IN THE Court of appeal OF new Zealand

I TE KŌTI PĪRA O AOTEAROA	
 CA449/2021
 [2022] NZCA 136

	
BETWEEN	
INSPIRE HOLDINGS LIMITED
Appellant	
	
AND	
JSM PROPERTIES LIMITED
Respondent	

Hearing:	
22 March 2022	

Court:	
Kόs P, Woolford and Dunningham JJ	

Counsel:	
G M Illingworth QC and D G Collecutt for Appellant
D R Bigio QC and J G Donkin for Respondent	

Judgment:	
26 April 2022 at 9am	

JUDGMENT OF THE COURT

A		The appeal is dismissed.
B		The appellant must pay costs to the respondent for a standard appeal on a band A basis with usual disbursements.
____________________________________________________________________

REASONS OF THE COURT

(Given by Woolford J)

[1]	The appellant, Inspire Holdings Ltd (Inspire), claims that it has a legally enforceable agreement to buy three properties owned by the respondent, JSM Properties Ltd (JSM).  Associate Judge P J Andrew thought otherwise and, in a decision dated 7 July 2021, found that Inspire did not have a sufficient interest to sustain a caveat over the properties.  Inspire now appeals.
Background
[2]	Negotiations for the purchase of the properties took place by e-mail and text over a two-week period between 30 December 2020 and 11 January 2021.  During that time, four versions of the standard ADLS/REINZ Agreement for Sale and Purchase of Real Estate were prepared and sent by one party to the other.
[3]	Version 1:  On 30 December 2020, Version 1 was sent as an attachment to an e-mail from Inspire to JSM.  The purchase price for the three properties was $2,400,000 inclusive of GST.  The deposit was to be paid upon signing.
[4]	Version 2:  On 5 January 2021, Version 2 was sent as an attachment to an e-mail from JSM to Inspire.  The purchase price was $2,400,000 inclusive of GST (if any) (the words “if any” having been inserted).  The deposit was to be paid on 29 January 2021 (the deposit date having been changed).
[5]	Version 3:  On 8 January 2021, Version 3 was sent as an attachment in an e‑mail from Inspire to JSM.  The purchase price was $2,400,000 inclusive of GST (the words “if any” having been deleted).  The deposit was to be paid on 29 January 2021 (no change).
[6]	Version 4:  On 11 January 2021, Version 4 was sent as an attachment in an e-mail from Inspire to JSM.  Version 4 was a printout of Version 2, which had then been signed by Inspire.  The purchase price was $2,400,000 inclusive of GST (if any) (the words “if any” having been reinstated).  The deposit was to be paid on 29 January 2021 (no change).
[7]	It is common ground that Version 2 was a rejection of Version 1 and amounted to a counter-offer.  The parties differ as to whether Version 3 was a rejection of Version 2 and amounted to a counter-offer, or whether it was merely an enquiry about a possible variation of terms.  The difference arises because of communications arising after Version 2 had been sent to Inspire by JSM.  On 6 January 2021 at 5.08 pm, Inspire wrote:
The purchase price is inclusive of GST.
If GST was not claimed and JSM properties is not registered for GST, no gst is payable to the IRD.
I have sent to our company accountant and will check if “if any” after inclusive of GST is an issue.
I would prefer to have that removed if it is ok with you.  Have a think and let me know.
[8]	JSM replied on 6 January 2021 at 9.11 pm, as follows:
I think you are right and we are being over cautious, we just don’t want IRD to try and claim it from us.  We certainly did not claim GST on the purchase and had no intention to.  I will forward it to our Accountant and see if he agrees.  If he does we will remove it.
[9]	Without waiting for advice from JSM about the attitude taken by JSM’s accountant to removal of the words “if any”, Inspire sent Version 3 to JSM as an attachment to an e-mail on 8 January 2021 at 8.49 am, which read:
Please find enclosed the signed and dated agreement.
I have removed the (if any) part as after speaking to the accountant adding this is bears no purpose for either party.  This transaction will not be subject to any sort of gst tax as it was never claimed nor is the entity registered for it.
[10]	Inspire says that Version 3 was not a rejection of Version 2 and did not amount to a counter-offer but was merely an enquiry about a possible variation of terms.  On the other hand, JSM says Version 3 was a rejection of Version 2 and did amount to a counter-offer.
[11]	Inspire further says that because Version 3 was not a rejection of Version 2, Version 2 remained open for acceptance later by Inspire.
[12]	Following receipt of Version 3 by JSM on 8 January 2021 at 8.49 am, further crucial communications occurred between the parties.
[13]	Having received advice presumably from its accountant, JSM replied on 11 January 2021 at 10.19 am:
Sorry, but we do not yet have an agreement.  You have removed the “if any” on the purchase price, which we have to initial first for this to be an agreement.  We initialled the removal of the “if any” prior to sending it to you.
The advice we have received, is that the “if any” needs to stay.
If the “if any” is deleted, it shows that GST is included in the sale, and removes all doubt.  This effectively wipes off $313,043 off the purchase price.
We understand that you will be claiming GST on the purchase, and that will spark a query from Inland Revenue as to our status.  We are mainly residential investors, but do own one commercial building that requires us to be GST Registered.
Our intention with the land was to develop it into Residential Real Estate and retain it as a long term investment, meaning there was never any need for us to be GST registered for this land.
From our point of view, the risk of leaving the “if any” part in is minor for yourselves.
We need further clarification on this point before we have an agreement.
[14]	Inspire then replied on the same day, at 10.33 am:
Lets leave in “if any” for now I am sure it will be ok.
All residential property is inclusive of GST unless specified.  I am not sure who is giving this advice.
Writing “if any” is typical of a zero rated transaction and from my end I don’t want to be paying that on top.
Give[n] it states it’s inclusive of GST I am sure we can explain to the IRD.
Can you send me the contract you sent the other day and I will sign as is.
[15]	Inspire did not wait for JSM to resend “the contract you sent the other day” (Version 2), but printed it out, signed it and returned it to JSM at the same time as texting JSM:
10.58 am 
I am ok to leave in “if any”.  My accountant said it’s important to ad[d] in a gst warranty clause that should IRD make a ruling that JSM property should have paid GST on the transaction that I am not impacted which I feel is fair.
11.01 am
We can agree on the clause through the DD[.]
11.09 am
Just sent you through the agreement as it came through to me from you.
[16]	A minute earlier, Inspire had sent through Version 4 to JSM attached to an e-mail, which read:
Enclosed signed dated agreement.
[17]	There were no further communications between the parties.
Parties’ positions
[18]	As noted above, Inspire says that Version 3 sent by it to JSM was not a rejection of Version 2 and did not amount to a counter-offer, but was merely an enquiry about a possible variation of terms.  Version 2 was therefore still open for acceptance, which Inspire did by printing it out, signing it and returning it to JSM on 11 January 2021.  Alternatively, if Version 3 was a rejection of Version 2 and did not amount to a counter‑offer, JSM, in effect, renewed their counter-offer not in the form of an ADLS/REINZ Agreement for Sale and Purchase of Real Estate, but in the form of its e-mail of 11 January 2021 at 10.19 am, when JSM stated:
We need further clarification on this point before we have an agreement.
[19]	On the other hand, JSM says that Version 3 sent to it by Inspire was a rejection of Version 2 and did amount to a counter-offer.  JSM made its position quite clear on its receipt:
Sorry, but we do not yet have an agreement.
[20]	JSM also denies that its e-mail of 11 January 2021 amounted to a form of counter-offer.
Associate Judge’s decision
[21]	The Associate Judge set out the requisite elements for the formation of a legally binding contract as being:
(a)	An intention to be immediately bound, at the point when the bargain is said to have been agreed; and
(b)	An agreement, express or implied, or the means of forming an agreement on every term which:
(i)	was legally essential to the formation of the contract; or
(ii)	was regarded by the parties themselves as essential to their bargain.  A term is to be regarded by the parties as essential if one party maintains the position that there must be agreement upon it and manifests accordingly to the other party.
[22]	The Associate Judge then went on to say:
[19]	Whether parties intended to enter into a contract, and whether they have succeeded in doing so, are objective questions.  The Court considers the surrounding factual matrix which may include looking at the subsequent conduct of the parties towards one another and the statements the parties made orally or in writing in the course of the negotiations.  Any drafts of the intended contractual document can also be relevant.
[20]	In assessing whether an agreement has been reached, the Court typically employs the language of offer and acceptance.  The Court will examine all the circumstances to see if one party may be assumed to have made a firm “offer” and if the other party is taken to have “accepted” that offer.
[21]	The reaching of an agreement, however, is not the same as an assumption of an immediate legal commitment.  The law recognises an absence of intention to be bound both when the parties have made expression to that effect and when such is to be implied by their conduct or as a natural inference.
(footnotes omitted)
[23]	The Associate Judge identified two issues for determination:
(a)	Is it reasonably arguable that a legally binding agreement was formed when Inspire signed the agreement for sale and purchase on 8 January 2021 with the words “(if any)” struck out?
(b)	If the answer to (a) is “no” is it reasonably arguable that a legally binding agreement was formed when Inspire signed the agreement for sale and purchase on 11 January 2021, in a form originally signed by the vendor JSM with the inclusion of the words “GST (if any)”?
[24]	On the first issue, the Associate Judge held that the deletion of the words “(if any)” by Inspire in Version 3 can only sensibly be regarded as a rejection of JSM’s offer in Version 2.  By including the words “(if any)” in Version 2, JSM was sending a very clear signal that there was an outstanding issue as to GST that required agreement before any binding contract was formed.  There was clearly no mutual intention to be bound.  The amended form returned on 8 January 2021 was a counter‑offer from Inspire.
[25]	Having answered the first issue “no”, the Associate Judge turned to the second issue.  The Associate Judge thought that it was important to distinguish between agreement on all outstanding issues and an immediate intention to be bound.  He found as a matter of objective determination the correct view was that until such time as JSM signed (by re-initialling) the agreement for sale and purchase in the form returned by Inspire on 11 January 2021 (Version 4), there was no intention to be bound and therefore no binding contract was formed.  The consistent practice of the parties had been, as is conventional, for any changes to the agreement to have been signed, by way of initialling, by both parties.  He, therefore, answered the second issue “no” and concluded that it was not reasonably arguable the parties formed a legally binding agreement either on 8 or 11 January 2021.
Issues for determination
[26]	There is no dispute about the applicable legal principles.  The issues are entirely factual.
[27]	The primary issue for determination is whether Inspire had a reasonably arguable case that it entered into a legally binding contract with JSM such that Inspire’s caveat over the properties should be sustained.  To answer this primary question, a number of subsidiary issues need to be determined — the effect of (a) Inspire’s communications on 6 January 2021, (b) Inspire’s Version 3 sent on 8 January 2021, and (c) JSM’s communications on 11 January 2021.
Inspire’s communications on 6 January 2021
[28]	In response to Version 2 sent to it by JSM on 5 January 2021, Inspire responded by stating it had sent the draft agreement to its accountant who would advise Inspire whether the words “(if any)” after the words “inclusive of GST” were an issue.  Inspire then stated, “I would prefer to have that removed if it is ok with you.  Have a think and let me know”.  This is clearly not a rejection of JSM’s offer.  We agree with counsel for Inspire that this is not a counter-offer, but merely an enquiry about a possible variation of terms proposed by JSM in Version 2.
[29]	JSM responded by stating that it would also forward the draft agreement to its accountant to see if he agreed.  JSM then stated, “If he does we will remove it”.  This is, however, not an unconditional agreement to make a change to Version 2.  It is conditional on the agreement of JSM’s accountant.  JSM’s accountant did not agree.
Inspire’s Version 3 sent on 8 January 2021
[30]	On 8 January 2021, Inspire sent Version 3 to JSM with the advice: 
I have removed the (if any) part as after speaking to the accountant adding this is bears no purpose for either party.
This was sent by Inspire before JSM had responded finally to Inspire’s proposal to vary the terms of the draft agreement.  This is not another enquiry about a possible variation of terms proposed by JSM in Version 2.  It was a rejection of JSM’s offer and amounted to a counter-offer.
[31]	The parties had agreed by their course of conduct to formalise their offer and counter-offers by amending and signing or initialling a standard ADLS/REINZ Agreement for Sale and Purchase of Real Estate.  It is a form in widespread use and with which the parties were quite familiar.
[32]	Having made an amendment to Version 2 by the deletion of the words “(if any)” and initialling that amendment before forwarding the amended agreement to JSM, Inspire had rejected JSM’s earlier offer contained in Version 2.  It was no longer open for later acceptance by Inspire.
JSM’s communications on 11 January 2021
[33]	On 11 January 2021, JSM wrote to Inspire saying they did not yet have an agreement.  JSM said the advice they had received (presumably from its accountant) was that the “(if any)” needed to stay.  Reasons were given.  The e-mail from JSM concluded, “We need further clarification on this point before we have an agreement.”  Inspire argue that because JSM had already received advice from its advisers, the reference to “further clarification” was to the fact that clarification was needed from Inspire.  Inspire says that this amounted to a renewal of JSM’s offer contained in Version 2, or otherwise represented an offer to immediately enter a legally binding contract, and if Inspire now accepted the need for the words “(if any)” to remain, there was a concluded agreement.
[34]	We do not, however, accept that JSM’s e-mail amounted to a renewal of JSM’s offer contained in Version 2, or otherwise represented an offer to immediately enter a legally binding agreement.  Both the first and last sentences refer to the lack of an agreement and there is no formal offer made by JSM to conclude an agreement if Inspire accepts the need for the words “(if any)” to remain.  “We need further clarification on this point before we have an agreement” is quite equivocal and cannot be elevated to the renewal of a previous offer or a new offer.
[35]	In any event, there was no subsequent unconditional acceptance by Inspire.  In an e-mail in response, Inspire said “Lets leave in “if any” for now.  I am sure it will by Ok”.  “For now” is not unconditional acceptance.  Inspire also texted JSM, “My accountant said its important to ad[d] in a gst warranty clause that should IRD make a ruling the JSM property should have paid GST on the transaction that I am not impacted which I feel is fair” and, “We can agree on the clause through the D[ue] D[iligence].”  Inspire has here proposed a further provision to be inserted into the draft agreement.  There was no concluded agreement.
[36]	JSM did not reply to Inspire’s e-mail or text messages.  Nor did it respond when Inspire sent Version 4 of the draft agreement to it.
Conclusion
[37]	Whether approached on a traditional offer and acceptance analysis or viewed objectively, all of the relevant exchanges between the parties did not result in the formation of a legally binding contract.  JSM did not agree to contract on the terms proposed by Inspire.  It did not negotiate with Inspire any further.  The Associate Judge was right to find that it was not reasonably arguable the parties formed a legally binding contract either on 8 or 11 January 2021.
Result
[38]	The appeal is dismissed.
[39]	The appellant must pay costs to the respondent for a standard appeal on a band A basis with usual disbursements.

Solicitors:
Conveyancing Shop, Auckland for Appellant
Base Law, Drury for Respondent