Beach Arena Limited v Waikoro Limited
[2022] NZCA 454
•28 September 2022 at 9.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA486/2021 [2022] NZCA 454 |
| BETWEEN | BEACH ARENA LIMITED |
| AND | WAIKORO LIMITED |
| Hearing: | 28 March 2022 (further submissions 13 April 2022) |
Court: | Gilbert, Simon France and Dunningham JJ |
Counsel: | D G Collecutt for Appellant |
Judgment: | 28 September 2022 at 9.30 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant must pay costs to the first respondent for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gilbert J)
In response to the first respondent’s claim for monies due under a lease signed in December 2012, the appellant filed a statement of defence and counterclaim in August 2020 partly relying on alleged misrepresentations inducing the lease. The High Court struck out parts of the statement of defence and counterclaim, as amended in November 2020, on the basis the claims were barred by the Limitation Act 2010.[1] The appellant now appeals against part of that judgment.
Background
[1]Waikoro Ltd v Beach Arena Ltd [2021] NZHC 1673 [Judgment under appeal].
On 20 December 2012, Beach Arena Ltd (Beach), as lessee, entered into a deed of lease with Waikoro Ltd (Waikoro), as lessor, in respect of the old Station Hotel (renamed “Arena”) situated on Beach Road, Auckland City and two adjacent development lots, one having frontage onto Beach Road and the other onto Anzac Avenue. At the time the lease was entered into, the hotel was in poor condition and was being used as student accommodation. The lease was for a term of 10 years at an annual rental of $600,000 (plus GST) and outgoings. The lease contained a call option exercisable by Beach by 20 December 2015 in respect of all three properties at a price of $12.6 million (plus GST) and a put option exercisable by Waikoro at the same price at the end of the call option period. Separate options in respect of the development lots or the hotel were also included.
The principals of Beach and Waikoro, respectively Mr Neville Mahon and Mr Timothy Edney, have known each other for some 30 years. Unfortunately, they fell out as a result of difficulties they encountered with this investment.
Soon after Beach took possession, Mr Mahon discovered that the hotel was in much worse condition than he first thought and that it required significant remediation works. Mr Mahon also soon became aware that the insurance premium had increased markedly to almost $145,000. This was 12 times higher than the amount advised by Mr Edney in response to Mr Mahon’s inquiry in May 2011, approximately 19 months before the lease was signed.
Beach needed to borrow to pay the insurance and maintenance costs. Funding was provided by Mr Edney’s interests, through Waimauri Ltd (Waimauri). An initial short-form agreement recording the terms of the borrowing was replaced by a more formal agreement dated 20 September 2013 between Waimauri and Beach with Mr Mahon as guarantor (the Waimauri loan agreement). This agreement provided for repayment by 31 March 2014 together with interest at 12 per cent per annum and a default rate of 18 per cent.
The debt was not repaid on the due date. Beach continued to carry out various works, including upgrading the rooms and facilities. Payment for this work came at the expense of Beach repaying its debt to Waimauri and meeting its rental obligations to Waikoro. Mr Edney then unilaterally purported to transfer all unpaid amounts due to Waikoro to the Waimauri loan agreement (the converted sums).
In September 2014, the parties agreed that the property should be marketed for sale. After some difficulty, the properties were eventually sold for a combined price of $16.7 million in 2016. This was after the expiry of Beach’s call option.
In 2018, Waimauri commenced proceedings in the High Court against Mr Mahon as guarantor for approximately $2.4 million plus default interest at 18 per cent (the Waimauri proceeding). The amount claimed included the original advances and the converted sums.
In February 2019, Mr Mahon joined Beach as a counterclaim plaintiff and alleged that an oral variation agreement was entered into in April 2013 whereby Mr Mahon and Beach would manage the remediation of defects at Waikoro’s cost and Beach and Mr Mahon would be relieved of any liability to Waimauri and Waikoro upon a “reasonable offer for and/or any sale” of the property. Beach counterclaimed for approximately $860,000 for remediation costs allegedly due under the oral variation agreement. Beach and Mr Mahon contended they were not liable to Waimauri in respect of the converted sums in any event.
The Waimauri proceeding was scheduled to be heard in March 2020.
In the meantime, in December 2019, Waikoro issued separate proceedings in the High Court against Beach and the second to fifth respondents as guarantors for amounts said to be due under the lease together totalling $2,263,339 (the Waikoro proceeding). This included the converted sums (against the possibility they were found not to be claimable by Waimauri).
In February 2020, Mr Mahon and Beach applied to adjourn the trial of the Waimauri proceeding, consolidate the two proceedings and amend their counterclaim. They now contended for a different variation agreement, this allegedly entered into in November 2013 (not April 2013), in terms of which Beach would share in any profit received upon sale of the property over the call option exercise price. They claimed to be entitled to the difference between the sale price of $16.7 million and the call option price of $12.6 million ($4.1 million) less the amount borrowed from Waimauri under the loan agreement of approximately $443,000 including interest. Alternatively, Beach advanced a claim for quantum meruit for approximately $910,000 (subsequently reduced to approximately $766,000),[2] being expenditure said to be incurred over and above its maintenance obligations under the lease. Beach sought to join Waikoro and Mr Edney as additional counterclaim defendants.
[2]Waimauri Ltd v Mahon [2020] NZHC 1170 at [199], n 56.
Downs J, in a minute dated 13 February 2020, declined the adjournment and consolidation applications but granted leave to amend the counterclaim on the basis Mr Edney’s interests did not object:
[15] Despite all this, Waimauri and Waikoro acknowledge they “could live with” the amended counterclaim in the 2 March trial, providing they receive discovery of financial records of [Beach] and others … The interests of justice favour Mr Mahon having leave to advance an amended counterclaim, as this will permit full ventilation of his case—however seemingly improbable—without material prejudice to Waimauri or Waikoro.
The Waimauri proceeding was heard in March 2020. In his reserved judgment delivered on 29 May 2020, Muir J gave judgment for Waimauri against Mr Mahon for amounts due under the loan agreement in the sum of approximately $394,000 plus interest calculated in accordance with the agreement.[3] This amount excluded the converted sums.[4] The counterclaims by Beach against Waimauri, Mr Edney and Waikoro were dismissed.[5]
[3]At [216].
[4]At [177].
[5]At [127] and [217].
This brings us to the first amended statement of defence and counterclaim pleaded by Beach in the Waikoro proceeding and dated 13 November 2020 (defence and counterclaim). This pleading was the subject of Associate Judge Paulsen’s judgment on Waikoro’s strike-out application. The present appeal challenges only one aspect of that judgment and is concerned with the following paragraphs of the pleading:
7[Beach] admits [the lease] and further says that it was induced to enter into that Lease by misrepresentations or non-disclosures or conduct that was misleading or deceptive or likely to mislead or deceive by or on behalf of Waikoro in relation to the Properties including to the effect that:
…
(b)the insurance premium(s) for the Properties for 2013 would not substantially exceed the insurance premium(s) for 2012:
(c)the Properties were safe for use and occupation by [Beach] and its employees and members of the public, and that there were no significant hazards in the Properties (such as asbestos, sewerage, seismic or falling masonry hazards), of which Waikoro was obliged to warn other persons under section 16 of the Health and Safety in Employment Act 1992.
…
FIRST COUNTERCLAIM BY THE FIRST DEFENDANT AGAINST THE PLAINTIFF: CONTRACTUAL REMEDIES ACT 1979 / CONTRACT AND COMMERCIAL LAW ACT 2017
53Both Waikoro and [Beach] were parties to the Lease.
54Misrepresentations were made to [Beach] by or on behalf of Waikoro, including as pleaded in paragraph 7.
55Those misrepresentations induced [Beach] to enter into the Lease on the terms set out therein.
56.[Beach] is therefore entitled to damages from Waikoro in the same manner and to the same extent as if each of the misrepresentations were terms of the Lease.
WHEREFORE THE FIRST DEFENDANT CLAIMS AGAINST THE PLAINTIFF:
(a)Damages in the same manner and to the same extent as if each of the misrepresentations were terms of the Lease and have been breached (in a sum to be confirmed before trial) pursuant to s 6 Contractual Remedies Act 1979 / s 35 Contract and Commercial Law Act 2017.
(b)Interest.
(c)Costs.
High Court judgment
The Associate Judge noted that the representations were alleged to have induced Beach to enter into the lease dated 20 December 2012 and therefore must have been made prior to that date. It followed that the counterclaim, which was made for the first time on 11 August 2020 when Beach filed its original statement of defence and counterclaim, was made more than six years after the acts or omissions giving rise to it.[6]
[6]Judgment under appeal, above n 1, at [104].
Beach advanced three bases for its contention that the counterclaim was nonetheless brought within time: (1) the counterclaim was not a money claim (this is plainly wrong and no longer pursued); (2) Beach gained late knowledge of the relevant facts in terms of s 14 of the Limitation Act (this contention is now confined to the insurance premium issue); and (3) Beach can apply for relief under s 50 of the Limitation Act.[7] It is convenient to set out these sections now.
[7]At [105].
Section 14 of the Limitation Act states:[8]
[8]Emphasis in original.
14 Late knowledge date (when claimant has late knowledge) defined
(1) A claim’s late knowledge date is the date (after the close of the start date of the claim’s primary period) on which the claimant gained knowledge (or, if earlier, the date on which the claimant ought reasonably to have gained knowledge) of all of the following facts:
(a) the fact that the act or omission on which the claim is based had occurred:
(b) the fact that the act or omission on which the claim is based was attributable (wholly or in part) to, or involved, the defendant:
(c) if the defendant’s liability or alleged liability is dependent on the claimant suffering damage or loss, the fact that the claimant had suffered damage or loss:
(d) if the defendant’s liability or alleged liability is dependent on the claimant not having consented to the act or omission on which the claim is based, the fact that the claimant did not consent to that act or omission:
(e) if the defendant’s liability or alleged liability is dependent on the act or omission on which the claim is based having been induced by fraud or, as the case may be, by a mistaken belief, the fact that the act or omission on which the claim is based is one that was induced by fraud or, as the case may be, by a mistaken belief.
(2) A claimant does not have late knowledge of a claim unless the claimant proves that, at the close of the start date of the claim’s primary period, the claimant neither knew, nor ought reasonably to have known, all of the facts specified in subsection (1)(a) to (e).
(3) The fact that a claimant did not know (or had not gained knowledge), nor ought reasonably to have known (or to have gained knowledge), of a particular fact may be attributable to causes that are or include fraud or a mistake of fact or law (other than a mistake of law as to the effect of this Act).
Section 50 of the Limitation Act reads:
50Discretion to allow relief for ancillary claim when allowed for original claim
(1)This section applies to an ancillary claim made in a civil proceeding commenced in a specified court or tribunal if, and only if,—
(a)relief may be granted in respect of the original claim, because no defence under Part 2 or 3 has been or could be established against it, or because of an order under section 17, 35(5), or 36(4); but
(b)relief cannot be granted in respect of the ancillary claim because a defence under Part 2 or 3 has been or could be established against it, and because no order under section 17, 35(5), or 36(4) allows a court or tribunal to grant monetary relief in respect of it.
(2)The specified court or tribunal may, if it thinks it just to do so on an application made to it for the purpose, order that relief may be granted in respect of the ancillary claim as if no defence under Part 2 or 3 applies to it.
(3)The application for the order must be made before the specified court or tribunal has decided whether the defendant has established a defence under Part 2 or 3 against the ancillary claim.
An ancillary claim is defined as follows:[9]
[9]Emphasis in original.
4 Interpretation
In this Act, unless the context otherwise requires,—
ancillary claim means a claim that relates to, or is connected with, the act or omission on which another claim (the original claim) is based, and is—
(a) a claim that arises from, or results in, the addition of 1 or more parties to the original claim; or
(b) a counterclaim; or
(c) a claim by way of set-off; or
(d) a claim that is added to, or substituted for, the original claim; or
(e) a claim made by way of a third party, fourth party, or subsequent party procedure; or
(f) any other claim that is ancillary to the original claim
In support of the late knowledge claim, Beach argued that it was not until the trial of the Waimauri proceeding in March 2020 that Mr Mahon became aware that Mr Edney knew of the increase in the insurance premium prior to the lease being signed but had said nothing about it. Beach also contended it still did not know everything that was known to Mr Edney and his companies about the state of the property but not disclosed prior to the lease being signed.[10]
[10]Judgment under appeal, above n 1, at [107].
As to the insurance premium (relevant to [7(b)] of the defence and counterclaim), the Associate Judge was satisfied that Mr Mahon became aware of the increased insurance premium soon after the lease was signed. That had to be so because Beach had to borrow from Waimauri to pay the premium. The Waimauri loan agreement formally documenting this loan was entered into in September 2013. The Associate Judge concluded that Mr Mahon and Beach had knowledge of all the facts required to bring their claim whether or not Mr Edney knew of the increase prior to the lease being entered into. This part of the counterclaim was therefore time barred under s 11(1) of the Limitation Act.[11]
[11]At [109].
Turning to the safety aspects of the property (relevant to [7(c)] of the defence and counterclaim), the Associate Judge was satisfied that Beach and Mr Mahon were also aware of these matters soon after taking possession. For example, in support of the alleged variation agreement, Beach pleaded in its statement of defence and counterclaim that “[f]ollowing commencement of the Lease, [Beach] discovered a number of significant defects (Defects) with the Properties which had not been disclosed at the time the Lease was executed”.[12] Further, solicitors then acting for Beach and Mr Mahon wrote on 22 December 2016 stating:[13]
Very soon after [Beach] took possession of the Beach Road properties in December 2012, it became aware of serious building defects that had not been disclosed (and in some cases had been actively concealed).
The solicitors stated that Beach was seeking compensation for damages suffered as a result the non-disclosure of these serious building defects. They referred to Mr Mahon becoming aware, very soon after the commencement of the lease, that the properties were in an extremely dilapidated state. Fifteen separate defects were listed including fire compliance issues, asbestos, structural cladding issues, various instances of water leakage and ingress. It was said that Mr Mahon had engaged with structural and geotechnical consultants and engineers to investigate the seismic condition of the building and carry out a detailed seismic assessment and potential design solution.[14] The Associate Judge was therefore satisfied that this aspect of the counterclaim was also statue barred under s 11(1) of the Limitation Act and should be struck out.[15]
[12]At [112] (emphasis in original).
[13]At [113(a)].
[14]At [113].
[15]At [114].
The Associate Judge dealt with the submission raised in reliance on s 50 of the Limitation Act quite briefly:
[115] For completeness, [Beach] sought to call in aid s 50 of the Limitation Act. As there was no application before the court for relief under s 50(3), the section does not apply.
Appeal
Mr Collecutt, for Beach, says that paragraph 7 of the defence and counterclaim was “poorly pleaded and/or ambiguous”. He argues that it could be interpreted as referring to either “positive actual representations having been made (that the insurance premium would not substantially increase)” or “non-disclosures having occurred which had the effect of allowing [Beach] to hold an incorrect belief”. Leaving aside the effect of s 50 of the Limitation Act, Mr Collecutt acknowledges that the claim is barred insofar as paragraph 7 is properly interpreted as relying upon “positive actual representations”. However, to the extent paragraph 7 can be interpreted as relying upon “non-disclosures having occurred”, he submits that time commenced to run from the date Beach became aware, or ought reasonably to have become aware, that Waikoro “knew the facts which should have been disclosed”, namely the increase in the insurance premiums and the physical defects in the properties.
Mr Collecutt notes that half-truths can found a claim for misrepresentation by silence. He says the relevant element of the cause of action in such a case is that the party who made the half-true representation was also aware of the full truth. He argues that s 14(1)(a) of the Limitation Act therefore applies and time did not commence to run until Beach became aware, during the course of the trial of the Waimauri proceeding in March 2020, that Mr Edney knew of the increase in the insurance premium prior to the lease being signed.
Because of the asserted ambiguity in the pleading, Mr Collecutt submitted that the High Court ought to have provided an opportunity for an amended pleading to be filed.
A pleading should obviously not be struck out if it can be saved by amendment.[16] We therefore allowed Mr Collecutt a further opportunity to file proposed amendments to the pleading after the hearing so that any ambiguity could be rectified. Proposed amendments were subsequently provided in a joint memorandum dated 12 April 2022, which includes the response of counsel for Waikoro.
[16]van Soest v Residual Health Management Unit [2000] 1 NZLR 179 (CA) at [7], citing R Lucas & Son (Nelson Mail) Ltd v O’Brien [1978] 2 NZLR 289 (CA) at 294–295; Takaro Properties Ltd (in rec) v Rowling [1978] 2 NZLR 314 (CA) at 316–317; and Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267.
The proposed amendments to the misrepresentation pleading in paragraph 7 of the defence and counterclaim are shown in the marked-up version below. The deletions are struck-through and the additions are in red italics:
7[Beach] admits [the Lease] and further says that it was induced to enter into that Lease by
misrepresentations or non-disclosures or conduct that was misleading or deceptive or likely to mislead or deceivethe below half truths, non-disclosures (in circumstances where there was a duty to make disclosure of the undisclosed information) and misrepresentations by silence by or on behalf of [Waikoro] in relation to the Propertiesincluding to the effect that:…
(b)the insurance premium(s) for the Properties for 2013 would not substantially exceed the insurance premium(s) for 2012:(c)the Properties were safe for use and occupation by [Beach] and its employees and members of the public, and that there were no significant hazards in the Properties (such as asbestos, sewerage, seismic or falling masonry hazards), or which Waikoro was obliged to warn other persons under section 16 of the Health and Safety in Employment Act 1992.a.Prior to the Lease being executed [Beach] had asked a number of questions about the insurance premiums for the Properties and the condition of the building (“the Enquiries”), further particulars of which are set out in the brief of evidence of N C Mahon dated 11 March 2020 (“N C Mahon’s brief) filed in [the Waimauri proceeding], and at paragraphs 10, 15 – 19 of the judgment dated 29 May 2020 in the Waimauri proceeding (“the High Court judgment”).
b.Against the background of the Enquiries, and prior to the Lease being executed:
i.On or about 25 May 2011 [Waikoro] advised [Beach] (on behalf of the defendants) that the insurance premiums in relation to the Properties were “$9K plus $1500 business interruption” (“the insurance premiums”), without any qualification as to the time that the insurance premiums related, or would relate, to.
ii.The unexecuted form of the Lease (which was prepared by [Waikoro]) referred to an IEP report rating the hotel building at 38% NBS [New Building Standard].
(“the half truths”)
c.The half truths, in the absence of any modification or correction by [Waikoro]:
i.constituted a continuing representation that they were true and/or there were no other circumstances that rendered them materially untrue or misleading;
ii.lead [Beach] to believe that the total occupancy costs for the Properties would include insurance premiums totalling $10,500 (as opposed to a sum which was materially higher than $10,500) per annum;
iii.lead [Beach] to believe that the hotel building had a rating of 38% NBS; and
iv.induced [Beach] to enter into the lease.
d.Prior to the execution of the Lease [Waikoro] was aware that:
i.The insurance premiums had increased to $144,815.84;
ii.The property had the defects referred to in N C Mahon’s brief and at paragraphs 19 of the High Court Judgment, and in particular that although the unexecuted form of the Lease referred to an IEP report rating the hotel building at 38% NBS, that report (which was not disclosed to the defendants) also identified that “some cracking was present to the spandrel beams above the windows on the front (Beach Road) façade” and recommended that:
1.Concrete in these areas is remediated and the reinforcing checked to ensure the structural integrity of the beam; and
2.The connection of the concrete balconies and construction of the parapets may need to be further investigated to ensure their stability.
iii.Auckland Council’s Initial Evaluation Report dated 15 July 2011 rated the hotel building at 26% NBS, and its Seismic Performance Report dated 24 October 2012 rated the two-storey building on the Beach Road development lot at 24% NBS. In both cases a seismic rating of “D” resulted.
(“the undisclosed defects/change in circumstances”).
e.The undisclosed defects/change in circumstances were material and their extent was outside of the reasonable contemplation of [Beach]
f.By giving the half truths, and/or against the background of the Enquiries, [Waikoro] had induced, and was aware that [Beach] was induced by the half truths, to enter into the Lease and had a duty to disclose the undisclosed defects/change in circumstances to [Beach] prior to the execution of the Lease.
g.The plaintiff failed to disclose the undisclosed defects/change in circumstances to [Beach] prior to the Lease being entered into.
h.The circumstances were so altered from the position referred to in the half truths that [Beach] would no longer have been induced to enter into the Lease by the half truths if it had been aware of the undisclosed defects/change in circumstances prior to the Lease being entered into.
i.In the circumstances the half truths, and the undisclosed defects/change in circumstances, constituted misrepresentations by silence that:
i.The undisclosed defects/change in circumstances did not exist; and/or
ii.There had been no material change, and/or no change outside of the reasonable contemplation of [Beach], in circumstances from the half truths.
(“the misrepresentations by silence”).
We need not set out the further proposed amendments to paragraph 7 of the defence and counterclaim (subparagraphs j to q) because these address downstream questions of reliance, inducement, loss and cancellation. For the purposes of the strike-out application, these allegations can be assumed to be correct. We mention for completeness that consequential amendments (which we need not recite) are also proposed to paragraphs 54–56 (quoted at [15] above) which set out the first counterclaim seeking damages for alleged misrepresentation inducing the lease in reliance on the Contractual Remedies Act 1979 or the Contract and Commercial Law Act 2017.
As can be seen, the essential change is to re‑characterise the alleged misrepresentations as “half truths” and “undisclosed defects/changes in circumstances”, both defined in the proposed pleading as “misrepresentations by silence”.
The insurance premium
The Associate Judge did not strike out the defence and counterclaim based on the non-disclosure of the IEP report.[17] Mr Collecutt does not pursue his s 14 late knowledge contention with respect to the other pleaded defects as to the state of the property. It is therefore convenient to deal with the insurance premium first.
[17]Judgment under appeal, above n 1, at [111].
A statement, while literally true, may nevertheless be misleading if it omits reference to other information that materially qualifies it or undermines it. Such a statement, expressed without qualification, may convey an incomplete picture and therefore be misleading. As the authors of Burrows, Finn and Todd on the Law of Contract in New Zealand observe, the representee in such a case is as much misled as if a totally false express representation had been made.[18] It does not assist to characterise misrepresentation cases involving half-truths as non-disclosures. Misrepresentation cases do not arise out of a breach of a duty of disclosure, rather the liability attaches to those who choose to make statements that are misleading, whether innocently or otherwise.[19] Unless fraud is alleged, it does not matter whether the representor knew the full facts or not.[20]
[18]Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [11.2.1(g)].
[19]Contract and Commercial Law Act 2017, s 35.
[20]See the helpful discussion in Rick Bigwood “The full truth about half-truths?” [2006] NZLJ 114 at 114.
The email exchange relied on to found the misrepresentation claim (now sought to be characterised as a half-truth and an undisclosed change in circumstances) was provided to us. Mr Edney’s responses were noted alongside the questions Mr Mahon posed in his email of 25 May 2011. The exchange is set out below. Mr Mahon’s questions are reproduced in normal script and we have shown Mr Edney’s answers in red italics:
Tim, Thanks for info…a few more Qs What is the GV? Managed to hold it down to $9m. What are the Rates? $47k pa. What is Insurance Premium and what is it insured for? $9k plus $1500 business interruption. Regards Tim.
As we have seen, the basis put forward to support the new “half truth” allegation is that the response regarding the insurance premium was “without any qualification as to the time that the insurance premiums related, or would relate, to”. However, it is clear that both men were addressing the current position regarding these basic details as at the time of their email exchange, some 19 months before the lease was signed. The statements confirming these independently verifiable facts were accurate and not in any sense misleading. It is not alleged that at the time these statements were made, they did not convey the complete and accurate picture. The half-truth allegation is without foundation.
The alleged undisclosed change in circumstances is that the insurance premium had increased to $144,815.84. The first “misrepresentation by silence” is that this “change in circumstances did not exist”. However, Beach plainly became aware soon after the lease was signed that this change in circumstances did exist. The second alleged “misrepresentation by silence” is that “[t]here had been no material change, and/or no change outside of the reasonable contemplation of [Beach], in circumstances from the half truths”. This does not assist Beach. Again, it is clear that it was aware of this material change soon after the lease was signed, whether this was outside its reasonable contemplation or not.
In summary, the proposed amended defence and counterclaim does not overcome the fundamental difficulty identified by the Associate Judge that Beach had knowledge of sufficient facts to pursue its misrepresentation claim more than six years before the defence and counterclaim was filed. It knew of the increased premium soon after the lease was signed, and it borrowed money from Mr Edney’s interests to fund it. As noted, it is not necessary, for the purposes of a claim based on a misrepresentation of fact inducing a contract (or a claim for misleading and deceptive conduct in breach of s 9 of the Fair Trading Act), to establish that the representor knew the misrepresentation was false. Fraud is not alleged, quite properly. The pleading that Waikoro was aware of the increase in the insurance premium prior to execution of the lease is immaterial to the cause of action and superfluous. The late knowledge claim is therefore based on a false premise.
Subject to the argument on s 50 of the Limitation Act, we therefore agree with the Associate Judge that the misrepresentation claim based on the increase in the insurance premium is statute-barred. The late knowledge contention in reliance on s 14 does not assist Beach. Despite Mr Collecutt’s best efforts to persuade us otherwise, this aspect of the defence and counterclaim cannot be saved by amendment.
Section 50 of the Limitation Act
Section 50(3) of the Limitation Act makes it clear that an application for an order under that section must be made before the court has decided whether the defendant has established a defence under pt 2 or pt 3 against an ancillary claim. The simple question is therefore whether the Associate Judge was correct in stating that no application for relief under s 50(2) had been made prior to the issue of his judgment finding that a defence to Beach’s ancillary claim had been established.
Mr Collecutt acknowledges that no formal application under s 50(2) was made. However, he points out that in its amended notice of opposition dated 28 January 2021, Beach contended its claim was not time-barred but added “if it is then relief may nevertheless be granted under s 50”. Mr Collecutt notes that the High Court Rules 2016 provide for oral applications if the case is urgent and the interests of justice so require.[21] He contends the interests of justice required Beach “to be able to apply for relief under [s 50(2)]”. He argues that Beach “implicitly made an oral application for relief” and this should have been considered by the High Court before a determination was made which “effectively prevented an application being made under s 50(2)”. Alternatively, he says that even if an oral application for relief was not made, the High Court Rules make provision for non-compliance with the Rules and give the Court wide powers to overcome procedural irregularities.[22]
[21]High Court Rules 2016, r 1.7(1).
[22]Rule 1.5(2)(b).
The strike-out application was filed on 5 October 2020. For various reasons, it was not heard until 6 May 2021. There was no urgency. If Beach had wished to make an application for an order under s 50(2) of the Limitation Act in response to the application, it needed to do so before it was ruled on. No such application was filed before the hearing. Nor was any oral application made at the hearing. The suggestion that there was nevertheless an implicit oral application is untenable. That is not how natural justice is obtained. The parties and the Court are entitled to notice of the matters to be determined so that evidence and submissions can be provided appropriately. The failure to make an application under s 50(2) was not a mere procedural irregularity, it was a statutory requirement.
For these reasons, we are not persuaded the Associate Judge made any error in striking out the relevant parts of the defence and counterclaim.
Result
The appeal is dismissed.
The appellant must pay costs to the first respondent for a standard appeal on a band A basis and usual disbursements.
Solicitors:
SDM Law, Auckland for Appellant
Brown Partners, Auckland for First Respondent
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