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Court of Appeal of New Zealand |
Last Updated: 1 May 2020
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BETWEEN |
LONG CAPITAL HOLDINGS NZ LIMITED Appellant |
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AND |
JACKS POINT VILLAGE HOLDINGS NO 2 LIMITED Respondent |
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Hearing: |
12 November 2019 (further submissions received 3 December 2019) |
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Court: |
Goddard, Brewer and Gendall JJ |
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Counsel: |
J D McBride and D A Cowan for Appellant N R Campbell QC and M J Hammer for Respondent |
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Judgment: |
20 April 2020 at 3.00 pm |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by Gendall J)
Introduction
[1] The appellant, Long Capital Holdings NZ Ltd (LCH), is an experienced property development company. It entered into two agreements (the Agreements) for the purchase of blocks of development land from the respondent, Jacks Point Village Holdings No 2 Ltd (JPVH), in the wider Queenstown area. The Agreements were conditional on LCH providing a “Development Plan” (as defined in the Agreements) to JPVH for its approval by a certain date. LCH did not provide the Development Plan by the required date (which had been extended by agreement several times). LCH then purported to cancel the Agreements due to its non-satisfaction of the condition and sought a return of the substantial deposits it had paid.
[2] JPVH, as vendor under the Agreements, sought summary judgment against LCH in the High Court for forfeiture of the deposits. The Court granted summary judgment, concluding that LCH had not fulfilled its obligations and JPVH was entitled to the deposits.[1] LCH appeals that decision.
Background
The Agreements
[3] The Agreements for the two development blocks (referred to as Area 1 and Area 2 in the Agreements) were entered into on 2 June 2017. The total land area of the blocks was around five hectares and was to be utilised for a proposed residential subdivision. The prices under the Agreements were $14,200,000 for Area 1 and $11,950,000 for Area 2. For all practical purposes the Agreements were in identical terms. As we have noted, both Agreements were conditional on LCH by a certain date providing to JPVH the “Development Plan” for its approval. Effectively, what was happening here was that JPVH was selling to LCH the opportunity to carry out the development of Areas 1 and 2 in the Jacks Point Village development, subject to various obligations designed to ensure compliance with requirements applicable to the overall village development. JPVH had residual obligations to ensure these two properties were developed within those parameters.
[4] The Agreements were on a standard form approved by the Real Estate Institute of New Zealand and the Auckland District Law Society. A number of general terms had been deleted and 19 pages of bespoke further terms had been added.
[5] Clause 10.8(2) of the general terms required that the party or parties for whose benefit a condition had been included “do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment”. Clause 10.8(5) set out further that:
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] The Agreements contained a number of special conditions in the further terms. Clauses 1.4(3) and 37.1 provided that in the event of any conflict between a general term and a further term, the further term would prevail.
[7] Clauses 20.3(b)(iii) and (iv) in the further terms of the Area 1 Agreement (the Development Plan condition) concerned the submission of LCH’s Development Plan to JPVH for approval:
20.3 This agreement is further subject to and conditional upon:
...
(b) for the purposes of clause 32.2:
...
(iii) the purchaser providing a Development Plan ... for all of the property and for the area shown as Area 1 on the attached plan within 40 Working Days of the date of execution of this agreement; and
(iv) the vendor approving the Development Plan ... within 10 Working Days of the date the Development Plan has been provided in accordance with clause 20.3b.iii.
[8] The same condition appears in cls 20.3(c)(i) and (ii) of the Area 2 Agreement.[2]
[9] Clause 32.2, which is referred to in cl 20.3 as set out above, imposed an obligation on LCH to provide a Development Plan for LCH’s development of the property to JPVH for approval. The Plan had to include various matters including, amongst other things, a suite of designs and plans from various consultants, addressing matters such as the design of roads and footpaths, landscaping, waste water and potable water infrastructure, and the number, location and dimensions of the sections to be developed.
[10] The Area 1 Agreement was also conditional on LCH first providing a Stage 1 Development Plan (Stage 1 Plan) for part of the Area 1 property within 20 working days.[3] This condition was also incorporated by reference into the Area 2 Agreement.[4] Both Agreements, as we have noted, were also subject to the Development Plan condition.
[11] Clauses 20.5 and 20.4 of the Area 1 and Area 2 Agreements respectively provided for cancellation if a condition was not satisfied:
If any of the conditions set out in this clause 20 are not satisfied by the specified time for satisfaction (or such extended time for satisfaction as may be mutually agreed in writing between the parties) the purchaser or the vendor may cancel this agreement at any time before the condition has been satisfied by giving written notice of cancellation to the other.
[12] Several other clauses in the further terms are relevant:
... has inspected the property and purchases the property solely in reliance upon the purchaser’s own judgement and not upon any representation or warranty made by the vendor ... other than as contained in this agreement.
(b) Clause 26.1 obliged LCH to pay deposits totalling $2,615,000 to be held by JPVH’s solicitors as stakeholder. Clause 26.1(b) went on to provide that:
(b) in the event that this agreement is cancelled:
(i) as a result of a default by the purchaser, the Net Deposit will be released to the vendor; and
(ii) for any other reason save the default of the purchaser, the Net Deposit will be refunded to the purchaser.
(c) Clause 32.7 provided that, once LCH’s Development Plan had been approved, JPVH would use reasonable endeavours to vary the local Council’s Outline Development Plan (ODP) to reflect the approved Development Plan. LCH acknowledged that this was not a condition of settlement and did not allow LCH to seek any compensation from JPVH if a variation of the ODP had not been obtained prior to settlement.
(d) Clause 42.l required each party to make all applications, execute all documents and do or procure all other acts and things reasonable and necessary to implement and carry out its obligations under, and the intention of, the Agreements.
The cancellation
[13] On 9 June 2017, the deposits under the Agreements were paid to JPVH’s solicitors as stakeholder. LCH then provided the Stage 1 Plan to JPVH. JPVH approved that plan, satisfying the Stage 1 Plan condition.
[14] LCH then requested several extensions to the original conditional date for the full Development Plan condition. The first request was made on 31 July 2017. The parties agreed to extend the date to 3 August 2017. LCH’s next request was on 3 August 2017. JPVH agreed to a one day extension while it considered the request. Subsequently it agreed an extension to 18 August 2017. On the morning of 18 August 2017 LCH’s solicitors emailed JPVH’s solicitors, advising that they understood LCH would submit the Development Plan that day. In the same email LCH requested a variation to the Agreements. Later that day LCH requested a further extension to 25 August 2017. JPVH agreed to the request.
[15] LCH did not provide the Development Plan to JPVH by close of business on 25 August 2017. Instead, at 5.05 pm that day, LCH purported to cancel the Agreements on the basis that the Development Plan condition had not been satisfied. LCH did not explain why it had not provided the full Development Plan. In cancelling the Agreements, it sought return of the deposits.
[16] JPVH did not accept the purported cancellation. By letter dated 30 August 2017 JPVH advised LCH that LCH could not cancel for non-fulfilment of the Development Plan condition through its own default. LCH was obliged to do all things reasonable and necessary to fulfil the condition. LCH had provided no evidence that it had complied with that obligation. JPVH treated LCH’s purported cancellation as a repudiation or as a breach of an essential term and cancelled the Agreements. JPVH requested release of the deposits under cl 26 of the Agreements.
[17] JPVH brought proceedings seeking release of the deposits. It sought summary judgment on the basis that LCH had no arguable defence. LCH counterclaimed for return of the deposits.
The High Court decision
[18] Associate Judge Johnston granted summary judgment to JPVH, concluding that LCH had not met its obligation to take reasonably necessary steps to submit the Development Plan to JPVH for approval. LCH was therefore in breach of the Agreements and had repudiated them. JPVH was entitled to cancel in response to that repudiation.
[19] Addressing this aspect, the Associate Judge referred to this Court’s expression of principle in Scott v Rania:[5]
Notwithstanding that a condition, such as “subject to my being ... able to arrange mortgage finance”, has not been fulfilled, a party through whose default that non-fulfilment has occurred, if that is the case, may not assert non‑fulfilment, for it is a settled principle of law of great antiquity and authority that in these matters no one can take advantage of the existence of a state of things which his default has produced: ...
[20] The Associate Judge went on to address JPVH’s argument that, if LCH’s purported cancellation was invalid as it was a result of its own default, JPVH would be entitled to the deposits. Special condition 26.1(b)(i) in the Agreements noted above at [12] said as much.
[21] LCH, however, had pleaded in defence that it was not in default here as it was not obliged to submit a Development Plan to JPVH if “it formed the view that no feasible development of the land was possible”. LCH claimed that, after investigation, it had concluded that no feasible development of the land was possible, and in particular that it “would not be economically viable”.
[22] Addressing the competing arguments, the Associate Judge concluded:[6]
In any event, this issue resolves itself into whether Jacks Point Village can establish that Long Capital Holdings [did not take] all reasonably necessary steps to submit a development plan.
[23] The Associate Judge then noted that LCH had gone well down the path towards preparation of a Development Plan and appeared on the evidence to have actually prepared one. However, he found the Agreements obliged LCH to take the final step of actually submitting the Development Plan to JPVH, irrespective of its economic feasibility. LCH had not done so.[7] Therefore, LCH was in default under the Agreements. Accordingly, JPVH was entitled to the deposits.
[24] In reaching this conclusion, the Associate Judge drew a distinction between a Development Plan that was “technically” not feasible and which would have enabled LCH to cancel, giving the example of a situation where there was an adverse geotechnical report on the property, and a Development Plan that was economically not feasible and which did not entitle cancellation.[8] Here, the Associate Judge held that:[9]
... the reason why Long Capital Holdings declined to present a development plan for approval was that, having reached the point where it was in a position to do so (and it seems having prepared one), it concluded that the return it would receive on the development was not satisfactory.
[25] In support of that, he noted that cl 32.2 was expressed in mandatory terms, and then went on to identify what cl 32.2 said the Development Plan would cover.[10] The difficulty for LCH was that its obligation to take all reasonably necessary steps to submit the Development Plan as articulated in cl 32.2 did include the obligation of taking the final step of providing JPVH with the Development Plan for approval. On its own evidence, LCH had elected not to do so.
[26] The Associate Judge declined to imply a term into the Agreements to the effect that any Development Plan would need to be economically justified. The Associate Judge said neither of the two different circumstances in which the courts would imply a term into a contract (being first, where the term represented the obvious but unexpressed intention of the parties, and secondly, where the term was necessary to give business efficacy to the contract) applied in this case.[11]
[27] The Associate Judge went on to summarise the argument advanced for LCH to the effect that, in the absence of a term along the lines propounded by it, a conditional purchaser under the Agreements would effectively be forced to present a Development Plan and then go ahead with the development even if it were uneconomic. LCH had argued that this simply defied commercial sense. The Associate Judge rejected this argument. These were agreements between two sophisticated commercial parties, reached with the assistance of experienced lawyers. He concluded that the parties must be held to the Agreements.[12] In short, he was satisfied that JPVH had established that the defence LCH wished to run could not succeed.
[28] In relation to the counterclaim, the Associate Judge determined that cl 10.8(5) conflicted with special condition 26.1(b)(i) in the Agreements, and the latter should prevail. Accordingly, he found that cl 26.1(b)(i) governed the way in which deposits were to be dealt with.[13] In the event the Agreements were cancelled as a result of default by LCH as purchaser, the deposits were to be released to JPVH as vendor. The Associate Judge therefore granted summary judgment and rejected the counterclaim.
Summary judgment principles
[29] The summary judgment principles that apply are not in dispute. As this Court said in Krukzeiner v Hanover Finance Ltd:[14]
- (a) The question is whether the defendant has no defence to the claim and the court must be left without any real doubt or uncertainty.
- (b) The onus is on the plaintiff, but where the plaintiff’s evidence sufficiently shows there is no defence, the defendant must respond if the application is to be defeated.
- (c) Conflicts of evidence ought generally not to be resolved in a summary judgment application, but the court may take a robust approach and need not accept uncritically evidence that inherently lacks credibility.
[30] Where a central issue is the proper construction of a contract (which is the position here), the focus must be on the meaning the relevant provisions would convey to a reasonable person with all the background knowledge reasonably available to the parties at the time they entered into it.[15] The factual matrix in which the contract is situated is therefore relevant. That raises the question of whether it will be appropriate on a summary judgment application for the court to reach a concluded view on the meaning of the contract when the facts have not been fully tested.
[31] The existence of a factual dispute about the context in which the contract was entered into does not preclude the court from entering summary judgment in a contract claim, but caution is required. The court must be satisfied that resolution of the factual dispute is “not necessary to provide the court with such contextual background as is necessary to resolve the claim”.[16] Summary judgment may be appropriate, therefore, where, on an objective assessment, the interpretation contended for is plainly the correct one regardless of the factual dispute.
[32] On appeal in summary judgment proceedings, this Court is at no particular disadvantage in comparison to the High Court. This Court may assess the evidence and documentation for itself and come to its own conclusion.
The appeal
[33] Initially, LCH advanced this appeal on three grounds:
- (a) the High Court wrongly interpreted the Agreements to mean that LCH “had” to provide a Development Plan;
- (b) the High Court was wrong to find that cl 10.8(5) conflicted with special condition 26.1(b)(i); and
- (c) the High Court wrongly rejected a defence based on an implied term that the Development Plan must be viable for LCH.
[34] At the hearing of the appeal LCH advanced an additional argument that had not been pleaded, or raised before the High Court, or included in the Notice of Appeal. A wastewater condition in cl 20.3(a) of the Agreements had not been satisfied at the date that JPVH purported to cancel the agreements. LCH submitted that it is arguable that a contract cannot be cancelled if it is still conditional, and the relevant condition may never be satisfied. In this case, it was arguable that the wastewater condition would not have been satisfied so the Agreements “would have fallen over anyway”. LCH submitted that this argument can only be determined at a trial, so summary judgment should be refused.
Whether LCH “had” to provide a Development Plan
LCH’s submissions
[35] It was common ground that the Development Plan condition is a condition subsequent. A failure to fulfil a condition subsequent may either bring the contract to an end at that point or may give one or both parties the option to do so.[17]
[36] In the present case, cls 20.5 and 20.4 of the Area 1 and Area 2 Agreements respectively expressly permitted either party to cancel if any of the conditions in cl 20 (which included provision of the Development Plan to JPVH) were not met. The only exception to this express ability to cancel for non-satisfaction of a condition was where a party had brought about the failure to meet the condition by its own default. Clauses 20.4 and 20.3(d) of the Area 1 and Area 2 Agreements respectively expressly identified certain conditions that were inserted for the sole benefit of the purchaser and could be waived only by the purchaser. There was no provision for waiver of any conditions by the vendor. So JPVH could not waive compliance with the Development Plan condition. Counsel for LCH, Mr McBride, complained that the Associate Judge did not properly address the implications of these clauses.
[37] Mr McBride went on to note the Associate Judge had accepted that LCH had carried out much of the preparation for the Development Plan, and indeed it appeared to have a completed plan.[18] The Associate Judge also accepted that the requirement to submit the Development Plan was not absolute, noting that, for example, an adverse geotechnical report indicating the land was unstable would justify non-completion of the Plan.[19] In such a situation, LCH as purchaser would be entitled to a refund of its deposits. The Associate Judge nevertheless concluded that, in the circumstances of this case, LCH had to submit a Development Plan, and economic feasibility was not a valid consideration.
[38] On these aspects, Mr McBride contended, the Associate Judge’s conclusion misapprehended LCH’s evidence. He said it was not just the cost of the development that was an issue; it was also the fact that LCH’s proposed Development Plan did not align with the local Council’s ODP which would need to be varied.
[39] LCH’s position is that the Associate Judge ignored this evidence and focused on the economic feasibility of the development for LCH, which he had said was not a valid consideration, unlike a technical issue such as soil stability. That dichotomy, according to Mr McBride, is a false one. Most “technical” issues, he contended, are only issues because of the cost required to remedy them.
[40] LCH was critical of the Associate Judge’s conclusion that, in all the circumstances, LCH had a firm obligation to take the final step of submitting its Development Plan to JPVH. LCH submitted that the Associate Judge focused only on LCH’s concern about the economic feasibility of the development and ignored what LCH said was evidence that there were also possible planning or other issues that gave rise to uncertainties and risk. LCH’s overall submission on this was that its obligation to take reasonable steps to provide the Plan did not extend to requiring submission of a Development Plan to JPVH, no matter how onerous, expensive, or risky the development would be.
[41] We were then referred at some length to the Supreme Court decision in Steele v Serepisos.[20] We will address that decision later. Mr McBride suggested this decision gave support to LCH’s contention that it is arguable LCH assumed an obligation only to take reasonable steps to submit the Development Plan. Arguably, the obligation did not extend to requiring submission of a Development Plan to JPVH, no matter how onerous, expensive, or risky the development would be for LCH. And, in the context of a summary judgment application, LCH maintained the Court could not safely conclude that LCH had failed to take reasonable steps to submit the Plan. That would require evidence at trial, including evidence from experts as to the reasonableness of LCH’s efforts.
JPVH’s submissions
[42] Mr Campbell QC for JPVH noted it was common ground that LCH was not entitled to cancel the Agreements if the failure of the Development Plan condition was brought about by LCH’s default. Under the Agreements LCH was under an obligation to do all things reasonably necessary to enable that condition to be fulfilled.
[43] LCH had prepared a Development Plan. The only further thing that needed to occur for the condition to be fulfilled was for LCH to take the final step of providing the Plan to JPVH for its approval. There was no impediment here that reasonably prevented LCH from doing that. LCH’s defence was not directed at any real impediment. Rather, it chose not to provide it (for economic reasons because of perceived costs and risks in carrying out the development).
[44] In those circumstances, JPVH maintained the Judge was correct to find that LCH’s obligation to do all things reasonably necessary to enable the condition to be fulfilled surely included “the obligation to take the final step of submitting the same”[21] and LCH failed to do that.
[45] LCH was therefore in breach (and not entitled to cancel), unless there was some other basis upon which it was justified in choosing not to provide its Development Plan to JPVH. Mr Campbell suggested the only real basis that LCH had put forward for this relied on an implied term. We turn to consider that later but generally, he said that LCH’s implied term argument amounted to the introduction of a due diligence condition heavily in LCH’s favour and this would have made the Agreements effectively bare options to purchase. Mr Campbell maintained it was not reasonably arguable that such a term would be implied into any sale and purchase agreement of this nature (involving experienced commercial parties and valuable property), let alone into agreements such as these ones, which had been carefully negotiated by sophisticated parties with professional assistance, and which contained the many bespoke terms that the parties required. Among other things, those bespoke terms included (in cl 34) an unqualified obligation for LCH to complete its development in accordance with the approved Development Plan.
[46] In response to LCH’s criticism of the Associate Judge’s conclusion that LCH had a firm obligation to take the final step of submitting its Development Plan, as set out at [40] above, JPVH submitted that LCH’s argument conflated two distinct matters: (i) the provision of a Development Plan and (ii) the carrying out of a development in accordance with that Plan. Fulfilment of the Development Plan condition merely depended on LCH providing a plan to JPVH by the conditional date. Fulfilment of that condition did not depend on LCH carrying out the Development Plan. The relevant enquiry was whether LCH took reasonable steps to provide the Plan — not whether the cost and economic returns of carrying out the development itself were reasonable or feasible.
[47] Mr Campbell argued that LCH’s defence is about the feasibility of the development, not about the feasibility or reasonableness of providing the Development Plan to JPVH. He said LCH chose not to provide the Plan for expected cost and return reasons. This was irrelevant to whether it took reasonable steps to provide the Plan to JPVH.
[48] JPVH also submitted that LCH’s position is inconsistent with other terms in the Agreements. First, LCH had obligations under cl 32.2 to provide a Development Plan to JPVH, and under cl 34 to complete its development in accordance with the approved Development Plan. Neither obligation, Mr Campbell maintained, was subject to “reasonable steps” or “feasibility” qualifications. He contended it would be inconsistent with those terms for LCH to be entitled to choose to refrain from providing a Development Plan, and then to cancel the Agreements, as it has purported to do here, simply because it says it has formed the view that the development was not economically feasible. Secondly, in response to LCH’s argument that its Development Plan did not align with the Council’s ODP which would need to be varied, Mr Campbell noted that the fact the Development Plan might not align with the ODP was actually contemplated by cl 32.7, in which LCH acknowledged that obtaining a variation to the ODP was not a condition of settlement.
Analysis
[49] Given this is an appeal against summary judgment, the question is whether JPVH has met the onus upon it to show that LCH has no arguable defence to the claim against it.
[50] Clauses 10.8(2) and 42.1 required LCH to do all things reasonably necessary to provide a Development Plan to JPVH for its approval, as contemplated by cl 20.3. LCH elected not to provide the Development Plan which it had prepared to JPVH. It made that choice for commercial reasons. Those reasons, according to its National Manager, Mr Ye, were that, given the risks of the development, the return was simply insufficient.
[51] It was plainly within the reasonable ability of LCH to send the (already prepared) Development Plan to JPVH. There was no practical difficulty or material cost associated with simply providing the Development Plan to JPVH, as distinct from costs and risks associated with implementing the plan. On the face of it, LCH simply failed to take a simple but essential step required by the Agreements, with the result that it was in default and was not entitled to rely on the failure to satisfy the Development Plan condition which resulted from that default.
[52] LCH sought to rely on the decision of the Supreme Court in Steele v Serepisos to support the argument that it was not required to submit a Development Plan that would be unreasonably onerous for it to implement. That case was concerned with an agreement for sale and purchase of a section to be subdivided from the vendor’s existing title. Section 225(1) of the Resource Management Act 1991 (RMA) deemed the agreement to be subject to a condition that the survey plan for the subdivision would be deposited under the Land Transfer Act 1952. The Council imposed a condition on its approval of the survey plan relating to drainage that was itself reasonable, but which it transpired would be significantly more onerous for the vendors to comply with than the method by which the parties had originally envisaged that drainage requirements would be met. Where s 225 applies, the vendor has an implied obligation to take all reasonable steps to deposit the plan, so is obliged to take all reasonable steps to fulfil conditions that are imposed by a council on the plan’s approval, provided those conditions are reasonable ones.[22] The majority of the Supreme Court held that in the circumstances of that case it would not be reasonable to require the vendors to take the steps required to comply with the Council’s drainage condition. So the vendor was able to cancel the agreement for non-satisfaction of the statutory implied condition relating to deposit of the survey plan.
[53] We do not consider that Steele v Serepisos assists LCH in this case. That decision was concerned with the statutory condition implied by s 225 of the RMA, not with a condition included in the parties’ contract. The reasoning of the majority in Steele v Serepisos about the condition implied by s 225 cannot be transposed uncritically to cases about contractual conditions. The context is different. In particular, the ability of the courts to imply terms is constrained by the express provisions of the parties’ contract in relation to the relevant condition. In this case, the Agreements expressly provided that LCH was required to do all things reasonably necessary to enable the Development Plan condition to be fulfilled. The focus should be on interpreting that requirement, having regard to the scheme of the Agreements and other relevant provisions.
[54] We see real force in Mr Campbell’s submission that as the Agreements make separate provision for LCH’s obligation to provide the Development Plan to JPVH, and LCH’s obligations to implement the Development Plan, any anticipated difficulties in implementing the Plan are not relevant when assessing whether reasonable steps were taken in relation to the initial step of providing the Plan to JPVH. On that approach, the issues raised by LCH about the costs and risks of implementing the Development Plan are simply irrelevant, and do not excuse the failure to provide the plan to JPVH.
[55] Nor is this a case like Steele v Serepisos where the parties anticipated that a condition would be satisfied in a particular manner which proved impossible for unanticipated reasons outside the control of the parties. In that case there was evidence that the parties envisaged complying with the Council’s anticipated drainage condition in a particular manner. As a result of an unanticipated difficulty in dealing with a third party (a neighbour), that proved impossible. The existence of a comparator based on the parties’ shared expectation about how drainage would be provided played an important part in the analysis of the majority.[23] LCH did not suggest that it encountered any unforeseen difficulty in preparing a Development Plan as the result of actions taken by third parties, or requirements imposed by third parties, which were outside the contemplation of the parties to the Agreements. This was not a case where the parties had shared expectations about how the Development Plan would be framed and implemented which proved unachievable.
[56] More generally, LCH’s approach to what would constitute a justification for failure to deliver the Development Plan is inconsistent with the scheme of the Agreements. LCH had agreed that it was purchasing the property solely in reliance upon its own judgment (cl 24.1(d)). LCH now says it could unilaterally decide that proceeding with the development in accordance with any Development Plan that was likely to be approved by JPVH was not commercially attractive, for reasons of cost or other risks. That would effectively convert the condition in cl 20.3 into a form of due diligence clause, giving LCH an option to investigate the development and choose not to proceed with it if LCH was not satisfied with the outcome of that investigation. We do not consider that it is arguable that cl 20.3 has that effect. If these commercially experienced parties had intended to contract for an extended due diligence period of this kind, they would have done so expressly. Nor is it plausible that LCH would obtain the benefit of a due diligence period of this kind — effectively giving it an option over the properties at no cost — as it claims was the position here.
[57] Mr McBride also argued that the present case involves conditions which, in essence, are similar to finance conditions in purchase contracts requiring a purchaser to take reasonable steps to obtain finance. In such cases there is no obligation on a purchaser in undertaking those steps to accept loan conditions which are entirely unreasonable or uneconomic. However, in our view the case before us is a very different one from the finance condition cases. LCH does not argue that it encountered unexpected difficulties in providing a Development Plan as a result of a third party’s decision analogous to the imposition by a lender of unexpected and unreasonable finance conditions. There is no baseline of standard finance terms and conditions, or finance terms and conditions contemplated by the parties, by reference to which LCH says that the development has proved to be unexpectedly onerous. Rather, LCH’s argument amounts to a claim that until it submitted the Development Plan it retained the right to decide that the development was not commercially feasible, and that in those circumstances it was free to elect not to provide a Development Plan. For the reasons explained above, we do not accept that submission.
[58] In summary, it is not arguable that LCH encountered a difficulty in providing a Development Plan to JPVH that was outside the range of commercial risks that LCH agreed to assume under the Agreements. LCH was able to provide a Development Plan to JPVH. LCH breached its obligations under cls 10.8(2) and 42.1 by failing to do so. LCH could not cancel for non-fulfilment of the Development Plan condition, as that was the result of its own default. Its purported cancellation was a repudiation of the Agreements. JPVH was entitled to cancel and did cancel.
[59] The cancellation was the result of a default by LCH. So cl 26.1(b)(i) applies, and JPVH is entitled to release of the deposit.
Whether cl 10.8(5) conflicted with special condition 26.1(b)(i)
LCH’s submissions
[60] The Associate Judge concluded that cl 10.8(5), enabling recovery of the deposits by LCH, conflicted directly with special condition in cl 26.1(b)(i) and so the latter prevailed. LCH submits that conclusion was wrong.
[61] Clause 10.8(5) is the no fault cancellation provision. It is set out at [5] above. In summary, it provides that if a condition is not met the contract is may be avoided by either party, and the purchaser is entitled to return of the deposit.
[62] Clause 26.1(b)(i) is outlined above. It provides that if the Agreements are cancelled as a result of a default by the purchaser, the deposits are released to the vendor. Clause 26.1(b)(ii) provides that if the Agreements are cancelled for any reason other than default of the purchaser, the deposits are refunded to the purchaser.
[63] A cancellation for non-fulfilment of a condition is not a cancellation as a result of default by the purchaser default. Rather, it is “no fault cancellation”, entitling the purchaser to a refund of the deposits as provided for in cl 10.8(5) and cl 26.1(b)(ii).
[64] The High Court concluded that, because of its view that there was a conflict between cls 10.8.5 and 26.1(b)(i), cl 37.1 was engaged, with the result that the special condition prevailed over the general condition.[24]
[65] LCH maintains that this interpretation was wrong. Mr McBride says the Court’s duty, when confronted with two provisions in a contract that seem to be inconsistent with each other, is plain. It must do its best to reconcile them, if that can conscientiously and fairly be done. But it is not enough if one term simply qualifies or modifies the effect of another. To be “inconsistent”, a term must contradict another term or conflict with it such that effect cannot fairly be given to both clauses.
[66] LCH’s position here is that there was no such inconsistency. Mr McBride argues the High Court was wrong to ignore cl 10.8(5), which enables a refund of the deposit to the purchaser if the contract does not become unconditional.
JPVH’s submissions
[67] JPVH says there is no issue here. It maintains that it is not necessary for us to consider this argument in order to resolve this appeal. If, as we have done, we uphold the Judge’s primary finding (that LCH was in breach in failing to provide the Development Plan to JPVH), JPVH contends that cl 10.8(5) falls by the wayside. This is because, as is common ground, if LCH was in breach, it was not entitled to cancel for non-fulfilment of the Development Plan condition and cl 10.8(5) applies only where the Agreements are cancelled for non-fulfilment of a condition. Conversely, if we had not upheld the Judge’s primary finding, the matter would have had to go to a full hearing, regardless of whether the two clauses conflicted. But that is not the case here.
[68] JPVH says that if we do need to decide this issue, then the Associate Judge was right to find that the two clauses conflict. Clause 10.8(5) provides for the deposit to be returned to the purchaser, if the vendor chooses to cancel for non-fulfilment of a condition. That result applies even if the purchaser’s default has caused the condition to fail (the purchaser’s default will disentitle the purchaser, but not the vendor, from cancelling). In this same scenario, however, cl 26.1(b)(i) provides to the contrary: if the cancellation is a result of a default by the purchaser, then the deposit will be released to the vendor.
Analysis
[69] We agree with JPVH’s submission that the question of whether there is a conflict between cls 10.8(5) and 26.1(b) need not be resolved. Clause 10.8(5) is relevant only where the Agreements are cancelled for non-fulfilment of a condition. We have found that LCH was not entitled to cancel for non-fulfilment of the Development Plan condition. The contract was cancelled by JPVH as a consequence of LCH’s repudiation. So cl 10.8(5) is simply inapplicable.
[70] Rather, cl 26.1(b)(i) applies and JPVH is entitled to the deposits.
Whether the Court wrongly rejected a defence based on an implied term
LCH’s submissions
[71] LCH submitted that it was arguable that cl 32.2 was subject to an implied term to the effect that the purchaser needed to be satisfied that its Development Plan was viable, not just in economic terms but also in terms of planning and other requirements.
[72] LCH argued that the Associate Judge focused purely on the “economically feasible” argument and did not appear to recognise that LCH’s evidence went beyond that, to include consideration of other requirements.
[73] The situation, Mr McBride maintained, was analogous to that which prevailed in Gilbert v Manninen.[25] There, the purchaser argued it was entitled to cancel a contract which was conditional upon obtaining a resource consent if the consent had been given subject to onerous or unsatisfactory conditions. The Court applied Steele v Serepisos and concluded that:
[44] While the decision in Steele v Serepisos relates to the interpretation of a particular statutory condition, in my view it may well be that a similar approach applies in cases such as the present in the context of a purely contractual condition. ...
[74] The Court went on to hold that a detailed assessment of the purchaser’s argument at trial was desirable.[26]
[75] Plainly, Mr McBride said, that approach is the right one. He complained
that, without discussing either Gilbert v Manninen or Steele v Serepisos, the Associate Judge in the present case concluded that an implied term defence was not arguable. In reaching this conclusion he noted that the Associate Judge had concluded:
- (a) the parties could have included this term if they wanted to;
- (b) it was not necessary to make the contract work; and
- (c) LCH could always have declined to proceed, but this would have meant forfeiting its deposits.
[76] Mr McBride suggested to us, however, that those conclusions are at odds with authority and, in any event, are not available on a summary judgment application. He noted that whether LCH did enough to try to provide a Development Plan is squarely a trial issue and claimed that this should not have been resolved summarily.
JPVH’s submissions
[77] In response, Mr Campbell began by clarifying that the implied term LCH argued for here was that “the purchaser needed to be satisfied that its Development Plan was somehow viable, not just in economic terms but also in terms of planning and other requirements.”
[78] Mr Campbell contended LCH did not explain the basis upon which such a term could be implied, nor engage with the recognised tests for implying terms.
[79] JPVH’s position is that this term is not so obvious that “it goes without saying”, nor is it a term that is needed to give effect to business efficacy or to make the Agreements work. It is the sort of term that is often seen in due diligence clauses. LCH is a sophisticated commercial party, and it had every opportunity to contract for such a clause. It did not. Instead, LCH acknowledged, in cl 24.1(d), that it purchased the properties in reliance upon its own judgment.
[80] Mr Campbell also maintained that the implied term suggested by LCH would conflict with other agreed terms. In cl 32.7, LCH acknowledged that it was not a condition of settlement that the Development Plan reflect the Council’s ODP — so LCH could hardly be justified in declining to provide a Development Plan on the ground that it did not align with the ODP. Also, under cl 34.1, LCH undertook to complete its development in accordance with the approved Development Plan. That clause was not qualified by any “feasibility” criterion. Mr Campbell said there were many other constraints and limitations on how LCH could develop the properties. In light of all these bespoke terms, JPVH’s position is that there is no room for implying an overarching term conferring on LCH an option to exit the Agreements if it thought a development was not economically feasible.
[81] For these reasons, JPVH maintained the Associate Judge was right to hold that it was not arguable that such a term could be implied. The circumstances were very different from those in Gilbert v Manninen.
Analysis
[82] It is elementary that a term will not be implied into a contract if the suggested term is inconsistent with the express provisions of that contract. The implied term contended for by LCH is inconsistent with the scheme of the Agreements, and with their express terms, as explained above when addressing LCH’s first argument. Under cls 10.8(2) and 42.1 LCH was required to do all things reasonably necessary to provide a Development Plan to JPVH. The Agreements then went on to deal with a number of matters relating to the Development Plan, including potential inconsistency with the Council’s ODP, and implementation of the plan. An implied term which conferred on LCH a broad discretion to decide not to provide such a plan, depending on whether or not it was satisfied that the development would be viable, would be inconsistent with LCH’s obligations under cls 10.8(2) and 42.1, and under the other provisions of the Agreements concerning preparation and implementation of the Development Plan. And it would be inconsistent with the other features of the Agreements outlined at [56] above.
[83] The Associate Judge was correct to reject LCH’s defence based on an implied term.
Wastewater condition argument
[84] As noted above, on this appeal LCH put forward a further argument based on the fact the wastewater condition in cl 20.3(a) had not been satisfied at the time that JPVH cancelled the Agreements. This argument had not been raised before the High Court and was not included in the Notice of Appeal.
[85] Clause 20.3(a) provided that the Agreements were conditional on:
[T]he parties agreeing the solution for the waste water disposal from the property, either by connection to the existing Society sewage disposal system or to a new Council sewage disposal system, and the purchaser being entirely satisfied (at its absolute discretion) with the cost to be connected to the agreed waste water disposal solution within 20 Working Days of the date of execution of this agreement ...
[86] The evidence is that, as at 3 July 2017, the parties were “close to resolving the wastewater solution” and had agreed to extend the date for satisfaction of that condition to 3 September 2017 “to allow sufficient time to get all approvals needed” and that, shortly before LCH’s alleged repudiation, the parties were continuing to work together on the solution.
[87] LCH purported to cancel the Agreements on the basis of non-satisfaction of the wastewater condition on 4 September 2017. However, this was after the Agreements had already been cancelled by JPVH on the basis of LCH’s repudiation.
[88] The argument based on the wastewater condition was advanced for the first time at the hearing of the appeal. We gave the parties the opportunity to file further written submissions addressing this new argument.
[89] The legal basis of the new argument was not entirely clear. It appeared to be along the lines that:
- (a) an agreement cannot be cancelled if it remains conditional, as the cancelling party cannot show that the contract would have become unconditional; and/or
- (b) in order to cancel for LCH’s repudiation, JPVH had to show that it could have proceeded to settlement itself. It could not do so in this case as it could not show that the wastewater condition would have been satisfied; and/or
- (c) because JPVH could not show that it could have proceeded to settlement, LCH was not in “default” in terms of cl 26.1.
[90] The failure to raise these arguments in response to the summary judgment application, and provide an evidential foundation for them, is plainly unsatisfactory. But putting the issues surrounding pleadings to one side, we consider that this new argument lacks merit, and does not justify declining summary judgment.
[91] The general argument advanced by LCH that a contract cannot be cancelled in response to a repudiation if the contract is conditional, and the conditions have not yet been satisfied, is plainly wrong. It is inconsistent with the cancellation provisions of the Contract and Commercial Law Act 2017 (CCLA), which are not limited in that way. It is unsupported by authority. And it is inconsistent with basic principles. If a party to a conditional contract clearly communicates an intention not to perform the contract, the other party should be entitled to bring the contract to an end, rather than wasting time and money attempting to satisfy the outstanding conditions of the contract to no useful end. If the satisfaction of those conditions requires the parties to cooperate, the futility of requiring the innocent party to attempt to satisfy those conditions when the repudiating party has communicated an intention not to perform is even starker.
[92] It is well established that where the vendor’s and purchaser’s promises at settlement are interdependent, as they usually are, the right of party A to cancel for party B’s failure to settle is dependent on party A being ready, willing and able to settle.[27] But that principle is not relevant here. JPVH did not cancel because of a failure by LCH to settle. JPVH cancelled because LCH repudiated the Agreements. And LCH’s obligation to do all things reasonably necessary to provide a Development Plan that satisfied the Development Plan condition was not dependent on any obligation on the part of JPVH. So LCH’s argument derives no support from this line of cases.
[93] LCH submitted that its argument was supported by the decision of this Court in Noble Investments Ltd v Keenan.[28] There, this Court had held that party A, otherwise having a right to cancel, may not be able to exercise that right if doing so would allow party A to benefit from its own wrong. The Court said this could occur if either (i) the breach by party B, on which party A relies, was caused by party A’s own breach, or (ii) party A was unable or unwilling to perform its obligations under the contract.[29] The purpose of this rule has been expressed as being to ensure that the party in question could not benefit from its own wrong.
[94] This line of cases also does not assist LCH. LCH does not suggest that JPVH was in breach of the Agreements. No question of JPVH benefiting from its own wrong arises here.
[95] The new argument advanced by LCH at the hearing of the appeal is not arguable and does not justify refusal of summary judgment.
Section 43 of the Contract and Commercial Law Act 2017
One other final matter needs mention. At the hearing of the appeal before us, we asked counsel whether it was possible for LCH to seek relief from forfeiture of the deposits under s 43 of the CCLA (previously s 9 of the Contractual Remedies Act 1979 (CRA)), and whether that might provide an arguable defence to LCH. JPVH now says, and we agree, that relief under s 43 is not possible. This is because s 34 of the CCLA (previously s 5 of the CRA) provides that if a contract makes express provision for any of the matters to which sections 35 to 49 relate, those sections have effect subject to that provision. Clause 26.1(b)(i) of the Agreements makes express provision for what is to happen to the deposits in the event that the Agreements are cancelled as a result of a default by LCH. This prevails over any discretionary power the Court has under s 43.
[96] And we are satisfied too, as Mr Campbell suggested, that the present case is an even stronger one of an “express provision” prevailing over s 43 than the situation that prevailed in the decision of this Court in Garratt v Ikeda.[30]
Conclusion
[97] For all the reasons we have outlined above, we therefore agree with the Associate Judge that LCH does not have an arguable defence to JPVH’s claim against it for the deposits. We dismiss LCH’s appeal.
Costs
[98] Costs should follow the event in the normal way. JPVH seeks an additional allowance of one day’s costs to reflect the post-hearing memoranda filed to address the new argument advanced by LCH at the hearing of the appeal. The way in which this argument was pursued added to the time involved in responding to this appeal. But the issue was capable of being addressed, and was addressed, briefly and efficiently by counsel for JPVH. We consider that an award of an additional half day of preparation costs is warranted.
Result
[99] The appeal is dismissed.
[100] LCH must pay JPVH costs for a standard appeal on a band A basis, with an allowance for an additional half day of preparation, and usual disbursements.
Solicitors:
Doug Cowan Barrister &
Solicitor, Auckland for Appellant
Anderson Lloyd, Queenstown for
Respondent
[1] Jacks Point Village Holdings No 2 Ltd v Long Capital Holdings NZ Ltd [2019] NZHC 1405 [High Court judgment].
[2] ‘Area 2’ is referred to instead of ‘Area 1’ to describe the relevant area on the attached plan.
[3] Agreement for Sale and Purchase of Real Estate, 2 June 2017 [Area 1 Agreement], cl 20.3(b)(i).
[4] Agreement for Sale and Purchase of Real Estate, 2 June 2017 [Area 2 Agreement], cl 20.3(b).
[5] High Court judgment, above n 1, at [16], citing Scott v Rania [1966] NZLR 527 (CA) at 534 per McCarthy J.
[6] At [20]. The quoted passage has been corrected to read “did not take” rather than “took”. It is clear from the context that this is what the Associate Judge meant.
[7] At [24].
[8] At [34].
[9] At [35].
[10] At [37]. The Judge noted that the exclusive focus of cl 32.2 was on the physical characteristics of the development and nowhere was there any reference to economic feasibility.
[11] At [41] and [49].
[12] At [49]–[50].
[13] At [54].
[14] Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
[15] Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
[16] Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [29].
[17] Moreton v Montrose Ltd [1986] NZCA 30; [1986] 2 NZLR 496 (CA) at 503–504 per Cooke J.
[18] High Court judgment, above n 1, at [23].
[19] At [34].
[20] Steele v Serepisos [2006] NZSC 67, [2007] 1 NZLR 1.
[21] High Court judgment, above n 1, at [24].
[22] Steele v Serepisos, above n 20, at [23]–[25].
[23] See, for example, at [29]–[32] per Tipping J and [13] per Blanchard J.
[24] High Court judgment, above n 1, at [52]–[54].
[25] Gilbert v Manninen [2009] NZHC 1627; (2009) 10 NZCPR 209 (HC).
[26] At [44].
[27] Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231 at [82].
[28] Noble Investments Ltd v Keenan (2005) 6 NZCPR 433 (CA).
[29] At [47]. See also Ingram v Patcroft Properties Ltd [2011] NZSC 49, [2011] 3 NZLR 433 at [40].
[30] Garratt v Ikeda [2001] NZCA 316; [2002] 1 NZLR 577 (CA).
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