EASTSIDE HOLDINGS LIMITED V WALTERS TRUSTEES LIMITED HC AK CIV 2006 - 404-2182 [2006] NZHC 1145 (29 September 2006)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                              CIV 2006 - 404-2182



              BETWEEN                    EASTSIDE HOLDINGS LIMITED
                                         Plaintiff

      
       AND                        WALTERS TRUSTEES LIMITED
                                         Defendant


Hearing:      11
September 2006

Appearances: Mr Briscoe for plaintiff
             Ms Quinn for defendant

Judgment:     29 September 2006 at 11.30
a.m.


             JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE




              This judgment was delivered by me on
              29.09.2006
at 11.30 a.m, pursuant to
              Rule 540(4) of the High Court Rules.


                 Registrar/Deputy Registrar
     
                Date...............




Counsel:
J N Briscoe, Davys Burton, P O Box 248, Rotorua
K F Quinn, Walters Law, P O Box
37-661, Auckland

EASTSIDE HOLDINGS LIMITED V WALTERS TRUSTEES LIMITED HC AK CIV 2006 - 404-2182 29
September 2006

Background


[1]    The plaintiff is the registered proprietor of an estate in freehold in the
property situated at 269 Remuera Road, Auckland
which is the subject of this
proceeding.


[2]    The defendant is a trust company which for the purposes of this judgment
may be
taken as the agent, and trustee, of the Devereaux Trust.


[3]    The Devereaux Trust owns a property at 267 Remuera Road, next door
to the
property which is the subject of this proceeding which I have just described. The
defendant operates an hotel at that address.


[4]    The property at 269 Remuera Road is held by the plaintiff on lease from the
Dilworth Trust. The lease was originally between
Dilworth and another lessee. The
lease commenced on 1 January 1992 and was for a period of 21 years. It contained a
right or renewal
for a further period of 21 years. The rent review periods were every
seven years. As at December 2005 when the events occur which
give rise to this
claim, the ground rent was $49,500. Covenants contained in the lease required that
every building on the land should
be used as a private dwelling house and/or
consulting rooms.       The original lessee's are described in the lease as
"acupuncturists"
and no doubt that is the reason for the restriction of the use of the
property for consulting rooms. In December 2005 the next rent
review date was
eminent, being 1 January 2006.


[5]    On 12 December 2005 the defendant entered into an agreement for sale and
purchase with the plaintiff to buy the plaintiff's leasehold interest for $635,000. A
deposit of $31,750 was payable on execution
of the agreement. The agreement was
unconditional in all respects.


[6]    The defendant says that the reason for haste in the matter
was that the
plaintiff told it that another party was interested in the property and that if they had
not signed an agreement by
5 p.m. that day the other party might well beat them to
the property.

[7]        The defendant was interested in acquiring the
property as an adjunct to its
private hotel business.        The plan was that the property would be used as a
conference/function
centre which would be available for the use of people staying at
the hotel.


[8]        On 12 December 2005 a Mr Woodworth visited
the property with a
colleague, Mr Macleod. Mr Woodworth is the general manager of a company called
Bribanc Property Group Limited
("Bribanc").             In December 2005 Bribanc was
managing the property for the Devereaux Trust. Devereaux Trust had acquired
its
hotel property in November 2005. When he visited the property Mr Woodworth had
with him a colleague, Mr Macleod. He arranged
to visit the property with real estate
agents that had been appointed by the plaintiff. Also present during the visit to the
property
were Mr Stott who is apparently a principal of the plaintiff, Mr Stott's wife
and two real estate agents, Corey Allan and Mark Forbes.


[9]        For the purposes of argument, I assume in favour of the defendant that there
it will be able to establish the following facts if the matters goes to trial


     
a)    During the visit Mr Stott advised Mr Woodworth that he was then in the
           process of negotiating with Dilworth to vary
the terms of the lease.


      b) Mr Stott advised Mr Woodworth at the meeting on 12 December him that the
           leasehold
rent review was coming up in January 2006 and that he, Mr Stott,
           had spent a considerable amount of money on legal advice
establishing rent
           review terms for the Property. Mr Woodworth said that Mr Stott advised him
           that he had received
a valuation that the reviewed rental would be around
           $88,000 per annum.


      c) I accept that prior to the meeting
the plaintiff had obtained advice from a
           valuation firm called Eyles McGough and that there was some discussion
     
     about the advice that the valuers had given to the plaintiff.


      d) Mr Stott said that if the ground rental was reviewed
by Dilworth at more than
           $88,000 per annum once Dilworth had obtained its own valuation then he,

       Mr Stott, would
challenge Dilworth's rental review by invoking the
       arbitration process, or something to that effect.


   e) While he was
at the property, Mr Woodworth spoke to Mr Bryers who is the
       settlor of the Trust under which the defendant was the trustee
of Devereaux
       Trust. Mr Bryers instructed or asked him to obtain a copy of the original
       lease with Dilworth.


   f)
Mr Stott told Mr Woodworth that the original lease was irrelevant because he
       had negotiated new terms with Dilworth in regard
to the use of the property;
       but nonetheless Mr Bryers was insistent that Mr Woodworth should see the
       existing lease
and the new terms; and that Mr Stott went home and brought
       back a copy of the original lease and the new terms for Mr Bryers
to view.


   g) While Mr Woodworth was at the property the agent, Mr Forbes, spoke to Mr
       Bryers who is the settlor of the
Devereaux Trust. He heard Mr Forbes' side
       of the telephone conversation and Mr Forbes:

           Reiterated Mr Stott's advice
that the ground rental was being reviewed
           in January 2006 and it would be around $88,000 per annum.

[10]   It is not
in dispute that the reference to the negotiation of new terms with
Dilworth in regard to the use of the property had to do with the
possibility that
Dilworth would agree to the erection of several units on the property and not just
restrict use to the existing
house as a residence and/or consulting room. On all of the
material before me, though, I cannot conclude that any change had been
agreed
between Dilworth and the plaintiff about the permitted use of the property as at the
date when the agreement for sale and
purchase was entered into, namely 12
December 2005.


[11]   I also find that Mr Stott did not receive the valuer's report containing
the
figure of $88,000 until 23 December 2005, some eleven days after the date when the
agreement for sale and purchase was signed.
Nonetheless, this does not necessarily
mean that Mr Stott did not on the earlier date know what the valuers figure was
going to be.
As I have already said, I decide the present application on the basis that

Mr Stott told Mr Woodworth at the meeting about the
valuer having provided a
figure of $88,000.


[12]   As a matter of background I should also mention that the valuers who gave
the
plaintiff a valuation of $88,000 on 23 December 2005 had earlier produced a
draft report referring to a figure of $96,250.


[13]
  I also find that by 23 February 2006 there was still no certainty concerning
what the new rent would be. On that date the solicitors
acting for the defendant said
that they did not know what Dilworth was proposing concerning new rental and that
there would have
to be an apportionment in due course.                 I understand the
significance of this is as follows. Settlement under the contract was due on the
possession date which was 28 February 2006.
If the rent that was ultimately settled
upon increased from $88,000 per annum, then the increased figure would have to be
factored
into the settlement statement on settlement. That is from the beginning of
January 2006 until settlement, the plaintiff would be
liable for the rent. It was
apparently continuing to pay the rent on the existing basis. Because any increase
would be effective
from 1 January 2006 a further sum might have to be paid to
"catch up" if the rent increased.


[14]   On 6 March 2006 Dilworth advised
the plaintiff that the new rent would be
$165,000. This was a very substantial increase on the $49,000 which the plaintiff
had been
paying. The advice from Dilworth as to the increased rent also stated that
the plaintiff had two months in which to put an arbitration
in train, if it did not accept
the increased rent.


[15]   The defendants did not settle the purchase of the property. On 6 March
2006
the plaintiff's solicitors served a settlement notice on the defendants requiring them
to settle on the basis that it would
be required to pay $642,996.92 in accordance with
a settlement statement dated 10 February 2006. The settlement notice made time
of
the essence.


[16]   On 8 March 2006 the defendant's solicitors wrote to the solicitors acting for
the plaintiff. The letter
contained the following paragraph:

       2. Our client instructs that it entered into the contract to purchase the
          property
from your client on the basis of your client's representation that
          the new rental would not be more than $88,000 per annum.
Indeed, your
          client, through its agent, provided our client with a copy of your client's
          valuation at $88,000
per annum shortly after signing the agreement for
          sale and purchase to verify this representation. It is clear that this
          representation from your client (or its agent) was essential to our client
          entering into the contract as explained
below.

[17]     After going on to state that the rental increase was of the order of 330%, the
letter asserted that the leasehold
value was likely to be no more than $300,000. Then
the letter continued:

       3. Our client's view is that your client has clearly
misrepresented the value
          of the property and misrepresented the likely rental increase. As a
          consequence of the
misrepresentation our client was induced to enter
          into a sale and purchase agreement for a price effectively 100% higher
          than the value of the property.

[18]   I accept that there are grounds for the defendant asserting that the new rental
figure of $165,000 would substantially reduce the value of the freehold interest.


[19]   On 24 April 2006 the plaintiff commenced
proceedings against the defendant.
It seeks an order that the defendant specifically perform the Agreement for Sale and
Purchase
dated 12 December 2005. It also seeks that the defendant pay interest in
accordance with the Agreement at the rate of 14%



Summary
judgment principles

h) The principles which apply to an application for summary judgment have been
   clearly established through
decisions of the Court of Appeal such as Pemberton v
   Chappell  [1987] 1 NZLR 1; Grant v New Zealand Motor Corporation Ltd
    (1989) 1 NZLR 8 and Westpac Banking Corporation v MM Kembla New
   Zealand Limited  [2001] 2 NZLR 298.


i) In his judgment in Pemberton v Chappell at page 3, Somers J said:

       If a defence is not evident on the plaintiff's pleading
I am of opinion that if
       the defendant wishes to resist summary judgment he must file an affidavit
       raising an issue
of fact or law and give reasonable particulars of the matters
       which he claims ought to be put in issue. In this way a fair
and just balance

       will be struck between a plaintiff's right to have his case proceed to judgment
       without tendentious
delay and a defendant's right to put forward a real
       defence.

       At the end of the day r 136 requires that the plaintiff
"satisfies the Court that
       a defendant has no defence". In this context the words "no defence" have
       reference to the
absence of any real question to be tried. That notion has
       been expressed in a variety of ways, as for example, no bona fide
defence,
       no reasonable ground of defence, no fairly arguable defence. See eg
       Wallingford v Mutual Society  (1880) 5 App Cas 685, 693; Fancourt v
       Mercantile Credits Ltd [1983] HCA 25;  (1983) 154 CLR 87, 99; Orme v De Boyette  [1981] 1
       NZLR 576. On this the plaintiff is to satisfy the Court; he has the persuasive
       burden. Satisfaction here indicates that the Court is
confident, sure,
       convinced, is persuaded to the point of belief, is left without any real doubt
       or uncertainty.

j)
I therefore propose to apply the following general principles, which apply to all
   applications for summary judgment:
       ·
  The Plaintiff must satisfy the Court that The Defendant has no arguable
           defence to the claims brought against it.
 
     ·   It is generally not possible to determine disputed issues of fact based on
           affidavit evidence alone, particularly
when issues of credibility arise.
       ·   Although the Court should adopt a robust approach, nevertheless
           summary 
    judgment      may     be    inappropriate     where     the   ultimate
           determination turns on a judgment which can
only properly be reached
           after a full hearing of all the evidence.



The Defendant's case

[20]   In the Notice of Opposition
dated 15 June 2006 the defendant asserts that it
has validly cancelled the contract between the parties. It refers in paragraph 4
to a
meeting that took place 12 December 2005 where those present were Mr Woodworth
and Mr McLeod for the defendant and Mr Stott,
a director of the plaintiff, and the
vendor's real estate agent Mr Forbes.


[21]   The Notice of Opposition then states, at paragraph
5:

       At the meeting the plaintiff advised the defendant:

               (a) That it had caused a valuation of the lease to
be undertaken as
                   the rental review period was about to expire; and

               (b) That the valuation it
had obtained provided an assessment of the
                   annual rental at $88,000 per year; and

               (c) That if
Dilworth increased the rent to more than $88,000 per
                   annum then the plaintiff would challenge that rental review
by
                   arbitration; and

               (d) That it had spent a considerable amount of money on legal fees
      
            in negotiating with Dilworth to vary the lease.

[22]   In paragraph 8 it is asserted that in reliance on the representations
specified in
paragraph 5, the defendant entered into the agreement for sale and purchase. In
paragraph 10, the defendant says that
on 8 March 2006 the defendant gave notice to
the plaintiff's solicitors that Dilworth considered a fair annual rental was $165,000
per annum and copied the Rent Review Notice to the plaintiff.


[23]   Then at paragraph 12 of the Notice of Opposition appears this
important
statement:

       12. On 13 April 2006 the defendant cancelled the agreement on the basis
       that the plaintiff had
misrepresented to the defendant that the annual rental
       amount would be $88,000 per annum.

[24]   In paragraph 13 the defendant
says that it is not obliged to perform the
contract because it has validly cancelled same.



Assessment

[25]   I assume for the
purposes of the application that the defendant is able to
establish that the plaintiff did in fact give to the defendant the advice
which is set out
at paragraph 5 of the Notice of Opposition.        The matters stated in paragraph 11
amount to an assertion that
the effect of the foregoing matters in the notice of
opposition, was to make a representation to the intent pleaded in paragraph
11.


[26]   In making my decision, I will consider whether or not on the assumption that
those facts are correct, that there is
a genuine question as to whether or not the
plaintiff misrepresented to the defendant that the annual rental amount would be
$88,000
per annum.

[27]      The Notice of Opposition, as I have already observed, refers to the plaintiff
having misrepresented to the
defendant that the annual rental amount would be
$88,000 per annum. There is no further specificity offered as to which person or
persons made the decision to proceed with the purchase on the defendant's side. It
would appear that the agreement was actually signed for the defendant by Mr
Walters, a solicitor who is apparently
a party associated with the defendant trustee
company.


[28]      I will assume in favour of the defendant that Mr Bryers made the
decision to
enter into the contract, or at least, contributed to it. After all, Mr Woodworth and Mr
MacLeod who was present were
employees of a property management company
retained by the Devereaux Trust to manage the main property.             The property
management company is Bribanc.


[29]      I will also assume that in his role as advisor Mr Woodworth's views were
influential.
If there was a misrepresentation made to him which influenced his
contribution to the decision to proceed with the purchase of the
property, then that
would be a misrepresentation that would qualify for the purposes of section 7 of the
Contractual Remedies Act
1979.


The meaning of the alleged representation


[30]      The meaning, tenor and effect of the alleged misrepresentation have
to be
judged not only by what was said but also the circumstances in which it was said.


[31]      The representation which the
defendant relies upon was a representation
made by Mr Stott that a valuer had given an assessment of the annual rental being
$88,000
per year. I will assume that Mr Stott is responsible for any inaccuracy in the
misrepresentation, even although he was only passing
on the views of the registered
valuer.


[32]      In the circumstances, the representation amounted to saying that the valuer's
opinion was that the market rent was $88,000. But the words have to be considered
in a way that they would have reasonably been understood
by the representee:

Collings v McKenzie  (1988) 2 NZBLC 102,997 at 103,011, Eichelbaum J. The
context here included an accompanying statement that Mr Stott allegedly made that
if Dilworth increased
the rent to more than $88,000 per annum then the plaintiff
would challenge that rental review. There were other matters as well which
the
representees must have understood.


[33]   Mr Woodworth knew that the rent for the property was to be reset early in the
New
Year. He must have appreciated that the fixing of the rental was a bi-lateral
process. Mr Stott could not make the decision on his
own. There would have to be a
process of negotiation with Dilworth.      If Dilworth insisted on a rent that was
unpalatable to the
lessee, then the lessee (Mr Stott) had the right to invoke the
arbitration provisions contained in the lease. Indeed, Mr Stott said
he would do just
that. The reference to the valuation that Mr Stott had obtained would have conveyed
to Mr Woodworth no more than
that Mr Stott's valuer believed that a fair rental
would be $88,000. Mr Woodworth must have appreciated that that opinion might or
might not be shared by Dilworth and its advisors. It is not unknown for there to be
very considerable disparities in what the respective
parties to a rental negotiation
think is the fair rental.   It is known by those who are familiar with property
transactions of this
kind that the parties will commonly seek to bridge the difference
between them by negotiation and if that fails they can fall back
on the arbitration
process.    In short, there was no certainty whatsoever that the view which the
plaintiff's valuers, Messrs Eyles
and McGough took would ultimately prove to be
the right one.    That being so, it could not reasonably have been taken as a
representation
that the $88,000 figure was anything more than a properly considered
and formed opinion on the part of a valuer and one that was
supported by market
evidence.


[34]   The defendant did not focus any attention on this last point. The defendant
seems to have
assumed that all that was necessary was for it to demonstrate that
Dilworth were proposing a rent considerably higher than $88,000
and that would be
sufficient to show that the figure of $88,000 was therefore a misrepresentation. It
did not adduce evidence to
demonstrate that the Eyles and McGough opinion, to the
extent that involved implicit factual assertions about the state of the market,
misrepresented the facts.

[35]   My conclusion is that Mr Stott's statement could not reasonably have been
viewed as a representation
of fact that the rent would in fact be of the order of
$88,000.


[36]   By the time the rental arbitration plays out, it might be
found that the valuer's
view is right. Conversely, the fact that he might ultimately be wrong, does not mean
that he did not have
proper grounds for advancing the opinion that he did and that Mr
Stott had a reasonable basis for conveying that opinion to the purchaser
of the
property.


[37]   I cannot in the circumstances agree with the defendant that what Mr Stott said
about the Eyles and McGough
opinion was in any sense a misrepresentation to Mr
Woodworth that the annual rental "would be $88,000 per annum"


Mr Bryers


[38]
  Mr Bryers has not filed an affidavit.       I am prepared to assume for the
purposes of this application that he would have been
influenced by the remarks
allegedly made to him by Mr Forbes about the rent being reviewed in January 2006,
and that it would be
around $88,000. This similarly cannot have amounted to a
misrepresentation that would justify cancellation of the agreement. I repeat
the
comments that I have just made that the assessment of the effect of what the alleged
misrepresentation would have conveyed to
the parties has to be seen in context.
Given that there is no affidavit from Mr Bryers, I must assume that an inference is
available
that he appreciated that the property was a leasehold one and that the point
which the rent would be fixed on the review was not
something that the vendor was
able to control. Viewed in such a light, he can only have seen the comments
allegedly made by Mr Forbes as stating what the vendor's
hopes and expectations
were but he could not possibly have construed them as an assurance that as a matter
of fact, the rent would
be fixed at $88,000 or even that there was a high probability
that that was the case.

Conclusion on misrepresentation


[39]  
Given the context of the alleged misrepresentations, including the context in
which the vendor made the statement, the words could
not support the meaning
which the defendant would wish to place on them and accordingly there has been no
misrepresentation which
could justify the defendant in cancelling the contract. It
follows that the defendant did not validly cancel the contract.



Discretionary
considerations

[40]   Because the defendant has not validly cancelled the contract, it is obliged to
conform with the settlement
notice with which the plaintiff has served it, unless there
are discretionary reasons for the Court not so ordering.


[41]   Defendant's
counsel, Ms Quinn submitted that I should exercise my
discretion against ordering specific performance of the contract.       She
said that
matters relevant to the exercise of the discretion are:


       a)      Whether there is anything about the plaintiff's
conduct which would
               amount to "unclean" hands;


       b)      Whether the performance of the contract would require
supervision by
               the Court;


       c)      Whether the remedy is available to both parties;


       d)      Whether
there is any significant delay by the plaintiff which would
               cause prejudice to the defendant;


       e)      Whether
the specific performance of the contract would cause undue
               hardness or unfairness.


[42]   As well she referred me
to Lyons v Stewart (Master Thompson, 29 October
1997, Napier Registry CP19/97). In that case the Judge declined to enter specific
performance because he considered there should be a further enquiry as to whether

there were any circumstances indicating hardship
or unfairness that would arise from
ordering specific performance.


[43]   Ms Quinn essentially submitted that the bargain would
turn out to be a hard
one for the defendant because it was stuck with having to pay rent to Dilworth at
$165,000 per annum; that
then based on valuation advice from a valuer called Mr
Buckley, the value of the leasehold interest given rental at that level would
be
negligible. That is, the defendant would get little of value back in return for the
purchase price which it paid for the leasehold
interest of $635,000 plus GST.


[44]   She also suggested that because it had been established that a valuation was
obtained by
the defendants, it was open to me to conclude that the defendants
required finance to complete the purchase but that they would be
unable to do so
given that the property had negligible value in the light of the assessed rental of
$165,000.


[45]   She did not
suggest that any of the other discretionary matters that the Court
should take into account which I have listed above as (a) ­ (d)
should be taken into
account when exercising the jurisdiction.


[46]   I observe that the hardship that the defendant alleges will
accrue may or may
not come to pass depending on what happens when the rental is finally assessed. In
that regard, I record my finding
that it was always open to the defendant to take up
the rental negotiations with Dilworth.


[47]   Beyond that, the fact that a
defendant has entered into a disadvantageous
bargain is not on its own likely to persuade the Court to decline specific
performance.
People make mistakes. This may well be an example of that. There
are not present added features such as the purchaser/defendant not
having had the
opportunity to get independent legal advice; the purchaser labouring under some
disadvantage such as illiteracy. Nor
was the case one where the defendant was
pressured into the contract for some reason such as his or her adverse financial
circumstances. None of those facts seem to be
present here. Those are typical
reasons why the Court declines, in its discretion, to order specific performance.

[48]    The defendant
here was at all times advised by a firm of property managers.
It had a solicitor acting for it. So far as financing the transaction
is concerned, to
assert that one can infer that the defendant will have to raise money against the
property that was the subject
of the contract, overlooks that the defendant also
apparently owns another substantial neighbouring property in Remuera.        
 In the
absence of specific information concerning that aspect of the matter, I would not be
prepared to view this as being a relevant
hardship for the purposes of justifying a
refusal of specific performance.


[49]   My conclusion is that this is not one of those
cases in which restraint is
required when considering whether the discretion should be exercised in the setting
of a summary judgment
hearing - with consideration instead being given to whether
the matter should be sent to a oral hearing so that discretionary factors
can be
explored. I would not be prepared to refrain from entering summary judgment in
the absence of some material which suggests
that declining specific performance is
the proper cause to take.     Were the courts to exercise their discretion against
summary
judgment in cases of this kind, the legitimate procedure available to those
seeking to enforce contracts under this summary judgment
regime would be of little
assistance.


[50]   In my view this is an appropriate case to make the orders sought. I therefore
give
judgment to the plaintiff in the following terms:
   (a) An order that the defendant specifically perform the Agreement for Sale
and
       Purchase dated 12 December 2005;
   (b) The defendant pay interest in accordance with the Agreement for Sale and
    
  Purchase at the rate of 14% per annum until the settlement sum is paid;
   (c) The costs of and incidental to these proceedings.


[51]   I reserve leave to the parties to make submissions to me on the form of the
judgment by memorandum within 14 days. I do
not thereby intend to re-open the
whole questions of whether or not specific performance should be ordered but there
may be some
aspect of the form of judgment that requires reconsideration.

_____________
J.P. Doogue
Associate Judge