De Carolis v J & J Clark Limited [2018] NZHC 1614 (3 July 2018)

Last Updated: 25 July 2018

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2018-419-139 [2018] NZHC 1614

BETWEEN	MATTHEW JAMES DE CAROLIS First Applicant BAIA INVESTMENTS LIMITED Second Applicant
AND	J & J CLARK LIMITED Respondent

Hearing:	6 June 2018
Appearances:	J McDougall for the Applicants D M O’Neill for the Respondents
Judgment:	3 July 2018

JUDGMENT OF POWELL J

This judgment was delivered by me on 3 July 2018 at 4.30 pm pursuant to R 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:

Holland Beckett Law, Tauranga Fry Wilson Todd, Huntly Counsel:

D M O’Neill, Hamilton

DE CAROLIS & Anor v J & J CLARK LIMITED [2018] NZHC 1614 [3 July 2018]

[1] The applicant, Matthew De Carolis, seeks an order sustaining a caveat filed in respect of the Kawhia General Store in Kawhia, owned by the respondent, J & J Clark Ltd (“J & J Clark”). Mr De Carolis claims a caveatable interest in the Kawhia General Store as a result of an agreement for sale and purchase. The second applicant, Baia Investments Ltd, participates in the proceedings on the basis that it would have been the nominee of Mr De Carolis under the agreement for sale and purchase had the transaction gone ahead.

[2] The principles for sustaining caveats are not in dispute and were summarised by the Court of Appeal in Philpott v Noble Investments Ltd in the following terms:¹

(a) The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;

(b) It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;

(c) The summary procedures involved with applications of this nature are not suited to the determination of disputed questions of fact. An order for removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained – either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and

(d) When an applicant has discharged the burden upon it, the Court retains a discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator’s legitimate interest would not be prejudiced by removal.

[3] No formal agreement for sale and purchase has been signed. Nonetheless Mr McDougall argues that following negotiations by telephone and email between Mr De Carolis and Janet Clark (one of the directors of J & J Clark), an immediately enforceable agreement was concluded, either following the agreement on essential terms on 16 March 2018, or at least by the stage J & J Clark’s solicitor forwarded an

1. Philpott v Noble Investments Ltd [2015] NZCA 342 at [26] (footnotes omitted). See also Sims v Lowe [1988] NZCA 253; [1988] 1 NZLR 656 (CA); Orams Marine (Auckland) Ltd v Ports of Auckland Ltd (1994) 6 TCLR 88 (CA) at 92; Geneva Healthcare Ltd v Essential Assets Ltd [2014] NZHC 3236, (2014) 15 NZCPR 826 at [27]- [28].

agreement for sale and purchase to Mr De Carolis’ solicitors on 29 March 2018, which was signed by Mr De Carolis and returned to J & J Clark’s solicitor. As a result while accepting that a formal agreement for sale and purchase was intended to be executed by the parties; Mr McDougall submits it was simply to record the terms already agreed by the parties, and their agreement was not subject to the formal execution of an agreement for sale and purchase.

[4] In contrast the case for J & J Clark is that there is no arguable contract. Relying upon Carruthers v Whittaker Ltd² and Smada Group Ltd v Miro Farms Ltd³ Mr O’Neill submitted an inference can be drawn that parties to a contract for the sale of land do not intend to be contractually bound unless and until both have signed a formal agreement for sale and purchase. In Mr O’Neill’s submission the present fact situation was to all relevant purposes identical to that in Smada and therefore in the absence of a signed contract Mr De Carolis could not have obtained any rights in respect of the Kawhia General Store. In the alternative Mr O’Neill submits that even if an arguable interest is established the Court should exercise its discretion and decline to sustain the caveat. In Mr O’Neill’s submission this would be appropriate given that J & J Clark has entered into an agreement for sale and purchase of the Kawhia General Store to a third party. That transaction was intended to settle on 9 May 2018 and the presence of Mr De Carolis’ caveat is therefore preventing settlement of this other transaction.

Relevant Background

[5] There is little dispute between the parties as to the sequence of events.

[6] In February 2018 Mr De Carolis inspected the Kawhia General Store and commenced discussions with Mrs Clark over a possible purchase.

[7] Mrs Clark initially advised Mr De Carolis that “the shop ... is definitely for sale at $500K”. Following the provision of further information by Mrs Clark

² Carruthers v Whittaker Ltd [1975] 2 NZLR 667 (CA).

³ Smada Group Ltd v Miro Farms Ltd [2007] NZCA 568, [2009] NZCCLR 4.

Mr De Carolis made an initial offer. The following day, on 13 March 2018 Mrs Clark responded and advised:

We would like a higher offer as you are not buying the business and only the land and the buildings, due to not selling the land, buildings and shop (including stock) we will be out of pocket.

The offer John and I would like you to negotiate on would be $440K.

[8] Following further telephone discussions between Mr De Carolis and Mrs Clark, Mr De Carolis emailed Mrs Clark on 15 March 2018 and advised:

As discussed our modified in addison [sic] to the below is as follows.

1. Purchase cost $425,000.00

2. Date for settlement is flexible, 90, 120, 30. Lets set a date that enables you to run down stock levels and enable a smooth transaction out of the business with some level of comfort for you and John.

Look forward to hearing from you and John.

[9] Mrs Clark responded the next day in the following terms:

John and I had a good think and seeing as you are keeping the Post shop we would like 60 days for takeover, with the other conditions as forwarded earlier.

When you are satisfied with the conditions we can then help you with the liquor licence and anything else you need assistance with. As soon as there is a contract in place I will forward your details to the postmaster so he can forward you the contract for NZ Post.

[10] In response Mr De Carolis emailed Mrs Clark on 16 March 2018:

Great.

Look forward to finalising this deal. My lawyers are Lance Lawson Rotorua. Well get the ball rolling Monday.

[11] As a result Mr De Carolis emailed his solicitor, Greg Burt of Lane Lawson and advised:

I have purchased a property at Kawhia.

Can you please assist in the settlement of this property.

[12] Two days later Mr Burt emailed J & J Clark’s solicitor, Alan Wilson of Fry Wilson Todd & Co in the following terms:

We act for Matthew De Carolis and understand that you act for John and Janet Clark. We have been instructed that our respective clients have agreed in principle to the sale and purchase of the property which contains the Kawhia General Store.

My understanding is that the purchase is for the land and buildings only and not the business. We have been copied into a series of emails which suggest that the parties have agreed on:

1. Purchase price of $425,000.00 – there is no mention of gst;

2. Settlement date 60 days from unconditional;

3. All chattels, fridges, counters, shelves, freezers, cash and sale systems etc will remain the property of the vendor and can be sold independently of this transaction;

4. Vendor is to provide sales figures for verification;

5. Our client reviewing and approving the title.

My client has suggested that you are preparing the Sale and Purchase Agreement?? He is not seeking any conditions other than confirmation of the following.

1. Approval of title.

2. Approval of business turnover – namely that it is consistent with the financial information provided in an email from the vendor.

Please confirm the above is consistent with your instructions and / or understanding. If you would like to discuss matters further please do not hesitate to contact me.

[13] Mr Wilson in turn responded:

Mr and Mrs Clark have instructed us to forward you a GST spreadsheet relating to the business notwithstanding that the purchase is of the freehold and does not include the business. Is there any further information your client requires before we can complete an unconditional agreement?

[14] Mr Wilson subsequently answered his own question with reference to Mrs Clark that no further information was required. On 27 March Mr De Carolis contacted Mr Burt to ask how the settlement was going and advised that he was in Australia for a week, but would be leaving his PA with a signed cheque for deposit purposes.
Shortly afterwards Mr Wilson forwarded an agreement for sale and purchase that he had prepared for signature by Mr De Carolis.

[15] Upon his return to New Zealand, on 5 April Mr De Carolis sought an update from Mr Burt and also advised that “there has been a death in the family and we have to leave immediately for Palmerston North”. He advised Mr Burt that he would “be back in a few days and will be able to sign contracts and provide a deposit say Monday”.

[16] On 12 April 2018 Mr De Carolis signed the agreement for sale and purchase, which was forwarded to Mr Wilson by email along with a cover letter from Mr Burt on 12 April 2018. For reasons that are not at this point clear it appears that Mrs Clark did not receive a copy the agreement for sale and purchase signed by Mr De Carolis. Instead after Mr Burt’s firm followed up their letter on 17 April 2018. Mr Wilson advised by email on 18 April 2018:

Our clients have instructed us that they are not now proceeding with the sale to your clients.

[17] At that point Mr Burt wrote to Mr Wilson arguing that J & J Clark had entered into an unconditional contract. Mr Wilson responded denying the existence of any such contract.

[18] As a result the caveat, which is the subject of the present proceedings was filed on 7 May 2018.

Discussion and Analysis

[19] It is immediately apparent that there are clear factual issues that affect whether the type of inference noted in the Carruthers and Smada cases and relied upon by Mr O’Neill is engaged or displaced in the present case.

[20] On the one hand Mr De Carolis states he believes there had been an acceptance of his offer following the telephone conversation and emails of 15 and 16 March 2018. In support of his position Mr De Carolis noted his advice to his solicitor on 19 March 2018 that “I have purchased a property” and asked his solicitor to “please assist in the
settlement of the property”. He likewise relies upon Mrs Clark’s email of 16 March 2018 where she had concluded by stating:

As soon as there is a contract in place I will forward your details to the postmaster so he can forward you the contract for NZ Post.

[21] In relation to this latter point Mr De Carolis’ evidence is that:

On 27 March 2018, shortly after arriving in Australia, I received a phone call from the postmaster about transfer of the post box into my name. I was advised Mrs Clark had forwarded my details to the Postmaster in order for New Zealand Post to contact me to arrange transfer of the post office contract into my name. I explained that I was in Australia and would progress this on my return to New Zealand.

[22] Finally, rather than saying that there was no contract between Mr De Carolis and the respondent it is noted the respondent’s solicitors advised:

Our clients have instructed us to advise that they are not now proceeding with the sale to your clients.

[23] On the other hand Mrs Clark in her evidence says that the reference to a contract in place is a reference to a written agreement for sale and purchase, which was never signed, and notes that after the telephone conversations and email between her and Mr De Carolis between 15 and 16 March 2018 Mr De Carolis’ subsequent email to her was not to the effect that they had a deal but rather that he was looking forward “to finalising this deal” and would “get the ball rolling Monday” by contacting his solicitors. The subsequent involvement of the solicitors and their respective correspondence confirmed to Mrs Clark that the parties were in fact working towards an agreement for sale and purchase, noting also that there were various terms not previously agreed, including the provision of a deposit.

[24] As a result there are not only clear differences in the evidence provided to date between Mr De Carolis and Mrs Clark, but also, potentially, as between Mr De Carolis and Mrs Clark and their respective lawyers as to what may or may not have been agreed at different times.

[25] Before drawing a Carruthers/Smada type inference a Court must consider the particular circumstances in order to determine whether, and if so when, the parties
intended to be bound. It is well established it is not appropriate to determine matters of credibility on affidavit evidence.⁴ Given that, there is clearly insufficient information before me to conclude that a Carruthers/Smada type inference has been activated, or whether there is sufficient evidence to conclude there in fact is a binding contract between the parties despite a formal agreement for sale and purchase not having been executed.

[26] I therefore conclude that it is at least arguable in terms of the Philpott standard that Mr De Carolis has a caveatable interest.

[27] Having reached this conclusion I am satisfied it would be inappropriate to exercise my discretion to nonetheless remove the caveat. To do so would deny Mr De Carolis, and ultimately Baia Investments Ltd, the opportunity to prove the existence of the contract to purchase the Kawhia General Store. Although J & J Clark is facing significant difficulties as a result of having entered into an agreement for sale and purchase with a third party, it is simply not just that the applicants should bear the consequences of that state of affairs without having had the opportunity to prove their claim.

Decision

[28] There is an order that caveat 11098624.1 in respect of the Kawhia General Store, 29 Jervois Street, Kawhia (Lot 1, DP33914, Certificate of Title SA30B/746) not lapse.

[29] The applicants will have three weeks from the date of this judgment to file substantive proceedings in relation to the interest claimed by Mr De Carolis.

[30] Costs on the present application are to be fixed on a 2B basis and are to be paid to the successful party at the conclusion of the substantive proceedings.


Powell J

4. Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14 and Inner City Properties Ltd v Mercury Energy Ltd (1998) 12 PRNZ 490 (HC) at 492.