Drnasin v Watson
[2024] NZHC 1503
•10 June 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2023-419-340
[2024] NZHC 1503
BETWEEN TONY STEVEN DRNASIN and JULIE LOUISE DRNASIN
PlaintiffsAND
BRUCE HENRY ROY WATSON and ALICE JOAN WATSON
Defendants
Hearing: 15 May 2024 Appearances:
Victoria Whitfield/Martin Meier for the Plaintiffs Matthew S King for the Defendants
Judgment:
10 June 2024
JUDGMENT OF ASSOCIATE JUDGE TAYLOR
[Interlocutory application for summary judgment as to liability]
This judgment was delivered by me on 10 June 2024 at 3:00pm
pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Solicitors:
Gurnell Harrison Stanley Lawyers, Hamilton Norris Ward McKinnon, Hamilton
Counsel:
Victoria Whitfield/Martin Meier, Barristers, Cambridge Matthew S King, Barrister, Tauranga
DRNASIN v WATSON [2024] NZHC 1503 [10 June 2024]
Introduction
[1] At the start of 2022, Tony and Julie Drnasin (the Drnasins) purchased a property in Mount Maunganui from Bruce and Alice Watson (the Watsons). By the end of 2022, it had transpired that in the Drnasins’ view, certain warranties and undertakings made by the Watsons at the time of sale and purchase had been breached.
[2] The Drnasins filed a statement of claim dated 30 November 2023 alleging breaches of vendor warranty. On that same day, they also filed an interlocutory application seeking summary judgment on liability. The Watsons oppose the application.
Background
[3] The Watsons were the registered proprietors of a property on Maunganui Road, Mount Maunganui. They subdivided the property and on 19 November 1993, three lots were created. Lot 1 was known as 32A Maunganui Road, with a Certificate of Title SA55D/298 and Deposited Plan 69563 (the Property). The Watsons continued to be the registered proprietors of the Property until January 2022.
[4] On or about 17 May 1993, an application for building consent was made for the construction of three residential Houses on 32 Maunganui Road. On or about 22 June 1993, a building consent was issued pursuant to s 35 of the Building Act 1991, including for the construction of a house on the Property (the House). The House was constructed between 1993 and 1994.
[5] By an agreement for sale and purchase dated 13 January 2022, the Drnasins purchased the Property from the Watsons unconditionally for a purchase price of
$3,100,000 (the Agreement). Settlement occurred on 4 April 2022. The Agreement included vendor warranties at cl 7.3 that:
(a)any building consent required by law was obtained (cl 7.3(5)(a));
(b)to the Watsons’ knowledge, the works were completed in compliance with that consent (cl 7.3(5)(b)); and
(c)where appropriate, a code compliance certificate (CCC) was issued for those works (cl 7.3(5)).
(the Vendor Warranties)
[6] The Drnasins allege that the Watsons breached the Vendor Warranties in the Agreement, with each breach causing them to have suffered losses. The estimated loss they claim to have suffered at the time of the statement of claim is in excess of
$350,000.
The Drnasins’ application for summary judgment
[7] The Drnasins seek orders from the Court giving judgment on liability against the Watsons in favour of the Drnasins and directing a trial of the issue of quantum.
[8]The grounds on which each order is sought are, in summary, as follows:
(a)Pursuant to the Agreement, the Watsons gave the Vendor Warranties warranted as at settlement where they had done or caused or permitted to be done any works on the Property.
(b)The Watsons arranged for the House to be constructed on the Property. The Watsons breached cl 7.3(5)(a) and (b) of the Agreement because they installed a kitchen in the House that was not on the approved plans, nor did they obtain a building consent for the installation of the kitchen.
(c)The Watsons breached the Vendor Warranty at cl 7.3(5)(c) of the Agreement because no CCC was issued for the House.
The Watsons’ opposition
[9]The Watsons opposes the application on, in summary, the following grounds:
(a)the Drnasins are estopped from relying on the Vendor Warranties because:
(i)they represented to the Watsons prior to entering into the Agreement that the House did have a CCC, which the Watsons relied on in entering into the Agreement;
(ii)alternatively, they knew, or ought to have known, that the House did not have a CCC and it would be unconscionable for the Drnasins to rely on that Vendor Warranty; and
(iii)they knew, prior to entering into the Agreement that the downstairs kitchen in the House did not have a building consent and entered into the Agreement anyway.
(b)alternatively, any such breach of warranty in regard to the lack of code compliance for the House, which is denied, has not caused any loss to the Drnasins as:
(i)the House would have received a CCC at the time construction was finished; and
(ii)the building elements in issue have performed for, or beyond, the requisite minimum periods under the Building Code that applied in 1993.
Legal principles
[10] Rule 12.3 of the High Court Rules 2016 allows the Court to enter summary judgment on liability only:
12.3 Summary judgment on liability
The court may give judgment on the issue of liability, and direct a trial of the issue of amount (at the time and place it thinks just), if the party applying for summary judgment satisfies the court that the only issue to be tried is one about the amount claimed.
[11] The authors of McGechan on Procedure note that there are “very few cases” where the Court has granted judgment on liability only.1 In Fullarton v Arowana International Ltd, the Court dealt with summary judgment on liability only.2 First, it is a reasonably high threshold for the Court to be satisfied that the only issue to be tried is one about the amount claimed.3 Second, there must a “clear dichotomy” between issues affecting liability and damages.4 The Court observed the rationale for this is self-evident, because like applications for split trials (between liability and damages), the Court is “alive to the risk of inefficiency where there is overlap between the issues and evidence that will need to be considered for the purposes of liability and quantum/damages”.5
Analysis
[12] The Drnasins have established a breach of warranty under the Agreement. The issue to be determined in this judgment is whether the Watsons’ affirmative defence of estoppel is tenable.
Drnasins’ submissions
[13] Ms Whitfield, for the Drnasins, set out in her submissions the requirements to establish an estoppel as espoused by the Court of Appeal in HHR Christchurch NTL Ltd v Crystal Imports Ltd6 and by reference to Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd :7
(a)the creation or encouragement of a belief or expectation through some action or representation;
(b)that belief or expectation was reasonably relied on;
1 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR12.3.01].
2 Fullarton v Arowana International Ltd [2021] NZHC 931, [2021] NZCCLR 28.
3 At [80], citing OHL Ltd v Johns [2019] NZHC 594 at [29].
4 At [80], citing 246 Investments Ltd v Herbert HC Auckland CIV-2008-404-6612, 10 July 2009 at [63] to [64].
5 At [80].
6 HHR Christchurch NTL Ltd v Crystal Imports Ltd [2015] NZCA 283 at [44].
7 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407 at [44].
(c)detriment as a result of reliance; and
(d)it would be unconscionable to be allowed to depart from the belief or expectation.
[14] Ms Whitfield then applies each of these criteria to the circumstances in this case.
Estoppel is not available in law
[15] Ms Whitfield submits, as a primary proposition, estoppel is not available in law to the Watsons on the facts because the alleged representation by Mrs Drnasin about the CCC was made in negotiations and was subsequently overtaken by the terms of the Agreement. Similarly, any representations made by the Watsons that there were issues relating to the downstairs kitchen were made in negotiations and were overtaken by the terms of the Agreement.
[16] Ms Whitfield relies on the Krukziener v Hanover Finance Ltd decision.8 That case related to personal guarantees given by Mr Krukziener to Hanover Finance for two associated companies. When the two companies defaulted on the loan agreement Hanover Finance obtained summary judgment on the personal guarantee. In the Court of Appeal Mr Krukziener disputed the debt based on estoppel and claimed that that there was a representation by Hanover Finance in the course of negotiations that the debt would fall due six months after completion of a property development project, and not as reflected in the agreements.
[17] Ms Whitfield points to the following passage from Krukziener decision as an authority for the proposition that where a promise is made in negotiations and a contract is subsequently entered into, estoppel is not available:9
[39]In this case, Mr Krukziener would have it that a representation was made in pre-contractual negotiations, and that to Hanover’s knowledge he acted to his detriment by entering into the contract on terms inconsistent with the representation. He relies on the negotiations, in other words, not to show a voluntary promise to
8 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
9 Above n 8, at [38].
refrain from existing pre-existing rights, nor to show that Hanover promised to create a new legal relationship, but to contradict the contract that followed the negotiations.
[40]In these circumstances, Mr Gilbert recognised that the defence of promissory estoppel faces difficulties. Even if true, the facts asserted by Mr Krukziener could not establish a promissory estoppel. The doctrine is concerned with circumstances in which the Court will enforce a voluntary promise to create legal relations, or to refrain from exercising pre-existing legal rights. Where negotiations result in a contract, the promises exchanged are no longer voluntary, and the question whether the contract will be enforced falls to be determined under the law of contract. We conclude that the defence of promissory estoppel is not available in law.
[18] Ms Whitfield submits the Watsons’ position conflicts with the terms of the Agreement entered into to create the legal relationship between the parties, and which expressly place the risk and responsibility of the existence of the current CCC on the Watsons.
[19] Ms Whitfield submits that the position with the downstairs kitchen is the same, in that that the Watsons are asking the Drnasins to be restrained from relying on a contractual right because of remarks the Watsons made about the stove and waste disposal unit before the Agreement was entered into.
[20] Ms Whitfield submits this claim by the Watsons conflicts with the contract terms which place the risk and responsibility on the Watsons to ensure the downstairs kitchen was approved.
Representations not unequivocal
[21] Ms Whitfield submits that representation made by Mrs Drnasin that she had seen the CCC in respect of the House (which is denied by Mrs Drnasin) is not sufficient because the Watsons subsequently agreed to structure their legal relationship on the basis that the Watsons warranted to the Drnasins that the House had a CCC, and the Watsons alone assumed the legal risk of this.
[22] As to the proposition that the representation from Mrs Drnasin amounted to a representation that the Drnasins would not enforce the Vendor Warranties against the Watsons, Ms Whitfield submits that there is nothing in the alleged statement by
Mrs Drnasin that represented that the Drnasins would not insist on compliance with the Vendor Warranties in the Agreement. She submits there is nothing allegedly said that could make the Watsons arrive at the understanding that they were not obliged to honour the terms of the Vendor Warranties they provided. She submits that had the Watsons genuinely considered that the Drnasins unequivocally represented that they would not enforce the Vendor Warranties against the Watsons, then that would be reflected in the Vendor Warranties being deleted from the Agreement which was not done.
[23] In respect of the downstairs kitchen, Ms Whitfield submits that the position is the same and submits that the Drnasins did not represent that they would not rely on or enforce the contractual warranty that the downstairs kitchen had a building consent and complied with such consent.
No reasonable reliance
[24] Ms Whitfield submits that it is implicit in the doctrine that the party claiming the benefit of the estoppel has not the same means of knowledge as the party making the representation. She relies on the on the authority of New Plymouth Borough v R10 for the proposition that in such a case, there would be no reliance, nor would any reliance be reasonable.
[25] In the present case, Ms Whitfield submits that the available knowledge or means of knowledge of the Watsons as to the existence of the CCC was greater than that of the Drnasins and that given the knowledge that the Watsons had or ought to have had as owners and developers of the Property, it cannot be said that they relied on Mrs Drnasin’s statement to provide the Vendor Warranties, nor that it was reasonable for them to do so.
[26]Ms Whitfield submits that:
(a)it is not disputed that the Watsons were the developers who subdivided a larger property into three lots and then arranged for the three houses
10 New Plymouth Borough v R [1951] NZLR 49 (SC) at 63.
to be built on the three lots and retained the Property and the House until the Drnasins purchased it;
(b)as owners, it was the Watsons’ legal obligation to obtain a CCC and in such circumstances, they would have the knowledge or ought to have the knowledge that they did not obtain the necessary CCC;
(c)the Watsons were specifically placed on notice that the Property did not have a CCC by neighbours and she refers to the evidence that the neighbour explained to the Watsons that the final inspection for the properties were never undertaken and there was no CCC for any of the three properties developed by the Watsons, the neighbour’s evidence is that the Watsons knew that there was no CCC and they stated that the final inspection was not undertaken because there was issues with the handrail on the deck; and
(d)the Watsons were invited to have the House inspected at the same time as the neighbour so that they could obtain a CCC but they declined.
[27] Ms Whitfield submits that the above indicates that the Watsons did not rely on the alleged statements by the Drnasins and it would be unreasonable for them to do so in the circumstances. She submits that the knowledge was always with the Watsons, they could have made their own enquiries with the Council, and if the Watsons had viewed the representation fundamental to entering into the Agreement, then they provide no plausible explanation for not removing the Vendor Warranties before signing the Agreement.
Conflict of evidence
[28] Ms Whitfield submits that the evidence on behalf of the Watsons is inherently improbable and inconsistent with the undisputed contemporary documents. She refers to the Krukziener case and submits that as accepted by the Court of Appeal in that case where there was a conflict of evidence, a robust and realistic approach to the conflict of evidence was warranted. She submits that in the present case it is similar in that the
Watsons made no attempt to explain why they signed the Agreement with the Vendor Warranties if those warranties were overtaken by what was said.
Watsons’ submissions
[29] Mr King, for the Watsons, asserts the position that the Drnasins ought to be estopped from relying on the Vendor Warranties at cl 7.5 of the Agreement because they represented to the Watsons that, having checked the Council file, the House had a CCC. He submits that the Watsons relied on that representation in entering into the Agreement and granting the Vendor Warranties and it would be unconscionable for the Drnasins to be allowed to depart from the belief or expectation they created.
[30] He submits that while the Watsons have no express right of reply to that evidence presented by the Drnasins at the summary judgment stage, the reply evidence would be contested at trial, including the evidence of former neighbour, Ms Bell. Mr King submits that what this highlights is that there are factual disputes that ought to be determined at trial.
[31] Mr King then responds to the Drnasins’ submissions in respect of the elements of the estoppel defence.
Creation of belief or expectation
[32] Mr King submits that the Watsons rely on the affidavit evidence to support the Drnasins creating a belief or expectation that there was a CCC, representing that they had viewed the Council file and that there was a CCC. He refers to relevant paragraphs of Mr Watson’s affidavit, Mrs Watson’s affidavit and an affidavit of their daughter, Ms Wood.
[33] Mr King accepts that the Watsons’ evidence was rejected by the Drnasins and submits that there is a clear conflict of factual evidence that ought to be determined at trial where the witnesses can be cross-examined.
Reliance
[34] Mr King relies on the affidavit evidence of the Watsons as referred to in his submissions.
Detriment
[35] Mr King submits that detriment is clearly established as the loss (if proved by the Drnasins) will be the cost to remedy the breach of Vendor Warranty. Mr King points to further paragraphs from the evidence of the Watsons as evidence of detriment as to how the proceeds of sale of the Property were disbursed to the Watsons’ son and daughter.
Unconscionability
[36] Mr King submits that the Watsons are not relying on a promise not to enforce the Vendor Warranties clause in relation to the CCC for the House but are relying on the Drnasins’ misrepresentation as to there being a CCC which the Watsons relied on in giving the warranty in the first place. He submits this case is distinguishable from Krukziener because the warranty in the Agreement is consistent with the representation made by the Drnasins.
[37] Mr King submits that the Agreement was prepared and presented to the Watsons and the Watsons were not legally advised before entering into the Agreement. He submits it would be unconscionable in the circumstances for the Drnasins to rely on a warranty that was given in reliance on the belief they created by confirming there was a CCC in respect of the House.
Downstairs kitchen
[38] In relation to the downstairs kitchen, Mr King goes through the same analysis as to the basis for an estoppel.
Creation of belief or expectation
[39] Mr King submits that the Watsons rely on their affidavit evidence in support of the belief or expectation that the Drnasins would not require the kitchen to be
consented prior to settlement or pursue them for breach of warranty in relation to the unconsented kitchen.
[40] He refers to the relevant paragraphs from Mr and Mrs Watsons’ affidavits as set out at [16] of his submissions.
[41] Mr King submits that the clear implication of the statements by the Watsons was that the kitchen was not consented and that is the only logical conclusion that could be drawn from that statement. He submits that the Drnasins’ response to leave it there amounts to an acceptance that the unconsented kitchen could remain, did not need to be consented, and that the Dransins would not make any claim in respect of it.
Reliance
[42] Mr King submits that the Watsons offered to and could have removed the kitchen prior to settlement, which would have prevented a breach of warranty claim in respect of it. He points to the Watsons’ evidence that they offered to remove the stove but were told by Mrs Drnasin to leave it in place, and accordingly reliance by the Watsons is reasonable in the circumstances.
Detriment
[43] As to the detriment which the Watsons stand to suffer, Mr King submits that this includes the costs of consenting the downstairs kitchen, when they could have avoided this detriment by removing the kitchen prior to settlement and they would also suffer the same detriment as in respect of the CCC namely that the proceeds of sale of the Property have been disbursed in part to their children.
Unconscionability
[44] Similar to a submission made by Mr King in relation to the CCC, he submits that the Drnasins created the belief that the Watsons could leave the unconsented kitchen in place without either consenting it or without fear of a claim under the warranties against them. He submits that the Watsons reasonably relied on that belief or expectation by not removing the kitchen when they could have done so, and accordingly it would be unconscionable to allow the Drnasins to rely on the warranty
in respect of the kitchen in those circumstances where they have created the belief or expectation that it did not need to be removed prior to settlement.
Result
[45] I am of the view that the Drnasins’ application for summary judgment as to liability should be dismissed. The Watsons have created a reasonably arguable basis for an estoppel in respect of both the issue of the CCC relating to the House and the unconsented kitchen in the House.
[46]The reasons for my view are:
(a)In relation to the CCC, there is a clear conflict of evidence that what occurred at the critical meeting where the agreement was signed at the premises of the Watsons. If the representation which the Watsons allege Mrs Drnasin made that she had visited the Council and seen the Council file and the CCC, then in my view, notwithstanding the position set out by the Court of Appeal in Krukziener, there is a reasonable argument that the specific representation by Mrs Drnasin lulled the Watsons into a sufficient degree of comfort to sign the Agreement with the Vendor Warranties intact.
(b)The circumstances in which the agreement was signed were unusual and the situation is quite different to that which occurred in Krukziener where the parties were commercial parties and were both legally advised. The Agreement was signed at the Watsons’ house, without the benefit of any legal advice and in those circumstances, in my view, it is reasonably arguable that reliance on the representation of Mrs Drnasin was reasonable and that it is unconscionable for the Drnasins to enforce the Vendor Warranties in circumstances where it was given in reliance on the representation that Mrs Drnasin had seen the CCC.
(c)If the elements of the representation and reliance on Mrs Drnasins’ representation are made out, in my view it is reasonably arguable that the Watsons suffered detriment as that there is potential liability for cost
of obtaining the CCC and the fact that they have disbursed part of the proceeds of the sale of the Property to their son and daughter.
(d)In relation to the downstairs kitchen, in my view the same position pertains. I accept Mr King’s submission that the comments made by Mrs Drnasin that the kitchen could remain there and that the obvious inference from the Watsons’ comments was that the kitchen was unconsented. In these circumstances, in my view, it is reasonably arguable that the Watsons were reasonable in relying on the representation by Mrs Drnasin not to remove the kitchen prior to selling. Similar to the position in respect of the CCC, it is reasonably arguable that it is unconscionable to allow the Drnasins to rely on the warranty having made the representation which created the breach in the first place. If the elements of estoppel, in respect of the downstairs kitchen, of representation and reliance are made out, then I am of the view that it is reasonably arguable that the Watsons have suffered detriment being exposed to the cost of moving or having the downstairs kitchen consented and the detriment suffered by having disbursed part of the proceeds of the Property to their son and daughter.
Orders
[47]I make the following orders:
(a)The Drnasins’ application for summary judgment as to liability is dismissed.
(b)The usual rule is that costs are reserved where the plaintiff’s application for summary judgment is dismissed. If the Watsons wish to pursue costs, their counsel will file a memorandum as to costs (not to exceed five pages) within 10 working days of the date of this judgment, and counsel for the Drnasins will file a memorandum (not to exceed five pages) in response within 5 working days of receipt of counsel for the
Watsons’ memorandum. A decision as to costs will then be made on the papers.
…………………………….. Associate Judge Taylor
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