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Vendor liable in complex row over property settlement

26 May 2023

| Author: Andrea Hilton

ADLS Sale & Purchase Agreement (9th Edition) clauses 6.2(5) and 9.8(2) – settlement – vendor condition – contract interpretation – court implied terms – reasonable time – cancellation – frustration with contract – conditions relating to performance – summary judgment -specific performance – building consent, code compliance certificate, certificate of acceptance.

McKinlay & Reid v Whitburn [2023] NZHC 468 [10 March 2023] (Associate Judge Lester)

An unsuccessful order for payment by Kathryn McKinlay and Alan Reid (the vendors), and an unsuccessful counterclaim application for specific performance by Ross and Elizabeth Whitburn (the purchasers). However, a finding of vendors’ liability.

The vendors sold their property to the purchasers, having built at least part of it themselves. A condition of sale was that the vendor would provide the purchaser with a Code Compliance Certificate and Electrical Certificate of Compliance (the documents) as a condition of settlement (clause 18). The settlement was on 5 June 2015, eight days following the date of the Sale and Purchase Agreement (the 2015 agreement).

The compliance documents were not available, so a settlement did not occur.  And a flood at the property in June raised questions about the vendor’s warranties and whether they had obtained all consents and permits for the work done to the property, clause (6.2(5)).

  • The purchasers took possession but by 19 December 2016, the settlement had still not occurred and the parties entered a mediated settlement agreement. The settlement agreement: confirmed the 2015 agreement;
  • stipulated the vendor was to do certain work and obtain building consents, Code Compliance Certificates and a Certificate of Acceptance (compliance documents);
  • stated the purchasers were to pay rent but did not say when;
  • the property remained at the vendor’s risk; and
  • settlement would occur five days after the compliance documents were issued.

The parties disagreed about when the rent was payable and the vendors sought an order the purchasers pay the rent. The purchasers counterclaimed, seeking specific performance of the 2015 agreement with compensation by summary judgment. The vendors argued frustration and that clause 18 gave them a cancellation right.

Applicable principle: evidence must be admissible – summary judgment unavailable if a factual dispute exists – the court can determine the interpretation of the contract when no dispute – burden on the applicant to show no arguable defence – commercial reality relevant to contract interpretation – reasonable time applies when no settlement date – reasonable time determined on facts of the case – the court may imply performance timing for contractual promise – one party’s breach does not necessarily reduce obligations – a party should not benefit from its wrongdoing – hardship is defence to specific performance – specific performance must align with contract terms – no summary judgment if a defence is possible – specific performance discretionary remedy – hardship must be more than financial difficulty – specific performance not available if damages adequate remedy – in disputes it is normal for purchaser to withhold some funds at settlement.

Held:

  • There is no evidence of a factual dispute that prevents the court from determining the meaning of the 2015 agreement;
  • Vendors had no right to cancel the 2015 agreement because the settlement agreement overtakes clause 18;
  • The vendors have an unquantified obligation to obtain the compliance documents;
  • Frustration with the contract is not an arguable defence for the vendors;
  • Settlement must be within a reasonable time;
  • Purchasers are not entitled to specific performance because the application is a departure from the terms of the 2015 agreement and they have not demonstrated the vendors do not have an arguable defence;
  • An order for specific performance is a matter for trial; and
  • Vendors are liable to purchasers for failure to settle.

mckinlay_v_whitburn_2023_nzhc_468_10_march_2023

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