Supreme Court denies leave to appeal in case arising from residential project

On 26 June 2019, the first respondent advanced $3m to the applicant. 

By 2022, the parties’ relationships had become bitter. The residential development faced financial difficulties, with significant liabilities owed to a secured lender. 

On 8 September 2022, the respondents applied for summary judgment regarding the $3m loan based on a purported oral term that made the loan repayable on demand. 

An associate judge of New Zealand’s High Court dismissed that application. The High Court ruled that the respondents adopted a construction contradicting the transaction’s rationale and lacking commercial common sense. 

By September 2023, the issues facing the residential development had gotten worse, which prompted the applicant to place the company it had incorporated and another company in liquidation. 

The respondents obtained leave to reapply for summary judgment. They alleged that the loan became repayable upon the liquidations of the two companies, based on an express or implied term of the sale and purchase agreement. 

The High Court’s associate judge granted summary judgment upon determining that a reasonable person in the parties’ position during the relevant period: 

• would have considered the qualifying event to be the completion and payment of shareholder dividends payable by a development company controlled by a board of directors 
• would not have thought that the qualifying event would include the completion of the development company’s liquidation and a liquidator’s pursuit of claims for unliquidated damages against the company’s mortgagees or directors 

The High Court held that the qualifying event transpired because the dividends were no longer payable under the law, given the two companies’ liquidation. 

Alternatively, the High Court interpreted clause 20, in light of the pertinent background, as meaning that the liquidation required the loan’s repayment, given that the case met the criteria for implication of a term. 

New Zealand’s Court of Appeal affirmed the High Court decision. Approaching the implication of terms in a sequential manner, the appeal court found that: 

• The applicant’s approach to construction attempted to avoid the contract’s “significant lacuna” on what would occur if a shareholder dividend became impossible due to insolvency or liquidation 
• That lacuna was relevant to the implication of a term 
• Implying the suggested term was necessary to give effect to the parties’ reasonable expectations, objectively determined 

The applicant alleged that the proposed appeal raised a legal question regarding the approach to the implication of terms and the extent to which the approach should be iterative or sequential, which impacted the case outcome. 

The applicant alleged that the proposed appeal asserted a potential miscarriage of justice based on alleged factual errors and/or the omitted critical contextual factors. 

Leave denied

The Supreme Court of New Zealand dismissed the application seeking leave to appeal and ordered the applicant to pay the respondents one set of costs of $2,500. 

According to the Supreme Court, even assuming that a legal question remained regarding the iterative versus sequential approach, this case lacked: 

• an apparent miscarriage of justice in the civil context 
• sufficient prospects of success, given the concurrent factual findings that the advanced sum was a loan, not a gift 
• enough merit in the factual points that the applicant asserted