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Cheque snag hits Waitaki Valley viticulture plans

By Chris Hutching

Friday 8th August 2003

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A High Court judgment released this week involving Waitaki Valley Estates breaks new ground over the way property sales are settled and means solicitors must distinguish between personal and bank cheques, depending on the wording of contracts.

Waitaki Valley Estate's plans to add more properties to its viticulture subdivision have hit a snag with High Court Justice Lester Chisholm ruling that a personal cheque is "not good legal tender" for a deposit in cases where the buyer has been served a default notice.

Justice Chisholm appears to have set a new precedent in a case involving a dispute over a block of land in the Waitaki Valley, South Canterbury that was recently declared a potential new wine-producing region after trials by the developers who said that as a result the prices of lifestyle blocks would increase from $20,000 a hectare to $30,000 a hectare.

The area was earmarked for viticulture subdivision by the late Howard Paterson, Stephen Cozens and Colin Reynolds via their company, Waitaki Valley Estates development.

One of their associated companies, Otago Station Estates, struck contracts in November 2000 with two farmers to buy a 70ha property at Otekaieke for $600,000, requiring a $60,000 deposit upon confirmation of the agreement, and also to buy a 385ha neighbouring farm for $2.95 million, requiring a deposit of $295,000.

The properties lie in the path of a proposed canal that will be part of Meridian Energy's $1.5 billion Project Aqua hydro generation and irrigation scheme along the valley. The state-owned enterprise is negotiating purchase contracts with landowners in the Waitaki Valley.

When both agreements became unconditional in March 2001 the parties agreed to defer settlement. Early in 2002 Otago Station Estates gave notice that it was ready to settle the agreements and in October sought to enforce them.

But on November 13 the lawyers acting for farmers John and David Parker, vendors of the properties, gave notice that the purchase and sale agreements would be cancelled for nonpayment of the deposit unless it was paid within three working days.

On the final day for payment the Otago Station Estates solicitors sent a personal cheque (from the company) to the Parkers' solicitors as a deposit payment.

But it was rejected on the grounds that the personal cheque was not legal tender and as a result Otago Station Estates had failed to remedy the default as to non- payment of the deposits.

Otago Station Estates solicitors maintained there was no requirement in the contract or as a matter of commercial practice for deposits to be paid by a more secure bank cheque so they took the matter to the High Court on July 2. Each side called three expert witnesses.

The lawyer for the Parkers, Nick Davidson QC, drew a distinction between the common commercial practice of paying deposits by personal cheque and payment of a deposit in response to a default notice.

In his ruling Justice Chisholm referred to Williams v Gibbons where the Appeal Court had recognised bank cheques as legal tender because then the only risk was the unlikely one of insolvency of the bank. But Justice Chisholm said that while a bank cheque represents good tender in the context of payment on settlement, the Williams v Gibbons case cannot conclusively resolve whether a personal cheque represents good tender on the payment of a deposit. "The deposit issue needs to be addressed virtually from scratch."

Justice Chisholm concluded that once there had been a failure to pay the deposit and the vendor had invoked rejection clauses in the contract then "a more robust contractual regime governs the situation."

"As stated in Tyree's Banking Law in New Zealand (second edition) ­ "... if the creditor does accept payment by cheque then the payment which is effected when the cheque is delivered is conditional. The condition to which the payment is subject is a condition subsequent, namely that the cheque will be met upon proper presentation for payment."

In the case in question the payment was made close to the expiry of the deadline and there was no prospect of the personal cheque being cleared within the requisite period. As a result Justice Chisholm ruled in favour of the Parkers cancelling the contract.

Meanwhile, a representative of the late Mr Paterson's estimated $180 million estate, Alistair Broad, said an appeal was being considered.

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