Appeal Court upholds Reynolds cheque case

By Chris Hutching

Friday 2nd July 2004

Auckland developer Symphony Group and its principal, Colin Reynolds, have failed in the Appeal Court to overturn a High Court ruling about the veracity of a personal cheque in a $2.9 million property deal in the recently developed Waitaki Valley in South Canterbury.

The finding will potentially affect the way property deals are settled and may give sellers or buyers a way to opt out of a deal unless their lawyers are aware of the latest ruling, according to Nick Davison QC, who appeared for the vendors in the case.

It involved a situation where a deposit cheque was sent by a solicitor acting for Mr Reynolds' development company, Otago Station Estates, in response to a default notice.

The payment was close to expiry of the deadline and there was no prospect of the personal cheque being cleared in time.

The judges found it made no difference that the cheque was accepted and processed by a Dunedin branch of the National Bank in the normal course of its business. Nor did it matter that the vendors' solicitors could have earned interest on the amount conditionally deposited in their trust account from the time of the deposit. Nor did it matter that it is common practice of lawyers and real estate agents that deposits are often paid by personal cheque.

"... where objection by the vendor to a personal cheque will have serious legal consequences, a prudent purchaser needs to ascertain that no objection will be taken to the tender of a personal cheque or pay by bank cheque."

"A vendor cannot be obliged to accept a personal cheque. The practice of vendors of not requiring deposits to be paid by bank cheque is just that: a practice."

The conditional crediting of the trust account of the vendors' solicitor with the face value of the cheque, conditional upon subsequent clearance, is not equivalent to the receipt of cleared funds in the trust account, the judges concluded.

The case arose when the development company of the original developers of Waitaki Valley Estates, the late Howard Paterson, and Messrs Reynolds and Stephen Cozens, clinched an agreement to buy two Otekaieke properties from John and David Parker.

One was a 70ha property valued at $600,000 and a 385ha neighbouring farm valued at $2.9 million.

The sale and purchase agreements became unconditional in March 2001 but the parties deferred settlement until early in 2002 when Otago Station Estates gave notice that it was ready to settle and in October initiated legal action to enforce the contracts.

The solicitor acting for the Parkers then gave notice to Otago Station Estates that the contracts 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) as a deposit payment but it was subsequently rejected by the Parkers, whose lawyer was aware of the distinction in law between a personal and bank cheque in the case of a default notice.

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