Bhargav v First Trust Ltd
[2023] NZHC 174
•10 February 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2021-404-001260
[2023] NZHC 174
BETWEEN AMEET BHARGAV and RENU KHAJURIA
Plaintiffs
AND
FIRST TRUST LIMITED
First Defendant
DAVINDER SINGH RAHAL
Second Defendantcontinued overleaf…
Hearing: 7 December 2022 Appearances:
S E Wroe & B M Foster for the Plaintiffs
A R B Barker KC (via VMR) & A Grant for the First & Second Defendant
M R T Colthart & B Sanders for the Third & Fourth Defendants N K Dhaliwal for the Fifth & Sixth Defendants
Judgment:
10 February 2023
JUDGMENT OF TAHANA J
This judgment was delivered by me on 10 February 2023 at 4.00pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
BHARGAV v FIRST TRUST LIMITED [2023] NZHC 174 [10 February 2023]
continued from previous page… AND
METSONS (NZ) LIMITED
Third Defendant
VINAY MEHTA
Fourth DefendantLOCAL REALTY LIMITED
Fifth Defendant
GURBIR SINGH BAL
Sixth Defendant
Solicitors/Counsel:
Eldon Chambers
Grant & Co, AucklandAndrew Barker KC, Auckland (Shortland Chambers) FortyEight Shortland, Auckland
Darroch Forrest Lawyers, Wellington Kennedys Law, Auckland
Introduction
[1] Ameet Bhargav and Renu Khajuria (the plaintiffs) claim against six defendants in relation to the purchase of their home, 1/5 Ribbonwood Crescent, Goodwood Heights, Auckland (the Property). The home is leaky.
[2] In July 2022, this Court entered judgment by way of formal proof against the first to fourth defendants in the amount of $861,113 plus interest and costs (the Judgment).1
[3] The first to fourth defendants now apply to set aside the Judgment and say that if the Judgment stands, there will be a miscarriage of justice. The first to fourth defendants took no steps to defend the claims until after the Judgment was issued.
[4] The first defendant, First Trust Ltd (FTL) sold the Property to the plaintiffs. The second defendant, Mr Rahal is a director and shareholder of FTL. FTL undertook renovations on the Property without a building consent. The plaintiffs claim this breaches the warranty in the sale and purchase agreement (the SPA). The plaintiffs also claim that FTL and Mr Rahal engaged in misleading and deceptive conduct in breach of the Fair Trading Act 1986 (the FTA) by covering up the fact that the home was leaky.
[5] The third defendant, Metsons (NZ) Ltd (Metsons), prepared a pre-purchase inspection report for the plaintiffs’ Property. Mr Mehta is a director of Metsons and carried out the inspection. The pre-inspection report did not disclose that the home was leaky. The plaintiffs claim that the Metsons and Mr Mehta engaged in misleading and deceptive conduct in breach of the FTA.
[6] I need to determine whether there will be a miscarriage of justice if the Judgment is not set aside.
1 Bhargav v First Trust Ltd [2022] NZHC 1710.
Background
FTL’s purchase of the Property
[7] FTL purchased the Property in 2019. Mr Rahal says he first became aware of the Property on Harcourts’ website in April 2019, where it was advertised as a “do up opportunity – potential galore.” He says there was no mention of any weathertightness issues.
[8] Mr Rahal viewed the property on 18 April 2019 with the real estate agent, Vivek Punj. Mr Rahal disputes Mr Punj’s evidence that he told Mr Rahal about the weathertightness issues. At the end of the viewing, Mr Rahal made a cash offer of
$550,000. Mr Punj provided Mr Rahal with a sale and purchase agreement, which was signed that same night.
[9] Mr Rahal deposes that his bank insisted he obtain a building report for the Property prior to settlement. He says, his business partner, Mr Ranjay Sikka, arranged for a building inspection by Mr Mehta of Metsons. The inspection was conducted on 14 June 2019. The report noted that moisture was above acceptable levels in some areas, that the wall cladding “needs maintenance” and concluded that the Property was in satisfactory condition (the First Report).
Renovations to the Property
[10] Mr Rahal says his health then deteriorated and his business partner, Mr Sikka, co-ordinated renovations to the Property. Mr Rahal approved a quotation of
$26,335.00 dated 25 August 2019 for renovations comprising:
(a)Painting interior and exterior work;
(b)Electrical work; and
(c)Building work, including posts under the exterior deck, joist hanger, gib repair from inside, downstairs bathroom demolition and disposal, and new tiles and waterproofing (the Building Works).
Sale of Property to the plaintiffs
[11] The plaintiffs viewed the property on 3 March 2020 with Mr Bal, the real estate agent and sixth defendant. Mr Bhargav says he noticed some bitumen tape on the deck and says Mr Bal stated that it was “nothing to worry about,” and that the downstairs room would be suitable for boarders.2
[12] The plaintiffs signed the SPA the next day for a purchase price of $665,000. The SPA was conditional on obtaining finance, a land information memorandum (LIM), and a building report. The plaintiffs were entitled to cancel the SPA if the building report was not satisfactory to them.
[13] Mr Rahal says he was contacted by Mr Bal about selling the Property on the same day that the plaintiffs made an offer (4 March 2020). He says Mr Sikka had provided Mr Bal with the keys and told him he could act as the agent. Mr Bal presented Mr Rahal with the signed SPA. Mr Rahal signed an agency agreement engaging Mr Bal as agent on the same day he signed the SPA. He says there were no discussions about weathertightness issues. Mr Rahal says he was not aware of any statements made by Mr Bal to the plaintiffs about the Property and those statements were made prior to Mr Bal being engaged by him.
Pre-inspection report
[14] On 5 March 2020, the plaintiffs say they spoke with Mr Bal about plaster homes being prone to leaking and Mr Bal assured them it was a good deal. Mr Bal gave them two names (including Mr Mehta) who could undertake a building inspection.
[15] On 16 March 2020, Mr Mehta inspected the Property and prepared a pre- purchase inspection report (the Second Report). The Second Report did not raise any weathertightness issues. Mr Mehta confirmed via text that there were “no issues for weathertightness. Absolutely no worries.”
2 These are representations relied on for the claim against Mr Bal.
[16] On 18 March 2020, the plaintiffs’ solicitors emailed Mr Rahal raising issues with the Property that needed to be addressed prior to settlement. None related to watertightness. The parties declared the SPA unconditional that day. The Property settled on 1 May 2020.
Events after settlement
[17] On 2 May 2020, the plaintiffs arrived at the Property and observed water coming through the joinery of the ranch sliders into the downstairs bedroom.
[18] On 4 May 2020, the plaintiffs’ solicitors notified FTL’s solicitors of the leaks and informed them that the plaintiffs required FTL to take responsibility for the leaks.
[19] The plaintiffs then engaged Inspect Services Ltd, who inspected the Property on 8 May 2020 and provided a pre-purchase building inspection report (the Third Report). The Third Report noted that there were serious issues with the deck area. The flashing had been installed incorrectly and had damaged the wall cladding. It recommended a weathertightness remedial specialist investigate further.
[20] The plaintiffs’ solicitors provided the Third Report to FTL’s solicitors, alleging that they had been misled. Mr Rahal and FTL denied any wrongdoing.
History of proceedings
[21] On 10 and 11 August 2021 the plaintiffs served the notice of proceeding and statement of claim on the applicants. None of the applicants took any steps to defend the claims. The claims against the applicants were therefore set down for a formal proof hearing. Notice of the formal proof hearing was not required to be given to the defendants3 and there is no evidence the first to fourth defendants were aware of the formal proof hearing.
[22] Against each of the first to fourth defendants, the formal poof Judgment determines that:4
3 High Court Rules 2016, r 15.9(2).
4 Bhargav v First Trust Ltd [2022] NZHC 1710 at [93].
(a)FTL was in breach of cl 7.3(6)(a) of the sale and purchase agreement because the work required a building consent and none was obtained.5
(b)FTL and Mr Rahal had contravened s 9 of FTA.
(c)Metsons and Mr Mehta had contravened s 9 of the FTA.
(d)The first to fourth defendants contributed equally to the deception so all were liable on a joint and several basis.
(e)The first to fourth defendants were liable on a joint and several basis for total damages of $861,113 plus interest.
Legal principles
[23] Under r 15.10 of the High Court Rules 2016, any judgment obtained by formal proof may be set aside or varied by the court if it appears that there has been, or may have been, a miscarriage of justice. In other words, “the issue for the court is possible miscarriage of justice if the judgment is allowed to stand.”6
[24]There are three factors relevant to this question:7
(a)whether the failure to appear is reasonably explained;
(b)whether there is a substantial ground of defence;8 and
(c)whether the plaintiff will suffer irreparable harm if the judgment is set aside.
[25] The Court is not limited to these factors and may also consider anything else that is relevant to assessing the justice of the case.9
5 At [44].
6 KBR MacKinder Ltd v Fine Art Productions Ltd HC Wellington A372/84, 17 April 1986 at 4.
7 Russell v Cox [1983] NZLR 654 (CA).
8 In Sandall v Cardno HC Blenheim 2/87, 10 June 1987, Hardie Boys J expressed the test as whether the defendant has a defence which ought to be heard.
9 Russell v Cox [1983] NZLR 654 (CA).
Is the failure to appear reasonably explained?
Mr Rahal and FTL
[26] Mr Rahal has provided medical records indicating that at the time of service (11 August 2021) he was ill, was still recovering from surgery, and was taking medication. Mr Rahal says he was unable to read the documents.
[27] Mr Rahal says once he recovered, around November 2021, he spoke with his barrister friend who told him that it was too late for him to do anything.
[28] The plaintiffs in response have provided evidence that Mr Rahal was attending community events throughout August and September 2021, which suggests he was not confined to his home.
[29] Mrs Rahal is the co-director of FTL. There is no evidence that she was ill or unaware of the proceedings. The documents were served at their home, being the registered office of FTL.
[30] I accept there is an explanation for Mr Rahal’s delay given his health at the relevant time, although his activities suggest he was able to leave the house. Mr Rahal’s health is also likely to have impacted his wife, Mrs Rahal, the other director of FTL, although she could have sought legal advice on behalf of FTL.
[31] I accept there is a reasonable explanation for Mr Rahal’s delay but not for FTL given Mrs Rahal is also a director.
Mr Mehta and Metsons
[32] Mr Mehta says he did not respond because he was told by Mr Bal that he would take care of it. Mr Bal is not a lawyer. There was no reason for Mr Mehta to rely on Mr Bal’s assurances. Mr Mehta and Metsons have no good reason for their delay.
[33] I note that while the first to fourth defendants took no steps after the statement of claim was served, there is no evidence they were notified of the formal proof hearing (as they were not required to be) or that they deliberately ignored the formal
proof hearing. The next notification they received was the Judgment and they acted reasonably quickly once they had received it.
[34] Counsel for Mr Mehta and Metsons rely on Neumayer v Kapiti Coast District Council10 in arguing that the absence of a reasonable explanation may be disregarded if the other two limbs (substantial ground of defence, and no irreparable harm to the plaintiff) are satisfied.
[35] If there is a strong ground of defence, even a delay that cannot be reasonably explained may not prevent the Court from setting aside a judgment. While the reason for delay is relevant, the merits remain the primary focus.11
[36] I do not consider there is a reasonable explanation for Metsons and Mr Mehta’s delay, but agree that this is not determinative of their application.
Is there a substantial ground of defence available to FTL and Mr Rahal?
Liability – breach of contract
[37]
that:
Hinton J found that FTL had breached cl 7.3(6)(a) of the SPA, which provides (6)
Where the vendor has done or caused or permitted to be done on the property any works:
(a)
Any permit, resource consent, or building consent required by law was obtained;
…
[38] Hinton J relied on Mr Biggelaar’s evidence that building consent was required. Mr Biggelaar deposes that if the building work was completed under a building consent, then any repairs would have had the knock-on effect of requiring timber replacement and an inspection of each elevation. He says, that would have led a competent builder and any council inspectors to require a full reclad of the Property before building consent was provided.
10 Neumayer v Kapiti Coast District Council [2014] NZHC 417 at [8].
11 Madsen-Ries v Thompson [2015] NZHC 3270 at [17].
[39] In seeking to set aside the Judgment, FTL did not advance any submissions or evidence that building consent was not required for the Building Works. The onus is on FTL to establish that it has a substantial ground of defence unless it is an arguable defence on a question of law.12 Further, in Wing v Leeder this Court held that an affidavit as to the merits of the proposed defence should be filed, unless it is an arguable defence on a question of law.13
[40] Whether building consent was required is a factual issue. In the absence of any evidence contesting Mr Biggelaar’s evidence, I do not accept that there is a substantial ground of defence to the claim that FTL is in breach of cl 7.3(6)(a) of the SPA.
Damages – breach of contract
[41] FTL says the warranty in cl 7.3(6)(a) only applies to building consent for the relevant Building Works and is not a warranty that the entire building complies with the Building Act 2004. FTL therefore challenges the quantum of damages awarded and says it should be limited to the cost of obtaining a building consent and not the cost of remediating the whole of the building.
[42] I do not accept that Hinton J misconstrued the nature of the warranty in cl 7.3(6)(a) so that there is an issue as to the legal effect of the warranty. Hinton J did not consider the warranty in cl 7.3(6)(a) extended to the whole of the building. Mr Biggelaar’s evidence is that building consent for the localised Building Works would have required a full reclad of the house.
[43] FTL referred to the decision in Borg v 9 Chamberlain Road Ltd14 in support of the proposition that for causation and quantum-based defences, courts have recognised that the need for discovery and expert evidence may favour the grant of an application to set aside a judgment to ensure that these matters can be properly tested. In that case, the Court noted that it would be preferable if the defences were evidenced and that
12 Pioneer Farms Ltd v Stoddart [2012] NZHC 3114 at [24].
13 Wing v Leeder [1961] NZLR 30 at 34.
14 Borg v 9 Chamberlain Road Ltd [2022] NZHC 281.
“the defendants cannot realistically go further than the statements of defence … until there has been discovery and expert evidence obtained.”15
[44] FTL filed no evidence as to the likely costs of obtaining a building consent for the Building Works and relied on Borg v 9 Chamberlain Road Ltd as justifying the absence of any evidence as to quantum and causation. The comments in Borg were qualified and noted that the defendants could not reasonably go further without discovery and expert evidence. In this case, there is the expert evidence of Mr Biggelaar to which FTL could have responded. Further, in Wing v Leeder this Court held that an affidavit as to the merits of the proposed defence should be filed, unless there is an arguable defence on a question of law.
[45] FTL’s submissions accept that the cost of obtaining a building consent for the Building Works is the basis for assessing damages for breach of cl 7.3(6)(a). There is no dispute on this issue and the plaintiffs submit that Mr Biggelaar’s evidence establishes that a building consent requires that the Property be remedied. FTL did not file any affidavit evidence that a building consent for the Building Works could have been obtained without a requirement to remedy underlying weathertightness issues.
[46] There is however, the evidence of Mr Blissett before the Court challenging Mr Biggelaar’s evidence as to the remedial works required to repair the Property. There is also the evidence of Mr Weir which provides total costings of $411,417.88 to implement Mr Blissett’s scope of works. This is significantly less than the costings on which the plaintiffs rely of $749,080.
[47] The strength of the defence depends on an assessment of this competing expert evidence, which in turn depends on the Court’s view of the witnesses. I accept that based on Mr Blissett’s and Mr Weir’s evidence, there is a substantial ground of defence as to the quantum of damages.
[48] I therefore find that there is a substantial ground of defence as to the quantum of damages to be awarded to the plaintiffs for breach of cl 7.3(6)(a) of the SPA.
15 Borg v 9 Chamberlain Road Ltd [2022] NZHC 281 at [26(a)].
Contravention of s 9 of the FTA
[49] Hinton J held that the following conduct of FTL was misleading and deceptive:16
(a)Presenting the house to the plaintiffs as newly renovated – as opposed to a leaky home in need of extensive repair work;
(b)Covering up evidence of defects and damage by replacing ceiling gib boards, refurbishing the bathroom and re-painting the interior;
(c)Carrying out the building work on the house and replacing ceiling gib to mitigate and conceal the effect of the external leaks but without addressing the cause of the leaks; and
(d)Failing to disclose the existence of damage and leaks in and around the property.
[50]Hinton J considered the conduct at [49] above was:17
… deliberately undertaken to mask known defects with the property and mislead potential buyers such as the plaintiffs into thinking the property was of good quality and had no issues with leaking. It was quite literally a “cover- up”.
[51] Mr Rahal says he had no knowledge of the defects. Mr Rahal says he relied on the First Report and the Second Report from Metsons and Mr Mehta stating there were no weathertightness issues, and the fact that previous tenants did not complain.
[52] Mr Rahal deposes that Mr Punj, the then-real estate agent, did not disclose weathertightness defects when FTL purchased the Property in 2019. Mr Rahal deposes that on viewing the property Mr Punj did not mention anything about the property being a leaky home.
16 Bhargav v First Trust Ltd [2022] NZHC 1710 at [50]–[51].
17 At [51].
[53] Mr Rahal’s evidence differs substantially from the plaintiffs’ evidence. Mr Punj deposes that at the time he was engaged there were “obvious signs of leak and damage in the ceiling of the downstairs room”, with the ceiling open and, “the rooms were damp and mouldy.” He agreed with the then-vendors to leave the ceiling open and remove the windows from their frames so that prospective buyers could see the “obvious” issues. In mid-April he received a call from Mr Rahal’s son and informed him of the weathertightness issues. Mr Rahal and his son viewed the property and Mr Punj showed him the downstairs room with the opened-up ceiling and water damage clearly visible. Mr Rahal said it was not a problem and he would fix it as he had done many times before.
[54] Mr Rahal says he was not made aware of any issues during the renovation and was only involved in signing off quotes. He also says he was ill during the renovations.
[55] The affidavit evidence of Mr Rahal challenges the evidence of Mr Punj. It is appropriate that the conflicting evidence be tested at trial before making a determination on the extent of Mr Rahal’s knowledge of weathertightness issues. That is relevant to two issues:
(a)Whether FTL engaged in misleading and deceptive conduct; and
(b)The allocation of any liability as between FTL, Mr Rahal, Mr Mehta and Metsons.
[56] I therefore consider there is an arguable defence in relation to the FTA claim against FTL and Mr Rahal given the additional evidence provided as to Mr Rahal’s actual knowledge at this time.
Is there a substantial ground of defence available to Metsons and Mr Mehta?
[57] Hinton J found that Metsons and Mr Mehta contravened s 9 of the FTA by giving misleading and deceptive advice in the Second Report and representing that:18
18 At [26] and [63].
… “there are no present or likelihood of future weathertightness issues” … “no issues for weathertightness. Absolutely no worries”
[58] Hinton J’s decision considered an alternative pre-purchase report by Inspect Services Ltd, Mr Biggelaar’s evidence that the Second Report was not up to standard (NZS4306:2005), and Mr Biggelaar’s own report which indicated weathertightness issues.
[59] Metsons and Mr Mehta rely on an affidavit from Mr Blissett, a registered building inspector. Mr Blissett disagrees with Mr Biggelaar and says a visual pre- purchase report is not required to go into the extensive and invasive testing undertaken by Mr Biggelaar and that the Second Report was up to standard. Mr Biggelaar filed a reply affidavit which disagrees with Mr Blissett.
[60] It is appropriate that the expert evidence of Mr Biggelaar and Mr Blissett be tested at trial without making findings now as to which is to be preferred. Given Mr Blissett’s evidence, I am satisfied that there is a substantial ground of defence as to whether the pre-purchase report and Mr Mehta’s statement were misleading.
[61] Given my finding that there is a substantial ground of defence based on the new evidence, it is not necessary to consider whether there are further grounds of defence to the claim Mr Mehta was in “trade,” or the issue as to the appropriate measure of damages.
Quantum of damages
[62] For completeness, for the same reasons as set out at [46] to [48] above, I accept there is an arguable defence as to the quantum of damages payable for any contravention of the FTA.
Overall conclusion – substantial ground of defence
[63]Each of the first to fourth defendants has a substantial ground of defence.
Will the plaintiffs suffer irreparable harm if the Judgment is set aside?
[64] The first to fourth defendants have indicated they will pay the plaintiffs’ costs incurred in obtaining the Judgment. I accept this is a factor that points against any irreparable harm.
[65] The plaintiffs will also be entitled to pursue their claims against the first to fourth defendants and apply for indemnity costs, which indicates the harm is not irreparable.
[66] It was acknowledged at the hearing, that if the Judgment is set aside, there will be insufficient hearing time at the trial on 23 February 2023 for the additional claims to be heard. It is likely that a hearing date will not be available until the third or fourth quarter of 2024. While this is a significant delay, some of it is due to Court availability and not due to the conduct of the first to fourth defendants. The first to fourth defendants are willing to have the claims against them included in the hearing on 23 February 2022 but that would require more Court time, which as at the date of the hearing of these applications, was unavailable.
[67] The plaintiffs say that delay is a significant injury to them given that they continue to live in a damp and mouldy home with a young child. It is causing health and safety issues. The leakage in the downstairs rooms has become worse. Mr Bhargav states that the situation is “very stressful and taking a toll on our mental health”. The plaintiffs also refer to the evidence of Mr Biggelaar that repairs be undertaken within two years.
[68] I acknowledge the stress and delay caused to the plaintiffs. The issue of stress and anxiety was considered in Borg v 9 Chamberlain Road Ltd. There the Court noted that the increased stress of the defendants’ default was not sufficient to establish irreparable harm.19 I accept the same applies in this case.
[69] The plaintiffs also have concerns about the ability of FTL and Mr Rahal to pay the judgment sum. Counsel for the first and second defendants submit that given their
19 Borg v 9 Chamberlain Road Ltd [2022] NZHC 281 at [26(c)].
willingness to pay wasted costs, they will be in a position to pay any eventual judgment that is awarded against them at trial. It is a matter of speculation as to whether FTL and Mr Rahal lack the funds and that risk is one that any plaintiff faces when bringing proceedings.
[70] I am therefore satisfied that there is no irreparable harm to the plaintiffs if the Judgment is set aside.
Result
[71] Weighing all of these matters, I am satisfied that there would be a miscarriage of justice if the Judgment was not set aside in part. I make the following orders:
(a)The Judgment is set aside in part. The finding that FTL is in breach of cl 7.3(6)(a) of the sale and purchase agreement stands. All other findings in the Judgment are set aside.
(b)The first to fourth defendants are to file and serve a statement of defence and any counterclaims to the plaintiffs’ claims within 10 working days of the date of this judgment.
(c)The first and fourth defendants are jointly and severally liable for wasted costs of $25,095 and disbursements of $8,399.81.
(d)The Registrar is to list the matter for the first available date in the Duty Judge list for timetable orders.
[72] As to the costs of these applications, costs generally go against the party applying to set aside a judgment entered because of its own default, since it is seeking the court’s indulgence.20 My preliminary view is that the first to fourth defendants
20 Active Leisure (Sports) Pty Ltd v Crocodile Sports & Leisurewear Ltd [1997] 1 NZLR 350 at 358 citing Callis v Ward McCulloch (1993) 7 PRNZ 175 at 176.
should pay the plaintiffs’ costs. If the parties are unable to agree costs, memoranda as to costs are to be filed within 10 working days from the date of this judgment.
Tahana J
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