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High Court of New Zealand Decisions |
Last Updated: 4 July 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-007048
BETWEEN R B ROAD 391 LIMITED Plaintiff
AND M A JOHNSTONE AND OTHERS Defendants
Hearing: 6 December 2010
Appearances: A J Sherlock and N Penman-Chambers for plaintiff
G J Kohler for defendants
Judgment: 28 June 2011 at 4:00 PM
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by
Associate Judge Abbott on
28 June 2011 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules
.....................................................
Registrar/Deputy Registrar
Solicitors:
Hesketh Henry, Auckland for plaintiff
Dawsons, Manukau for defendants
Copy for:
G J Kohler, Auckland
Case Officer: Indra.Gamage@justice.govt.nz
R B ROAD 391 LIMITED V M A JOHNSTONE AND OTHERS HC AK CIV-2009-404-007048 28 June 2011
Introduction
[1] This proceeding concerns a dispute over an agreement for sale and purchase of a property at 391 Rosebank Road, Avondale, Auckland. Under that agreement, the plaintiff, R B Road 391 Limited, sold Lot 4 of a subdivision at that address to the defendants, who intended developing the land.
[2] The agreement was conditional on the parties being satisfied with the terms of a subdivision consent. The defendants claim that they lawfully avoided the agreement on the basis of a term in the consent which required removal of contamination on the land. They brought proceedings in the District Court for recovery of their deposit.
[3] The plaintiff did not accept that the defendants were entitled to avoid the agreement on that basis. It applied for summary judgment for specific performance of the agreement or, in the alternative, for damages in an amount to be quantified.
[4] The District Court proceeding was transferred to this Court and the proceedings were heard together. At the hearing the plaintiff sought an order for specific performance. Just before judgment was released, the plaintiff entered into an agreement to sell the property to another party. It immediately advised the Court that it still sought judgment on liability, but wished to seek damages for wrongful repudiation rather than an order for specific performance.
[5] The Court found that the defendants had not validly avoided the agreement, and recorded the plaintiff’s advice that it would amend its statement of claim to seek damages.
[6] The plaintiff subsequently filed an amended statement of claim pleading the on-sale and seeking damages only by way of relief. At the same time it filed an amended application for summary judgment for the damages pleaded in the amended
statement of claim and a supporting affidavit providing evidence of its alleged losses. It subsequently amended its statement of claim and application further in relation to losses being sought.
[7] The defendants oppose entry of any further judgment both on the ground that the Court has no jurisdiction to entertain the amended applications, and on the ground that there are disputes of fact as to the losses being claimed which make the case unsuitable for summary judgment.
Background to the issue as to jurisdiction
[8] At the same time as it was pursuing its claim against the defendants, the plaintiff listed the property with a number of real estate agents for resale. On the day following the hearing of the cross-applications, the plaintiff entered into an unconditional agreement to resell the property to the owner of an adjoining property. It is not in dispute that these parties had been in negotiation for two to three months, during which time the purchaser had been undertaking due diligence investigations. Immediately after the agreement was signed, counsel for the plaintiff filed a memorandum with the Court advising of the on-sale. The memorandum reached the Court after judgment had been signed, but before it was released. That judgment
concluded:1
The Court is satisfied the plaintiff has discharged its obligations to show that the defendants do not have an arguable defence to its claim for judgment.
There is an order requiring the defendants to specifically perform their contract for purchase with the plaintiff.
[9] After receiving counsel’s memorandum, the Court (Associate Judge
Christiansen) added an addendum to the judgment which reads:2
At 2.15 pm today I completed and signed off my judgment in this matter. It is due for issue at 4 pm this afternoon.
At 2.18 pm today the Court received an emailed memorandum of counsel for the plaintiff advising that at 1.30 pm today the plaintiff signed an agreement
1 R B Road 391 Ltd v M Johnstone & Ors HC Auckland CIV-2009-404-007048, 6 July 2010 at [52]
and [53].
2 At [55], [56] and [57].
for the sale of Lot 4 to another. The memorandum notes that the effect of the plaintiff’s entry into the new agreement is that the agreement between the plaintiff and the defendant is cancelled. The plaintiff’s position is now that it has accepted a wrongful repudiation by the defendants and the plaintiff will amend its statement of claim to seek damages in place of specific performance.
It follows in the outcome of my judgment:
c) The Court awaits details of the plaintiff’s amended claim.
[10] The plaintiff’s proceeding was re-listed for a mention hearing on 22 July. At that hearing counsel for the defendants advised that he had instructions to appeal the judgment as to liability. Also at that hearing the Court made timetable orders for filing and service of an amended statement of claim and an amended application for summary judgment and supporting affidavits. The proceeding was adjourned to another mention hearing for allocation of a further defended hearing, if required.
[11] The plaintiff filed the further pleadings in accordance with the directions. The amended application sought summary judgment for damages that were now pleaded specifically, as distinct from the alternative pleading in the original application which had sought damages “in an amount to be quantified prior to trial”.
[12] In the meantime, the defendants filed an appeal against the judgment of
6 July 2010, including the decision to cancel the order for specific performance. The grounds of appeal included the contentions:
(g) Further and alternatively, having decided to order specific performance of the Agreement for Sale and Purchase in accordance with para 53 of the Judgment, the Plaintiff was not entitled to informally amend its claim in the way it did as recorded in paras 55 and 56. It was not entitled to abandon the claim it had advanced to substitute an alternative claim.
(h) Further and alternatively, the Learned Associate Judge was not entitled to proceed as he did in paras 56 and 57, either at all, or at least without having afforded the Appellants a proper opportunity to respond to what was a new and different application.
[13] At the further mention hearing counsel for the defendants raised the jurisdictional issue and the plaintiff’s failure to seek or obtain leave to file its amended application. A defended hearing of the issue was allocated for 30 August
2010. Prior to the hearing the defendants also filed an application for stay pending determination of the appeal.
[14] At the hearing on 30 August 2010, counsel for the defendants contended that this Court did not have the jurisdiction to hear the application for summary judgment as to quantum because the first application had been brought in respect of liability only, had been determined by the judgment, and was now the subject of appeal. He argued that the Court was functus officio once it had made the decision as to liability and had no power to amend the pleadings informally to permit substitution of the claim for damages. He also argued that the High Court Rules did not permit the bringing of a second application, but if it could be brought by leave, leave had not been sought nor given. Counsel submitted that for these reasons the Court did not have power to direct that the amended application for summary judgment for damages proceed to a hearing.
[15] Associate Judge Christiansen declined to review his earlier decisions or to grant a stay. His findings on the jurisdictional issue were:3
There was no second application but instead an amended application for summary judgment to determine a matter not decided by my judgment of 6
July 2010.
It is desirable to enable upon a summary judgment application which determines liability a process by which quantum can separately and conveniently be subsequently determined. In the current economic climate this Court is deluged by claims from, usually, plaintiff vendors seeking to enforce a contract with/recover losses from defaulting purchasers. It is conventional, and in this respect I disagree with Mr Kohler, for the Court to receive statements of claim and summary judgment applications seeking both specific performance and in the alternative damages. The former is about liability, the latter as well about quantum. Initially plaintiffs seek specific performance expecting an order requiring a defendant to pay the contract price plus penalties will return more than would be recovered from a damages claim. The latter process usually involves a plaintiff having to resell the contract property, a process which itself is frequently subject to a challenge by defendants. It is an uncertain process, often costly and drawn out.
3 R B Road 391 Ltd v M Johnstone & Ors HC Auckland CIV-2009-404-007048, 31 August 2010 at
The summary judgment Court is familiar with the vagaries of these relief options. Usually plaintiffs choose a specific performance relief oriented approach. The summary judgment Court and the rules that support it should not inhibit a process of enabling a plaintiff to opt for a change of relief outcome where it is appropriate and where no real surprise nor prejudice occurs as a result.
In this case I refuse to review the actions I have prescribed by which this Court can process the plaintiff’s application for its damages claim to be heard – notwithstanding there is an appeal against my determination of liability in favour of the plaintiff.
[16] A defended hearing was allocated for the amended application, at which counsel for the defendants again raised the jurisdictional issues, contending that I had to be satisfied that there was jurisdiction to proceed.
Discussion re jurisdiction
[17] I accept the submission of counsel for the defendants that it is open to me to consider whether I have the jurisdiction to hear this application.4 In doing so, I can have regard to Associate Judge Christiansen’s decision on 30 August 2010, but am not bound by it.
[18] The issue is whether the Court has jurisdiction to allow the plaintiff to proceed with a further or an amended application. Counsel for the defendants again submitted that the Court had no power to amend the original application because it was functus officio, and alternatively had not sought or obtained leave. Further, he submitted that the application before the Court was in effect a second application, and that there was no jurisdiction for the plaintiff to bring it.
a) Power to amend
[19] Counsel for the defendants presented his arguments that this Court was
functus officio, and hence that there was no power to amend, on three grounds:
4 Laws of New Zealand, Estoppel, at [15]; Bethune v Bydder [1938] NZLR 1 (CA); Sykes v Atkin
application to an end (the only relief that had been sought in the hearing was specific performance and the request for that relief was withdrawn). He argued that the application came to an end because the alternative aspect of the application, for damages “in an amount to be determined prior to trial”, was not capable of determination on the claim as then pleaded or the evidence before the Court.
b) The judgment did not expressly purport to keep the application alive: Associate Judge Christiansen referred to an amended claim not an amended application, which was consistent with the way in which the pleadings were framed at that time (damages to be quantified prior to trial).
c) The Court of Appeal is now seized of the issues as to whether the plaintiff was entitled to seek amendment of its claim (and to abandon its claim for specific performance) informally and without leave, and whether the Court was entitled to entertain that request for amendment and alter its judgment either at all, or without affording the defendants’ opportunity to respond to the change.
[20] The defendants also argued, independently of their functus argument, that there was no entitlement for the plaintiff to seek amendment informally and without allowing the defendants opportunity to respond.
[21] I consider that all of these submissions are answered by the fact that the claim for damages was always “on the table” and by the Court’s powers of amendment in relation to summary judgment applications.5 Associate Judge Christiansen expressly contemplated amendment of the claim. Whilst he did not expressly reserve the application for summary judgment, he did not dismiss it.
[22] Obviously, the claim for damages was not determined by the judgment (and is not subject to appeal). Although Associate Judge Christiansen’s decision to
5 Cegami Investments Ltd v AMP Financial Corp (NZ) Ltd [1990] 2 NZLR 308 (CA); BNZ Finance
amend the claim informally is subject to appeal, it has effect until overruled (there is no stay pending appeal).
[23] The Court has power to regulate its own procedure, subject to any contrary provision in the High Court Rules. There is no rule that prevents amendment. Amendments have been permitted both before and after judgment.6 I take the view that the amended applications (the only difference between the first and second amendments is the amount of some of the aspects of damage sought) provide detail of a claim already foreshadowed and before the Court.
[24] The decision made by Associate Judge Christiansen was an effective use of the summary judgment procedure, taking into account the law as to the effect of entry into a resale agreement. It was appropriate that counsel should raise the resale, and it cannot be said that there was any significant prejudice caused to the defendants by the amendment.
[25] I acknowledge the potential for an argument that the request to amend the statement of claim could have been referred to the parties for consideration. However, the amendment does not alter the substance of the case. In the event that the request had been referred, it is likely that Associate Judge Christiansen would have withheld his judgment. All that was lost by the defendants was the ability to challenge the late change at that point. Full opportunity to respond to the amended claim remained.
(b) Need for leave
[26] The next point to address is the defendants’ contention that there is no entitlement for the plaintiff to bring an amended application without leave. In that respect counsel referred to rules which require the application to be brought when the proceeding is commenced, or later with leave. The defendants say that the Court should decline to entertain the present application because the plaintiff did not seek, or obtain, leave.
[27] I do not have to decide on whether or not Associate Judge Christiansen specifically turned his mind to amendment by him of the application at the time he gave his decision on liability. I am satisfied that he left this possibility open (he did not dismiss the application). It is implicit in the directions given on 22 July 2010 for filing of an amended application that leave was given.
(c) Second application
[28] This brings me to the submission that the present application is in reality a second application, which cannot be brought. Counsel referred to the amendments made to both the statement of claim and to the application to quantify damages, and the fact that the application had been brought on the basis that liability had been determined. He submitted that the rules do not provide for second applications and
referred to Braid Motors v Scott7 where the Court ruled that a second application
cannot be brought.
[29] As will be evident from the reasoning set out above, I consider that this point is met by the fact that the claim for damages (albeit unquantified) was part of the original application, presumably in anticipation that the property might have sold before the summary judgment hearing, in which case the plaintiff is likely to have sought amendment prior to the hearing on 5 July 2010. It is not a second application as was the case in Braid (where the Court had dismissed an earlier application). I accept that Associate Judge Christiansen did not expressly reserve the application but do not consider that he lacked jurisdiction to revisit the application in this case by not doing so. The critical point is that he did not dismiss the application or indicate that the application was at an end.
[30] In my view the application for summary judgment for damages is properly before me to determine the quantum of damages.
Procedural defects
[31] In addition to the issues raised over jurisdiction, counsel for the defendants argued that there were further procedural defects which should count against an order for summary judgment. He pointed out that the plaintiff had filed two amended statements of claim and applications for summary judgment, without seeking or obtaining leave, and had failed to provide verification of either of the amended statements of claim. I will address this first.
[32] Although r 12.4(2) of the High Court Rules stipulates that an application by a plaintiff must be made either at the time the statement of claim is served or later with the leave of the Court, that appears to apply to the bringing of an application rather than amendment of an existing application. However, even if it is intended to apply to amendment of an application (and this could be the reason that the Court of Appeal in Cegami Investments Ltd v AMP Financial Corp (NZ) Ltd8 commented that “a formal application for leave to amend may have been appropriate”) the Court has a wide discretion as to leave.
[33] In Cegami the Court of Appeal upheld a decision in this Court permitting an application to proceed on an amended basis that had been advanced only in an affidavit filed by the plaintiff prior to the hearing. The amendment was made to advance a claim for damages (not altogether dissimilar from the present case). Indeed, the arguments for the defendant in that case are very similar to those advanced, on this point, for the defendants:9
Mr Curry's complaint was based on the proposition that the change proposed in the final affidavit amounted to a substantial amendment of the original pleadings, from what he said was a claim for specific performance to one for damages. However, the plaintiff was confronted with a new situation after the defendant's repudiation of the contract during the course of these proceedings, and as a result elected to change the basis of what was always a purely monetary claim to one of damages with appropriate allowances for mitigation.
Mr Curry did not contend that the defendant was prejudiced by this change of front, nor did he seek an adjournment to cope with it. Instead of filing any affidavits in reply to the evidence about share valuation, he attempted to
persuade the Master that the summary judgment proceeding should be dismissed because such a change was not authorised under the rules. ...
[34] The finding by the Court of Appeal is equally applicable to the present case:10
There is no justification for holding the summary judgment rules suspect and needing to be strictly confined because they are thought to deprive defendants of the privilege of a full trial. They are aimed at cases in which the plaintiff can establish there is no genuine defence, and they should be approached and applied in a way that will most effectively enable the Court to reach a conclusion on that question. With this in mind, we see no good reason why the ordinary provisions about amendment should not apply to such proceedings if the justice of the case requires it and there is no prejudice to the defendant. It would be a matter for regret if these salutary rules became hedged with restrictive interpretations narrowing the ordinary scope of amendment, regardless of the merits of the application and the position of the parties. In this case AFC's change of approach was prompted by Cegami's own action in making it clear that it was not going to honour the contract or accept the shares. It really introduced nothing new. A formal application for leave to amend may have been appropriate, but we are [(1990) 2 PRNZ 271, 277] satisfied the Master was correct to allow the summary judgment application to proceed on the new basis.
[35] Counsel for the defendants submitted that there was a limit to the Court’s tolerance of amendment to pleadings in summary judgment applications,11 and that this case went beyond what was acceptable. The question, in my view, is whether the justice of the case requires amendment and whether it will prejudice the defendant. In other words, the matter will be determined by the merits of the application and, in this case, whether or not the merits could be affected by discovery or cross-examination (the defendants contend they are prejudiced by loss of opportunity to explore whether the resale price was a bona fide and reasonable
one).
[36] Counsel for the defendants also took issue with the absence of the formal affidavit verifying a statement of claim required by r 12.4(5)(b). The same reasoning applies as for the amended application. Although the rule could be read to refer to an amended statement of claim and application, its real significance lies in establishing a proper evidential basis for judgment on an unopposed application. Verification was provided of the original statement of claim and application, and the affidavit supporting the first amended statement of claim clearly verifies the
amended pleading as to quantum, even though it does not expressly use those words. Finally, and perhaps having been alerted to the possible argument, the plaintiff did belatedly file an affidavit verifying the allegations in the second amended statement of claim and application.
Quantum
[37] The plaintiff seeks damages in accordance with cl 9.4 of the agreement for sale and purchase. The relevant parts of that clause read:
9.4 If the purchaser does not comply with the terms of the settlement notice served by the vendor then, subject to clause 9.1(3):
(1) Without prejudice to any other rights or remedies available to the vendor at law or in equity the vendor may:
(a) sue the purchaser for specific performance; or
(b) cancel this agreement by notice and pursue either or both of the following remedies namely:
(i) forfeit and retain for the vendor’s own benefit the deposit paid by the purchaser, but not exceeding in all 10% of the purchase price; and/or
(ii) sue the purchaser for damages.
...
(3) The damages claimable by the vendor under subclause 9.4(1)(b)(ii) shall include all damages claimable at common law or in equity and shall also include (but shall not be limited to) any loss incurred by the vendor of any bona fide resale contracted within one year from the date by which the purchaser should have settled in compliance with the settlement notice. The amount of that loss shall include:
(a) interest on the unpaid portion of the purchase price at the interest rate for late settlement from the settlement date to the settlement of such resale; and
(b) all costs and expenses reasonably incurred in any resale or attempted resale; and
(c) all outgoings (other than interest) on or maintenance expenses in respect of the property from the settlement date to the settlement of such resale. ...
[38] The plaintiff also relies on a provision in the agreement for payment of interest at a rate for late settlement of 15 per cent per annum up to the date of settlement of the re-sale agreement.
[39] The damages sought are all prima facie available under clause 9.4. They comprise:
a) $408,000, being the difference between the purchase price under the agreement with the defendants and the purchase price under the re- sale agreement, less $60,000 paid by way of deposit;
b) $151,478.07, being interest payable for late settlement at the contractual rate of 15 per cent per annum from the date of the defendant’s failure to comply with the plaintiff’s settlement notice up to the date of settlement under the re-sale agreement; and
c) $16,753, being marketing costs, concept design costs and legal fees incurred in relation to the re-sale agreement, or claimed pursuant to cl 4.9(3)(b) of the agreement; and
d) $9134.44, being the cost of rates and maintenance expenses in respect of the property from date of expiry of the settlement notice to date of settlement of the re-sale agreement, pursuant to cl 9.4(3)(c) of the agreement.
[40] The plaintiff also seeks interest at the Judicature Act rate from date of settlement of the re-sale agreement, and costs.
[41] The essential issues which the Court has to determine on the application are whether the plaintiff has established that the re-sale was bona fide and whether the plaintiff otherwise has discharged its legal duty to mitigate its loss.
[42] The plaintiff says that there can be no realistic argument that the re-sale was not bona fide as the evidence establishes that the re-sale was at market value or
within a range of likely market values. It relies on evidence of a development manager contracted to the plaintiff who produced:
$825,000 plus GST;
b) market appraisals undertaken by two real estate agent companies in
June 2010, one of which appraised the current market value as at
9 June 2010 at $633,000 plus GST and the other, the current market value as at 23 June 2010 between $737,625 and $948,375.
[43] To address the plaintiff’s obligation to mitigate its loss, the development manager has given evidence of the steps taken to market the property for re-sale (both in an affidavit filed with the amended application for summary judgment and in a reply affidavit) and produced email correspondence obtained from two real estate agents engaged to market the property, setting out the steps that they took.
[44] Lastly, the development manager has also given evidence of the additional costs incurred by the plaintiff and produced invoices in support of those costs.
[45] The essence of the defendants’ case is that the plaintiff has not met its evidential burden to prove a bona fide sale or to establish that it acted reasonably by selling to the eventual resale purchaser, an adjoining owner. Counsel advanced the defendants’ case on two main points. The first was that the plaintiff had failed to put all relevant material before the Court at the time of bringing its application, causing potential injustice to the defendants. Counsel argued that whether or not the plaintiff had acted reasonably depended on the process that it had followed for resale, and that information was exclusively within the plaintiff’s knowledge and control. He submitted that a significant amount of the evidence as to the process had only been given in reply. He argued that in light of the significant difference between the original sale price and the resale price, the defendants were entitled to full disclosure of all facts relating to the process at the outset. In particular, he argued that the plaintiff had been selective about the evidence initially advanced, and that the Court
should not countenance a plaintiff holding back relevant evidence for reply, thereby
prejudicing a defendant’s ability to respond properly to it.12
[46] The second main point for the defendants was that, even including the reply evidence, there were unresolved issues in respect of admissible evidence which could not be properly resolved without further investigation through discovery and cross-examination at trial.
Principles for summary judgment
[47] The principles that the Court applies when considering whether to grant summary judgment do not require reiteration in this judgment. They can be found in the classic case of Pemberton v Chappell,13 and in the many authorities since, the significant ones being set out under r 12.2 of the High Court Rules in McGechan on Procedure.14 For the purpose of the present case the relevant principles are:
a) The plaintiff seeking summary judgment has the onus of showing that there is no defence, meaning that there is no real question to be tried.
b) Where the plaintiff’s unchallenged evidence satisfies the Court that there is no defence, the defendant needs to provide some evidential basis for a defence, although the overall onus remains on the plaintiff.
c) The Court will not attempt to resolve genuine conflicts of the evidence or to assess credibility of statements in affidavits, but the Court is not bound to accept, as raising a disputed fact, which calls for further investigation, statements that are equivocal, vague,
inconsistent with undisputed documents or inherently improbable.
12 Westpac NZ Ltd v Cooper n.11.
13 Pemberton v Chappell [1987] 1 NZLR 1 (CA).
14 HR12.2.01 and following.
Was it a bona fide resale?
[48] Clause 9.4(3) provides that the measure of damages can be the loss incurred on a bona fide resale within one year of the settlement date under the broken contract. There is no issue over the fact that the resale in this case was within one year. If the innocent party wishes to rely on this measure of damages, it must establish that the resale was a bona fide one.
[49] The defendants contend that the plaintiff has not satisfied this test, and say that there is an arguable case that this was not a bona fide resale. They point to the fact that the purchaser was an adjoining owner, who had had previous dealings with the plaintiff (it had previously purchased another property from it), and that the agreement made specific reference to a payment to be made out of the sale proceeds to settle a dispute. Counsel argued that it was conceivable that the purchase price was negotiated at a lower figure as part of the compromise. The defendants also rely on the valuation evidence produced by the plaintiff, which referred to an expectation that a vendor could expect to get a premium for sale to an adjoining property, and say there is no evidence that the resale price contained a premium.
[50] I see no reason to treat these matters as an indication that this was not a bona fide resale. The payment to be made out of the proceeds of sale has been explained. There is no indication of any wider dispute than was settled by the clause in the agreement. Further, there would have been no need to have included that clause in the agreement if the parties had some side arrangement as to a discounted price. Nor does the valuation evidence make any difference. The evidence is that the parties negotiated over price, and the purchase price was a compromise between starting positions. It is quite clear from the evidence that these were arms-length negotiations.
[51] Counsel for the defendants took issue with the fact that the information as to resale came in the plaintiff’s reply evidence. Nevertheless, the plaintiff’s witnesses have given a detailed account of the way in which the negotiations commenced and were conducted (with solicitors engaged on both sides). There is no evidence to suggest that this was not a negotiation undertaken bona fide between two arms-
length and independent commercial parties. The defendants need to point to some matter which provides a reason to question the resale transaction. They have not done so.
The test for mitigation
[52] The real issue in this case is whether the plaintiff has done what is required of it to mitigate its loss. The scope of its obligation, in the context of a resale following a purchaser’s default, was set out by the Court of Appeal in Sullivan v Darkin:15
In relation to damages claimed for breach of contract for the sale of land that duty to mitigate loss involves no more than that the vendor should act reasonably in the circumstances and offer the land for resale at a proper price having regard to the state of the market; take adequate steps to advertise and promote the sale and keep the property in reasonable order and condition so as to encourage a sale.
...
Under cl 8.4 of the contract in this case however the only damages strictly relating to the loss of the bargain are those measured by the result of a resale. There is here adequate scope for the normal principles of mitigation of loss by a plaintiff. If it be asked what reasonable steps a vendor acting under such a clause may take there is I think only one answer. He must take such steps as are reasonable in the circumstances, including those in which he is placed by the purchaser's default, to obtain a proper price. In assessing what is reasonable the conduct of the vendor is not to be weighed in nice scales: see Banco de Portugal v Waterlow & Sons Ltd [1932] UKHL 1; [1932] AC 452, 506, and, in this context, Cooper v Ungar [1958] HCA 9; (1958) 100 CLR 510, 514.
[53] Sullivan v Darkin has recently been followed by the Court of Appeal in Mana v Flemming,16 where the Court emphasised that the duty was to “take such steps as were reasonable in the circumstances”,17 and noted that the reselling vendor’s conduct was “not to be weighed in nice scales”.18
[54] These authorities establish that the plaintiff’s duty was to take reasonable
steps in the circumstances of the case. Counsel for the defendants argued that the plaintiff should have to show that it had taken steps similar to those required of a
15 Sullivan v Darkin [1986] 1 NZLR 214, at 217-218 per Davison CJ; at 223, per Somers J; see also
D W McMorland Sale of Land (2nd ed, Cathcart Trust, Auckland, 2000) at 468.
16 Mana v Flemming [2007] NZCA 324.
17 At [41].
18 At [46].
mortgagee to show that it had made reasonable efforts to obtain the best price reasonably obtainable.19 Those cases can be distinguished on the basis that they were both dealing with duties of a mortgagee exercising its power of sale. As was made clear in Sullivan v Darkin, the mortgagee sale analogy is not sufficiently analogous to provide a useful guide. The Court must be guided by the terms of the contract and the principles identified above.
The evidential issues
[55] The evidence before the Court is that the plaintiff approached six real estate agents in the early part of 2010 (although it did not sign a listing agreement in every case, there is evidence of one listing agreement having been signed in March 2010). The plaintiff’s development manager has given evidence that the only offer it received was from the adjoining owner. He and a director of the plaintiff had given evidence that the plaintiff approached the adjoining owner (as a logical potential purchaser) in March 2001, and the adjoining owner indicated its interest in about May 2001 (having gone back to its parent company for instructions in the meantime). The parties reached agreement on a sale price in early June 2010, subject to the purchaser undertaking a due diligence investigation. The plaintiff was unwilling to sign an unconditional offer, as it had legal advice that that would effect cancellation of the agreement with the defendants, and it was unwilling to do that until it had an unconditional agreement for resale. The adjoining owner completed its due diligence towards the end of June 2010, and submitted a draft agreement on 2
July 2010. The parties then negotiated the remaining terms for an agreement (through their solicitors) until 6 July 2010, the day after the summary judgment hearing before Associate Judge Christiansen.
[56] In the meantime, the plaintiff continued to market the property through the various real estate agents.
[57] The most significant evidence, from the plaintiff’s perspective, was that the
resale price of $850,000 (plus GST) was more than a market appraisal provided by
19 Westpac New Zealand Ltd v Cooper HC Auckland CIV-2009-404-990, 29 January 2010 at [30], citing Public Trustee v Ottow & Ottow HC Auckland CIV-2009-404-3825, 4 November 2009 at [31].
one of the real estate agents on 9 June 2010 ($633,000 (plus GST)), in the middle of a range given in an appraisal from another agent on 23 June 2010 (the range being
$737,625 - $948,375), and in excess of a market valuation obtained on 27 July 2010 (after the sale but to support its application for summary judgment). Counsel for the plaintiff submitted that a sale at the current market value spoke for itself in terms of a reasonable step to mitigate the loss.
[58] Counsel for the defendants submitted that in light of the substantial and extraordinary drop in the sales price (a difference of $468,000 from $1,318,000 in the agreement with the defendants to $850,000 in the resale agreement), the defendants should be entitled to full disclosure at the outset, to enable them to comment properly on the process, and the plaintiff should have provided expert evidence to the effect that the sale process followed had produced the best available price. Counsel took issue with the evidence relied upon by the plaintiff in several respects:
a) The plaintiff had not provided a full account of its sale process in its initial evidence (it had “cherry picked” the evidence to put before the Court), as was evident from the reply evidence that some six real estate agents had been approached rather than the three identified in the plaintiff’s initial affidavit;
b) The evidence as to market value did not satisfy the best evidence rule
– it was all hearsay: the development manager who produced the valuation and the appraisals in evidence had not qualified himself as an expert on the subject, and there was no direct evidence from the real estate agents or valuer concerned;
c) The valuation post-dated the sale and could not have assisted the plaintiff to make its decision to sell to the adjoining owner;
d) There was no evidence of the plaintiff’s instructions to the valuer, and although the valuer’s report mentioned the sale to the adjoining owner (and the sale price), there was no indication that the valuer had been
told of the original price and was thereby aware of the substantial drop;
e) Although the report contained a comment that an adjoining owner was likely to pay a premium, there was no comment as to whether the price achieved included any premium;
f) There was no evidence as to the falling market which had supposedly resulted in the marked drop in price, to show whether the resale price was consistent with that fall;
g) An email from the plaintiff to the resale purchaser on 12 May 2010, which referred to a sale to it as “the simplest solution” and the plaintiff “deprioritising” two purchase/development options in favour of pursuing a sale to the resale purchaser, suggested a willingness to accept something less than the best available price;
h) No credence could be given to two emails from real estate agents exhibited to the plaintiff’s evidence in reply, describing the sales process they had undertaken – the evidence was hearsay and of doubtful independence (the emails were in similar terms, suggesting they had been drafted by the plaintiff).
[59] Lastly, but very significantly, counsel for the defendants took issue with the fact that the plaintiff had failed to disclose, prior to or at the hearing, that it was in an advanced stage of negotiation on an agreement for resale, at a significantly lower figure than the original sale price. He referred to the defendants’ evidence that they were prepared to pay the original price less their estimate of resolving the anticipated contamination issues. Counsel submitted that it was at least arguable that the plaintiff should have disclosed the negotiations and the anticipated sale price, in circumstances where it was seeking equitable relief, and to give the defendants an
opportunity to put an offer at that price or better.20 He submitted that if they had had
20 Payzu Ltd v Saunders [1919] 2 KB 581, 589; Re Solholt [1983] 1 Lloyd’s Rep 605.
that opportunity, the plaintiff was obliged to sell to them in the absence of a better offer.
Discussion
[60] Whether a plaintiff has failed to take a reasonable step is a question of fact depending on the particular circumstances of the case.21 The critical issue in this case is whether the Court can be confident on the information before it that the plaintiff took steps that were reasonable in the circumstances to obtain a proper price, or whether, as a result of the way in which the evidence came out or otherwise, there are matters which warrant further investigation through discovery and possibly in cross-examination.
[61] I do not accept that this case is comparable to Westpac v Cooper, where this Court took the view that there were substantial gaps in the case put initially before the Court which it was not prepared to have rectified in reply. In this case the plaintiff established a prima facie case on its initial evidence: the fact of resale, the marketing undertaken, inquiries as to the market at the time, and negotiations with the independent purchaser. I accept the submission of counsel for the plaintiff that a plaintiff seeking summary judgment is not required to put forward at the start every bit of evidence that could possibly bear upon the case that it had to establish, provided that the necessary elements of the case and the evidential support for it were given. The plaintiff’s further evidence is clearly in reply to points raised in its initial evidence but challenged by the defendants. It expands upon matters initially raised to answer the questions raised by the defendants as to the process of sale. If the defendants had further evidence that they could have given on matters not truly in reply, it was open to them to seek leave to bring it. The fact that they did not do so suggests that there is no further evidence.
[62] I also reject the criticism that the plaintiff should have anticipated the possibility that the defendants would have made an offer at or better than the resale
price had they known of it, and given detailed evidence at the outset of the
21 Burrows Finn & Todd Law of Contract in New Zealand (3rd ed, LexisNexis NZ Ltd, Wellington,
2007) at [21.2.4].
negotiations with the resale purchaser. There is no evidence to suggest that the plaintiff was aware of this as a possibility, and hence that it was a potential ground for defence which it should have anticipated in its initial evidence. It had been open to the defendants to make a further offer to purchase at what they felt the land was worth. It was reasonable for the plaintiff to assume that they no longer wanted the property, given that they did not make any offer, over a lengthy period.
[63] This takes me to the defendants’ related argument that the plaintiff should have advised the Court and the defendants of the anticipated resale no later than the initial hearing. The first point made was that this could have altered the Court’s view on granting specific performance. However, at that time the plaintiff did not have an agreement, and was entitled to pursue its claim for specific performance. It notified the Court immediately the agreement was signed.
[64] The defendants’ second point was that the defendants would have offered more had they known of the impending sale. Counsel for the defendant argued in support of this point that it was for the plaintiff to approach the defendants with its proposed resale figure before it entered into the resale agreement, relying on Re Solholt22. However, that case is not authority for the proposition that an innocent vendor must re-offer the property to the defaulting purchaser when re-selling. The English Court of Appeal said that it is a question of fact whether an innocent party should re-offer to the party in default before on-selling (in other words, whether that was that a reasonable step to take).23 That case concerned an on-sale in a rising market, in which case it was not unrealistic to take the view that the defaulting purchaser might wish to re-offer at the original price.
[65] There is no suggestion in the evidence in this case that the defendants were contemplating making an offer. There was no offer from them at all, over a period of several months, let alone at the level at which they now say they would have bought it – the original sale price less their estimate of the cost of remedying the perceived contamination. The defendants had done nothing to indicate that they still
had an interest in the property. The plaintiff had an offer from an independent party
22 Re Solholt [1983] 1 Lloyd’s Rep 605.
23 At 609.
at what appeared to be market value, and had no reason to believe that the defendants would want to equal or better it.
[66] This brings me to the defendants’ issues over the plaintiff’s evidence as to market value and process of sale. The plaintiff has to show that it took reasonable steps. Although the real estate agents’ appraisals and the valuation are strictly hearsay as to what market value was at the time of sale, there is no reason to believe that the agents and valuer would say anything different if they, rather than the plaintiff’s development manager, produced them in evidence. Moreover, they are admissible to show what steps the plaintiff took (market value appraisals), and that those appraisals were reasonable (by reference to the subsequent valuation report). The defendants have given no market evidence to show that there is any reason to question that prima facie evidence.
[67] I accept the criticisms of the email evidence from two of the agents as to the marketing steps they took, and accordingly place little weight on that. I do take into account, however, the evidence of the development manager that he was in contact with the agents regularly to establish what was happening, and possible interest. I take into account, too, the comments of the Court of Appeal that the plaintiff’s conduct “is not to be weighed in nice scales”.
[68] The defendants contend that the plaintiff should have produced expert evidence to establish the reasonableness of the price: for example, as to the fall in the property market and that the process it followed (insisting on an unconditional offer) was reasonable. I see no need for them to have done so, particularly given the prima facie evidence that the resale price was within market value (the Court is able to take judicial knowledge of the fact that property prices dropped considerably in this period). If the defendants took issue with that evidence, it was open to them to have called that evidence into question by contrary evidence of market appraisals or valuation, or by an expert on their behalf stating that the price drop exceeded the fall in the market or the plaintiff’s refusal to accept an unconditional offer could have affected the resale price.
[69] The defendants say that they could not get an expert to comment on the process until they had full discovery which the expert could evaluate. However, it was possible for them to have had an expert either give evidence that the process (as described by the plaintiff) was unreasonable and how sale price could be affected by it, or at least state what would be needed to provide such evidence. The plaintiff has the overall onus but, where it has put forward a prima facie case, the defendants need to respond with some evidence to support their assertions.
[70] The defendants rely on the plaintiff’s email to the resale purchaser of 12 May
2011 (referring to “the simplest solution” and “deprioritising” other possible opportunities), and the plaintiff’s requirement for an unconditional offer (arguing that it potentially cuts out better conditional offers), as leaving open to question whether there was some “manoeuvring” in the background which influenced the price. Counsel for the defendants argued that they should be entitled to explore what inquiries the plaintiff received, why they were not pursued, and whether the inquirers were in fact put off making an offer (particularly as all of this information is held by the plaintiff).
[71] I do not read the email as anything more than an encouragement to the resale purchaser to proceed with an offer. I also read nothing into the requirement for an unconditional offer – it speaks for itself that the plaintiff would be reluctant to limit its claims against the defendants until it knew that it had a firm alternative, particularly given its evidence that it had cashflow concerns arising out of the failure to settle (which it was entitled to take into account in its decision). It is not credible that the plaintiff would have discouraged offers or rejected any potentially better bid that it received – and that possibility remained open until 6 July 2010. It had to be better off to get the maximum recovery from a resale (including one to the defendants) – that offered greater certainty of a quick return than pursuing a claim against the defendants. The plaintiff’s evidence that it received only the one offer is unchallenged.
[72] Lastly, the defendants contended that it required discovery to assess the validity of the invoices produced in support of the other elements of the plaintiff’s claim. I see no reason to deny the plaintiff summary judgment on that basis. The
plaintiff’s evidence that it has incurred the costs is supported by the invoices. The defendants have put forward no evidence on which to question that these are legitimate costs.
Decision
[73] Counsel for the defendants put their case essentially on the basis that the evidence before the Court was not clear or complete enough to answer conclusively the questions posed by the substantial ($468,000) drop in price. The issue for the Court is whether it can be satisfied that the plaintiff took reasonable steps to obtain a proper price, and that there is nothing further to investigate.
[74] The plaintiff has given evidence of marketing of the property over at least four months, and that the resale was to the one person to make an offer, that the price was negotiated over the course of some weeks, and was at or close to, then current market value. That evidence, taken on its own, establishes a conclusive case.
[75] The defendants assert that the plaintiff did not take all reasonable steps to get a proper price but, other than say that the property should have been offered to them, give no evidence of the further steps that they say that the plaintiff should have taken. Their case is that they, and the Court, cannot be sure that all reasonable steps were taken until they have full discovery, and can explore those steps in cross- examination.
[76] I consider that the matters advanced by the defendants are matters of conjecture, and are unsupported by sufficient evidence to raise a genuine dispute or basis to question the plaintiff’s evidence.
[77] I find that the plaintiff is entitled to summary judgment for the damages pleaded, namely as set out in paragraph [33] above.
[78] The plaintiff is also entitled to interest on the judgment sum at the applicable rate under the Judicature Act 1908 from date of settlement of the resale agreement until date of judgment.
[79] The plaintiff is entitled to costs on a 2B basis together with disbursements as fixed by the Registrar.
................................................... Associate Judge Abbott
Solicitors:
Hesketh Henry, Auckland for plaintiff
Dawsons, Manukau for defendants
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