11 Maunganui Road Limited v Evaroa HC Auckland CIV 2010-404-1678

[2010] NZHC 1715

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-001678

BETWEEN  11 MAUNGANUI ROAD LIMITED Plaintiff

ANDWILLIAM MATAIOPO O TAKAU ARIKI EVAROA AND KATHRYN LESLEY EVAROA

First Defendants

ANDMALCOLM ELLERSLIE EDEN AND RAEWYN MAYVIS EDEN

Second  Defendants

Hearing:         12 July and 6 September 2010

Counsel:         RJ Hollyman and S McLaughlin for plaintiff

CA Murphy for defendants

Judgment:      20 September 2010 at 11:00am

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]

This judgment was delivered by me on 20 September 2010 at 11:00am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Mayne Wetherell, PO Box 3797, Auckland for plaintiff

Shieff Angland, PO Box 2180, Auckland for defendants

11 MAUNGANUI ROAD LTD V EVAROA  HC AK CIV 2010-404-001678  20 September 2010

The application

[1]      The  plaintiff  applies  for  summary judgment  against  the  first  and  second defendants.

[2]      In respect of the first defendants, an order for specific performance is sought in respect of a sale and purchase agreement relating to apartment P25 in the unit title complex at Mt Maunganui known as Eleven, together with interest in accordance with clause 6.3 of the agreement for sale and purchase.   In addition, the plaintiff seeks specific performance against the first defendants in respect of apartment P26 in the unit title complex at Mt Maunganui known as Eleven, together with interest in accordance with clause 6.3 of the agreement for sale and purchase.

[3]      In respect of the second defendants, the plaintiff seeks specific performance of a sale and purchase agreement relating to apartment N9B in the unit title complex at Mt Maunganui known as Eleven, together with interest in accordance with clause

6.3 of the agreement for sale and purchase.

The court’s approach to a plaintiff’s summary judgment application

[4]      Rule 12.2 of the High Court Rules requires that a plaintiff satisfy the court that a defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.  The rule permits the entry of judgment in respect of part of a claim, as was made clear by the amendment introduced by r 5 of the High Court Amendment Rules 2009 (SR 2009/75).  The obligations imposed by the rule have been examined by a number of authorities.

[5]      The correct approach to an application for summary judgment by a plaintiff was recently summarised in Krukzeiner v Hanover Finance Ltd[1]  where the court said:

[1] Krukziener v Hanover Finance Ltd [2008] NZCA 187 (CA) at [26].

The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried:

Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11

PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[6]       In Pemberton v Chappell[2] the court also commented on the position where a defence is not evident on a plaintiff’s pleading and said:

If a defence is not evident on the plaintiff's pleading I am of opinion that if the defendant wishes to resist summary judgment he must file an affidavit raising an issue of fact or law and give reasonable particulars of the matters which he claims ought to be put in issue. In this way a fair and just balance will be struck between a plaintiff's right to have his case proceed to judgment without tendentious delay and a defendant's right to put forward a real defence.

[2] Pemberton v Chappell [1987] 1 NZLR 1(CA) at 3.

[7]      That position was further reinforced in Australian Guarantee Corporation

(New Zealand) Ltd v McBeth[3] where the court said:

Although the onus is upon the plaintiff there is upon the defendant a need to provide some evidential foundation for the defences which are raised. If not, the  plaintiff's  verification stands  unchallenged  and ought  to  be  accepted unless it is patently wrong

[3] Australian Guarantee Corporation (New Zealand) Ltd v McBeth [1992] 3 NZLR 54 at 59.

[8]      Hypothetical  possibilities  in  vague  terms,  unsupported  by  any  positive assertion or corroborative documents advanced by defendants will not frustrate the obligation on a plaintiff to discharge the onus of proof: SH Lock (NZ) Ltd v Oremland.[4]

[4] SH Lock (NZ) Ltd v Oremland HC Auckland CP641/86, 19 August 1986.

[9]      In Tilialo v Contractors Bonding Ltd[5] the court raised a caution and said:

[5] Tilialo v Contractors Bonding Ltd CA 50/93, 15 April 1994 (CA) at 6.

The Courts must of course be alert to the possibility of injustice in cases in which some material facts to establish a defence are not capable of proof without interlocutory procedures such as discovery and interrogatories.  That

does not mean that defendants are to be allowed to speculate on possible defences which might emerge but for which no realistic evidential basis is put forward.

[10]     A court is not required to accept uncritically any or every disputed fact: Eng Mee Yong v Letchumanan.[6]   However the court will not reject even dubious affidavit evidence, even though there must be suspicion as to the good faith of the deponent, if there is an essential core of complaint that supports a defence.   In essence, the inquiry is whether or not the person’s assertion passes the threshold of credibility: Pemberton v Chappell;[7] Orrell v Midas Interior Designs.[8]

[6] Eng Mee Yong v Letchumanan [1980] AC 331.

[7] Pemberton v Chappell, above n 2.

[8] Orrell v Midas Interior Designs [1991] 4 PRNZ 608 at 613.

[11]     In Tilialo v Contractors Bonding Limited[9] it was observed:

[9] Tilialo v Contractors Bonding Limited, above n 5, at 8.

Drawing the line between mere assertions of possible defences and material which sufficiently raises an arguable defence so that the defendant should not be denied the opportunity to employ interlocutory procedures and have a trial is a matter of judgment.  Views may well differ.

Amendment

[12]     The plaintiff’s submissions in support concluded shortly after 4pm on the first day of the fixture.  Ms Murphy signalled a challenge to one of the main points advanced by Mr Hollyman.

[13]     Mr Hollyman advanced the case that though there were conflicts in so far as the evidence was concerned regarding representations, for the purpose of the summary judgment  hearing  the  plaintiff  would  not  rely on  this.    The  plaintiff, instead, supported its case in the following way, namely:

a)        There was no breach by the plaintiff that entitled the defendants to cancel pursuant to the Contractual Remedies Act 1979;

b)There  were  no  representations  by  the  plaintiff  that  entitled  the defendants to cancel pursuant to the Contractual Remedies Act 1979; and

c)       Alternatively, there had been an affirmation by the defendants so that it was not possible for them to cancel.

[14]     Ms Murphy challenged the plea of affirmation on the basis that it did not specifically appear in the statement of claim or notice of application for summary judgment.  Further, she submitted that not all evidence on the basis that affirmation was a possible plea was before the court.  She submitted that the position occurred because of the lack of a clear pleading of affirmation either in the statement of claim or in the summary judgment application.

[15]     In a minute that I issued directly following hearing counsel I noted that this case raised a problem for summary judgment applications.  There was no provision that allows further evidence to be adduced where a plaintiff raises an affirmative answer in the plaintiff’s reply affidavits to the defendant’s opposition.

[16]     In the minute that I issued I briefly recorded the three hurdles which an applicant for amendment must meet as set out in Elders Pastoral Ltd v Marr.[10]    I also recorded that Cegami Investments Ltd v AMP Financial Corporation (NZ) Ltd[11]confirmed that amendments to proceedings were possible in the summary judgment procedure.  A short adjournment was then granted.  Its purpose was to see whether

the plaintiff wished to carry on with summary judgment and, if so, what amendments were sought.

[10] Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA) at 385.

[11] Cegami Investments Ltd v AMP Financial Corporation (NZ) Ltd [1990] 2 NZLR 308 (CA).

[17]     On 16 July 2010, at the subsequent conference, Mr Hollyman advised that his client wished to proceed with the summary judgment application and that he would seek permission to amend to cover affirmation and, in particular, the application of the Contractual Remedies Act 1979, s 7(5) to this case.  Although Ms Murphy did not consent, she did not raise particular prejudice having regard to the fact that an

adjournment of the hearing had to be granted because we had run out of time. Directions were then made for the filing and service of an amended pleading or application as appropriate, an amended notice of opposition, and for additional evidence.  In addition, provision was made for the filing of additional submissions covering the position in relation to affirmation.

[18]     In  its amended application for summary judgment in respect of the first defendants, the plaintiff added to the grounds in support the following:

(b)       Insofar as the first defendants may have had a right to cancel (which is denied), the first defendants have affirmed their agreements for sale and purchase by their conduct, which is inconsistent with cancellation and which made it clear that they wished to hold the contract open, rather than cancel it.  The plaintiff relies in particular on the following:

(i)the first defendants’ involvement in and knowledge of the development, in particular their interest in purchasing retail space now occupied by a café, and the firstnamed first defendant’s assistance in marketing and promotion of the development, including to hotel operators;

(ii)      the first defendants invoking (in February and March 2009) their contractual right under their agreements for sale and purchase to compensation for the loss of part of the deck area, and their agreement that compensation be calculated by reference to the original purchase price;

(iii)      the first defendants invoking their statutory rights under the Building Act, when making applications to the Department of Building and Housing on 26 November 2009; such rights arising solely by virtue of their status as purchasers under continuing agreements for sale and purchase.

[19]     In respect of the second defendants, the additional grounds added were as follows:

(c)Insofar as the second defendants may have had a right to cancel (which is denied), the second defendants have affirmed their agreements for sale and purchase by their conduct, which is inconsistent  with  cancellation  and  which  made  it  clear  that they wished to hold the contract open, rather than cancel it.  The plaintiff relies in particular on the following:

(i)the second defendants’ knowledge of the development, in particular  arising from the  firstnamed  second  defendant’s position as lead real estate agent for the development until late 2008; and

(ii)      the second defendants invoking their statutory rights under the Building Act, when making applications to the Department of Building and Housing on 26 November 2009; such  rights  arising  solely  by  virtue  of  their  status  as purchaser   under   continuing   agreements   for   sale   and purchase.

The opposition

[20]     The defendants oppose the making of decrees for specific performance.  In summary they allege:

a)       They were justified in giving notice cancelling the agreements for sale and purchase on 14 December 2009 because:

i)The Evaroas were induced to enter into the sale and purchase agreements based on representations relating to the exclusivity of the apartment decks; and

ii)The Evaroas were induced to enter into a variation agreement as a direct result of representations concerning the plaintiff’s ability to deliver five metre decks; and

iii)The Edens were induced to enter into the sale and purchase agreements by representations concerning the layout of their apartment  which  did  not  include  the  presence  of structural columns in the living area, kitchen, office and two bedrooms;

b)The plaintiff is in breach of contract because  it made changes or alterations to the apartments which were not justified under the sale and purchase agreements and in circumstances where it would not be just to award specific performance;

c)       There  are  substantial  issues  of  fact  and  credibility  in  dispute  as between the plaintiff’s officers and the defendants such that it is not suitable to determine matters on a summary judgment application;

d)They  deny  that  they have  affirmed  their  agreements  for  sale  and purchase.   They claim that they did not have full knowledge of the plaintiff’s misrepresentations and breaches.   They say they did not conduct themselves in a manner inconsistent with a desire to cancel the agreements.

[21]     The  factual  matters  raised  by  the  defendants  in  opposition  cover  the following areas:

a)       The  inclusion  of  certain  public  facilities  –  a  hotel  operation,  car parking and a late night café;

b)        A variation to the plans resulting in a change to a deck;

c)        A change to the fire-safe path from that conveyed in the plans;

d)       Additions of structural columns in the apartments;

e)       Changes to the body corporate rules governing the operation of the complex.   They say that the changes had the effect of placing encumbrances on the respective titles of the apartments concerned which are not justified by the sale and purchase agreements; and

f)        The papers refer to complaints about the interiors of the apartments.

[22]     Although  the  matters  set  out  in  [21]a)  and  [21]f)  are  recorded  in  the affidavits, they were not specific matters relied upon for the purpose of this application.  It is for that reason that I do not investigate them further.

Background

[23]     The plaintiff commenced the development of a substantial high rise property at 17/13 Maunganui Road, and 6 Marine Parade at Mount Maunganui.  The building enjoys substantial views over Mount Maunganui beach and the ocean to the north

east and similar views to the south west over Tauranga Harbour. The building which was ultimately developed comprised in the vicinity of 60 to 65 luxury apartments in a podium and in two towers.

[24]     Mr RAH  Donald  is  the  director  of  the  plaintiff  company.    He  describes himself as a professional property developer specialising in quality residential developments.  He has engineering degrees from Canterbury University and Oxford University.  He has been working in property development for more than 30 years.

[25]     The first-named second defendant became involved in the Eleven project in September 2005.  At that time he was contracting as a sale executive to Colliers, a real estate firm, and was specifically dealing in high rise realty at Mount Maunganui. At that stage the Eleven project was very much in its infancy.

[26]     Concept plans were drawn up in late 2006.  Initial pre-sales commenced in

2006.   They were based on outline plans and a schedule of finishes.   Working drawings had not then been developed.  Nor had resource consent been obtained.

[27]     On 23 January 2007 Mr and Mrs Eden entered into an agreement with the plaintiff for the sale and purchase of apartment N9B for $1,910,000, including GST. That apartment is in one of the towers.

[28]     On  May  2007  Mr  and  Mrs  Evaroa  entered  into  an  agreement  with  the plaintiff for the sale and purchase of apartment P26 for $755,000, including GST.  It is a podium apartment.

[29]     On 20 September 2007 Mr and Mrs Evaroa entered into an agreement with the plaintiff for the sale and purchase of apartment P25 for $695,000, including GST. It is also a podium apartment.

Important clauses common to the three agreements

[30]     The following clauses assume importance having regard to the issues that arise in the applications for summary judgment.   The clauses are common to the

three agreements and, in fact, bear the same clause numbers in each case.  They are as follows:

2.1      Conditions

This Agreement is entirely conditional upon satisfaction of each of the following conditions on or by the date for fulfilment specified in each case.

a)Approval by the Board of Directors of the Vendor in its absolute discretion, but taking into account: obtaining of necessary Resource Consents and pre-sales; satisfaction with the costs of construction of the Building; such other matters as the Vendor’s Board considers appropriate.   Neither the Vendor nor the Board shall be called upon or obliged to give any reason or justification for their decision.

Date for fulfilment:     20 December 2007

b)Title issuing for the Property under the Act.  This condition is in substitution for and replaces the condition implied by Section 225(2)(b) of the Resource Management Act 1991.

Date for fulfilment:     30 June 2010

This condition is inserted for the benefit of the Vendor and the Purchaser.

4.        CONSTRUCTION OF BUILDING FITTINGS AND FINISHES

4.1      Develop Design and Obtain Approvals

(a)       The Vendor shall after satisfaction of the condition in clause

2.1(a)  have  the  Outline  Plans  and  Schedule  of  Finishes developed into working drawings.

(b)       The Vendor may at any time alter or vary the Building as it is depicted in the Outline Plans and Schedule of Finishes in such  manner  as  the Vendor  considers  appropriate having regard to the circumstances and the requirements of the Relevant Authorities and any Consents and the Purchaser shall not be entitled to claim any compensation, damages, right of set-off or to make any objection or requisition based on such alteration or variation.  Any alteration or variation shall not be to such extent as to detract from the overall concept of the Building, its amenities and surrounding land as represented in the Outline Plans and Schedule of Finishes and in the copies of the correspondence attached, or to diminish or substantially change the Property, the Building or their facilities.

4.2      Vendor to Build

(a)       The Vendor shall ensure the Building is constructed in a proper and workmanlike manner, and is completed with finishes and fittings substantially in accordance with the Schedule of Finishes.  The Vendor shall have the right, and the Purchaser will not object, to substitute a finish, fitting or fixture  of  equivalent  quality and  equivalent  value to  that specified in the Schedule of Finishes and no adjustment to the Purchase Price shall be made or compensation allowed on any account whatsoever.

(b)the Purchaser shall not make any objection, requisition or claim for compensation because of any alteration to plans and/or finishes which are made because of a requirement or direction of a Relevant Authority or because of the practical necessities of construction including (but not limited to) requirements of good building practice or the availability of materials, provided that this limitation shall not apply to an alteration which has a material adverse effect on the use of the Property or results in a significant diminution in value of the property.

[31]     Clause 6.1 of the contracts provide that the purchase price shall be paid and legal possession given and taken on the latter of:

a)       10 days after the vendor gives the purchaser a copy of the certificate of practical completion; and

b)10 days after the vendor gives the purchaser written notice with a search copy of the new stratum estate certificate of title for the property; and

c)        10  days  after  the  vendor  has  supplied  to  the  purchaser  a  Code

Compliance Certificate.

[32]     Clause 6.3 provides that default interest is to be paid at 16 per cent per annum for late settlement.

[33]     There are additional clauses peculiar to each of the contracts, which I will refer to when discussing the issues that arise.

[34]     The next significant general background matter to note is that the parties entered into a variation agreement.  In the case of the N9B agreement entered into by Mr and Mrs Eden, the variation was entered into on 26 September 2007.

[35]     In the case of the P25 and P26 agreements there were identical variation agreements entered into by Mr and Mrs Evaroa in respect of both of those contracts on 29 November 2007.

[36]     The statement of claim sufficiently summarises the effect of the variation agreements and pleads:

a.They noted that the Resource Consent issued for the development provided for smaller decks than in the market drawings and scale model;

b.They recorded that the Vendor was seeking an amendment to the Resource Consent to allow the external decks to be constructed as originally drawn and modelled;

c.They provided that the Purchaser would not claim that there was a material change or make any claim for compensation if the amendment  was  not permitted,  but  the  purchase  price  would  be adjusted if there was any reduction in deck area.

[37]     Correspondence   took   place   between   the   plaintiff’s   solicitors   and   the defendants’ solicitors relating to the three contracts.  It is unnecessary to detail the specifics that were covered in that correspondence.   Suffice to say, the plaintiff asserted that settlement was due to take place on 14 December 2009 and set out the various settlement requirements.

[38]     On  14 December  2009  the  solicitors  acting  for  the  defendants  wrote cancelling all three agreements.

[39]    On 24 December 2009 the plaintiff’s solicitors wrote to the defendants’ solicitors confirming each of the three agreements and enclosing a settlement notice in accordance with the provisions of each of the contracts.

[40]     The plaintiff asserts that it is ready and willing to settle and has complied with its obligations under the contract and is therefore entitled to a decree of specific performance.

The specific issues raised by the application for summary judgment

[41]     Mr Hollyman  acknowledged  that  it  would  not  be  appropriate  for  me  to endeavour  to  resolve  conflicts  in  the  evidence.    That  is  not  surprising  because Ms Murphy produced, in her submissions, a schedule extending over seven pages identifying various disputed facts arising from the affidavit evidence.

[42]     Mr Hollyman submitted that the issue raised by this application could be determined without attempting a resolution of the conflicts of evidence which are contained in the affidavits.

[43]     Mr Hollyman submitted that the issues in the summary judgment application reduced to two.

[44]     He submitted that the first issue required a determination of whether the defendants’ complaints justified the defendants’ cancellation notices.

[45]     The question of whether the cancellation notices were justified requires a consideration in terms of the Contractual Remedies Act 1979, s 7 as to whether the alleged misrepresentations or breach of contract were:

a)        Either in respect of a matter expressly or impliedly agreed to be true or to be performed and which is essential to the cancelling party; or

b)The effect of the misrepresentation or breach, as the case may be, will be either:

i)to  substantially  reduce  the  benefit  of  the  contract  to  the cancelling party;

ii)       Substantially to increase the burden of the cancelling party; or

iii)In  relation  to  the  cancelling  party,  to  make  the  benefit  or burden of the contracts substantially different from that represented or contracted for.

[46]     The second issue identified by Mr Hollyman was whether the actions of the defendants  had  amounted  to  an  affirmation  of  their  respective  contracts.    The plaintiff  alleges  that  the  defendants  have  each  affirmed  the  contract  and  have therefore lost the right to cancel by virtue of the Contractual Remedies Act 1979, s 7(5). An analysis of exactly what is relied upon to establish affirmation is therefore needed to determine this issue.

The defendants’ notices cancelling the contract

[47]     This application has generated a substantial volume of affidavit evidence and exhibits containing some 2,644 pages.   It is important that I record that the issues raised by the summary judgment application do not require an analysis of whether the plaintiff is in breach of contract in circumstances which would justify a claim for damages.

[48]     What this application raises is the issue of whether the plaintiff is entitled to a decree requiring the first and second defendants to specifically perform their respective contracts.

[49]     That requires the plaintiff to establish that there is no defence which justifies the notices of cancellation issued by the first and second defendants on 14 December

2009.

[50]     The Contractual Remedies Act 1979, s 7 sets out what is required to support a valid cancellation of a contract.  This case does not involve the first possibility raised by s 7, namely a repudiation by the non-cancelling party before performance is due or fully performed.  Rather, the case for the defendants is that there has been either a

misrepresentation inducing their entry into the contract, or a breach of stipulation of the contract which is either;

a)        Essential to the defendants; or

b)Substantially reduces the benefit they were to enjoy under the contract or substantially increase the burden they assumed or makes their position substantially different.

[51]     Accordingly,  I  must  consider  first  whether  the  matters  raised  by  the defendants are:

a)        Essential to the defendants; and

b)Were matters that were expressly or impliedly agreed by both plaintiff and defendants as being essential to the defendants.

[52]     The  second  and  alternative  inquiry  is  whether  the  matters  raised  by  the defendants have the serious effects referred to in the Contractual Remedies Act

1979, s 7(4)(b).

Is there a basis for a defence based on essentiality?

[53]     The defendants rely on the following alleged misrepresentations:

a)       That the plaintiff provided plans and marketing material to the first defendant which failed to disclose a fire-safe path around the podium lower decks when the plaintiff knew from late 2006 that a fire-safe path was required;

b)That the plaintiff provided plans and marketing material to the first defendant which depicted five metre deep decks at the podium level when the plaintiff knew that the district plan requirements would not permit such decks because such decks could only be constructed if the

building was built to the boundary.  Building to the boundary was not permitted;

c)       That  the  plaintiff  represented  to  the  defendants  before  the  parties entered into the variation agreement that a resource consent permitting external decks on the podium apartments to be constructed as originally  drawn  was  a  mere  formality  and  highly  likely  to  be approved when the plaintiff knew, or should have known, that there was a significant risk that the application would not succeed with the result that the decks, as originally depicted on the plans, could not be built; and

d)That  the  plaintiff  provided  plans  to  the  second  defendants  which failed to disclose additional structural columns to the building when the plaintiff knew from late 2006 that such structural columns were required.

[54]     The defendants rely on the following alleged breaches of the contracts:

a)       By amending the body corporate rules to permit a clear fire-safe path in the event of fire or any other emergency the plaintiff had in effect imposed an encumbrance on the title of the apartment the Evaroas were purchasing, which was not provided for in the sale and purchase agreement and was therefore a breach of it;

b)In breach of clause 4.2(a) of the agreement the apartments have not been constructed in a proper and workmanlike manner;

c)       The podium apartments were not constructed with five metre deep exclusive decks as depicted on the outline plans attached to the agreement.     Accordingly  there  is  a  breach  of  clause  4  of  the agreement; and

d)The tower apartment has been constructed with six structural columns which were not shown on the plans attached to the agreement and, in addition, there has been constructed a cantilevered balcony off the adjoining apartment which impedes the view from the deck of N9B and enables the occupiers of the adjoining apartment to look straight into the deck of apartment N9B, all of which was not provided for in the  plans  attached  to  the  agreement  and  is  therefore  a  breach  of clause 4 of the agreement.

[55]     None of the matters advanced by the defendant are expressed in the contract as being essential terms or requirements of the defendants.

[56]     In analysing the position of an inducing representation it was said in Progeni Systems Ltd v Hampton Studios Ltd[12] following the dictum in Tramways Advertising Pty Ltd v. Lunar Park (NSW) Ltd:[13]

[T]he truth of a representation will be essential when the representation is of such fundamental importance to the representee in his consideration whether to enter into the proposed contractual relationship that without it he would not have contracted with the representor either at all or on those particular terms.

[12] Progeni Systems Ltd v Hampton Studios Ltd HC Christchurch CP 105/86, 11 August 1987 at 39-40.

[13] Tramways Advertising Pty Ltd v. Lunar Park (NSW) Ltd (1938) SR (NSW) 632

[57]     In analysing the position as to whether essentiality is implied in respect of a term where a breach is alleged the issue becomes one of construction.  The status of the term concerned will depend upon the express terms of the contract and the circumstances of its making.   In Wilson v Hines[14] the court determined that essentiality was decided by whether the term “went to the heart of the contract”.

[14] Wilson v Hines (1994) 6 TCLR 163 (HC) at 169-170.

[58]     In Tramways Advertising Pty Ltd v. Lunar Park (NSW) Ltd[15]  the test of essentiality was expressed as:

[15] Tramways Advertising Pty Ltd v Lunar Park (NSW) Ltd, above n 13 at 634.

Whether it appears from the general nature of the contract considered as a whole,  or  from  particular  term  or  terms,  that  the  promise  is  of  such importance to the promissee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the

promise, as the case may be, and that this ought to have been apparent to the promissory.

Is there a basis for a defence based on substantiality?

[59]     Before finally determining the question of essentiality, I propose also to look at the second alternative, that is, the question of substantiality which is raised by the application of the Contractual Remedies Act 1979, s 7(4)(b).  In the Law of Contract in New Zealand[16]  the authors comment that, in a number of Contractual Remedies Act cases where a stipulation has been held to be essential, it was said that the cancelling party could equally well have based the cancellation on the substantial

consequences of the breach pursuant to s 7(4)(b).   Though the two positions are independent, and it is possible for a term to be held essential though relatively minor, the significance of a stipulation which is the subject of breach may well be coloured by the significance of the breach itself.

[16] Burrows, Finn and Todd, Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington 2007) at 578. 

[60]     Substantiality is not something that is capable of any more precise definition than is contained in the Act itself.   This is made clear from the authorities which have had to consider that term.  In MacIndoe v Mainzeal Group Ltd the court said:[17]

Substantiality in that statutory context is a matter of fact, degree and impression. It has the same flavour as "significantly" and "considerably". It is equally incapable of any kind of arithmetical analysis. One must stand back and, assessing the matter objectively, determine whether the effect of the breach will be, to take the most obvious provisions subparas (i) and (ii), substantially to  reduce  the  benefit of the contract …  or substantially to increase the burden … under the contract.

[17] MacIndoe v Mainzeal Group Ltd [1991] 3 NZLR 273 (CA) at 284-285,

[61]     In an earlier case, Jolly v Palmer the court said:[18]

The statute does not define the word "substantially" and the Court should not attempt to do so either. It is enough to say that what is required is something more than trivial or minimal, but I think [counsel] went too far when he argued that what is required is a difference so great as to alter the subject- matter of the contract. Each case must be considered on its own facts, and an individual determination made having regard to the nature of the contract and of its subject-matter and to all the circumstances of the case.

[18] Jolly v Palmer [1985] 1 NZLR 658 (CA) at 662.

[62]     That position was repeated in Westpac Merchant Finance Ltd v Winstone

Industries Ltd:[19]

The issue is substantiality. It requires a consideration of the case on its own facts and a determination which has regard to the nature of the contact and its subject matter and to all the circumstances of the case.

[19] Westpac Merchant Finance Ltd v Winstone Industries Ltd [1993] 2 NZLR 247 (HC) at 255.

[63]     The assessment required under the Contractual Remedies Act 1979, s 7(4) may take into account both subjective and objective factors: Sharplin v Henderson[20]and Jolly v Palmer.[21]

Valuation evidence

[20] Sharplin v Henderson [1990] 2 NZLR 134 (CA) at 137.

[21] Jolly v Palmer, above n 18 at 662.

[64]     The plaintiff filed an affidavit from a registered valuer, Mr SN Dean.   No valuation evidence was advanced by the defendants.   Mr Dean is a valuer with

42 years experience.  His first involvement in the Eleven was to carry out valuations of the land for mortgage purposes and the development for development funding. He confirmed  that  he  carried  out  an  inspection  of  fifty-eight  apartments  in  the complex on 3 and 4 March 2010 for valuation purposes.  He confirmed that included the  three  apartments  which  are  the  subject  of  the  application  for  specific performance.

[65]     Mr Dean  confirmed  that  he  was  asked  to  determine  the  impact  on  the valuation of apartment P25 and P26 caused by the fire-safe path which runs along the exterior of the lower decks.  In short, he said he was comparing the position with the fire-safe path, on the one hand, and with the position without a fire-safe path and with glass partitions continuing out to the edge of the balcony.  He concluded that the effect on value of the fire-safe path is small and certainly below five per cent. The fact that it is so small, he said, raises a difficulty of measuring it by reference to market evidence.

[66]     He concluded, after assessing what evidence he could use for comparative purposes, that the fire-safe path would not have an effect on the value of apartments P25 and P26 greater than $10,000 per apartment.  That, of course, is well below the five per cent referred to.

[67]     In the case of apartment N9B, he considered specifically the columns which are included in this apartment and the effect of the fire-safe path at the podium level. In respect of the fire-safe path he said that he did not consider there would be any impact on the value of apartment N9B.  He pointed out that it is not affected by the fire-safe path.  He further said that if one assumed that apartment N9B could be built without the columns the value of the apartment is unlikely to be affected.   He regarded them as by no means large or intrusive.  He noted the views from the living room windows were panoramic.  He did not consider the small extra view available without the columns could be expected to increase value.

[68]     Mr Dean’s valuation and his comments were completed without the benefit of the affidavits from the defendants.  What is significant, however, in my view, is that the principal problems which were identified in the correspondence between the solicitors and on which Mr Dean commented led him to the position that there was little, if any, valuation effect flowing from the matters which are the subject of the defendants’ complaints.

[69]     When  I  put  this  matter  to  Ms Murphy  she  confirmed  to  me  that  the defendants did not rely on any valuation basis to support their case.

The weathertightness issue

[70]     This issue was not raised in the cancellation notices issued on 14 December

2009.

[71]     It is raised, however, by Mr Eden in his affidavit.  He says that he has had thirty-four  years  experience  as  a  builder  and  that,  as  a  result,  he  had  genuine concerns that Eleven may encounter weathertightness issues in the future.  He then sets out his reasons, in particular:

a)        the use of insulclad as the cladding system;

b)the failure to provide a cavity system to  accompany the cladding system;

c)       the use of both vertical and horizontal cladding types which he says are non-compliant with the building code;

d)       that there is some evidence of stress fractures in the plastering; and

e)       that  a  water  leak  has  been  experienced  in  at  least  one  apartment following heavy rain.   The apartment, however, is not one of the apartments which is the subject of this proceeding.

[72]     The material placed before the court provides no foundation for a breach of the  obligation  imposed  by  the  contract  by  clause  4.2,  namely  to  construct  the building in a proper and workmanlike manner.  Whether problems exist, or may exist in the future, is not something that I can deal with in this application.  If they do arise in  the  future  they undoubtedly may give  rise  to  a  claim  against  the  developer. However, for the purposes of this application, that is something that I cannot speculate on.   I simply observe that there is no evidential foundation for the proposition that this issue would justify a cancellation in terms of the Contractual Remedies Act 1979, s 7(4).

The lower decks at podium level

[73]     The defendants’ complaints relate to:

a)       The loss of exclusivity of use of the decks attached to the apartments caused by the need to provide for the fire-safe path; and

b)        The size of the decks.

[74]     The Evaroas say apartment 26 was purchased with the intention of using it for their own residential purposes.  They say a consideration for them was the need to have security in the deck area because, at the relevant time, they had a four year- old child.

[75]     The Evaroas say that apartment 25 was purchased for residential use by Mrs Evaroa’s  mother.     Provision  was  made  for  a  connecting  door  between apartments 25 and 26.  Although that has not been installed the plaintiff is prepared to install it if the Evaroas proceed with the purchase of both apartments.

[76]     The fire-safe path has meant that a one-metre high glass partition between the lower decks of adjoining apartments must end one metre short of the external planter boxes.  The fire engineer proposes that the concerns raised by the Evaroas can be met by the installation of latched gates across the fire-safe path.  It is proposed that the gates be glass.   They will match the glass partitions that exist between the adjoining apartments.  They will have a latch operated like a pool fence.  There will be no additional costs to the Evaroas for the installation of these gates.  The cost will be met by the plaintiff.

[77]     The fire-safe path is not an area where the public has access to.  Its use will be by a limited number of people.  They are the people who are properly authorised to be in the podium area of the building.  In particular, they would be the occupants and invitees of the occupants of the apartments in the podium area of the building. The use of the fire-safe path is limited to times of fire and other emergency.

[78]     On the issue of the size of the decks, the apartment 26 agreement makes provision for reduction in the size of these decks in clause 15.  Clause 15 provides:

It is agreed by both parties that any alteration by a reduction in size of the total unit area (including decks) of 128.7 square metres, by more than 5% shall allow the purchaser to cancel this agreement.

[79]     The P25 apartment agreements makes provision for the reduction in size of the decks in clause 18.  The agreement contains handwritten additions.  The typed version of clause 18 is identical to that which I have set out relating to apartment 26. The complete clause 18 with the additions is as follows:

Notwithstanding anything else contained herein it is agreed by both parties that any alteration by a reduction in size of the total unit area (including decks) of 128.7 square metres, by more than 5% shall allow the purchaser to cancel this agreement and the purchaser shall receive in full refund of all moneys paid hereunder upon such cancellation.

[80]     No evidence has been placed before me to suggest that either clauses 15 or 18 provide the Evaroas with a ground for cancellation.   I need not review the measurements that have been undertaken and the evidence that has been adduced because the Evaroas advance no specific case in reliance on either clauses 15 or 18 to cancel the agreements.

[81]     If, for the purposes of this application, I assume that the misrepresentations alleged were made and the breaches of contract occurred, the first question to be determined is whether the plaintiff has established that the Evaroas have no arguable defence based on essentiality.  In particular, have the two components of essentiality, which I have set out in [51] of this judgment, been excluded.

[82]     There  is  no  basis,  on  the  evidence,  for  concluding  the  existence  of  any express  agreement  or  representation  as  to  essentiality  in  respect  of  the  decks. Indeed, any argument about decks’ size is excluded by the express terms of the agreement to which I have made reference.

[83]     On the question of exclusivity to the decks, the intrusion of persons other than the Evaroas and their invitees onto the decks is limited to those persons who have access to the building at podium level and who might need to access the fire- fire-safe path in the event of fire or other emergency.  There is simply nothing in the evidence that would suggest that such a limited right of access is ever a specific matter of contemplation by the parties.  I cannot conclude that there is a basis for an implied understanding that there would be no access by any person other than the Evaroas or their invitees, in any circumstances whatsoever, to the decks of the two apartments they were purchasing.  Nor can I see that there is any real loss of privacy flowing from such very limited access by the limited number of persons other than the Evaroas or their invitees to these decks.  The plain fact is that if there was a fire or an emergency, questions of privacy would be very very low on the list of considerations of persons who were placed in that predicament at that time.

[84]     On the question of substantiality, the matters complained of simply do not provide a basis for reliance on the Contractual Remedies Act 1979, s 7(4)(b).  What would qualify is, of course, a matter of degree.   However, when  I analyse the Evaroas’  complaints  I am  driven  to  the  position  that  none  of  the three  options provided for in the Contractual Remedies Act 1979, s 7(4)(b) provide a basis for their cancellation of the agreement in respect of matters relating to the decks.

[85]     For the avoidance of doubt, I simply record that the matters that arise in relation to the lower decks at the podium level can provide no basis for cancellation by the Edens whose agreement is in respect of an apartment in the tower.

[86]     Ms  Murphy  submitted  that  the  amendments  to  the  body  corporate  rules imposed an encumbrance on the titles to the Evaroas’ apartment and were, in any event, not authorised changes to the body corporate rules.  She could point, however, to no specific provision in the titles to be held by the Evaroas, if they proceed with the purchase, covering the point.  I am left with no specific basis which provides me with grounds for concluding that there is a title defect in this case, which would justify a cancellation.  The same applies to the Edens.

The columns

[87]     The issue that arises in relation to the columns in apartment N9B arises from the need for the structure itself to be supported.   The columns that are now in apartment  N9B  do  affect  the  living  area,  the  kitchen,  the  office  and  the  two bedrooms.   The Edens claim that the columns affect the general utilisation of the apartment and, in particular, the view from the apartment.

[88]     I have referred to the unchallenged evidence of the valuer, Mr Dean, in [67], [68] and [69]] of this judgment.  There is simply no foundation on the grounds of substantiality based on value for the cancellation of the agreement in respect of apartment N9B arising from the placement of these columns.

[89]     It is not suggested that there was any express statement that there would be no columns or that there is anything precisely within the contract itself which excludes the presence of columns in this apartment.

[90]     This apartment was purchased on the basis of outline plans and a schedule of finishes.  The agreement makes express provision for variation in clause 4.  I accept that the Edens may be disappointed that they now have columns in this area but I cannot conclude on the material before me that there is a defence that could be mounted which would justify a cancellation either based on the proposition that it was essential to the Edens that there be no columns within the apartment that they were purchasing or, in the alternative, that they got something substantially different from that which was contemplated by the agreement.  The parties will appreciate that what I have to analyse is whether or not there is a basis for the cancellation of the agreement.  My conclusion is, on a review of the evidence, that there is simply no basis for a defence to the application for specific performance arising from the existence of the columns.

[91]     I have already referred to the title argument that Ms Murphy advanced on behalf of the Evaroas, which I understood to apply equally to the Edens.  I cannot conclude, on the material placed before me, that that matter gives rise to a right to cancel.

Further evidence

[92]     Ms Murphy sought leave to file an affidavit at the time of the second hearing on 6 September 2010.  The application was opposed by Mr Hollyman.  The affidavit was sworn by a legal secretary.  She exhibited two pages from the Eleven website obtained that day, that is 6 September 2010.  Its purpose is to show that the Eleven development continues to refer to the plaintiff’s director as an architect when, in fact, he is an engineer.  It also depicts the deck attached to a podium apartment without the fire-safe path.   Out of an abundance of caution, I have considered both pages from the website.  They do not help in the analysis that I have carried out.

Affirmation

[93]     The conclusions I have reached makes it unnecessary to determine the third alternative.  Mr Hollyman submitted that if I could not exclude a defence based on either essentiality or substantiality pursuant to the Contractual Remedies Act 1979, s 7 as a ground for cancellation that I could, nevertheless, exclude the defendants’ right to cancellation by the operation of the Contractual Remedies Act 1979, s 7(5). In short, have the Evaroas or the Edens affirmed their respective agreements with full knowledge of the plaintiff’s breach of contract or the plaintiff’s misrepresentation?

[94]     Mr Hollyman, in his submissions, gave a helpful summary of the principles which apply to a plea of affirmation.   He extracted that summary from: Jansen v Whangamata Homes Ltd,[22]  Fercometal SARL v Mediterranean Shipping Co SA,[23]

[22] Jansen v Whangamata Homes Ltd [2006] 2 NZLR 300 (CA).

[23] Fercometal SARL v Mediterranean Shipping Co SA [1989] 1 AC 788.

Nectar Ltd v SPHC Operations (NZ) Ltd,[24] Crump v Wala,[25]  Bentsen v Taylor,[26]

[24] Nectar Ltd v SPHC Operations (NZ) Ltd HC Auckland CL20/02, 7 May 2003.

[25] Crump v Wala [1994] 2 NZLR 331 (HC).

[26] Bentsen v Taylor [1893] 2 QB 274 (CA).

Oxborough v North Harbour Builders Ltd[27] and Gray v Thompson.[28]

[27] Oxborough v North Harbour Builders Ltd [2002] 1 NZLR 145 (CA).

[28] Gray v Thompson [1922] NZLR 465 (SC).

a)       An election arises where one party has breached the contract and the innocent party, knowing of the breach, makes an unequivocal choice between two inconsistent courses of action;

b)The election binds the innocent party when it is known to the other party, and does not depend on detrimental reliance;

c)       Whether there has been an election is determined by an objective assessment of the party’s actions, and may be imputed irrespective of actual intention or subsequent rationalisation.   The question may be put thus: “was the party led by the defendants to suppose that he was

still bound”.  It follows that election can operate strictly and may not at all be what was subjectively intended by the electing party.

I adopt this summary.

[95]     There are essentially two pieces of evidence that were relied upon for the plea of affirmation.  In summary they are;

a)        Mr and Mrs Evaroa’s claim for compensation for loss of the deck area; and

b)The Evaroas’ and Edens’ application to the Department of Building and Housing.

[96]     Whilst one could conclude that, on the loss of deck size, the Evaroas had, by seeking compensation, lost the right to cancel I am left in some doubt as to whether the same could be said when one also takes into account the fact that the decks were affected by the fire-safe path.   The Evaroas claim that at the time they sought compensation they were not aware of the fire-safe path.

[97]     The Evaroas’ and the Edens’ application to the Department of Building and Housing was made in November 2009.  It raises matters relating to the fire-safe path and, in particular, whether the fire-safe path complied with the requirements of the Building Code.  It also sought a review of the Tauranga City Council’s waiver of the fire separation requirements of the Building Code.  It also raised queries regarding weathertightness.

[98]     The  Evaroas  and  the  Edens  say  they  were  forced  to  proceed  with  this application because they did not have answers to a number of concerns that they had raised about the building.  Their position is that the only way they could get answers to this was to have an independent body investigate the position.

[99]     Mr Hollyman submitted that the Evaroas’ and the Edens’ actions could only be advanced from the position as purchasers under the sale and purchase agreements and only if those agreements continued to be in existence and were not cancelled.  In

short, he submitted that the Evaroas’ and the Edens’ actions demonstrated that they were not concerned about the alleged misrepresentations about the fire-safe path but were concerned to see that the requirements of the Building Act were met.

[100]   The application did not proceed as a result of the action taken by the plaintiff. The defendants say this meant they were denied the opportunity of having a ruling as to whether the building was compliant.

[101]   If, assuming that I had found that either the misrepresentations or breaches complained of were essential or fitted within the test of substantiality as both matters are dealt with in the Contractual Remedies Act 1979, s 7, one would then have to move on to whether the actions taken by the defendants nevertheless affirmed the contract.   Bearing in mind that the application to the Department of Building and Housing sought an investigation of the matters, I am left in some doubt as to whether affirmation is an answer to the defendants’ cancellation notices.  The safer course is for this issue, if it was required to be determined, to be determined at trial.  I have already recorded that my conclusion on this matter is not necessary for this decision and is really based on a hypothetical proposition.   It serves to emphasise why my recording any further observations on this aspect of the case are unhelpful.

Conclusion

[102]   I conclude that the plaintiff is entitled to a decree of specific performance in respect of the three contracts.  Counsel requested that I simply make such a ruling. They informed me that it was not necessary for me to make specific directions to implement such a decree.   In particular, no submissions were advanced as to the steps required to specifically perform and the time within which those steps were to be completed.   In the circumstances, I accordingly reserve leave to the plaintiff to apply for a telephone conference with counsel for both parties if the form of the order is not agreed to by counsel.  My intention would be to allow counsel to address on the form of order and then to formally pronounce it.

Costs

[103]   Because the form of the specific performance order has not been finalised I reserve costs at this stage.  If the form of the order is agreed but counsel are unable to agree on the appropriate costs memoranda in support, opposition and reply shall be filed and served at seven-day intervals.  The Registrar shall then refer the file to

me for the purpose of making a ruling on costs.

JA Faire

Associate Judge