Zhang v Zhai [2014] NZHC 1026; [2014] 3 NZLR 69 (16 May 2014)

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-6491 [2014] NZHC 1026

BETWEEN	SHAOHE ZHANG Plaintiff
AND	XIAOJUN ZHAI and AIDONG ZHANG Defendant

Hearing:	2 - 5 December 2013 Plaintiff's further submissions in reply: 8 December 2013
Appearances:	E St John and D Liu for Plaintiff C Henry for Defendants
Judgment:	16 May 2014

_{JUDGMENT OF TOOGOOD J}

This judgment was delivered by me on 16 May 2014 at 3:00 pm

Pursuant to Rule 11.5 High Court Rules

_{Registrar/Deputy Registrar}

ZHANG v ZHAI [2014] NZHC 1026 [16 May 2014]

Table of Contents Paragraph

Number

Introduction and result [1] Result [5] Factual background [6] The agreement for sale and purchase [6]

Steps taken by the defendants [9] Steps taken by the plaintiff [17] Deposit repaid [18]

The plaintiff’s claims [19]

_{The defendants’ arguments} [21]

What are the obligations of the parties under the agreement?

Did a settlement date arrive so as to trigger settlement obligations?

Is the claim for specific performance barred by analogy under s 4 of the Limitation Act 1950?

[25] [29]
[40]

_{Is the claim barred by laches?} [44]

Has the defendants’ performance of the agreement been frustrated or become impossible?

[54]

Other matters raised in the evidence or submissions [63] Should the claim for specific performance be granted? [69] Orders [70]

Introduction and result

[1] On 3 August 2003, the plaintiff, Mr Shaohe Zhang, and the defendants, Mr Xiaojun Zhai and his wife Ms Aidong Zhang, entered into an agreement for sale and purchase of a residential property in the Auckland suburb of New Lynn (“the agreement”). Although the plaintiff paid a deposit, a long period of inactivity followed. The delay was attributable to both parties at various times. During this period the defendants continued to live in the property and it was not until May 2012 that the plaintiff arranged service of a settlement notice on them. The defendants refused to settle and on 1 November 2012 the plaintiff filed the present proceeding.

[2] It is accepted that the plaintiff has equitable title to the property. He now seeks specific performance of what he says is the defendants’ contractual obligation to transfer legal title to him.

[3] The defendants raise a number of affirmative defences which, they argue, justify declining the plaintiff relief. First, they say that because the cause of action accrued more than six years before the commencement of this proceeding, the proceeding is barred by analogy under s 4 of the Limitation Act 1950. Alternatively, they submit that the plaintiff’s delay in seeking to settle the transaction and pursuing his claim is such that the remedy should be barred by laches. They also argue that the performance of the agreement has been frustrated because changes in the Council’s requirements under the Building Code have made performance impossible.

[4] The defendants’ principal ground for arguing that the discretionary remedy of specific performance should not be granted is that, whereas the property is now worth around $540,000, the plaintiff claims that default interest accrued because of the delay means he only has to pay $65,000 on settlement.

Result

[5] For the reasons given below, I have decided that none of the defendants’ defences can succeed and that the plaintiff is entitled to an order for specific performance of the agreement, and costs. Leave is reserved for any party to apply

for further orders which may be necessary or desirable to give effect to the judgment.¹

Factual background

The agreement for sale and purchase

[6] In 2001 the defendants purchased a property at 23 Margan Avenue, New Lynn. In May 2003 they obtained a building consent to subdivide the property and build a six-bedroom house on the new site at 23A Margan Avenue (“the property”). Building commenced in June 2003.

[7] On 3 August 2003, the plaintiff agreed with the defendants to buy the property for a price of $348,000. The agreement was a standard form REINZ/ADLS agreement² and was unconditional except, because of the subdivision, for the issuing of a new title. The deposit of $20,000 was paid to the Barfoot & Thompson Trust Account on 8 August 2003. The agreed possession date was the later of 3 November

2003 or five days after the issue of the title. Title was issued on or about 22 June

2004. Clause 3.12(1)(c) of the agreement required the defendants to notify the plaintiff that the title had been issued. They did not do so but the evidence establishes that, by 25 August 2004 at the latest, the plaintiff and his solicitor had become aware that title had been issued.

[8] In about November 2003, there was a meeting between Mrs Zhang and the plaintiff at a Starbucks café which was arranged in an attempt to resolve issues between the parties. At that stage Ms Zhang was reluctant to settle because, she said, the property had been purchased as a family home and she had been overseas at the time her husband entered into the agreement and she had not signed it. Furthermore, Mr Zhai was concerned about costs overruns in the construction of the property; he informed the real estate agent that he wanted to negotiate an increase of $40,000 in

_{the purchase price. The Starbucks meeting did not result in any compromise.}

¹ _{See [71] and [72] below.}

² Seventh edition (2) July 1999.

Steps taken by the defendants

[9] Construction of the house on the property was completed in December 2003. Under the agreement, the defendants warranted that at the date of possession the property would comply with the requirements set out in the Building Act 1991 and would have a code compliance certificate (“CCC”) issued by the Waitakere City Council (“the Council”). The building, plumbing and drainage had been signed off as “Ok for CCC” by an inspector from the Council by 10 December 2003. However, the property failed final code compliance inspections and the Council declined to issue a certificate. A notice to rectify was issued by the Council.

[10] The defendants say that a CCC could not be issued because, by the time the building of the house was complete, the Council had changed the requirements for the issue of such certificates in a way which made it impossible for compliance with the building specifications set out in the agreement to satisfy the new requirements. On 29 December 2003 the defendants challenged the decision of the Council not to issue a CCC by applying to the Building Industry Authority (“the BIA”) for a determination on the issue.

[11] On 27 January 2004, despite not having received a determination, the defendants claimed through their solicitors that the agreement was frustrated and sought confirmation that the plaintiff would “withdraw from the alleged agreement”. The plaintiff declined to regard the agreement as frustrated and refused to withdraw the caveat he had registered against the title to the property on 18 December 2003. On 20 June 2004, the defendants’ solicitor requested Land Information New Zealand to issue a notice to the plaintiff that the defendants wished to register the subdivision. It appears the caveat lapsed as a result.

[12] There was considerable delay in the issuing of the determination because Ms Zhang had asked the BIA to put the determination on hold while Mr Zhai was overseas. In the meantime, pursuant to s 424 of the Building Act 2004, the powers of the BIA were transferred to the Chief Executive of the Department of Building and Housing (“DBH”).

[13] A determination on behalf of the Chief Executive was released on 28 October

2005. It was held that the cladding system on the property did not comply with the Building Code, and the Council’s decision to refuse to issue a CCC was confirmed. Although the determination included a finding that the cladding had been installed according to reasonable trade practice, the author identified that a number of junctions, edges and penetrations were not well constructed. The inadequacies were summarised as follows:

The poor application and condition of the paint coating; The cracking to the plaster coating around the windows; The damage to one window heading;

The inadequate ground clearance of the cladding around the garage;

The inadequate finish to the base of the cladding;

The lack of head flashings to the gas and electricity meter boxes;

The poorly sealed pipe penetrations and fixings through the cladding;

The burying of gutter and fascia ends in the plaster coating;

and

The lack of solid fixing of the deck balustrade brackets.

[14] It is clear from the report that, as Mr St John submits, the refusal to grant the CCC because of the identified defects was attributable to poor workmanship and not to any change in the Council’s requirements. The determination held that rectification of the defects to the Council’s approval would likely result in compliance with the Building Code.

[15] The determination included a recommendation that the Council should withdraw the notice to rectify and instead issue a notice to fix, to require the defendants as owners to bring the cladding into compliance with the Building Code. A process to meet the requirements of the determination was suggested. However, the remedial work was not undertaken and no CCC has ever been issued for the property.

[16] It appears the defendants moved into the property when construction of the dwelling was complete and that they lived there until some time in 2008. In about March 2008, the defendants listed the property for sale on the open market but withdrew the listing in May 2008. The property was rented out by the defendants from 2008 and at the date of hearing they were receiving rent from the property of

$700 per week.

Steps taken by the plaintiff

[17] Not long after becoming aware that the defendants had misgivings about the transaction in November/December 2003, the plaintiff lodged a caveat against dealing. As indicated above, that caveat appears to have lapsed in mid-2004. The plaintiff lodged a second caveat on 4 March 2008 but he never tendered the amount to settle required by the agreement and did not demand performance by the defendants at that stage. There was a further long period of inactivity and it was not until 11 May 2012 that the plaintiff arranged for service of a settlement notice on the defendants. The defendants have refused to settle the transaction and on

1 November 2012 the plaintiff filed the present proceeding.

Deposit repaid

[18] On 13 August 2013, the defendants’ solicitor transferred the sum of

$22,161.46 to the bank account of the plaintiff’s solicitors, on behalf of the defendants, a sum said to represent the deposit of $20,000 paid by the plaintiff plus interest. Payment of that sum had not been requested by the plaintiff.

The plaintiff ’s claims

[19] The plaintiff now seeks specific performance for settlement of the agreement. It is common ground that equitable title to the property has already passed. The plaintiff seeks an order compelling the defendants to transfer legal title to the property to him on the basis of the purchase price that was agreed in 2003, namely

$348,000. He also says, however, that interest payable by the defendants for late settlement has accrued at the default rate set out in the agreement and that at the date

of hearing it amounted to not less than $283,000. In effect, therefore, the plaintiff seeks an order compelling the defendants to transfer legal title to him for net consideration of around $65,000 for the property, calculated as at the date of hearing.

[20] In July 2011 the property was assessed as having a current capital value for rating purposes of $540,000.

The defendants’ arguments

[21] The defendants accept that, unless they can establish one or more of their affirmative defences, the plaintiff’s claim must succeed. They argue, however, that because the cause of action accrued more than six years before the commencement of this proceeding, it is barred by analogy with s 4 of the Limitation Act 1950. Mr Henry also submits for the defendants that the plaintiff knew in December 2003 that the defendants considered the agreement unconditional, and that the plaintiff knew by at least August 2004 that a new title for the property had been issued. However, the plaintiff took no steps to effect transfer of title to the property to him until May 2012. On this basis, the defendants say the plaintiff’s delay has been such as to entitle them to rely on the equitable doctrine of laches as a ground for refusal of an order directing them to complete settlement.

[22] As a further alternative, the defendants submit that the performance of the agreement has been frustrated. In this regard, Mr Henry points to the clause in the agreement whereby the defendants warranted that at the date of possession the property would have a code compliance certificate. He says, however, that in order to obtain a CCC under current Council requirements, it would cost the defendants an additional sum of approximately $200,000 in alterations.

[23] Mr Henry supplemented these grounds of defence with a number of arguments related to the failure of the plaintiff to comply with obligations under the agreement. First, he says that the plaintiff has failed to submit a memorandum of transfer to the defendants or the defendants’ solicitor a reasonable time prior to the settlement date as required. He also argues that the agreement required the plaintiff

to pay the balance of the purchase price to the defendants on the date of settlement but this money has never been tendered.

[24] Mr Henry further says that the plaintiff caused or permitted the defendants to believe that the plaintiff did not intend to follow through with the agreement so the defendants have either acted to their prejudice or would now be prejudiced. Given the plaintiff’s delay, the defendants submit it would be unjust to order them to give up the property on the basis that the plaintiff should pay only a net purchase price of

$65,000 when the property is now valued at $540,000.

What are the obligations of the parties under the agreement?

[25] Before considering the defences raised and the merits of the arguments for and against the granting of specific performance, it is necessary to consider the terms of the agreement and what each of the parties was obliged to do to give it effect.

[26] The provisions of the agreement relevant to settlement obligations provide:

3.5 The purchaser shall prepare, at the purchaser’s own expense, a memorandum of transfer of the property, executed by the purchaser if necessary. The purchaser shall tender the memorandum of transfer to the vendor or the vendor’s solicitor a reasonable time prior to the settlement date.

3.6 The vendor shall prepare, at the vendor’s own expense, a statement of apportionments, showing all outgoings and incomings apportioned at the possession date. The vendor shall tender the statement of apportionments to the purchaser or the purchaser’s solicitor a reasonable time prior to the settlement date.

3.7 On the settlement date:

(1) The purchaser shall pay or satisfy the balance of the purchase price, interest and other moneys, if any, due as provided in this agreement (credit being given for any amount payable to the vendor under subclause 3.9 or 3.10); and

(2) The vendor shall concurrently hand to the purchaser:

(a) the memorandum of transfer of the property provided by the purchaser under subclause 3.5, in registrable form; and

(b) all other instruments in registrable form required for the purpose of registering the memorandum of transfer; and

(c) all instruments of title –

the obligations in subclauses 3.7(1) and 3.7(2) being interdependent.

[27] “Settlement date” is defined in cl 1.1(3) to mean the possession date or such other date as the parties are to perform their obligations under subclause 3.7. The possession date is said in the agreement to be “03/11/2003 or Five days after the title issued whichever is later”.

[28] The settlement date can, however, be deferred under cl 3.12(1)(c). That clause provides that where the transfer of the property is to be registered against a new title in the course of issuing and a search copy of that title is not obtainable by the fifth working date prior to the settlement date, the settlement shall be deferred to the fifth working day following the date on which “the vendor has given the purchaser notice that a search copy is obtainable”.

Did a settlement date arrive so as to trigger settlement obligations?

[29] In Bahramitash v Kumar³ the Supreme Court discussed the obligations on settlement for both purchaser and vendor under the clauses set out above at [26]. The Court concluded that it is for the purchaser to begin the process of settlement and that the vendor cannot be shown to have breached the contractual obligation to convey the property unless there has been a proper tender by the purchaser.⁴

[30] In response to Mr Henry’s argument that the plaintiff had failed to trigger the defendants’ settlement obligations by producing a memorandum of transfer and tendering the balance of the purchase price, the plaintiff submits that, because the defendants failed to give notice that a search copy of the title was obtainable, no

_{settlement date existed so as to require the plaintiff to trigger settlement. Mr St John}

³ _{Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 (SC).}

⁴ Bahramitash v Kumar, above n 2, at [16]-[17].

also argues that, in any event, tendering earlier than May 2012 would have been futile.⁵

[31] While I have considered the arguments of both counsel on the basis of the authorities referred to, I have concluded that the issue is only indirectly relevant to the determination of this case.

[32] A letter to the defendants’ solicitors from the plaintiff’s solicitor dated

25 August 2004 establishes that, by at least that date, the plaintiff had knowledge that a certificate of title had been issued over the property. The purpose of the letter was to pursue the prospect of a settlement despite the defendants’ failure to give notice that title had been issued, but against a background of concern about the Council’s refusal to issue a CCC. The letter began by noting that the new certificate of title had been issued for the property but that the defendants’ solicitors had not informed the plaintiff of that event.

[33] The plaintiff’s solicitor then noted that the delay in the issuing of a new title had nothing to do with the Council’s refusal to issue a CCC. The letter asked for further information about the Council’s reasons for refusing a certificate; whether the defendants had applied to the BIA for a determination; and what the potential costs for remedial work to the property might be. I am satisfied that the principal purpose of the letter was to seek information concerning the vendors’ warranty in cl 6.2(5)(c) that a CCC would be issued, against the background of the plaintiff’s intention to proceed with the purchase.

[34] Clause 9.1 of the agreement provides that “If the sale is not settled on the settlement date either party may at any time thereafter serve on the other party notice (“a settlement notice”) to settle in accordance with this clause”. The plaintiff’s intention not to rely on the defendants’ failure to give notice of the new title is confirmed by the evidence that, on 11 May 2012, the plaintiff’s solicitor sent a letter

_{enclosing a settlement notice to the defendants’ solicitor.}

⁵ See Bahramitash v Kumar, above n 2, at [20].

[35] The letter of 11 May 2012 was accompanied by a copy of the agreement and a search copy of the new title. In the letter, the plaintiff’s solicitors said that, given the protracted delays in settlement, they had been instructed to demand immediate settlement and to serve upon the defendants a settlement notice (which was enclosed). The defendants’ solicitors were requested to provide a settlement statement and the settlement undertakings “as a matter of urgency.”

[36] Whatever changes of view the plaintiff may have had between August 2004 and May 2012, it is clear that the plaintiff waived any requirement under the agreement for the defendants to give notice of the new title. In the circumstances, the defendants’ failure to give notice that the title had been issued does not excuse the plaintiff from his obligation to execute a memorandum of transfer and give notice of intention to settle.

[37] But that does not assist the defendants in this case; cl 9.7 of the agreement provides expressly that specific performance remains available to the plaintiff without giving a settlement notice. It follows that, whether the plaintiff’s settlement notice of 11 May 2012 is legally effective or not, specific performance remains an available remedy.

[38] In case I should be wrong in taking that approach, I also find that tendering a memorandum of transfer and the balance of the purchase price earlier than May 2012

– such as at the time the plaintiff registered a second caveat over the property in March 2008 – would have been futile.⁶ The defendants' unwillingness to settle the purchase on the terms agreed in August 2003 can be inferred from:

(a) Ms Zhang's obvious disapproval of the purchase and her insistence in late 2003 that the sale and purchase agreement was unenforceable because she had not been a signatory to it;

(b) The defendants’ attempts in November/December 2003 to re-negotiate the purchase price because of the increased cost of completing the

_{construction of the property;}

⁶ Bahramitash v Kumar, above n 2, at [20].

(c) The failure of the defendants' solicitor to respond to the request on behalf of the plaintiff dated 25 August 2004 for information concerning the issuing of a CCC;

(d) The failure of the defendants to take any step, after the DBH determination was issued in October 2005, to undertake the remedial work necessary for the issuing of a CCC, and their failure to notify the plaintiff of the determination; and

(e) The attempts by the defendants in March to May 2008 to sell the property on the open market.

[39] Neither defendant gave evidence that they would have been prepared to settle if the plaintiff had pressed them to do so prior to May 2012.

Is the claim for specific performance barred by analogy under s 4 of the

Limitation Act 1950?

[40] Section 4 of the now-repealed Limitation Act 1950 applied to the limitation of actions in contract or tort and certain other actions. Section 4(9) of that Act relevantly provided:

This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the Court by analogy in like manner as the corresponding enactment repealed or amended by this Act, or ceasing to have effect by virtue of this Act, has heretofore been applied.

[41] Mr Henry submits that the Court should exercise its discretion to bar the claim by analogy. But it is doubtful that limitation by analogy is available in the context of specific performance. In P & O Nedlloyd BV v Arab Metals Co,⁷ the English Court of Appeal held, in the context of a provision⁸ virtually identical to s 4(9), that limitation by analogy does not apply to specific performance. This is

because there is no remedy at common law directly equivalent to specific

_{performance and because specific performance does not require there to be an}

⁷ P & O Nedlloyd BV v Arab Metals Co (No 2) [2006] EWCA Civ 1717, [2007] 1 WLR 2288, at

_[48].

⁸ Section 36(1)(b) of the Limitation Act 1980.

existing breach of contract. Delivering a judgment in which the other members of the Court simply agreed, Moore-Bick LJ noted at [47], relying on Hasham v Zenab,⁹ that while most claims for specific performance are made in response to an existing breach of contract, an accrued right of action for breach of contract is not a necessary precondition to obtaining relief of that kind. He held it was wrong in principle, therefore, to treat specific performance as merely an equitable remedy for an existing

breach of contract. Moreover, since a claim for specific performance may be made as soon as the contract has been entered into, it is very arguable that, if the limitation period were to be applied by analogy, it would be necessary to regard the cause of action as accruing at that moment, with the unfortunate result that the claim could become time-barred before any need for relief had arisen. These considerations lend further support to the conclusion that the application of the limitation period by analogy is not appropriate in relation to claims for specific performance.

[42] I am not aware that P & O Nedlloyd BV has been considered by a New Zealand court. In McLachlan v Meyers,¹⁰ Osborne AJ discussed competing views on the point expressed in cases, academic writing and commentaries, and concluded¹¹ that there was “no hard and fast equitable rule” about limitation by analogy as applied to specific performance, and that application was a matter for the Court’s

discretion. However, Osborne AJ does not appear to have been referred to Moore-

Bick LJ’s exhaustive discussion in P & O Nedlloyd BV.

[43] I prefer to adopt the considered conclusions of the English Court of Appeal and hold that the plaintiff’s claim for specific performance cannot be barred by limitation by analogy. If I am wrong about that, and the matter falls to be decided on the basis of judicial discretion, the merits can be considered in the context of the

_{defendants’ reliance on the equitable defence of laches, to which I turn next.}

⁹ _{Hasham v Zenab [1960] AC 316 (PC).}

¹⁰ _{McLachlan v Meyers (2009) 10 NZCPR 625 (HC).}

¹¹ At [45].

Is the claim barred by laches?

[44] Mr Henry submits that the plaintiff’s claim is barred by laches because of his failure to demonstrate any active interest in completion of the contract over a period of some nine years.

[45] In delivering the advice of the Privy Council in Nwakobi v Nzekwu,¹²

Viscount Radcliffe said that to maintain and obtain relief from the equitable defence of laches, a defendant must have an equity which on balance outweighs the plaintiff’s right. That passage was referred to by the Supreme Court in Eastern Services Ltd v No 68 Ltd,¹³ a case in which the respondent purchaser of a right of way had delayed more than 20 years in seeking a registrable transfer from the vendor. It had been held in the High Court that the respondent’s predecessors in title had accepted that it had never qualified to call for title to the right of way and that was why the matter was left out. The Court of Appeal, however, held that the

respondent had acquired an equitable interest in the land and the appellant was unable to show there were circumstances giving rise to an equity that, on balance, outweighed the appellant’s right. On appeal to the Supreme Court it was argued by the appellant that mere delay without actual prejudice could defeat an equitable claim on the grounds of laches and, in any event, the appellant could demonstrate actual prejudice.

[46] The Supreme Court dismissed the appeal and upheld the Court of Appeal’s decision that specific performance was appropriate, notwithstanding the respondent’s delay of more than 20 years. The Supreme Court examined the leading texts and authorities on the doctrine and concluded¹⁴ that it shared the caution indicated by

Cooke P for the Court of Appeal in Neylon v Dickens¹⁵ about endorsing an

unqualified principle concerning mere delay without prejudice. This is because the doctrine of laches requires a balancing of equities in relation to the broad span of human conduct. In the abstract, facts and the weight to be given to them are

_{infinitely variable, but in a particular case they have to be identified and weighed for}

¹² _{Nwakobi v Nzehwu [1964] 1 WLR 1019 (PC) at 1026.}

¹³ _{Eastern Services Limited v No 68 Limited [2006] NZSC 42, [2006] 3 NZLR 335.}

¹⁴ _{At [37].}

¹⁵ Neylon v Dickens [1987] 1 NZLR 420 (CA).

what they are, as a singular exercise. The Supreme Court went on to note that equity has been most reluctant to accept that an equitable interest in land could be “lost or destroyed by mere inaction”.¹⁶

[47] Applying those principles to this case, the mere fact that it took almost 10 years from the signing of the agreement to the initiating of the demand for settlement is not in itself a reason to preclude specific performance.

[48] The prejudice asserted by Mr Henry is one of financial hardship. He says the accrued interest liability incurred by the defendants is in excess of $280,000; the defendants would lose around $192,000 as that is the amount the value of the property has increased since the time of the agreement; and the defendants will be required to spend an additional sum of approximately $200,000 to obtain a CCC.

[49] Mr St John objected to the nature of the evidence adduced by the defendants as proof of the additional expense to which they will be put in order to remedy the defects identified in the determination by the DBH. The evidence took the form of an estimate received by the defendants from a builder. It was not verified in any way and is admissible evidence only of the fact that the defendants received an estimate. That evidence explains their reluctance to settle, but it is insufficient to establish that the bargain into which they entered is fundamentally different to the exchange of consideration which will be necessary if specific performance is ordered.

[50] Alleged financial hardship in the form of an increase in the value of a property can be of no particular significance in the present context.¹⁷ It is material that in the time since the agreement, the defendants have had the use of the property, including renting it out to others. It is also relevant that the construction defects exist irrespective of the delay and the defendants have been on notice since October

2005 that the remedial steps are necessary. They elected not to undertake the

_{remedial work then and have never done so.}

¹⁶ _{Eastern Services Limited v No 68 Limited, above n 11, at [39].}

¹⁷ Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 (HCA) at 433 which, while a minority view, was a view ultimately preferred by the Supreme Court in Eastern Services Limited v No 68 Limited, above n 11, at [39].

[51] The fact that one party has made a poor bargain or is financially unable to complete it does not constitute sufficient hardship to preclude specific performance. In any event, the hardship must be such that it existed at the time of the contract.¹⁸

[52] In balancing the equities, I have concluded that the doctrine of laches should not assist the defendants in this case. I summarise the reasons for that conclusion as follows:

(a) The length of delay is not itself a sufficient justification; the delay is less than half that in Eastern Services;

(b) The defendants did not at any stage demonstrate any enthusiasm for completing the sale and appear to have adopted the position that their obligations under the agreement would just fade away;

(c) The only alleged prejudice to the defendants is financial, which is generally insufficient to engage the doctrine. The defendants must have been aware that they were liable under the agreement to pay default interest but chose not to take that risk into account in failing to remedy the construction defects and demonstrate willingness to settle. In any event, the defendants have had the use of the land since the agreement was signed, receiving rent in excess of $30,000 a year since they ceased to live in the property in mid-2008;

(d) Equitable title to the property has passed to the plaintiff;

(e) The delay is not attributable to the plaintiff alone. During the period of delay until May 2012, neither party took steps to enforce the agreement; and

(f) The plaintiff demonstrated interest in settling the transaction by lodging two caveats against dealings: first on 18 December 2003 and

_{again on 4 March 2008.}

¹⁸ See the authorities summarised in Verano Properties Ltd v De Luen (2011) 11 NZCPR 859 (HC)

at [10] – [12].

[53] I add here that, in case I should also have considered as a matter of discretion whether to apply s 4 of the Limitation Act by analogy, I would have declined to do so for the same reasons.

Has the defendants’ performance of the agreement been frustrated or become impossible?

[54] A contract may be discharged on the ground of frustration when something occurs following the formation of the contract which renders it physically or commercially impossible to fulfil the contract, or which transforms the obligation to perform into a radically different obligation from that undertaken at the moment of

entry into the contract.¹⁹ In Davis Contractors Ltd v Fareham UDC, Lord Radcliffe

said that it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play.²⁰ There must be, as well, such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that for which the parties contracted.

[55] In The Power Co Ltd v Gore District Council, the Court of Appeal said that the starting point must be the contract.²¹ The Court noted that: “a recurring theme in the various cases is that it is not sufficient that the contract has become more burdensome or performance more expensive”.²²

[56] I refer again to Mr St John’s point that the admissible evidence fell short of establishing that the defendants would be put to that level of cost in remedying the defects identified in the determination issued by the Department of Building and Housing.

[57] Mr St John referred me to Discount Liquor Blenheim Road Ltd v Malstrom

Holdings Ltd²³ in which the plaintiff (as purchaser) sought by way of summary judgment an order requiring the defendant to specifically perform an agreement for

¹⁹ Hugh Beale (ed) Chitty on Contracts (31^st ed, Sweet and Maxwell, London, 2013) at [23-001].

_{See also Planet Kids Ltd v Auckland Council [2013] NZSC 147, [2014] 1 NZLR 149 at [8].}

²⁰ _{Davis Contractors Ltd v Fareham UDC [1956] UKHL 3; [1956] AC 696 (HL) at 729.}

²¹ _{The Power Co Ltd v Gore District Council [1997] 1 NZLR 537 (CA) at 552 – 553.}

²² _{At 553.}

²³ Discount Liquor Blenheim Road Ltd v Malstrom Holdings Ltd HC Christchurch CP66/01,

10 October 2001.

sale and purchase. The defendant argued the contract was frustrated because it was unable to obtain a building warrant of fitness without undertaking alterations to the property. The Court held that the bargain between the plaintiff and the defendant was not impossible to perform and had not become totally different. Master Venning said:²⁴

In the present case the contract requires the Defendant to transfer land owned by it to the Plaintiff. The Defendant owns the land and is able to make the transfer of the land to the Plaintiff. If the Plaintiff insists on other rights under the contract, such as a building warrant of fitness, the Defendant may be required to expend additional monies, including the realignment of internal walls, the installation of a second switchboard, and may also be required to provide compensation to certain of the existing tenants if access to stairs and/or toilets is no longer available. Those are not matters that make the contract between the Plaintiff and the Defendant impossible of performance. At most, they may well mean that the Defendant has made a bad bargain. That is not sufficient ground to find frustration.

[58] Master Venning noted that, to the extent that the defendant relied on the plaintiff’s request for a building warrant of fitness as a ground for frustrating the contract, that was a matter the defendant had expressly assumed responsibility for under the vendor’s warranties in the sale and purchase agreement. In any event, the agreement provided that “Breach of any warranty or undertaking contained in this

clause does not defer the obligation to settle”. Master Venning concluded:²⁵

Thus even if a building warrant of fitness is not available on settlement the parties have contracted and agreed that that fact does not defer the obligation to settle. In those circumstances it cannot be said that the fact it may be difficult for the Defendant to obtain a building warrant of fitness, or that the Defendant may have to expend unexpected sums of money to obtain a building warrant of fitness ... leads to frustration of the contract for sale and purchase of the freehold land.

[59] On those points, this case is on all fours. The agreement here is for the sale and purchase of the property at 23A Margan Avenue. Although the agreement was entered into before construction of the dwelling was complete, the building has been complete since December 2003. Performance of the contract is not impossible. It is not material that the property does not have a CCC. The defendants are not required to transfer the property with a certificate; they merely warrant that the property has

_{one. The plaintiff would be entitled to sue on that warranty if such a course is}

²⁴ _{At [43].}

²⁵ At [46].

appropriate. Most significantly, the identical contractual provision exists in this case (cl 6.5) to the effect that breach of any warranty or undertaking about the CCC does not defer the obligation to settle.

[60] The defendants gave evidence of difficulties which they say they have encountered in getting officers of the Council to engage with them over the determination as to the reasons why a CCC cannot be issued for the property in its present state. For the reasons indicated, the failure of the defendants to obtain a CCC carries little or no weight in the exercise of the discretion over granting specific performance in circumstances where the agreement for sale and purchase does not require the issuing of a CCC as a pre-condition for settlement.

[61] That the defendants may find it difficult to obtain a CCC, or that they might have to expend additional and unexpected sums of money in obtaining one, do not mean that the contract is frustrated. The building of the property has been completed and the parties are aware of what needs to be done for a CCC to be obtained. Performance of the contract is not impossible.

[62] This ground of defence fails.

Other matters raised in the evidence or submissions

[63] I have considered some matters raised in evidence and legal argument which I have concluded do not assist the determination of this case. I mention them to indicate that I have not overlooked them.

[64] There was some debate about the implications of the return to the plaintiff’s solicitors, by a deposit of funds into the solicitors’ bank account in August 2013, of the amount of the deposit which the plaintiff paid, plus interest. Return of the deposit was not sought by the plaintiff and the defendants’ unilateral action in remitting the funds does not assist their cause.

[65] The defendants challenged the plaintiff ’s ability to settle but led no evidence on the matter. Mr Henry said the onus was on the plaintiff. I am more than satisfied

on the evidence of the plaintiff and his witness, Mr Wakamatsu, that the plaintiff has established that he is ready, willing and able to settle the proceeding.

[66] In his closing submissions, Mr Henry placed some emphasis on the judgment of the English Court of Appeal, in Ridout v Fowler.²⁶ He argued that the effect of that decision is that, having had knowledge in August 2004 that title to the property had been issued, the plaintiff nevertheless lost his equitable interest in the property by his failure to complete the transaction in a timely manner.

[67] Ridout v Fowler is not authority for the proposition contended for by Mr Henry. In that case the purchaser paid a deposit and was let into possession but failed to complete the transaction at the appointed time. Subsequent litigation between the purchaser and the vendor was compromised under which a consent order was made for the rescission of the agreement for sale and purchase and the return of the deposit to the purchaser. Earlier, a judgment creditor of the purchaser had obtained a receivership order in respect of the property and sought a lien over the property to secure payment of his judgment debt and costs. The Court of Appeal held, however, that the payment made to the purchaser was not payment for the price of any interest the purchaser had in the land; it was made on the basis he had no interest and was simply a compromise for getting him out of possession. It was held that the judgment creditor had no claim against the vendor.

[68] In any event, I am bound by the view of the Supreme Court in Eastern Services Limited v No 68 Limited that equity has been most reluctant to accept that an equitable interest in land could be lost or destroyed by mere inaction.²⁷

Should the claim for specific performance be granted?

[69] Balancing the equities, I have concluded that there is no good reason why the Court’s discretion as to specific performance should not be exercised in favour of the plaintiff. Although the plaintiff did not press for settlement until May 2012, there is

_{no evidence of his having walked away from the transaction. It is significant that, to}

²⁶ _{Ridout v Fowler [1904] 2 Ch, 94 (CA).}

²⁷ Eastern Services Limited v No 68 Limited, above n 14, at [39].

the contrary, he twice demonstrated his continuing interest in obtaining legal title to the property by lodging caveats. The agreement is capable of performance, and I am satisfied that the plaintiff is ready, willing and able to settle.

Orders

[70] I raised with Mr St John the precise form of the order or orders sought in the event that I should decide for the plaintiff. He indicated that it would be sufficient for the Court to direct the defendants to settle and submitted that it would then be a matter for the parties' solicitors to undertake the necessary conveyancing. That might be the legal position, but there may be an issue about the accrual of default interest and the amount the plaintiff is now required to pay to complete the transaction. I consider it prudent to reserve leave to any party to apply for such further orders as may be necessary or desirable to give effect to this judgment.

[71] Accordingly:

(a) I direct that the defendants shall settle the agreement with the plaintiff for the sale and purchase of the property at 23A Margan Avenue, New Lynn (CT NA854/224) forthwith; and

(b) I reserve leave to any party to apply for such further orders as may be necessary or desirable to give effect to the order in paragraph (a).

[72] The plaintiff is entitled to costs, and disbursements as fixed by the Registrar. If the parties cannot agree on the sums to be paid, the plaintiff shall file and serve a costs memorandum by 6 June 2014. The defendants shall have until 27 June 2014 to file and serve a memorandum in response. Unless the Court directs otherwise, costs shall then be dealt with on the papers.

.........................................

Toogood J