Vikram Kumar and Nirupama Kumar v Station Properties Ltd ((in Liquidation) and (in Receivership))

JurisdictionNew Zealand
CourtSupreme Court
JudgeElias CJ,McGrath,William Young,Glazebrook,Arnold JJ
Judgment Date15 October 2014
Neutral Citation[2014] NZSC 146
Docket NumberSC 39/2013
Date15 October 2014

[2014] NZSC 146

IN THE SUPREME COURT OF NEW ZEALAND

Court:

Elias CJ, McGrath, William Young, Glazebrook and Arnold JJ

SC 39/2013

BETWEEN
Vikram Kumar and Nirupama Kumar
First Appellants
Robert James Selwyn
Second Appellant
Michael Donaldson And Patricia Bronwyn Donaldson
Third Appellants
and
Station Properties Limited (In Liquidation and In Receivership)
Respondent
Counsel:

R M Kelly, K J Jarvis and S A Eckhoff for Appellants

D J Goddard QC, M J Tingey and S V A East for Respondent

Appeal from the Court of Appeal's finding that the appellants had repudiated agreements for sale and purchase by refusing to settle — agreements were for the purchase of units in an apartment development — appellants claimed to have entered agreements on the understanding that they would not be required to purchase the units, their role being simply that of underwriters facilitating the raising of funding to enable the construction of the development so that it could be on—sold — side agreements existed for the of payment of a fee of one per cent of the purchase price for the relevant apartment, the provision of a $30,000 furniture package and the arranging of a management contract enabling the units to be operated as serviced apartments — respondent provided a certificate of practical completion from company other than that agreed to — whether the obligation to provide a certificate by particular company and the performance of the side agreements were essential terms of the agreements — whether the respondent had been entitled to cancel the contract under s7 Contractual Remedies Act 1979 (“CRA”) (cancellation of contract) — whether under s7 CRA a party who wished to cancel a contract had to give a valid reason at the time of cancellation.

The issues were: whether Station’ failure to comply with the side agreements enabled the appellants to cancel; whether under s7 CRA a party who wished to cancel a contract had to give a valid reason at the time of cancellation.

Held: Given the parties’ arguments, there were under the CRA two ways in which the such at issue could be analysed — in terms of s7(2) (repudiation) or in terms of s7(3) and (4) (cancellation for breach or misrepresentation), although in some situations (in particular, where “partial” repudiation was alleged), they converged.

Station said that the only reason for the appellants’ refusal to perform their agreements was their mistaken view that the agreements had the effect of giving them an option to purchase rather than requiring them to complete. This raised the question of the approach to be taken to conduct that was alleged to be repudiatory where the relevant party acted on a mistaken understanding of its contractual obligations.

On this point, it was necessary to return to the fundamental question under s7(2), namely, whether an inference could reasonably be drawn in the circumstances that the relevant party no longer intended to perform its obligations under the contract. This fact-based assessment had to be made against the background that the threshold was a high one and that disputes about the meaning of contracts or the nature of the obligations they imposed were commonplace. The mere fact that a party vigorously espoused a view of a contract's meaning that was ultimately shown or accepted to have been wrong did not mean that the party was thereby manifesting an intention not to perform its obligations under the contract.

By contrast, if a party persistently refused to perform unless the other party accepted additional onerous terms inconsistent with the contract or on the mistaken view that there was never an enforceable contract, the party might well be found to have repudiated the contract. In such circumstances, the stance adopted amounted to a refusal to accept any obligation to complete the contract in accordance with its terms.

The second point that arose concerned the position where a party cancelled (or refused to perform) a contract for an insufficient reason but there was at the time, unknown to the cancelling party, a reason that would justify cancellation. This point arose in relation to all the appellants.

At common law, it was accepted that where a party cancelled a contract for an insufficient reason, the cancellation might nevertheless be justified if there was a sufficient reason at the time of cancellation even though the party cancelling was not aware of it. Although s7 “has effect in place of the rules of the common law and of equity governing the circumstances in which a party to a contract may rescind it, or treat it as discharged, for misrepresentation or repudiation or breach”, it built on the common law and incorporated common law concepts (such as repudiation). There was nothing in either s7 or s8 to suggest that a party who wished to cancel a contract had to give a valid reason at the time of cancellation.

The obligation to provide a certificate of practical completion from the named company arose when Station completed the development before the expiry of the sunset date and wished to trigger the obligation to settle. Station did substantially complete the development and did attempt to trigger the obligation to settle. Certification was an important process in construction contracts. However that did not mean that the provision of a certificate from a different company was a breach of an essential term entitling the appellants to cancel their agreements. Station did not dispute its obligation to provide a certificate; rather, it provided a certificate from the wrong entity, something which, on the evidence, could have been readily corrected. While Station's failure to provide a valid certificate meant that it could not trigger the obligation to settle, it was not a breach of an essential term or an act of repudiation of the agreements by Station.

The one per cent fee involved sums ranging from a little over $11,000 down to $8,801. Given the purchase prices, Station's failure to pay these sums could not be regarded as sufficient to entitle the appellants to cancel the agreements or to amount to a repudiation by Station of its obligations under the agreements. This was exactly the type of obligation that would give rise to a claim in damages rather than to a right to cancel.

Standing alone, non-provision of the individual furniture packages to the appellants would not be a breach of an essential term and would sound only in damages. However, this analysis did not apply when the furniture package and the management agreement were considered together. To determine essentiality, the Court had to ask whether the appellants would more probably than not have declined to enter into the agreements if there had been no agreement that the terms as to the furniture package and a management agreement were essential. This question had to be answered by an objective contextual appraisal which disregarded what the appellants might unilaterally have said.

The appellants were investors whose investments were made initially through the purchase of redeemable preference shares. The form of their investment changed at Station's request to facilitate the raising of funds for the development, the appellants being told they were underwriters rather than outright purchasers. The requirement that the appellants purchase a furniture package was something insisted on by Station, presumably because it considered that uniform furniture of an appropriate standard would make the complex more attractive to potential purchasers, whether of the whole complex, of individual units or simply of the management rights. The proposal for a management agreement for all units in the complex was also something initiated by Station. Such an agreement was necessary if Station was to find an operator assuming no outright sale (although, as noted earlier, it might also have facilitated an outright sale). The evidence showed that Station had made considerable efforts not only to sell the complex but also to put a management agreement in place.

Against that background, the contractual terms concerning a furniture package and management agreement would, viewed objectively, have been regarded as essential by parties in the appellants’ position. The appellants were reliant on Station's assessment of what was required to enable it to achieve its objective of either on-selling the development or arranging an operator to manage the development as short-term rental accommodation, and Station's assessment was that a furniture package and management agreement were necessary to facilitate these options.

Assuming no on-sale of either the development or individual units, investing in a complex where the apartments are uniformly furnished and operated as serviced rental accommodation by an established operator was a fundamentally different proposition from a group of individuals acquiring apartments and then making their own arrangements about furnishing and renting them. It was difficult to see how a failure to perform the obligations at issue could have been adequately compensated for in damages.

The appellants’ refusal to perform in response to Station's calls for settlement were clear indications that they had not regarded the agreements as continuing in force. Station could have been in no doubt that the appellants regarded the agreements as being at an end. By breaching the essential terms, Station had evinced an intention not to complete its contractual obligations, and thereby itself repudiated the agreements. Even if the appellants had given the wrong reasons for their refusals to perform, they had a proper basis in light of Station's conduct. Station had no claim against them.

Appeal allowed. The orders of the HC were reinstated.

JUDGMENT OF THE COURT
  • A The appeal is allowed.

  • B The orders of Toogood J are reinstated.

  • C The respondent must pay costs of $25,000 to the appellants collectively, together with reasonable...

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