COLCROFT HOLDINGS LIMITED AND JASON JOSEPH MEADOWS

[2024] NZHC 2592

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-002162

[2024] NZHC 2592

BETWEEN

COLCROFT HOLDINGS LIMITED

Plaintiff

AND

JASON JOSEPH MEADOWS

Defendant

Hearing:	22 July 2024
Appearances:	H G Holmes for Plaintiff Defendant in person
Judgment:	10 September 2024
Reissued:	15 October 2024

JUDGMENT OF WHATA J

This judgment was delivered by me on 10 September 2024 at 11.00am, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date: ………………………….

Solicitors/Counsel:

Keegan Alexander, Auckland Copy to: J Meadows

COLCROFT HOLDINGS LIMITED v MEADOWS [2024] NZHC 2592 [10 September 2024]

[1]    Mr Jason Meadows bought a house on Waiheke Island from Colcroft Holdings Ltd (CHL). He did not settle. He had discovered water damage about the time settlement was due. He made a request to undertake an invasive inspection to ascertain the extent of that damage. CHL refused and, following further back and forth correspondence, cancelled the sale. Mr Meadows lodged a caveat. The caveat was upheld on the basis that it was arguable that an invasive inspection was necessary to enable Mr Meadows to either cancel or trigger the cl 10 process for compensation under the sale and purchase agreement.1

[2]    This matter is now before me to determine, by way of preliminary question, whether an invasive inspection was in fact necessary. More specifically, I must answer the following questions:2

(a)Was invasive inspection necessary to enable Mr Meadows to meet the information requirements of cl 10.3? And, if so:

(i)Was CHL obliged to allow invasive testing of the property?

(ii)Was CHL obliged, and did they fail, to provide access to the property for the purpose of assessing whether the property was tenantable?

(iii)Was CHL obliged, and did they fail, to provide information relating to any insurance claim and cover relating to the shower leak?

Background

[3]    The background to the matter was addressed in the caveat judgment. I repeat that narrative here:

[4]    The contract, executed on 29 July 2022, was on the 11th edition of the form approved by the Real Estate Institution of New Zealand and Auckland District Law Society. The agreement was conditional on due diligence to be

1      Meadows v Colcroft Holdings Ltd [2023] NZHC 2464, (2023) 24 NZCPR 518 [caveat judgment].

2      For the judgment making an order for preliminary hearing see Colcroft Holdings Ltd v Meadows

[2024] NZHC 173 at [21].

completed by 24 August 2022, which was extended to 7 September 2022. Settlement date was 20 working days after that. Mr Meadows inspected the property in August 2022 and identified some matters that  needed  fixing.  He was given assurances by CHL’s director, Mr Anderson, who was well known to Mr Meadows, that these matters would be fixed. Mr Anderson had already told him on 14 July 2022, that the “house is sound, does not leak and was built and signed off by the council in 1997”. With these assurances in mind, Mr Meadows was happy to proceed with the purchase, subject to an extended settlement period and obtaining a tenancy prior  to  settlement. CHL agreed to these matters. The settlement date was extended to 23 January 2023. Mr Meadows’ tenant moved into the Property in October.

[5]    Two weeks prior to settlement Mr Meadows realised that his bank would not finance the purchase. He set about identifying potential funders and ultimately found an alternative funder, Loraine Reinsfield. She expressed interest in funding the project, especially given an in-principle agreement he had with an existing tenant of the building yard on the property to buy that yard. Nevertheless, he was not in a position to settle on 23 January 2023.

[6]    On 26 January 2023, Mr Meadows became aware of water damage to the house. Mr Meadows visited the site with a licenced building practitioner who advised that to repair structural damage across three floors could cost as much as $1m. Through his then lawyers, Duncan Cotterill, sent photos of the water damage to CHL’s solicitors Martelli McKegg. Martelli McKegg responded on the same day noting the terms of the tenancy required that “no modifications, alterations, or building works to the property prior to settlement” and that there appear to have been unauthorised works breaching this term. Clarification was also sought as to the timing of the works and who did them.

[7]    Duncan Cotterill responded on 27 January 2023 with detailed answers provided by Mr Meadows and sought clarification from CHL as to what was proposed “in respect of an investigation into the leaks and the extent of necessary repairs” and the various unconsented works. Martelli McKegg responded on that same day noting that it was consulting with its insurers and would be seeking instructions as to the unconsented work. They also reminded Mr Meadows of his obligation not to undertake further work on the property.

[8]    On 2 February 2023, Martelli McKegg sent a settlement notice to Duncan Cotterill. It records that the settlement date was 23 January 2023 and identifies a settlement amount of about $2.7m to be paid within 12 working days of the notice. No mention is made of the issues with the house.

[9]    Duncan Cotterill responded on 3 February 2023, requesting an opportunity to undertake an invasive investigation of the house to determine the nature and extent of the damage, non-compliance with the building code, and the cost of any repair. A detailed summary of the damage already identified is attached to the letter. The letter noted that the damage may be so extensive as to give rise to the right to cancel. It further records that given the breach of warranties and extent of building damage, CHL was not in a position to call upon Mr Meadows to settle nor to serve a settlement notice.

[10]    Martelli McKegg replied to this correspondence the same day, repeating their demand that Mr Meadows not undertake any work on the

property, investigative or otherwise. The letter records their understanding that Mr Meadows had not secured finance. It also states:

Moreover, we refer you to clause 10 of the Agreement, which provides. “if the purchaser has not purported to cancel this agreement, a breach by the vendor of any terms of this agreement does not defer the purchaser’s obligation to settle, but that obligation is subject to the provisions of this clause 10.0”. As I mentioned to you in previous correspondence, a breach of warranty does not allow the purchaser not to settle. The Agreement confirms this, but so too does a long line of case law.

…

If your client has a claim for damages or breach of warranty (which we do not consider he does), this can be dealt with in the usual way and in accordance with the Agreement – not by damaging our client’s property as though it is his own.

[11]    On Friday 17 February 2023, Duncan Cotterill provided copies of assessments obtained from a builder and a plumber and noted that those reports record:

·Black mould.

·Extent of damage unknown but likely to be beyond shower and bathroom.

·Leak likely to have been occurring over a long period of time.

·Non-compliant wastewater and septic tank systems.

·Compromised framing.

·Extensive water damage.

·Potential water damage to power board.

·Potential subsidence as a result of long-term leak.

[12]    Duncan Cotterill also claimed that Mr Anderson misrepresented the state of the house and had breached its warranties at cl 7 and in particular,   cl 7.3(5). Given this, it maintained CHL was not in a position to settle or insist on performance by Mr Meadows. They state that:

In the absence of the full picture of the extent of the damage and the extent of any breach of warranty, Mr Meadows is unable to determine whether it should proceed with compensation or exercise its rights of cancellation. By denying our client an invasive investigation, your client has put our client in the position where it is unable to fully particularise and quantify the compensation needed.

[13]    They then state that the settlement notice is invalid and request access to conduct invasive investigations in the presence of Mr Meadows’ experts so

that the extent of the damage and remediation costs can be assessed. The letter concludes that:

Our client has indicated it will make its election within 10 working days of the reports of its experts completing their reports.

[14]    Duncan Cotterill wrote again on 21  February  2023,  noting  that  Mr Meadows needed to satisfy its lender that there is adequate security, and that without an understanding of the costs of remediation, it is not possible to make an accurate assessment of the value of the security offered by the Property. The email concludes:

This communication is not sent as an affirmation of the contract and is sent without prejudice to our client’s rights of cancellation which our client reserves.

[15]    Martelli  McKegg’s  response  of  the  same  date  is   fulsome.   Most relevantly it records their view that Mr Meadows did not have and never had finance and has manufactured the issues now raised. The letter repeats reference to cl 10 of the agreement and the point that a breach of warranty does not de[f]er the purchaser’s obligation to settle, that any claim must be made on or before the last day prior to settlement date together with a genuine pre-estimate of Mr Meadow’s losses, and that the settlement sum must be paid into a stakeholder’s account pending resolution of the claims.

[16]    The letter further notes that it remains possible for Mr Meadows to comply with cl 10 and that he is in an “unusually well-informed position, having had access to the property for some 5 months prior [to] settlement.” The letter further records:

[Mr Meadows] is required to settle and, in circumstances where he clearly does not have the financing sufficient to settle (or to comply with clause 10), time being of the essence, he is in fundamental breach. If he considers compensation is claimable for the breaches he claims (which we repeat, are denied), then he ought to have followed clause 10 of the Agreement). He has elected not to do so, and we infer that this is because he does not have the funding to do so.

[17]    On 22 February 2023, Duncan Cotterill write again, most relevantly recording that one of the backers is very concerned about the uncertainty as to the cost of the remediation of the dwelling and this has created real headwinds for Mr Meadows in obtaining finance. It also notes that it was unable to secure a lease with Brian Building Limited (“BBL”), noting that Martelli McKegg also acted for them. The letter concludes:

While our client does not have the funds to settle this is largely because of these issues. If the contract is not cancelled by your client then my client will continue to work to get the funding needed.

[18]    Coinciding with this, Ms Reinsfield wrote to Mr Meadows stating that she would like to provide funding to the purchasing entity of the Property subject to the following conditions:

1.          A Quantity Surveyors report on the scope of work and the cost of repairs from the leak in the upstairs bathroom of the main dwelling.

2.          A visual inspection completed by my Builder and structural engineer.

3.          An executed agreement to Lease the Builders Yard by Brian Building Limited.

4.          An executed conditional Sale & Purchase Agreement for the Builders Yard to Brian Building Limited.

5.A Personal Guarantee from Jason Meadows.

6.          A right to register a caveat against 64b Ocean Road, Waiheke Island.

7.          A copy of the Deed of Nomination for the Sale and Purchase Agreement dated 29th July 2022 with Colcroft Holdings Limited for 115 Wilma Rd, Waiheke.

[19]Martelli McKegg issued a notice of cancellation the same day.

The caveat proceedings

[4]                 The central question in the caveat proceedings was whether Mr Meadows had a reasonably arguable case that he was not obliged by cl 10 of the sale and purchase agreement to make a compensation claim. Mr Meadows’ central claim is that he was never at the point where he could invoke cl 10 or advance any claims to compensation. Conversely, CHL claimed that he was obliged to trigger the cl 10 process and did not. In this regard I found:

[40]      At its core, Mr Meadows’ claim turns on whether, in the circumstances of this case, it is reasonably arguable CHL was obliged to allow Mr Meadows to undertake invasive testing of the house so that he could make an election to settle in accordance with cl 10 or to cancel. If the answer is yes, then the matter must go to trial for determination.

[41]      There is no express requirement in the contract for a vendor to allow invasive testing. At most cl 3.2 envisages a pre-settlement inspection “for the purposes of examining the property”. That has been interpreted to extend to allowing a valuer to attend the inspection alongside a purchaser. It seems highly unlikely that an intention to allow invasive testing could be grafted onto this right of inspection, given that it ordinarily involves destructive testing. But on the available evidence, this case has some very unusual features, including most relevantly evidence of major weathertightness defects only coming to light at about the time settlement was due. A purchaser confronted with such information, at the eleventh hour, is arguably entitled to require such level of inspection as is reasonably necessary to enable it to provide, as required by cl 10.3, “a genuine pre-estimate” of the loss suffered and to particularise and quantify any claim “to the extent  reasonably  possible”.  Put another way, it is arguable that cl 10.3 should not be construed in such a way as to unreasonably preclude a purchaser in the present situation from

being able to meet these informational requirements and otherwise from proceeding to settlement on a properly informed basis.

[42]Mr Holmes’ contention that Mr Meadows had ample information is

[a] question begging — how do we know without testing the facts? (footnote omitted)

[5]                 The matter then came before me for the purposes of an application for a preliminary question. I was satisfied that given the basis upon which Mr Meadows succeeded in the caveat proceeding, preliminary questions directed to whether an invasive inspection was necessary and mandated by the sale and purchase agreement were appropriate.3

Process for preliminary questions

[6]                 Following my judgment, I made timetabling orders dealing with the production of evidence specifically relating to whether an invasive inspection was necessary. This included timing for the exchange of expert evidence, and an expert report.4 I also directed that cross-examination was to be assumed unless contrary notice is given. The parties were to  agree a process for inspection.5    Inspection then took place.    Mr Meadows had four people go through the property, namely two building practitioners, a structural engineer, and a building surveyor. He was not satisfied with this and requested a further opportunity for his building inspector to verify matters. A conference was called. I refused his request.6 It was clear to me that Mr Meadows had had ample time to inspect the property. However, I extended the time for the filing of his evidence by three weeks.7

The agreement

[7]                 In order to understand the nature of the issues in dispute, it is helpful to state the key relevant clauses of the agreement. Mr Meadows claims that CHL breached the warranties stipulated at cl 7.3, failed to provide access to the property in breach of

3      Colcroft Holdings Ltd v Meadows [2024] NZHC 173 at [21] and [28].

4      Colcroft Holdings Ltd v Meadows HC Auckland CIV-2023-404-2162, 20 February 2024 (Minute No 1).

5      Colcroft Holdings Ltd v Meadows HC Auckland CIV-2023-404-2162, 23 February 2024 (Minute No 2) at [2].

6      Colcroft Holdings Ltd v Meadows HC Auckland CIV-2023-404-2162,1 May 2024 (Minute No 4).

7      The deadline changed from 17 April 2024 to 10 May 2024.

cl 3.2, failed to provide sufficient information to enable him to make an election pursuant to cl 5.2 and refused to allow him to undertake an invasive inspection of the property for the purposes of any compensation claim pursuant to cl 10.

[8]Dealing first with cl 7.3(5), it relevantly states:

(5)Where the vendor has done or caused or permitted to be done on the property any works:

(a)any permit, resource consent, or building consent required by law was obtained; and

(b)to the vendor's knowledge, the works were completed in compliance with those permits or consents; and

(c)where appropriate, a code compliance certificate was issued for those works.

[9]Clause 3.2 provides for pre-settlement access to the property as follows:

3.2If the property is sold with vacant possession, then subject to the rights of any tenants of the property, the vendor shall permit the purchaser or any person authorised by the purchaser in writing, upon reasonable notice:

(1)    to enter the property on one occasion prior to the settlement date for the purposes of examining the property, chattels and fixtures which are included in the sale; and

(2)    to re-enter the property no later than the day prior to the settlement date to confirm compliance by the vendor with any agreement made by the vendor to carry out any work on the property, the chattels and the fixtures.

[10]              Clause 5.2 deals with destruction of, or damage to, property prior to taking possession. Most relevantly, it states if the destruction or damage renders the property “untenantable and it is untenantable on the settlement date”, then the purchaser may “complete the purchase at the purchase price, less a sum equal to any insurance moneys received or receivable” by the vendor, or cancel the agreement. If the property is not untenantable on the settlement date, the purchaser must complete the purchase at the purchase price less “a sum equal to the amount of the diminution in value of the property which, to the extent that the destruction or damage to the property can be

made good, shall be deemed to be equivalent to the reasonable cost of reinstatement or repair”.8 If this amount is disputed, the cl 10 procedure may be triggered.

Clause 10

[11]              Clause 10 provides for a pre-settlement process for managing claims to compensation for breach of the agreement, misrepresentation, breach of ss 9 and 14 of the Fair Trading Act 1986, equitable set-off and in respect of amounts payable under cls 3.12, 3.13 and 5.2. In the caveat judgment, I provided an overview of the operation of this  clause.  I  revisit  that  assessment  here  insofar  as  necessary  to  address  Mr Meadows’ specific claims.

Purchaser’s notice

[12]                In terms of the process for claims for compensation, cls 10.3 and 10.4 set out the notice requirements for triggering or disputing a claim:

10.3To make a claim under this clause 10.0:

(1)the claimant must serve notice of the claim on the other party on or before the last working day prior to the settlement date, time being of the essence (except for claims made after the settlement date for amounts payable under clause 3.12 or clause 3.13, in respect of which the claimant may serve notice of the claim on the other party at any time after a dispute arises over those amounts); and

(2)the notice must:

(a)state the particular breach of the terms of this agreement, or the claim under clause 3,12, clause

3.13 or clause 5.2, or for misrepresentation, or for breach of section 9 or section 14 of the Fair Trading Act 1986, or for an equitable set-off; and

(b)state a genuine pre-estimate of the loss suffered by the claimant; and

(c)be particularised and quantified to the extent reasonably possible as at the date of the notice; and

8      Clause 5.2(6).

[13]              Relevantly, cl 10.4 also stipulates that if the claimant is unable to give notice by the settlement date “by reason of the conduct or omission of the other party”, the notice may be served on the working day immediately preceding the last working day on which settlement must take place under a settlement notice served under cl 11.1, time being of the essence.

Vendor’s notice

[14]              If the vendor does not dispute the claim within three working days, the vendor is deemed to have accepted that the purchaser has “a valid or reasonably arguable claim”.9 If however, the vendor does dispute the claim, cl 10.6 provides that the purchaser's right to make a claim (on the basis that the claim is valid or reasonably arguable) shall be determined by an experienced property lawyer or an experienced litigator appointed by the parties.10

Quantum ascertained

[15]              If the vendor accepts the claim but the quantum is disputed, or if the claim is determined to be valid and reasonably arguable under cl 10.6, an interim amount must be paid on settlement.11 This amount must be “a reasonable sum having regard to circumstances”.12 If the parties cannot agree on the interim amount, that amount shall be determined by an experienced property lawyer or litigator, or where cl 5.2 is invoked an experienced registered valuer or quantity surveyor appointed by the parties, or where they cannot agree on an appointee, by the president of the Auckland District Law Society.13 The amount determined to be payable is not limited to this interim amount.14

[16]              In any case, the settlement date is deferred pending resolution of these processes provided that “the purchaser's lawyer provides written confirmation to the vendor's lawyer that but for the resolution of the claim for compensation, the purchaser

9      Clause 10.7.

10     Clause 10.6(2).

11     Clause 10.8(1).

12     Clause 10.8(3).

13     Clause 10.8(4).

14     Clause 10.8(5).

is ready, willing and able to complete settlement.”15 Importantly, the cl 10 procedures do not prevent either party from taking proceedings for specific performance,16 and a determination that the purchaser does not have a valid or reasonable claim for compensation does not prevent the purchaser from pursuing that claim following settlement.17

[17]Completing the picture, cl 11.1 provides for cancellation as follows:

11.1

(1)If the sale is not settled on the settlement date, either party may at any time thereafter serve on the other party a settlement notice.

(2)The settlement notice shall be effective only if the party serving it is at the time of service in all material respects ready, able, and willing to proceed to settle in accordance with this agreement, or is not so ready, willing, and able to settle only by reason of the default or omission of the other party.

(3)If the purchaser is in possession, the vendor's right to cancel this agreement will be subject to sections 28 to 36 of the Property Law Act 2007 and the settlement notice may incorporate or be given with a notice under section 28 of that Act complying with section 29 of that Act.

[18]              As stated in the caveat judgment, cl 10 is a mechanism enabling the speedy resolution of bona fide and reasonable purchaser claims listed at cl 10.2. I make the following additional observation. Clause 10 is directed to consideration of a “valid and reasonably arguable claim”, with the specific objective of determining whether the purchaser has such a claim and, if necessary, an interim amount to be paid on settlement until the claim is determined.18 As I will explain further below at [66]– [71], the common law threshold requirement of “bona fide and reasonable” and the standard agreement’s references to “valid or reasonably arguable” provide important indicators of the expectations of the parties for the type of information that a claimant must have in order to make a claim.

15     Clause 10.9.

16     Clause 10.10.

17     Clause 10.11

18 The agreement is unhelpfully unclear as to the process for final determination of the compensation in fact payable. However, it is implicit that this must be determined as part of the cl 10.6 procedure. See also Smith v Bevan [2022] NZHC 2162, 23 NCCPR 573.

The evidence

[19]              Mr Holmes for CHL called one expert, Mr Keith Rankine, a chartered and registered building surveyor. Mr Meadows did not call any experts to give evidence. Instead, he simply sought to produce the following by way of annexure to his evidence:

(a)a report dated 7 February 2023, and a letter dated 24 April 2024, from Tony Bennett — a licenced building practitioner;

(b)a report from We Inspect Ltd dated 12 April 2024, and prepared by Ross Barker — an accredited building surveyor and licenced building practitioner;

(c)a report from HRC Group Ltd dated 19 April 2024, and prepared by Hamish Reville — a licenced building practitioner;

(d)advice following an inspection on 1 June 2024, from Kevin Glamuzina

— a licenced building practitioner; and

(e)advice dated 26 June 2024, from Pawel Milewski — a structural engineer.

Admissibility

[20]              CHL objected to the expert reports being admitted on the orthodox basis that expert opinion evidence must be called so that its credibility and reliability can be tested in the usual way. I enquired with Mr Meadows as to why they were not called. He initially explained that he did not know that he had to bring them to court. But  Mr Holmes produced an email from him to Mr Meadows stating that he needed to bring his experts to Court if he wanted to rely on them. Mr Meadows noted, however, from that email that he had inquired as to whether his experts could give their evidence by telephone and that Mr Holmes said they could not. He therefore felt there was nothing he could do.

[21]              Having considered the reasons for not calling his advisors to give evidence,   I have come to the view that their statements may not be admitted into evidence as expert opinion evidence. However, the fact of the opinions having been expressed to Mr Meadows is admissible insofar as it is relevant to his claim that a prudent purchaser in his position would require an invasive inspection in order to make any form of election. My reason are as follows.

Expert opinion and hearsay evidence

[22]              The statements by Mr Meadows’ experts are potentially expert opinion and hearsay evidence. A “hearsay statement”, as defined in s 4 of the Evidence Act 2006, is a statement made by a person other than a witness that is offered in evidence to prove the truth of its contents. Likewise, s 4 defines “expert evidence” as the evidence of an expert based on their specialised knowledge or skill and includes evidence given in the form of an opinion: an “opinion” is then defined a statement of opinion that tends to prove or disprove a fact.

[23]              Statements of this kind are only admissible if pursuant to ss 18 (dealing with hearsay evidence) and 25 (dealing with expert opinion evidence) of the Evidence Act.

[24]In terms of s 18, for hearsay to be admissible I must be satisfied that:

(a)the circumstances relating to the statement provide reasonable assurance that the statement is reliable; and

(b)either—

(i)the maker of the statement is unavailable as a witness; or

(ii)undue expense or delay would be caused if the maker of the statement were required to be a witness.

[25]              In terms of s 25, for expert opinion evidence to be admissible I must be satisfied that the fact-finder will likely obtain substantial help from the opinion in

understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding.

[26]              Dealing first with reliability, as the Supreme Court stated in Gwaze, the inquiry into reliability must include not only the accuracy of the record of what was said and the veracity of the person making the statement, but also the nature and contents of the statement, and the circumstances relating to its making.19 In this case, I accept the statements offer opinions on relevant matters and, in particular, the significance of the water damage and the need for more intrusive investigation to establish the nature and extent of the damage. While Mr Holmes submits to the contrary, the authors of the statements appear to be qualified to express the opinions stated within them and there is nothing on the face of the material to suggest that they are not independent.

[27]              Balanced against this, as their evidence cannot be tested by way of cross-examination, I cannot be sure as to the reliability (and thus the substantial helpfulness) of the opinions, specifically about:

(a)whether they are, in fact, suitably qualified;

(b)whether they are independent;

(c)whether their assumptions and observations of fact are correct; and

(d)the strength of their conclusions on key issues.

[28]              However, all of this goes to the weight to be afforded to the evidence rather than admissibility for the purpose of the gateway threshold tests of reliability and substantial helpfulness. Put another way, the evidence on its face is highly probative of matters in dispute and is surficially reliable. Accordingly, they would ordinarily be admissible as expert opinion evidence at least for the purposes of being tested under cross-examination.

19     R v Gwaze [2010] NZSC 52, [2010] 3 NZLR 734 at [45].

[29]              I turn then to whether in terms of admissibility under s 18 the witnesses were “unavailable” or whether calling them would cause “undue expense or delay”. I am not satisfied that the witnesses were unavailable. Under s 16(2) of the Evidence Act, a person is “unavailable as a witness” if the person:

(a)is dead;

(b)is outside of New Zealand and it is not reasonably practicable for them to be a witness;

(c)is unfit to be a witness because of age or physical or mental condition;

(d)cannot with reasonable diligence be identified or found; or

(e)is not compellable to give evidence.

[30]              Each of the absent witnesses could have been compelled to give evidence.  Mr Meadows had several months to arrange for his experts to be at Court and should have been able to organise their attendance.20 Accordingly, I do not consider that “unavailability” extends to the witnesses in this case. Furthermore, it cannot be seriously suggested that calling them would have caused undue delay.

[31]              Turning to the issue of undue expense, whether an expense is undue is an evaluative exercise. As Brewer J put it in R v Leaitua (No 2):21

If evidence is of little consequence to the issues in a trial, or formal or unassailable then the threshold to expense being undue will be relatively low. Conversely, if the evidence is of real significance to the issues in a trial and is contentious then the threshold will be higher.

[32]              In this case, the evidence is of real significance as it ultimately goes to the issue of whether invasive testing is necessary. Parts of the evidence are contentious, particularly insofar as it addresses the issue of defining the scope of repairs needed.

20     See R v Osborne HC Auckland CRI-2007-090-2 22 September 2009 (the morning judgment) for a comparable approach to witness unavailability.

21     R v Leaitua (No 2) [2013] NZHC 2910 at [16].

Given this, it cannot be said that the calling of Mr Meadows’ witnesses was an “undue” expense.

[33]              Overall, therefore, the evidence was available to be called and should have been called. In those circumstances, I consider that the evidence of Mr Meadows’ experts is not admissible under s 18 of the Evidence Act.

[34]              Furthermore, even if I am wrong about this evaluation, I consider that the probative value of the evidence, given as opinion evidence, is outweighed by the unfair prejudicial effect it has on the proceedings. The weight to be afforded to the evidence must be very low because the evidence could not be tested at all. Conversely, it would be manifestly unfair to CHL to allow the evidence to be admitted without it being formally called and thereby made able to be tested. CHL complied with the orders of the Court, including allowing access for Mr Meadows’ experts to visually inspect the site. Mr Meadows had had several months to make arrangements for his experts to be at the Court on the date of the hearing. Mr Holmes had made it clear to him that his experts needed to be there. I am mindful that Mr Meadows may be in financial difficulty. But there is also material before me that CHL are also in financial difficulty. In addition, the statements made by Mr Pawel Milewski and Kevin Glamuzina were not exchanged in accordance with the timetable for evidence. That is another reason to exclude them as expert opinion and hearsay evidence. Therefore, overall, I am satisfied the expert “opinion” evidence sought to be produced by Mr Meadows must be excluded in accordance with s 8 of the Evidence Act.

[35]              But all of the foregoing does not mean the statements are inadmissible altogether. The statements made to Mr Meadows are admissible as proof of what has been said to him, rather  than as hearsay statements or as  statements of  opinion.  The fact they were said to Mr Meadows is relevant to whether a prudent purchaser in Mr Meadows’ position might honestly believe they needed an invasive inspection for the purpose of a cl 10 election. Needless to say, this is not a backdoor route to admit the opinion or hearsay evidence.

[36]              Finally, as is proper for an independent expert, Mr Rankine addresses in his evidence and under cross-examination the key points raised in these statements,

including the extent to which the scope of repairs can be determined by visual inspection alone. This enabled interrogation of the issues raised by them.

The evidence

[37]I turn then to review the evidence. I commence with the 2023 reports.

The 2023 reports

[38]              Mr Meadows received two reports at about the time he was expected to settle, namely:

(a)the Tony Bennett Builders report dated 7 February 2023 (the Bennett report); and

(b)the Labour Depot report dated 9 February 2023 (the Labour Depot report).

[39]              The Bennett report is based on a visual inspection of the property on or before 7 February 2023. It identified water damage to the top floor bathroom, top floor bedroom, top floor hall, second floor kitchen, stairway, laundry, first floor bedroom and second floor bedroom. This included water damage to walls, floors, wall linings and framings, and the presence of black mould. The bi-fold doors are also identified as wind damaged. The report further stated:

Please note that this assessment has been limited to a visual inspection only. The extent of damage will not be known until wall and ceiling linings are removed and a comprehensive evaluation is undertaken. The assessment was limited as no invasive investigation was approved. The evaluation focused on the track that the water has taken following the leak through the house over multiple floors. However, it is possible that further damage will be found when a thorough evaluation is done. Of most concern is that a number of windows and doors have been found to be sticking and jammed potentially from movement or subsidence of the dwelling as a result of a long term leak.

[40]              The Labour Depot report is based on an inspection of the property on 26 and 27 January 2023. The qualifications of the report’s author, Lucie Hastings, are not stated. The report states:

(a)There is clear evidence of a leak in the upstairs shower which has caused damage to the internal wall within the shower and the tiled bathroom floor.

(b)The only way to “ascertain the source of the leak was to remove the tiles and the lining within the shower.”

(c)Tiles were removed and black mould was present on the back side of gib board. The tiling and waterproofing system had failed, and the framing was still wet and a little soft to touch. It appeared that the leak had been ongoing for a long time.

(d)The extent of the damage was not known but looked to be well beyond the shower and upstairs bathroom.

(e)They were unable to investigate further without removing the remaining tiles and wall linings, and the most likely cause of the leak was the pipework or rose above the shower mixer.

(f)The house’s plumbing and septic systems had a number of underlying issues.

(g)The wastewater system had been modified, was not coping and would not meet the wastewater discharge requirements for Waiheke Island.

(h)The leak in the upstairs bathroom/shower requires the tiles, wall lining and shower base to be removed to identify the origin of the leak and the extent of the water damage.

The 2024 reports

[41]By way of summary, the 2024 reports include the following key observations:

(a)The We Inspect Ltd report:

5.1.1 The bathroom was built with the house and building consented plans have not been provided, however, to do any remedy work on this bathroom a building consent would be required.

…

6.3.2 … To determine[d] if there is structural damage to the internal timbers, further wall linings will need to be remove.

…

8.1 After conducting this inspection, it has been determined that a previous water leak has resulted in damage to the particle board flooring and has caused damage to the exposed timber framing adjacent to the shower area.

…

Further structural inspection would require the removal of additional wall and ceiling linings in the lower kitchen, stairwell, and lower bedroom section to ascertain the extent of any structural damage.

(b)Tony Bennett’s letter:

What’s more, while the vendors refuse to give you additional access and allow us to remove some of the Gib board it will be a complete waste of time. There’s no way that we could confirm what needs to be done, how far the rot has gone and whether the house is structurally sound.

I still suspect structural damage to the framing over all three floors and the repair will be extremely challenging. I recommend that you get a Structural Engineer to look at the house before you proceed.

(c)The HRC Group Ltd report:

2.1.5 We can also clearly identify remedial work done to the shower area including the lining, replacement tiles and structural framing to repair the original leak. These were done in 2016 and can be evidenced by date stamps on the timber framing and the buteline water pipes which were both date stamped September 2016.

…

3.1.4 It is impossible to ascertain whether the plumbing leak which was repaired in 2016 was the primary leak or whether the incorrect installation of the shower and tiling and waterproofing systems at the time of construction and / or at the time of repair were the main cause of the leak.

…

3.1.6 Timber framing behind the tiles are covered in mould and are soft and spongy. The structural integrity of this timber wall is compromised. It is the only area of wall linings that have been opened to allow access to the wall

cavities affected by water damage over the three floors making it impossible to ascertain the extent of damage or the cost to repair.

…

3.1.8 The tiles in the upstairs bathroom have been glued directly to chipboard and don’t have an appropriate waterproof membrane so may well contribute to water damage and the exacerbation of where the water has tracked through the home. Again, it is impossible to gauge the extent of damage or exactly where the water has flowed without opening wall and floor cavities to investigate properly.

…

3.2.1 Bathroom: … The timber framing needs to be thoroughly checked by removal of plasterboard linings in all areas where the water has tracked to ensure structural integrity of the building. A qualified Structural Engineer should be consulted. Re-line, paint and decorate.

…

3.3.1 A scope of repair, and costs cannot be established because of the lack of access to water damaged areas, ceiling space and wall cavities.

…

3.3.3 It is unfeasible to calculate the cost of repair without having a clear picture as to the extent of the damage. Deprived of access and visibility to where the water has tracked and pooled; and, the structural damage caused by the leak, we are incapable of preparing a schedule of works or quantify costs.

(d)The advice from Kevin Glamuzina:

There are so many things wrong with this house. Some of the things you would expect after 25 years in the NZ environment. But most of the issues here are due to bad building practice and unqualified tradesman doing work that they are not legally allowed to do.

It is not possible for me to tell you the extent of the damage or the cost to repair it without removing wall linings and the damaged flooring where the water has tracked.

(e)The advice from Pawel Milewski:

1.There is evidence of prolonged leak at the above property

2.The apparent leak has the potential to damage elements of the structure of the building over time.

3.It is not possible to accurately assess the extent of such potential damage without further intrusive inventions.

Mr Rankine’s evidence

[42]              I turn then to Mr Rankine’s evidence. As noted above, Mr Rankine is a chartered and registered building surveyor. He has been employed in the building industry  for  approximately  25  years.   Mr   Rankine  inspected  the   house  on    24 May 2024, and produced a report based on that inspection. Prior to the inspection, he had reviewed the Bennett and the Labour Depot reports. The inspection did not include (among other areas) the external envelope, including the cladding, roof and other elements that make up the weathertight envelope, and some of the floor voids. In his report and in his evidence, Mr Rankine identified the following key defects needing attention, namely:

(a)the shower leak — he attributes this to a crimped pipe;

(b)open mitres and wind damage to joinery;

(c)water damage to wall linings and flooring — located within a tiled area of a lower floor, possibly an area that had been set aside as a laundry; and

(d)an uncapped vent pipe.

[43]              In his report, Mr Rankine attached an indicative budget estimate to repair the property by Trevor Henry Quantity Surveying Ltd of $59,800, including GST.

[44]                Mr Rankine says that the existence of much of the damage would have been apparent even to someone who is not trained in building inspections. In his evidence, he concludes:

36.   While I obviously accept that an invasive inspection would yield more information and would therefore enable me to prepare a more exact scope of works, it would not have been necessary for me to conduct an invasive inspection in order to prepare a provisional scope of works. …

37.  The reason for that is that the sorts of damage that were obvious from the visual inspection (and were also available in those reports) gave a very clear idea of the work likely to be required.

38.  In those circumstances, any estimated scope of works would need to allow for the potential that the damage seen in the photographs (or the reports) was more extensive and that entire walls or sections of flooring would need to be replaced.

[45]              In his reply evidence, Mr Rankine addresses the reports by HRC Group Ltd, Tony Bennett and We Inspect Ltd. He makes the following key observations:

(a)He states that, contrary to a thread running through those reports (except the We Inspect report), there were no indications of the building being structurally compromised.

(b)He doubts observations in the HRC report about code compliance, noting among other things that the issuance of code compliance certificates should provide some reassurance the property was compliant.

(c)He also doubts the link drawn in the HRC report between the shower leak and other water damage on lower floors, noting that it is reasonable to expect damage to be worst closest to the source and that the author has failed to take into account the possibility of a second leak associated with the laundry.

(d)He accepts that timber needs to be replaced, but notes that the relevant wall is not load bearing nor structurally important to the building.

(e)He notes that the HRC Group are not quantity surveyors, and in his experience quantity surveyors are prepared to give estimates, though the accuracy of those estimates reduces in proportion to the increase in unknowns.

(f)He asserts that the We Inspect report focuses heavily on construction methods unrelated to the leak, and some of their observations are inappropriate (seeking to apply modern methods to works completed thirty years prior) and erroneous, referring for example to unnecessary or irrelevant details.

[46]Mr Rankine was cross-examined by Mr Meadows. Relevantly he said:

(a)He would need to defer to a mould expert on issues relating to black mould.

(b)When he opened up the ceiling in the kitchen he found black mould, but without having opened the ceiling he could not assess the extent of the damage. However, in re-examination he confirmed that he had seen a crack in the ceiling and he would have inferred from it, and the staining to the floor, that the leak had gone through in the floor void and caused the cracking.

(c)Referring to photos of the  mid-floor  bedroom,  he  did  not  accept Mr Meadows’ proposition that water had travelled down to the points shown to him. Rather, in his view, the greatest damage should be seen closest to the shower leak, he did not see a great deal of damage in the ceiling void, and so his natural assumption is that is where it stopped. He also doubted that water would travel along the grey pipe in the photo, and did not consider that the shower leak could have caused damage elsewhere. He said there was no evidence of a second leak (after a 2016 repair) from the shower, but he accepted that it was possible.

(d)The leak would have been occurring over a lengthy period and stain to particle board would have occurred soon after the leak occurred.

(e)Under questioning from me about reconciling his evidence that he could not assess the damage without opening up the ceiling, and his brief that he did not need to do an invasive inspection in order to provide a provisional scope of works, he said the opening just gives more information and allows the scope to be more accurate.

(f)Under further questions from Mr Meadows, he was taken to photos of a wall dated 26 January 2023, and it was put to him that the wall was

wet to touch. He had no idea where the moisture might have come from. He also said he did not see a wet wall in that location, but to trace the source an invasive investigation, including removal of linings, would be needed. He also accepted that in order to know what sort of damage there was to the timber, he would need to take a timber sample. He accepted this would be invasive.

(g)He did not accept that cracks shown around the house were evidence of subsidence. And he did not think the presence of the cracks justified an invasive inspection.

(h)Referring to photos taken of staining on the floor in the hallway to the upstairs bathroom and on the floor adjacent to the upstairs bathroom, he said he could not tell the extent of the damage from those photos. However, in re-examination he confirmed that he could prepare a provisional scope of works, based on prior knowledge; he could “build up a picture of the scope of repair, what would be required, replacing the tiles, replacing membrane, replacing timber, replacing plasterboard and you’d take it right back to the basics and just build up a picture.”

(i)In addition, in response to me he said that the damage to the property was capable of being quantified without an invasive inspection, but it would be less reliable, and in this context, he would advise the purchaser not to buy it. And if they want to buy it, and want an estimate of cost of repair, there will be a caveat that there could be more to discover and provisional estimates are a “guesstimate” and can be unreliable.

(j)Overall, based on his inspection, he could provide a provisional scope but to get a definitive answer some invasive work would be needed for example in relation to the timber replacement.

(k)He accepted that if a purchaser was told that the repair would cost a

$1 million dollars, a prudent approach involving invasive testing would

be warranted. However, he insisted that the cost of repair is nowhere near $1 million, and that you could not reach that conclusion from the visual inspection.

The Andersons’ evidence

[47]              Mr Robin Anderson and Mr Allen Anderson gave evidence on behalf of CHL. They  are  brothers.  Mr  Robin  Anderson  is  currently  managing  CHL’s affairs. He provided evidence about the current position for CHL, noting among other things that after the caveat judgment CHL was in a very difficult position, given Mr Meadows has threatened proceedings that may take years to resolve. Under cross-examination, Mr Robin Anderson confirmed that CHL received a pay-out on the bi-fold doors of

$8,600 for the replacement of their windows. He explained that on 23 January 2023, (the settlement date) CHL’s lawyers had been advised that Mr Meadows did not have the finance to settle.

[48]              Mr Allen Anderson is the sole director and shareholder of CHL but is currently unable to be actively engaged in its management. He maintains that the house is sound and denies any misrepresentations. He says that Mr Meadows was given ample opportunity to undertake due diligence. He says that the laundry had several overflow events over 30 years, and that this has caused some discolouration of the floorboards two floors down from the shower. In relation to the shower, he notes that it had become blocked and the shower overflowed, undoubtedly causing discolouration. In 2020 he replaced the existing shower and he thought this did not require a building consent. He accepts there appears to have been a subsequent leak. He was not aware of this leak when he left the house in April 2022. He understands the cost of repair was estimated at $4,931.73. Mr Allen Anderson also refers to CHL’s insurance claim in respect of damage to the shower on 30 January 2023. An insurance payment of $1,900 was made on 14 April 2023.

[49]              Under cross-examination, Mr Allen Anderson said he had the bi-fold doors repaired so that they were operational, and Mr Meadows persuaded him to lodge an insurance claim in respect of them. He also said he was a qualified builder and while not an architect, he designed the house. He was unable to locate an engineer’s

producer statement for the design of the house. He acknowledged there had been a leak from the shower in 2016 and that he did plumbing repairs to the shower that year.22 He also acknowledged there had been a leak in 1997 in the kitchen on the mid-floor. He stated that he replaced the shower, including the pipework and mixer, in 2020. He also confirmed that he had separated the grey water from the black water. Referring to Mr Rankine’s report that a floor joist had been cut away directly by the “WC”, he did not accept it breached the Building Act 2004. He also could not remember making changes to the wastewater system.

Mr Meadows’ evidence

[50]              Mr Meadows confirmed that the matters set out in his affidavits remain true and correct. He maintains, among other things, that when he discovered evidence of the leak on 26 January 2023, it was clear that there had been a breach of the vendor’s warranties, illegal or prohibited building works and that the shower leak had caused damage across three floors. He also said there was no obvious sign of this leak prior to 26 January. He also referred to further evidence from Ms Reinsfield, his then financier, confirming that she needed a clear understanding of the damage to the house before lending money on it. He also maintained under cross-examination that CHL was never ready and willing to settle because they had not completed repairs on the bi-fold door’s windows, but he also acknowledged that he had in fact advanced an insurance claim in respect of those windows on CHL’s behalf.

[51]              Mr Meadows also confirmed that as of 23 January 2023, he was still meeting with potential backers, and that he believed he had a right to cancel on the discovery of the damage. When questioned about what type of inspection he needed, he replied:

It doesn’t need to – it didn’t need to be exact at all but it needed to be common sense. From my mind, if there is a million dollars’ worth of damage because we’ve got structural damage over three floors, there is clearly breaches of warranty that this guy’s been doing substandard work, hasn’t done it properly and I need to investigate that, I need to be prudent in my approach, I need to get a structural engineer in there to confirm those things.

[52]              Mr Meadows acknowledged that he had entered into a third-party agreement undertaking all reasonable steps to complete the purchase of the property, and

22     Initially, he denied repairing the shower in 2016, but ultimately accepted that he did.

confirmed that he wanted to proceed with “diminution in value”, and that he asked for insurance details so he can make a decision on whether to accept the insurance claim before he proceeds. He also accepts that in February 2023, he did not raise a claim to compensation because he thought he would lose his rights under cl 5.2 and that he was hoping to make an election. He also said:

If I had the ability to do an inspection, an invasive inspection, on the damage and on the breaches of warranty, and I was able to quantify them, then my financier was ready to go and has been ready to go up until just recently.

Submissions

CHL

[53]              Mr Holmes prefaced CHL’s position on the preliminary question by emphasising that the agreement expressly contemplates that any compensation claim pursuant to cl 10 must be made at least one day prior to settlement.23 It follows that Mr Meadows was out of time to make a claim. However, assuming he was entitled to make a claim, he submits:

Was invasive testing necessary?

(a)Mr Meadows did not need an “invasive” investigation to bring a claim for compensation — he had ample information, and his allegation of hidden structural damage is speculative.

(b)Clause 10 does not envisage “invasive” investigations, but rather contemplates that the purchaser has sufficient information to state the particulars of breach, a “genuine” pre-estimate of the loss suffered, and to particularise and quantify their claim to the extent reasonably possible as at the date of the notice.

(c)Mr Rankine’s evidence shows how a reasonably diligent building inspector would be able to identify the key issues and provide a genuine

23     Referring to cl 10.3(1).

pre-estimate of potential costs of repair. His evidence also is dismissive of the claims that the building is structurally compromised.

Was CHL obliged to allow invasive testing?

(d)Clause 3.2 provides the mechanism for inspection of the property and this clause requires the purchaser to give reasonable notice of their desire to access the premises for the purpose of “examining the property”. It contains no express or implied requirement to allow invasive testing. “Examine” does not imply “destructive” testing.

(e)Furthermore, it only provides for access to the property prior to the settlement date, not afterwards.

Was CHL obliged to allow access to assess whether the house was tenantable?

(f)CHL was only obliged to allow access per cl 3.2, and in any event allowed Mr Meadows access during the due diligence process and during the period he had a tenant in the premises. The fact that he had a tenant there for an  extended  period  supports  an  inference  that  Mr Meadows considered the house to be tenantable.

Was CHL obliged to provide information in relation to insurance claims and cover relating to the leak?

(g)This issue is said to be misconceived given that the claim for insurance was made at the end of January after the leak was bought to CHL’s  attention and while he was in default. As the insurance pay-out relating to the leak was made in April 2023, there was nothing to provide to Mr Meadows until after the agreement had been cancelled in February 2023.

Mr Meadows

Material facts

[54]              In terms of material facts, Mr Meadows emphasises that: the observed decay in structural framing was obvious; the repairs to the shower were defective and did not have the requisite consent; and photos taken on 26 January 2023, clearly show damage, including moisture damage from the shower to the kitchen ceiling, down the stairs, into the laundry and bedroom on the mid-floor, and which finished in the lower bedroom. He also noted that the walls in the mid-floor bedroom were clearly wet, black mould was visible on the framing, and the plumbing systems had been modified and were not compliant. He refers to significant structural damage behind the wall linings and in the ceiling cavities, and signs of subsidence, likely because of the leak that had been ongoing for a long time.

[55]              Mr Meadows insists that a prudent estimate of the potential cost of repair amounted to $1.6 million, but there was no prospect of CHL holding this amount given its precarious financial position. He also says that his finance offer required a tenant and rental income to proceed, and a thorough investigation was needed to establish the extent of damage and cost of remediation to make the property tenantable. Given this, the financier was otherwise ready to proceed on 25 January 2023 and as recently as 26 June 2024.

Preliminary questions — overview

[56]              Mr Meadows complains that he was never in a position to assess the diminution in value of the property for the purpose of a claim under cl 5.2 of the agreement because CHL refused to provide insurance details or confirm if the house was tenantable.   He notes in  this regard that the  estimated damage was in  excess of    20 per cent of the purchase price; the  wastewater  system  has  been  modified  by Mr Allen Anderson, had failed, is non-compliant and will require $100,000 to remedy; the house remains without a tenant and Martelli McKegg told the previous tenant that it was untenantable; black mould was found over three floors in the house; the oven has not been replaced and remains a fire hazard; the dwelling does not meet the

Government’s Healthy Homes Standards; and there is structural damage arising from the leak.

[57]              Mr Meadows thus complains that CHL was never in a position to convey in substance what he had agreed to purchase and was never ready, willing, and able to settle, noting that the property was damaged prior to settlement and had not been remediated. He further argues that: CHL refused a pre-settlement inspection as required by cl 3.2; CHL did not allow Mr Meadows’ experts to enter the property to particularise his claim under cl 10; CHL breached cl 7.3(5) by undertaking illegal works; and CHL is in breach of ss 9 and 14 the Fair Trading Act 1986 and s 35 of the Contract and Commercial Law Act 2017 by misrepresenting the tenantability of the property.

[58]                Mr Meadows further submits the option to seek specific performance with compensation would be moot because recovery is unlikely given Mr Allen Anderson’s circumstances.

Legal principle

[59]              Turning to applicable legal principle, I understand Mr Meadows to be submitting (in summary) that:24

(a)CHL was not entitled to serve a settlement notice under the agreement because it was in breach of various warranties that effectively amounted to a misdescription of the property that was material to the entry of the agreement.

(b)Mr Meadows was not then under an obligation to settle, and had a right to sue CHL for damages or to seek specific performance.

(c)Clause 10 (dealing with compensation) was not effective in this case to compel Mr Meadows to settle, because the effect of the breach or error

24     Relying heavily on the observations of Elias CJ in Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] 3 NZLR 231.

in description is such that he would not have entered into the agreement had it been known.

(d)This is the effect of the principle in Flight v Booth, which operates to confer on either party the right to be discharged from further performance where there has been a breach without which the injured party might never have entered into the contract at all.25

(e)As CHL was not able to convey in substance what was agreed to be sold, CHL was not entitled to insist on settlement, at least not without giving Mr Meadows an opportunity to properly evaluate the extent of the damage to the property.

(f)Mr Meadows therefore retained the right to either cancel or specifically perform irrespective of the cl 10 process.

[60]              In terms of the preliminary questions, Mr Meadows focused on the following matters:

(a)CHL refused access to the property or to provide information in relation to the insurance claim in breach of cl 5.2. This clause specifically relates to situations where damage has rendered the property untenantable.

(b)CHL also refused Mr Meadows’ right to inspect the property pursuant to cl 3.2 and his right to re-enter to confirm compliance by the vendor. CHL was therefore not ready, willing, and able to settle.

(c)CHL breached warranties (at cl 7.3(5)) by undertaking illegal plumbing repairs, repairs to structural timber framing and tiling work — this included works by Mr Allen Anderson in 2016 and 2020 for which he was not qualified and did not obtain consent.

25     Flight v Booth (1834) 1 Bing (NC) 370, 131 ER 1160 (Comm Pleas).

(d)The illegal works led to a long-term leak and subsequent damage to three floors, rendering the house untenantable.

(e)Triggering the compensation process in cl 10 would negate the purchaser’s rights under cl 5, and would thereby remove his remedies under the contract. In particular, he would lose his right to cancel, utilise the insurance claim, or claim diminution in value via cl 5.

(f)An invasive investigation was therefore necessary to enable him and his experts to meet the informational requirements of cls 5.2, 7.3(5) and 10.2.

(g)CHL misrepresented the tenantability of the property and that it was compliant.

Mr Meadows willing but not able

[61]              Finally, Mr Meadows maintains he is willing to settle, but the refusal to allow invasive inspection made any election impossible to make. He further complains that had he been afforded a proper opportunity to get his quantity surveyor through the property he could have quantified his claim.

[62]In the circumstances, Mr Meadows seeks orders that:

(a)enable him to access the property for seven days to complete investigations; and

(b)the appointment of a valuer or quantity surveyor to determine his claim.

[63]              He also seeks an opportunity to make a proper election after receiving all the relevant reports, and that the settlement date be deferred to the third working day following the parties becoming ready to settle.

Assessment

Was invasive inspection necessary to enable Mr Meadows to meet the information requirements of cl 10.3?

[64]              I turn now to address the first part of the preliminary question. It is necessary to define the information requirements of cl 10.3 — namely, the information needed to enable a claimant to:

(a)state the particular breach or breaches of the terms of the agreement, or the claims pursuant to cls 3.12, 3.13 or 5.2, or for misrepresentation, or for breach of ss 9 or 14 of the Fair Trading Act 1986, or for equitable set-off;

(b)state a genuine pre-estimate of the loss suffered by the claimant; and

(c)be sufficiently particularised and quantified to the extent reasonably possible as at the date of the notice.

[65]                There is little doubt that Mr Meadows was able, on his own case, to state the particular breaches and misrepresentations at the core of his claim. What he says he could not do is provide a genuine pre-estimate of his loss or sufficiently particularise and quantify his losses to the extent reasonably possible as at the date of the notice.

[66]              Little attention was given in submissions to the meaning of “genuine pre-estimate” or what was needed in terms of particularisation and quantification of loss “to the extent reasonably possible”. In any event, as the Court of Appeal in Yu observed,26 cl 8 in that case (the equivalent to cl 10 in the present agreement) represented the drafter’s response to the Supreme Court decision in Regalwood about the desirability of the standard form real estate contracts containing:27

… a mechanism which will enable speedy resolution of bona fide and reasonable purchasers’ claims for equitable compensation or set-off and protect each of the contracting parties whilst doubt about the correct position remains.

26     Yu v Bradley [2022] NZCA 378, (2022) 23 NZCPR 902 at [96].

27     Property Ventures Investments Ltd v Regalwood Holdings Ltd, above n 23, at [75].

[67]              In Regalwood, a third party informed the purchaser, before settlement, that the building had no current building warrant of fitness. The purchaser required that the vendor rectify the situation and, unsuccessfully, attempted to obtain the vendor’s surveys, reports, and estimates of the work required. The purchaser was not provided access to the property to prepare its own investigation but obtained an estimate of the cost of necessary works from a firm of quantity surveyors based on the actual costs for a nearby property. The vendor issued settlement notices which the purchaser did not comply with, and eventually purported to cancel the contract.

[68]              The majority in the Supreme Court found that the purchaser had equitable grounds for a set-off to the purchase price, and that this impeached the vendor’s claim for settlement in full.28 By continuing to insist on settlement in full, the vendor was not in all material respects ready, willing, and able to perform its contractual obligations, and therefore their purported cancellation was invalid. Furthermore, although the purchaser’s claim had to be particularised to the extent possible, the purchaser had done enough by raising their claim generally (without a specific sum) because the vendor had refused to allow the purchaser to inspect the property or provide them with the vendor’s costings/report.29

[69]In addition, the concept of “genuine pre-estimate” was used by Tipping J in

Regalwood. He relevantly said that a:30

… purchaser is exercising a right consistent with settlement if he deducts from the purchase price a genuine pre-estimate of the amount by which the value of the property has been depreciated by reason of the vendor’s breach of warranty, and tenders settlement on that basis. A vendor who is in breach of warranty cannot insist that the non-cancelling purchaser settle by paying the full purchase price. The vendor will be in further breach by declining to accept a tender based on a deduction by the purchaser of a genuine pre-estimate of the loss caused by the breach of warranty.31

28 At [69].

29     At [78]–[79].

30 At [98].

31 Tipping J goes on to recommend, at [101], that a purchaser in this situation should tender an  amount representing the full purchase price less a genuine pre-estimate of the loss the purchaser will suffer on account of the vendor’s breach of warranty. By that means the purchaser demonstrates unequivocally that they are ready, willing and able to perform the contract on a basis which makes appropriate allowance for the vendor’s breach. When the exact loss occasioned by that breach is established, a final accounting between the parties can then take place.

[70]                The reference to “bona fide and reasonable”, and the fact that this was satisfied by a generalised claim and a pre-estimate without the benefit of an inspection, provides a useful context for the purpose of assessing what cl 10.3(2) envisages. It supports a reading of “genuine pre-estimate” to mean that the pre-estimate and the particularisation must be made in good faith and must be reasonable. The reference to “pre-estimate”, as opposed to “estimate”, clearly signals that it is provisional only. All of this affords some flexibility to the purchaser. There is no expectation of exactitude. A good faith and reasonable attempt at defining the breaches or defects, together with a provisional estimate of remedial costs, is sufficient. To hold otherwise could unfairly preclude a purchaser from triggering the cl 10 procedure altogether.    I am fortified in this view by the reference to “valid or reasonably arguable” as the threshold requirement for a claim.

[71]              Balanced against this, the purchaser must be able to show that the pre-estimate and particulars have a proper reasonable basis. The limited power to require discovery at cl 10.8 to determine whether the requirements for a genuine pre-estimate and particulars have been met underscores this. With these thresholds in mind, I turn to my assessment of the evidence.

[72] I accept that as of 26 January 2023, Mr Meadows was very concerned about the presence of water damage likely attributable to a shower leak. In addition, on the information then available to him, he had good reason to want to undertake further investigations, particularly as to the source of the water damage and the extent of that damage. The reports from Mr Bennett and The Labour Depot, on their face, would have been very alarming and a reason for caution. Subsequent reports provided to him as part of this process would have further fuelled his concerns. I also accept that he has information raising concerns about the waste water disposal system and Building Act compliance. Taken together, I find that Mr Meadows had a good faith basis for concern and for the purpose of triggering the cl 10 process.

[73]              But the remaining question before me is whether invasive inspections were necessary in order for Mr Meadows to provide a genuine pre-estimate and properly particularise and quantify his claim for the purposes of cl 10. I am satisfied that the answer is no. On this, the only expert evidence available to me was that of

Mr Rankine. He concluded that a provisional scope of works needed to repair the defects could have been provided without an invasive investigation. I also very much doubt the reliability and accuracy of the statements to Mr Meadows that no estimate of likely costs could be made given Mr Rankine’s evidence. It is clear that the source of most of the water damage is likely to be a shower leak, with largely localised effect, capable    of    reasonable    pre-estimate    and     particularisation/quantification.  The suggestion that the cost of repair is in the order of $1–1.6 million is fanciful.

[74]                Significantly, Mr Rankine is suitably qualified to provide an opinion on the extent of the investigation necessary to be able to provide an estimate of the cost of repair needed to address the water damage. He was also a credible and reliable expert, and his evidence was clear and balanced. In this regard, his methodology and the limitations of his work were clearly described. Mr Rankine also made appropriately frank concessions under cross-examination, including that some damage could not be assessed without inspection, and that in some cases the costs of repairs would come with a caveat that it was a “guesstimate only” and “unreliable.”

[75]              I acknowledge that this last point highlights the potential unreliability of visual inspections only and identifies the potential for greater or different damage being identified after an invasive inspection. However, as I have said, cl 10 does not require exactitude. On the contrary, it envisages a speedy process. The claim needs only be bona fide and reasonable, valid or reasonably arguable. It is clear that the key defects and associated damage were obvious on visual inspection and that there was sufficient information to make a provisional assessment of the scope of repairs (albeit with caveats) and thus to  properly  particularise  a  claim  for  the  purpose  of  cl 10.  Any potential unfairness in this approach is offset by the fact that Mr Meadows could still have made a compensation claim after settlement irrespective of the cl 10 process.

[76]              Finally, while not strictly necessary to resolve this part of the preliminary question, I address Mr Meadows’ associated submission that because of the lack of invasive investigation he was not able to obtain finance and thus make any form of election. That submission misunderstands how the sale and purchase agreement works. As Yu makes clear, cl 10 provides a mandatory process for resolution of compensation claims. It is not for the purchaser to simply reserve their position while

they work out what they or their financier want. Put simply, save in circumstances where settlement would have been futile,32 if a purchaser has not triggered that process, they must settle in accordance with their obligations under the agreement without diminution in the settlement sum. They may, however, still be able to bring a claim for compensation after settling but, unless cl 10 is triggered, they cannot reduce the amount paid at settlement.33 Mr Meadows’ ongoing concern about the liquidity of CHL is not material to his obligations to settle for the agreed sum and to make a claim after settlement or to trigger the cl 10 process to secure a diminution in the settlement sum.

[77]              It is unnecessary for me to answer the remaining questions given my negative answer to the first part of the preliminary question. However, I make the following observations to assist the parties.

Was CHL obliged to allow invasive testing of the property?

[78]              In the caveat judgment, I formed the view that the requirement to allow invasive inspection was arguable, having regard to Mr Meadows’ claims of misrepresentation and the available information as to the potential scale of the water damage (which I had incorrectly characterised as weathertightness damage). However, with the benefit of a close interrogation of the facts, and the evident complexities involved for the parties when defect issues arise late in the settlement process, I conclude that the agreement does not mandate invasive inspection. As I noted in the caveat judgment, cl 10 is a mechanism enabling the speedy resolution of bona fide and reasonable claims listed at cl 10.2. As this case amply illustrates, demands for invasive inspection are both highly contentious and contestable, and inevitably  introduce  potentially  significant  delays  in  the   settlement   process. For example, there are suggestions in the advice given to Mr Meadows that further testing of the timber would also be required with the inevitable attendant delay. Given this, if invasive inspections were contemplated by the parties, I would expect express provision for that to occur. Instead, as noted above, cl 3.2 provides an opportunity to

32     See Mao v Singh [2022] NZCA 390, (2022) 23 NZCPR 477.

33     Yu v Bradley, above n 25, at [100].

enter the property on one occasion for the purpose of “examining” the property and to re-enter the property to confirm compliance.

[79]              As Mr Holmes submits, the right to enter and “examine” does not imply a right to carry out destructive testing. Rather its ordinary meaning to “look or inquire into”34 is most apposite, given the time sensitive nature of the settlement process: as recorded at cls 10.3 and 10.4, “time being of the essence.” I am fortified in this view for the reasons already expressed in relation to cl 10, namely that a genuine pre-estimate and particularisation/quantification need only be  made  in  good  faith  and  reasonable. A provisional estimate only is needed. It may necessarily be conservative to account for the fact that the inspection was visual only. In addition, the adjudicative process set out at cl 10.6 does not expressly envisage further investigation of this type, providing for only limited discovery, if any.35 In addition, a purchaser retains the right to make a claim post settlement if invasive investigation reveals greater damage than visual inspection revealed.36

[80]              For completeness, I address Mr Holmes’ argument that any claim had to be made one day prior to  the settlement date and  that failing to do so  meant that      Mr Meadows’ present claim could not possibly succeed. Mr Holmes cited Yu in support, noting that in that case the Court found the purchaser’s giving of a notice of claim on the settlement date, not one day prior, was out of time and therefore could not be relied upon by the purchaser. However, the Court of Appeal, in fact, noted that because the purchaser had prevented Mr Yu’s expert from attending the site he could not “give notice  on  or  before  the  last  working  day  prior  to  the  settlement”. The purchaser in that case could give notice after that date.37 While this reasoning is not directly applicable here, as Mr Meadows did not give notice at all, it serves to show that the vendor’s conduct may affect the ordinary operation of the settlement process and the timeliness requirements. I note in this regard that no settlement notice was issued on 23 January 2023, and CHL invited Mr Holmes to trigger the cl 10

34     Angus Stevenson (ed) Shorter Oxford English Dictionary (6th ed, Oxford University Press, Oxford, 2007) at 883.

35     See cl 10.8.

36     Notably, none of the authorities cited by Mr Holmes or Mr Meadows involved claims based on refusal to allow invasive inspection.

37     Yu v Bradley, above n 25, at [90].

compensation process after that date. In that context, it appears arguable that the time for making a cl 10 claim had been extended by the vendor. However, I make no definitive finding on this as it is unnecessary to do so.

Tenantability and insurance

[81]              I can deal with the final two questions together as they drive off the same basic proposition — that CHL was obliged in the circumstances to enable Mr Meadows to fully assess the tenantability of the house, and any insurance cover, before he was required to trigger the compensation process or otherwise settle.

[82]              In light of my findings above, I consider Mr Meadows’ position, while arguably supported by the principles stated by Elias CJ in Regalwood, is not sustainable. Clause 10 provides the vehicle by which Mr Meadows could ventilate his pre-settlement claims regarding both tenantability and quantification of his loss (with or without insurance). As already noted, it was conceived to address the principles stated in Regalwood.38 As Mr Holmes submitted, the purchasing party to a modern contract is now obliged to elect to either cancel or affirm prior to the settlement date in the manner described by the Court of Appeal in Yu. The Court said (in relation to an equivalent clause to clause 10 in the present agreement):39

… the mechanism established by the Agreement had to be initiated by the service of notice of the claim in accordance with cl 8.1(1). In the absence of a claim properly made under that clause, Mr Yu was obliged to settle in accordance with his obligations under the Agreement without any allowance for compensation. He would of course still be able to bring a claim for compensation after settling — but he had not properly invoked the cl 8 mechanism, so could not rely on that clause to reduce the amount paid to the Bradleys at settlement.

[83]              Given I am satisfied that Mr Meadows could have made a claim pursuant to cl 10 without invasive testing, there is no room for a residual basis for a pre-settlement claim independent of that process.

38     Yu v Bradley, above n 25, at [96].

39     Yu v Bradley, above n 25, at [99].

[84]              In addition, I accept Mr Holmes’ point that ample opportunity was afforded to Mr Meadows to assess the tenantability of the property. He had a tenant there for some months, and plainly had access to the property in late January 2023. He had advice as to the water damage and he was clearly in a position to form a view as to the tenantability of the house. Indeed, based on his evidence and the statements of his advisors, the tenantability of the house was an obvious concern for which he could have made a claim.

[85]              As to insurance issues, Mr Meadows’ primary concern appears to be that he could not assess whether some or all of the loss caused by the water damage (and perhaps the damage to the bi-fold doors) was covered by insurance. While that might be so, any pre-estimate of the cost of repair could have been made either assuming no or some insurance cover for the purpose of a cl 10 claim. Therefore, I can see no proper basis for deferring settlement on account of this issue. I also note for completeness that in relation to the water damage, the insurance claim was made in response to the discovery of the leak, and not paid out until after cancellation.        As Mr Holmes submits, there was nothing to provide Mr Meadows until after the agreement had been cancelled.

Result

[86]              I am satisfied the answer to the preliminary question is no. In summary, an invasive inspection was not necessary to meet the information requirements of cl 10; the agreement does not mandate invasive testing; and I do not accept that issues in relation to tenantability or insurance provided any proper basis for deferring settlement. It must follow that CHL validly cancelled the agreement. I make an order to that effect accordingly. I also make an order removing Caveat number 12663548.1 affecting Record of Title NA97D/649.

[87]              On the question of costs, I invite submissions. Mr Meadows enjoyed success on the caveat proceedings, but Mr Holmes responsibly assisted the Court in a fulsome way in that proceeding. I also reserved costs on the application for a preliminary question hearing to enable assessment of the extent to which there had been adequate co-operation. I am presently minded to award costs on a 2B basis in favour of CHL

in respect of the application for a preliminary question hearing and this matter. Submissions by CHL are to be  filed  within  five working  days.  Submissions  by Mr Meadows within a further five working days after that.

Whata J