Cayenne Developments Limited v Oh [2013] NZHC 383 (1 March 2013)

Last Updated: 2 April 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-001369 [2013] NZHC 383

BETWEEN CAYENNE DEVELOPMENTS LIMITED Plaintiff

AND CHANG EON OH Defendant

Hearing: 21 February 2013

Appearances: B M Stainton for Plaintiff

R Dillon and T Hwang for Defendant

Judgment: 1 March 2013

JUDGMENT OF WOOLFORD J

_{[As to inspection of property prior to trial]}

This judgment was delivered by me on Friday, 1 March 2013 at 3:00 pm pursuant to r 11.5 of the High Court Rules.

_{Registrar/Deputy Registrar}

Solicitors:

Stainton Chellew, Solicitors, DX CP19023, Auckland

R M Dillon, Solicitor, PO Box 311049, Glenfield, North Shore City 0747

CAYENNE DEVELOPMENTS LIMITED V OH HC AK CIV-2012-404-001369 [1 March 2013]

Introduction

[1] The plaintiff is a property developer. The defendant owns a property at

92A Rukutai Street, Orakei. The plaintiff seeks specific performance of what is said to be a binding contract for the sale and purchase of the property or, in the alternative, damages for loss of profit. The substantive trial is to commence in the week of 19 August 2013.

[2] In this interlocutory proceeding, the plaintiff seeks an order for inspection under High Court Rule 9.34 to allow the plaintiff, its consultants and advisors to enter onto the property “to undertake non-invasive survey and engineering and geotechnical survey [sic] during a period of 18 working days from the date of this order”. The application for an inspection order is opposed.

Background

[3] The plaintiff says that a contract for the sale and purchase of the property dated 3 January 2012 was signed by the plaintiff and the defendant and included the following terms:

(a) Price - $560,000 inclusive of GST.

(b) Deposit – 20% of purchase price payable upon unconditional date. (c) Possession date – 31 May 2012.

(d) Due diligence – contract conditional upon the purchaser being satisfied as to the suitability of the property for the purchaser ’s intended use at the purchaser’s price within 18 working days of the date of agreement.

(e) Access – the vendor agreed to give the purchaser’s consultants and

advisors access to the property during the due diligence period.

[4] The defendant admits receiving an offer to purchase the property for

$555,000, which she rejected. She also admits that she did amend the written offer by making a counter-offer at a price of $580,000 but says that the counter-offer was not accepted by the plaintiff. She also says that she did not accept or countersign any subsequent amended document and no contract for sale and purchase of the property was ever concluded.

[5] Access to the property was subsequently refused by the defendant and so the contract, if it does exist, remains unconditional and subject to due diligence by the plaintiff. The relevant clauses in the contract provide:

18.0 Satisfactory Due Diligence

18.1 This agreement is conditional upon the purchaser, at the purchaser’s sole discretion, being satisfied with the results of the purchaser’s due diligence investigation as to the suitability of the property for the purchaser’s intended use at the Purchase Price. Such investigation shall include, but shall not be limited, to the following matters:

18.2 The soundness, suitability and value of the property and any buildings situated on it;

18.3 The suitability of the terms of the local authority’s District and Regional Plans, relevant to the intended use of the property by the purchaser;

18.4 The location of any buildings in relation to the boundaries of the land and any other survey matters;

18.5 Any engineering aspects of the property and buildings on the land taking into account both the current state of the property and buildings and any future development potential of a property and buildings;

18.6 Such other matters as the purchaser in his/her/its sole discretion shall determine as pertinent to the purchaser’s intended use and benefit of the property;

18.7 The vendor shall cooperate with the purchaser in respect of the due diligence enquiry by providing any relevant information, reports and documentation that will enable the purchaser to better undertake his/her/its due diligence enquiry in relation to the matters set out above;

18.8 The date for satisfaction of this condition is or/within 18 working days of the date of this agreement. If this condition is not satisfied by that date then the purchaser shall pay to the vendor the sum of $1.00 and except for the obligation to

make such payment, this agreement shall be void and all moneys paid under it shall be refunded and neither party shall have any claim against the other. Further, the purchaser is not obliged to provide any reason for non satisfaction of this clause. This condition is inserted for the sole benefit of the purchaser.

19.0 Access for Due Diligence

19.1 The vendor agrees to the purchaser’s consultants and advisors entering onto the property prior to the condition date for the due diligence clause and during normal working hours to undertake survey, engineering and/or geotechnical investigations required for the purchaser’s future development of the property, provided however, that those entering onto the property cause as little disruption to the vendor and his/her/its normal activities on the land as possible.

Plaintiff ’s submissions

[6] The plaintiff’s alternative claim to damages for loss of profits has not yet been calculated. The plaintiff submits that such calculations cannot be made until it is granted the right to inspect the property, either by agreement or by Court order.

[7] The plaintiff refers to the defendant’s notice of interrogatories which sought further particulars as to the plaintiff ’s calculation of loss of profit. The plaintiff responded on the basis that it was unable to make such calculations until after inspection of the property. By denying the plaintiff access, the plaintiff submits that the defendant is seeking to avoid the plaintiff’s alternative claim for damages by denying it the opportunity to prove its claim and damages on the merits.

[8] The plaintiff submits that if it obtains access in order to complete due diligence then it will be able to make a decision as to whether or not to confirm the contract as unconditional. Dependent on that decision is the type and quantum of compensatory damages claimed. To do so, the plaintiff needs to ascertain the cost of development and the estimated value of the property after renovation, within a reasonable construction period after the date on which the agreement was to settle. The plaintiff submits that such evidence clearly requires access to the property for measurement, scope of work, planning, quantity surveying and valuation to ascertain

the situation if the contract had been performed. The plaintiff submits that it needs to examine the property and building to ascertain the state of the property, prepare a plan of renovation work, cost the work, calculate finance costs and ascertain a final developed site property value.

[9] The plaintiff submits that r 9.34 enables the Court to order inspection of the property. Given that the plaintiff has been refused the right of access, an inspection order is necessary “to enable the proper determination of any matter in question in the proceeding”. Such inspection will enable the plaintiff to identify and calculate the quantum of damages.

Defendant’s submissions

[10] The defendant submits that the main issue in the substantive trial is whether or not there was a valid contract for the sale and purchase of the property. Clause 18 of the contract, which provides for due diligence, can only be operative if there is a valid contract. If there is no contract then the defendant submits that an intrusive examination of the property is a gross invasion of her privacy.

[11] The defendant submits that the claim for damages can only arise if it is determined that there is a valid contract. If there is no contract, the issue does not arise. If the Court determines that there is a valid contract, damages can then be assessed if the plaintiff chooses not to request specific performance. The plaintiff must however elect before trial to claim specific performance or damages. All the submissions advanced by the plaintiff assume that there is a contract and a right to inspect yet the defendant submits that, that is the central issue in the proceeding and inspection would do nothing to advance that issue.

[12] The defendant submits that quantum of damages will only arise if the plaintiff is successful in the substantive trial and secondly, if it has elected damages. It has not done so. Because the plaintiff has not elected damages, the quantum of damages is not at this time an issue in the proceedings. The right of inspection cannot be seen as independent from the substantive trial. The defendant submits that the substantive issue must be dealt with first before an application to inspect can be considered.

Analysis

[13] The inspection order is sought under r 9.34 which provides:

9.34 Order for inspection, etc

(1) The court may, for the purpose of enabling the proper determination of any matter in question in a proceeding, make orders, on terms, for—

(a) the inspection of any property:

(b) the taking of samples of any property: (c) the observation of any property:

(d) the measuring, weighing, or photographing of any property: (e) the conduct of an experiment on or with any property:

(f) the observation of a process.

(2) An order may authorise a person to enter any land or do anything else for the purpose of getting access to the property.

(3) In this rule, property includes any land and any document or other chattel, whether in the control of a party or not.

[14] McGechan notes1 that an order may only be made for the purpose of “enabling the proper determination” of any matter but states that while this may be seen as restricting the possible scope of the rule, it is suggested that a broad understanding of “proper determination” will permit an order to be made in any case where it would assist the Court.

[15] McGechan also states2 that:

The power is discretionary. Given that threshold jurisdiction (ie for the purpose of enabling the proper determination of any matter in question) has been established, exercise of discretion in favour of an order is likely.

[16] Having carefully considered the submission of counsel, I am of the view, for the following reasons, that an inspection order is warranted in the circumstances of this case. Firstly, the plaintiff’s claim is in the alternative – specific performance or

damages for loss of profit. It will however have to elect which remedy to pursue at or before trial. As explained by Lord Wilberforce in Johnson v Agnew:3

In this situation it is possible to state at least some uncontroversial propositions of law.

First, in a contract for the sale of land after time has been made, or has become, of the essence of a contract, if the purchaser fails to complete, the vendor can either treat the purchaser as having repudiated the contract, accept the repudiation, and proceed to claim damages for breach of the contract, both parties being discharged from further performance of the contract; or he may seek from the court an order for specific performance with damages for any loss arising from delay in performance. (Similar remedies are of course available to purchasers against vendors). This is simply the ordinary law of contract applied to contracts capable of specific performance.

Secondly, the vendor may proceed by action for the above remedies (viz. specific performance or damages) in the alternative. At the trial he will however have to elect which remedy to pursue.

[17] Johnson v Agnew was applied by the New Zealand Court of Appeal in

Chatfield v Jones.4

[18] I accept that, without inspecting the property, the plaintiff is unable to properly elect which remedy to pursue. The remedy sought is, in my view, a “matter in question” in the proceeding. Furthermore, the rule is not restricted to the Court itself determining the matter, it is wide enough to encompass a party properly determining the matter.

[19] Secondly, it is preferable that all issues should be determined at the trial set down for August 2013. In the absence of an inspection, there is an argument available to the plaintiff, that it should not be called upon to elect which remedy to pursue because of the conditional nature of the contract. The trial could then be seen as a trial of a preliminary question only, namely, the validity of the contract. If the contract was adjudged to be valid, then inspection will be required either by consent in terms of the contract or by Court order. A further trial would then be necessary at or before which the plaintiff will have elected which remedy to pursue. It is

however, in my view, better for all issues to be determined at the one hearing if at all possible.

[20] Thirdly, although counsel for the defendant submitted that I was able to take into account the plaintiff ’s limited prospects of success, I am not able at the hearing of this application to reach any view on the plaintiff’s prospects of success except to note that the plaintiff’s claim is not without merit. There is a written contract for the sale and purchase of the property which the plaintiff acknowledges counter-signing at $580,000. The defendant has then counter-signed at $560,000. The issue at trial will be when, and in what circumstances, initials were entered on the contract by the defendant’s niece, Charlotte Shim, next to the purchase price.

[21] Fourthly, any inspection ordered by the Court will not be overly intrusive. It does not appear that the defendant lives in the property. Counsel for the defendant advised me that he has some difficulty in communicating with his client as she is currently in Korea, but he did say that three months ago the property was unoccupied, although it may now be tenanted.

[22] In those circumstances, there will be an order that the plaintiff, it’s consultants and advisors may enter on to the property at 92A Rukutai Street, Orakei, Auckland, including entry to the buildings on the property during normal working hours (8.00 am – 5.00 pm weekdays) solely to examine the property and building to ascertain the state of the structure, including non-invasive moisture inspection, prepare a plan of renovation work, cost the work and finance and ascertain a final developed/renovated site market value for up to three hours on three separate days during a period of 18 working days from the minute dated 14 March 2013. Twenty- four hours notice is to be given to the solicitors acting for the defendant prior to each entry.

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Woolford J