Heled Ventures Limited v East Coast Trustee Company Limited HC Rotorua CIV 2008-463-000293 [2008] NZHC 2550 (29 August 2008)

Last Updated: 18 February 2015

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

_{CIV 2008-463-000293}

BETWEEN HELED VENTURES LIMITED Plaintiff

AND EAST COAST TRUSTEE COMPANY LIMITED

Defendant

Hearing: 19 August 2008

Counsel: M McKechnie for plaintiff

P Wright for defendant

Judgment: 29 August 2008 at 4:00pm

_{JUDGMENT OF ASSOCIATE JUDGE ABBOTT}

This judgment was delivered by me on 29 August 2008 at 4:00pm pursuant to Rule 540(4) of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Le Pine & Co, PO Box 140, Taupo, for plaintiff

_{McKay Hill, PO Box 1143, Napier, for defendant}

HELED VENTURES LIMITED V EAST COAST TRUSTEE COMPANY LIMITED HC ROT CIV 2008-463-

000293 29 August 2008

[1] The plaintiff Heled Ventures Limited (Heled) is the owner of a 296 hectare block of land at Kinloch. It agreed to sell the block to the defendant East Coast Trustee Company Limited (ECT). Heled cancelled the agreement after ECT failed to settle, and now sues ECT for the deposit.

[2] Heled has applied for summary judgment, contending that ECT’s liability is clear on the face of the agreement. ECT denies liability. It says that it entered into the agreement on the basis that it was merely an agent or nominee for either a syndicate of investors or a joint venture company, which Heled’s directors and shareholders were attempting to establish with a third party.

[3] The central question in the proceeding is whether ECT has direct and personal liability under the agreement, and hence is obliged to pay the deposit to Heled. The issue for the Court is whether this can be determined on an application for summary judgment.

Background

[4] In 2006 Heled’s directors and shareholders Edward Juzwa and Helen Rabinska were looking at options for development or sale of Heled’s land. Heled had obtained conditional approval for subdivision of the land into lifestyle blocks.

[5] In late 2006 Mr Juzwa and Ms Rabinska met a Taupo businessman, Graham Goodeve. They discussed a joint development project. On 1 December 2006 Heled and a company of which Mr Goodeve was chief executive officer signed heads of agreement for a proposed joint venture. The agreement contemplated sale of the whole block to a company to be established, with shares in the joint venture company to be held 50% by an investor group and 25% each by Heled and Mr Goodeve’s company. The sale price for the land was to be $15 million.

[6] That proposal did not come to fruition. Mr Goodeve continued to work with

Mr Juzwa in endeavouring to put a workable proposal together. In mid 2007 Mr

Goodeve introduced Mr Juzwa and Ms Rabinska to the senior partner of a Napier law firm, Mr Gerald McKay. Mr McKay had extensive experience in property investment work. Through Mr McKay they were introduced to ECT.

[7] ECT is a nominee company run by Mr McKay’s firm, McKay Hill. The partners of the firm are its directors. They use ECT for a number of purposes, including being a nominee for parties in transactions. ECT has only a nominal capital, does not have any assets or liabilities, and does not carry on business in its own right.

[8] After meetings between Mr Juzwa, Ms Rabinska, Mr Goodeve, and Mr McKay, Heled and ECT entered into an agreement on 10 July 2007 for Heled to sell the land to ECT for $15 million. The agreement was on the standard REINZ/ADLS form, and included four additional terms. It provided for payment of a deposit of

$150,000, and for a settlement date of 1 September 2007.

[9] The significant provisions for the purpose of this application were:

a) the description of the purchaser as

East Coast Trustee Company Limited as Agent or Nominee for a

Syndicate or a Joint Venture company to be formed; and

b) one of the additional terms of sale, clause 15.0, which reads:

The vendor acknowledges that the purchaser will form a new company to acquire the property as purchaser in conjunction with other parties to be introduced and established by the purchaser prior to the date of settlement.

[10] On 24 July 2007 Heled’s solicitors wrote to McKay Hill (acting for ECT) to report receipt of the agreement, noting that the deposit was payable and recording their understanding from their clients that “payment should be arranged during the next few days”. McKay Hill responded a few days later stating:

“The issue of the deposit is in our client’s hands and we are awaiting instructions.

Although we have inquired today, we understand the matter is being formally discussed between our client and yours and we simply await further instructions. We are not holding the money at the present time.”

[11] Heled’s solicitors sent further correspondence over the next week or two seeking payment of the deposit. Then in late August 2007 Heled's solicitors wrote recording an agreement reached “between our clients and your clients” to vary the agreement by increasing the deposit to $1.5 million (10% of the purchase price), deferring settlement and possession dates for six months, and making provision for the purchaser to pay interest incurred by the vendor during the extended settlement period.

[12] McKay Hill confirmed the amendments in a fax on 14 September 2007. In the fax he referred to a recent telephone call made “to ascertain the amount that might be payable in respect of your client’s interest for the period 1 September 2007 to [settlement]”.

[13] Heled’s solicitors responded to the query about interest on 26 September

2007, again calling for payment of the deposit.

[14] McKay Hill responded promptly on 28 September 2007 addressing the request for payment of the deposit as follows:

Frankly the culture of this transaction from our client’s point of view, as an entrepreneurial developer, is on a best endeavours basis. He is using his best connections to assemble the transaction and for the moment, is prepared to continue on the basis that as soon as funds are available, the deposit will be paid and settlement has been postponed.

Comment was also made on the fact that the interest being sought in addition to the capital required for the purchase appeared to make the transaction unmanageable.

[15] In November 2007 Mr Juzwa and Ms Rabinska wrote to Mr McKay reporting on a meeting with the mortgagee of Heled’s property, and explaining how the interest being sought arose (it was a consequence of the agreement not settling on

1 September 2007). They referred to the agreement being an unconditional contract, and said that the mortgagee had organised its affairs in anticipation of its loan being

repaid. They referred to a consortium of investors with whom they were dealing, who had an interest in taking part of the land, and commented that the failure to pay the deposit or form the proposed development company was impeding that investor group’s involvement, and was likely to affect any other potential investors.

[16] On 7 December 2007 Mr Juzwa wrote to Mr McKay by email noting advice received from Mr Goodeve that Mr McKay had been instructed to form the development company. He also reported on the “structural” requirements of the investor consortium with whom he was dealing and noted that he and Ms Rabinska were comfortable about keeping a balance of shares (presumably being shares for which prospective investors had not been found). Mr Juzwa also commented that the issue of non-payment of the deposit was causing continuing difficulties in relation to funding but added “we understand your position on this”.

[17] Mr McKay proceeded to reserve a name, Kinloch Holdings Limited, for a company for the project in late December 2007. On 15 January 2008 Mr Goodeve emailed Mr McKay with the name of the person who was to be the director and shareholder for Kinloch Holdings Limited (a Mr Earl James Haywood). Mr Goodeve commented that Mr Haywood was to be a shareholder nominee “until all the investors are in place”. Mr Haywood was a friend or acquaintance of Mr Juzwa, who had insisted on nominating the director/shareholder. McKay Hill prepared requisite consents and passed them to Mr Goodeve. The consent forms were never returned.

[18] Heled’s solicitors issued a settlement statement in anticipation of settlement taking place on 29 February 2008. It was issued in the name ECT “as agent or nominee”. The covering letter advised that an amended statement and amended settlement requirements would be forwarded “once you have advised us of the purchasing entity”.

[19] Settlement did not take place. On 5 March 2008 Heled issued a settlement notice to ECT. McKay Hill responded to that notice by letter dated 11 March 2008 which read:

Re: Heled Ventures Limited to East Coast Trustee Limited as Agent or

Nominee for a Syndicate or a Joint Venture Company to be Formed – 1677

Whangamata Road, Kinloch, Taupo

We acknowledge receipt of the Settlement Notice. Our client is simply not in default. The alternate company has now been formed and your client is or will be, being invited to assign [sic] a customary Deed of Novation in that respect, which will allow progress with the transaction to be made. Previous correspondence need not be repeated as to the basis of this transaction, the role of our Trust Company as Agent, for the parties to find a suitable vehicle as purchaser. It is not a straightforward case of default and never has been.

[20] McKay Hill subsequently prepared a deed of novation between Heled (as continuing party) ECT (as retiring party) and Kinloch Holdings Limited (as substitute party). This was taken by Mr Goodeve to Mr Juzwa, but returned by Heled’s solicitors to McKay Hill on 20 March 2008.

[21] Heled cancelled the agreement on 12 May 2008 for failure to comply with the settlement notice served on 5 March 2008.

[22] Heled issued this proceeding on 22 May 2008, with its application for summary judgment and a supporting affidavit by Mr Juzwa. Mr Juzwa produced the agreement, together with documents and correspondence showing the request for payment of deposit, the variation of the agreement, Heled’s offer to settle and ECT’s reply, and the subsequent cancellation.

[23] ECT filed a notice of opposition, together with affidavits in support of that opposition by Mr McKay and Mr Goodeve. Their affidavits described the history of Mr Goodeve’s dealings with Mr Juzwa and Ms Rabinska over development of the property, the basis on which Mr McKay was approached, and the ongoing dealings between the parties relating to performance of the agreement.

[24] Mr Juzwa filed a second affidavit. This was followed by yet further affidavits by Mr McKay and Mr Goodeve addressing what ECT considered were new matters raised by Mr Juzwa.

Principles for summary judgment

[25] The Court may give judgment summarily against a defendant if satisfied that the defendant has no defence to the claim: r 136(1) of the High Court Rules. The principles which the Court applies when deciding whether the plaintiff has met the test under r 136 are to be found in the leading cases of Pemberton v Chappell [1987]

1 NZLR 1, Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA) and more recently in Jowada Holdings Limited v Cullen Investments Limited CA 248/02, 5

June 2003, particularly at [28]:

In essence, the Court must be persuaded that on the material before the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant. Once the plaintiff has established a prima facie case, if the defence raises questions of fact, on which the Court's decision may turn, summary judgment will usually be inappropriate. That is particularly so if resolution of such matters depends on the assessment by the Court of credibility or reliability of witnesses. On the other hand, where despite the differences on certain factual matters the lack of a tenable defence is plain on the material before the Court, to the extent that the Court is sure on the point, summary judgment will in general be entered.

[26] The following principles govern the Court’s approach to allegations of disputes which could make a case unsuitable for summary judgment:

a) Although the onus is on the plaintiff, the defendant must provide some evidential foundation for the defences which are raised. If not, the plaintiff’s verification stands unchallenged and ought to be accepted unless patently wrong: Australian Guarantee Corporation (NZ) Ltd v McBeth [1992] 3 NZLR 54, 59.

b) A simple assertion by a defendant in an affidavit in opposition is insufficient to raise an arguable defence, particularly when the assertion is inconsistent with proved documents and lacks credibility: Corbett v National Mutual Finance Ltd (1992) 5 PRNZ 386 (CA).

c) The Court will not attempt to resolve any conflicts in evidence contained in affidavits or assess credibility, but is not bound to accept uncritically, as raising a disputed fact calling for further investigation, every statement however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the

same deponent, or inherently improbable: Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12, 14 and Eng Mee Yong v Letchumanan [1980] AC 331, 341.

[27] Summary judgment will also be inappropriate where the ultimate determination depends on a judgment only able to be properly arrived at after a full hearing of the evidence: Westpac Banking Corporation v M M Kembla (New Zealand) Limited [2000] NZCA 319; [2001] 2 NZLR 298.

Opposing arguments

[28] Counsel for Heled submitted that this was a clear case of default under an unconditional agreement for sale and purchase, entitling Heled to the unpaid deposit: Brown v Langwoods Photo Stores [1990] NZCA 180; [1991] 1 NZLR 173. He said that ECT was clearly intended to be a party to the agreement in its own right, and had not sought to limit its liability. He argued that the defences put forward by the defendant are simply not credible having regard to the terms of the agreement and the subsequent correspondence between respective solicitors.

[29] Counsel for ECT submitted that the wording of the agreement showed that the parties did not intend ECT to assume any personal liability. He said the agreement could be construed either as an option, or as subject to a condition subsequent, or as with ECT as a trustee only for the investor(s). However, he submitted that whatever the correct legal analysis was, the parties were clearly looking beyond ECT to the ultimate purchaser either an investment syndicate or a joint venture company to be formed. He said that this construction was evident from the context in which it was signed and was supported by the history of subsequent dealings between the parties. He argued that other potential defences were also arguable on the facts: part written part oral agreement, a collateral agreement, or a promissory estoppel. Finally he contended that it was arguable that the claim for

$1.5 million was in fact for a penalty and unenforceable, and that there was no evidence that it amounted to a genuine pre-estimate of loss.

[30] The starting point for all of these contentions has to be the construction of the contract. The critical issue is whether the proper construction can be decided on this summary application.

The language of the contract

[31] Counsel were agreed that the general approach to interpretation is to ascertain the meaning that the contract, or a particular provision in it, would convey to a reasonable person having the background knowledge of the parties at the time of entering into the contract: Investors Compensation Scheme Limited v West Bromwich Building Society [1997] UKHL 28; [1998] 1 All ER 98, 1114 –115, and Boat Park Limited v Hutchinson [1999] 2 NZLR 74, 81 – 82.

[32] The words of the contract have been described as “the central focus, and the point of departure”, with the critical question being what meaning to give those words having regard to surrounding circumstances: WEL Energy Group Limited v Electricity Corporation of NZ [2000] NZCA 326; [2001] 2 NZLR 1, 23. The use of surrounding circumstances has been described as a useful “cross check” as to whether some other or modified meaning should be given: (Pyne Gould Guinness Limited v Montgomery Watson (NZ) Limited [2002] NZEmpC 79; [2001] NZAR 789 at para [29]. This approach recognised that words can be “susceptible to shades of meaning revealed by the surrounding circumstances”: Burrows, Finn & Todd Law of Contract in New

Zealand 3^rd Ed para 6.2.2 at p 163.

[33] The Supreme Court has recently confirmed that subsequent conduct of parties may also be relevant in deciding what the parties intended the contract to mean: Gibbons Holdings Limited v Wholesale Distributors Limited [2007] NZSC 37; [2008] 1 NZLR 277, at para [63]:

Even if the meaning suggested by the post-contract conduct is not the most immediately obvious objective meaning, the parties’ shared conduct will be helpful in identifying what they themselves intended the words to mean. That, after all, must be the ultimate determinant. If the court can be confident from their subsequent conduct what both parties intended their words to mean, and the words are capable of bearing that meaning, it would be inappropriate to presume that they meant something else.

Discussion

[34] Counsel for Heled submitted that there was nothing in the wording of the agreement to deter the Court from finding that the parties intended to impose an obligation on ECT as the only identified purchaser, or to elevate clause 15 into a condition. He pointed out that on its face the agreement was unconditional and bound ECT until such time as an investment syndicate or a joint venture company was substituted. He submitted that it was for ECT to produce a credible basis for an alternative construction, and that it had failed to do so. He argued that the “no liability” construction lacked credibility. There was no limitation of liability which would have been a simple addition to the contract. As well as relying on the absence of any express limitation of liability, he referred to the sharp difference of views as to what Heled was or was not told about ECT’s role in the meeting between the parties ahead of signature of the agreement as to ECT’s role.

[35] I accept the submission of counsel for Heled that this contract is unexceptional, with the exception of the description of the purchaser and the wording of clause 15. These two aspects, however, indicate that this agreement was not as clear and straightforward as counsel for Heled contends. The critical question remains whether the parties intended that ECT would have no personal liability. To that end, the parties must be taken to have intended the description of ECT “As Agent or Nominee for a Syndicate or a Joint Venture company to be formed” to have some meaning. Assistance with that meaning can be gained from clause 15 in which Heled acknowledges that “the purchaser”:

a) would form a new company to acquire the property as purchaser, and

2. that would be done in conjunction with other parties introduced by the purchaser.

[36] There is uncertainty, in my mind, as to what the parties intended ECT’s role to be in this contract. It is surprising that the agreement was drafted without excluding its liability, but that may be explicable if put into context. At the time that the parties (Heled and ECT) met, Mr Juzwa and Ms Rabinska had been involved

with Mr Goodeve for some months, seeking to optimise Heled’s return by selling to a group of investors. The investors that both Mr Juzwa and Mr Goodeve were seeking to attract, and the vehicle for an investment, had still to be established. Heled was wanting “an agreement” to attract investors. There is a dispute as to what Mr Juzwa and Ms Rabinska were told about the role of ECT, but Mr McKay says that he told them that ECT would act as nominee for parties in transactions but had no assets of its own. He asserts, and Mr Juzwa denies, that it was understood that ECT would not have any direct or personal liabilities.

[37] Counsel for Heled argued that ECT’s subsequent conduct (as evidenced in the correspondence before the Court) was suggestive of being bound and having personal liability. When payment of the deposit was sought ECT did not say it had no liability for it. It then agreed to a variation to the contract to increase the deposit to $1.5 million. Counsel submitted that when pressure then went on for payment of the increased deposit, the response from McKay Hill was that “its client” was using its best endeavours, not that ECT was not bound. He also referred to ECT’s failure to raise any of the arguments now being advanced before the settlement notice was issued on 5 March 2008.

[38] I am not persuaded that the correspondence between solicitors, on which Heled relies, is as clear as counsel suggests. I read it as equally consistent with McKay Hill taking the view that Mr Goodeve was the “entrepreneurial developer” referred to in its letter of 28 September 2007, and was continuing to work with Mr Juzwa and Ms Rabinska to put an investor group together. The variation of the contract (which appears to have been negotiated between Mr Goodeve and Mr Juzwa, and allowed an extra six months to find investors and establish a suitable purchasing entity) could be consistent with ECT’s role as a “conduit”, and an effort to keep a transaction in place to draw in an investor group. This possibility finds support in McKay’s letter to Heled’s solicitors of 11 March 2008.

[39] Counsel for Heled argued that the attempts to get a deed of novation signed, following service of the settlement notice, should be taken as an indication that ECT regarded itself as having rights under the agreement, and thus liability. I do not see that that takes the matter any further.

[40] The proper construction of this agreement must be determined in the contractual context. The background to, and purpose for, the approach to Mr McKay will be relevant. What Mr Juzwa and Ms Rabinska were told about ECT and its potential role will be important (the dispute over this needs to be resolved). The ongoing relationship between Mr Juzwa and Ms Rabinska on the one hand and Mr Goodeve on the other may also be relevant, and particularly the role of Mr Juzwa and Ms Rabinska in the efforts to locate investors and establish an investment vehicle. Some explanation may be needed as to the reason Ms Rabinska was asking (in an email sent on 7 August 2007) for documents which McKay Hill was to be drafting for the investment vehicle if the parties did not contemplate this as an essential step in the transaction. These are not matters which can be determined in a summary way. They will need to be the subject of detailed evidence, and cross- examination.

[41] It follows from this that I do not accept the submission of counsel for Heled that ECT has failed to put forward any credible basis for a defence. Both Mr McKay and Mr Goodeve have given evidence that the nature and possible role of ECT was explained to Mr Juzwa and Ms Rabinska. The evidence is sufficiently specific and detailed to go beyond mere assertion. ECT has put forward evidence of an ongoing role on the part of Mr Juzwa and Ms Rabinska both in the structure of the ultimate purchase and in the composition of the investor group. There is evidence both in McKay’s letter of 28 September 2007 and in an email from Ms Rabinska to Mr McKay on 7 December 2007 that ECT did not accept that it was liable for the non- payment of the deposit and that Heled accepted that. A factual basis has also been put forward for ECT’s contention that Mr Juzwa initially sought to control the form of the investment vehicle (Kinloch Holdings Limited) but failed to take steps which would have allowed it to be substituted for ECT.

[42] I do not consider it necessary, or appropriate, to express a view on which (if any) of the legal bases put forward by ECT for excluding its liability is correct. That judgment needs to be made with the benefit of all available evidence, and for submissions and argument on that evidence. I do not consider that any of the possible arguments put forward are so clearly untenable that ECT at this point should be denied the opportunity to advance them.

Decision

[43] Heled’s application for summary judgment is declined.

[44] Costs of and incidental to the application are reserved pending a final determination of the proceeding.

Associate Judge Abbott