Brkic v Stalker

[2016] NZHC 2259

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-003066 [2016] NZHC 2259

BETWEEN

GORDAN BRKIC, EMILJA BRKIC

AND NAGI FALTAUS AS TRUSTEES OF THE MADEG TRUST

Plaintiff

AND

MARK DONALD STALKER First Defendant

AND

CAROLINE RUTH WHITE Second Defendant

AND

CRUMMER TRUSTEES NO 82
LIMITED
Third Defendant

AND

MARK DONALD STALKER Fourth Defendant

Hearing:	12 May 2016
Appearances:	P Rice for the Plaintiffs L Herzog for the Defendant
Judgment:	23 September 2016

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 23 September 2016 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

St Mark Law, Auckland

Webster Malcolm, Warkworth

L Herzog, Auckland

P Rice, Auckland

G Wiles, Auckland

Date.......................................

BRKIC & Ors v STALKER & Ors [2016] NZHC 2259 [23 September 2016]

Introduction

[1]      The plaintiffs, Mr and Mrs Brkic and Nagi Faltaus, claim summary judgment against the first defendants1  for the full amount of their claim of $109,820.00 plus interest.2

[2]      The    plaintiffs    are    the    trustees    of    the    Madeg    Trust,    Mr    and Mrs Brkic’s family trust.   Mr Faltaus, their co-trustee, is the trust’s solicitor.  The basis of their claim is a loan agreement entered into between themselves and the first defendants (as trustees of the Grafton Road Trust) on 9 November 2011.  Pursuant to the terms of that agreement the plaintiffs provided vendor finance of $109,820 on the sale of a Unit owned by the Madeg Trust to the trustees for the Grafton Road Trust; repayment of the loan was to be made by 12 May 2012 - without set-off, counter claim or deduction; and in the event of default the borrowers would be liable for penalty interest at the rate of 22% per annum.

[3]      The loan has not been repaid.  Under the terms of the loan each of the first defendants is prima facie liable for repayment plus interest.  Each however oppose summary judgment, claiming to have an arguable defence to the plaintiffs’ claim.

[4]      Before turning to discuss the essential matters at issue, I pause momentarily to record that the plaintiffs no longer pursue judgment against Mr Stalker in his capacity as first named first defendant or second defendant3.  At the hearing counsel for the plaintiffs and counsel for Mr Stalker advised that it is agreed that it would not be appropriate for judgment to be pursued against him.  The claims against him are struck out accordingly.

[5]      At  issue  is  whether  the  remaining  first  defendants  have  an  arguable counterclaim relating to the loan agreement and the sale and purchase agreement that the parties entered into on the same date. They allege that they were induced to enter

into the agreement for sale and purchase by fraud (allegedly by misrepresentation)

1      In  this  judgment  references  to  “first  defendants”  should  therefore  be  taken  to  mean

Carolyn White and Crummer Rd Trustees No.2 Ltd.

2      at 22% for the repayment of a vendor loan.

3      Mr Stalker is sued in his dual capacity as borrower and guarantor.

and/or that there has been deletion by subterfuge of vendor warranties in clause 6 of that agreement.  Their alleged counterclaim has an additional limb – that if there was fraud on the part of the vendors, the plaintiffs are in breach of those vendor warranties.

[6]      There is no dispute that summary judgment on the loan agreement would not be appropriate if there is an arguable case of fraud as alleged.   If such is the case there is no dispute that the exclusion clause in the loan agreement would not be a bar to a defence based on fraud, and it would be just to defer judgment on the loan agreement so that both sides’ claims may be heard at trial together.4

Background

[7]      In November 2011 Mr Brkic and his co-trustees of the Madeg Trust entered into an agreement for sale and purchase pursuant to which they sold a commercial premises  (known  as  Unit  3B1  at  160  Grafton  Road)  to  the  trustees  of  the Grafton Road Trust.  Under the agreement the purchase price was $469,820, to be paid in two stages. The first payment of $360,000 was to be paid on settlement on

11 November 2011.  The balance of $109,820 was to be treated as a vendor loan to be secured by way of a registerable second mortgage, and repaid on 12 May 2012.

[8]      The Madeg Trust had acquired the unit in 2007.   At that time Mr Brkic already had a well established association with the building at 160 Grafton Rd, having provided professional services as a civil engineer from 2005 through his company called DHC Consulting Ltd, to a developer, Progression Developments Ltd.   He provided engineering services initially in connection with Progression’s project to add two additional floors to the building, and later in connection with Progression’s  development  of  residential  units  on  the  top  floor  of  the building. Progression was a company owned by a Mr Steve Kelly.  It owned a number of units in the building.  Mr Kelly or his interests, it appears, had a controlling interest in the

Body Corporate for the building, and he was the driving force behind these projects.

4      Grant v New Zealand Motor Corporation Ltd (1989) 1 NZLR 8 (CA).

[9]      When the Madeg Trust acquired Unit 3B1 it did so with the intention of leasing it to DHC, but that never eventuated.  DHC did not move in, and the Trust was unsuccessful in finding another tenant.  Essential services like lifts were often not working, and the anchor tenant for the building, Datacom, moved out.  It was at about this time, Progression planned to convert half of the top floor of the building into residential apartments.

[10]     In 2009 Mr Kelly approached Mr Brkic enquiring whether the Madeg Trust would  agree  to  make  its  unit  available  to  enable  Progression  to  combine Madeg Trust’s Unit with its own adjoining unit, Unit 3A, so as to convert both commercial units into three new residential apartments.  Mr Brkic and his co-trustees agreed and their unit was made available for the conversion.

[11]     Mr Brkic says that the Madeg Trust’s only contribution to the conversion project was to be its unit, for which it would be paid the market value (on an area basis) when the development was completed.   Mr Brkic says an agreed value of

$469,820 as at the estimated completion date of 2011 was assessed, based on a valuation undertaken by Prendos in May 2009.   He says that the Trust was not required to make any further financial contribution.  He claims he was not involved in the direction or management of the conversion other than in a minimal way.

[12]     The  material  presently  before  the  Court  suggests  that  Mr  Brkic  had involvement in the conversion project (as did others who are either parties to this proceeding or associated with them) that was rather more extensive than he has been prepared to acknowledge.   In a 2013 document on his company’s letterhead, apparently signed by Mr Brkic himself, he is described as “structural engineer … involved with the building at 160 Grafton Road … from approximately 2005 … for alterations and additions to the carpark building”. The document further states that:

I later bought an office at L4, 160 Grafton Road, which was later converted into apartmants.

I  was  also  involved  with,  and  supplied  engineering  services  for  the subsequent apartment development on the top floor whereby office space in the midsection was converted into 10 residential apartments.

I undertook regular site visits and wish to verify, at no time were the corridor walls moved after construction.

[13]     Mr Stalker was an electrician on the project.  Mr Gray, a builder and the life partner of Ms White (the second named first defendant) was also involved in the building work, though the exact nature of his role is in dispute. (Mr Brkic contends that Mr Gray was the project manager, which Ms White denies, with some apparent support as a Mr Milic, the architect to the project, claims in correspondence written at the time that his company was the project manager. Ms White says Mr Gray only became  involved  in  finishing  work  when  another  builder  walked  off  the  job. Mr Kelly contends that Mr Gray was construction manager).

[14]     Work proceeded on the conversion project but, to use Mr Brkic’s phrase, “the development started to go awry in 2010”.5   Members of the Body Corporate for the building expressed strong dissatisfaction about the work, and at the same time, about the dysfunctional operation of the Body Corporate under Mr Kelly’s oversight.

[15]     On 1 October 2010, on the application of Alderman Property Limited (a concerned member of the Body Corporate) the Court appointed an administrator to manage the Body Corporate.   Later that month the lawyers for the administrator wrote to Progression and to Mr Brkic and his co-trustees, putting them on notice that the conversion project work was in direct contravention of the Body Corporate Rules and the Unit Titles Act 1972. They were directed to cease work and to reinstate the units  to  their  original  state.  This  followed  earlier  correspondence  to  them  in August 2010, in which the lawyers for Alderman, plus interested mortgagees of some of the units, put them on notice that they would face legal action if they did not remedy the “illegal construction work”.  The situation was not remedied. Work on the units continued.

[16]     Complaints  were  made  to  Auckland  Council  and  in  February  2011  the Council, concerned that  the building consent plans did not correspond  with the subdivision consent plans (in that the boundary walls for the new units and decks did not comply with the established unit title boundaries) and that the residential units did not have the approval of the Body Corporate and affected unit owners, issued a

direction requiring work on the conversion to stop.  The direction was ignored and in

5      In July 2010 Auckland Council issued the Body Corporate with a Notice to Fix as it had not received warrant of fitness for the building.

April the Council issued a Notice to Fix. The notice identified building work that had been undertaken in breach of the provisions of the Building Act 2004 relating to fire safety and to building work that crossed unit title boundaries. The notice was addressed to Progression and Mr Kelly as “supervisor”.

[17]     Works  continued  and  in  mid  September  2011  the  Council’s  lawyers, Buddle Findlay, applied to the Department of Building and Housing for a determination regarding the Notice and the building consent issued to Progression for the unit conversion (and other works).   The application sought amendment or cancellation of the consent on several bases.  One was that the building consent did not align with the approved unit subdivision plan for the building.  Another was that the  Council  had  been  misled  in  relation  to  the  conversion  work,   and  its encroachment across approved unit title boundaries and onto common property.

[18]     Mr  Brkic  and  his  co-trustees  were  named  as  interested  parties  in  the Council’s application.  They were served, as were Progression, Alderman and others who were unit owners at that time.

[19]     In September 2011 Progression was placed into liquidation and the agreement for the sale of Madeg Trust’s unit to Progression came to an end.   Mr Kelly’s involvement did not end there, however.  Mr Kelly endeavoured to find a purchaser for  the  two  units  in  the  uncompleted  conversion  project,  though  in  quite  what capacity he did so is unclear.  Mr Brkic maintains that he did not ask Mr Kelly to instigate any enquiry on behalf of the Madeg Trust.  Whether or not that is correct is something I am unable to determine either way on the evidence before the Court.  It seems odd that Mr Kelly would simply take such a step uninvited by at least one of the owners of the two units.  If such invitation came from Progression’s liquidators (who were presumably in possession of Progression’s unit) it would seem unlikely that they would do that without Mr Kelly’s having Madeg Trust’s authority.

The sale of the Madeg Trust unit (unit 3B1) to the Grafton Road Trust and alleged representations

[20]     At the end of October 2011 Mr Kelly informed Mr Brkic that he had a buyer for the Madeg Trust’s unit and Unit 3A in their uncompleted state.6    Mr Brkic says the “buyer”7 that Mr Kelly was referring to was the Grafton Road Trust or rather, its trustees.  He says the offer price for the Madeg Trust unit was $469,820 – the same amount that Progression had agreed to pay for it upon completion of the conversion. It was to be paid in two parts.   The first payment of $360,000 was to be paid on

settlement; and the balance of $109,820 to be funded by way of a vendor mortgage repayable in six months.   Mr Brkic says that the Madeg Trustees agreed, on the condition that security was provided for the unpaid balance and all costs associated with the sale were paid by Progression.

[21]     In contrast to the terms of the 2009 agreement between Progression and the Madeg Trust, Mr Brkic maintains that no vendor warranties were to be given.  He says that it was understood that the sale of the Trust’s unit to Grafton Road Trustees was  on  an  “as  is”  basis,8   as  it  was  still  not  completed  and  did  not  have  a Code Compliance Certificate.

[22]     Why the purchasers would agree to buy the two units in their “as is” state, but at the valuation as at the date of completion, without the benefit of standard warranties that exist for the purchaser’s benefit (and in circumstances where the conversion project was going “awry”) is unexplained.

[23]     Mr Brkic maintains he was surprised by the Grafton Trust offer, as his own

assessment was that the unit was “virtually unsaleable until the construction was completed, and all consents issued”.   Without wishing to say anything that may be

6      It is unclear who became the owner of Unit 3A at this time.  There is evidence to suggest that Progression had been placed into liquidation several months previously.  There is a suggestion that it had been transferred to a company that Mr Kelly was involved with called the Pleasant Forest Trust Company Ltd.

7      “The buyer” was the first defendants – Ms White (the de facto partner of Mr Gray), Crummer Trustees No. 2 Limited, a company later associated with Mr Gray; and Mr Stalker.  There is a dispute as to when Mr Gray became a director of Crummer Trustees.  Ms White says it was not until 2014.

8      There is no correspondence before the Court to the Grafton Road Trustees or their solicitor from

the Madeg Trustees or their solicitor that states that the sale was “as is”.

seen as determinative, this seems to hint at Mr Brkic’s true understanding of the reasons  why  the  development  started  to  go  awry,  and  to  knowledge  that  the necessary consents for the conversion project might never be obtained.

[24]     Certainly, Mr Brkic must have known of the unwillingness of other unit owners  to  give  their  consent  to  the  conversion  project,  and  there  is  more  than a  suggestion  in  the  evidence  that  both  he  and  Mr  Kelly knew  that  there  were serious  impediments  to  ever  completing  the  residential  units  and  obtaining Code Compliance Certificates and new titles for them.

[25]     Materially, there is no suggestion in any of the evidence that Mr Stalker knew of  these  problems  with  the  conversion,  and  their  full  import.    Whether  or  not Ms White or Mr Gray had the same knowledge may well be the case, but that is far from clear on the evidence presently before me.

[26]     What seems clear is that misrepresentations were circulating to the effect that new titles would be obtained for the units. Apparently with the possibility of sales of completed residential units in mind, Mr Milic, an architect who identified his company as project manager for the conversion project, provided a letter to a mortgage company containing a certain undertaking that new titles would issue. This was based, as the letter indicates, on the claim that the Council had approved an amendment to the current unit plan.  That was a half-truth, if not an untruth.  The letter, dated 1 November 2011, states:

Our company is currently project managing the re-fit of the development on level 3, 160 Grafton Road. The development has an approval by ACC for an amendment to the current unit plan.

We undertake on behalf of our clients to have this plan processed and new titles issued. Realistically this process will take three months.

[Emphasis added].

[27]     Ms  White  says  representations  to  the  same  effect  were  made  to  her  by Mr Kelly on behalf of the Madeg Trust.   This is denied by Mr Brkic, who says no-one was given authority to make any such representations for the Trust.  Quite who Mr Milic’s client (or clients) were at the time remains unexplained on the evidence.   It seems unlikely that Progression’s liquidators would have authorised

Mr Milic and Mr Kelly to make such claims.   There is no suggestion that the liquidators did this.  It may well be that Mr Brkic did not do this.  Again, however, and without wishing to say anything that is determinative, it is impossible in the context of the present application to rule out that possibility.  The Madeg Trust had much to gain if it could conclude an agreement for the sale of its unit on such a basis.

The agreement for sale and purchase between the two trusts

[28]     It is against this background (much of it hotly contested) that I turn to the agreement for sale and purchase and the first defendants’ controversial claims to the effect that it was amended by deception.

[29]     The document that both sides identify as the agreement appears to be a composite of two agreements.  The named purchaser in the operative provisions is “Grafton Road Trust or nominee”,9 but the named purchaser on the final page of the agreement is “Pleasant Forest Trust Company Limited or nominee”.  Each page of the  agreement  bears  the  notation  “Madeg  Family  Trust  Ltd  to  PFTC  Ltd”. Mr Kelly’s initials appear throughout the agreement, though neither he nor any

company he is associated with is one of the trustees of the Grafton Road Trust, the purchasers.  The agreement names the purchasers’ solicitors as Jesse & Associates, but  the  correspondence  produced  in  evidence  shows  that  the  solicitor  for  the purchaser trustees was another firm, Richard Allen Law Ltd.

[30]     It   is   clear   that   the   agreement   was   sent   on   9   November   2011   by Pleasant Forest’s lawyers (Jesse & Associates, apparently also Mr Kelly’s lawyers) to the Madeg Trust’s lawyer, Mr Faltaus, for the vendor’s signature with an instruction to forward the signed agreement on to Richard Allen Law.   In their covering letter Jesse & Associates state that they were “facilitating the sale”.  The agreement had been signed by all three of the Grafton Road Trust’s trustees. There is no mention in the letter that clause 6 of the standard terms and conditions, containing

the vendor’s warranties and undertakings had been deleted.10    It is common ground

9      Nothing turns on the omission to name the trustees of the Trust. Neither side takes issue with the omission.

10     These warranties and undertakings are to the effect that the vendor has not received notice of any outstanding requisition or requirement from the local authority or any other statutory body or

that the vendors had not at that stage signed the agreement for sale and purchase.  It is also common ground that once the vendors signed the agreement, it was forwarded on to Richard Allen, with clause 6 deleted.  The deletion was initialled by Mr and Mrs Brkic.   In Mr Faltaus’s covering letter to Richard Allen Law there is no mention of the deletion. The deletion was never initialled by any of the purchasers.

[31]     It is at the point where the parties deal with the questions relating to the deletion (when it was made, why it was made, who made it, and whether it was made by agreement or by deception) that the parties’ accounts diverge and allegations of fraudulent tampering with the agreement arise.

[32]     Mr Stalker and Ms White say that when they signed the agreement, clause 6 was  intact  in  the  two  copies  that  they  signed,  and  that  it  was  only  when  the agreement was sent back to Mr Allen that it had been deleted.  They also say they can only conclude that the vendors, having deleted and initialled the clause, then deliberately failed to bring the deletion to the attention of their solicitor, Mr Allen. The suggestion is that they would never have settled or they would have insisted on the reinstatement of the clause if it had not been deceptively slipped past Mr Allen. On this basis there is a case for rectification.

[33]     Mr Brkic and Mr Faltaus hotly deny these claims.  They say not only were there were no misrepresentations made by or on behalf of the Madeg trustees, there were no unauthorised deletions, deceptive or otherwise, made to the agreement for sale and purchase.  They acknowledge that the Grafton Road trustees did not initial the deletion, but say that when they received the agreement on 9 November and signed  it  themselves  clause  6  had  already  been  deleted.  They  say  this  was  as expected because the unit was sold on an “as is” basis and that they thought nothing of the fact that the deletion was not initialled as it was not the only such amendment. There were deletions on page 1 and an additional typewritten paragraph at clause 18

that had not been initialled.

any other party, and that all works that the vendor has permitted to be done on the property have been undertaken in compliance with the necessary permits and consents.

[34]     There is  no  evidence  from  Jesse  & Associates  to  shed any light  on  the circumstances  of  the  deletion,  or  indeed  on  any  other  matter  relating  to  the agreement for sale and purchase.   I do not indicate any view on who is right.   It would be conclusory and unsafe to do so on the present state of the evidence.

[35]     Each  side  refers  to  additional  evidential  material  which  it  claims  lends support for its essential position on the issue.   Ms White claims that the Grafton Road trustees signed an earlier sale and purchase agreement with Progression back in July 2011.11    Clause 6 (vendor warranties and undertakings) was intact in that agreement when the defendants signed it.

[36]     Counsel for the first defendants also points to an email dated 5 October 2012 that  Mr  Allen  appears  to  have  sent  almost  a  year  later  to  a  solicitor  at Stainton Chellew, and to Ms White, which states:

Further to our discussions yesterday and your collection of the purchase file, I have attached some more information from another fat file regarding the building issues and determination.  I was not instructed to take any part in the determination issues …

Certainly the vendor’s warranties are still included in the contracts … It’s a tangled web, starting with a “partnership” of sorts between the Grays and Steve Kelly regarding this property. …

[Emphasis added].

[37]     Counsel for the plaintiffs says earlier agreements are irrelevant and that the import of this letter is rather that it points to a partnership of sorts between the Grays and Mr Kelly.

[38]     On  11  November  2011  the  transactions  settled.    Not  long  afterwards, Auckland Council obtained a determination from the Department of Building and Housing cancelling the building consent for the conversion project.

[39]     Counsel for the Madeg Trustees say the settlement took place without demur on 11 November 2011, and that they heard nothing from the first defendants on the agreement until well after the time for repayment in May 2012.   It was only after

Mr Faltaus served a Property Law Notice on the defendants that the first defendants suggested that the vendor warranty clause had been removed by deception (and when Ms White realised she could not get a Code Compliance Certificate or a new title for the units).

[40]     Ms White says she raised the compliance problems with Mr Brkic very soon after settlement, and that he stated he would not enforce the loan, and would instruct Mr Faltaus to resolve the Department of Building and Housing issues.  She has also produced correspondence from 2013 to explain why the Grafton Road trustees did not pursue legal action against the Madeg Trust in respect of the warranties.  The correspondence suggests that both herself and Mr Gray (by then a director of Crummer Trustees) indicated that the Grafton Road trustees would not sue on the warranties, but this was on the basis of Mr Brkic’s agreement that the loan would not be enforced, and that he would assist in resolving the difficulties in getting title for the units.

[41]     She also claims that she only became aware of the deletion in the agreement for sale and purchase some considerable time after settlement, when she apparently obtained the property settlement file via Mr Stainton, a barrister, and realised that the plaintiffs had unilaterally removed clause 6 without the agreement or knowledge of the Grafton Road Trustees.  She points out that Mr Faltaus’s letter sent to Mr Allen immediately before settlement made no mention of the deletion of the warranty clause, or of the need for acceptance required by the purchaser.

[42]   It is of course impossible to resolve the conflicting accounts of the circumstances relating to the signing of the agreement for sale and purchase in the context of an application of the present kind.

[43]     In addition to the issues surrounding the deletion of the vendor warranty clause, Mr Stalker says there was no disclosure to him by the vendors as to the substantial defects affecting the property that made it impossible to obtain Code Compliance or to offer the units for resale.

[44]     Mr Faltaus on the other hand claims that the Body Corporate would not provide the pre-settlement disclosure statement  without payment of its  fees  and outstanding levies so he notified Jesse & Associates as their client, Pacific Forest, had agreed to pay all the costs associated with the sale. Jesse & Associates gave an undertaking to the Body Corporate manager that they would pay the fees and levies. Mr  Faltaus  says  he  presumed  Jesse  & Associates  forwarded  this  pre-settlement disclosure statement to Richard Allen Law and that it would have disclosed any water tightness issues or body corporate issues.   There is also a suggestion in the correspondence of the Body Corporate’s administrator that Ms White should have had a pre-settlement disclosure statement from the Body Corporate.  She claims the contrary, and the evidence is certainly not clear as to whether the Grafton Trustees or their  solicitor  did  receive  the  statement.    Another  possibility  is  that  Mr  Kelly obtained the pre-disclosure statement in his “facilitating role”, and did not pass it on.

[45]     The various assertions and counter-assertions drag the Court further into the realms of conjecture, without the means to resolve them.   Clearly these raise credibility issues properly reserved for trial, where the Court will have the benefit of greater evidence to resolve whether the amended agreement is an incident of fraud (among other unanswered questions).

Assessment

Principles on application for summary judgment

[46]     Summary judgment is provided for under r 12.2 of the High Court Rules:

12.2 Judgment when there is no defence or when no cause of action can succeed

(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[15] The legal principles applying to applications for summary judgment were succinctly expressed by the Court of Appeal in Krukziener v Hanover Finance Ltd12:

[26]  The  principles  are  well  settled.  The  question  on  a  summary  judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pembertan v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11

PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence

that  is  inherently  lacking  in  credibility,  as  for  example  where  the  evidence  is

inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymack Carp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[47]     A summary judgment can save both time and cost.   However, as the Privy

Council noted in AG v Jones13:

[5] ... rarely, if ever, will the procedure be appropriate where the outcome of the action may depend on disputed issues of fact, and reliance on the rule in an inappropriate case may serve to increase both the length and the cost of proceedings.

[48]     It  was  also  acknowledged  that  the  Court  should  not  discount  even  a

"theoretical possibility" which would provide support for the plaintiff's claim.

[10]  Summary judgment should not be given for the defendant unless he shows on the balance of probabilities that none of the plaintiff's claims can succeed. That is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless is it quite clearly hopeless.

[Emphasis added]

[49]     Here  of  course  it  is  the  plaintiff,  not  the  defendant  applying,  but  the importance of not discounting a theoretical possibility on the evidence is equally apposite.

[50]     The defendants  have raised  a counterclaim  for  misrepresentation  through fraud  under  the  Contractual  Remedies  Act  1976,  whose  principles  relevantly provide:

6  Damages for misrepresentation

(1) If a party to a contract has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made to him by or on behalf of another party to that contract—

13     Attorney-General v Jones [2003] UKPC 48, [2004] 1 NZLR 433.

(a) he shall be entitled to damages from that other party in the same manner and to the same extent as if the representation were a term of the contract that has been broken; and

(b) he shall not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, be entitled to damages from that other party for deceit or negligence in respect of that misrepresentation.

(2)  Notwithstanding anything in section 56 or section 60(2) of the Sale of Goods Act 1908, but subject to section 5 of this Act, subsection (1) shall apply to contracts for the sale of goods.

Discussion

[51]     Counsel for the plaintiffs accepts that the factual context in which the parties entered into the loan agreement and the agreement for sale and purchase is very much  in  dispute.    He  also  accepts  that  the  ‘no  deduction’ clause  in  the  loan agreement will not necessarily overcome an arguable case of fraud.   Despite this, however, he submits that there are sufficient and sound reasons why the Court can safely take a robust approach to resolving the entire dispute in the plaintiffs’ favour, and so dismiss the claim that there are arguable defences to summary judgment.

[52]     First, counsel submits the allegations of fraud are not tenable as there was no fraudulent misrepresentation by Mr Kelly or the architect, and even assuming such, they were not the plaintiff’s agents.  Whether or not this is correct (and it may well be) involves disputed issues of fact which are not able to be resolved in the context of this summary judgment application.  Counsel further submits that even assuming misrepresentation by the architect, the architect was not the plaintiff’s agent, he was merely a contractor who gave his professional opinion as to when he thought the units might have their plans processed and new titles issued.  Again there is an issue of fact that is impossible to resolve; moreover, the architect’s statement and assertion that Council approval was given to change the plans, coupled with his undertaking that titles would issue, go beyond mere opinion.

[53]     Counsel submits, secondly, that Ms White’s claims about the deletion of clause 6 of the agreement for sale and purchase are simply implausible.  He submits that the evidence of Mr Faltaus is plainly to be preferred because after 9 November (when the agreement was signed and before the final settlement on 11 November) there were no objections to the deletion of clause 6 by the defendants or their

solicitors.  This silence, he asserts, is evidence of the purchasers’ acceptance of the deletion.   This situation is reinforced by Mr Brkic’s evidence that Ms White only began alleging that he did not disclose problems with the development when he started to apply pressure to have the loan repaid in 2014.

[54]     No good purpose would be served by reciting the counter-assertions. It is sufficient to note that they are of a kind that are impossible to resolve without the benefit of further evidence that only the trial process allows.  The same can be said of counsel’s additional submissions that Mr Gray was so heavily involved in the conversion project that as his partner, Ms White had to know about the problems.

[55]     The difficulty with the plaintiffs’ submissions are as I have indicated already, that  though  I  cannot  be  satisfied  that  the  Madeg  Trustees’ dealings  were  self- evidently fraudulent  (and  they may well  not  have  been),  on  the  evidence  as  it presently stands I am not able to rule out the possibility that fraudulent misrepresentations were indeed made, and that the agreement for sale and purchase was  the  product  of  fraud  in  which  they (or  those  acting  on  their  behalf)  were complicit.  The circumstances are not such that I can safely conclude that the first defendants’ contentions are unarguable.

[56]     I stress I do not wish to be seen as expressing a view either way, save to say that I am not satisfied on the evidence before me that either side is right.  Real issues remain to be tried.  The words of the Court of Appeal in Mayhew v Robert Jones Investments Ltd are apposite: 14

This is not a case where, by simple interpretation of the documents and the application of the relevant law, the matter can be decided. It requires some further evidential material before that result can be reached.

[57]     I think there are several essential points here.  If the first defendants are right, and the vendors were actively suppressing information by conveying half truths in circumstances where they knew the units were never going to get Code Compliance and new titles, that probably amounts to misrepresentation by concealment.  If this

was combined with what is essentially the deletion of warranties by subterfuge, this amounts to fraud.

[58]     Additionally what the vendors are asking the Court to accept without further enquiry is that the purchasers agreed to the deletion of warranties given in their favour without any apparent discussion between the solicitors.  They would have me accept without further enquiry that the purchasers agreed to the deletion of a very important set of warranties in their favour, and at a price that apparently represented market value for a fully complying unit.  The vendors would also have me accept that the unit was clearly sold “as is” when there is no correspondence between the solicitors to confirm that.

[59]     In these circumstances I cannot be satisfied on the evidence before me that summary judgment is appropriate.

Conclusion

[60]     The plaintiff s application for summary judgment is declined.

[61]     I reserve costs in accordance with the decision of the Court of Appeal in

NZI Bank Ltd v Philpott.15

[62]     The case is to be listed in the Chambers list on Friday 4 November 2016 at

2.15 pm for further directions.    Alternatively the Registrar is to allocate a case management  conference.  In  either  event,  memoranda  should  be  filed  at  least

two days prior with proposed directions.

Associate Judge Sargisson