCA 358; [2004] 1 NZLR 731.

^[56] At [47].

^[57] We need not decide what the position would be where the clause existed for shared benefit.

^[58] For example see Johnstone v Bhikha, above n 44.

^[59] HC judgment, above n 1, at [128].

^[60] At [128].

^[61] Johnstone v Bhikha, above n 44, at 6.