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High Court of New Zealand Decisions |
Last Updated: 19 March 2014
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV 2014-409-000122 [2014] NZHC 471
BETWEEN THE THREE SISTERS VINEYARD LIMITED
Plaintiff
AND CARL DAVID STOREY, JEANETTE HELEN HOY STOREY AND STEPHEN DAVID HOBDAY AS
TRUSTEES OF THE STOREY FAMILY TRUST Defendants
Hearing: 13 March 2014
Counsel: E St John for Plaintiff
MAJ Elliott for Defendants
Judgment: 14 March 2014
JUDGMENT OF WHATA J
[1] The Three Sisters Vineyard Limited (Three Sisters) sold a
commercial vineyard to the Trustees of the Storey Family
Trust (Trustees). A
long period of settlement was agreed to 30 June 2014. In the interim the
Trustees leased and operated
the vineyard. Rental payments were not made and
the Trustees raised various issues. A variation to the sale and purchase
agreement
was reached and a new settlement date agreed of 24 January
2014.
[2] The Trustees did not settle on the 24th or subsequently pursuant to a notice to settle. Three Sisters has now sought an injunction allowing it to re-enter the property for the purposes of harvesting and selling the grapes. Three Sisters also seek, by way of summary judgment, a declaration that the sale and purchase agreement and attached lease agreement is cancelled together with damages equal to the difference
in the value of the property and the price agreed in the sale and
purchase agreement.
THE THREE SISTERS VINEYARD LIMITED v TRUSTEES OF THE STOREY FAMILY TRUST [2014] NZHC 471 [14 March 2014]
[3] The Trustees admit that they breached the sale and purchase agreement in that they did not settle. However they seek relief under s 33 of the Property Law Act
2007 referring to various problems including the initial poor state of the
property, and the works undertaken by them to put the property,
plant and
machinery into operation. They also complain that the property was worth less
than the purchase price.
[4] The relief sought includes reinstatement of the settlement date to
30 June
2014, payment of outstanding rent to date, payment of rent on time and (in
short)
harvesting by the Trustees subject to the oversight of Three
Sisters.
[5] This matter comes to me under urgency given the prospect of an
impending harvest. Abridgment of the time to file papers
was agreed.
Background
[6] The plaintiff, Three Sisters, is the owner of a 17.6 hectare block
of land in Canterbury located at 167 MacKenzies Road,
Waipara Valley. The
defendants are the Trustees of the Storey Family Trust.
[7] By agreement dated 15 January 2013, Three Sisters, agreed
to sell the property to the Trustees on the following
terms:1
(a) That the Trust would pay the total sum of $1.25 million for the
Property.
(b) That the sale would include the vineyard as a going concern (clauses
18 and 21).
(c) That the Trust would pay a deposit of $250,000.
(d) That settlement would take place on 30 June 2014, or earlier by
mutual agreement.
(e) That, pending settlement, the Trust would lease the property from
the plaintiff, including g the vineyard and associated
plant and equipment, at
the rate of $4,000 plus GST per month (clause 20(a)).
(f) That the Trust would pay all the operating costs associated with the
Property and the vineyard (clause 20(b)).
1 As recorded in the statement of claim and admitted by the Trustees.
[8] The Trustees also contend, however, that the agreement included the
cottage on the property and they would receive the rent
from it.
[9] The Trustees paid the plaintiff a deposit of $250,000 and a deed of
lease was concluded between the plaintiff and the Trust
requiring a rent of
$4,000 plus GST per month.
[10] There were problems with the payment of rent and various
discussions between the parties ensued about the cause
and resolution of these
problems. In September 2013 the Trust stopped paying rent altogether and as at
1 November 2013 rent of
approximately $12,000 was overdue.
[11] Matters escalated to the point where proceedings for
possession of the property appeared likely and were threatened.
However, the
parties reached an agreement on how to resolve matters. This involved varying
the sale and purchase agreement so
that:
(a) The settlement date was brought forward from 30 June 2014
to
24 January 2014.
(b) On settlement the Trust would retain a sum equal to the alleged set off for items of concern identified by the Trust, but without prejudice to the plaintiff to claim that sum from the Trust. It was also agreed that the Trust would pay the full amount of outstanding rent in the sum of
$16,118.23.
[12] In early January the plaintiff’s solicitors made contact with the Trust’s solicitors for the purposes of securing settlement on the due date. Then, by letter dated 22 January 2014 the plaintiff wrote to the Trust’s solicitor with a settlement statement showing the sum of $1,000,517.02 as due and subject to a reduction of
$13,415 for alleged set off items.
[13] The Trustees did not settle on 24 January and Three Sisters’ solicitor issued a settlement notice by email requiring settlement on or before 13 February 2014.
There was no response until 11 February 2014 where the Trustees’
solicitor noted that settlement notice was invalid because
it did not contain
sufficient information. This was accepted by the plaintiff and a revised
settlement notice was issued to the Trust’s
solicitor under cover of
letter dated 13 February 2014. This meant that settlement had to occur on 4
March. The Trust did not
settle as required on 4 March and so the agreement was
purportedly cancelled by the plaintiff ’s solicitor.
Disputed matters
[14] Three Sisters alleges, and the Trustees deny, that:
(a) A harvest is expected in the week of 24 March; (b) Steps have been taken to sell the grapes;
(c) The agreement was cancelled on 4 March 2014; (d) Three Sisters has suffered loss.
[15] The Trustees also allege, and Three Sisters denies, that they are
entitled to relief, given the nature of the agreement,
the initial poor state of
the property, the work done by them, and the inflated purchase
price.
The relief sought
[16] The plaintiff seek the following relief by way of summary
judgment:
(a) A declaration that the sale and purchase agreement and lease are
cancelled;
(b) A order that the Trustees vacate and hand possession of the premises to
Three Sisters;
(c) An award of damages by way of summary judgment; or
(d) A mandatory injunction enabling the plaintiff to re-enter the property
and complete the harvest.
[17] The Trustees counterclaim under s 33 for relief from cancellation. They
no longer oppose any interim injunction.
[18] I will deal first with the applications for summary judgment and relief.
If necessary I will turn to the application for mandatory
injunction.
Summary judgment and relief
[19] The jurisdiction to grant summary judgment is well settled. I may grant
summary judgment if there is no arguable defence.
[20] In the present case the failure to settle in breach of the agreement is
admitted and no arguable defence is proffered in response.
[21] The Trustees, however, seek relief under s 33 of the PLA.
[22] Section 33 states:
33 Relief against cancellation of agreement for sale of land
(1) A purchaser may apply to a court for relief against cancellation
of an agreement for the sale and purchase of land only
if-
(a) the purchaser has, under the agreement, entered into
possession of the land; and
(b) the vendor has served on the purchaser a notice that
complies with section 29; and
(c) the vendor has, after serving that notice, applied to a court for
an order for possession of the land, or peaceably re-
entered the land.
(2) The application may be made either in the proceeding on
the vendor's application for an order for possession
(the possession
order proceeding), or in a separate proceeding brought for the purpose by
the purchaser-
(a) before an order for possession has been made in the possession order proceeding; or
(b) if the vendor has peaceably re-entered the land, within 3 months
after the date on which the vendor re-entered the land.
(3) The court may, on the application, grant any relief
against cancellation, on any conditions, it thinks fit.
(4) In particular, the court may grant relief under this section
even though either or both of the following apply:
(a) the cancellation is for breach of an essential term of the
agreement:
(b) the breach is not capable of being remedied. (Emphasis in
original)
[23] The case law on this section is sparse.2 Plainly, the
Court’s discretion to grant relief is wide, but not unfettered. There
must be a clearly unjust factor demanding
relief. Whether such a factor
exists will be informed by a range of matters commonly employed in
forfeiture cases,
including:3
(a) The nature, form and gravity of the breach (though breach of an
essential term is not by itself a disqualifying reason);
(b) The conduct of the purchaser/tenant; (c) The conduct of the vendor/landlord;
(d) The ability of the purchaser/tenant to remedy the breach or
breaches;
(e) Proportionality or fairness as between the parties – the
outcome should not be disproportionate to the breach or
the loss
suffered.
[24] This case gives rise to a related factor, namely whether the
Landlord will benefit unjustly from the cancellation.
2 In Sherman Ltd v Harlow [2009] NZHC 2134; (2009) 11 NZCPR 387 at [62] Rodney Hansen J appeared to suggest that relief under s 33 was only available where there is an issue of “harsh or unconscionable conduct.” Overturned on appeal but on an unrelated point: See Harlow v Sherman Ltd [2010] NZCA 627.
3 Refer by analogy to Studio X v Mobil Oil New Zealand Limited [1996] 2 NZLR 697 (HC) at
701, Pike River Coal Limited (In Receivership) & Ors v O’Malley Farming Limited HC Wellington CIV 2011-418-66 14 October 2011 at [41]-[45].
[25] I commence by observing that Three Sisters has demonstrated ample
good faith in the way that it has approached the difficulties
arising. This is
not a case where Three Sisters has acted pre-emptively. Rather, it appears to
me that Three Sisters has endeavoured
as best it could to make arrangements that
suit the Trustees. Mr Elliot did not seek to suggest otherwise.
[26] Having said that, it is equally plain to me that the Trustees have
expended considerable resource in giving effect to the
agreements and making the
operation of the vineyard viable, and in light of the evidence of Mr Storey, I
am prepared to accept
that the property has been considerably enhanced as a
result of the time and money invested in it by the Trustees.
[27] Mr Storey carefully essays what he says are improvements to the
property undertaken by him including the buildings, plant
and machinery, grounds
and grapes. He says that $180,000 has been spent on the property as a result of
the work and expenses described
above. Attached to his affidavit is an exhibit
which he says is a list of the bills paid by Leopardi Estate Wines Limited
(being
the company operating the lease).
[28] Balanced against this, Mr Leopardi for the plaintiff maintains in his reply affidavit that the enhancements (to the extent there were any) undertaken by Mr Storey were required in any event by a lessee. He also observes that any improvements needed the prior approval of the landlord, so that the Trustees cannot complain if any unapproved improvements are now enjoyed by Three Sisters. Finally he says (as does his counsel) that the exhibit does not reveal expenditure of
$180,000.
[29] At first blush, much of the work undertaken falls with the ordinary requirement to maintain the premises, and I accept that strictly speaking all improvements needed prior approval. But it would be divorced from reality to proceed on the basis that the tenants only did what was necessary to maintain the property - they were also aspirant purchasers of the property seeking to forge a new life as vintners. Furthermore, Three Sisters will, in fact, benefit in a substantial way from the work undertaken by the Trustees. The evidence that the vineyard needed
considerable work to bring it up to standard was not seriously disputed. I
am told from the bar that the next harvest will reap $20,000
in
grapes.
[30] The extent to which the benefit just mentioned is unjust in a legal
sense is not capable of resolution in this context.
But, for the purposes of s
33 I am prepared to proceed on the basis that cancellation might have a
disproportionate adverse effect
on the Trustees corresponding to a
disproportionate benefit to the vendors. This is a factor favouring
relief.
[31] I think, nevertheless, that the conduct of the Trustees in failing
to meet their contractual requirements, combined with
their parlous financial
position,4 means that overall, the greater unfairness lies with the
grant of relief.
[32] As Mr Leopardi attests (and it is not seriously disputed) there must
be some doubt about the capacity of the Trustees to
comply with the terms of the
proffered relief (including full payment of rental and full settlement (at
$1,000,000) in four months),
given a long history of non-compliance. For
example, the Storeys have suggested they might sell their property at
Coromandel.
But as Mr Leopardi notes, the listing price is $370,000 leaving a
substantial shortfall in what is required to settle. Perhaps more
significantly, as Mr St John pointed out, Mr Storey’s second affidavit
reveals that the equity in the property is less than
$80,000. Furthermore, the
income of the Trust is barely covering its expenses and the Trust’s
company running the vineyard
is operating at a loss.
[33] Mr Elliot also mooted the potential for the Trustees to obtain a $800,000 loan which would enable the discharge of the mortgage over the Coromandel property, which then could be offered as part of the package (ie together with the balance of the loan monies) to the plaintiff. This was rejected by the plaintiff as a possible solution. But more significantly it reveals the difficulties confronted by the Trustees
in being able to meet their contractual obligations any time
soon.
[34] In summary, like Mr Leopardi, I have little
confidence that the Trustees will be able to comply with any conditions of
relief,
let alone settle by the due date. The likely effect of any relief
therefore would in my view unfairly impose the burden of subsidising
the
Trustees’ vineyard business for a further four or so months. There is
also the risk that the Trust will be unable to meet
the ultimate debt, including
penalty interest of about $136,000 (to June 2014). I do not think this is what
is contemplated in terms
of the relief afforded by s 33.
[35] As to the prospect of unjust enrichment (or similar claim
in equity or contract), if such a claim is available
to the Trustees, they are
not debarred by cancellation or re-entry from making such a claim.
[36] Accordingly there shall be the following orders in terms of the
first cause of action:
(a) The sale and purchase agreement and lease are cancelled;
(b) The defendants must vacate the property and surrender the property to the
plaintiff; and
(c) An order restraining the defendants from harvesting, selling or in any
way dealing with the grapes on the property.
[37] My expectation is that the parties will be able to agree the period
by which the premises must be vacated, but leave is granted
to seek further
assistance of the Court in this regard. In addition, nothing in this judgment
precludes the parties from reaching
agreement on, for example, the harvesting of
the crops.
[38] It is unnecessary for me to address the application for interim injunction. [39] The parties agreed that costs should be reserved at this stage.
Addendum
[40] Since finalising this judgment but prior to its release,
counsel for the defendants has advised that the ANZ Bank
is not prepared to
advance or lend money to the defendants unless and until the beach house is
sold.
[41] I am grateful for that indication. Given where I have got to
it simply confirms the difficulties faced by the trustees
in achieving
settlement.
Solicitors:
Alan Jones Law, Auckland
Ashley Law Limited, Rangiora
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