Carlin Enterprises Limited v Fright Aubrey Limited (in liq) HC Christchurch Civ-2007-409-002030
[2011] NZHC 575
•16 June 2011
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2007-409-002030
BETWEEN CARLIN ENTERPRISES LIMITED Plaintiff
ANDFRIGHT AUBREY LIMITED (IN LIQUIDATION)
First Defendant
ANDGARRY RUSSELL SELLARS Second Defendant
Hearing: 3-5 May 2010 and 3-4, 7-9 and 11 February 2011
Appearances: JBM Smith and P J Woods for Plaintiff
G N Gallaway and A V Foote for Defendants
Judgment: 16 June 2011
RESERVED JUDGMENT OF CHISHOLM J
A Judgment for the plaintiff against the first defendant in the sum of
$797,000 plus interest on that sum at a rate to be fixed from 18
December 2004 to the date of judgment.
B Judgment for the second defendant against the plaintiff.
CIf agreement cannot be reached as to costs memoranda are to be submitted in accordance with [236].
CARLIN ENTERPRISES LIMITED V FRIGHT AUBREY LIMITED (IN LIQUIDATION) HC CHCH CIV-
2007-409-002030 16 June 2011
REASONS
Index
Introduction [1]
PART 1
BACKGROUND [4] History [4] The hearing [31] The May 2010 hearing [32]
The May hearing is aborted [37] Mr Sellars’ initial brief [40] Mr Sellars’ supplementary brief [43] The hearing resumes in February 2011 [46]
Issues [61]
PART 2
LIABILITY: FIRST DEFENDANT [64] Did the first defendant breach its duty of care? [65] Relevant pleadings [65] Outline of plaintiff ’s argument [68] Outline of first defendant’s response [73]
Scope of the retainer [78] Source of the information concerning reserves and stormwater [87] The valuation [92]
Relevant principles [97]
Did the process adopted by Fright Aubrey meet the required standard?
Did the valuation in fact allow for reserve contributions and
stormwater disposal?
[103]
[125]
Was the value within an allowable bracket? [149] Summary [150] Reliance [151] Causation [158] Conclusions [160]
PART 3
QUANTUM: FIRST DEFENDANT [161] Mitigation [162] Principles underlying the assessment of quantum [164] Measure of damages [165]
Information that can be used in determining the correct value [167]
Relevance of any profit the plaintiff might have made from the subdivision
[170]
Assessment of quantum [173] Fright Aubrey’s valuation of 5 December 2003 [174] Mr Tappenden’s valuation [191] Mr Mahoney’s valuation [195] Summary [198]
Contributory negligence [199] Fright Aubrey’s case in support of contributory negligence [200] CEL’s response [201] Analysis [203]
Interest [214] Pre-judgment interest [215] Interest as damages [222] Conclusions [224]
PART 4
CLAIM AGAINST SECOND DEFENDANT [225] Background to this claim [225] Limitation [226] Personal liability of Mr Sellars [230] Conclusion [234]
PART 5
RESULT [235]
Introduction
[1] On the joint instructions of the plaintiff and the then owner of the land, the second defendant, a registered valuer and a director of the first defendant, completed a market valuation of land in Christchurch that was to be developed for residential purposes. The valuation was provided on 17 October 2002. In due course the plaintiff purchased the land (and a small piece of adjoining land) for $10,400,000 and completed a residential subdivision.
[2] The plaintiff alleges that the valuation wrongly stated that no reserve contribution would be required for the development and that existing services for stormwater disposal on adjacent land would be sufficient to service the land. It claims that in reliance on the defendants’ valuation it paid $1,650,000 above the actual market value of the land and was faced with having to make reserve contributions and provide for stormwater disposal.
[3] Damages of $1,650,000 are sought by the plaintiff from both defendants in contract and tort. In the alternative, the plaintiff seeks the actual costs of making provision for reserve contributions and stormwater retention amounting to
$1,446,545.
PART 1
BACKGROUND History
[4] Kevin Carlin, the director of Carlin Enterprises Limited (CEL), moved to New Zealand from the United States in 1993. Initially he lived in Queenstown where he was involved in the development of a property on the shores of Lake Wakatipu. After moving to Christchurch in 1997 he investigated several commercial development opportunities but in the end did not pursue any of them.
[5] In 2002 Mr Carlin was introduced by a real estate agent to a major development in Christchurch that was being undertaken by Northwood Views Limited (NVL). A significant portion of the 98 ha property had already been developed for residential purposes by NVL. A further stage comprising approximately 17.4 ha (Stage 5) had been partly developed and the remaining stage comprising approximately 18.5 ha (Stage 6) remained undeveloped.
[6] This claim revolves around the defendants’ valuation of Stage 6.
[7] Mr Carlin was given a two page marketing document (the information sheet) relating to Stage 6. This document indicated that Robin Hughes, a director of NVL, had received several approaches over the last few months to sell Stage 6 and that he had decided to have a serious look at selling because it would be several years before NVL would be ready to bring that stage to the market.
[8] The information sheet included the following statements:
Stormwater Retention on site:
An existing plan is in place for the whole of Northwood to handle the
Council requirement for stormwater to be retained on site.
Subject to specific design details and Council approval it would not be necessary to allocate land in stage 61 to retain stormwater.
Reserve Contribution
An existing agreement is in place with the CCC for Reserve Contributions for the entire Northwood site.
Subject to specific Design details and Council approval it would not be necessary to pay a reserve contribution or allocate land for Council reserves in stage 62.
Although these are not the statements relied on by the plaintiff in this claim, they relate to the same subject matter, albeit in a much more qualified form than in the
valuation giving rise to this claim.
1 The actual document referred to stage 5 but it is common ground that this was in fact a reference to stage 6.
2 As for footnote 1.
[9] A master plan (the master plan) showing a notional subdivision of the whole
98 ha was also given to Mr Carlin. However, at that time no subdivision consent had been sought or granted in relation to Stage 6. The master plan showed a notional subdivision of Stage 6 into 188 residential lots. Apart from some small local reserves no significant reserves were indicated within that Stage. Nor was there any provision for stormwater disposal (in the sense of retention by way of ponding) within the Stage 6 land.
[10] During negotiations Mr Carlin and Mr Hughes explored both the possibility of a joint venture involving Stages 5 and/or 6 and an outright purchase by CEL. No asking price was indicated by NVL. In September 2002 there was a three way telephone conversation between Mr Carlin, Mr Hughes and Mr Sellars during which Mr Sellars was instructed to value Stages 5 and 6.
[11] Mr Sellars is an experienced valuer. Through Mr Sellars, Fright Aubrey had previously undertaken commercial valuations for both men. As recently as 30 April
2002 Mr Sellars had provided a valuation of the Northwood subdivision (including
Stage 6 as undeveloped land) for ASB Bank Limited (the ASB valuation).
[12] A valuation on Fright Aubrey letterhead and signed by Mr Sellars was provided on 17 October 2002. It was accompanied by a letter confirming that Fright Aubrey had been instructed to assess ―the market value of the residential subdivision development land‖ comprising Stages 5 and 6. The accompanying letter also included a conventional definition of ―market value‖.
[13] The valuation itself included the following statements which are central to the
plaintiff’s claim:
Stage 6 comprises residential land available for further development containing an approximate area of 18.50 hectares which has the potential to be developed into approximately 188 lots zoned Living 1 and Living 3. Reserve contribution in respect of this land has already been provided for in the initial developed stages of Northwood. (Emphasis added)
...
The undeveloped land at Northwood3 enjoys the advantage of being able to utilise the existing developed services of sewage and stormwater disposal, water supply electricity and gas reticulation. Stormwater disposal at Northwood is reticulated to a swale system located adjacent to Main North Road. The existing swale system is sufficient to service the entire Northwood subdivision including the undeveloped land [stage 6]. (Emphasis added)
Several other references to reserve contributions are to the same effect, namely, that reserve contributions would not be required for Stage 6 because they had already been provided for in the initial stages.4
[14] Stage 5 was valued in the report at $13,650,000 and Stage 6 at $9,250,000. The Stage 6 figure is equivalent to $500,000 per hectare.
[15] A third party, Garry Robertson, was also negotiating with NVL for the purchase of Stage 6. On 26 October 2002 NVL advised Mr Robertson that his offer to buy the land for $9,500,000 had not been accepted because another party (CEL) had made an offer, but that if NVL had not entered into an agreement with the other party by 4 p.m. on 5 November 2002 his offer would be accepted.
[16] In the event CEL and NVL entered into an agreement on 5 November 2002 (the agreement for sale and purchase). Under that agreement CEL agreed to purchase Stage 6 plus an additional one hectare from Stage 5 (making a total of
19.4321 ha) for $10,400,000. Mr Robertson’s offer lapsed.
[17] Under the agreement for sale and purchase a deposit of $275,000 was to be paid in two instalments; the first of $25,000 on the signing of the agreement and the second of $250,000 on 18 November 2002. Settlement and possession was to be five days after the issue of title or 30 April 2003, whichever occurred last. Vendor finance was provided. The contract was conditional upon subdivision consent within six months and the issue of a title within 12 months. The agreement for sale and purchase recorded that the purchase price included interest of $650,000 based on the
present day value of the land which was expressed to be $9,750,000.
3 i.e. the Stage 6 land.
4 See [93]
[18] The deposit was duly paid.
[19] Within a short time Mr Carlin became concerned about a number of issues, including reserve contributions. On 25 November 2002 Mr Carlin wrote to Mr Hughes stating that during negotiations Mr Hughes had advised that no reserves were payable and that this was a significant consideration in arriving at the purchase price. Mr Carlin asked Mr Hughes to sign a document ―correcting and guaranteeing‖ that no reserve contributions would be due to the Council on the further subdivision of Stage 6. Mr Hughes declined on the basis that the reserve contribution for the entire 98 ha was originally negotiated as a total package based on the master plan and that this had been pointed out to Mr Carlin during negotiations.
[20] By early 2003 a proposed layout of the Stage 6 residential subdivision had been completed by CEL. Compared with the master plan comprising 188 lots, the CEL subdivision comprised 226 lots and made provision for a country club that was to be available to the Stage 6 landowners.
[21] The proposed CEL layout was informally submitted to the Christchurch City Council for comment. In response the Council indicated that a reserve contribution in cash and land would be required for Stage 6. It also noted that stormwater could be discharged into the lake proposed for Stage 5 but that if the lake was not built any discharge would be required to comply with a discharge permit from the Regional Council.
[22] A few days later Mr Carlin wrote to Mr Hughes asking whether NVL intended to construct the lake on Stage 5. Mr Carlin also indicated that they needed to talk to the Council about the ―previous Northwood reserves contribution arrangement relating to Stage 6‖. Ultimately NVL decided not to proceed with the lake on Stage 5 and discussions with the Council failed to alter the Council’s requirement for a reserve contribution in relation to Stage 6. Thus CEL was faced with having to meet reserve contributions and provide for stormwater disposal.
[23] Given that situation Mr Carlin asked Mr Sellars to clarify the basis of his valuation of Stage 6 in relation to stormwater disposal. On 18 March 2003
Mr Sellars replied that when completing its valuation Fright Aubrey was ―under the impression that the existing swale system adjacent to Main North Road was sufficient to service any further development completed on Stage 6‖. Main North Road is on the opposite side of the Northwood development and some distance from Stage 6.
[24] By the time the purchase of Stage 6 was due to be settled on 9 May 2003 the issues surrounding reserve contributions and stormwater disposal had still not been resolved. Consequently settlement did not take place and a settlement notice was issued by NVL. However, on 27 May 2003 the parties entered into an agreement whereby NVL granted CEL an option to purchase an additional 1.4667 hectares of land in Stage 5 and they were to jointly share the cost of providing further land in Stage 5 to accommodate a stormwater retention pond (up to a maximum of 1 hectare).
[25] The purchase of Stage 6 was settled the following day.
[26] In the meantime, on 14 May 2003, Mr Sellars had responded to a further request by Mr Carlin for clarification of the 17 October 2002 valuation in relation to zoning and stormwater disposal. In relation to stormwater disposal Mr Sellars reiterated Fright Aubrey’s understanding that the swale system adjacent to Main North Road was sufficient to service any further development on Stage 6. On the basis of information provided by Mr Carlin the Fright Aubrey valuation was reduced by $650,000 to $8,600,000 to reflect a 1.20 ha retention basin and construction costs.
[27] Subdivision consent for the first 100 residential lots in Stage 6 was issued on
21 August 2003. A reserve contribution of 1.1050 hectares was required by the Council. This was met by the provision of the country club facilities, a public open space, and various credits. The second subdivision consent involving the remaining
126 residential lots was issued on 18 September 2003. It attracted an additional
reserve contribution of 1.3923 hectares which was met by the country club facilities, open space associated with the stormwater basin, and the vesting of a reserve.
[28] Subsequently Mr Carlin asked Mr Sellars to clarify the basis of the valuation of Stage 6 in relation to reserve contributions and stormwater disposal (as well as two other matters which are irrelevant). Mr Sellars explained in a further valuation report dated 5 December 2003:
When completing our valuation of Stage 6 we were under the impression that any further development of Northwood would not be required to provide any further monetary or land contribution for reserve contribution purposes because the existing Northwood development had provided sufficient land and reserves to satisfy the reserve contribution requirements for the remaining undeveloped land.
The issue was clearly outlined on numerous occasions throughout our report and we therefore made no allowance for it in our valuation conclusions.
You have advised that following purchase of Stage 6 it became clear there was in fact a requirement for reserve contribution to be paid.
...
When completing our valuation of Stage 6 we were under the impression that the existing swale system adjacent to Main North Road was sufficient to service any further development completed on Stage 6.
You have advised the assumption made in our valuation report in relation to stormwater disposal is in fact incorrect and the Council require a retention basin comprising an area of 1.00 hectares to be developed to service Stage 6 now known as Styx Mill Country Club. In addition to the loss of 1.00 hectares of land, associated construction works will be the responsibility of Carlin Enterprises Limited.
You have advised the estimated cost for all infrastructure associated with stormwater disposal including consents is approximately $350,000.
The original Stage 6 valuation of $9,250,000 was reduced by $1,650,000 to
$7,600,000. This report is at the forefront of the plaintiff’s case as to quantum.
[29] In due course CEL completed the subdivision, including provision of the country club. CEL calculates that it spent an additional $1,446,545 (including GST) in meeting the Council’s reserve requirements and providing for stormwater disposal. Hence the alternative claim of $1,446,545 for damages.
[30] This proceeding was initially issued against the first defendant, Fright Aubrey, on 28 August 2007. Subsequently, on 6 May 2009, a further proceeding was issued against the second defendant, Mr Sellars, and in due course an order was made consolidating the two proceedings. At one stage NVL was joined by Fright Aubrey as a third party and NVL joined Mr Carlin as a fourth party. However, the defendants’ claim against the third party and the third party’s claim against Mr Carlin were discontinued in 2009.
The hearing
[31] As will be apparent from the hearing dates recorded at the beginning of this judgment, the hearing originally commenced in May 2010 but was adjourned on the third day. It did not resume until February 2011.
The May 2010 hearing
[32] During this phase of the hearing Mr Carlin gave his evidence in chief and cross-examination had commenced.
[33] In his evidence in chief Mr Carlin described his introduction to the Northwood Development and the telephone conversation during which Mr Sellars was instructed to undertake the valuation. Following that conversation he did not have any further contact with Mr Sellars until after receiving the valuation. He was unaware that Mr Sellars had obtained information concerning reserve contributions and stormwater disposal from Mr Hughes.
[34] Mr Carlin said that he had relied on the valuation as his ―primary due diligence‖ and that when CEL entered into the agreement for sale and purchase he relied ―entirely‖ on the valuation to fix the purchase price. At that time he believed there would be no reserve contribution payable for the subdivision of Stage 6 and that Stage 6 land would not be required for stormwater disposal. He was not told that an increased section yield would affect the reserve contribution situation.
[35] By the time he became aware that a reserve contribution might be required CEL was committed to the purchase: it had entered into a contract with a firm of planners and engineers (Davis Ogilvie and Partners) for professional services costing more than $400,000; contracts in respect of the design and management of the country club had also been entered into; CEL was committed to what was effectively an unconditional contract with NVL; and failure to settle would have resulted not only in loss of the $275,000 deposit but would probably have led to litigation with NVL.
[36] Mr Carlin said that despite several months of negotiation the Council imposed reserve contributions for Stage 6 which carried a land equivalent of 2.4973 hectares. This represented a loss of land that could have otherwise been sold. In addition, CEL paid $365,381 for the stormwater ponding land and formation of the ponding area. It also incurred further costs for consultants’ fees and other expenses.
The May hearing is aborted
[37] When the trial commenced on 3 May 2010 it was anticipated by the plaintiff that Mr Sellars would give the evidence contained in his brief of 28 April 2010. However, it is my understanding that on 5 May the defendants produced a supplementary brief of evidence to be given by Mr Sellars which represented a significant departure from his initial brief.
[38] As a result of this development counsel on both sides requested an adjournment and indicated that settlement was a possibility. An adjournment was granted with considerable reluctance.
[39] To understand the implications of the supplementary brief (which seems to have been initially converted into an affidavit sworn by Mr Sellars on 18 May 2010 and then expanded into a full supplementary brief dated 23 December 2010) it is necessary to summarise the contents of Mr Sellars’ brief of 28 April 2010. Following that the supplementary evidence will be summarised.
Mr Sellars’ initial brief
[40] Having discussed events leading up to the valuation of 17 October 2002
Mr Sellars’ said:
17.The valuation was completed on or about 17 October 2002. In calculating the value of the stage 6 land, I adopted a section yield of
10.19 lots per hectare which was derived from analysis of previous subdivision stages at Northwood and other similar subdivisions...
I stated that this section yield would be achievable with no further land required for reserve contribution purposes. It is implicit in this comment that a greater (that is, more dense) section yield
might require more land to be allocated for reserve contribution purposes or cash in lieu. Any experienced developer is aware that
significant changes from an existing development plan may cause the Council to revisit a previously indicated position in relation to reserve contributions.
18. In relation to utility services the valuation report provided that:
“The undeveloped land at Northwood enjoys the advantage of being able to utilise the existing developed services of sewage and stormwater disposal, water supply, electricity and gas reticulation. Stormwater disposal at Northwood is reticulated to a swale system located adjacent to Main North Road. The existing swale system is sufficient to service the entire Northwood subdivision including the undeveloped land.”
This assumption was based on the advice provided by Mr Hughes to me.
...
22.Fright Aubrey did not make any representation in the valuation as to whether a more dense section yield would be possible and, if this was sought, what the implications would have been in terms of reserve contributions or services such as sewage and stormwater disposal. As a valuer, I had to adopt assumptions in reaching my valuation. Accordingly, I adopted the position that no further contributions were required, as outlined in Mr Hughes’ brochure – and recorded this assumption expressly throughout the valuation on a number of occasions. Had I checked with the Council, I expect that I would have been told that there was an arrangement in place, but it was subject to design details – just as the Council informed Mr Hughes by way of letter in January 2003 ... My valuation would still have adopted the assumptions provided by Mr Hughes.
23.I have no doubt that Mr Carlin was well aware of the position with reserve contributions – he had been discussing matters with Mr Hughes and was privy to the same written information that I was.
He was also an experienced developer and I do not believe that he was misled in any way.
24.In relation to stormwater, I again used the information provided to me by Mr Hughes. I was aware that there was an existing swale system along the Main North Road that serviced the whole of Northwood. I was also aware that Mr Hughes and Mr Carlin were considering a lake concept for the stage 5 development that adjoined Stage 6, and that further lakes might be included on stage 6. I expressly referred to the Stage 5 lakes in my file note ... and the plan showing the lakes on Stage 5 was annexed to my valuation as Appendix C, with a detailed development plan annexed as Appendix D. I refer to the possibility of a lake on Stage 6 in my valuation at page 9.
There was no suggestion that allowance had been made in the October 2002 valuation for reserve contributions or stormwater disposal.
[41] Mr Sellars’ brief also traversed the revised valuations of 14 May 2003 and
5 December 2003. His position was that he simply applied revised assumptions given to him by Mr Carlin and he did not consider that these updated reports constituted revaluations. He also said that by the time the May and December reports were prepared he was aware that Mr Carlin intended to develop the land more densely than the 10.19 lots per hectare allowed for in the October 2002 valuation.
[42] Later Mr Sellars said in his brief:
35.By developing this land more densely, Mr Carlin increased the potential income which could be obtained from the development but also increased his likely development costs including in relation to stormwater disposal and reserve contributions. It also means that the assumed gross realisation figure that I used in each of the three valuations is too low. The gross realisation figure is the gross selling price of the sections. Fright Aubrey’s first valuation was based upon a yield derived from the adjacent development prepared by Mr Hughes. It was not based upon a more intensive subdivision. Nor did it include any references to the Country Club facilities ultimately included by Mr Carlin. Had I been instructed to prepare a valuation for a more intense subdivision including a Country Club and terraced style housing my valuation would have been very different. No allowance for these changes was made in the May or December 2003 reports. I was not asked to make allowance for these changes.
Again, there is no suggestion that the October 2002 valuation had in fact allowed for
reserve contributions and stormwater disposal.
Mr Sellars’ supplementary brief
[43] The supplementary brief indicated for the first time that the October 2002 valuation included an allowance for reserves and stormwater disposal. This was based on the premise that the section yield of 10.19 lots per hectare reflected such an allowance and that if this had not been the case the yield would have been 12.25 lots per hectare which would have led to Stage 6 being valued at $11,000,000.
[44] In this brief of 23 December 2010 Mr Sellars asserted:
13.Fright Aubrey’s valuation of 17 October 2002 states that reserve contributions in respect of the Stage 6 land has already been provided for in the initial developed stages of Northwood and that the existing swale system was sufficient to service the entire Northwood subdivision including the undeveloped land. On review I acknowledge however that the valuation dated 17 October 2002 did in effect allow for land required for contributions as this was provided for in the yield adopted. The value attributed to the land included an allowance for reserve contributions (reflected in the land yield) and stormwater costs (reflected in the development costs). The cost of stormwater disposal and reserves is accounted for in the valuation. (Emphasis added)
On that basis Mr Sellars confirmed that the value of $9,250,000 arrived at in his October 2002 valuation was ―a fair and realistic estimate of the current market value‖.
[45] The supplementary brief also addressed the report of 5 December 2003. Mr Sellars said that when Fright Aubrey prepared that report ―it effectively erred in double counting the effect of reserve contributions and stormwater provision in the assessment of value of the land‖. In other words, his position was that no adjustment should have been made in the December report because the two items giving rise to the adjustment had already been allowed for in the original valuation.
The hearing resumes in February 2011
[46] Cross-examination of Mr Carlin was concluded at the resumed hearing. The plaintiff then adduced evidence from John Tappenden, a valuer, Francis Burgess, a chartered accountant, and Vil Vabulus, the Christchurch City Council’s subdivision team leader. A brief description of the evidence given by each of these witnesses follows.
[47] Mr Tappenden accepted that Mr Sellars had adopted appropriate methodology in the October 2002 valuation and that on the assumption that no provision was required for reserves or stormwater disposal the valuation of
$9,250,000 was reasonable. He also considered that the methodology in the reports of 14 May 2003 and 5 December 2003 was appropriate. And he accepted that if provision needed to be made for reserves and stormwater Mr Sellars’ adjusted valuation of $7,600,000 was ―within range‖.
[48] It was Mr Tappenden’s evidence that a competent valuer jointly instructed by a prospective buyer and seller would have noted information provided by one party that had particular relevance to the valuation exercise. He considered that information relating to reserve contributions and stormwater was particularly relevant in this case. Mr Tappenden also considered that Mr Sellars should have made enquiries of the local authority about reserves and stormwater. He believed that if that check had been made Mr Sellars would have been alerted to the inaccuracy of his assumptions concerning reserves and stormwater and would not have carried the two assumptions through into the valuation.
[49] Mr Burgess calculated the additional costs incurred by CEL in respect of reserves and stormwater disposal. According to Mr Burgess’ brief those costs totalled $1,455,181 (including GST). Some adjustments were made in his supplementary brief.
[50] Mr Vabulus said that the Council was unable to enter into an agreement fixing total reserves on the basis of the master plan. Actual reserve contributions had to be assessed when each application for subdivision consent was received. Had the
Council been asked in October 2002 about reserve contributions for a Stage 6 it would have responded that it could not make a decision. If the CEL layout submitted to the Council in February 2003 had shown fewer lots the Council’s comments would still have been the same.
[51] Now I turn to the defendants’ evidence.
[52] Six witnesses, including Mr Sellars, were called by the defendants. Apart from Mr Sellars the defendants’ witnesses were: Mr Hughes, Peter Mahoney, a valuer, Paul Stenning, a surveyor, and two solicitors, Peter van Rij and Geoffrey Saunders.
[53] Mr Sellars read his brief of 28 April 2010, the affidavit sworn on 18 May
2010, and his brief of 23 December 2010. Those documents have already been summarised.5 He was extensively cross-examined.
[54] Mr Hughes’ evidence included: his dealings with Mr Carlin in relation to the sale and purchase of the land; what he told Mr Carlin regarding reserves and stormwater for Stage 6; his dealings with the Council over reserves for Stage 6; a meeting with Mr Carlin on 5 November 2002 when Mr Carlin was warned by his solicitor, Mr Saunders, that there was no due diligence clause in the agreement for sale and purchase and that it was not safe to proceed without one; his position as to the price he was prepared to accept for Stage 6; and events after the agreement for sale and purchase was signed.
[55] Mr Mahoney considered that the valuation report of 17 October 2002 was well researched and reached well reasoned conclusions. Given that only one other
―acreage sale‖ had reached the level of $500,000 per hectare, he considered that the value of $9,250,000 was at the upper end of the market range.
[56] With reference to the underlying assumptions concerning reserves and stormwater Mr Mahoney said:
5 See [40]-[45]
4.6In the present situation I believe that the valuer in accepting instructions from a client who has been actively involved in the subdivisional development of the adjoining land and where the valuer also had earlier experience and had provided other advice, could reasonably be expected to rely upon the accuracy of such information as supplied. If however there was any doubt in the mind of the valuer in relation to specific issues or material as provided, then in such situations this would normally be addressed by way of a cautionary note as part of the valuation reporting process.
4.7If the specific instructions given to the valuer were considered to be untenable or inconclusive, then in such circumstances I would expect the valuer would wish to test the accuracy of those assumptions by reference to other sources or in the present situation seek written confirmation from the instructing client.
4.8This latter proviso, would be most critical if the valuation was being prepared for a totally independent third party acting as a prospective purchaser, who was not involved in any direct negotiations or dialogue with the vendor. ...
4.9Where a report was being prepared for an independent third party, then I believe it would be prudent for the valuer to clearly state that all supporting documentation relating to the critical issues of reserve contribution vesting, stormwater disposal/retention and possibly traffic management issues, should be sighted and copies of the Council resource consents disclosed.
[57] In relation to the valuation reports of May and December 2003 Mr Mahoney noted that there had been a significant reduction in the assessed block value to reflect the requirement to provide land for stormwater and that this was higher than the actual cost incurred by CEL. He also noted that the allowance for reserves contributions was based on 7.5% of the lot values rather than 130m2 per site. His view was that the latter would have been the less expensive option.
[58] In a supplementary brief prepared after the May adjournment Mr Mahoney supported Mr Sellars’ view that allowance had actually been made in the 2002 report for reserve contributions and stormwater disposal. He also confirmed that the deduction in the December 2003 report amounted to double counting.
[59] Paul Stenning gave evidence about reserve contributions relating to residential subdivisions and how they are calculated. He also discussed those matters with reference to the CEL subdivision.
[60] Finally, evidence was given by two solicitors. Peter van Rij, the solicitor for NVL, said that immediately before the agreement for sale and purchase was entered into Mr Saunders, CEL’s solicitor, specifically drew to Mr Carlin’s attention that the contract was not subject to due diligence and that this should be undertaken before CEL became committed to the contract. This was confirmed by Mr Saunders.
Issues
[61] It is not disputed that the first defendant owed a duty of care to the plaintiff and that the standard of care is that required by a ―reasonably skilled‖, ―competent‖ or ―prudent‖ valuer. Those concessions apply to the causes of action in both contract and tort. They do not, however, apply to the second defendant.
[62] In relation to the first defendant it will be necessary to determine whether: (a) It breached its duty of care; if so
(b)The plaintiff relied on the valuation when entering into the agreement for sale and purchase; if so
(c) The necessary causal nexus existed; if so
(d) The plaintiff suffered loss and the extent thereof; if so
(e) There should be any reduction by virtue of contributory negligence. Those matters will be addressed in Parts 2 and 3 of this judgment.
[63] The second defendant denies that he had a contract with the plaintiff or that he owed any duty of care to the plaintiff. He also pleads that the plaintiff’s claim against him is statute-barred by virtue of s 4 of the Limitation Act 1950. The case against Mr Sellars will be addressed in Part 4 of this judgment.
PART 2
LIABILITY: FIRST DEFENDANT
[64] This part will focus on three primary issues: whether the first defendant breached its duty of care; if so, whether the plaintiff relied on the valuation when entering into the agreement for sale and purchase; if so, whether the necessary causal nexus between the breach and loss has been established.
Did the first defendant breach its duty of care?
Relevant pleadings
[65] In its amended statement of claim the plaintiff relies on two causes of action:
breach of contract and negligence.
[66] Having pleaded that it was an implied term of the contract that Fright Aubrey would undertake the valuation using the reasonable skill and care ordinarily expected of a trained, experienced and competent registered valuer, the amended statement of claim alleges:
17. In breach of the implied term the defendant failed to exercise all reasonable skill and care in that it made or relied on the assumptions6 without making its own enquiries by way of searching of records, examining documents, enquiry with local Government or other departments or making other appropriate investigations necessarily required by a reasonable valuer.
A similar pleading is included with reference to the cause of action alleging negligence. For present purposes it does not matter whether the duty arises from an implied contractual term or by way of tort.
[67] In its statement of defence Fright Aubrey pleads both a general denial and an affirmative defence that it relied on information provided by NVL as part of the joint
instruction. It also pleads contributory negligence.
6 As to reserve contributions and stormwater disposal.
Outline of plaintiff ’s argument
[68] Fright Aubrey agreed to provide a market valuation for sale and purchase purposes. Subdivisional potential was an integral part of the valuation. Fright Aubrey did not check the accuracy of the information concerning reserve contributions and storm water retention. There was no instruction exonerating it from the need to check this information. The two assumptions were not true and the purchase price was overstated accordingly.
[69] To the knowledge of Fright Aubrey the interests of CEL and NVL were not identical: one was a potential vendor and the other a potential purchaser. Under those circumstances professional standards required the information concerning reserves and stormwater disposal to be verified or a clear statement included in the valuation that this information had not been verified and its source.
[70] The comments in the valuation about reserves carried an ―exhortatory tone‖ indicating that the fact that sufficient reserves had been created was ―clearly an undoubted advantage to the developer‖. Not only were these comments repeated three times, they were without any qualification. Taking into account clause 4 of the
valuation policies7 anyone reading the valuation would think that the necessary
checks had been made and that the information was reliable.
[71] Given that there was no agreement that the information did not have to be checked, a competent valuer in Fright Aubrey’s position would have checked the information: Mirage Entertainment Corporation Limited (in receivership) v Arthur Young.8 Had the necessary checks been undertaken it would have become obvious that the two assumptions contained in the valuation could not be supported.
[72] Whether this is categorised as a ―process‖ case or an ―outcome‖ case,9 the result will be the same. Fright Aubrey did not follow proper valuation processes and
the two assumptions contained in its valuation were wrong. Given the integral role
7 That clause is quoted at [95]
8 Mirage Entertainment Corporation Limited (in receivership) v Arthur Young (Unreported HC Auckland, CL/377/92, 24/8/1992, Smellie J,) at page 33
9 See [99]-[101] as to ―process‖ and ―outcome‖ cases
played by those assumptions, the value arrived at by Fright Aubrey was well outside the range that was reasonably available.
Outline of first defendant’s response
[73] The plaintiff has exaggerated its claim in almost every respect and has elevated Fright Aubrey’s valuation from a ―mere valuation‖ of the land to ―an all- encompassing due diligence exercise‖. The instructions to Fright Aubrey were to provide a market value of the Stage 6 land and this case is solely about whether the October 2002 valuation was a fair market value, having regard to the assumptions made in relation to reserves and stormwater disposal.
[74] Fright Aubrey’s valuation was arrived at on the basis of a gross yield of 10.19 lots per hectare which meant a total yield of 188 lots. All the indications from the Council were that if the subdivision proceeded along the lines of this yield and in accordance with the master plan then no further reserve contributions would be payable. However, CEL altered the intensity and character of the development with the result that the assumption as to reserves no longer applied. And in terms of stormwater the statement in the valuation referred to reticulation and discharge, not retention.
[75] Valuation is not an exact science. It involves questions of judgment which may differ. Within a band of figures, valuers may differ without one of them being negligent. In terms of the ―outcome‖ cases the Fright Aubrey valuation was within a permissible margin of error (or bracket). Thus there can be no liability even if there were errors in the process (which is denied). The plaintiff has failed to adduce any expert evidence to show that the figure ultimately reached was wrong.
[76] Both expert witnesses concur that the methodology adopted by Fright Aubrey in relation to the October 2002 and December 2003 valuations was appropriate. The issue is whether the appropriate value was reached and was supported by relevant market transactions. It was. The valuation of October 2002 took into account that land would need to be set aside for reserves and stormwater by adopting a section yield of 10.19 sites per hectare which allowed for reserve contributions and
stormwater disposal. There is no evidence to contradict Mr Sellars’ evidence that
this was the case.
[77] The first defendant’s valuation of December 2003 does not assist the plaintiff. Effectively Mr Sellars completed mathematical equations at the plaintiff’s request. At that time he did not comprehend that what he was being asked to do had been allowed for in the original valuation by the low section yield of 10.19 sites per hectare. By making a further reduction in his December 2003 valuation he was effectively double counting the impact of reserve contributions and provision for stormwater disposal.
Scope of the retainer
[78] Several matters are clear. Instructions for the valuation were jointly conveyed by Mr Carlin and Mr Hughes to Fright Aubrey (through Mr Sellars) during the three-way telephone conversation and the cost of the valuation was to be met by CEL and NVL jointly. Between the time of those instructions and receipt of the valuation, there were no further joint instructions to Mr Sellars. Fright Aubrey were instructed to undertake a market valuation ―of the residential subdivision development‖ in Stage 6 for sale and purchase purposes. In other words the inherent and imminent subdivisional potential of the land was a key consideration.
[79] Beyond that there is a conflict of evidence about the instructions that were conveyed to, and accepted by, Fright Aubrey. With the possible exception of a very brief note that Mr Sellars thinks might relate to the telephone conversation, no one appears to have kept any notes. Given the lapse of time and absence of any contemporary record (apart from the valuation and letter accompanying it) it is probably not surprising that the Court is being asked to resolve a number of conflicts in the evidence concerning the instructions that were given to Fright Aubrey.
[80] According to Mr Carlin he told Mr Sellars that the valuation would determine any price paid by CEL, that it would form ―the primary due diligence‖ for CEL, and that he could have possibly said to Mr Sellars that Mr Sellars would be ―judge and
jury‖. Mr Carlin also said under cross-examination that he told Mr Sellars that he had no knowledge of what bare land in Christchurch was worth per hectare.
[81] While Fright Aubrey acknowledges that it was instructed to carry out a valuation of Stage 6 for the purpose of assessing a fair market value for an arms- length transaction between a willing buyer and a willing seller, it denies that the instructions went any further. In particular it denies that Mr Carlin mentioned any of the additional matters referred to in the previous paragraph. According to Fright Aubrey Mr Carlin has exaggerated the scope of the retainer.
[82] I begin with Mr Carlin’s contention that Mr Sellars was told the valuation would determine any purchase price. While this might have been Mr Carlin’s intention at the time the instructions for the valuation were given, I am not satisfied that this was actually conveyed to Mr Sellars. Both Mr Hughes and Mr Sellars were staunch in their denial that this was said by Mr Carlin and I prefer their evidence. Apart from anything else, I would have thought it improbable that a person in Mr Carlin’s position would have completely disclosed his hand before the valuation had been received and price negotiations had been concluded.
[83] Turning to the question whether Mr Carlin expressly told Mr Sellars that the valuation would form the primary due diligence for CEL, Mr Carlin made the important concession during cross-examination that he could not specifically recall using the words ―due diligence‖. In the end his evidence came down to the proposition that this would have been understood by Mr Sellars. I do not accept that Mr Carlin made it clear to Mr Sellars that the valuation would be his primary due diligence. As Mr Sellars observed, it would be unusual for a valuation of this kind to constitute the primary due diligence for a purchase where a project of this nature was contemplated. That would seem to be a matter of common sense.
[84] Next, there is the suggestion that Mr Carlin might have mentioned something to the effect that Mr Sellars would be the ―judge and jury‖. I do not attribute any significance to this. It was not mentioned in Mr Carlin’s brief and when it arose during cross-examination it was only on the footing that it ―might have been mentioned‖.
[85] Finally, there is Mr Carlin’s evidence that he told Mr Sellars he had no knowledge of what bare land was worth in Christchurch. Again this was not mentioned in his brief and I doubt that this was conveyed to Mr Sellars in so many words. Nevertheless, it was implicit in the request for a valuation that Mr Carlin was seeking professional advice as to what this land was worth. Thus whether or not the comment was made has no particular significance. This is consistent with Mr Sellars’ acknowledgement under cross-examination that he expected the valuation would be relied upon.
[86] The following conclusions can therefore be reached as to the scope of the retainer:
(a) Fright Aubrey were instructed to assess the market value of Stage 6 on the basis of an arms-length transaction between a willing buyer and a willing seller.
(b)The inherent and imminent subdivisional potential of the land for residential purposes was a key consideration.
(c) Fright Aubrey knew that NVL was the owner of the land and it knew, or should have known, that CEL might be involved in the acquisition of an interest in the land.10 In other words, as Mr Sellars accepted under cross-examination, the interests of NVL and CEL were
―diametrically opposed‖.
(d)There were no express or implied limitations as to the scope of the retainer.
Source of the information concerning reserves and stormwater
[87] Mr Sellars said that he obtained a copy of the information sheet from
Mr Hughes and that he discussed ―inputs and assumptions‖ relating to the valuation
10 Mr Sellars agreed under cross-examination that it should not have made any difference to his valuation whether a joint venture or outright purchase by CEL was being considered.
with Mr Hughes by telephone. Notes taken by Mr Sellars during that conversation are included in the bundle of documents. With reference to Stage 6 Mr Sellars has noted ―Reserve Contribution None to Pay‖ and ―No swales required‖. He attributes this information to Mr Hughes and I accept that his notes summarise what he was told by Mr Hughes.
[88] According to Mr Sellars he adopted the position that no further reserve contributions were required on the strength of this conversation and the information sheet. I do not think this is a complete explanation. Given that some of the statements concerning reserve contributions in the October 2002 valuation are identical to statements in the ASB valuation, it can be inferred that those statements were in fact taken from the ASB valuation. I will return to this matter later.11
[89] Whatever the specific derivation of the information concerning reserves it is clear that Mr Sellars did not check it with the Council (or anyone else). This is acknowledged in his brief. He surmises that if he had checked the information with the Council he would have been told that there was an arrangement in place but that this arrangement was subject to design details. I reject that proposition. It is apparent from the evidence of Mr Vabulis, which I accept, that the subdivision of Stage 6 was always going to be approached on a stand-alone basis for reserve contribution purposes and this would have been conveyed to Mr Sellars if he had
enquired of the Council. I will also return to this matter.12
[90] In relation to stormwater Mr Sellars’ evidence was that he was again using information provided to him by Mr Hughes. He said that he was aware there was an existing swale system along Main North Road that serves the whole of Northwood and that he understood Mr Hughes and Mr Carlin were considering a lake concept for the Stage 5 development. Again Mr Sellars acknowledges that the information was not checked with the Council. Moreoever, the October 2002 valuation is based on the premise that the existing swale system, not a lake, will be sufficient to service
Stage 6.13
11 See [139] and [140]
12 See [112]
13 See [13]
[91] I accept that the plaintiff (through Mr Carlin) was not privy to any conversations between Mr Sellars and Mr Hughes concerning reserves and stormwater. Moreover, even though Mr Carlin had seen the information sheet he was not aware of the source or reliability of the information concerning those matters in the valuation report. Finally, Fright Aubrey was not entitled to assume that Mr Carlin would be privy to this information.
The valuation
[92] Fright Aubrey’s valuation of 17 October 2002 runs into 38 pages plus appendices. For present purposes it is only necessary to consider those parts of the valuation that relate to Stage 6. Following an executive summary the valuation discusses the property, its subdivision potential, the residential land market, and valuation methodology. The appendices include a statement of valuation policies as well as plans and other information.
[93] The statement in the executive summary relating to reserve contributions has already been quoted at [13]. That statement is supplemented by a series of statements to the same effect:
3.1 Subdivision Design
No subdivision concept plan has been prepared for Stage 6 which comprises an approximate area of 18.50 hectares.
Previous subdivision stages at Northwood have produced a section yield of 10.19 lots per hectare which is achievable with no further land required for reserve contribution purposes.
...
We have completed our valuation of the residual undeveloped land adopting a conventional subdivision approach but reflecting the potential for alternative subdivision development concepts.
...
3.4 Reserve Contribution
Sufficient reserves have been created in Stages 1, 2A and 2B to satisfy the reserve contribution for all remaining land at Northwood. This is clearly an undoubted advantage to the developer of the undeveloped land.
...
6.5 Hypothetical Subdivision Valuation
...
Reserve Contribution
No reserve contribution is payable with land already vested for reserves which is sufficient to satisfy reserve contribution requirements for the undeveloped land component also.
...
7.1 Methodology
...
Reserve Contribution Benefit
The developed component of Northwood has provided sufficient land in reserves to satisfy the reserve contribution requirements for the undeveloped land. Any purchaser of the undeveloped land would not have to provide the usual monetary or land contribution towards reserves and therefore would enjoy the benefit of a higher section yield.
As Mr Sellars acknowledged, all these statements are without qualification of any kind, which can be contrasted with the corresponding statement in the information sheet. Anyone reading the report (including Mr Carlin) was entitled to take the statements at face value.
[94] The statement in the valuation report relating to stormwater disposal was also quoted at [13]. Again, unlike the corresponding statement in the information sheet, this statement does not carry any qualification. As with the references to reserve contributions, anyone reading the report was entitled to take the statement at face value.
[95] Appendix A to the valuation report includes the following statement of general valuation policies which is of considerable significance in the present context:
4.Where it is stated in the report that information has been supplied to us by another party, this information is believed to be reliable but we can accept no responsibility if this should prove not to be so. Where information is given without being attributed directly to
another party, this information has been obtained by our search of records and examination of documents or by enquiry from Government or other appropriate departments.
This clause will be referred to as clause 4. There is nothing in the valuation report attributing the statements about reserve contributions and stormwater disposal to any other party. Thus the reader is invited to conclude that the information had been obtained in one of the ways specified. The clear implication is that the information has been verified and is reliable.
[96] For completeness it should be added that Fright Aubrey initially argued that Mr Hughes was not ―another party‖ for the purposes of clause 4 and that the clause did not apply to information provided by Mr Hughes. That argument was later abandoned.
Relevant principles
[97] These principles can be stated relatively briefly for two reasons. First, there is no significant dispute between the parties as to the relevant principles. Secondly, and perhaps more importantly, the disputes to be resolved in this case are primarily of a factual nature.
[98] As the Lord Hoffman observed in South Australia Asset Management Corp v York Montague Limited14, valuation is seldom an exact science and within a band of figures valuers may differ without one of them being negligent. Those observations were endorsed by the other members of the House of Lords.
[99] Counsel on both sides noted a divergence in the authorities about whether a negligent process by a valuer can result in liability even though the valuation is within an allowable bracket. Lion Nathan Limited v CC Bottlers Limited15 is the leading authority for the proposition that there can be liability in that situation.
These are the ―process‖ cases.
14 South Australia Asset Management Corp v York Montague Limited [1996] 3 All ER 365 at 379
15 Lion Nathan Limited v CC Bottlers Limited [1996] 2 NZLR 385 (PC) at 391
[100] A contrary view is reflected by the outcome cases. In Cranehead Securities
Limited v York Montague Limited16 Balcome LJ wrote:
It would not be enough for Cranehead [the plaintiff] to show that there have been errors at some stage of the valuation, unless it can be shown that the final valuation was wrong. If authority be needed for so self evident proposition, it can be found in Mount Banking Corporation Limited v Brian Cooper & Co [1992] 2 EGLR 142 at pages 144-5, 149.
The other members of the Court, Otton and Aldous LJJ, supported that approach.
[101] In this case it is unnecessary to determine whether the ―process‖ or
―outcome‖ approach should be preferred. As will become apparent from the discussion that follows, I am satisfied that either way the plaintiff is able to establish liability.
[102] My analysis will begin by considering whether the process adopted by Fright Aubrey met the required standard. Following that I will address the defendants’ argument that the yield of 10.19 lots per hectare did in fact allow for reserve contributions and stormwater disposal. Finally, I will consider whether the figure arrived at by Fright Aubrey was within the bracket that was reasonably available.
Did the process adopted by Fright Aubrey meet the required standard?
[103] It is beyond argument that the interests of NVL and CEL did not coincide and that Fright Aubrey knew, or should have known, that the instructing parties had different interests. Indeed, as already mentioned, Mr Sellars accepted during cross- examination that the interests of the parties providing the instructions were diametrically opposed.
[104] Given that scenario Mr Tappenden opined:
30... a competent valuer jointly instructed by NVL and CEL to provide a valuation for those parties who were potential vendor and purchaser respectively would have noted any information provided by one party that had particular relevance in the valuation exercise. The information in respect of stormwater provision and reserve contribution was particularly relevant.
16 Cranehead Securities Limited v York Montague Limited [2001] Lloyds Rep 348 (CA) at 350
31The Technical Handbook produced by the New Zealand Institute of Valuers providing valuation standards, background papers, practice standards and guidance notes, refers specifically to the New Zealand Institute of Valuers Practice Standard 1 – The Valuation of Residential Property. In this publication under Section 3 The Valuers Report, specifically paragraph 3.7 says:
―Where the valuer relies on information provided, this should be clearly stated in the report, together with the source of the information.‖
32Further, where the information to be provided by one of the parties, with conflicting interests, is of importance and is not to be checked, then clear agreement that it is not to be checked ought to be reached when the engagement is entered into. It is not enough to unilaterally change or define the basis on which valuation is being done, after the valuation has been carried out and at the time of writing the report.
33Mr Sellars took none of these steps in this case, where there was a divergence of interest between CEL, as potential purchaser and Hughes/Northwood as potential vendor. He ought to have.
34If a valuer is simply asked to provide a valuation on a subdivisional basis of a staged development block the valuer should make the necessary enquiries to the Local Authority in terms of services and in particular reserve contribution. Even where the Council is not in a position to provide exact details, in this instance it would have alerted the valuer of the validity or otherwise of Mr Hughes’ instructions/assumptions.
Although Mr Mahoney took issue with Mr Tappenden’s evidence in a number of
respects, he did not directly challenge this part of Mr Tappenden’s evidence.
[105] Supporting the conclusions reached by Mr Tappenden are some very significant concessions made by Mr Sellars during cross-examination:
Q. Are you saying that for the purposes of accepting instructions it was acceptable for you to take Mr Hughes’ statements and rely on them in your valuation without attributing them or stating them to be assumptions and without checking them. Are you saying that was acceptable?
A. Um, on review not I’m not.
Q. Because that would mean that statements could be unverified. Could
be couldn’t they?
A. Could be.
Q. They could be wrong? A. Yes.
Q. They might not, in that case, have been checked by the valuer, yeah? A. They might not have been.
Q. And in that case they might not be attributed to anybody, just appearing in the valuation?
A. Yeah.
Q. And they might not be qualified in any way? A. Correct.
Q. And in the list of attributes that I’ve just gone through is one which your valuation meets in every respect doesn’t it?
A. Attributes?
Q. Unverified in relation to those assumptions, unverified wrong, not
attributed, not qualified. You’d have to accept that wouldn’t you?
A. Yes.
Q. And also you’d expect them to be relied upon would you not?
A. Yes.
Q. Is that a standard for a professional valuation for which a fee is paid, is that an acceptable standard?
OBJECTION: MR GALLAWAY – MATTER FOR SUBMISSIONS (12.09.03)
CROSS-EXAMINATION CONTINUES: MR SMITH
Q. From the point of view of professional valuation standards that’s not
acceptable is it?
A. Doesn’t comply, that’s correct. Q. Well it’s not acceptable is it? A. No.
While it would not have been easy for Mr Sellars to make these concessions, the reality is that he had very little option. Clearly there were major problems with the Fright Aubrey valuation process on this occasion.
[106] I therefore accept Mr Tappenden’s analysis. In the context of this valuation reserve contributions and stormwater disposal were important considerations that were almost certainly going to have an impact on the ultimate valuation. Plainly the
accuracy of the information concerning those matters should have been checked. It is virtually certain that if there had been a proper check the assumptions would not have featured on in the valuation. At the very least the source of the information and the fact that it had not been checked should have been revealed in the valuation.
[107] In reaching those conclusions I have rejected two arguments that were advanced on behalf of Fright Aubrey.
[108] In his first brief Mr Sellars attempted to justify the assumptions concerning reserves and stormwater on the basis that ―[I] had to adopt assumptions in reaching my valuation‖ and:
Had I had checked with the Council, I expect that I would have been told that there was an arrangement in place, but it was subject to design details - just as the Council had informed Mr Hughes by way of its letter in January
2003.
The underlying proposition seems to be that the two assumptions in the valuation were justified. Several factors count against that proposition.
[109] First, both assumptions are expressed in absolute terms and they are devoid of qualification. With reference to reserves it is unequivocally stated that reserve contributions ―in respect of this land has already been provided for in the initial development stages of Northwood‖.17 Thus, a potential purchaser relying on the report would understand that no provision needed to be made for reserve contributions, either by way of land or money. Similarly, the statement concerning
stormwater disposal unequivocally states that stormwater disposal is reticulated to an existing swale system adjacent to Main North Road which is sufficient to service Stage 6. Both assumptions were incorrect and misleading.
[110] Secondly, and this follows on from the first point, there is no indication in the report that a more dense section yield or change in character might have implications in terms of reserve contributions or stormwater disposal. Significantly the report did not repeat the qualification ―subject to specific design details and Council approval‖
that appears in the information sheet with reference to reserve contributions and
17 Emphasis added.
stormwater disposal. If such a qualification was intended this should have been expressly stated because there was nothing in the valuation to alert the reader to that possibility (if in fact the possibility existed).
[111] I should record at this stage that I do not accept Mr Hughes’ contention that the statement in the valuation concerning stormwater was in fact accurate and that it did not refer to retention because the intention at the time the valuation was completed was that stormwater would be retained in the lakes proposed for Stage 5. The valuation expressly states that stormwater disposal is reticulated to a swale system adjacent to Main North Road and that such existing swale system is sufficient to service the undeveloped land including Stage 6. That was wrong. Moreover, there is no reference to lakes.
[112] Thirdly, in any event Mr Sellars’ belief that a check with the Council would have revealed that there was an arrangement in place but it was subject to design details is not supported by the evidence. To the contrary, the letter from the Council relied on by Mr Sellars states:
Stage 6 ... remains to be considered in detail as part of the information resource consent process. I would like to confirm however that the Units expectations remain as agreed in [the] 1999 Master Plan with a large local reserve proposed to provide for residents of that area ... (Emphasis added.)
Mr Sellars accepted that if enquiry of the Council had revealed that there was to be a large local reserve for the residents of Stage 6 he would not have made the statements about reserves that appear in the valuation report. Moreoever, Mr Vabulis, the Council’s Subdivision Team Leader, confirmed that each stage of a development is effectively treated on a stand-alone basis and that even if the CEL layout had shown fewer lots the Council’s comments about reserves would still have been the same.
[113] Fourthly, there was nothing in the retainer to exonerate Fright Aubrey from an obligation to check the accuracy of the information provided by Mr Hughes. Given that the assumptions were important to the valuation, indeed they formed an integral part of it, there is no basis on which Fright Aubrey could legitimately expect to be excused from checking the accuracy of the information. In this respect I accept
that there are strong parallels with Mirage Enteraintment Corporation Limited. In that case Smellie J held18 that in the absence of a special term exonerating the defendant firm of chartered accountants from such an obligation, they were obliged to check the accuracy of revenue and expenditure projections when undertaking a valuation of certain company assets and film projects. Furthermore, as already noted,19 if the information had been checked with the Council it is virtually certain that the inaccuracy of the assumptions would have been exposed and they would not have been used in the valuation.
[114] Finally, given clause 4, anyone reading the statements relating to reserve contributions and stormwater disposal would have concluded that those statements had been verified. In fact there had been no such verification and the two assumptions were wrong.
[115] The second argument concerns whether Mr Carlin knew, or should have known, that any change in the intensity or character of the Stage 6 subdivision would affect the reserve contribution situation. Both Mr Sellars and Mr Hughes claimed that Mr Carlin knew this. Mr Sellars’ evidence is based solely on the proposition that ―Mr Carlin had been discussing it with Mr Hughes and was privy to the same information that I was‖. Given that Mr Sellars’ contention stands or falls on Mr Hughes’ evidence, I will confine my consideration to Mr Hughes’ evidence.
[116] Mr Hughes claims that he told Mr Carlin he:
... could not warrant that no reserve contributions would be payable because reserve fund contributions are determined in accordance with the Council’s policy which can change from time to time.
He also claims that Mr Carlin was an ―experienced developer‖ and that he was certain that Mr Carlin would have known that any change or deviation would have some impact on reserve contributions.
[117] Those allegations are denied by Mr Carlin who says that during negotiations he was told by Mr Hughes that no reserve contributions would be payable. The
18 At page 33
19 At [105]
plaintiff also maintains that even if it is found that Mr Carlin was informed about these things they did not affect its right to rely on the valuation which came later in time.
[118] Obviously there is a direct conflict between the evidence of Mr Hughes and Mr Carlin. I turn to the documentary evidence to see whether it sheds any light on the matter.
[119] Mr Sellars’ contemporary note20 records that Mr Hughes told him, with reference to reserve contributions, ―none to pay‖. Mr Hughes does not dispute this telephone conversation with Mr Sellars took place and I have already accepted that the note summarises what Mr Hughes had told Mr Sellars. Importantly, there is no qualification to the statement that no reserve contributions are payable and I think it is improbable that Mr Hughes’ would have made an unqualified statement to Mr Sellars but a qualified statement to Mr Carlin. This supports Mr Carlin’s version of events.
[120] The documentary evidence also records that the following clause was included in the back-up agreement between NVL and Mr Robertson:
h)The Vendor warrants that there will be no reserve contribution for subdivision in accordance with the design Concept provided however a reserve contribution may be required if the design concept adjusts the area of parks allowed for in the present design plan approved by the Council a copy of which has been shown to the Purchaser.
Significantly, the only qualification in this warranty relates to any adjustment to the area of parks, not the intensity or character of the subdivision. Again this supports Mr Carlin’s version.
[121] The remaining pieces of documentary evidence comprise a letter from Mr Carlin to Mr Hughes on 25 November 2002 and Mr Hughes’ reply the same day. In each letter the author effectively sets out allegations that were later repeated in evidence. These letters balance each other out and I do not derive any assistance
from either of them.
20 See [87] above
[122] Having weighed these matters I prefer the evidence of Mr Carlin which appears to be more consistent with the documentary record. I do not accept that Mr Hughes made it clear to Mr Carlin that the intensity or character of the subdivision might affect the reserve contribution situation. Nor do I accept that Mr Carlin should have been aware that this might be the case. While Mr Carlin had had some previous experience with reserve contributions in Queenstown, he could not be categorised as an experienced developer when he was embarking upon the Northwood venture. Leaving aside issues of contributory negligence, he was entitled to take the statements in the valuation report at face value.
[123] My conclusions relating to the valuation process adopted by Fright Aubrey can now be summarised:
(a) Given, first, the differing interests of NVL and CEL and, secondly, the potential influence of the two assumptions on the value of the land, both assumptions should have been verified by Fright Aubrey.
(b)If that step had been taken it is virtually certain that the statements would not have appeared in the valuation and the market value stated in the valuation would have been lower.
(c) At the very least the valuation report should have stated the source of the information and that it had not been verified.
(d)The unqualified nature of the statements does not support Fright Aubrey’s argument that it was entitled to adopt the assumptions and that CEL should have realised that the statements concerning reserves might be affected by a change in the density or character of the subdivision.
These were significant errors. They support the plaintiff’s contention that the valuation process adopted by Fright Aubrey fell below the required standard and that the defendant breached its duty of care.
[124] Before reaching any final conclusions, however, it is necessary to determine whether the valuation did in fact allow for reserve contributions and stormwater disposal by virtue of the 10.19 yield.
Did the valuation in fact allow for reserve contributions and stormwater disposal?
[125] I begin by summarising the competing arguments on this issue.
[126] According to Fright Aubrey: the only reliable evidence about whether the yield of 10.19 lots per hectare included reserve contributions and allowed for stormwater disposal comes from Mr Sellars; the yield adopted took those matters into account in the development cost of $19,800 per hectare; the gross yield figure closely equates with other relevant developments; it is supported by Mr Stening’s evidence and also by the actual yield of 10.86 for Stages 1, 2A, 2B and 4; the plaintiff is unable to challenge Mr Sellars’ assertion that the yield of 10.19 took reserves and stormwater into account; Mr Tappenden made this concession under cross-examination; there is no expert evidence from the plaintiff to show that this is not a gross figure; the figure of $11,000,000 mentioned in Mr Sellars’ affidavit represented a value that was never placed on the land; it was used to demonstrate that if no reserves were provided for this figure would have resulted; the value of
$9,250,000 was within the range that a reasonably competent valuer would place on the land; and the only evidence to the contrary comes from Mr Tappenden who, contrary to principle, has effectively retrospectively valued the land when making an allowance for reserves and stormwater.
[127] Those contentions are rejected by CEL. It argues: they have no factual foundation and Fright Aubrey has not demonstrated how the 10.19 figure reflects an allowance for reserves or stormwater; Fright Aubrey has not pointed to any documents, calculations, or working papers showing how the allowance was included in the yield, or even that it was; the yield of 10.19, which was a theoretical yield based on outline plans, only allowed for three small pocket reserves and did not make any allowance for swales or retention ponds; the text of the valuation is not consistent with the proposition now advanced by Mr Sellars; on the face of the ASB valuation the developed land reflected a yield of 8.94 lots per hectare which can be
compared with the higher yield of 10.19 and that comparison indicates that the high yield did not allow for reserves and stormwater.
[128] Now I address those arguments.
[129] Coming as it did over seven years after the valuation was completed, the revelation that the valuation actually allowed for reserve contributions and stormwater disposal is little short of extraordinary. The assumptions concerning these items had been called into question soon after the valuation was provided. Despite that a further Fright Aubrey valuation report in December 2003 clearly stated that there had been no allowance for reserves and stormwater in the original valuation. Even when proceedings were issued and it was apparent that reserves and stormwater were critical matters, Mr Sellars’ brief of evidence did not suggest that there had been any allowance in the valuation for those two items.
[130] Given that background I am extremely sceptical about Mr Sellars’ belated proposition that the valuation did in fact include an allowance for reserves and stormwater. If that had been the case it would have surely been apparent to the author of the report once the issue of reserves and stormwater had been raised. At the very least it should have been obvious by the time a brief of evidence was prepared. Equally importantly, it might be expected that the text of the valuation would have supported the proposition.
[131] Unfortunately for Fright Aubrey those initial impressions are reinforced by deeper analysis.
[132] Reference to the yield of 10.19 lots per hectare first appears in the ASB
valuation in which it is explained:
Attached at Appendix G is a subdivision concept design plan prepared by Davis Ogilvie and Partners Limited. The residual block land component prior to vesting of land for roading for the undeveloped component is approximately 47.50 hectares.
Preliminary subdivision concept plans prepared by Davis Ogilvie suggest
484 sections can be created from the undeveloped land. The following is a summary of the section numbers that potentially can be created under each
zoning.
Undeveloped Land – Potential Subdivision
Zoning Lot No. Living 1
Living 2
Living 3 – Development
382
64
38
Total 484
The creation of 484 sections is equivalent to a section yield of 10.19 per hectare which is achievable with no further land required for reserve contribution purposes.
The subdivisional concept plan attached to the valuation as Appendix G shows the pattern of roading, a local reserve in Stage 5, and another local reserve in Stage 6. It does not, however, show any further detail in the way of a subdivision into lots.
[133] Nevertheless, it is clear from the valuation report quoted above that Mr Sellars was aware from other Davis Ogilvie concept plans that 484 lots could be created from the undeveloped land. It was this that led to the section yield of 10.19 lots per hectare. When Mr Sellars was being cross-examined Mr Smith put to him a Davis Ogilvie plan that was ultimately produced, despite the strong objection of Mr Gallaway, as Exhibit 4.
[134] According to Mr Gallaway Exhibit 4 has no probative value and should be ignored. I disagree. Exhibit 4 precisely fits the street and reserve layout shown on the plan attached to the valuation as Appendix G. It also contains 899 lots which exactly corresponds with the number of lots mentioned in the valuation report (415 developed and 484 undeveloped). Moreover, Mr Sellars accepted that this plan, if not the actual plan that he had referred to when preparing the ASB valuation, was similar to it.
[135] Although no one from Davis Ogilvie was called to produce Exhibit 4, it is relevant and admissible in terms of s 7 of the Evidence Act 2006. Beyond that it is also highly probative. Coupled with Appendix G it indicates that in arriving at the
10.19 yield for Stage 6 there has only been allowance for a small local reserve of
1121 m2, being the only reserve shown within Stage 6. Exhibit 4 also shows that no land has been set aside in Stage 6 for stormwater disposal. To my mind Exhibit 4
destroys the defendants’ contention that the yield of 10.19 allowed for reserve contributions and stormwater disposal.
CEL’s response
[201] CEL contends that the contributory negligence defence should not succeed and that if it does the reduction should be modest. It emphasises that the professional advice concerning reserve contributions and stormwater came from a reputable and experienced valuer who the plaintiff had used before and who was familiar with the land concerned; the valuation was, on its face, a ―thorough going professional piece of work‖ and was not subject to any qualifications; NVL was not prepared to accept a due diligence clause; and in any event there was no evidence about whether a reasonably prudent property developer would have insisted on such a clause.
[202] It was also argued by CEL that it was not required to assume that Fright Aubrey would be negligent; it had no reason to suspect that the valuation was wanting or inaccurate in any respect; there is no evidence as to what a prudent property developer would have done in this case; given that this is a situation
involving professional advice the threshold is higher because otherwise there would
37 Bailey v Raymond Sullivan McGlashan (HC Timaru, CP 10/95 26 February 1997)
be no point in taking professional advice; in those situations a lower standard of care is expected of the plaintiff, it is relatively rare for contributory negligence to be found in cases involving professional advice and where there is an award it tends to be at the lower end of the scale.
Analysis
[203] It goes without saying that the onus is on Fright Aubrey to prove contributory negligence. In Hooker v Stewart38 the Court of Appeal indicated that the test for contributory negligence is ―reasonableness‖ which should be judged in light of the circumstances at the relevant time. The Court of Appeal also observed that there is an obligation on a party against whom contributory negligence is alleged to take reasonable care to safeguard that party’s own interests.
[204] At the outset I can narrow consideration to the first and third matters that are relied on by Fright Aubrey – failure to undertake due diligence or to make any further enquiries in relation to reserve contributions or stormwater disposal. Given my earlier findings, the other two allegations cannot succeed and do not warrant any further consideration.
[205] It is clear from Mr Carlin’s evidence that he was relying on Fright Aubrey to conduct primary due diligence in relation to the purchase of Stage 6 for CEL. Mr Carlin said that he relied on the valuation ―as my primary due diligence in respect of each property‖ (Stages 5 and 6). Under cross-examination he acknowledged that he had not made any enquiries of the Council, surveyors, planners or engineers before entering into the agreement for sale and purchase because the valuation ―provided a wealth of knowledge‖ and was ―the primary source of due diligence‖.
[206] The inference can be drawn that Mr Carlin himself recognised the importance of completing due diligence before CEL committed itself to the purchase. Indeed, given the size and complexity of the proposed residential development that was
contemplated, the precaution of due diligence would seem to be a matter of common
38 Hooker v Stewart [1989] 3 NZLR 543 (CA) at 547
sense. This probably explains why CEL’s lawyer, Mr Saunders, was so concerned about the absence of due diligence when the agreement for sale and purchase was signed.
[207] Having said that, I accept that the Court must be careful not to approach the matter of due diligence on a global basis, but rather with specific reference to reserve contributions and stormwater disposal. Otherwise the necessary causative link to the loss could not be established. Having reflected on the matter, I am satisfied that CEL should have taken reasonable care to safeguard its own interests by undertaking due diligence with specific reference to both reserve contributions and stormwater disposal. Both these items are relatively complex and were obviously capable of having an impact on the purchase price. Moreover, having seen the information sheet Mr Carlin was, or should have been, aware that ―specific design details and Council approval‖ might need to be considered.
[208] The evidence indicates that there was a relatively lengthy period between Mr Carlin’s introduction to the Northwood subdivision and the entry into the agreement for sale and purchase. According to Mr Carlin he met with Mr Hughes
―in or about August 2002‖ after receiving the information sheet. Instructions for the valuation were given to Fright Aubrey in September 2002 and the valuation was provided on 17 October 2002. Following that, there was a further delay of around two weeks before the agreement for sale and purchase was signed on 5 November
2002. There was, therefore, ample time for due diligence to be undertaken.
[209] Given that situation, I am satisfied that a reasonable person in the plaintiff’s position would have safeguarded its own interests by undertaking due diligence in relation to reserve contributions or stormwater disposal before entering into the agreement for sale and purchase. At the very least a prudent purchaser would have clarified the position in relation to those two matters. It is, of course, CEL’s case that it conducted its due diligence through the Fright Aubrey valuation, that it was entitled to do so, and any concerns that might have arisen from the information sheet were allayed by the unqualified statements in the valuation. However, it seems to me that there are at least two problems with those propositions.
[210] First, I accept Mr Sellars’ evidence that it would be extremely unusual for a potential purchaser in this type of situation to rely on a valuation for primary due diligence in relation to such matters as reserve contributions and stormwater disposal. Again, this would seem to be a matter of commonsense. While a valuer’s expertise revolves around fixing values, it can be easily inferred from the evidence the necessary expertise relating to reserve contributions and stormwater disposal lies elsewhere. No doubt that is why CEL engaged Davis Ogilvie, the planners and engineers who had earlier worked on the Northwood subdivision, soon after entering
into the agreement for sale and purchase.39 Events might have been different if that
firm had been approached before the agreement for sale and purchase was signed.
[211] Secondly, if CEL was intending to rely on Fright Aubrey to conduct its primary due diligence, Mr Carlin should at the very least have told Fright Aubrey that it was being relied on for that purpose. I have already found that this was not conveyed.40 I also reject any suggestion that earlier dealings between Mr Carlin and Fright Aubrey should have alerted Fright Aubrey to the fact that it was being relied on for primary due diligence. The failure to advise Fright Aubrey that it was being
relied on for due diligence reinforces my view that CEL failed to take reasonable care to safeguard its own interests and thereby contributed to its loss.
[212] On my analysis the solicitor cases relied on by the plaintiff are of little assistance. The logic behind the Court’s reluctance to find contributory negligence in cases involving claims against solicitors is conveniently explained by Rimer J in Shelley v Phillips & Company (a firm) & Anor. 41
330. It is only in rare cases that a solicitor is able to advance a plea of contributory negligence with any real prospect of success, and for obvious reasons. This is because his breach of duty will usually be in relation to a matter within his special expertise as a solicitor, being a duty which is not usually one relating to a purely commercial matter of judgment falling squarely within the client’s own competence. It will usually relate to a matter upon whi ch t he cl i ent i s depe ndi ng upon the sol i ci tor ’s special expertise. (Emphasis added)
Regardless of the experience and reputation that Fright Aubrey and Mr Sellars had in
39 Mr Carlin said that he first spoke to Dan Casiel of that firm on 27 November 2002.
40 At [83]
41 Shelley v Phillips & Company (a firm) & Anor [1995] EGCS 142 (QBE) at para 330
the valuation field, the reality is that due diligence in relation to reserve contributions and stormwater disposal would not normally fall within that field.
[213] For those reasons I am satisfied that the plaintiff contributed to its own loss to a very significant degree. In my view that contribution can be properly reflected by reducing the award of damages by 50% to $797,000. Given that the valuation relied on by the plaintiff was wrong to such a significant extent I do not think that any greater reduction would be appropriate.
Interest
[214] Both pre-judgment interest and interest as damages are sought by the plaintiff. Although Fright Aubrey complains that these have not been specifically pleaded as individual claims, I am satisfied that the amended statement of claim gave sufficient notice that interest was being claimed and that no prejudice arises from the fact that the pleading was not more specific.
Pre-judgment interest
[215] CEL seeks interest from the date of the purchase until the date of judgment pursuant to s 87(3) of the Judicature Act 1908. It contends that Fright Aubrey must have known that if Stage 6 was over-valued the purchase price would be inflated and that the plaintiff would thereby suffer loss from the time it entered into the agreement for sale and purchase.
[216] Fright Aubrey opposes an order on the primary basis that the justice of the case does not require it. Two specific reasons are given: first, the defendant has not enjoyed the use of the plaintiff’s money (it was enjoyed by NVL) and the plaintiff has failed to demonstrate that it was unable to enjoy ―those advantages which possession of the money to which [it] is entitled would afford [it]‖ in terms of Day v Mead.42 Secondly, the plaintiff has not been out of pocket because it completed the
development at a profit.
42 Day v Mead [1987] 2 NZLR 443 (CA) at 463
[217] Section 87 of the Judicature Act relevantly provides:
87 Power of Courts to award interest on debts and damages
(1) In any proceedings the High Court ... for the recovery of any debt or damages, the Court may, if it thinks fit, order that there shall be included in the sum for which judgment is given interest at such rate, not exceeding the prescribed rate, as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment:
Provided ...
(3) In this section the term the prescribed rate means the rate of
7½ percent per annum, or such other rate as may from time to time be prescribed for the purposes of this section by the Governor-General by Order in Council.
From 1 July 2008 the maximum rate of interest was increased from 7.5% to 8.4%.
[218] In Day v Mead Somers J noted that the discretion conferred by s 87(1) was to enable proper compensation to be given to the plaintiff and that:
So long as he is out of the debt or damages the plaintiff is unable to obtain those advantages which possession of the money to which he is entitled would afford him. The corollary is that the defendant who has had the money, but ex hypothesi ought not to have had it, enjoys its use; ...43
Somers J also noted that generally justice may require interest to run from the date the cause of action arose down to judgment because it is from that date that the plaintiff’s entitlement to the debt or damages arises.
[219] I am satisfied that interest should be awarded in this case from the time that the plaintiff was out of pocket by virtue of Fright Aubrey’s breaches. The fact that NVL rather than Fright Aubrey was the benefactor does not alter my view. Moreover, the fact that CEL completed its development at a profit is irrelevant. Had it not been for Fright Aubrey’s breach of duty its profit would probably have been greater.
[220] On the other hand, I do not accept that interest should start to run from the date of purchase. Clause 18 of the agreement for sale and purchase made provision
43 At 463
for the purchase price to be paid by instalments. It was not until the final instalment of $3,425,000 was to be paid on 18 December 2004 that the overpayment would have impacted on the plaintiff.44 Interest will therefore commence to run on
18 December 2004.
[221] No information has been provided which would enable a proper decision to be made as to the rate of interest. Counsel are to supply brief submissions (no more than three pages) in this regard. Submissions on behalf of the plaintiff should be filed and served by 4 July 2011 and the defendants’ reply by 18 July 2011.
Interest as damages
[222] Under this head the plaintiff claims $76,916 being interest at 11% on potential income from lost sales between settlement of the purchase and 25 August
2005. I understand that date represents the date on which the last of the sections was
sold. The calculation is contained in Appendix A to Mr Burgess’ brief.
[223] I am not prepared to make any award because it would be contrary to principle to do so. As discussed earlier, the primary measure of damages in this case is the difference between the erroneous valuation and the value that should have been reached. Damages have been awarded on that basis (subject to a reduction for contributory negligence) and the plaintiff will receive interest on that award from the date that it was out of pocket. Given that potential loss of income does not feature in the award it would be wrong to award interest on that item.
Conclusions
[224] The plaintiff is entitled to damages in the sum of $797,000, which represents its loss of $1,594,000 reduced by 50% for contributory negligence. In addition it is
entitled to interest at a rate to be fixed to the date of judgment.
44 There is no indication in the evidence the final instalment was not paid on that date.
PART 4
CLAIM AGAINST SECOND DEFENDANT Background to this claim
[225] After learning that the first defendant had gone into liquidation the plaintiff issued proceedings against the second defendant on 6 May 2009. As it turns out the liquidation seems to have reflected a restructuring rather than an insolvency. Nevertheless, the liability of the second defendant needs to be determined. This involves two primary issues: limitation, and whether personal liability has been established on the evidence.
Limitation
[226] The plaintiff accepts that the limitation defence must be upheld in respect of the claim in contract because the breach occurred in October 2002 when the valuation was provided. But it contends that different considerations apply in relation to the claim in tort and that once those considerations are applied the claim is within time.
[227] The crux of the plaintiff’s argument is captured in the following paragraph of
its submissions:
242.... adopting the Davys Burton45 rubric, time would not have started to run until the second half of 2003. The reason for this is that although the plaintiff entered into an agreement to purchase the land on the strength of the 17th October 2002 valuation on 5th November
2002 he did not, thereby suffer any loss. There was nothing defective in his agreement to buy Stage 6. There was nothing which he could have done to have improved his position which would have cost money and which he would have been entitled to claim as compensatory damages from Fright Aubrey. There was no loss he could have sued for.
Counsel then go on to submit that this case is in ―contradistinction‖ to Davys Burton
in which it was held that Mr Thom had suffered loss when he entered into an invalid
45 Davys Burton v Thom [2009] 1 NZLR 437 (SC)
pre-nuptial agreement.
[228] Under s 4(1) of the Limitation Act 1950 actions in contract or tort cannot be brought after the expiration of six years from the date on which the cause of action accrued. The relevant test was summarised by Wilson J in Davys Burton:
[46] ... a cause of action in tort for negligence does not exist and hence time does not start running for the purposes of the Limitation Act unless and until the plaintiff has suffered some actual and quantifiable loss, harm or damage as a result of the breach of duty involved. Damage will be contingent, and hence not actual for limitation purposes, if the plaintiff will suffer no damage at all unless and until a contingency is fulfilled. That will be so if the damage results from the plaintiff being exposed to a liability which is contingent on the occurrence of a future uncertain event. A good example is where the liability is that of a guarantor and is contingent on a default by the principal debtor, in contrast to the undertaking (as in Gilbert) of a direct and present liability which falls due in the future. The distinction may well be thought to be a fine one, but in any regime of limitation apparently similar cases may fall on opposite sides of the line which divides those which are barred from those which are not. A reduction in the value of an asset, whether tangible or intangible constitutes actual damage and exists as soon as the asset becomes less valuable.
Once those principles are applied to the facts of this case it seems to me that there is only one plausible answer: the claim against Mr Sellars is time-barred.
[229] On the plaintiff’s own case the erroneous valuation of October 2002 caused the plaintiff to pay an inflated price for Stage 6 when it entered into the agreement for sale and purchase on 5 November 2002. The primary measure of that loss was the difference between the negligent valuation and a proper valuation. This loss was not contingent on any future event, and it was immediately quantifiable (by reference to information available as at October 2002). Thus, on the Davys Burton rubric the cause of action arose when the land was purchased on 5 November 2002 and the plaintiff’s claim against Mr Sellars is well out of time.
Personal liability of Mr Sellars
[230] Although it is not strictly necessary to consider this issue, I will take the precaution of briefly considering what my conclusion would have been if this issue had been pivotal.
[231] Usually directors are not personally liable for acts in respect of which their company is liable and, as Cooke P observed in Trevor Ivory Ltd v Anderson 46 ―... it behoves the Courts to avoid imposing on the owner of a one-man company a personal duty of care which would erode the limited liability and separate identity principles‖ relating to companies. Nevertheless, it is clear that there can be an assumption of personal responsibility, actual or imputed: see Cooke P at page 523,
Hardie Boys at page 527 and McGechan J at page 530. That approach was confirmed in Body Corporate 202254 & Anor v Taylor47 with William Young P and Arnold J stating that considerable caution is required before concluding that an employee has assumed personal responsibility.48
[232] The plaintiff relies on two primary factors to justify the conclusion that
Mr Sellars assumed personal responsibility:
(a) Under s 19 of the Valuers Act 1948 there is no provision for corporate registration because the requirements of that section can only be met by a natural person. Thus it was necessary for Mr Sellars, as a registered valuer, to sign the relevant valuation;
(b)The evidence indicates that NVL and CEL went to Mr Sellars as a valuer and in doing so they did not particularly consider their relationship was with Fright Aubrey.
According to the plaintiff this case is akin to Centrepac Partnership v Foreign Currency Consultants Ltd,49 Douglas v Morton Homes Ltd,50 and Fairline Shipping Corporation v Adamson.51
[233] Whether or not there has been a personal assumption of responsibility will, of course, depend on the facts of the individual case. I am not persuaded that in this
case there was an assumption of personal responsibility, actual or imputed.
46 Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 at 523
47 Body Corporate 202254 & Anor v Taylor [2009] 2 NZLR 17 (CA)
48 At [33]
49 Centrepac Partnership v Foreign Currency Consultants Ltd (1989) NZCLC 64,940 (HC)
50 Douglas v Morton Homes Limited [1984] 2 NZLR 548 (HC)51 Fairline Shipping Corporation v Adamson [1975] QB 180
Notwithstanding that the telephone call was made to Mr Sellars personally, both Mr Carlin and Mr Hughes knew from their previous dealings that he was an employee of Fright Aubrey. There were no actions or representations on the part of Mr Sellars that indicated he was accepting personal responsibility. All the valuations and correspondence were on Fright Aubrey letterhead. In short there is nothing special in this case to justify setting aside caution and holding Mr Sellars personally liable.
Conclusion
[234] The plaintiff has failed to make out a case for personal liability on the part of the second defendant.
PART 5
RESULT
[235] There will be judgment for the plaintiff against the first defendant in the sum of $797,000. In addition the plaintiff is entitled to interest on that sum from
18 December 2004 until the date of judgment at a rate to be fixed. Counsel are to submit memoranda in accordance with para [221]. Given that the plaintiff’s claim against the second defendant has failed, the second defendant is entitled to judgment against the plaintiff.
[236] If the parties cannot agree as to costs it will be necessary for memoranda to be submitted so that this issue can be determined by the Court. Any memoranda claiming costs should be filed and served by 1 August 2011 and any memoranda in response should be filed by 15 August 2011.
Solicitors:
Anthony Harper Lawyers, Christchurch
Duncan Cotterill, Christchurch
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