Nopera Log House Limited v Godsiff [2014] NZHC 639 (2 April 2014)

Last Updated: 18 April 2014

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

CIV-2014-406-000008 [2014] NZHC 639

BETWEEN	NOPERA LOG HOUSE LIMITED Applicant
AND	MICHELLE ELIZABETH GODSIFF Respondent STUART LEONARD GODSIFF Second Respondent

Hearing:	25 March 2014
Appearances:	N R Campbell QC for Applicant Q A Davies and D P Neild for Respondents
Judgment:	2 April 2014

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

Background

[1] On 29 November 2013 the respondents, Mr and Mrs Godsiff (the Godsiffs) agreed to sell their property in the Marlborough Sounds to Mr K Radzik. The agreement was subject to one condition only, in the following terms:

18.0 Due Diligence

This agreement is entirely conditional on the Purchaser approving (in the Purchaser’s sole and unfettered discretion) all matters that the Purchaser considers may touch, concern or affect the property or the commercial viability of the transaction within twenty (20) complete working days after the date of this agreement being signed by both parties.

_{[2] The agreement was later varied in three material respects:}

NOPERA LOG HOUSE LTD v M E & S L GODSIFF [2014] NZHC 639 [2 April 2014]

(a) On 6 December the parties agreed to the contract being subject to consent being granted under the Overseas Investment Act 2005 (OIA) by 31 March 2014.

(b) On 18 December 2013 the parties agreed to the date for confirmation under the due diligence condition being 31 January 2014.¹

(c) On 20 January 2014 Mr Radzik nominated Nopera Log House Limited

(Nopera), the applicant, as purchaser under the agreement.

[3] Nopera did not confirm the due diligence condition by 5.00 pm on 31 January

2014. At 5.15 pm that day the Godsiffs cancelled the contract, on the ground that the due diligence condition had not been confirmed. By that point, Nopera had not lodged an application for consent under the OIA. Nor had it paid the deposit which was required to be paid on 31 January.

[4] On 12 February 2014 Nopera lodged a caveat against the titles to the property claiming an interest in the land as nominated purchaser pursuant to the agreement for sale and purchase which I have described. On 25 February Land Information New Zealand gave notice to Nopera that the Godsiffs had applied to lapse the caveat. On

10 March Nopera filed this application for an order that the caveat not lapse.

The issues

[5] It is common ground that, depending on the circumstances, a purchaser under a conditional agreement for sale and purchase of land may have an equitable interest in that land capable of sustaining a caveat prior to confirmation.² The test is whether equity can compel a vendor to transfer the estate or interest to the purchaser. If so, this gives that purchaser the equitable estate or interest which will support a caveat.

_{The equitable interest obtained, however, is always conditional upon the purchaser}

1. This was a working day as defined in clause 1.1(29) of the contract. A working day is defined to end at 5pm (1.1(29)(c)).

² Bevin v Smith [1994] 3 NZLR 648 (CA); McDonald v Isaac Construction Co Ltd [1995]

3 NZLR 612 at 619 (HC).

performing the contract, so the interest of a purchaser under a conditional contract ceases if the contract is avoided for failure of the condition.³

[6] In this case Nopera says that it has an equitable interest in the property as the Godsiffs have wrongly cancelled the contract, and that it is therefore entitled to an order that the caveat remain on the title. The Godsiffs say, however:

(a) The contract was subject to a due diligence condition, that condition was not confirmed by the due date for confirmation, and they were entitled to terminate the contract.

(b) A contract conditional on the granting of consent under the Overseas Investment Act 2005 does not pass an equitable interest and therefore signing the contract Nopera did not receive an interest in the land capable of sustaining a caveat.

[7] The issues in this case reflect these two propositions.

Rules governing the lapse of a caveat

[8] The principles to be applied by the Court were recently summarised by the Court of Appeal in Botany Land Development Ltd v Auckland Council.⁴ The Court said:

[23] As this Court has previously held, applications under provisions such as s 145A of the Land Transfer Act are “quite unsuitable to determine the rights of the parties”. This is particularly so where there are disputed questions of fact. That said, there is no dispute between the parties as to the applicable principles.

[24] The onus is on the caveator to demonstrate that it holds an interest in the land which is sufficient to support a caveat. The caveator must put before the Court a reasonably arguable case to support the interest it claims. An order for the removal of a caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively that such ground as then existed has now ceased to exist. There is a residual discretion, once a reasonably arguable case has been established as to whether to make an order removing the caveat. This will be exercised only cautiously, for example, where the Court finds there is no practical advantage to maintaining a caveat and the caveator will not be prejudiced.

³ _{Bevin v Smith above.}

⁴ Botany Land Development Ltd v Auckland Council [2014] NZCA 61.

The facts

[9] It is common ground that Nopera required consent under the Overseas Investment Act 2005 in order to complete its intended purchase.⁵ Nopera’s intended purchase was an overseas investment in sensitive land, within the definition set out in the Act.⁶

[10] Consent must be obtained for such a transaction before an overseas investment is given effect under the transaction in question,⁷ but entering a contract to acquire a property that is conditional on consent being obtained under the Act is exempted from that requirement.⁸

[11] Nopera was required to make the application for consent.⁹ Certain information must be provided in support of an application. In this case, some of that information was held by the Godsiffs, and they accept that it was necessary for them to make this information available to Nopera before it could file its application for consent.

[12] On Thursday, 9 January 2014 the solicitor for Nopera emailed the solicitor for the Godsiffs asking for certain information to be provided. At that date there were 56¹⁰ working days before the agreed deadline for consent to be obtained, 31

March. I will explain the relevance of this figure shortly. The solicitor for Nopera said:

Timewise, we are working towards making the application towards the end of next week, so something by then would be great.

[13] The following week ended on 17 January. The information was not to hand, nor had the application been filed. On Monday, 20 January the solicitor for Nopera wrote to the Godsiffs’ solicitor again advising that the application was drafted but he still required information from the Godsiffs, as well as information which had been

_{sought from the real estate agent and some information from a third party. He asked}

⁵ _{Overseas Investment Act 2005, section 10.}

⁶ _{Section 12 and Part 1 of Schedule 1.}

⁷ _{Section 11.}

⁸ _{See definition of “give effect to an overseas investment” in s 6.}

⁹ _{Section 22.}

¹⁰ This figure is my calculation and differs from that contained in the respondents’ chronology.

when the Godsiffs’ information would be available. The same day the Godsiffs’ solicitor advised Nopera’s solicitor that the information had been prepared, and he expected to receive it by post the following day, or the day after. The next day (21

January) he advised that the information would be sent to him by post the following day and he would be in touch once he had received it and reviewed it. There were

48 working days to the consent confirmation deadline.

[14] On Thursday, 23 January Nopera’s solicitor emailed the Godsiffs’ solicitor again noting that he was nearly ready to submit the application but one of the missing components was the vendor information. He asked that it be provided once the Godsiffs’ solicitors received it. That solicitor responded the same day advising that the Godsiffs had advised that it would be “at least tomorrow” before the information was in his hands. Nopera’s solicitor responded:

Ok thanks Rob – no worries – we’ll plan to get Appn completed & filed next week.

At that point there were 46 working days until the deadline for consent to be granted.

[15] The next week started on Monday, 27 January. That morning the solicitor for the Godsiffs wrote to Nopera’s solicitors advising that his instructions were to forward the information required for the consent application to him after Nopera had confirmed the due diligence condition. Nopera’s solicitor advised in response that:

The ongoing delay in providing the relatively simple Vendor information will delay OIO consent. 90% of category 2 OIO applications are assessed within 50 [working days]. We are assuming 60 [working days] as a worst case. 60 [working days] from 1 February takes us to 4^th May 2014.

Before our client pays the $19,544 OIO application fee, please confirm your client will agree to this revised OIO consent date. This is a [due diligence] matter.

At that point there were 44 working days to the agreed consent deadline.

[16] On 29 January an extension of that deadline was declined. On the same day the solicitor for the Godsiffs emailed to Nopera’s solicitor a letter to the Overseas Investment Office and advised the original would be posted for inclusion with the application. He asked whether any further information was required, and in relation

to due diligence noted that he had responded to Nopera’s most recent inquiries and asked if there were any other issues which still required an answer.

[17] At 5.15 pm on 31 January, 15 minutes after the deadline for confirmation of the due diligence condition by Nopera, the solicitor for the Godsiffs advised in a letter sent by facsimile that as the due diligence term had not been confirmed he was instructed to cancel the agreement, which was then at an end. At that time 40 working days remained until the agreed deadline for consent.

[18] The undisputed evidence before the Court is that the Overseas Investment Office website records that the office has a target of assessing 90% of consent applications, within the category which would apply in this case, within 50 working days of active consideration by the office. Further, in the second half of 2013 the office met that target in 98% of cases. There is no evidence of how many days an application for consent in this case, or in any given case, would in fact take. Nonetheless, in an affidavit sworn in support of this application, Mrs A G Takacs, a director of Nopera, gives the following explanation for Nopera not having confirmed the due diligence condition on 31 January:

18. On 31 January 2014, Nopera and Radzik were unwilling to risk OIO

non-refundable application fee of $19,544 because the remaining

40 working days before the OIO condition date provided (in both Nopera and its solicitor’s judgment) a significant risk that there would be insufficient time available to obtain OIO consent before 31 March

2014. Had the vendors supplied the requested information by

23 January 2014, Nopera and Radzik would have been comfortable to proceed with the OIO Application.

19. As at 31 January 2014 the only matter preventing Nopera from confirming the DD condition was that there was not enough time to obtain OIO consent by the OIO consent date, because of delay by the vendor in providing information.

[19] Apart from reference to the information on the OIO website which I have referred to, there is no other evidence before the Court on why there was assessed to be a significant risk that the application would not be determined within 40 working days. There is no evidence of the percentage of consents decided within 40 days, which was the time remaining on 31 January, or 46 days, the time remaining on

23 January, the date which would have left Nopera “comfortable to proceed”.

[20] No other reason is given for Nopera not confirming the due diligence condition.

[21] Clause 9.8 of the contract provides, to the extent relevant:

9.8 If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:

(1) The condition shall be a condition subsequent.

(2) The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.

(3) Time for fulfilment of any condition and any extended time for fulfilment to a fixed date shall be of the essence.

(4) The condition shall be deemed to be not fulfilled until notice of fulfilment has been served by one party on the other party.

(5) If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other. ...

(6) ... ¹¹

First issue – were the Godsiffs entitled to cancel the contract when Nopera failed to confirm it by 5.00 pm on 31 January?

[22] Mr Campbell accepts that the due diligence condition was not fulfilled by the required time, but says that the Godsiffs cannot rely on non-fulfilment of a condition, and then cancel the contract on that ground, where non-fulfilment was caused by its own default. He says that due diligence conditions cannot be satisfied where information is required from the other party to the contract, and that information is not provided. He says that the Godsiffs failed to respond in a timely way to Nopera’s request for relevant information to support its application for consent under the OIA, information first requested on 9 January 2014. He relies on the events which I have summarised above in relation to requests for information and responses

_{to them. He notes that while these exchanges were taking place the Godsiffs had}

¹¹ The contracts between Nopera and the Godsiffs is on the 9^th edition of the standard agreement for sale and purchase of real estate approved by the Real Estate Institute of New Zealand and the Auckland District Law Society. Page 1 of the general terms of sale, which contains clause 1 from clause 1.0 to 1.3(4)(e), was omitted from the copy of the agreement which was produced in evidence. Nonetheless counsel agreed that the page is included in the contract, and a copy of the page was available for my consideration as it was contained within the contract by which the Godsiffs sold the property to another party, which was exhibited to the first affidavit of Mr S L Godsiff.

entered a backup agreement for sale of the property to an unrelated third party which was subject to the cancellation or termination of the contract of sale to Nopera immediately the Godsiffs became lawfully entitled to do so.

[23] Mr Campbell then says that by the time the information was provided on

30 January, there was a significant risk that an OIA application would not be processed in time to meet the OIA condition date of 31 March, that Nopera was unwilling to risk the non-refundable OIA application fee, and these were both matters that Nopera considered affected the commercial viability of the transaction, in terms of the due diligence clause. Thus, he says, there is an arguable case that the Godsiffs’ delay in providing the required OIA information prevented Nopera from fulfilling the due diligence condition by 31 January.

Discussion

[24] Whilst the principle relied upon by Mr Campbell is not challenged, there are a number of difficulties with its application in this case.

[25] First, Nopera wishes to proceed with its contract of purchase, but it did not confirm the due diligence condition, nor did it waive the condition. It did not seek an extension of time for confirmation of the due diligence clause beyond 5.00 pm on

31 January. Apart from noting in an email to the Godsiffs’ solicitors that it regarded the failure to provide the information required for the OIA consent in a timely way as a due diligence issue, it did nothing further.

[26] The wording of the due diligence clause which is relevant to Nopera’s argument is this:

This agreement is entirely conditional on [Nopera] approving (in [Nopera’s] sole and unfettered discretion) all matters that [Nopera] considers may touch, concern or affect ... the commercial viability of the transaction ...

[27] Nopera argues that the possible wastage of the OIA consent fee due to the lateness of the application for consent is an issue relevant to the commercial viability of the transaction, within this condition.

[28] In my view, however, that is not the case. On its ordinary meaning, the commercial viability of a transaction involving the sale and purchase of a property will not usually involve the risk of losing a consent application fee, where it is inherent in entering the agreement in the first place that a consent application fee will be incurred. There is no suggestion that Nopera finds that the transaction is not commercially viable because of the extent of fees which must be incurred; its position is based on the proposition that a risk of losing a fee affects the viability of the transaction.

[29] Even if I am wrong in that conclusion, the evidence on the element of risk relied on by Nopera is, in my view, insufficient to show an arguable case that any responsibility for Nopera’s decision not to confirm the due diligence clause lies at the feet of the Godsiffs.

[30] I have summarised the information which led Nopera to the contrary view earlier in this judgment. It is a statement by the OIO of its intentions in relation to deciding applications which are made under the OIA. It does not follow from that statement of intention that any given application is at risk of not being decided until some point late in the 50 working day period. Some might be; equally some might be decided in a much briefer period. At 31 January when there were 40 working days available prior to 31 March, there may have been a level of risk that the application would not be processed by the latter date, as the office does not aspire to deciding all applications within a 40 day period. It is not possible, however, on the evidence produced to the Court on this application to assess whether there was any significant element of risk in relation to this application. There is no evidence about the turnaround in the OIO at the time, or the time then being taken to process applications of this kind.

[31] Further, even if there is sufficient evidence for the Court to find that there was a real risk of the consent fee being wasted if the application was not made by a date 50 working days prior to 31 March, Nopera has not established an arguable case that responsibility for the loss of time between 50 working days in advance of that date, and 40 working days in advance of that date, is the responsibility of the Godsiffs.

[32] On 9 January, which was 56 working days before the deadline relied on by Nopera, its solicitor first emailed the solicitor for the Godsiffs in relation to the OIA application. After setting out certain required information, he said:

If we could have something from you or your clients covering off these areas that would be appreciated.

Timewise, we are working towards making the application towards the end of next week, so something by then would be great.

[33] This email was written on Thursday, 9 January; if one assumes that the vague phrase “towards the end of next week” referred to perhaps Thursday, 16 January, by that point there would have been just 51 working days available before the consent deadline. No element of urgency was expressed which reflects the degree of reliance now placed on the 50 working day reference on the OIO website.

[34] On 23 January, 46 working days out, the same solicitor advised the Godsiffs’ solicitor that he was nearly ready to submit the application but “one of the missing components” was the information sought from the Godsiffs. Later the same day, in response to a reply to this email, indicating that it would not be available until the following day at the earliest, Nopera’s solicitor commented “No worries” and indicated that he would “plan to get the application completed and filed next week” which, at the earliest, could only have been a reference to Monday, 27 January,

44 days out from the deadline.

[35] On 27 January Nopera’s solicitor sought an extension of time for the OIO consent date, this being the first indication that Nopera’s solicitor recognised any adverse significance in the diminishing time period before the consent confirmation date.

[36] Nopera places responsibility for its decision not to confirm the due diligence condition, for the reasons I have outlined, squarely on the delay between 27 January and 31 January, but at no point prior to 27 January did Nopera’s solicitor indicate any element of urgency for a response to his requests for information – in fact on

23 January, just two working days earlier, his indication was quite the reverse.

[37] The period of four days between 27 January and 31 January, which Nopera now says is the responsibility of the Godsiffs, requires further consideration too. First, as Monday, 27 January was the first day on which Nopera’s solicitor considered there was now a real element of haste required, it is relevant that the respective solicitors were in different cities (Blenheim and Nelson). An original document containing the vendor’s information had to be filed by the purchaser’s solicitors. Even if despatched to them on Monday, 27 January by post, it would not be received until Tuesday, 28 January. On the day a level of urgency was expressed, there was inevitably a further day to be lost in the provision of the information, unless an immediate form of delivery was arranged, such as delivery by courier or in person, but Nopera’s solicitor did not suggest, let alone arrange, this. That leaves just three days during which, viewing the matter as favourably as possible from Nopera’s perspective, there might have been an element of delay on the part of the Godsiffs. That does not, however, materially assist Nopera’s position – there is no evidence of how much difference this three day period might have made to the likelihood of consent being granted by 31 March. Put another way, the evidence does not establish an arguable case that this period of time materially affected the prospect of consent being granted in time or therefore, as Nopera would have it, the commercial viability of the transaction.

[38] For these reasons I find that Nopera has not established an arguable case that the Godsiffs caused it to be unable to confirm the due diligence clause on 31 January

2014. Rather, it elected not to confirm the due diligence condition by the required deadline, and the Godsiffs were entitled to cancel the contract.

Second issue – does a contract subject to consent under the Overseas

Investment Act 2005 pass an equitable interest to the purchaser?

[39] Given the decision I have reached on the first issue it is not necessary to discuss the second issue at length. However, because counsel presented detailed arguments in relation to this issue, and because it does not appear to have been decided previously. I will briefly express my view.

[40] Section 10 of the OIA provides that a transaction requires consent if it will result in an overseas investment in sensitive land. A transaction is defined in s 6 as

the entering into or the giving of effect to a provision in a contract or arrangement. Section 12 provides that an overseas investment in sensitive land is the acquisition of an interest in land, and s 6 defines interest to include a legal or equitable interest.

[41] It follows from these definitions that the acquiring of an equitable interest in sensitive land, which amounts to an overseas investment, requires consent. Consent need not, however, be obtained before a contract is entered which is conditional on such consent being granted. This is because although s 11 provides that consent must be obtained before the overseas investment is given effect to under the transaction, the definition of giving effect to an overseas investment, in s 6, excludes an acquisition which is conditional on consent being obtained under this Act.

[42] Therefore in this case consent was not required before the contract between

Nopera and the Godsiffs was entered.

[43] Apart from this being, in my view, the correct interpretation of the sections to which I have referred, it is also consistent with s 29, which provides that a transaction entered into without consent is neither illegal nor void but may be cancelled in certain circumstances, and s 25(1) which provides that consent may be granted retrospectively. Further, s 42 sets out certain offences in relation to transactions without consent, but relates only to giving effect to an overseas investment, which as I have said excludes the entering of a contract which is conditional on the granting of consent.

[44] In Bevin v Smith,¹² the Court said:

There will be some conditional contracts, particularly those subject to true conditions precedent, where the parties cannot be regarded as intending that equitable title will pass to the purchaser until the condition is waived or fulfilled.

[45] As noted above,¹³ the condition in this contract was expressed to be a condition subsequent.

¹² _{Bevin v Smith, [5] above.}

¹³ At [21].

[46] In McDonald v Isaac Construction Co Ltd,¹⁴ Tipping J said:

In the usual case where the parties intend to be bound and to remain bound subject to the fulfilment of the condition, equitable interests in land can arise by means of such a conditional contract.

[47] Based on this, the learned authors of Principles of Real Property Law¹⁵

express the view that:

Applying this test it will no doubt be found that most conditional contracts are intended to pass the equitable title to the purchaser and hence give the purchaser a caveatable interest.

[48] Applying this principle, and having regard to the structure of the OIA which I have outlined, and the express contractual provision that conditions in this contract were conditions subsequent, it is my view that Nopera as purchaser obtained an equitable interest in the land on entering the contract, and that equitable interest was held subject to consent being granted. It was capable of supporting a caveat, accordingly.

[49] Had this case fallen to be decided on this issue alone, I would have made an order sustaining the caveat.

[50] Counsel for the Godsiffs referred me to a passage in McMorland Sale of Land.¹⁶ At paragraph 6.09 the learned author stated that although a conditional contract normally passes an equitable, and therefore a caveatable, interest a contract conditional on the grant of consent under the OIA does not pass an equitable interest and therefore is not caveatable. Unfortunately, the learned author does not give a reason for this conclusion. With respect, I differ from this view for the reasons

given.

Outcome

_{[51] The application to sustain the caveat is dismissed.}

¹⁴ _{McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 at 619.}

15. G W Hinde, D W McMorland and N R Campbell QC Principles of Real Property Law (2^nd ed, LexisNexis, Wellington, 2014).

¹⁶ D W McMorland Sale of Land (3^rd ed, Cathcart Trust, Auckland 2011).

[52] The respondent is entitled to costs which I award on a 2B basis plus

_{disbursements to be fixed, if necessary, by the Registrar.}

J G Matthews

Associate Judge

Solicitors:

Radich Law, Blenheim. Gascoigne Wicks, Blenheim.