A recent High Court decision, Reid v Omana North Limited [2026] NZHC 92, provides clarification on how clause 10 of the ADLS/REINZ Agreement for Sale and Purchase (“the Agreement”) operates when purchasers pursue a compensation claim. The case arose from the collapse of a $3.4 million Auckland apartment purchase, with disputes centring on settlement timing, contractual obligations, and the implications of without-prejudice negotiations.
Background
The Reids, the purchasers, declared the Agreement unconditional in July 2024 and paid the 10% deposit. Shortly afterwards, they issued a clause 10 compensation claim for alleged undisclosed issues. This triggered two expert determinations under the Agreement:
- A Clause 10.6(2) determination, which confirmed the compensation claim was reasonably arguable; and
- A Clause 10.8(4) determination, which directed that $200,000 be held in escrow and that Omana North Limited (“ONL”) contribute $48,000 towards the Reids’ costs.
Under clause 10.9 of the Agreement, where expert determinations are still pending at the time settlement would otherwise fall due, settlement automatically defers to two working days after the parties are notified of the determination(s), provided the purchasers have previously confirmed they are ready, willing, and able to settle. Because both determinations were required here, settlement was pushed out to 23 April 2025.
Events leading to cancellation
Both parties asserted they were ready to settle on 23 April. However, settlement did not occur because the parties never finalised and signed a proposed settlement agreement. The Reids then issued a settlement notice requiring settlement by 13 May 2025, and, when ONL did not settle by 16 May, the Reids cancelled the Agreement.
ONL responded with applications for summary judgment and specific performance, arguing:
- no clause 10 deferral applied beyond October 2024;
- alternatively, the Reids failed to settle on 23 April; and
- the parties had already reached a binding settlement on 9 May 2025.
Were the purchasers “ready, willing, and able” to settle?
A core issue was whether the Reids met the contractual “ready, willing, and able” threshold both when the second determination issued and when the settlement notice was served. The Court held it was reasonably arguable that they did because evidence showed that:
- on 20 April 2025, the Reids reaffirmed their readiness to settle;
- settlement funds sat in the Reid’s solicitor’s trust account from 23 April to 26 May;
- the e-dealing had been signed; and
- the Reids had requested the expert-directed interim amount be held on interest-bearing terms.
The Court also highlighted that ONL’s insistence on an additional stakeholder agreement had no contractual basis and was not required by the expert. It was therefore arguable that the purchasers had satisfied all settlement prerequisites for 23 April 2025, and that ONL’s extra requirements sat outside the Agreement. ONL’s argument that the purchasers were in default as early as October 2024 therefore could not succeed on a proper interpretation of clause 10.9.
Was cancellation valid?
The Court found it was reasonably arguable that the Reids were entitled to cancel when ONL failed to settle by 16 May. A vendor requiring additional, non-contractual steps may itself risk falling into default, and the Court considered this issue unsuitable for summary determination. The validity of cancellation will therefore be tested at trial.
No binding settlement in without-prejudice negotiations
ONL also argued that a binding settlement had been reached during without-prejudice negotiations on 9 May 2025. The Court rejected this. Both parties had contemplated a formal written deed and did not intend to be bound until it was executed. No such deed was ever signed.
The without-prejudice correspondence remained inadmissible because none of the section 57(3) Evidence Act 2006 exceptions, permitting such communications to be admitted, applied, a reminder that an “agreement in principle” will not displace privilege.
Summary judgment applications declined
The Court dismissed all of ONL’s summary judgment applications, finding:
- the Reids’ interpretation of clause 10.9 was reasonably arguable;
- it was reasonably arguable the Reids were ready, willing, and able to settle; and
- it was reasonably arguable the Reids were entitled to issue the settlement notice and cancel when ONL failed to settle.
The matter will now proceed to a full trial.
Key takeaways
- Clause 10 operates as a continuous deferral mechanism, not a series of stages requiring repeated confirmations.
- Parties must adhere strictly to the Agreement and should avoid introducing additional requirements into the settlement process.
- Without-prejudice communications remain protected unless a binding agreement is actually reached.
- Pursuing a clause 10 compensation claim does not undermine settlement readiness so long as purchasers remain genuinely ready, willing, and able to settle.
If you would like assistance or advice on how this decision may affect your property transactions or settlement processes, please contact one of our commercial experts, Sarah Churstain or Jordan Todd.
FAQs: Clause 10 compensation claims and property settlements (NZ)
Does a clause 10 compensation claim delay settlement under the ADLS/REINZ Agreement?
It can. Where the clause 10 expert determination process is still underway when settlement would otherwise fall due, clause 10.9 can defer settlement to two working days after the parties are notified of the relevant determination(s), provided the purchaser has confirmed they are ready, willing and able to settle.
Do purchasers have to keep re-confirming they are “ready, willing and able” during the clause 10 process?
Not necessarily. In this case, the Court accepted it was reasonably arguable that clause 10 operates as a continuing deferral mechanism rather than a series of separate stages requiring repeated confirmations at different points in time. Whether the purchaser was in fact “ready, willing and able” remains a factual question.
Can a purchaser pursue a clause 10 compensation claim and still be “ready, willing and able” to settle?
Yes, potentially. The Court considered it reasonably arguable that a purchaser can pursue a compensation claim and still be ready, willing and able, so long as they can demonstrate they were genuinely able to settle (for example, funds available, e-dealing signed, and no outstanding contractual prerequisites).
Can a vendor insist on extra steps (like an additional stakeholder agreement) before settlement?
Only if the Agreement (or a binding variation) requires it. The Court indicated that insisting on additional, non-contractual requirements may itself create risk for the vendor, and may not prevent the purchaser from being treated as ready to settle if all contractual prerequisites have been met.
Are without-prejudice settlement negotiations admissible to prove a binding settlement?
Usually no. Without-prejudice communications remain privileged unless an exception applies (for example, where a binding agreement was actually reached). The Court rejected the argument that an “agreement in principle” during without-prejudice discussions created a binding settlement where the parties intended to be bound only once a formal deed was signed.
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