North 12 Ltd v Beech Orchard Ltd
| Jurisdiction | New Zealand |
| Judge | P J Andrew |
| Judgment Date | 21 May 2020 |
| Neutral Citation | [2020] NZHC 1075 |
| Court | High Court |
| Docket Number | CIV-2020-470-000001 |
| Date | 21 May 2020 |
[2020] NZHC 1075
P J Andrew
CIV-2020-470-000001
IN THE HIGH COURT OF NEW ZEALAND
TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TAURANGA MOANA ROHE
Contract, Property — application for order pursuant to s143 Land Transfer Act 2017 (“LTA”) (lapse of caveat against dealings) that a caveat over the respondent's land not lapse — the parties had entered into negotiations for the sale of the land-the parties agreed not to be bound until a formal document was signed — no formal, written sale and purchase agreement was ever signed — whether the parties reached a binding agreement in an email exchange — pre-requisites to contract formation — legal principles governing contract formation where negotiations are “subject to contract” — Contract and Commercial Law Act 2017 — Property Law Act 2007
D P Hoskin for Applicant
M A Powell for Respondent
This judgment was delivered by Associate Judge Andrew on 21 May 2020 at 3.30 pm pursuant to r 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date
The applicant (North 12) applies for an order pursuant to s 143 of the Land Transfer Act 2017 that a caveat over the respondent's (Beech Orchard) kiwifruit orchard at Te Puke (the land) not lapse.
In 2019, the parties, represented by solicitors, entered into negotiations for the sale of the land. Beech Orchard was the vendor and North 12 the purchaser. They initially agreed that there would be no binding contract until such time as they had signed a written agreement for sale and purchase.
No formal, written sale and purchase agreement was ever signed.
North 12 contends that the parties reached a binding agreement for sale and purchase on the basis of email correspondence exchanged in November 2019. On that basis, it claims to have a caveatable interest in the land. 1
The critical issue I must determine is whether North 12 has established an arguable case that there was a binding contract formed between the parties through that email correspondence. The question comes down to this — was there an intention to be bound and agreement on all essential terms thus displacing the original agreement to be bound only on the signing of a written agreement?
The land is located at the southern end of Dunlop Road, Te Puke, at the border of residential housing to the north and rural lots to the south and west.
The lot is a approximately 5.6 hectares, comprised of a kiwifruit orchard owned and operated by Beech Orchard, and a house occupied by Beech Orchard's directors and shareholders.
Discussions between the parties commenced in February 2019, when North 12's solicitors, Steindle Williams, wrote to Beech Orchard in respect of North 12's acquisition of neighbouring land on Dunlop Road.
Steindle Williams advised that North 12 was in the process of acquiring the neighbouring land with the intention of subdividing it into residential lots, and that it was very likely that infrastructure development for that proposed subdivision would affect the land (for example, if part of the land was preferred for roading or town water supply). Steindle Williams invited Beech Orchard to contact them to discuss.
Beech Orchard then instructed Bell Gully, solicitors, to correspond with Steindle Williams. The discussions concerned the possibility of Beech Orchard vesting, or North 12 acquiring, part of the land for a road.
At a meeting on 13 June 2019, attended by the parties and their solicitors, the parties discussed alternatives to North 12 acquiring part of the land for a road, including an acquisition of the whole land. Beech Orchard requested, if North 12 was interested in purchasing the whole land, that it communicate indicative pricing for such purchase as soon as possible. This was because Beech Orchard was considering whether to convert part of its orchard to gold kiwifruit.
On 21 June 2019, Steindle Williams sent a letter to Bell Gully proposing two agreements:
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(a) An agreement to acquire part of the land for a road (the road agreement); and
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(b) an agreement to acquire the remainder of the land (i.e. the land less the land acquired for the road) (the sale agreement).
Under the heading “Sale Agreement”, Steindle Williams said that North 12 was prepared to submit an offer on the “salient terms” set out in the letter.
That letter also stated (with emphasis added):
If the above is agreed in principle — we [acknowledge] that this will not be binding on either party. We can draft agreements for the parties to consider.
Bell Gully responded on 26 June 2019. In relation to the sale agreement, it advised that the price indicated was below the current land use market value for kiwifruit, and that, given the terms, Beech Orchard would be seeking a premium (closer to $5m) before it would be prepared to consider any offer to purchase the land as a whole.
On 12 July 2019, Steindle Williams sent an email to Bell Gully advising that North 12 was primarily interested in progressing the road agreement, but that it proposed terms for the sale agreement.
In the email, Steindle Williams also stated (with emphasis added):
For the comfort of all parties, the above and any other terms discussed in correspondence shall not be binding until the parties have signed an agreement.
On 8 August 2019, Bell Gully advised that Beech Orchard was focusing on the road agreement as North 12's offer to purchase the land as a whole was still well short of a price for which Beech Orchard would consider selling.
Bell Gully then outlined Beech Orchard's position on the road agreement, which included three provisos that these proposals were subject to a formal contract being entered into, as well as an offer to provide North 12 with a right of first refusal to match any third party offer to purchase the whole land (the right of first refusal). The letter went on to state (with emphasis added):
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The offer for the road area (subject to a formal contract being entered into) is therefore … $132,000 plus GST (if any)
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The other key terms of the offer ( again, subject to a formal contract being entered into) would include …
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… As previously mentioned, provided that the above terms are agreed in principle (subject to contract) then our client is prepared to meet its own costs going forward.
On 18 September 2019, Bell Gully emailed Steindle Williams advising that Beech Orchard had been approached by an alternative purchaser who was interested in the land, but that in the interests of transparency and goodwill it wanted to “explore whether [North 12] would be interested in revising its offer to acquire the property before [Beech Orchard] seriously pursue any transaction with the alternative purchaser”.
On 20 September 2019, Steindle Williams emailed Bell Gully summarising the key terms of the road agreement, including the right of first refusal. Steindle Williams also advised that North 12 was prepared to increase its offer for the whole land and set out a summary of the proposed terms.
On 24 September 2019, Bell Gully responded to Steindle Williams advising (with emphasis added):
Our client is broadly happy with both sets of key terms summarised below (with the usual proviso that this all remains subject to contract(s)). Will you prepare first drafts of the Road Agreement and the Sale Agreement (each incorporating the below terms) for our client's consideration?
On 11 October 2019, Steindle Williams emailed Bell Gully drafts of the road agreement and sale agreement for Beech Orchard's consideration. The draft road agreement included a detailed right of first refusal clause regarding North 12's right to make a better offer if a third party offered to purchase the land.
On 29 October 2019, Bell Gully emailed Steindle Williams:
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(a) Advising that Beech Orchard was keen to focus on the sale agreement “for the time being” given the terms of the road agreement were almost agreed;
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(b) Proposing amendments, insertions and deletions to the sale agreement, including amendments to the due diligence clause and an “escape clause”; and
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(c) Asking whether North 12 would consider any potential lease-back options.
On 31 October 2019, Steindle Williams emailed Bell Gully (with emphasis added):
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(a) Advising that North 12 was also happy to focus on the sale agreement as the parties could come back to the road agreement if the sale agreement “ does not eventuate/settle”;
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(b) Providing North 12's comments on the proposed amendments, including that North 12 did not agree to the escape clause and that North 12 was prepared to consider a lease-back, asking Bell Gully to provide the proposed lease terms; and
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(c) Requesting early access to the land for due diligence.
In relation to this early access for due diligence, Steindle Williams stated (with emphasis added):
With the short time between now and the Christmas break, and as we are close to agreeing all terms, our client requests early (i.e. before the agreement is executed) access to the property (to be arranged and on the basis of the proposed amended due diligence clause) for the purpose of carrying out its due diligence investigation.
On 5 November 2019, Bell Gully responded to Steindle Williams on the three outstanding issues at that time, namely the escape clause, the lease-back, and due diligence access, as well as to propose a new clause regarding kiwifruit licences.
In relation to the escape clause, Bell Gully stated:
… [O]ur client is happy to proceed without an escape clause.
In relation to the lease-back, Bell Gully stated:
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North 12 Ltd v Beech Orchard Ltd
...HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE CIV-2020-470-000001 [2020] NZHC 1075 BETWEEN NORTH 12 LIMITED Applicant AND BEECH ORCHARD LIMITED Respondent Hearing: 12 May 2020 Appearances: D P Hoskin for Applicant M A Powell for Respondent Judgme......