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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2008-404-008187
BETWEEN TAO DESIGN & CONSTRUCTION
LIMITED
Applicant
AND BORMAN RESIDENTIAL LIMITED
Respondent
CIV 2008-404-008393
BETWEEN BORMAN RESIDENTIAL LIMITED
Plaintiff
AND TAO DESIGN & CONSTRUCTION
LIMITED
Defendant
Hearing: 19 January 2009
Counsel:
G W Halse for applicant/defendant
M J Fisher for respondent/plaintiff
Judgment: 27 January 2009 at 2:30pm
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 27 January 2009 at
2:30pm,
pursuant to Rule 540(4) of the High Court Rules.
Registrar/Deputy
Registrar
Solicitors:
Foy & Halse, PO Box 26-218, Epsom, Auckland 1344
Castle Brown, PO Box 9670, Newmarket, Auckland 1149
TAO DESIGN & CONSTRUCTION LIMITED V BORMAN RESIDENTIAL LIMITED HC AK CIV 2008-
404-008187 27 January 2009
Introduction
[1]
These two proceedings arise out of a dispute between vendor and purchaser
under an agreement for sale and purchase of three lots
in a residential subdivision.
Both parties have purported to cancel the agreement. The purchaser, Tao Design &
Construction Limited
("Tao"), claims to have done so pursuant to a provision in the
agreement, and to be entitled to recover its deposit and another payment
made
towards the purchase price. The vendor, Borman Residential Limited ("Borman"),
contends that the provision in the agreement
does not apply, and it has cancelled
because Tao has wrongfully failed to settle. It claims to be entitled to forfeit the
deposit
and to apply the further payment against anticipated losses on resale.
[2] The agreement was entered into on the basis of a
proposed subdivisional
plan, which had still to be approved and deposited in the Land Titles Office. The
dispute centres on a clause
in the agreement which gave Tao a right to cancel and
recover its deposit, and all other money paid, if the approved plan reduced
the area
of the lots by more than 5%.
[3] The agreement also provided, however, that the cancellation had to take place
within
five working days of written notice that the plan had been approved as to
survey. It is common ground that Borman did not explicitly
notify Tao that the plan
had been approved. It is also common ground that the three lots under the approved
plan contained 5.6% less
land than under the proposed plan. The parties differ,
however, as to whether Borman's advice to Tao of issue of titles for the three
lots
constituted notice of approval of the plan so as to trigger Tao's right to cancel. If it
does, Tao failed to exercise its right
to cancel in time and wrongfully failed to settle.
[4] Tao has lodged a caveat against the three lots to protect the money it
has
paid. Tao seeks repayment of money paid under the agreement before it will remove
its caveat. Tao's caveat is preventing Borman
from settling re-sales of the lots.
Borman is due to repay a loan secured over two of the lots and wishes to apply sale
proceeds
towards that repayment to avoid defaulting under the loan agreement.
[5] The dispute comes before the Court on two applications:
(a) Borman has requested the Registrar-General of Lands to lapse the
caveat pursuant to s 145A of the Land Transfer
Act 1952. Tao applies for an
order that the caveat not lapse.
(b) Borman in its separate proceeding, applies for orders that the
construction
of the clause relied on by Tao be determined as a separate
question, and that the separate question be allocated a priority
fixture.
Background
[6] Borman is the owner and developer of a 95 section subdivision at Rototuna,
Hamilton known as Chancery
Estate. Tao is a building company.
[7] On 24 September 2007 Borman and Tao entered into an agreement for sale
and purchase of
lots 16, 18 and 19 in the proposed subdivision, having stated land
areas of 600mē, 600mē and 604mē respectively.
[8] The agreement
was drawn up on the printed agreement for sale and purchase
of real estate approved by the Real Estate Institute of New Zealand and
Auckland
District Law Society (seventh edition (3) July 1999) but with several pages of special
conditions additional to the standard
terms.
[9] The special conditions provided that:
(a) Borman was to arrange for lodgment and approval of the proposed
subdivisional plan by Land Information New Zealand, deposit of the
approved plan in the Land Titles Office at Hamilton,
and issue of certificates
of title for the lots (clause 14).
(b) The measurements and areas on the proposed plan
were approximate
only and subject to final survey. The deposited plan could incorporate any
variations required for
the purposes of survey or considered necessary and
required by the local territorial authority, the Chief Surveyor (Land
Information New Zealand) or the District Land Registrar. Except as provided
elsewhere in the agreement, any variation
so required would not entitle the
purchaser to compensation nor annul the sale or entitle the purchaser to make
any
objection or requisition under the general conditions of the agreement
(clause 15).
(c) The purchaser had the
right to cancel the agreement if the effect of
any variations was to diminish the area of land by more than 5% (clause 16).
[10] The purchase price for the three lots was $645,000 (it was not allocated as
between the lots). The agreement provided for
a deposit of 10% ($64,500), and a
further payment on account of the purchase price (to bring the amount paid up to
25% of the purchase
price) within five days of title being issued. Settlement was to
be 6 months after issue of title, but could be brought forward by
the purchaser giving
7 working days notice.
[11] Tao paid the deposit of $64,500 in accordance with the agreement.
[12] On
19 February 2008 Land Information New Zealand approved the
subdivisional plan and issued titles for the three lots. The area of the
three lots under
the approved plan differed from the proposed plan as follows:
Lot number Area under proposed plan
Area under approved plan
Lot 16 600 mē 585 mē
Lot 18 600 mē
521 mē
Lot 19 604 mē 597 mē
The net effect of the variations
was that the area of the three lots (1804 mē) was
reduced by 101 mē or 5.6%.
[13] On 27 February 2008 Borman's solicitors wrote
to Tao's solicitors advising
that titles had been issued for the three lots and another eight lots being purchased by
parties related
to Tao. Borman's solicitors requested the further payment due under
the contract to increase the total amount paid to 25% of the
purchase price.
[14] On 7 March 2008 Tao made the further payment required in respect of lots
16, 18 and 19 ($96,750) as part
of a greater sum which brought the total payments in
respect of all eleven lots up to the required 25%.
[15] Settlement was to
take place on 19 August 2008. On 23 July 2008, Tao's
solicitors wrote to Borman's solicitors enclosing notices of sale for the three
lots.
The notices recorded the area of each lot as shown on the titles (being the areas on
the approved plan rather than the proposed plan). The notices of sale apportioned
the total purchase price equally between the three lots ($215,000 each).
[16] On 12 August 2008, Borman's solicitors sent Tao's
solicitors a settlement
statement, giving credit for the $161,250 paid to that date.
[17] On 18 August 2008, Tao's solicitors
wrote seeking an extension of the
settlement date to seven days after issue of a code compliance certificate for each of
the properties.
They said that the extension was required to enable Tao to uplift its
loan from its bank. Borman's solicitors replied the following
day to say that Borman
was not prepared to grant any extension.
[18] The agreement did not settle on 19 August 2008. The following
day Borman
issued a settlement notice to Tao.
[19] On 16 October 2008 Tao's solicitors wrote to Borman's solicitors giving
notice
of cancellation on the grounds of the change in the area of land. Borman's
solicitors responded the following day rejecting the proposed
cancellation.
[20] On 20 October 2008, Borman's solicitors wrote cancelling the agreement for
failure to settle in accordance
with the settlement notice of 20 August 2008, and
stated (inter alia) that the deposit was being forfeited, and the lots were being
placed
back on the market.
[21] Tao lodged a caveat on the titles to the three lots on 5 November 2008.
[22] Borman accepted
tenders for lots 18 and 19 on 18 and 23 December 2008
respectively for $140,000 each. Both agreements are conditional upon Tao's
caveat
being removed within six months of signature, with settlement to take place five
working days after the agreements become
unconditional. Borman is still
negotiating with a tenderer for lot 16.
The caveat application
[a] Applicable
legal principles
[23] The principles which the Court applies in deciding a caveat application are
well established. The following
principles are of particular relevance for the present
application:
a) The caveator must satisfy the Court that it
has a reasonably arguable
case for the interest it claims: Sims v Lowe [1988] 1 NZLR 656, 660.
b) The Court has a discretion to remove a caveat even where a
caveatable interest has been established.
It will exercise that
discretion cautiously, and only where satisfied that the caveator can
have no reasonable expectation of obtaining benefit from it or that the
caveator's interest can be reasonably accommodated
in some other
way: Pacific Homes Limited (in receivership) v Consolidated
Joineries Limited [1996] 2 NZLR 652, 656.
c) When considering whether to exercise its discretion, the Court must
weigh the competing interests:
see for example Holt v Anchorage
Management Limited [1987] 1 NZLR 108 and McMahon v McMahon
[1997] NZFLR 145.
d) Where the land in question has only economic value to the caveator
(and not a personal value such
as a claim for specific performance)
which can be measured and substituted in economic terms, the Court
when balancing interests (especially of those who have entered into
independent commitments which will be affected
by delay in
establishing the claim) will lean in favour of freeing the title from the
caveat if the
caveator's legitimate interest can be protected in
economic terms: Stewart v Kaipara Consultants Limited [2000]
3 NZLR 55 (CA).
[b] The competing arguments
[24] Tao contends that it has a caveatable interest in the form of an equitable lien
arising
out of a right to recover its deposit ($64,500) and the further payment made
towards the purchase price ($96,750) following cancellation.
Counsel for Tao also
argued that the Court should not attempt to resolve any of the issues at this stage as
there were issues of
fact and law which should only be determined with the benefit
of considered evidence and argument in a full hearing.
[25] Counsel
for Borman accepted that Tao would have a caveatable interest if
Tao was entitled to cancel under clause 16. He submitted, however,
that if Tao could
not avail itself of clause 16, its right to recover the deposit fell away with Borman's
subsequent cancellation
of the agreement for failure to comply with the settlement
notice. Further, whilst accepting that Tao prima facie was entitled to
recover the
further payment towards the purchase price even after cancellation by Borman, he
submitted that the Court should exercise
its residual discretion to allow the caveat to
lapse because there was no benefit to Tao in retaining it. He also relied on several
other factors supporting lapse of the caveat.
[26] The issues which the Court must determine, therefore are:
a)
Whether Tao has a caveatable interest in the form of an equitable lien;
b) If Tao has a continuing caveatable interest,
whether there is any
benefit to Tao in retaining the caveat or whether other factors warrant
its removal;
and
c) Whether the Court can properly determine these matters on the
present application.
[c] The
claim to caveatable interest
[27] The starting point for consideration of Tao's interest is its claim to be entitled
to cancel
under clause 16 of the agreement. That clause reads:
16.0 If on approval of the subdivisional plan as to survey the property
area is
diminished by more than 5 percent of the area indicated on the plan annexed
to this agreement
then the purchaser may within 5 working days of the
purchaser or the solicitor for the purchaser being notified in
writing of
approval as to survey cancel this agreement by notice in writing to the
vendor or its solicitors
in which case the deposit and all other moneys paid
shall be refunded in full but otherwise the purchaser shall be
deemed to have
approved such variation without being entitled to any compensation.
[28] The parties' respective
interpretations of this clause are set out in the
correspondence between their respective solicitors in relation to Tao's purported
cancellation of the agreement.
a) In their letter to Borman's solicitors of 16 October 2008, Tao's
solicitors
stated:
"Neither our client nor our offices have received any specific
notification
of the approval as to survey."
b) In their reply letter the following day, Borman's solicitors put its view
of the clause as follows:
"As per Clause 16.0 of the Sale and Purchase agreement,
advice of the issue of the title, along with a copy of the title
which included the size of the lots
and which had the
subdivision plan attached, was forwarded to you on
27 February 2008,
immediately following issue of title."
[29] Counsel for Tao submitted that it was at least arguable that the phrase
"notified
in writing of approval as to survey" required specific mention of that
approval. He said that that should be sufficient for the purposes
of this application,
but in addition he wished to consider calling expert evidence as to accepted practice
in relation to such
notification (and hence what the parties could have been expected
to have had in mind as to the way in which the clause was to operate).
[30] The proper
construction of clause 16 is a matter of law, which the Court can
properly determine on a summary application provided it is satisfied
that it has all
the necessary contextual evidence. I do not consider that any further extrinsic
evidence is necessary to form
a view on the interpretation of the clause.
[31] Counsel for Borman submitted that the clause required notice in substance
rather
than specific words. I accept that submission. The purpose of the notice was
to ensure that Tao knew that the plan had been approved
so that it could check
whether any changes in area had been made and, if the area was diminished by more
than 5%, to elect whether
or not to proceed.
[32] Counsel for Tao accepted that titles could not be issued until the survey plan
had been approved. It
follows that the notice by Borman's solicitors that titles have
been issued was also notice that the plan had been approved as to
survey.
[33] Clause 16 did not require Borman to provide Tao with information about the
changed and, particularly, whether or
not there was a variation of more than 5%.
That was for Tao to investigate upon learning that the final areas had been
determined
by approval of the plan. As it happens the information provided by
Borman's solicitors in their fax of 27 February 2008 included
title information
showing the changes in area.
[34] This interpretation of clause 16 (requiring notification in substance rather
than particular words) also avoids two difficulties that arise on the interpretation put
forward for Tao:
a) On the
plain words of the clause, Tao's right to cancel under it only
arises on the giving of notice. If Tao's interpretation
was accepted,
there is no basis for Tao's cancellation of 16 October 2008.
b) An interpretation requiring
notice in substance rather than specific
wording is more consistent with the parties proceeding to satisfy other
terms of the agreement which were triggered by prior plan approval
and consequential issue of title:
i) The agreement being conditional until separate certificates of
title were issued (clause
19);
ii) The stakeholder's obligation to release the deposit and other
money paid under
the contract five days after notice of issue of
title (clause 28.2);
iii) Tao's obligation
to make the further payment to bring the total
amount up to 25% of the purchase price five days after issue
of
title (clause 30.2);
iv) The parties' obligation to settle six months after issue of
title
(clause 30.l).
[35] I find as a matter of interpretation of clause 16 that Borman's notice that titles
had issued was also notice that the survey plan had been approved. Tao failed to
exercise its right to cancel within five working
days of the Borman's notice or at any
time until the date for settlement passed and it was in default after service of a
settlement
notice.
[36] On the basis of that finding, I further find that Tao does not have an arguable
case for a caveatable interest in
the deposit. I accept (as did counsel for Borman)
that it prima facie has a caveatable interest by virtue of the further payment
of
$96,750.00. I turn now to consider whether I should exercise my discretion and
allow the caveat to lapse notwithstanding that
caveatable interest.
Is there benefit to retaining the caveat
[37] Counsel for Borman submitted that there could be no benefit
to Tao as it was
merely protecting Tao's economic interest and there was no equity available for that
purpose (all lots were subject
to prior registered mortgages). He contrasted that with
prejudice to Borman if the caveats remained (resale agreements would be cancelled
and Borman would be at risk of defaulting under
a loan agreement if proceeds of sale
of one of the lots were not used to repay principal).
[38] Counsel for Tao submitted that
there was inadequate evidence of the
indebtedness secured by the prior mortgages, and in the case of the mortgage against
lot 18
(which was registered only a week before Tao lodged its caveat) Tao should
be afforded the opportunity to explore the circumstances
of that mortgage and (as it
was clearly a collateral security) whether the financier, Vision Securities Limited,
would agree to release
it and allow sale proceeds to be used to meet Tao's claim.
[39] I accept the submission for Borman that the caveat is protecting
merely an
economic interest. If that interest can be accommodated in a separate way this
would be an appropriate case for exercising
my discretion against allowing the
caveat to remain given the competing interests (particularly given the involvement of
financiers
and subsequent purchasers): Stewart v Kaipara Consultants Limited.
[40] I turn first to consider lot 18 which is subject both
to the collateral mortgage
to Vision Securities Limited and to a resale agreement. Counsel for Tao argued that
the caveat should
remain to allow Tao opportunity to explore the circumstances of
the mortgage and whether or not Vision would agree to release its
charge. I am not
persuaded that I should follow that course. Borman's director, Mr R P Jones, has
given evidence that the mortgage
to Vision over lot 18 is part security for loans
totalling $5,866.730.21 as at 15 January 2009. He has produced a letter from Vision
dated 15 January 2009 in which Vision advises that it requires the full sale proceeds
of lot 18 to be applied in part payment of
the loan facilities, and confirming that a
discharge of that mortgage would only be available on receipt of the full proceeds of
sale.
[41] Counsel for Tao argued that as the agreement on lot 18 was not due to settle
for some time (the earliest possession
date was forty working days after
23 December 2008) there was no disadvantage to Borman in letting the caveat
remain over that lot.
[42] These arguments are reasonably evenly balanced. I take the view that the
outcome should depend on what other arrangements
could be made to protect Tao's
interest in the payment of $96,750 towards the purchase price of all three lots. The
answer to this,
in my view, lies in the position in respect of lot 16 and 19.
[43] Lots 16 and 19 are subject to a mortgage to Crown Money Corporation
Limited. Mr Jones has given evidence that Borman is due to repay a balance of
principal due under its loan from Crown of approximately
$179,500 on 24 January
2009. Borman has resold lot 19 for $140,000. That agreement is now conditional
only on removal of Tao's caveat.
The agreement is due to settle five working days
after the agreement becomes unconditional. Although there is no evidence as to
likely
deductions from the sale price, it was common ground between counsel that
the proceeds of sale available to Crown would be reduced
by costs of sale
(commission and legal costs). In addition Borman would have a further interest
obligation up to date of settlement.
The net effect is that Borman will receive
nothing from the sale proceeds of lot 19 from which to meet any obligation to repay
any
part of the $96,750 to Tao, and Borman will have a residual debt still to Crown
of at least $45,000. There is clearly no benefit
to Tao in retaining the caveat over lot
19.
[44] Borman has received a tender for lot 16 but is still negotiating with the
tenderer.
It would accept a tender at $140,000 which, after payment of costs of sale
and clearing the balance of Crown's loan, would yield
approximately $90,000 for
Borman. There is clearly some benefit to Tao in retaining its caveat over this lot.
[45] I turn then
to consider Borman's competing interests. First, I have found that
Tao was not entitled to cancel under clause 16. It was therefore in default under the
agreement,
entitling Borman to cancel. As a further consequence, Borman will have
a claim for losses on resale which, on the current evidence,
is $75,000 per lot but in
any event seems likely to exceed Tao's claim for recovery of the further payment of
$96,750.
[46]
I also take into account the following:
a) Tao had all the information necessary to withdraw from the agreement
in February 2008. It was clearly not an inexperienced party. It had
legal advice. The change of area
was available to it in the titles which
Borman's solicitors provided in February 2008. Those areas were
recorded in the notices of sale which Tao's solicitors drew up in July
2008. This indicates that the change in
land areas was not a major
concern for Tao.
b) It is clear from Tao's request for extension of time
for settlement that
it was having difficulty with release of funding.
c) Borman allowed Tao further
time after expiry of its settlement notice
to try to complete the settlement.
d) It is significant that
Tao's director (Mr J Tao) did not say in his
affidavit in support of the application that he was not aware of the
change of area. He merely says that it only became clear to him in
October that Tao was able to cancel
on the basis of that change.
These matters indicate oversight or hindsight on Tao's part.
[47] I consider that Tao's interest
will be adequately protected by preserving its
caveat over lot 16 alone. There is nothing to indicate that Vision had notice of any
equitable claim by Tao which might affect its indefeasible interest under its
mortgage over lot 18. It has stated clearly that it
requires the whole of the proceeds
of that lot to be applied in reduction of its loans. It is also clear that Borman has no
equity
in lot 19. It will simply increase Borman's indebtedness, with no advantage
to Tao, to allow the caveat to prevent settlement of
the agreements on these two
properties.
[48] I consider it likely that Borman will succeed in a claim for damages as a
result
of Tao's failure to settle in a sum which will exceed the advance payment to
purchase price ($96,750) to which Tao would otherwise
be entitled following
cancellation. However, it is not for me on this summary application to make that
determination. It is a matter
which will need to be resolved in due course.
[49] I appreciate that this leaves open how the caveat is to be addressed should
Borman secure an acceptable agreement on lot 16. I hope that the parties will take
into account my comments arising out of the decision
in Stewart v Kaipara
Consultants Limited and come to a sensible agreement for securing net proceeds so
as to avoid the need to expend
further costs in coming back to Court to secure release
of the caveat over that lot.
Issues arising out of summary nature of this
proceeding
[50] Counsel for Tao argued that I should do no more on this application than
determine whether or not Tao has
a caveatable interest. As will be clear from the
above I do not consider that I am precluded from the findings I have made by the
summary nature of the application. I have been able to form a view on the
interpretation of clause 16 on the basis of the
language of the clause and the
agreement as a whole. Further evidence will not assist.
[51] Counsel for Tao submitted that
he had insufficient time to fully brief and
research the matter. I consider that he did have sufficient time to identify and
present
the essential points of argument, even if further detail was required. Tao
received notice of lapse from the Registrar-General of
Land on 24 November 2008.
I consider that enough time to identify and put its case forward generally.
[52] Counsel for Tao specifically mentioned a need for further evidence on two
points:
a) Whether Borman's solicitors had provided plans as well as a copy of
the title with their fax
of 27 February 2008.
b) As to whether or not the parties agreed orally to vary the settlement
date.
[53] Again I do not consider that Tao's case will be assisted by evidence on these
points:
a) A determination
of precisely what documents were sent with the fax
of 27 February 2008 is not material to the key issues of construction
of clause 16 and whether notice of issue of titles had been given. I
note, however, that the terms
of that fax and the later response to
Tao's notice of cancellation (both of which can be considered
contemporary documents) indicate that the plans were included.
b) I do not consider evidence of the parties'
discussions on a possible
variation of the settlement date to be material. It will not alter the fact
of cancellation. There is no allegation that settlement was in fact
deferred. This was not the basis on which
Tao purported to cancel.
Application for priority
[54] In light of my decision on Tao's application, I see no need to give
directions
on Borman's application for priority. However, I reserve leave for this application to
be brought back before the Court
on seven days notice in the event that Borman
enters into an agreement for resale of lot 16, and the parties are unable to reach
agreement on terms for lifting of the caveat to allow that agreement to be settled.
Decision
[55] I make an order that caveat
7988812.1 not lapse against lot 16 deposited plan
397799 (being the land in title identifier 390476) without further order of the
Court.
[56] I make an order that caveat 7988812.1 lapse against lots 18 and 19 on
deposited plan 397799 (being the land in
title identifiers 390478 and 390479
respectively).
[57] Both parties have had some success on these applications. Costs are to
lie
where they fall.
____________________
Associate Judge Abbott
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