Arranmore Developments Ltd v Zeeland Developments Ltd HC Auckland CIV 2009-404-4342
[2010] NZHC 854
•19 May 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-004342
BETWEEN ARRANMORE DEVELOPMENTS LTD Plaintiff
AND ZEELAND DEVELOPMENTS LTD Defendant
CIV-2009-404-004526
AND BETWEEN ARRANMORE DEVELOPMENTS LTD Plaintiff
AND JAISON PAUL AVIRAPPATTU Defendant
CIV-2009-404-004537
AND BETWEEN ARRANMORE DEVELOPMENTS LTD Plaintiff
AND AKHIL CHAUDHARY Defendant
CIV-2009-404-005439
AND BETWEEN ARRANMORE DEVELOPMENTS LTD Plaintiff
AND SHANE ANJAY NARAYAN Defendant
Hearing: 5, 9 March 2010
Counsel: M Fisher and K Muston for Plaintiffs
S Grant and E A James for Defendants
Judgment: 19 May 2010 at 3:00 pm
JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 19 May 2010 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Date: ………………….
Daniel Overton & Goulding (D Daniel), PO Box 13017, Onehunga, Auckland
Brennan & Brown-Haysom (G Brown-Haysom), PO Box 200-025, Manukau
M Fisher, PO Box 3236, Shortland Street, Auckland
S Grant, PO Box 4338, Auckland
ARRANMORE DEVELOPMENTS LTD V ZEELAND DEVELOPMENTS LTD HC AK CIV-2009-404-
004342 19 May 2010
[1] There are four applications for summary judgment. In all of them Arranmore Developments Ltd is seeking specific performance against purchasers of lots in a subdivision at 132 Flat Bush School Road, Flat Bush, Manukau City. The defendants all oppose, alleging misrepresentations made by land agents. Some of the alleged representations are about proposed development of infrastructure in Flat Bush.
[2] The principles on which plaintiffs’ summary judgment applications are decided are well known and it is not necessary to set them out in full. For these applications it is enough to record:
a) The plaintiff has the legal burden of showing that the defendant does not have a tenable defence;
b)The evidential burden may shift to the defendant if the plaintiff establishes a prima facie case;
c) Disputed questions of fact are best resolved at a full hearing rather than in a summary judgment hearing, particularly where credibility is in issue;
d)The court is not bound to accept uncritically statements in affidavits that are improbable, imprecise or inconsistent with documents or other statements by the deponent; and
e) The court is entitled to take a robust and realistic attitude, but needs to balance this against the interests of a defendant in maintaining a tenable defence.
[3] Flat Bush is the site of a proposed new town. It is an area of about 1700 hectares of former farmland southeast of Otara and northeast of the Manukau City Centre. The Botany Town Centre in East Tamaki is nearby. The area is centred on Ormiston Road. Over an extended period the Manukau City Council has carried out integrated planning for the entire area with a master plan and rezoning to allow residential development and facilities associated with residential development. The
Council has acquired land for the Sir Barry Curtis Reserve and for a town centre. It is anticipated that when the area is fully developed, 40,000 people will live there. The current population is about 15,000.
[4] The proposed town centre is on a 20 hectare site. A council document describing Flat Bush says:
The heart and soul of Flat Bush, a new 20 hectare town centre, will be integrated with the new 94 hectare Barry Curtis Park, and built around a traditional main street concept. It will have a wide range of shops, cafes, offices, community facilities and places to live, bringing vitality, interest and character.
[5] The document also says that community facilities in the town centre are to include a large community library combined with an arts centre.
[6] The Ministry of Education has also planned for the increased population. Its Area Strategy of February 2007 expects that 40,000 will live in Flat Bush by 2021. There was one primary school in the area when that document was released. The ministry expects that by 2021 there will be 8,500 school age children living in Flat Bush, of which 8,000 are likely to attend state schools. To meet this increased demand for education it plans to build an additional 7 schools by 2021.
[7] Flat Bush School Road got its name because a school was established there in
1877. It is not there anymore. The Ministry plans to establish a campus at Ormiston Road with a primary school, a junior high school and a senior high school. These will serve the Flat Bush School Road area, including houses in the subdivision in this case.
[8] At the end of 2007 these were no more than plans. The area around Flat Bush School Road was still vacant former farmland. Developers had started on subdivisions for residential housing, but there was no new housing. The City Council had not started physical work on the town centre or the Sir Barry Curtis Reserve. No new schools were under construction. This absence of development was clear to anyone visiting Flat Bush School Road.
[9] The subdivision in Flat Bush School Road in this case was called Point View Park. The parent lot was 4.8972 hectares, which was subdivided into 66 residential lots ranging in size from 400 square metres to 1000 square metres.
[10] The original developer was Prema Developments Ltd, a company in the Amarsee group of companies. Danshuk Amarsee was the man behind that group. Prema Developments Ltd had a standard agreement for sale and purchase prepared for sales of the residential lots. While the agreement contains many of the terms found in the Auckland District Law Society’s agreement for sale and purchase, some modified, it also contains terms of the sort used by developers in agreements for the sale of residential lots, where title has not been issued. The terms that are relevant to this case are:
10.1 This agreement is conditional upon the Vendor receiving by 31 May
2008 all necessary engineering and resource consents from the territorial authority for the subdivision of the Land on terms satisfactory to the Vendor in the Vendor’s absolute discretion. This condition is inserted for the sole benefit of the Vendor (subject to the provisions of clause 10.1.4).
10.1.1If the condition in clause 10.1 is satisfied, the Vendor will do everything reasonably necessary to have a plan of subdivision deposited in the land Titles Office at Auckland and obtain a separate title for the property.
10.1.2 The Purchaser will not be entitled to a transfer of the property or to call for title until the new title is available.
10.1.3The Vendor gives no warranty as to the date when title will be available.
10.1.4Notwithstanding the provisions of clause 10.1, if the condition contained therein is not satisfied by 31 October 2008, the Purchaser may cancel this agreement.
10.1.5 This agreement is further conditional upon the title to the property being sold and purchased herein having issued by 1 November 2009.
Condition 10.1.5 is in substitution for the conditions contained in section 225(2)(b) of the Resource Management Act 1991 which the parties agree shall not apply to this agreement.
10.1.6In the event of proper cancellation by either the Vendor or the Purchaser pursuant to clause 10.1 or clause 10.1.5, the deposit will be refunded to the Purchaser.
10.2The Vendor reserves the right to grant or receive the benefit of any easements, restrictions or other encumbrances or rights (collectively
“encumbrances”) which may be required in order to obtain the deposit of the plan of subdivision.
10.2.1 Subject to the provisions of clause 10.7, the Purchaser will take title subject to or with the benefit of any encumbrances.
10.3Subject to 10.7, all measurements and areas are subject to any variation required by the local authority, the Department of Land & Survey Information or the Land Titles Office.
...
10.4The Vendor may alter the plan of subdivision (including any proposed easements).
...
10.7If the Vendor exercises any rights relating to easements, measurements, or area with the result that the market value of the property is materially and adversely affected, the Purchaser may avoid this agreement by a valid written notice to the Vendor (“the Purchaser’s notice”). The Purchaser may not, however, avoid this agreement if the Purchaser has received written details of the relevant matter before entering into this agreement. For the avoidance of doubt the parties acknowledge that a reduction in market value of less than 15% shall not be construed as sufficiently material to justify the Purchaser’s notice.
10.7.1 The Purchaser’s notice must include a registered valuer’s report that specifies the reduction in market value caused by the Vendor’s exercise of the Vendor’s rights. The Vendor reserves the right to challenge the contents of the valuer’s report and the valuation.
10.7.2 The Purchaser’s notice must be given within 10 working days of the Purchaser receiving written details of the extent to which the Vendor’s rights have been or will be exercised or the notice will be invalid.
10.7.3 The Purchaser’s only remedies if the Vendor exercises any of the rights referred to in clause 10.7 are those referred to in this clause
10.7.
10.7.4 If the Purchaser validly avoids this agreement under this clause 10.7, all monies paid by the Purchaser to the Vendor will be refunded and neither party will have any further claim against the other.
[11] Under clause 13 the possession and settlement date will be the later of
1 October 2008, or five working days after the vendor’s solicitor advises the purchaser’s solicitor in writing that the title of the property is available for searching. Clause 17 is a solicitor’s disapproval clause.
[12] The interest rate for late settlement is 15% per annum. The purchase price was inclusive of GST.
[13] In November 2007, Prema Developments Ltd appointed one land agent to market lots in the subdivision: the DH Group Ltd, run by Don Ha. The lots sold quickly. Mr Chaudhary was the last purchaser in this case to sign an agreement. He says that after being told about the development in early November 2007, he contacted the agent about three weeks later, but was told that there were already agreements on all the sections. He signed his agreement on 17 December 2007 after another purchaser had pulled out of an agreement.
[14] DH Group Ltd prepared a sales brochure for the Point View Park subdivision. It is relevant because of the defendants’ allegations of misrepresentation. The brochure had a copy of the Manukau City Council’s planning map showing the areas zoned or designated for “Central Campus Schools”, “Greenfinger Open Space”, “Residential”, “Low Density Lifestyle Living”, “Town Centre” and “Neighbourhood Centres”. The area for Central Campus Schools is close to the subdivision.
[15] The brochure also has a page promoting the subdivision with these puffs:
Land grab!
$1,000 initial deposit! Only 63 available From $299,000
Fully serviced sections in blue chip location available now! One of Auckland’s hottest locations!
Generous sizes up to 555m2. Design and build your dream home.
Take advantage of a very long settlement, approx Oct 2008.
Just minutes to Botany Town Centre & Sir Barry Curtis Reserve and a short drive to local beaches!
Zoned for new schools! Friendly covenants!
These won’t last long. Call us today!
[16] The brochure also has copies of the subdivision plan, a summary of lot sizes, and a copy of the standard agreement for sale and purchase for the subdivision.
[17] All the agreements in these applications were brought about by salesmen with the DH Group Ltd. Arron Jokharn and Kevin Dunn were responsible for the sale to Zeeland Developments Ltd and Ravi Singh was responsible for the sales to Messrs Avirappattu, Chaudhary and Narayan. Zarn Ha, another salesman, also played a part in the sale to Mr Chaudhary.
[18] On 10 December 2007, Prema Developments Ltd signed agreements with
Zeeland Developments Ltd for nine lots in the subdivision – lots 8, 10, 11, 12, 13,
14, 15 and 17. The purchase price for each lot was $339,000. The man behind Zeeland Developments Ltd is Ruban Sanjay Mahabir. Zeeland Developments Ltd carries on business as a builder and developer. Zeeland Development Ltd’s lawyer for the agreements was Patel Nand Legal.
[19] In addition to the standard terms, the agreements with Zeeland Developments
Ltd had a due diligence clause:
18.1 This Agreement is entirely conditional upon the Purchaser carrying out a due diligence exercise and being satisfied at his absolute discretion regarding all matters including but not limited to Town Planning, Local Government issues, Geotech, soil conditions, Resource Management, commercial viability, Building Act requirements and any additional requirement or condition of this agreement in respect of this property within
5 working days of this agreement. This condition is inserted for the sole benefit of the Purchaser.
[20] On 10 December 2007, Prema Developments Ltd entered into an agreement to sell lot 20 in the subdivision to Jaison Paul Avirappattu for $299,000. In the agreement he is named as Jaison Paul, but there is no issue as to identity. Mr Avirappattu is a land agent with Able Realty Southern First National in Papatoetoe but lives in Mangere East. The law firm initially acting for him on the agreement was Sharma Legal.
[21] On 15 December 2007, Prema Developments Ltd entered into an agreement to sell Shane Anjay Narayan lot 44 in the subdivision for $299,000. Mr Narayan is a group accountant employed by Instant Finance NZ Ltd. He lives in the Flat Bush
area. His lawyer on the agreement was Sharma Legal. Mr Narayan’s agreement also had a due diligence clause:
18.00This contract is conditional on the purchaser being satisfied with carrying out a due diligence. This clause is to be satisfied within 5 working days from the date of this agreement.
[22] On 17 December 2007, Prema Developments Ltd entered into a written agreement to sell lot 47 to Akhil Chaudhary for $299,000. Mr Chaudhary is a real estate agent with Southern First National (2008) Ltd in Manurewa. Sharma Legal initially acted for Mr Chaudhary on the agreement.
[23] On 3 June 2008, Prema Developments Ltd sold the parent lot to Arranmore Developments Ltd, a subsidiary of the Hugh Green group of companies. The terms of the agreement reflect an arm’s length transaction. There is no evidence that Prema is associated with or connected to Arranmore. Under the agreement, Prema Developments Ltd assigned its rights in the agreements for sale and purchase to Arranmore. There is a schedule to the agreement setting out details of the assigned agreements. The solicitors for Prema Developments Ltd gave written notice of the assignment to the purchasers’ lawyers.
[24] On 25 September 2008, the lawyers for Arranmore sent letters to the purchasers’ lawyers advising that as of 17 September 2008, clause 10.1.4 of the agreement for sale and purchase had been satisfied. Clause 10.1 required the vendor to obtain all necessary engineering and resource consents by 31 May 2008. As this condition was for the sole benefit of the vendor, the vendor could waive it, subject to clause 10.1.4, which gave the purchaser a right of cancellation if 10.1 had not been satisfied by 31 October 2008.
[25] In October 2008 title had not issued. Some of the defendants allege that they were told that if title had not by then issued they could cancel. None of them did.
[26] On 24 February 2009, Arranmore’s lawyers wrote to the purchasers’ lawyers to say title was expected to issue in April/May 2009. On 5 May 2009, Arranmore’s lawyers wrote again saying that certificates under ss 223 and 224 of the Resource Management Act 1991 had now issued with title to issue within the next few weeks.
On 15 May, Arranmore’s lawyers wrote to say that the settlement date was Friday,
22 May 2009. This last letter was a notice under clause 13 of each agreement for sale and purchase. The settlement date, 22 May 2009, passed without any sale being completed. On 27 May 2009, Arranmore’s lawyers sent settlement notices to the lawyers for Mr Avirappattu and Mr Chaudhary. On 9 June 2009, Arranmore’s lawyers sent a settlement notice to the lawyers for Zeeland Developments Ltd. On 15
June 2009, Arranmore’s lawyers sent a settlement notice to the lawyers for Mr
Narayan.
[27] On 15 June 2009, Sharma Legal wrote separate but identical letters on behalf of Messrs Avirappattu, Chaudhary and Narayan to say that each had been induced to enter into the agreement by a representation that the area was zoned for new schools and that indeed a new school and shopping complex would be built on the land across from the development site. The letters further stated that each defendant had found out that the school and shopping centre would not be built. Each defendant cancelled the agreement.
[28] Arranmore issued the present summary judgment proceedings against Zeeland Developments Ltd, Avirappattu and Chaudhary in July 2009 and against Narayan in August 2009.
[29] Since late 2007 the market value of the sections in the subdivision has fallen below the prices payable under the agreements for sale and purchase. Other purchasers have also defaulted in settling their purchases, but the plaintiff says that these are the only ones to have alleged misrepresentation as a ground for not completing.
[30] In the case of Zeeland Developments Ltd the alleged misrepresentations are:
a) That seven new schools and the town centre development for Flat
Bush would be completed by the time title had issued; and
b)That clause 10.7 of each agreement allowed the purchaser to cancel the agreement if any change in the area (represented as meaning the
Flat Bush area) resulted in a reduction of the market value of the properties by more than 15% of the purchase price.
[31] Mr Mahabir says that the salesmen, Kevin Dunn and Aaron Johkan, told him this in a meeting, which took place in early December 2007.
[32] In the case of Mr Avirappattu, the alleged misrepresentations are:
a) That seven new schools would be completed by early 2009 and construction of the town centre development would commence in
2009; and
b)That if title had not issued by 1 October 2008, the purchaser could cancel the agreement and the deposit would be returned with interest.
[33] Mr Avirappattu’s affidavit refers to meetings with Ravi Singh in early December 2007. He says that the representations were made in a meeting at the home of Ranjeet Prasad, the nephew of Mr Chaudhary, on around 10 December
2007.
[34] In the case of Mr Chaudhary, the misrepresentations are:
a) That seven new schools and the town centre development would be completed by the time title issued on the property; and
b)If title had not issued by 1 October 2008, the purchaser could cancel the agreement and the deposit would be refunded with interest.
[35] Mr Chaudhary says that he met Ravi Singh in early November 2007 at the Dannemora home of Ranjeet Prasad. The representations are said to have been made in that meeting. He also describes later visiting the land agent’s office in December and talking with another salesman, Zarn Ha, who gave him a copy of the marketing brochure. He says that the map on the brochure showed the areas designated for the central schools campus and the town centre, but says that the brochure did not say
that these were only planned developments. He says that Mr Ha did not say anything that might suggest that what Mr Singh had told him might be incorrect.
[36] In the case of Mr Narayan, the allegations are:
a) That the agent represented that seven new schools would be completed by 2009, and construction of the town centre development would commence in 2009; and
b)That if title had not issued by 1 October 2008, the purchaser could cancel the agreement and the deposit would be refunded with interest.
[37] Mr Narayan says that Ravi Singh visited him at his home in Flat Bush on 15
December 2007, and made the representations there.
[38] In response to the plaintiff’s application, the defendants submit:
a) That they were entitled to cancel for misrepresentation under the
Contractual Remedies Act 1979 and did cancel;
b)That the plaintiff breached ss 9 and 14 of the Fair Trading Act 1986 and seek orders under s 43(2)(a) declaring the agreements void;
c) That the plaintiff is estopped from enforcing the agreement by the promises contained in the description of the nature of the property; and
d)That the conduct of the plaintiff precludes it from obtaining specific performance. The plaintiff has come to the proceedings with unclean hands and the Court should not grant specific performance because such an order would result in hardship and unfairness to the defendants.
[39] None of the defendants says that he is unusually gullible. All of them are in occupations which call for at least average intelligence. All of them are familiar with
South Auckland. None of them claims to have been taken in by the obvious puff – “a short drive to local beaches” (there can be fewer parts of urban Auckland further away from a beach than Flat Bush).
[40] None of them says that he did not visit the subdivision and look at the land he was to buy.
[41] The land agent’s marketing brochure contains hyperbole typical of land agents’ advertising. But it does not contain any of the representations alleged in these cases. Statements such as “Just minutes to Botany Town Centre and Sir Barry Curtis Reserve” and “Zoned for new schools” are written so as not to suggest that schools are being built, or that the Flat Bush Town Centre was a feature of the neighbourhood. Instead the allegations of misrepresentation turn on what the defendants claim they were told by the salesmen.
[42] In a late affidavit (to which the plaintiff had no opportunity to reply) Mr Narayan raised the matter of language difficulties. He says that Fijian Hindi, not English, is his first language. He has lived in New Zealand 8 years. He is more comfortable speaking Fijian Hindi. He says that Mr Mahabir was also born in Fiji and his first language is Fijian Hindi. Mr Avirappattu was born in India and his first language is Hindi. Mr Chaudhary was born in Fiji and his first language is Fiji Hindi. Mr Narayan says that he has a better command of the English language than the other purchasers.
[43] This claim of language difficulty does not advance matters. There is no evidence which language the Don Ha salesmen used. It is likely that Zarn Ha used English, this being the only common language used by Mr Chaudhary and Mr Ha, but Ravi Singh and Aaron Jokharn need not have used English. The purchasers’ claims of misrepresentation rest on the purchasers recording correctly what the salesmen told them. If language difficulties stand in the way of the purchasers understanding and recalling correctly what they were told, that weakens their claim for misrepresentation. For this application I assume that whatever the salesmen may have said, language difficulty did not stand in the way of the purchasers understanding and recording what they were told.
[44] The plaintiff invites the Court not to be diverted by the defendants’ claims of misrepresentation, whether couched as misrepresentation under the Contractual Remedies Act or as misleading and deceptive conduct under the Fair Trading Act. The plaintiff says that these alleged defences are without substance or credibility. In developing this, Mr Fisher submitted that the statements were not admissible as they were inconsistent with the terms of written agreements. In that regard he referred to Lysnar v National Bank of New Zealand [1935] NZLR 129 (PC) and A M Bisley & Co Ltd v Thompson [1982] 2 NZLR 696 (CA). These authorities go to the provisions of collateral contracts. A term in a collateral contract may not be inconsistent with the express terms of the principal contract.
[45] To the extent that the matters pleaded by the defendants are said to have contractual effect, the plaintiff’s submission may be valid. However, the purchasers’ cases are based on misrepresentation – the claims being in part that the agents misled the purchasers as to the effect of the written terms of the agreements for sale and purchase – clauses 10.1, 10.1.3, 10.1.4 and 10.7 in particular. The argument as to collateral contract does not take the plaintiff all the way it needs.
[46] The plaintiff is on stronger ground in attacking the misrepresentations as inherently improbable.
[47] Arron Jokharn and Kevin Dunn, the salesmen responsible for the sales to Zeeland Developments Ltd gave evidence. In an unusual development in an application for summary judgment, Zeeland Developments Ltd obtained an order for the agents to be examined before a registrar. Their evidence is that when they spoke to Zeeland’s director, Mr Mahabir, they did not make the statements alleged by Mr Mahabir. During the examination counsel for Zeeland chose to treat them as hostile and cross-examined them. There was evidence of earlier inconsistent statements by the salesmen. Mrs Grant submitted that I should not accept their evidence. I make no findings as to their credibility. There is a conflict between what they say and what Mr Mahabir says. I cannot resolve that conflict in this summary judgment application. My decision does not turn on accepting their evidence.
Zeeland – representation about change in area
[48] The claim shows a misunderstanding of the purpose of clause 10.7. Under clauses 10.3 and 10.4 of the agreement for sale and purchase, the plan of subdivision may be changed. The size of lots may be increased or decreased. In addition, under condition 10.2, the vendor has the right to grant or receive the benefit of easements, restrictions or other encumbrances which may be required in order to obtain a deposited plan of subdivision. This would include encumbrances such as consent notices required by the local authorities.
[49] Clause 10.7 gives protection to a purchaser if changes to the subdivision result in a reduction in market value of the lot of at least 15%. The purchaser may avoid the agreement by written notice to the vendor. The clause provides that the parties acknowledge that a reduction in market value of less than 15% shall not be considered sufficiently material to justify a purchaser’s notice.
[50] The convenience of clause 10.7 is that it provides greater certainty as to the parties’ position, when there are differences between lots shown in a subdivision plan and the actual dimensions as shown in a survey plan.
[51] “Area” in 10.7 clearly refers to the size of the lot in the agreement for sale and purchase, and not the locality in which the lot is situated.
[52] The allegation made is that the land agents told Mr Mahabir that he would have the right to pull out of the contract if the market value of properties in the locality dropped by more than 15%. This amounts to a claim that the salesmen misrepresented the terms of the agreement.
[53] There is no reason for a developer to offer such a concession. In a falling market, a developer will be concerned to hold purchasers to agreements they have signed. It will be against his or her interests to let purchasers withdraw from their agreements in a falling market. There is nothing in the evidence to suggest that Prema Developments Ltd gave such a concession or authorised the agents to give such a concession.
[54] Nor is there any basis for a real estate agent to give such a concession. Such a concession by a land agent would be against its interests, because that would operate as a condition bringing the agreement for sale and purchase to an end and deprive it of its right to commission. If the market were to fall, the agent would be as motivated as the vendor to keep purchasers to unconditional agreements.
[55] The only other explanation why an agent might make such a representation is based on cynical dishonesty on the part of the agent. That is, the agent is so strongly motivated to make the sale that he will tell the purchaser a blatant lie to get the purchaser to enter into the agreement and then will deny the lie. Such an explanation is implausible in this case. Certainly the defendants’ counsel did not suggest actual fraud on the part of the land agents. Such dishonesty was not put to them when they gave their evidence. An agent might conceivably use such desperate measures if these lots were difficult to sell, but these lots sold quickly. I find the suggestion that the agents in this case made such a representation implausible.
[56] I do not accept that the salesmen told Mr Mahabir that Zeeland could get out of the agreement for sale and purchase if the market value of property in the Flat Bush area fell by at least 15%.
Avirappattu, Chaudhary and Narayan – representations about time of issue of title
[57] Messrs Avirappattu, Chaudhary and Narayan all allege representations that if title had not issued by 1 October 2008, they could cancel their agreements and their deposits would be refunded with interest. By 1 October 2008, the titles had not issued. They were not to issue for a further eight months. None of these purchasers gave notice cancelling the agreement because of the non-issue of title by 1 October
2008. They could be expected to give notices of cancellation if the representations alleged by them had in fact been made, and if it was important to them to escape from their contracts. Their failure to give notice of cancellation in reliance on the alleged representation suggests either that the representation was not in fact made, or that that particular representation was not of such significance as to induce them to enter into the agreements for sale and purchase. I see no basis for these alleged
representations to be grounds for cancellation under s 7 of the Contractual Remedies Act, for a claim for damages under s 6 of that Act or for relief under s 43 of the Fair Trading Act.
The representations as to schools
[58] Mr Chaudhary says that Ravi Singh told him that seven new schools would be completed by the time title issued. Given that the vendor was suggesting that settlement would be possible in October 2008, that means that the expected time for completion of the schools was October 2008. Mr Mahabir alleges the same representation. Mr Avirappattu says that he was told that seven new schools would be completed by early 2009. Mr Narayan says that he was told that seven new schools would be completed by 2009.
[59] In considering the alleged representations about schools, the knowledge of the purchasers is relevant. None of them says that he did not visit the subdivision. All of them live in South Auckland. Mr Avirappattu and Mr Chaudhary are land agents, an occupation that requires the use of a motor vehicle. Mr Narayan already lives in the Flat Bush area. Mr Mahabir is a developer who bought 9 sections planning to build houses on them so he must have inspected them. Their failure to say whether they visited the site or not is telling. In the absence of explicit evidence from them that they did not visit the site, I infer that they did what any other purchaser living in South Auckland and planning to buy a vacant lot in South Auckland would do – go and visit the site. On this point the evidential burden is on the defendants and they have not discharged it.
[60] From their visits to the site, they would have seen that the Flat Bush area had been prepared for development in that roads and related infrastructure had been put in place, but that areas for residential housing were largely vacant. In the Flat Bush School Road area, they may have noticed some subdivisions underway, but they would not have noticed extensive housing already erected. The extent of residential development in Flat Bush generally was not enough to require seven schools for the education of school age residents. Around the Flat Bush School Road area there was not enough housing to require one primary school for local school age residents.
[61] Mr Richard Blaikie, a planner giving affidavit evidence for the defendant, has produced a Ministry of Education document showing development proposals for Flat Bush schools. That document was printed on 9 December 2009. Baverstock Oaks School is shown as having opened in 2005. Mission Heights Primary School and Mission Heights Junior College are shown as having their opening date in term 1 of
2009. (Mission Heights is not near Flat Bush School Road.) Ormiston Senior College has a planned opening date of term 1, 2011. South West Flat Bush Primary School, Ormiston Road Junior High School, Ormiston Road Primary School and South East Flat Bush Primary School are shown as not yet established, but as having planned opening dates in 2013 or later.
[62] The purchasers may not have read the Ministry of Education’s February 2007 strategy, and are not expected to know the Ministry of Education’s strategic plans for new schools in the Flat Bush new town, but as a matter of common sense, they would understand that the Ministry of Education would not build schools where there is no current demand for schools. Seven new schools (in addition to the existing Baverstock Oaks School in Botany Downs which had already opened), would require an extensive school age population in the Flat Bush area. In December 2007, when these agreements were signed, that population did not exist. Given the absence of other extensive residential development in the locality, the purchasers would also have appreciated that by the time title came through (expected in October 2008) there would not have been the school age population living in Flat Bush to justify building seven new schools.
[63] The purchasers would also have seen that in the area marked for the campus on the marketing brochure prepared by DH Group Ltd, there were no visible signs of an area set aside for schools and no signs of any schools under construction.
[64] It defies common sense for the purchasers to believe that seven schools would have been erected by the times they allege. It is implausible that the representations about the completion of 7 schools were made and believed. The defendants do not have any defence for these alleged misrepresentations.
Representations as to town centre completion – Zeeland Developments Ltd
[65] Extracts from the Manukau City Council’s long-term community council plan for 2006-2016 were put in evidence. While press releases issued by the City Council were also put in evidence, I regard the LTCCP as a more authoritative source of information as to the plans and intentions of the Manukau City Council. The LTCCP shows that the development of the Flat Bush area is a high priority. The Council had formed a Council-controlled organisation, Tomorrow’s Manukau Properties Ltd, which has the job of developing the town centre. Planning for the development of the town centre was to start in 2006-2007. The Flat Bush library was to be completed by December 2009, but an art gallery would not be built until
2012-2013.
[66] In October 2007, the City Council announced that Tomorrow’s Manukau Properties Ltd had entered into an agreement with Melview Developments Ltd for the planning and development of the town centre. Neither party has put in any evidence that suggests that in December 2007:
a) Construction of the town centre would commence by early 2009;
b) That the town centre would be completed by 2009.
[67] Mr Mahabir says that he was told that the town centre would be complete by the time title had issued. Again, because the vendor was suggesting that title could issue in October 2008, that amounts to a representation that the town centre would be completed within 10 months of the agreement for sale and purchase being signed. Mr Mahabir is a developer. From his site visit he would have seen that no town centre was under construction. Given his knowledge and experience of construction and development, he could not have believed that undeveloped land would be converted into a fully-developed town centre within 10 months.
[68] Zeeland’s defence on this aspect is implausible and I reject it. Zeeland has not shown any actionable misrepresentation under the Contractual Remedies Act,
and has not shown any breach of ss 9 and 14 of the Fair Trading Act which could give relief under s 43 of that Act.
[69] Zeeland Developments Ltd has not shown an arguable defence for any of the three misrepresentations it has alleged. The plaintiff is entitled to the relief it seeks.
Representations about start of town centre construction – Avirappattu, Chaudhary and Narayan
[70] The representations alleged by the other purchasers are to the effect that construction of the town centre would start in 2009. Unlike the representation which Mr Mahabir alleges, the alleged representations as to commencement of construction have some plausibility. That is, there are no circumstances which suggest that these representations can be dismissed in the same way as those alleged by Mr Mahabir.
[71] A purchaser of a lot in Point View Park would see that no physical works on the town centre had started in December 2007, but could believe that work would soon start on a town centre, at least to the extent of providing some shops to serve local residents.
[72] The plaintiff has not put in any evidence directly challenging the evidence of these defendants that the salesman, Ravi Singh, did make these representations.
[73] For the plaintiff, Mr Fisher tried to rebut this by pointing to inconsistency in the purchasers’ positions. On 15 June 2009, the lawyer for Messrs Avirappattu, Chaudhary and Narayan, Sharma Legal, wrote the same letter on behalf of each of them saying that misrepresentations had been made: “that the area was zoned for new schools and that indeed a new school and shopping complex would be built on the land across from the development site”. The letter did not say that any representations had been made about the timing of any this development. Mr Fisher points out that the representations set out in these letters did have a proper factual basis in that the area was appropriately zoned for schooling, and there were plans for a shopping complex to be built on land across from the development site.
[74] Mr Fisher then went on to point out that these alleged representations had changed with the change of legal representation when new lawyers, Brennan & Brown-Haysom, were instructed. The representations had changed to incorporate time elements as to the completion of schools, and the time of construction of the town centre. Mr Fisher claims that these changes were made with a view to crafting misrepresentations which could not be defended from those which were not actionable. In response, Mrs Grant proposed that the former lawyer may not have taken complete instructions.
[75] While I see the force of Mr Fisher’s submission, and I am sceptical as to these allegations about the start of construction of the town centre, I am unable to rule conclusively against the purchasers on this point. The purchasers have deposed to these representations having been made. They are arguably actionable, because there is a tenable case that there was no reasonable basis for the alleged statement at the time it was said to have been made (Premium Real Estate Ltd v Stevens [2009] 1
NZLR 148 (CA) at [58], David v TFAC Ltd [2009] 3 NZLR 239 at [43]). That is because, while the Manukau City Council documents showed clear planning and intention for the construction of the town centre, there is nothing in those documents that suggests that physical works would start on the site by the time alleged by the purchasers.
Right to cancel
[76] As the plaintiff has not shown that Mr Avirappattu, Mr Chaudhary and Mr Narayan do not have an arguable defence of misrepresentation as to the time of commencement of building the town centre, the next issue is whether these alleged misrepresentations allow the purchasers to cancel their contracts with the plaintiff. For the purchasers to cancel under the Contractual Remedies Act, they must have a right to cancel under s 7(4):
7 Cancellation of contract
…
(4)Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,—
(a) The parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the term is essential to him; or
(b)The effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—
(i) Substantially to reduce the benefit of the contract to the cancelling party; or
(ii) Substantially to increase the burden of the cancelling party under the contract; or
(iii) In relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.
[77] In the context of a summary judgment application, the onus is on the plaintiff to show that the purchasers cannot cancel under s 7(4).
[78] For the purchasers, Mrs Grant submitted that the representations the purchasers relied on were all essential under s 7(4)(a). The only aspect of the representation that could be false is the time construction was due to start. Under s 7(4)(a), the parties must have expressly or impliedly agreed that the truth of the representation is essential to the canceling party.
[79] In Progeni Systems Ltd v Hampton Studios Ltd HC Christchurch CP 105/86,
11 August 1987, Tipping J applied the test propounded by Jordan CJ in Tramways
Advertising Pty Ltd v Lunar Park (NSW) Ltd (1938) 38 SRNSW 632 at 641:
The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee 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 promissor.
[80] In the Progeni Systems case, Tipping J said:
… the 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.
[81] In agreements for the sale and purchase of land, stipulations as to time for performance are usually not of the essence in the absence of express provision: see s 90 of the Judicature Act 1908, Stickney v Keeble [1915] AC 386 per Lord Parker at
415-6, United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 per Lord Diplock at 924-8, and Raineri v Miles [1981] AC 1050. If one of the contracts in this case had a term that the vendor undertook that construction of the town centre would start by the time title came through, a breach of that term would not give a right to cancellation, unless the contract expressly said so. So a representation in the same words as that term would not give a right to cancel.
[82] The matter can be tested in this way. If the representation as to the timing were essential, the purchasers would be entitled to cancel if it were shown that the plans for commencement of construction of the town centre were for work to start, say, one month after the time when title was expected to issue. The timing of the start of construction is hardly so crucial that if the start of construction were delayed by one month, the purchasers could assert a right to cancel. The matter is not of such fundamental importance. There is no right to cancellation for essentiality under s 7(4)(a).
[83] The next inquiry is whether the purchasers can cancel under the substantiality ground under s 7(4)(b).
[84] The burden under each contract has not changed. Under the agreements, each purchaser is to pay the vendor the sum of $299,000 for the purchase price. That has remained the position regardless of the truth or falsity of the representation.
[85] Jolly v Palmer [1985] 1 NZLR 658 (HC) is on point. In that case, the difficulties the purchasers encountered arranging mortgage finance were held to be a burden that was incidental or collateral to the contract, and not a burden under it. Similarly in this case, any delay in development of the town centre is not a change in the burden under the contract.
[86] Instead, the inquiry is whether the benefit of the contract has been substantially reduced under s 7(4)(b)(i), or the representation has made the benefit of the contract substantially different from that represented.
[87] In Jolly v Palmer, Hardie Boys J said at 662:
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 Mr Withnall 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.
[88] In MacIndoe v Mainzeal Group Ltd [1991] 3 NZLR 273 (CA) at 284-5, Richardson J said:
Substantiality in that 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.
[89] As to the degree of the effect on the benefit to be acquired under the contract, there is assistance from valuation evidence. The evidence of the defendants’ registered valuer, Mr Foote, addresses the difference in value of the properties in the subdivision as they are at the date of settlement, and the value they would have had if the Flat Bush Town Centre development and eight nearby schools had been completed at settlement date, instead of being delayed by approximately eight years, or not being built at all. His evidence is that the lots sold at $299,000 (lots 20, 44 and 47, purchased by Mr Avirappattu, Mr Chaudhary and Mr Narayan respectively) at settlement date would each have had a value of $265,000 if the “amenities” had been completed. By “amenities” he means the schools and the town centre. He goes on to say that without these amenities having been completed, and with the prospect of them being delayed by around eight years, the lots would have a lower value of approximately 10% less than the current market value he had assessed. That is, his evidence is that if all the representations alleged by the purchasers (not just the one as to timing of the start of construction of the town centre development) came into
effect, these lots would be worth $265,000, but with completion of amenities being delayed by up to eight years, their value would be in the order of $238,500, a difference of $26,500.
[90] The purchasers bought on a falling market. The drop in value attributable to the decline in the market generally between the date of agreement and the date of settlement is not relevant under s 7(4)(b)(i). It is only the fall in value attributable to the effect of the misrepresentation that is relevant. In this case, the fall in value is likely to be less than $26,500, because the only possible relevant representation goes only to the timing of start of construction of the town centre, not to completion of all amenities. The difference in value attributable to the only relevant misrepresentation is no more than $26,500 and may be much less.
[91] This difference in value of up to $26,500 is not so great as to amount to a substantial reduction in benefit. In Jolly v Palmer at 663 Hardie Boys J held that a difference in value of 11% did not give a substantial reduction in benefit. In this case the difference is about 8.8%.
[92] I do not overlook that the plaintiffs also filed evidence from another registered valuer, Kenneth George Stevenson. Mr Stevenson’s evidence took issue with Mr Foote’s evidence by showing that the drop in value of the lots in the subdivision was attributable to the fall in market generally, and not to the absence of amenities referred to in Mr Foote’s evidence. Mr Stevenson put the current market value of lots 20, 44 and 47 at $245,000 each, an amount close to Mr Foote’s assessed value of $238,500. The difference between them is as to the effect of the absence of amenities. Both witnesses are have expertise in their field. In a summary judgment application, I cannot resolve disputes between expert witnesses (MacLean v Stewart (1997) 11 PRNZ 66). For this application, I have to assume that Mr Foote’s evidence may be preferred over Mr Stevenson’s, and that at trial the purchasers may show that the effect of the misrepresentation could be up to $26,500.
[93] The matter is also to be assessed non-arithmetically. A representation that the construction of a town centre would begin is not actionable. It is only the timing element of the representation that is arguably actionable. Flat Bush area is the site of
a planned new town, but development of the town is still only starting. Many facilities and much infrastructure have still to go in. The town centre is just one of many amenities. In this context, the timing of the start of construction of the town centre is not such an important matter as to give a right to cancel.
[94] Under s 7(4)(b)(iii), the analysis is similar. As explained above, the burden remained constant and the difference is only in benefit. The change in benefit under s 7(4)(b)(iii) is the same as a change in benefit under 7(4)(b)(i). Accordingly, while the defendants may have an argument that they have an arguable defence as to misrepresentation, that defence does not give them a right to cancel under the Contractual Remedies Act.
Equitable Set-off
[95] While the plaintiff is entitled to enforce performance of the agreements for sale and purchase, there is the question of whether the terms of the orders for specific performance need to take into account any claims by these purchasers for unliquidated damages for misrepresentation.
[96] The old view is that there could be no deduction from the purchase price for a claim for innocent misrepresentation. An authority often cited for this proposition is Rutherford v Acton-Adams [1915] AC 866. Viscount Haldane said at 869-870:
In exercising its jurisdiction over specific performance the Court of Equity looks at the substance and not merely at the letter of the contract. If a vendor sues and is in a position to convey substantially what the purchaser has contracted to get, the Court will decrease specific performance with compensation for any small and immaterial deficiency, provided that the vendor has not, by misrepresentation or otherwise, disentitled himself to his remedy. Another possible case arises where a vendor claims specific performance and where the Court refuses it unless the purchaser is willing to consent to a decree on terms that the vendor will make compensation to the purchaser, who agrees to such a decree on condition that he is compensated.
… But this right applies only to a deficiency in the subject-matter described in the contract. It does not apply to a claim to make good a representation about that subject-matter made not in the contract but collaterally to it. In the latter case the remedy is rescission, or a claim for damages for deceit where there has been fraud, or for breach of a collateral contract if there has been such a contract.
[97] In his text Sale of Land (2nd ed, Cathcart Trust, Auckland, 2000) Dr D W McMorland has signalled that that may no longer be the law at 11.13, 361:
However, it has been recognised, obiter, that the rules of equitable set-off, which in certain circumstances allow unliquidated damages to be set-off against debts due, may also apply in this situation as they do to rent due. The possibility, if confirmed, would allow the deduction of a much wider range of claims by the purchaser.
[98] Rutherford v Acton-Adams has to be considered in the context of remedies available for misrepresentation at the time of that decision. The case did not involve a claim of fraudulent misrepresentation. A purchaser of land made a claim for innocent misrepresentation. He raised it after he had entered into possession in circumstances which made it impossible to claim rescission. This was before there could be liability for negligent misstatement (as under Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465) and before s 6 of the Contractual Remedies Act which gives a right to damages for innocent misrepresentation. If Rutherford v Acton-Adams came before a court today, the purchaser would have a damages remedy for innocent misrepresentation.
[99] It is now recognised that a purchaser may be able to raise a defence of equitable set-off to a claim for an order for specific performance of an agreement for the sale and purchase of land. The English Court of Appeal held that equitable set- off could be raised in a claim for specific performance in BICC PLC v Burndy Corporation [1985] Ch 232 (not an agreement for sale and purchase of land). The Supreme Court has held that this is also part of New Zealand law and applied it to an agreement for the sale and purchase of land in Property Ventures Investments Ltd v Regalwood Holding Ltd [2010] NZSC 47 per Blanchard J at [61]–[69].
[100] Wilsons (NZ) Portland Cement Ltd v Gatx-Fuller Australasia Pty Ltd (No. 2) [1985] 2 NZLR (HC) 33 at 38 is sometimes cited for the proposition that a claim for misrepresentation does not give rise to a right of equitable set-off in New Zealand. However, the finding of Pritchard J on the point is tentative. He noted that it is possible to take a more liberal view of equitable set-off. The case was decided on other grounds. It was also before the Court of Appeal’s decision in Grant v NZMC
Ltd [1989] 1 NZLR 8 which set the test for equitable set-off in New Zealand at 12-
13:
The principle is, we think, clear. The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect inter dependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.
[101] In Property Ventures the Supreme Court upheld this test for equitable set- off. In common with most other New Zealand decisions on the point, it avoided saying whether New Zealand took a wide or narrow view of equitable set-off – [69] per Blanchard J.
[102] Australia is home to the view that equitable set-off is to be applied narrowly (see for example R P Meagher, J D Heydon and M J Leeming Meagher,Gummow & Lehane’s Equity Doctrines and Remedies (4th ed, LexisNexis, Chatswood, 2002) at
37-050) but Australian courts have held that claims of misrepresentation may be raised by way of equitable set-off: Petersville Ltd v Rosgrae Distributors Pty Ltd (1975) 11 SASR 433, Altarama Ltd v Camp (1980) 5 ACLR 513 at 519-520, AMP v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326, Tomlinson v Cut Price Delhi Pty Ltd (1992) 38 FCR 490 at 494, and Re Kleiss (1996) 61 FCR 436 at
441.
[103] Under the Contractual Remedies Act, much of the law as to contractual misrepresentation has been aligned with claims for breach of contract. So long as the defendant’s cross-claim so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim into account, it cannot matter whether the cross-claim is based on a breach of contract or on misrepresentation inducing that contract. In Grant v NZMC Ltd equitable set-off was allowed where the alleged equitable set off was for breach of a collateral contract. A claim for damages for misrepresentation inducing the contract may be no less interdependent.
[104] The purchasers have an arguable case for equitable set-off for the alleged misrepresentations. It is reasonably arguable that if the misrepresentations were made, it induced the purchasers to enter into the contract. It would be unjust to allow Arranmore to have specific performance without the purchasers being allowed to bring their claim for unliquidated damages for the misrepresentation into account. As Blanchard J observed in Property Ventures at [74]:
From the perspective of a vendor, it is undesirable if a purchaser, perhaps short of funds to settle in full, has the opportunity of manufacturing or inflating a claim for breach of warranty and thereby seeking to settle on a basis which would leave the vendor as an unsecured creditor or perhaps to force the vendor to postpone the settlement pending resolution of the purchaser’s claim. On the other hand, it is also undesirable that a purchaser with a valid claim to a set-off should have to pay in full and thus be left in the position of an unsecured creditor of an impecunious vendor.
[105] That was said in the context of a claim for breach of warranty in the agreement for sale and purchase, but it is equally applicable for a claim for misrepresentation giving a right of equitable set-off.
[106] In Property Ventures, the Supreme Court noted the necessity for a purchaser to raise the matter of equitable set-off before settlement. In this case, up to this stage, neither party has taken the position that there should be any allowance for equitable set-off. Arranmore has simply maintained the position that the purchasers have no defence. The purchasers have taken the position that they are entitled to cancel.
[107] The purchasers’ failure to claim equitable set-off until now may not be fatal. While the initial date of settlement has passed, the plaintiff is still seeking settlement and it is still open to the purchasers to raise the matter of equitable set-off before settlement. As the purchasers have claimed a right to cancel for misrepresentation, they can hardly be said to have abandoned their claim to equitable set-off for misrepresentation, simply because the misrepresentations have not been held serious enough to give rise to a right of cancellation. It may, therefore, remain open to the Court to order specific performance while allowing the purchasers’ claim for damages for misrepresentation to be brought into account
[108] The approach taken above with allowing set-off in a claim for specific performance is in line with the measure of damages claimed by a vendor for default
by a purchaser. If a vendor validly cancels for failure by the purchaser to settle and claims damages for a shortfall on resale, the vendor is entitled to be put in the position he would have been in if the purchaser had not breached. If the purchaser has a right to claim damages for breach of contract or for misrepresentation (but not to cancel), the purchaser can require his claim for damages to be brought into account. If the vendor were to recover damages which did not take into account his liability to the purchaser for misrepresentation, he would recover a greater sum than what is required to put him into the position he would have been in under the contract.
Fair Trading Act
[109] The alleged representations about the time construction of the town centre would start are also arguably capable of being misleading or deceptive conduct under s 9 of the Fair Trading Act, and false or misleading representations under s 14 of that Act. The statements were made in trade by salesmen employed by DH Group Ltd in the course of their employment. DH Group Ltd was the agent of Prema Developments Ltd and had its authority to market the sections. Prema Developments Ltd was in trade when it sold the sections. It may be vicariously liable for misrepresentations made by the salesmen under s 45(2):
Any conduct engaged in on behalf of a body corporate –
a)By a director, servant or agent of the body corporate, acting within the scope of that person’s actual or apparent authority … shall be deemed, for the purpose of this Act, to have been engaged in also by the body corporate.
[110] The plaintiff is not vicariously liable under the Act for statements made by the salesmen. It is the assignee of the agreements and there is nothing in the Act to say that assignees are liable under the Act for the misleading conduct of their assignors.
[111] Under the Contractual Remedies Act, the defendants can raise representations made on behalf of the vendor against the plaintiff as assignee. Section 11 of that Act says:
11 Assignees
(1)Subject to this section, if a contract, or the benefit or burden of a contract, is assigned, the remedies of damages and cancellation shall, except to the extent that it is otherwise provided in the assigned contract, be enforceable by or against the assignee.
[112] The plaintiff did not submit that the defendants could not raise Contractual
Remedies Act defences against it as assignee.
[113] Under the Fair Trading Act, the matter turns on the remedies available under s 43:
(1)Where, in any proceedings under this Part, or on the application of any person, the Court finds that a person, whether or not that person is a party to the proceedings, has suffered, or is likely to suffer, loss or damage by conduct of any other person that constitutes or would constitute—
(a) a contravention of any of the provisions of Parts 1 to 4; or
(b)aiding, abetting, counselling, or procuring the contravention of such a provision; or
(c)inducing by threats, promises, or otherwise the contravention of such a provision; or
(d) being in any way directly or indirectly knowingly concerned in, or party to, the contravention of such a provision; or
(e)conspiring with any other person in the contravention of such a provision—
the Court may (whether or not it grants an injunction or makes any other order under this Part) make all or any of the orders referred to in subsection (2).
(2)For the purposes of subsection (1) of this section, the Court may make the following orders—
(a) an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct referred to in subsection (1) of this section or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date, before the date on which the order is made, as is specified in the order:
(b)an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect
as so varied on and after such date, before the date on which the order is made, as is so specified:
(c)an order directing the person who engaged in the conduct, referred to in subsection (1) to refund money or return property to the person who suffered the loss or damage:
(d)an order directing the person who engaged in the conduct, referred to in subsection (1) to pay to the person who suffered the loss or damage the amount of the loss or damage:
(e)an order directing the person who engaged in the conduct, referred to in subsection (1) at that person's own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage:
(f)an order directing the person who engaged in the conduct, referred to in subsection (1) at that person's own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage.
[114] There is no evidence that the plaintiff contravened the Act, or was a party to a contravention under s 43(1)(a) and (b). It therefore cannot be the subject of orders under s 43(2)(c)–(f) as a person who engaged in the conduct. That reduces the defendants’ possible avenues for relief to a declaration avoiding the agreements under s 43(2)(a), or an order varying the agreements under s 43(2)(b). The question is whether orders under these subparagraphs should be made in favour of an injured representee against an innocent assignee of the benefit of the contract. That amounts to deciding whether the injured representee or the assignee should carry the burden of seeking recovery from an assignor, who may no longer be traceable or solvent.
[115] The arguments for an assignee are that the Fair Trading Act sits outside and over contracts, and can only avoid or vary them where there is express provision. The Act is a comprehensive statute which provides relief for misleading conduct only against those who engage in it, or are made expressly liable for it. The Act has not provided for assignees of contracts, and it cannot be applied against them when they have not engaged in the proscribed conduct. There is no basis for importing parts of the law of contract into the Act when the Act itself is silent.
[116] The argument for a representee is that the policy decision has already been made that the assignee rather than representee should carry the risk when Parliament
enacted s 11 of the Contractual Remedies Act. Section 43(2) of the Fair Trading Act gives a wide discretion on the application of remedies so that the powers to vary or avoid agreements can be used in conformity with and not beyond parallel remedies under contract law.
[117] I am not aware of any authority directly on point. I do not cite dicta from other decisions under the Act because that will take them out of their context. The parties did not argue the point. For these summary judgment applications I assume, without deciding, that the defendants may be able to establish at a final hearing that the powers under s 43(2)(a) and (b) may be used against an innocent assignee.
[118] I do not accept that it is arguable that the particular agreements in this case would be avoided under s 43(2)(a). If the effects of the alleged misrepresentation are not so significant as to give a right to cancel under s 7(4) of the Contractual Remedies Act, then they cannot give grounds to avoid under s 43(2)(a).
[119] The power to vary a contract under s 43(2)(b) cannot be used any more widely than to give redress for any harm suffered. Under Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 (CA) an order for payment of the amount of any loss suffered under s 43(2)(d) is measured on a tortious basis. There is no award for loss of expectation. There is no evidence that the market value of the sections sold was less than the sale price. The evidence of the defendants’ registered valuer is that the sale prices were at or around current market values. The plaintiff’s valuer’s evidence seems to assume that was the case and does not challenge Mr Foote’s evidence on that point. It is therefore possible that the defendants did not suffer any loss in entering into these contracts in that they did not get anything that was worth less than what they agreed to pay at the time their causes of action accrued – the dates of purchase (the tort measure for damages for deceit). Certainly their losses under the Fair Trading Act could not be any higher than the most they could get for loss of expectation under the Contractual Remedies Act – $26,500. I see no basis on which the defendants could claim for a variation which would give them wider relief than they could obtain under the Contractual Remedies Act or in tort.
[120] The defendants also claimed that there was some estoppel precluding the plaintiff from seeking relief. Given the findings as to representation, I see no basis for holding that Prema Developments Ltd could be estopped in the way claimed by the defendants. The plaintiff in this case can be in no weaker position.
[121] The defendants also urged that the Court should not grant specific performance in the exercise of its discretion. I have not found any factors such as hardship, impossibility of performance, undeserving conduct by the plaintiff, delay, or unfairness, that require the refusal of equitable relief. The only relevant complaints of misrepresentation are addressed by the terms of the orders. Whether the remedy is practical is for the plaintiff to determine, but does not give the court grounds for refusing it.
Relief
[122] There is an order that Jason Paul Avirappattu perform the agreement of
10 December 2007 for the purchase of Lot 20 for the price of $299,000, subject to the sum of $26,500 being secured to await the outcome of his claim for misrepresentation about the start of building the town centre.
[123] There is an order that Shane Anjay Narayan perform the agreement of
15 December 2007 for the purchase of Lot 44 for the price of $299,000, subject to the sum of $26,500 being secured to await the outcome of his claim for misrepresentation about the start of building the town centre.
[124] There is an order that Akhil Chaudhary perform the agreement of
17 December 2007 for the purchase of Lot 47 for the price of $299,000, subject to the sum of $26,500 being secured to await the outcome of his claim for misrepresentation about the start of building the town centre.
[125] The orders for specific performance against Messrs Avirappattu, Chaudhary and Narayan need to be drafted to allow settlement to go ahead with the defendants paying the plaintiff the entire purchase price except the sum of $26,500, and that sum to be secured so that it is available to the plaintiff if it succeeds in its claim. Possible
arrangements are for the sum of $26,500 to be held in a solicitor’s trust account until all issues are finally determined, but other arrangements are possible.
[126] The orders need to fix a date and time for settlement to take place. A
possible date is 10 working days after the orders are finalised.
[127] I direct that this matter is to be called again on 28 May 2010 at 9:00 am. Before then the plaintiff is to provide the defendants with a draft order for consideration. The purpose of the hearing is to determine costs (including amount), approve orders for sealing, and to give further directions. These defendants are not required to file and serve statements of defence before then, and the plaintiff is not to seek judgment by default before then.
[128] The parties may find the order for specific performance in Great Northern Land Co Ltd v Commercial Capital & Equities Ltd CIV-2009-404-7529 of assistance in drafting the orders in this case.
Zeeland Developments Ltd
[129] There is an order that Zeeland Developments Ltd perform the agreements of
10 December 2007 for the purchase of Lots 8, 10, 11, 12 13, 14, 15, 16 and 17 for the price of $339,000 each.
[130] Zeeland Developments Ltd is also ordered to pay costs to the plaintiff on a
2B basis, with disbursements to be approved by the Registrar.
[131] The plaintiff is to draft an order and send it to the defendant for comment. The order and costs will be finalised at the hearing on 28 May 2010.
R M Bell
Associate Judge
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