Greymouth Holdings Ltd v Lundon
| Jurisdiction | New Zealand |
| Judge | Associate Judge Gardiner |
| Judgment Date | 01 April 2022 |
| Neutral Citation | [2022] NZHC 641 |
| Docket Number | CIV-2021-404-001844 |
| Court | High Court |
[2022] NZHC 641
Gardiner
CIV-2021-404-001844
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Contract, Property — application for a caveat not to lapse — unconditional sale and purchase agreement — contractual mistake — principles to sustain a caveat — specific performance — reasonable person test — Contract and Commercial Law Act 2017
M D O'Brien QC and A J Peat for the Applicant
D Bigio QC and P Murray for the Respondents
This judgment was delivered by me on 1 April 2022 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date
Greymouth Holdings Limited ( GHL) has a written agreement to buy a residential property at 39 Argyle Street, Herne Bay, Auckland. The vendors are Mr Dominic Lundon and Mr John Glengarry as trustees of the Ariki Trust (the Trust). The property is comprised of freehold and leasehold interests. There is a family residence on the property. The right to occupy that residence falls under the leasehold interest.
The agreement for sale and purchase states that the Trust agrees to sell the freehold interest, with vacant possession, for $5.9 million. The Trust claims that it made a mistake. It says that it meant to agree to sell the leasehold interest, not the freehold interest, which it does not own. It had taken steps to acquire the freehold interest for sale, but ultimately had not done so. The Trust refuses to settle the transaction and wants to put the property back on the market.
GHL has commenced proceedings seeking specific performance of the written contract. It maintains that the Trust has options to acquire the freehold interest. If it cannot, the Trust should perform the agreement to the extent it is able, by transferring the leasehold interest at a reduced purchase price. GHL's specific performance proceedings will be heard over five days beginning on 19 June 2023.
GHL lodged a caveat against dealings on the title of the property. It claims to have an equitable interest in the property capable of supporting the caveat based on the unconditional agreement for sale and purchase. The Trust applied to the Registrar — General of Land to lapse the caveat, following which GHL filed an originating application for orders that the caveat not lapse.
Determining this application requires me to consider these issues:
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(a) Is there a binding unconditional contract between the Trust and GHL?
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(b) Is GHL potentially entitled to the equitable remedy of specific performance?
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(c) Does the caveat purport to protect the equitable interest claimed by GHL?
In or about May/June 2021, the Trust decided to sell the property as a freehold with vacant possession, rather than a leasehold, and to do so by merging the freehold and leasehold estates for the property. The Trust considered that such a merger would increase the pool of potential buyers and maximise the potential sale return. This required them to acquire the freehold interest, as they only owned the leasehold interest.
In early June 2021, the Trust appointed Edward Pack of Bayleys Real Estate Limited as their sales agent. On or about 23 June 2021, Mr Lundon, a senior property lawyer, prepared a sale and purchase agreement for the sale of the property as a freehold with vacant possession. In doing so, he recorded the certificate of title reference for the freehold interest: NA578/33, and drafted specific terms by way of addition to the standard ADLS/REINZ form:
22.0 Freehold interest
22.1 This agreement is conditional upon the vendor exercising its option to purchase the freehold interest in certificate of title NA578/33 from Swanson Land Limited (Freehold Interest) and entering into an unconditional agreement for the sale and purchase of the Freehold Interest by the date that is 15 Working Days after the date of this agreement.
22.2 The condition in the above clause is inserted for the benefit of the Vendor and may only be satisfied or waived by the Vendor.
23.0 Freehold transfer
Prior to or contemporaneously with settlement under this agreement the Vendor warrants that it will complete the transfer of the Freehold Interest from Swanson Land Limited and merge the Vendor's leasehold interest in certificate of title NA 1020/33 (Leasehold Interest) with the Freehold Interest and procure the surrender of all leases giving rise to the Leasehold Interest.
The agreement also provided a further term at 25 that if a Code Compliance Certificate was not issued by settlement date, the purchaser would retain $ 10,000 until the Certificate was issued.
On 23 June 2021, the Trust, through Mr Pack, presented to Mr Robert Dunphy (director of GHL) this form of agreement for sale and purchase for the freehold with vacant possession. The agreement was preceded by advice from Mr Pack to Mr Dunphy that the vendors intended to sell the freehold and the leasehold interests (i.e. all the interests).
On 25 June 2021, Mr Dunphy's son Fred Dunphy, a lawyer, presented a written offer to the Trust, through Mr Pack, to purchase the leasehold interest in the property for $3.9 million. The offer was made on the ADLS/REINZ form of agreement prepared by Mr Lundon, with the estate changed from freehold to leasehold. The certificate of title reference was accordingly changed to that for the leasehold interest: NA1020/33. Further terms 22 and 23 were struck out. The retention for the Code Compliance Certificate was increased to $50,000.
On 29 June 2021, the Trust rejected GHL's offer.
Later on 29 June 2021, GHL contracted to acquire the freehold reversion (that is, the freehold subject to the leasehold) from Swanson Land Limited, the holder of that interest. The agreed price was $1.8 million and settlement was to take place on 17 December 2021.
A few days later, on 1 July 2021, Mr Dunphy called Mr Glengarry, also an experienced property solicitor, to discuss the property. Mr Dunphy advised Mr Glengarry that GITL had contracted to acquire the freehold reversionary interest for the property. He informed Mr Glengarry that GITL still wanted to acquire the leasehold interest. He sent through a copy of the offer GHL had previously made for the leasehold, which the Trust had rejected. Mr Glengarry said that the Trust would “collect its thoughts” and revert.
On 9 July 2021, at 10:10 am, Mr Glengarry presented a written contract offer to Mr Dunphy. The contract offer was on a fresh version of the ADLS/REINZ standard form agreement for sale and purchase of real estate, signed and with each page initialled by Mr Lundon and Mr Glengarry. In it, the Trust offered unconditionally to sell the property as a freehold with vacant possession for $5.9 million. The certificate of title reference was for the freehold interest: NA587/33. The contract provided for settlement on 30 September 2021. The contract offer did not include the further terms 22 and 23 included in the previous contract offer prepared by Mr Lundon. The retention for the Code Compliance Certificate was $20,000. In his email accompanying the contract, Mr Glengarry said “…The agreement follows that Fred sent through earlier, apart from the price and the amount to be withheld for the CCC on the pool, now $20,000.”
At 3:05 pm on 9 July 2021, Mr Dunphy for GHL signed and returned the Trust's contract offer, thereby agreeing to buy the property as a freehold with vacant possession for $5.9 million. In his accompanying email, he stated “As you know, GHL has an unconditional agreement with Swanson Land Limited to purchase the freehold.” In accordance with the terms of the contract, GHL paid the 20% deposit of $1,181,000 into Bayleys' trust account.
Later that day, at 3:56 pm, Mr Pack emailed Mr Dunphy and Fred Dunphy to inform them that there had been an “oversight” in the contract as the contract incorrectly recorded that the sale and purchase was for the freehold interest, not the leasehold interest as intended by the Trust. Mr Pack “hand marked the correct details on to the agreement” and attached the amended agreement, asking Fred Dunphy to initial the changes.
On 12 July 2021, Mr Dunphy emailed Mr Glengarry, disputing that there had been an oversight. He insisted that the Trust honour the agreement for the sale and purchase of the freehold with no tenancies, as drafted and executed by the Trust.
The Trust refused to proceed with the sale because of their “fundamental error” and on 15 July 2021 it repaid the deposit to GHL. The Trust offered to reengage with GHL to ascertain whether an agreement could be reached for the sale and purchase of the leasehold. Failing that, the Trust proposed to place the property on the open market.
On 12 July 2021, GHL lodged a caveat against record of title NA1020/33.
There followed an exchange of correspondence between the parties' lawyers. GHL offered its contract for the purchase of the freehold subject to the leasehold to the Trust, thereby enabling the Trust to complete the sale of the freehold with vacant possession as agreed; or alternatively, that the Trust surrender or transfer its leasehold interest, with a credit for the cost to GHL ($1.8 million) of acquiring the freehold subject to the leasehold. The Trust rejected this offer.
On 10 September 2021, the Trust applied for the caveat to lapse.
On 16 September 2021, GHL, by its solicitors, advised that it was ready, willing, and able to settle on settlement date of 30 September 2021 on one of the bases previously described.
An application to sustain a caveat is determined on summary basis in which the Court has regard to the following principles: 1
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(a) The...
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