Arena Living Holdings Ltd v Lendlease Capital Services Pty Ltd
[2020] NZHC 587
•9 March 2020
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1462
[2020] NZHC 587
BETWEEN ARENA LIVING HOLDINGS LIMITED
Plaintiff
AND
LENDLEASE CAPITAL SERVICES PTY LIMITED
Defendant
Hearing: 9 March 2020 Appearances:
S J P Ladd and B J Ward for the Plaintiff
M Eastwick-Field and A Robertson for the Defendant
Judgment:
9 March 2020
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Bell Gully, Auckland, for Plaintiff
Russell McVeagh, Auckland, for Defendant
ARENA LIVING HOLDINGS LTD v LENDLEASE CAPITAL SERVICES PTY LTD [2020] NZHC 587 [9
March 2020]
Introduction
[1] In this leaky building proceeding, the defendant applies to strike out the second cause of action on the ground of a substantive defence, that the plaintiff failed to notify it of the breach of warranty on which the second cause of action is based.
[2] Arena Living Holdings is suing under an agreement of 31 January 2016, under which it bought all the shares in PLT New Zealand Ltd which ran five retirement villages, four on the North Shore in Auckland (the Peninsula Club, Mayfair, Knightsbridge and Parklane) and one in the Bay of Plenty (Ocean Shores at Mount Maunganui). The vendor was PLT New Zealand Pty Ltd, an Australian corporation. Under orders of the Federal Court of Australia made on 23 October 2019, PLT New Zealand Pty Ltd has been consolidated into Lendlease Capital Services Pty Ltd, the defendant, which has assumed all the liabilities of PLT New Zealand Pty Ltd, including any liabilities under the agreement for sale and purchase. For this decision, it is not necessary to distinguish between PLT New Zealand Pty Ltd and Lendlease. I will refer to them both interchangeably as “the vendor” and “the defendant”.
[3] Under the agreement for sale and purchase the vendor gave extensive warranties, apparently some 120. They include a warranty as to the maintenance of plant and buildings, and another that certain buildings did not have significant or systemic watertightness issues. The agreement set a time limit for the purchaser to notify the vendor of any claims for breach of warranty. The purchaser had to give written notice of a claim, giving reasonable particulars of the grounds on which it was based, within 18 months after completion date of the agreement.
[4] The purchaser found that some of the retirement villages had watertightness problems. It notified the vendor. It began this proceeding alleging breaches of the warranties as to maintenance and watertightness. The vendor accepts that it cannot apply to strike out the cause of action on the watertightness warranty, but it says that the notification of the breach of the maintenance warranty was ineffective and that claim is out of time.
The warranties
[5] Schedule 2 of the agreement sets out an extensive list of warranties by the vendor under 23 heads. Under the heading “Condition of plant and buildings” are these:
14.Condition of Plant and Buildings
14.1 The plant and buildings of the Group (including the Business Premises) are appropriately maintained in all material respects having regard to their age and comply in all material respects with the standards required by applicable Law.
14.2 No apartment building or community centre building forming part of the Business Premises has significant and systemic watertightness issues which would require remedial works which result in a Loss to the Group in excess of $7,500,000.
[6] There are some interpretation issues. First, I treat 14.1 and 14.2 as separate warranties. Any reasonable legally-informed reader would understand that they are separate promises.
[7] There are differences between the parties as to the interpretation of the weathertightness warranty 14.2. One issue is how the threshold of $7,500,000 is to operate. The defendant says that it operates only when the costs of remedial works for any building suffering watertightness problems exceed $7,500,000 and that it is only liable to the extent that the costs of the remedial works for that building are more than
$7,500,000. On the other hand, Arena says that the threshold sum is not to be read as an excess. If a claim comes within 14.2, then once the threshold is crossed the defendant is liable for the full measure of the loss. It also disputes the “per building” interpretation and says that the threshold is to be measured by the aggregate loss across all buildings and all villages.
[8] For the defendant, it was submitted that “systemic” should be read as meaning only defects in construction or design. I do not read “systemic” in that way. For this application, I will treat “systemic” as meaning going to the body or the entire integrity of the building, no matter what the cause.
[9] For this decision, I will apply the interpretation claimed by the plaintiff. That is on the assumption that in a strike-out application based on an affirmative defence the plaintiff is to be credited with proving what it has pleaded. The court assumes that
the claim will be established and the question is whether the affirmative defence applies.
[10] The main body of the contract has provisions as to warranties. It categorises some warranties as repeat warranties. Those are warranties that apply not only as at the date of the agreement but also at the date of completion. The warranties under
14.1 and 14.2 are repeat warranties.
[11] Under cl 10.1 the vendor warrants and represents to the purchaser that, subject to the limitations in the agreement, each of the warranties is true and accurate as at the date of the agreement and, for the repeat warranties, at the date of completion.
[12] Clause 10.3 contains exceptions. There is an exception for matters fairly disclosed in the due diligence material.
[13] Under cl 10.15 the parties acknowledge that the purchaser has entered into the agreement in reliance on the warranties, and agree that the warranties should remain in force, notwithstanding the completion of the agreement.
[14] Clause 10.14 deals with the operation of the warranties. The warranties shall be given at the date of the agreement, and, for the repeat warranties, at the date of completion with reference to the facts then existing. It also provides that each of the warranties is to be construed independently of the others and is not limited by reference to any of the others.
[15] Under cl 10.8 (c), the purchaser is under a duty to use its best endeavours to notify the vendor of any claim under the warranties. That is to be done as soon as practicable following the purchaser becoming aware of the implications of the facts or circumstances giving rise to such a claim. There is a proviso that any delay or failure to notify the vendor of any claim will not release the vendor from its obligations in respect of any breach of warranties except to the extent that such delay or failure materially prejudices the vendor. The text refers to cl 10.8(b) which provides an exclusion where the purchaser is in breach of other obligations. But Mr Ladd for
Arena submitted that the proviso also applies to the notification requirement under cl 10.8(c).
[16] The key provision for this decision is the notification requirement in cl 10.4, on which the defendant relies:
10.4 Time Limits
The Purchaser shall not be entitled to make or pursue any claim for a breach of Warranty and/or under the Tax Indemnity, unless the Purchaser, acting in good faith, gives the Vendor written notice of the claim setting out reasonable particulars of the grounds on which it is based. Insofar as any claim is made:
(a)Under the Tax Indemnity, the notice must be received on or before 31 May 2021;
(b)for breach of a Fundamental Warranty the notice must be received on or before 36 months after the Completion Date; and
(c)for all other claims for breach of Warranty, notice must be received within 18 months after the Completion Date.
[17] Under cl 10.6 a purchaser will not be entitled to pursue any claim for loss from breach of warranty unless the amount of the claim (excluding legal costs) exceeds
$140,000. There is also a threshold for aggregated claims.
Arena’s notifications
[18] The agreement was made on 31 January 2016. The sale was completed on 11 July 2016. The watertightness and maintenance warranties operated on that date. Under cl 10.4, the time for making a claim started running from the completion date. So the deadline for the warranties was 11 January 2018.
[19] In the second half of 2017, Arena’s lawyers wrote to the vendor making claims about weathertightness issues in three of the retirement villages. This began with a letter of 14 July 2017 headed “Notice of Claim”. It is about the Mayfair retirement village. The letter includes the following:
3. We are instructed that Arena Living Holdings has very recently become aware of significant weathertightness issues in relation to the Mayfair Lifestyle Retirement Village at 14 Oteha Valley Road, Fairview Heights, Auckland (the Property). The Property forms part of the Business Premises.
4. Arena Living Holdings investigations in relation to the weathertightness issues are at an early stage. However, it is already apparent that these issues are serious and will give rise to a breach of the weathertightness Warranty in paragraph 14.2 of the SPA. Subject to the outcome of further investigations, given the scope and nature of the defects discovered to date, Arena Living Holdings considers that it is likely other Warranties will also have been breached.
5. Under clause 10.8(c) of the SPA, Arena Holdings is required to notify PLT of any claim under the Warranties as soon as practicable, following Arena Living Holdings becoming aware of the implications of the facts or circumstances giving rise to such a claim.
6. Accordingly, although Arena Living Holdings is still in the process of investigating the defects, the purpose of this letter is to put PLT on notice that Arena has a claim against PLT for breach of the Warranties.
[20]The defendant makes the point that there was no express reference to warranty
14.1. The letter does not put the defendant on notice that it is said to have breached the warranty 14.1 as to maintenance.
[21] On 1 August 2017, Arena’s lawyers wrote to the New Zealand lawyers for the defendant, advising that Arena was continuing with its investigations and that it was beginning investigations and testing at the Parklane, Knightsbridge and Peninsula Club retirement villages.
[22] On 24 August 2017, Arena’s lawyers wrote to the defendant’s lawyers. This letter is headed “Reports for Mayfair Retirement Village”. It enclosed copies of reports from consultants about the Mayfair retirement village:
(a)an inspection report by building surveyors;
(b)a report as to fungal growth in wood samples and framing samples by a biodeterioration specialist;
(c)a quantity surveyor’s estimate of the cost of re-cladding; and
(d)a report as to air quality sampling tests.
While the letter referred to earlier correspondence and later emails, it said nothing express about warranties.
[23] On 13 November 2017, Arena’s executive chairman sent an email to Mr Randello of the defendant, advising that Arena was progressing with the engineering for the re-clad of the Mayfair apartment building. The email also advised, further to the letter of 1 August 2017, that Arena had undertaken further investigative works on the apartment and community buildings at Knightsbridge, Parklane and Peninsula Club. The work on the Knightsbridge buildings had shown watertightness failure, with elevated frame moisture levels. The email did not refer to any warranties but did state that Arena expected to have the final works and analyses ready by December and would advise of any further notification required under the agreement.
[24] On 22 December 2017, Arena’s lawyers wrote to the defendant, under the heading “Additional Notice of Claim (Peninsula Club and Parklane Villages)”. Among other things, the letter referred to the earlier letter of 1 August 2017 and the notice of claim of 14 July 2017 notifying significant watertightness issues at the Mayfair Village. The letter advised that as a result further investigation by Arena and its consultants, Arena had become aware of significant and systemic watertightness issues at the Peninsula Club and the Parklane villages. While the investigations were at an earlier stage than at Mayfair, the current expert advice that Arena had received was that the defects included, but were not limited to, elevated moisture content in the building frame, and frame degradation at:
(a)the Stage 1 building at Peninsula Club, that is, the main community facility but not the apartment buildings. The clubhouse would require a complete re-clad; and
(b)the upper level of the Parkland apartment building. The upper level of the building and potentially some parts of the second level of the building would require extensive re-cladding.
The letter went on:
5,Based on the advice received by Arena Living Holdings, it considers that the defects give rise to a breach of the weathertightness Warranty in paragraph 14.2 of the SPA and likely other Warranties.
6.Accordingly, the purpose of this letter is to put PLT on notice that Arena Living Holdings has further claims against PLT for breach of
the Warranties in respect of the issues at Peninsula Club and Parklane.
[25] The defendant’s point about this correspondence is that, whereas the letters refer expressly to the weathertightness warranty 14.2, there is no specific reference to the maintenance warranty 14.1 but merely a general reference to “other warranties”. Part of its argument is that the letters would not have alerted it to the fact that it was facing a claim for breach of the maintenance warranty 14.1.
The claims in this case
[26] Arena began this proceeding in July 2019. According to the statement of claim, the retirement villages are said to consist of buildings, including large apartment buildings containing individual units, community centres (with amenities such as clubrooms, bars, restaurants and games rooms) and individual stand-alone townhouses and villas. That classification is important because the watertightness warranty applies only to the apartment buildings and community centres. The statement of claim pleads contractual provisions, including the warranties. Arena only became aware of symptoms of watertightness issues in Mayfair village in June 2017 and soon after carried out its own preliminary investigations. It gave notice on 14 July 2017 and advised of further investigations at other retirement villages on 1 August 2017. It pleads notification of the claims for Peninsula Club and Parklane on 22 December 2017. It alleges that the vendor breached both the watertightness warranty and the maintenance warranty for the three villages and that these defects were not fairly disclosed. Arena claims as its losses remediation costs and consequential damages. For the Mayfair village it puts the remediation costs at $19.6 million excluding GST, for Peninsula Club $11.3 million excluding GST and for Parklane, $7.8 million excluding GST. It also claims, as part of its consequential losses, costs of additional works to address the defendant’s material under-investment in maintenance. It alleges ongoing business costs and losses – giving as examples the need to buy back apartments from residents, where the watertightness defects remain unresolved. It also claims loss of income and the reduction of future sales.
[27] For its first cause of action, it pleads breach of the watertightness warranty. In its second cause of action it pleads breach of the maintenance warranty. It alleges that
the breaches of the maintenance warranty were caused or exacerbated by other watertightness defects.
[28] The statement of claim has six schedules of defects. The first three schedules deal with watertightness defects, one schedule for each village. The other three schedules are for maintenance defects, again one schedule for each village. The same defects for each village are alleged under both warranty claims. The defects are alleged to be in the community centres and apartment buildings, not in individual villas or townhouses. The watertightness schedules give particulars of locations of defects and damage, as well as applicable building standards under the New Zealand Building Code, New Zealand Standards and technical literature.
[29] Mr Ladd for Arena went through the defects’ descriptions, pointing out that for many of the defects the causes were not only construction or design defects but also maintenance defects. The schedules of maintenance defects identify defects and set out the requisite maintenance standards (standards in BRANZ bulletins, manufacturers’ recommendations and similar), maintenance actions that should have been carried out by the defendant and damage caused or exacerbated because of the defendant’s alleged maintenance failings. Mr Ladd pointed out the overlap of the alleged maintenance failings and the defects in the watertightness schedules.
[30] There is a third cause of action seeking rectification of the watertightness warranty. This is pleaded in the alternative in case the defendant’s “per building” interpretation of warranty 14.2 is upheld. If that interpretation is held to be correct, Arena seeks rectification so that the warranty is applied on an aggregated remedial costs basis.
Strike-out principles
[31] The defendant seeks strike-out of the second cause of action for breach of the maintenance warranty and all other parts of the statement of claim referring to or relying on the maintenance warranty. The basis for the strike-out application is that
the claim for breach of the maintenance warranty is out of time because a valid claim under within cl 10.4 of the agreement for breach of that warranty was not notified within 18 months of the completion date. It says that none of the correspondence counts as a valid written notice of claim within cl 10.4. Its objection applies to all three retirement villages. It relies on an affirmative defence as the basis for its strike- out application.
[32] In applications under r 15.1 of the High Court Rules, the court may strike out a pleading on substantive or procedural grounds. We are dealing with a substantive matter. The defendant says that even if Arena can prove breaches of the warranties and its losses, the breach of the maintenance claim must still fail because of its affirmative limitation defence under cl 10.4 of the agreement. When the court is asked to strike out a pleading on the basis of an affirmative defence, it is not necessary to apply the strike out test for assessing whether the plaintiff has a reasonably arguable cause of action.1 Instead, when the defendant relies on an affirmative defence, the court assumes that the plaintiff may be able to prove its case but considers whether, even so, it is bound to fail because of the defence.
[33] The basis for striking out an affirmative defence began with limitation decisions.2 Those decisions say that a cause of action that is clearly statute-barred can be considered as frivolous, vexatious or an abuse of process. Those grounds apply more typically where the court considers that the proceeding should be struck out on procedural grounds. While the lead was set with decisions on statutory limitations, the courts have applied a similar approach where there are contractual deadlines for beginning a proceeding.3
[34] In cases on limitation defences, the courts have applied a two-step process, as can be seen in Tipping J’s judgment in Murray v Morel & Co Ltd.4 The court
1 As recognised in Attorney-General v Prince [1988] 2 NZLR 262 (CA) and Couch v Attorney- General [2008] NZSC 45, [2008] 3 NZLR 725.
2 Ronex Properties Ltd v John Lang Construction Ltd [1983] QB 398 (CA). Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC) and Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33]-[34].
3 Heinz Wattie Ltd v Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft A/S & Co KG
(1999) 14 PRNZ 227 (HC).
4 Murray v Morel & Co Ltd [2007] 3 NZLR 721 (SC).
considers, first, whether the defendant has shown that the claim is clearly statute- barred; next, whether the plaintiff has shown a realistic basis for defeating the limitation (for example if the limitation period has been waived or extended). If there is factual uncertainty at the first step (for example, the claim is not shown to be clearly statute-barred) then strike-out will not be granted and the matter will be left to trial.
[35] In this case, I am only asked to decide the matter at the first stage, that is, whether the defendant has clearly shown that the claim is bound to fail. The plaintiff is not alleging that there is some way of getting around the time bar if it applies. It does not allege estoppel or waiver, or some other reason barring the defendant from invoking the time limitation.
[36] There is no dispute as to the terms of the contract. There is no suggestion that the correspondence in evidence is incomplete or that I need more information. The defendant has not pleaded prejudice as a ground for saying that it has suffered from the alleged non-notification. If there were questions of prejudice, that would raise questions of fact that would make it harder to rule on the strike-out issue. Instead, as there is little, if anything, in the way of factual dispute, the case is suitable to decide the strike-out issue.
Comparison of the warranty claims
[37] During the hearing, Arena was at pains to show the overlap between the claims for breach of the watertightness warranty and the claims for breach of the maintenance warranty. The defendant, on the other hand, was at pains to point out that a claim for breach of the maintenance warranty is something different from a claim for breach of the watertightness warranty.
[38] There is considerable overlap, but there are also differences. As to the similarities, both causes of action plead the same building defects. All the defects are in apartment buildings or community centres under the watertightness warranty, and there is no claim for defects in other buildings or other plant. The relief claimed in each cause of action is the same.
[39] As to the differences, there are different thresholds for claims for breach of the warranties. For the watertightness warranty, the threshold is $7.5 million; for the breach of maintenance warranty the threshold is $140,000. There are differences as to the interpretation of the watertightness warranty: whether the threshold also involves an excess and whether the threshold applies “per building” or on an aggregated basis. No such questions arise under the maintenance warranty. For its claim under the watertightness warranty, Arena only needs to prove that the specified defects exist – that is, “significant and systemic watertightness issues.” It does not need to prove how those defects were caused. For the claim for breach of the maintenance warranty, Arena needs to show that there were failures to carry out the required maintenance that resulted in the defects on which it sues.
[40] If Arena succeeds on its first cause of action under the watertightness warranty, it will not need to prove its claim under the second cause of action. Seen in that way, the second cause of action is a back-up in case, for example, Arena cannot show that the $7.5 million threshold has been met.
Did Arena give notice of its claim for breach of warranty 14.1?
[41] On its strike-out application, the defendant accepts that it cannot complain of lack of notification of the claim breach of the watertightness warranty. That goes for all three villages. While the defendant was provided with fairly extensive information for the Mayfair village, it was given relatively scant information as to the Peninsula Club and Parklane villages. By the time Arena’s lawyers wrote the letter of 22 December 2017, investigations in those villages were still at an early stage.
[42] For notification of the claim for breach of the maintenance warranty, the defendant’s case is that there was no express reference to the maintenance warranty and there was nothing in the letters that would put it on notice that it was facing a claim for breach of that warranty. The general reference to other warranties having been breached is not enough to inform it that Arena was claiming for breach of the maintenance warranty.
[43] In support, the defendant cites English decisions on contractual provisions setting deadlines for proceedings for breaches of contractual warranties in agreements for sale and purchase, unless notices of the claims have been given. The decisions are Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd,5 RWE Nukem Ltd v AEA Technology plc6 and Teoco UK Ltd v Aircom Jersey 4 Ltd.7
[44] In the Senate case, the vendor under an agreement for sale and purchase of a business gave a warranty as to management accounts. That was subject to a condition that the vendor would not be liable unless the purchaser gave notice to the vendor “setting out such particulars of the grounds on which the claim was based … promptly and in any event … within 18 months of completion date”. The Court of Appeal agreed with the trial judge that the clear commercial purpose of the clause was that the vendor should know, at the earliest practicable date and in sufficiently formal written terms, that a particularised claim for breach of warranty was to be made so that the vendor might take such steps as are available to deal with it. The commercial purpose would not be sensibly served if an uninformed and uninformative notice was given at the earliest conceivable moment. The Court of Appeal went on:8
91. It does not stop there. Certainty is the only crucial foundation for commercial activity. Certainty is only achieved when the vendor is left in no reasonable doubt not only that a claim may be brought but of the particulars of the ground upon which the claim is to be based. The clause contemplates that the notice will be couched in terms which are sufficiently clear and unambiguous as to leave no such doubt and to leave no room for argument about the particulars of the complaint. Notice in writing is required in order to constitute the record which dispels the needs for further argument and creates the certainty. Thus there is merit in certainty and accordingly, in our judgment the point taken by the appellants is not a matter of mere technicality and is not without merit.
[45]In the RWE Nukem Ltd case Gloster J stated certain propositions:9
(i)Every notification clause turns on its own individual wording;
(ii)Due regard must be had to the fact that where such notification clauses operate as a condition precedent to liability, it is for the party bringing a claim to demonstrate that it has complied with the notification
5 Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd [1998] EWCA Civ 3534, [1999] Lloyds Rep 423.
6 RWE Nukem Ltd v AEA Technology Plc [2005] EWHC 78 (Comm).
7 Teoco UK Ltd v Aircom Jersey 4 Ltd [2018] EWCA Civ 23, [2018] BCC 339.
8 Senate at 91.
9 RWE Nukem Ltd v AEA Technology plc [2005] EWHC 78 (Comm) at [10]
requirement and that it gave proper particulars of its claims and did give those specific details as were available to it.
(iii)The wording must however be interpreted by reference to the commercial intent of the parties; that is to say, the commercial purpose that the clause was to serve.
(iv)Where the clause stipulates that particulars of the grounds on which a claim is based are to be provided, the Court of Appeal’s statement as to certainty in Senate Electrical applied.
(v)In all cases, it is important to consider the detailed claim being made in terms of both the breach complained of and the remedy being sought, to ensure that it was a claim which was properly notified.
[46] In that case, the notification clause provided “the vendor will be under no liability in respect of any claim unless written particulars of such claim (giving details of the specific matter as are available to the purchaser in respect of which such claim is made), having been given to the vendor within a period of 24 months from the date of completion”. Gloster J said:10
In my judgment, what has to be notified in relation to any particular claim in the present case will largely depend on the nature of the claim, the facts known to the vendor at the date of the notice, and whether it is realistic to put any monetary quantification on the amount claimed. I do not think one can lay down too rigid a formula for ascertaining what precise particulars and details have to be notified. The answer is that it will all depend. However, consistent with Mr Rowley’s submissions, I would expect that a compliant notice would identify the particular warranty that was alleged to have been breached; I would expect that, at least in general terms, a notice would explain why it had been breached; at least some sort of particularisation of the facts upon which such an allegation was based, and would give at least some sort of indication of what loss had been suffered as a result of the breach of warranty.
On the facts, she found that some claims had not been properly notified. With some other claims, she held that they had been notified even though the wording may have been inelegant and had not referred to all the relevant warranties.11
[47] In Teoco UK Ltd v Aircom Jersey 4 Ltd,12 there were warranties as to tax liabilities and a “tax covenant” under which the vendor put aside a sum to cover undischarged tax liabilities. The contract provided that the vendor would not be liable for any claim unless notice was given setting out reasonable details of the claim as
10 At [11].
11 At [30].
12 Teoco UK Ltd v Aircon Jersey 4 Ltd [2018] EWCA Civ 23, [2018] BCC 339.
soon as reasonably practicable after the purchaser became aware of the claim and unless legal proceedings were begun within six months of the notification. The vendor could not be liable under both the tax warranties and the tax covenant. The purchasers notified the vendor of the claims which it described as “either warranty claims or tax claims”. The letter was said to be defective for not specifying the particular warranties that might have been breached, nor did it particularise the facts alleged to constitute the breaches. Failure to identify the warranties was held to be fatal.
[48] The Teoco decision was made on a strike-out application but the other two cases were decided after a full hearing on the merits. In the RWE Nukem Ltd case there was a hearing on preliminary issues. The Senate case was an appeal from a judgment after trial.
[49] Arena says, on the other hand, that cl 10.4 is not to be read as strictly as the defendant submits. It has referred to decisions where the courts have not required a notice to state particular warranties13 and submits that each case will turn on the wording of the limitation clause and the notice given. Ms Eastwick-Field for Lendlease distinguished Forrest v Glasser.14 In that case the clause only required notification of a claim without having to give further particulars.
[50] Some of the decisions refer to the House of Lords decision in Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd.15 That case is often referred to because of what Lord Hoffmann said about contractual interpretation. The case is important as guidance on how to construe contractual notices generally. Part of the speech of Lord Steyn is of assistance. Mannai was a case about a break clause in a lease. Lord Steyn held that there was no reason for such clauses to be in a special category. He said:16
Even if such notices under contractual rights reserved contain errors they may be valid if they are “sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate” ...
13 Forrest v Glasser [2006] EWCA Civ 1086 and GB Gas Holdings Ltd v Accenture (UK) Ltd [2010] EWCA Civ 912 at [60].
14 Forrest v Glasser [2006] EWCA Civ 1086.
15 Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] ACT 749 (HL).
16 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (HL) at 768.
After citing cases on settlement notices under agreements for the sale and purchase of land,17 he went on:
That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it.
(Citations omitted)
[51] Now for the purpose of the notification clause in this case. There are two. The first is to set a cut-off date by which the vendor is to be notified of any claims for breach of warranty. Establishing a cut-off date is important for the vendor because if no notice is given, it has peace of mind and can redirect funds and resources that it might have set aside in case any claim were made. Claims that were otherwise contingent are eliminated. Giving a notice of claim is performative, in that it stops the contractual limitation operating. For this purpose, it is important that the purchaser tell the vendor that it is making a claim. Arena’s lawyers’ letters of 14 July 2017 and 22 December 2017 contain appropriate language indicating that a claim is being made. The defendant does not suggest that that purpose was not met here. It is not therefore necessary to deal further with that purpose.
[52] The second purpose of cl 10.4 is to inform the vendor about the claim. That is to allow the vendor to consider what steps it should take to deal with the claim. A vendor informed of an alleged warranty breach might set funds aside to provide for the claim, gather relevant information, including from current or former members of staff, collate documents, engage consultants to make enquiries and carry out investigations and instruct lawyers. For that purpose, it needs to have some information to decide how to deal with the claim. That purpose can be seen in the words “setting out reasonable particulars of the ground on which it (the claim) is based.” That requirement can also be seen as reinforcing the first purpose – if the purchaser is to allege a breach of warranty, it must be able to give a basis for it.
[53] While the second purpose involves informing the vendor, it does not require the vendor to do anything. That can be compared with contractual notices that require
17 Delta Vale Properties Ltd v Mills [1990] 1 WLR 445 and Carradine Properties Ltd v Aslam [1976] 1 WLR 442.
the person notified to do or refrain from doing something – for example, a settlement notice under an agreement for sale and purchase of land. In cases of notices requiring steps to be taken, clarity and certainty are required so that the person receiving the notice can be under no doubt what is required. That was the context for the cases cited by Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd:18 settlement notices under sale and purchase agreements. Lord Steyn’s dictum is to be read in the light of that context.
[54] That heightened need for clarity is not present when the notice is only required to convey information. The contract wording is to “give reasonable particulars of the grounds on which it is based”. There is obvious room for give and take. In any case, there are likely to be questions of degree and reasonable minds can differ as to the extent of detail to be provided. In many cases, it may be tempting to a vendor to allege that the purchaser had other information which it could have given but did not, and therefore failed to give reasonable particulars. As a failure to comply with cl 10.4 means that a purchaser is denied what might otherwise be a worthy claim, some caution is required before acceding too readily to claims that the vendor has not been adequately informed, when there has been a genuine effort to inform the vendor of the basis of a claim.
[55] The context here is buildings with watertightness defects. A well-known feature of leaky building litigation is that after construction it takes time for watertightness defects to appear. At first when defects do appear, owners may have only limited knowledge of the extent of the damage, the causes, the appropriate remedial steps and the full extent of losses.19 Parliament has recognised the problem in the case of leaky homes. Under the Weathertight Homes Resolution Services Act the owner of a leaky home can apply for an assessor’s report, and on doing so, time stops running for limitation purposes.20 That is to allow the owners time to be properly informed before they begin proceedings in the tribunal or court.
18 Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (HL).
19 Bianco Off Queen, Body Corporate 406198 v Argon Construction Ltd NZHC [2019] NZHC 887,
Retro Apartments, BC 202692 v Auckland Council [2019] NZHC 1976.
20 Weathertight Homes Resolution Services Act 2006, s 37.
[56] While the Weathertight Resolutions Services Act does not apply in this case, it is nevertheless recognition of the uncertainty facing owners of leaky buildings. Often in leaky building cases that the full extent of the defects and damage does not become apparent until the repairs are undertaken.21 The owner of a leaky building required to give prompt notice of defects, with limited knowledge, will be concerned to allow for fresh information to come to hand and to leave itself free to sue for all defects and damage that may come to light. It would want to avoid hemming itself in when notifying a claim. That has to be balanced against a defendant’s entitlement to be properly informed.
[57] In a decision on particulars for pleadings, Price Waterhouse v Fortex Group Ltd,22 the Court of Appeal noted that there is an eternal tension between plaintiffs who wish to keep content as wide and general as possible, allowing maximum room to cover oversight and further developments, and defendants who wish to narrow issues and impose restrictions to the maximum possible degree. A similar tension arises with notification clauses. In notification clauses, the issue is more acute. In court proceedings an inadequately particularised pleading can be repaired. On the other hand, in a notification clause, the purchaser must ensure that adequate particulars are given before the deadline. Failing that, it will have no chance to repair its notice.
[58] The defendant says that when all the correspondence is taken together, it was not informed that it faced a claim for breach of the maintenance warranty. It says that the reference to breach of other warranties was inadequate to inform it, because the reference to other warranties was so general and vague that a reasonable reader would not appreciate that this was a reference to the maintenance warranty 14.1. Ms Eastwick-Field took me through some of the warranties in the schedule to the agreement and pointed out how others could potentially apply. With hindsight, it might be said that in the light of the statement of claim, they would not apply. For present purposes I am to deal with the matter on the basis of the knowledge of a reasonable reader not knowing what the statement of claim would say.
21 Bianco Off Queen, BC 406198 v Argon Construction Ltd NZHC [2019] NZHC 887, Imperial Gardens, BC 348047 v Auckland Council [2019] NZHC 1738 and Retro Apartments, BC 202692 v Auckland Council [2019] NZHC 1976.
22 Price Waterhouse v Fortex Group Ltd, CA179/98, 30 November 1998.
[59] The reasonable reader in the position of the defendant can be credited with knowledge of matters going to the background and with the ability to draw inferences from information that has been provided. Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd is authority for this.23 In that case a notice was sent stating that the lease would terminate on 12 January. The majority in the House of Lords held that “12 January” should be read as “13 January”. They credited the reader with the ability to see that the date was a mistake and to draw inferences.
[60] There is, admittedly, a looseness in the references to breaches of other warranties. But in my judgment that is not fatal to the notices. The important feature is that this was a claim for watertightness defects. That has been constant throughout. The buildings with the watertightness defects were identified, as were the villages. A claim for watertightness defects was made with a reference to liability arising under cl 14.2, and also under other warranties. In stating under ‘other warranties’ Arena was trying to leave its way open to make claims under other warranties, even though it might not have been aware of the basis when it sent its letters. It was reserving the ability to claim under other warranties even without having expressly identified them.
[61] Here I am departing somewhat from what I see as an unduly strict approach in the English cases, especially the dicta as to certainty in the Senate case. A reasonable vendor under the agreement for sale and purchase, appreciating that a claim has been made against it for watertightness defects, is going to react the same way whether it is told that the claim is under warranty 14.2 or that claims may be made under other warranties as well. The fact that the particular other warranties have not been notified does not mean that it has not been fairly informed of the basis of the claim. A claim for breach of the maintenance warranty is covered, so long as it is confined to the same watertightness defects as for the watertightness warranty. It was open to a person in the position of the purchaser, giving the notices it did in the second half of 2017, to advise that there has been breaches of the watertightness warranty and to also claim for the same damage, in the same buildings, under another warranty although it may not be aware at that stage of precisely which warranty it will invoke.
23 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 1 WLR 749 (HL).
[62] In my view, given the uncertainties in leaky building claims, it would be unduly oppressive to require the purchaser to give greater specificity at that stage. Accordingly, I decline to strike out the second cause of action and the other parts of the statement of claim that deal with breach of the maintenance warranty.
Other matters
[63] There are additional matters. On the eve of the hearing, the plaintiff tendered an additional affidavit with further correspondence between the parties, most of it after the contractual limitation date. The defendant did not object strongly to my reading those materials. The submissions did refer to that correspondence. I have not focused on it in this decision, primarily because I did not regard correspondence after the limitation date as relevant to the notification question. The plaintiff wanted to establish that the lawyers acting for the defendant (not the present lawyers) appreciated that the maintenance warranty was in issue, even before this proceeding started. I accept Ms Eastwick-Field’s submission that that is really by the by. One reader’s subjective understanding of the notices is not decisive.
[64] The other matter relates to discovery. In a case management conference minute, I directed that the parties should set today as a target for making discovery. I am advised that the defendant has an enormous number of documents to work through. It expects to complete discovery by mid-May. I direct it to complete discovery by the end of May. I direct the Registrar to arrange a case management conference during July 2020 for further case management directions.
[65]If counsel are unable to agree on costs, memoranda may be filed.
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Associate Judge R M Bell
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