IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE	
CIV-2020-409-288
[2023] NZHC 1373	

BETWEEN	CHENG’S CAPITAL INVESTMENTS LIMITED
Plaintiff	
AND	GENERUS LIVING GROUP LIMITED
Defendant	

Hearing:	18 April 2023
Further submissions filed 24 and 27 April 2023 and 2 May 2023	
Appearances:	A J Forbes KC and J Dallison for Plaintiff B G Walker for Defendant	
Judgment:	1 June 2023	

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 1 June 2023 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

CHENG’S CAPITAL INVESTMENTS LTD v GENERUS LIVING GROUP LTD [2023] NZHC 1373 [1 June 2023]

[1]	Generus Living Group Ltd (Generus) agreed to sell to Cheng’s Capital Investments Ltd (Cheng) its shares and assign the benefit of its current account in Brecon Street Partnership Ltd (Brecon Street). Generus has purported to cancel the agreement. Cheng has applied for specific performance of the agreement or damages.

[2]	This judgment concerns an application by Generus to strike out Cheng’s claim seeking specific performance of the agreement, which is the first cause of action in Cheng’s latest statement of claim.

[3]	The issue is whether Generus has established that Cheng’s pleading discloses no reasonably arguable cause of action. Generus contends Cheng’s claim has no prospect of success because the agreement was validly cancelled. It also argues that Cheng has no prospect of obtaining an order for specific performance in any event, as it was not ready, willing and able to perform its obligations under the agreement.

Background

[4]	Cheng and Generus are the sole shareholders in Brecon Street.

[5]	Cheng commenced its claim in July 2020 alleging Generus breached an agreement made at an annual general meeting of Brecon Street of 25 November 2010. The details of that agreement and the alleged breaches of it are not relevant to this application.

[6]	The parties went to mediation.  They entered into a settlement agreement on  5 November 2020 where Generus agreed to sell to Cheng its shares and assign the benefit of its current account in Brecon Street for a total purchase price of $9,000,000 (the settlement agreement).

[7]	Cheng had difficulties raising finance and failed to settle on the settlement date of 31 March 2021. On 8 April 2021, Generus issued a settlement notice requiring Cheng to settle by 12 April 2021 and purporting to make time of the essence. Cheng did not settle. On 14 April 2021, Generus purported to cancel the settlement agreement.

[8]	Cheng  did  not  accept  the  cancellation  of  the  settlement  agreement.  On 3 September 2021, it filed its amended statement of claim with a first cause of action seeking specific performance of the settlement agreement and an inquiry as to damages.

[9]	In August 2022, Generus made an application for leave to bring a defendant’s summary judgment application in relation only to Cheng’s first cause of action. Extensive evidence was filed in relation to that application and it was timetabled to a hearing on two different occasions but for various reasons was adjourned. It was then set down for hearing on 18 April 2023, when it was recognised the application faced an obvious hurdle due to the requirement of r 12.2(2) of the High Court Rules 2016 that a defendant can only obtain summary judgment if it can establish that none of the plaintiff’s causes of action can succeed.

[10]	Generus then effectively abandoned its application for summary judgment and filed a new application seeking to strike out Cheng’s first cause of action. That application was opposed by Cheng and it proceeded to a hearing on 18 April 2023 in lieu of the application for summary judgment.

Relevant legal principles

[11]	Rule 15.1 of the High Court Rules provides:

15.1	Dismissing or staying all or part of proceeding

(1)	The court may strike out all or part of a pleading if it

(a)	discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b)	is likely to cause prejudice or delay; or

(c)	is frivolous or vexatious; or

(d)	is otherwise an abuse of the process of the court.

(2)	If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or subsequent order dismiss the proceeding or the counterclaim.

(3)	Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4)	This rule does not affect the court’s inherent jurisdiction.

[12]	The general principles applicable to the exercise of the Court’s powers under r
15.1	to strike out all of part of a pleading are:1

(a)	Pleaded facts, whether or not admitted, are deemed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.

(b)	The cause of action or defence must be clearly untenable.

(c)	The jurisdiction is to be exercised sparingly and only in clear cases.

(d)	The jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument.

(e)	If a defect in the pleading can be cured by amendment, the claim should not be struck out.

[13]	Generus has proceeded on the basis that the Court should have regard to all of the evidence filed in relation to its summary judgment application. Mr Walker referred to Chan v Boston Trustees 6037 Ltd and Yandina Investments Ltd v ANZ National Bank Ltd as examples where the Court was prepared to have regard to extensive affidavit evidence in the context of striking out applications involving issues of contractual interpretation.2 In my view, such cases should be rare. Summary judgment and strike out applications are not the same. The grounds for seeking summary judgment and strike out are different and, generally speaking, the evidence the Court will receive on a strike out application is more limited than in a summary judgment context.3

1	R A Osborne McGechan on Procedure (online ed, Thomson Reuters) at [HR15.1.02(2)] and [HR15.1.08(1)] citing Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267 and Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
2	Chan v Boston Trustees 6037 Ltd [2021] NZHC 1694; and Yandina Investments Ltd v ANZ National Bank Ltd [2013] NZCA 469.
3	See Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [60].

[14]	In Attorney-General v McVeagh, the Court of Appeal noted affidavit evidence for a strike out application will generally be limited to that which is undisputed.4 Normally the Court will not consider evidence inconsistent with the pleading as a strike out application proceeds on the basis that what has been pleaded may be proved.

Factual background

[15]	Brecon Street owns valuable land at Queenstown. At all times relevant to this application, Generus owned 75 per cent of the shares and Cheng owned 25 per cent of the shares in Brecon Street.

[16]	As a result of a dispute that arose between the parties they attended mediation in November 2020 and reached a settlement agreement pursuant to which Generus agreed to:

(a)	sell to Cheng its 1,500,750 shares in Brecon Street; and

(b)	sell and assign to Cheng the benefit of its current account, which then stood at $4,199,860.

[17]	The agreement recorded that Cheng and Generus were in dispute over an earlier alleged shareholders agreement entered into in 2010 (which is the subject of Cheng’s second cause of action). It also recorded the resolution of the disputes and proceedings between the parties.

[18]	The agreement defines certain terms as follows:

(a)	“Condition Date” means 20 working days from the date of the agreement;

(b)	“Settlement Date” means 31 March 2021; and

(c)	“Total Purchase Price” was $9,000,000 (subject to adjustment under  cl 3.2).

4	Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566.

[19]	By cl 2.1, Generus agreed to sell to Cheng its shares and current account for the “Total Purchase Price”.

[20]	By cl 3.1, the purchase price of the shares was $4,800,140, which was not subject to adjustment for subsequent trading, profits or losses.

[21]	By cl 3.2, the purchase price of Generus’ current account of $4,199,860 was subject to adjustment in respect of increases in that amount as at the settlement date.

[22]	By cl 4.1, on fulfilment of conditions in cl 12, Cheng was to pay a deposit of
$350,000 to an independent stakeholder, Mortlock McCormack Law, as part payment of the Total Purchase Price. The deposit would be released immediately upon Generus complying with its obligations under cl 13.1 (see [23] below).

[23]	By cl 6, on the settlement date Generus would deliver to Cheng the following:

(a)	all records of Brecon Street held by it;

(b)	a duly executed transfer of the shares in favour of Cheng;

(c)	evidence of the release of Generus’ shares and current account from all security interests over them (if any);

(d)	a resolution of the directors of Brecon Street approving the transfer of the shares and directing entry of the name of Cheng or its nominee in the share register of Brecon Street as owner of those shares;

(e)	evidence that written notice had been given to Brecon Street of the assignment to Cheng of Generus’ current account; and

(f)	the resignation of Generus’ director, Graham Wilkinson, as a director of Brecon Street.

[24]	Clauses 12 and 13 are of fundamental importance and, accordingly, they are set out below in full:

12.	Conditions

12.1	This Agreement is conditional upon:

(a)	The Purchaser obtaining the agreement of Heartland Bank by the Condition Date to the Vendor and Graham Wilkinson, and any related party, being released from any guarantee or indemnity of the obligations of the Company to Heartland Bank, on terms and subject to and conditions reasonably acceptable to the Vendor and Graham Wilkinson,

(b)	The Purchaser undertaking and being satisfied with a due diligence investigation in relation to the Company and its affairs so as to ensure there are no unreasonable liabilities or obligations, by the Condition Date,

(c)	The Purchaser obtaining and being satisfied with taxation advice in relation to loss of benefits (other than carried forward losses which will be forfeited on the transfer of shares) and/or incurring unreasonable obligations on settlement or the subsequent sale of the Company’s property.

12.2	Each of the above conditions is a condition subsequent to agreement. If any condition is not satisfied by the Condition Date, either the Vendor or the Purchaser may, by written notice served upon each of the other parties, cancel this Agreement.

12.3	In the event this Agreement is cancelled pursuant to Clause 12.2, no party shall have any further obligations under the Agreement, without thereby however relieving any party from liability for any breach of this Agreement prior to such cancellation.

12.4	The Purchaser will use reasonable endeavours to arrange the release of any other guarantees of Graham Wilkinson or any related party of the obligations of the Company including offering replacement guarantees where required.

13.	Financing of transaction

13.1	In order to assist the Purchaser to facilitate settlement, if required, the Vendor shall, after the date of satisfaction of all conditions, but prior to the Settlement Date, procure the appointment of Victor Cheng as a director of the Company, for the sole purpose of signing documents on behalf of the Company for the purpose of financing to enable completion of settlement, including the refinancing of Heartland Bank debt, and will procure the signing by the Vendor and Graham Wilkinson of any documents required by the financier at the cost of the Purchaser, for the same purposes, but not any documents which would impose any obligation on the Vendor and Graham Wilkinson in their own capacity, but the obligations of the Vendor and Graham Wilkinson will be contingent upon the following:

(a)	That immediately after the provision of the financing documents signed by the Vendor and Graham Wilkinson as required by the financier the Purchaser’s solicitor will provide

an irrevocable undertaking to the Vendor to apply the full proceeds of the financing in and towards settlement of this transaction and repayment of Heartland Bank debt, immediately upon receipt of such proceeds.

(b)	The Purchaser meeting all costs associated with the financing, including the stakeholder’s costs in respect to the deposit.

[25]	On 23 December 2020, Cheng’s solicitors (Dallison Stone) wrote to Generus’ solicitors purporting to confirm condition 12.1(c) and seeking extensions of time:

(a)	of condition 12.1(a) to 29 January 2021; and

(b)	of condition 12.1(b) to 15 January 2021.

[26]	The reply to that request is not in evidence. There is other relevant correspondence that is not in evidence either. The next letter that is before me is from Cheng’s counsel to Generus’ solicitors (Buddle Findlay) dated 26 February 2021, in which Mr Forbes KC referred to conditions 12.1(b) and 12.1(c) as having been satisfied. In respect to condition 12.1(a), he advised that Mr Dallison would be writing to Heartland Bank that afternoon seeking release of any guarantees. He said that Cheng did not consider time was of the essence for satisfaction of special conditions. He said all outstanding matters were confidently expected to be capable of fulfilment well before 31 March 2021.

[27]	On 8 March 2021, Buddle Findlay wrote to Dallison Stone advising that Generus waived special condition 12.1(a) and that it regarded the settlement agreement as unconditional with the result, amongst other things, that the deposit was immediately payable to Mortlock McCormack Law.

[28]	On 9 March 2021, Mr Forbes wrote to Buddle Findlay stating that condition 12.1(a) could not be waived by Generus and the condition had not yet been fulfilled. As such, he advised the deposit was not payable by Cheng.

[29]	On 10 March 2021, Buddle Findlay wrote to Dallison Stone advising that Generus’ view was that condition 12.1(a) was solely for its benefit and capable of being waived, and Generus considered the settlement agreement was unconditional.

However, contrary to this assertion, it appears Generus expected Cheng to continue attempts to satisfy the requirements of condition 12(1)(a) as Buddle Findlay also advised: “the provision of a standard Heartland Bank release of guarantee is acceptable to my client”.

[30]	Cheng’s efforts to raise finance to complete the transaction did not proceed as quickly as it would have wished. In an email to Buddle Findlay on 23 March 2021, Dallison Stone described the dialogue with Cheng’s proposed financier as “frustratingly slow”. For its part, Generus was proceeding on the basis that settlement would occur on 31 March 2021. On 24 March 2021, Buddle Findlay sent Dallison Stone the documents required upon settlement pursuant to cl 6 of the settlement agreement. Buddle Findlay also sought confirmation of the details of persons to be appointed as replacement directors of the company.

[31]	On 25 March 2021, Dallison Stone wrote to Buddle Findlay asserting that under cl 13.1 Generus was obliged to procure the appointment of Mr Cheng as a director of Brecon Street and to sign documents required by Cheng’s financier to enable completion of settlement. Dallison Stone advised that Cheng’s financier was the Bank of China and that onboarding and anti-money laundering compliance were required. Dallison Stone sought an extension of the settlement date by mutual agreement to 14 April 2021.

[32]	On 29 March 2021, Buddle Findlay responded to Dallison Stone and agreed to extend the Settlement Date to 14 April 2021, subject to conditions, including that Cheng:

(a)	acknowledge the agreement was unconditional in all respects prior to 31 March 2021 (time being of the essence);

(b)	pay the deposit to Mortlock McCormack Law or Buddle Findlay by 31 March 2021 (time being of the essence); and

(c)	provide Generus with the Bank of China’s financing documents by    9 April 2021.

[33]	Buddle Findlay advised that if Cheng failed to confirm the conditions by     31 March 2021 or otherwise failed to complete the transaction on the settlement date, Generus reserved the right to cancel the agreement and seek damages or to sue for specific performance.

[34]	Cheng did not accept Generus’ conditions, and on 8 April 2021 Buddle Findlay wrote to Dallison Stone stating Cheng had not acknowledged that the settlement agreement was unconditional, had not paid the deposit, and had failed to settle on   31 March 2021. The letter went on to advise:

The Vendor is in all material respects ready, able and willing to proceed to settle in terms of the Agreement but for the default of the Purchaser and remains ready able and willing to complete settlement as required by the Agreement.

The Purchaser is required to settle the purchase in accordance with the Agreement by 4.00 pm on Monday, 12 April 2021 time being of the essence.

If the Purchaser does not comply with the terms of this settlement notice the Vendor may exercise such of the Vendor’s remedies as the Vendor may decide under the Agreement at law or in equity, including the right to cancel the Agreement.

[35]	On 12 April 2021, Dallison Stone emailed Buddle Findlay advising that Cheng was continuing in its endeavours to complete settlement and continued to be frustrated by other parties’ delays. Dallison Stone gave an update as to difficulties with the Bank of China and described the issue of the “purported settlement notice” as unhelpful. It also asserted that the settlement notice was invalid as follows:

In any event I note there are unfulfilled obligations on the part of the vendor, including procuring the appointment of Victor Cheng as a director - refer clause 13.1.

Further, the time for complying with the purported settlement notice is unreasonable.

It follows your purported settlement notice is invalid.

[36]	On 14 April 2021, Buddle Findlay wrote to Dallison Stone advising that as Cheng had failed to comply with the settlement notice, it was terminating the settlement agreement without prejudice to any and all rights.

[37]	As to the assertion that Generus had unfulfilled obligations under cl 13.1, Buddle Findlay responded that Generus’ obligation to appoint Mr Cheng as a director arose only after the date of satisfaction of all conditions and Cheng had not confirmed that all conditions were satisfied nor paid the deposit. Furthermore, it asserted the appointment of Mr Cheng was so that documents could be signed on behalf of Brecon Street for the purpose of financing to complete settlement, and it had not seen any evidence or documentation relating to financing that would have made it appropriate for Mr Cheng to be appointed as a director at that time.

[38]	As far as Dallison Stone had asserted the settlement notice was unreasonable and therefore invalid, Buddle Findlay responded the settlement notice provided for an extension of time  to settle to 12 April 2021  but Generus had  not cancelled until    14 April 2021, being the extended date Cheng had earlier sought. Buddle Findlay said every effort had been made to assist Cheng and provide reasonable notice of settlement.

[39]	Buddle Findlay also said that if any condition in cl 12.1 was not satisfied, Generus “would by this notice cancel the Agreement under clause 12.2 of the Agreement”.

[40]	Cheng says that shortly before Generus purported to cancel the settlement agreement, it had received a loan offer from the Bank of China which would have allowed it to settle and the offer was accepted on 19 April 2021. Cheng’s director explains how that loan would have been utilised to settle which would have required contributions of $3,660,000 by himself or related entities.

[41]	There was then what Mr Walker described as “a hiatus in terms of the agreement” but from June 2022 the parties attempted to settle on terms similar to those that had been agreed under the settlement agreement, which were not successful.

The pleadings

The amended statement of claim

[42]	Cheng pleads:

(a)	On 8 March 2021, Generus waived the benefit of cl 12.1(a) and the settlement agreement became unconditional, and that upon fulfilment of the cl 12.1 conditions the deposit was payable by Cheng to an independent stakeholder, but it does not plead that payment occurred.

(b)	The total purchase price was payable on the settlement date which was “(originally) 31 March 2021” but extended to 12 April 2021.

(c)	On 8 April 2021, Generus purported to give a settlement notice to Cheng for alleged non-completion of the settlement agreement and requiring settlement by 12 April 2021.

(d)	On 14 April 2021, Generus gave notice to cancel the settlement agreement because of Cheng’s alleged non-completion.

(e)	As at the date of the expiry of the “purported” settlement notice, Generus had not fulfilled its obligations under the settlement agreement in the following respects:

(i)	it had not procured the appointment of Mr Cheng as a director of Brecon Street prior to the agreed extended settlement date (being 12 April 2021) for the purpose of signing finance documents by Brecon Street as provided for in cl 13.1; and

(ii)	Mr Wilkinson, as the director of Brecon Street, had not signed documents for the purpose of finance to enable Cheng to complete settlement, including refinancing of existing debt owed to Heartland Bank by Brecon Street,  as provided for in cl 13.1.

(f)	The failures by Generus to fulfil its obligations amounted to an affirmation of the settlement agreement and precluded Generus from giving any notice of cancellation of the settlement agreement.

(g)	That “if settlement had proceeded as at that date” (which date is unclear) Brecon Street would have been in breach of s 10 of the Companies Act 1993 because it would have had no directors “which was confirmed in a letter dated 24 March 2021” from Buddle Findlay to Dallison Stone.

(h)	Generus breached the settlement agreement by failing to complete its obligations under it and failing to complete settlement.

The statement of defence

[43]	Generus’ relevant pleadings are:

(a)	That it did not waive the condition date.

(b)	On 8 March 2021, its lawyers gave notice to Cheng that it waived the benefit of cl 12.1(a) and that the settlement agreement was unconditional.

(c)	That Cheng failed to pay the deposit.

(d)	That Cheng failed to pay the balance of the purchase price.

(e)	That Cheng failed to complete the settlement agreement.

(f)	That the settlement notice was valid.

(g)	That:

(i)	it was not obliged under cl 13.1 to appoint Mr Cheng as a director of Brecon Street as the conditions under cl 12.1 were not fulfilled;

(ii)	it was ready, willing and able to settle;

(iii)	there was no obligation under cl 13.1 to sign documents relating to financing as the cl 12.1 conditions were not fulfilled; and

(iv)	it did not affirm the settlement agreement as alleged.

Generus’ submissions

[44]	In his written submissions, Mr Walker refers to the law relating to the exercise of the Court’s discretion to grant specific performance and its application to the facts of this case.5 He submits Cheng would not be entitled to specific performance of the agreement because it never had finance and was not in a position to settle.

[45]	In my view, all of that distracts from the real issue which is to succeed on this application Generus must establish that Cheng has no reasonably arguable case that Generus did not validly cancel the settlement agreement. For Generus, cancellation of the settlement agreement is a complete answer to Cheng’s claim. If the settlement agreement was validly cancelled Cheng’s application for specific performance necessarily falls away. However, if the agreement was not validly cancelled then it remains on foot and Cheng seeks performance of it or damages.

[46]	In relation to this, Generus’ position is that it validly cancelled the agreement. Mr Walker submits that the settlement agreement was not subject to finance and Cheng was unable to raise finance to settle. He argues that the settlement agreement did not become unconditional because cl 12.1 was not satisfied and Generus was not therefore in breach of its obligations under cl 13. While acknowledging Generus purported to

5	Bahramaitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 at [20].

waive the requirement of cl 12.1(a), Mr Walker submits that was ineffective because Cheng, through Mr Forbes, rejected the waiver. He notes that if the settlement agreement was unconditional, Cheng ought to have paid the deposit but did not do so.

[47]	Mr Walker argues that Generus and Mr Wilkinson did nothing to impede Cheng’s ability to settle that would deprive Generus of the right to cancel.6 He also contends there was no requirement in the settlement agreement for Generus to serve a settlement notice upon Cheng, making any argument about the reasonableness of the terms of the settlement notice redundant. In any event, he submits, it was open to Generus to avoid (for non-fulfilment of cl 12.1(a)) or cancel the settlement agreement much earlier than it did, without providing Cheng further time to settle.

Cheng’s submissions

[48]	Mr Forbes submits this is not an appropriate case for strike out because there are numerous disputed issues of fact in the affidavits and on the pleadings. He submits the settlement agreement was unconditional and the evidence is that Cheng had arranged finance to settle which it accepted on 19 April 2021.

[49]	Mr Forbes argues that Generus was not entitled to cancel the agreement. He submits that Generus was not ready, willing and able to settle.7 He says Generus could not cancel when it had not complied with its obligations under cl 13.1 to procure the appointment of Mr Cheng as a director of Brecon Street.

[50]	Further, Mr Forbes submits that the settlement notice was invalid and did not provide Cheng with reasonable time to settle and had a reasonable period been provided, Cheng would have been in a position to settle.

6	Melco Property Holdings (NZ) 2012 Ltd v Hall [2022] NZSC 60, [2022] 1 NZLR 59 at [32].
7	Noble Investments Ltd v Keenan (2005) 6 NZCPR 433 (CA).

My analysis

[51]	In light of the arguments advanced, whether Generus can show there is no arguable case, the settlement agreement was validly cancelled turns on the following matters:

(a)	Was Generus obliged to make time of the essence for performance of Cheng’s obligation to settle?

(b)	Was Generus in material default when it issued the settlement notice?

(c)	Was the settlement notice invalid because it did not provide Cheng with a reasonable period for compliance?

Was Generus obliged to make time of the essence for performance of Cheng’s obligation to settle?

[52]	As noted above, Generus argues there was no obligation upon it to issue a settlement notice making time of the essence for Cheng to settle. Mr Walker referred to Chan v Boston Trustees 6037 Ltd in support of the submission, but that decision does not deal with the point.8 His argument did not address the fact that Generus’ solicitors Buddle Findlay plainly considered it was necessary to issue a settlement notice because that is what they did.

[53]	In my view, it is the case that a settlement notice was required. While the settlement agreement required settlement on 31 March 2021, it does not state that the time for settlement was of the essence. No submission was made that in the circumstances of this case, Cheng’s delay in settling was so protracted that it amounted to a repudiation of the settlement agreement or that these parties must be taken to have intended at the time the settlement agreement was made that a notice making time of the essence would not be required in the event of a failure to settle on due date.9

8	Chan v Boston Trustees 6037 Ltd, above n 2, at [39].
9	United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 (HL) at 928.

[54]	In those circumstances, before Generus could rely upon Cheng’s failure to settle as a basis to cancel the settlement agreement, Generus had to make time of the essence. To do so, it had to give an appropriate notice setting a reasonable period of time within which Cheng was to perform its obligations. Only if Cheng failed to perform within the time allowed by such a notice would Generus be entitled to cancel.10

Was Generus in material default when it issued the settlement notice?

[55]	Cheng’s position is that a cancelling party must be ready and willing to perform the contract according to its terms and will not be so if it is in material breach of contract. Mr Forbes refers to Noble Investments Ltd v Keenan where the Court of Appeal said the principle that a party must be ready, willing and able to proceed to completion in order to be able to cancel a contract was intended to ensure that a party does not benefit from its own wrong and:11
A party could be seen as benefiting from its own wrong if it seeks by cancellation to deprive the other party of the benefit of the contract in circumstances where the other party’s breach is a direct result of breach committed by the party seeking to cancel the contract. Non-payment of a deposit could come into this category where, for example, the vendor needs to use the deposit to fulfil his or her obligations under the contract. This is not the case here, however, as the deposit was to be held by a stakeholder. A party could also be seen as benefiting from its own wrong where it is unable or unwilling to perform its obligations under the contract and seeks to avoid liability for its own breach by cancelling the contract on the basis of the other party’s breach.

[56]	Mr Forbes also refers me to the Sale of Land text for a discussion of the principle, where the learned author notes that a party who otherwise has a right to cancel nevertheless may not cancel if the breach on which it relies is caused by their own breach and that:12
A detailed consideration of the facts, and further consideration of the circumstances in which the principle should apply, will be needed in each case in which this issue is raised.

10	See DW McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at [12.09(a)].
11	Noble Investments Ltd v Keenan, above n 7, at [47].
12	DW McMorland Sale of Land, above n 10, at [12.02(g)] (footnote omitted).

[57]	Cheng argues that Generus was in material breach of the settlement agreement because it had failed to comply with its obligations in appointing Mr Cheng as a director of Brecon Street for the purpose of signing finance documents to enable completion of settlement. It argues this obligation arose because all the cl 12.1 conditions had been fulfilled. Specifically, it says that Generus’ solicitors confirmed the settlement agreement was unconditional in their letter of 8 March 2021.

[58]	In response to this, Generus argues that cl 12.1(a) was not satisfied nor was it waived. It says its attempt to waive the special condition was rejected by Mr Forbes and was therefore ineffective.

[59]	Neither party has maintained a consistent position in relation to the issue of whether the settlement agreement became unconditional. For Generus, Buddle Findlay repeatedly maintained from 8 March 2021 that the settlement agreement was unconditional. Upon purporting to cancel the settlement agreement, Buddle Findlay appeared ambivalent on the issue, and now Mr Walker asserts that cl 12.1 was not satisfied. For its part, Cheng maintained throughout that Generus could not unilaterally waive cl 12.1(a) but now asserts Generus could do so and the settlement agreement was unconditional.

[60]	This issue raises several difficult legal and factual issues which were not acknowledged by counsel. The first is whether it was ever open to Generus to unilaterally waive cl 12.1(a). Generus could only have such a right if the condition was solely for its benefit and severable.13 Second, is whether Generus lost any right to unilaterally waive the condition when it had not purported to exercise that right prior to the date for fulfilment of the condition.14 Third, is whether having purported to waive the condition Generus could retract the waiver and seek to rely on the condition to avoid the contract, or whether it was estopped from doing so.15 I do not consider these are issues I can appropriately decide on this application, particularly in the absence of any argument.

13	Hawker v Vickers [1991] 1 NZLR 399 (CA) at 402 403.
14	Globe Holdings Ltd v Floraros [1998] 3 NZLR 331 (CA) at 339 and see also KE Lindgren Time in the Performance of Contracts (2nd ed, Butterworths, Melbourne, 1982) at [583] [599].
15	DW McMorland, above n 10, at [5.17(d)].

[61]	However, adopting the position most favourable to Cheng, that the settlement agreement was unconditional, there is also an issue as to whether Generus breached cl 13 in a manner that deprived it of its right to cancel. As noted earlier, Mr Walker argues there was no finance condition in the settlement agreement and no obligation upon Generus to assist Cheng to obtain finance. He submits that Cheng attempted to obtain finance through the Bank of China on behalf of Brecon Street without informing Mr Wilkinson, who was the sole director, or the majority shareholder of the company and that this was not contemplated by cl 13. Further, he says the failure of Cheng to obtain finance was not the result of any breach of cl 13, but rather Cheng took the risk of not being able to obtain finance.

[62]	As noted above, the Court of Appeal in Noble Investments Ltd v Keenan provided illustrations of when a party can be seen as benefitting from its own wrong. It is the first of those that is relied upon by Cheng; that is, where a party sought by cancellation to deprive the other party of the benefit of the contract in circumstances where the other parties breach is “a direct result” of breach committed by the party seeking to cancel.16 There, the fact that the cancelling party was in breach of the agreement by failing to pay a deposit did not deprive it of the right to cancel because the non-payment of the deposit “had no causative effect” on the alleged breach by the vendor of its obligations in relation to title.17

[63]	Here, any breach of cl 13 by Generus did not, in my view, prevent Cheng from being able to settle. Rather, it was unable to settle because it had not accepted an offer of finance until 19 April 2021. Cheng cannot assert it would have been in a position to settle had Generus complied with its obligations under cl 13. Put another way, any failure by Generus to comply with cl 13 had no causative effect upon Cheng’s failure to settle on the settlement date or prior to Generus’ purported cancellation.

Was the settlement notice invalid because it did not provide Cheng with a reasonable period for compliance?

[64]	This is Cheng’s strongest argument. By issuing a settlement notice a party defines the period within which the defaulting party will be considered to have

16	Noble Investments Ltd v Keenan, above n 7, at [47].
17	At [48]-[49].

repudiated the agreement. Under the general law a party issuing such a notice must allow the party in default, a reasonable period of notice for compliance. In making that assessment McMorland states:18
It must take account of a wide range of factors, including the length of and responsibility for the delay, if any, which has already occurred and the conduct of each party in relation to the delay up to that point, the urgency of the matter for the giver of the notice as known to the recipient, any matters affecting the recipient’s ability to settle which were known to the giver when the contract was made, and the nature of the property. Facts not known to the giver of the notice are probably also relevant, though the conduct of the defaulting party leading to the other’s lack of knowledge must also be considered. These and any other relevant factors are considered from the point of view of both parties, though the onus of proving that the time allowed was reasonable lies on the giver of the notice.

(footnotes omitted)

[65]	Here, Generus issued the settlement notice on Thursday, 8 April 2021 and required Cheng to settle by 4.00 pm on Monday, 12 April 2021. That gave Cheng just two working days to settle or face cancellation. Mr Walker argues that was reasonable because Cheng had from the date of the agreement, being 5 November 2020, to obtain finance, there had in effect been an extension of time for settlement of two weeks to 14 April 2021, and Generus had been left in the dark about the offer of finance from the Bank of China, which in any event was not for the full amount required to settle.

[66]	Mr Forbes argues that the time provided was unreasonably short, particularly as Dallison Stone had through correspondence made Generus’ solicitors aware on  23 December 2020 that finance had been approved in principle, and on 25 March 2021 confirmed that the financier was the Bank of China. He argues Dallison Stone’s advice that the Bank of China had commenced onboarding and anti-money laundering compliance procedures was significant as showing that it had accepted Brecon Street as a customer and that finance had been approved. He also argued that an email from Mr Richardson (a solicitor from Linwood Law also acting for Generus) of 31 March 2021 attaching a requested certificate under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, implicitly confirmed arrangements proposed by Dallison Stone in the 25 March 2021 letter for settlement on 14 April 2021. He argues that Generus was fully aware of the advanced stage of the refinancing

18	DW McMorland Sale of Land, above n 10, at [12.17(a)].

arrangements, which reinforces that the timeframe in the settlement notice was unreasonable.

[67]	Whether Cheng was given reasonable notice to settle requires an in-depth examination of the facts, which is not appropriate on this application, but it is plainly arguable in the circumstances of this case that a period of two working days was not a reasonable timeframe and that the settlement notice was therefore invalid. I take into account the nature of the transaction, the large amount payable by Cheng under the settlement agreement, the fact the delay was not protracted, that Generus was aware of steps being taken by Cheng to obtain finance and that they were well advanced.

[68]	As a consequence of this, I consider it is arguable that Generus was not entitled to rely upon the settlement notice and cancel the settlement agreement and that its purported cancellation was ineffective.

Would specific performance be available to Cheng?

[69]	Mr Walker advanced a further argument that Cheng will not be entitled to specific performance, being the primary remedy it seeks, because it has never been in a position to settle. He relies upon the affidavit of Mr Cheng, where he says that Cheng is presently making alternative arrangements to enable settlement.

[70]	I do not accept Mr Walker’s submission reflects the true tenor of Mr Cheng’s evidence, which is that the Bank of China’s offer of finance, accepted on 19 April 2021, would have allowed Cheng to settle and that the offer did not proceed because Generus asserted that the settlement agreement had been cancelled.

[71]	A plaintiff seeking specific performance must plead the ability and willingness to perform. It must also be able to prove that all past obligations have been performed and there is a readiness, willingness, and ability to perform all future obligations at the opportune time.19 In relation to this Blanchard says:20

19	Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Thomson Reuters, Wellington 2011) at [8.8.6].
20	At [8.8.6] (footnotes omitted).

An important distinction as to timing must be drawn in two separate contractual scenarios involving an ordinary conveyancing transaction. While the readiness, willingness, and ability of the plaintiff who seeks specific performance is judged at the time of commencement of proceedings, the readiness, willingness, and ability of the plaintiff who purports to cancel a contract because of non-performance by the other party (as a result of which the plaintiff issued a settlement notice) is judged at the time the notice is given. What must be shown in the latter case is that the plaintiff was ready, willing, and able to proceed to settlement at the time of issuing the notice: the plaintiff must be able to show that it was within its power to proceed to settlement.

[72]	Despite the absence of any pleading by Cheng that it was ready, willing and able to perform its obligations under the settlement agreement at the time it filed this proceeding, that is clearly its position and any deficiency in its pleading can be remedied by amendment.

[73]	I am not able to rule out the possibility that should Cheng establish the settlement agreement was not validly cancelled, specific performance might be ordered. Further, even if the Court were to refuse specific performance, Cheng might have an entitlement to damages.

Result

[74]	Generus has not satisfied me that Cheng’s claim has no reasonable prospect of success. Its application to strike out the first cause of action in Cheng’s amended statement of claim is dismissed.

[75]	Cheng is entitled to costs both in respect of the strike out application and the summary judgment application that was abandoned. Counsel are to confer with a view to agreeing quantum, but if there is any dispute about that they may file memoranda of no more than five pages. I will decide the issue of costs on the papers.

O G Paulsen Associate Judge

Solicitors:
Dallison Stone, Christchurch Linwood Law, Christchurch