Forbes v Townsend
[2023] NZHC 2578
•15 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-665
[2023] NZHC 2578
UNDER the Contract and Commercial Law Act 2017 BETWEEN
GRANT DAVID FORBES, JENNIFER LEE FORBES and STEPHEN LAWRENCE
GALLAUGHER as trustees of the Assurer Trust
PlaintiffsAND
SARAH CAROLINE TOWNSEND and
FREDERICK MUIR WARD as trustees of the Erskine Trust
Defendants
Hearing: 4 September 2023 Appearances:
S C Price and R G Muston for Plaintiffs P C Murray for Defendants
Judgment:
15 September 2023
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 15 September 2023 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
FORBES v TOWNSEND [2023] NZHC 2578 [15 September 2023]
Introduction
[1] The first named plaintiff, Grant Forbes, entered into an agreement to purchase a residential property at Remuera, Auckland from the defendants. Before settlement, Mr Forbes nominated the plaintiffs as purchasers, and they settled and took title. Subsequently, leaks and consequential damage were identified at the property and the plaintiffs undertook repairs.
[2] The plaintiffs’ claim is advanced on the basis the defendants misrepresented that there had been no leaks or watertightness issues at the property. The plaintiffs say there were significant leaks and watertightness issues of which the defendants were aware. They seek damages under s 35 of the Contract and Commercial Law Act 2017 (CCA) to recover the costs of the repairs. The application before me seeks summary judgment on the claim as to liability only.
The defendants deny liability. They say that:
(a)as nominees, the plaintiffs cannot bring a claim for an alleged pre- contractual misrepresentation under s 35 of the CCA;
(b)the representation made was not false;
(c)Mr Forbes was not induced to enter into the agreement by the representation, and, if he was, his reliance upon it was not reasonable; and
(d)the issues of liability and quantum are so interlinked that summary judgment is not appropriate in any event.
Background
[4]The plaintiffs are the trustees of the Assurer Trust.
[5] The trustees of the Erskine Trust were the owners of 93 Victoria Avenue, Remuera, Auckland from November 2010 until 24 January 2020. The house was built
in around 1994. The property was occupied by the first named defendant, Sarah Townsend, as her home.
[6] While the property was owned by the defendants, there were leaks and other watertightness issues with the property. Ms Townsend acknowledges this but recounts steps she took to repair and maintain the property, including steps taken to ensure it was fit for sale.
[7] In late 2019, the property was put on the market for sale by auction. Mr Forbes and his wife inspected the property. They also engaged Whats Up House Inspections Ltd to provide a builder’s report.
[8] The auction was brought forward to 8 November 2019 because the defendants had received an offer from another interested party. Between 4 November 2019 and 8 November 2019, Mrs Forbes had email correspondence with the defendants’ agent, Vicki Wallace of Bayleys Real Estate Ltd. She raised several queries in respect to the property.
[9] Mr and Mrs Forbes received the builder’s report the day before the auction. It is a comprehensive document, running to more than 50 pages. It raised some potential issues with leaks and noted some damp moisture readings. It also identified some weathertightness risk factors.
[10] At 9.49 am on 8 November 2019, Mrs Forbes sent an email to Ms Wallace, which included the following request:
Please confirm by return email that there haven’t been any leaks or water tightness issues that we should be aware of?
[11]At 10.46 am, Ms Wallace responded:
Sarah confirms no leaks to her knowledge.
[12]There is no dispute that “Sarah” refers to Ms Townsend.
[13] Mr Forbes was the successful bidder at auction. He entered into an agreement to purchase the property. On the agreement, the purchaser is named as “Grant Forbes and/or nominee (‘the Purchaser’)”.
[14] On 21 January 2020, Mr Forbes and the plaintiffs, as trustees of the Assurer Trust (including Mr Forbes), entered into a deed of nomination whereby the plaintiffs accepted nomination as purchaser under the agreement. The defendants were not parties to that deed.
[15] Settlement occurred on 24 January 2020, and the plaintiffs obtained title on that day.
[16] In September and October 2021, water ingress and leaks were discovered at the property. Soundhomes NZ Ltd, a weathertight home specialist, was engaged to inspect the property. It provided a report which identified a range of weathertightness defects and water damage. It also identified that the property had historically leaked. The plaintiffs undertook remedial works.
[17] On 24 August 2022, the plaintiffs gave notice of their claim to Ms Townsend. The claim was advanced, as it is in this proceeding, on the basis the plaintiffs are entitled under s 35 of the CCA to damages for Ms Townsend’s misrepresentation that there were no leaks and had not been any leaks on the property to Ms Townsend’s knowledge.
Summary judgment principles
[18]The relevant rule is r 12.2 of the High Court Rules 2016 which reads as follows:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[19] The principles that apply to a plaintiff’s summary judgment application were summarised by Associate Judge Osborne in Mount Grey Downs Ltd v Pinot Properties Ltd as follows:1
(a)Commonsense, flexibility and a sense of justice are required.
(b)The onus is on the plaintiff seeking summary judgment to show that there is no arguable defence. The Court must be left without any real doubt or uncertainty on the matter.
(c)The Court will not hesitate to decide questions of law where appropriate.
(d)The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements in affidavits.
(e)In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or plainly contrived factual conflicts. It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or other statements, or inherently improbable.
(f)In assessing a defence the Court will look for appropriate particulars and a reasonable level of detailed substantiation – the defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the Notice of Opposition.
(g)In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the Court.
(h)The need for judicial caution in summary judgment applications has to be balanced with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case. Where a last-minute, unsubstantiated defence is raised and an adjournment would be required, a robust approach may be required for the protection of the integrity of the summary judgment process.
(i)Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment but does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.
Issue 1 – the position of the plaintiffs as nominees
[20]Section 35(1) of the CCA provides as follows:
1 Mount Grey Downs Ltd v Pinot Properties Ltd [2018] NZHC 3094 at [12] (footnotes omitted).
35 Damages for misrepresentation
(1)If a party to a contract (A) has been induced to enter into the contract by a misrepresentation, whether innocent or fraudulent, made to A by or on behalf of another party to that contract (B),
(a)A is entitled to damages from B in the same manner and to the same extent as if the representation were a term of the contract that has been breached; and
(b)A is not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, entitled to damages from B for deceit or negligence in respect of the misrepresentation.
[21] Nominees wishing to enforce contract terms must normally rely upon ss 12 and 17 of the CCA.
[22]Section 12 provides:
12 Deed or contract for benefit of person who is not party to deed or contract
(1)This section applies to a promise contained in a deed or contract that confers, or purports to confer, a benefit on a person, designated by name, description, or reference to a class, who is not a party to the deed or contract.
(2)The promisor is under an obligation, enforceable by the beneficiary, to perform the promise.
(3)This section applies whether or not the person referred to in subsection
(1) is in existence when the deed or contract is made.
[23]Section 17 provides:
17 Enforcement by beneficiary
(1)The obligation imposed on a promisor by section 12 may be enforced by the beneficiary as if the beneficiary were a party to the deed or contract.
(2)Relief in respect of the promise may not be refused on the ground—
(a)that the beneficiary is not a party to the deed or contract in which the promise is contained; or
(b)that, as against the promisor, the beneficiary is a volunteer.
(3)In subsection (2), relief includes damages, specific performance, or an injunction.
[24] In Laidlaw v Parsonage, the Court of Appeal held that the description of a purchaser in an agreement for sale and purchase as “[purchaser] and or nominee” was sufficient to bring the nominee within s 4 of the Contracts (Privity) Act 1982 (the predecessor to s 12), with the consequence that the nominee could enforce the contract under s 8 of that Act. 2 The Supreme Court refused leave to appeal from that decision.3
[25] However, there is now a line of authorities that nominees may not bring a claim for damages in respect of pre-contractual representations that were not made to them. A nominee does not have a cause of action against another contracting party based on an inducing misrepresentation because such a misrepresentation is not a “promise” contained in a deed or contract under s 12.4
[26] Mr Price submits that a clear resolution on this issue has yet to be reached. While I was not referred to any relevant decisions of the Court of Appeal or Supreme Court, there appears to now be a clear consensus in this Court, with which I agree.5 It will suffice to refer to two of these decisions.
[27] Closurepac NZ Ltd v WS 2014 Ltd, was decided before the enactment of the CCA and therefore the discussion on the issue before me concerned s 4 of the Contracts (Privity) Act.6 The case concerned an agreement for sale and purchase of a packaging business which was entered into between a Mr Ralph “or nominee” as purchaser and the defendant company as vendor.7 Mr Ralph nominated Closurepac NZ Ltd as the acquiring entity. Closurepac claimed it had purchased the business in reliance upon pre-contractual misrepresentations contained in an information memorandum and made orally to Mr Ralph.
2 Laidlaw v Parsonage [2009] NZCA 291, [2010] 1 NZLR 286.
3 Laidlaw v Parsonage [2009] NZSC 98, [2010] 1 NZLR 286.
4 DW McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at 92.
5 Cashmore v Sands (2007) 8 NZBLC 101,897 (HC) at [195] and [199]; Closurepac NZ Ltd v WS 2014 Ltd [2015] NZHC 1587 at [163]–[164]; Do Yay Ltd (in liq) v Wei [2020] NZHC 759, [2021] 2 NZLR 351 at [54]–[57]; Mitchell v Murphy [2019] NZHC 3262 at [14]–[17]; Dangerous Goods Compliance Ltd v Farquhar Lelean Holdings Ltd (in liq) [2022] NZHC 3041 at [181]–[188]; and see McMorland, above n 4, at 92.
6 There is no suggestion that s 12 changed the law in this regard: see Contract and Commercial Law Act 2017, s 4(1).
7 Closurepac NZ Ltd v WS 2014 Ltd, above n 5.
[28] Thomas J considered that Closurepac did not have a cause of action for misrepresentations that were not made to it when it had purchased the business as nominee. Her Honour said:
[163] In its commentary on s 4, Gault on Commercial Law addresses the issue saying:
Note that these words do not include an inducing misrepresentation; in a contract between A and B for the benefit of C there is no remedy available to C against A if B entered into the Contract in reliance on A’s misrepresentation.
[164] That must be the case. Section 4 is focused on a situation where a deed or contract confers or purports to confer a benefit on a person who is not a party. In this case, the representations were not in a deed or contract. …
(footnote omitted)
[29] A more recent decision concerning s 12 is Do Yay Ltd (in liq) v Wei.8 There, a vendor of a café business, Do Yay Ltd, was alleged to have made pre-contractual misrepresentations to the purchaser of the business, Mr Wei, regarding sales figures. Mr Wei incorporated Lodge Food Ltd to acquire the business. The business did not perform to expectations. Lodge Food Ltd ran and then sold the business at a loss. Mr Wei and Lodge Food Ltd commenced an action in the District Court against Do Yay Ltd for damages resulting from the pre-contractual misrepresentations. The District Court Judge found that misrepresentations had been made and awarded damages to Lodge Food Ltd and to Mr Wei personally. Do Yay Ltd appealed.
[30] On appeal, Gault J noted the District Court Judge did not separately deal with the position of Lodge Food Ltd when considering the issue of Do Yay Ltd’s liability for pre-contractual misrepresentations.9 He referred to Thomas J’s decision in Closurepac and agreed with it saying:
[56] … I agree with Thomas J that what is now s 12 of the [Contract and Commercial Law Act] does not apply to pre-contractual misrepresentations as there is no “promise contained in a deed or contract”. Section 35 provides that the induced party “is entitled to damages … in the same manner and to the same extent as if the representation were a term of the contract that has been breached”, but that does not mean the misrepresentation is a promise contained in the contract for the purpose of s 12.
8 Do Yay Ltd (in liq) v Wei, above n 5.
9 At [51].
[57] Therefore, given the requirements of s 35 and the inapplicability of s 12, I conclude that Lodge Food Ltd was not entitled to damages under s 35 of the [Contract and Commercial Law Act].
[31] Applied to this case, the defendants say the plaintiffs are suing as nominees and have just one cause of action for damages resulting from alleged pre-contractual misrepresentations. Based on the authorities, that is a claim that cannot succeed as the plaintiffs have no remedy for misrepresentations that may have been made to Mr Forbes as purchaser.
[32] The plaintiffs, however, argue the decisions I refer to are not determinative in this case. The principal reason advanced is that the defendants’ argument fails to recognise that in law a person acting as a trustee does not have an identity different from themselves individually. Mr Price submits that unlike a company or an incorporated society, a trust is not a legal person recognised as distinct from the persons who direct its affairs. On this basis, he argues, regardless of the view I take to the authorities and the rights of plaintiffs qua trustees under s 35, Mr Forbes has a right to sue for the pre-contractual misrepresentations that were made to him personally. Mr Price then argues that if I consider the plaintiffs cannot rely on s 35, I should enter judgment for Mr Forbes alone. He went even further and submits that I might also enter judgment for Mrs Forbes on the basis that Mr Forbes entered into the agreement as her agent.
[33] To support his argument, Mr Price referred to O’Hagan v Body Corporate 189855 where it was held that a unit holder’s legal status as owner did not alter when she transferred ownership to herself and her co-trustee.10 The Court of Appeal rejected the proposition that the transfer of title by a sole owner to both herself and her solicitor as trustees of a family trust resulted in a distinct “later owner”.
[34] Mr Price also relied upon Mitchell v Murphy, where a husband entered into an agreement to purchase a property from the defendant, but the title was registered in both his and his wife’s joint names, and Gordon J held the wife had standing to bring claims including under s 35 of the CCA.11
10 O’Hagan v Body Corporate 189855 [Byron Avenue] [2010] NZCA 65, [2010] 3 NZLR 445 at [49]–[52].
11 Mitchell v Murphy, above n 5, at [17]–[19].
[35] I accept that a claim by Mr Forbes for pre-contractual misrepresentations is not precluded because he nominated the plaintiffs to take title. While Mr Forbes nominated the plaintiffs as purchasers, he remained the original contracting party with all the rights that confers upon him. It is not necessary to have recourse to principles of trust law to arrive at that conclusion. However, the fact of the nomination is not without consequences for the making of such a claim.
[36] In Rivette v Atrax Group New Zealand Ltd, the plaintiff agreed to buy the business of the defendant and claimed the actual value of the stock was more than
$200,000 less the value that had been attributed to it by the defendants.12 The purchaser under the contract was the plaintiff “and/or nominee”. The defendant contended the plaintiff nominated a company or companies as purchaser and had lost his right to sue under the agreement and had suffered no loss.
[37]Venning J rejected the first of these arguments stating:13
The start point must be that the plaintiff, as the original purchaser and a party to the contract, has contractual rights. There does not seem to be any principled reason why the fact of nomination should lead to the loss of those rights. That is not the purpose or effect of the Contracts (Privity) Act. Rather, the purpose of that Act is remedial, to ensure that the nominee, in addition to the original contracting party, can enforce rights under the agreement.
[38] However, in respect to the question of whether the plaintiff had suffered loss, Venning J found that the party that had suffered loss under the contract was the entity that had settled the purchase and paid the purchase price of the stock. He rejected the argument that the plaintiff could sue for that loss because he was the purchaser under the agreement and that the company nominated to settle the purchase was entirely owned by him. Venning J held:
[17] One thing is clear: a company related to the plaintiff was nominated to purchase the business. Prima facie, it is that company, which settled the purchase and paid $450,000 for the stock … that would have sustained the loss rather than the plaintiff.
[18] … But even if Mr Rivette advanced funds to the company to enable it to settle the purchase it is the company that has suffered the loss, by paying too much for the stock, not Mr Rivette … Mr Rivette may have suffered a loss,
12 Rivette v Atrax Group New Zealand Ltd (2010) 11 NZCPR 723 (HC).
13 At [12].
in that his investment in [the company] may have been unsuccessful, but that is an indirect form of loss. It is not the loss sued for in these proceedings. …
[19] … This is not a case where it could be argued the plaintiff can sue for the loss of the nominee. Such cases are limited to the situation where the plaintiff effectively contracts on behalf of, and for the benefit of the third party
…
[39] I do not accept Mr Price’s submission that it is open to me to enter judgment for Mr Forbes alone and/or Mr and Mrs Forbes other than as trustees. The claim as made is not brought by Mr Forbes as the original purchaser under the agreement, or indeed as Mrs Forbes’s agent. It is made by the plaintiffs jointly as trustees of the Assurer Trust and nominees of Mr Forbes. Despite Mr Price’s submissions to the contrary, it is not appropriate to consider Mr Forbes’s position distinct from his co- trustees and on a different basis than the claim has been pleaded, particularly in a summary judgment context.
[40] The objection to proceeding in the manner Mr Price proposes is not a mere pleading issue as I understood him to argue. A nominee does not stand, for all purposes, in the shoes of the original contracting party, and this is significant in this case. First, of course, there is the matter that on the state of the authorities, nominees generally have no right to damages for pre-contractual misrepresentations not made to them.
[41] Second, as Rivette v Atrax Group New Zealand Ltd demonstrates, if Mr Forbes sues in his personal capacity as the original purchaser, he could only recover losses suffered by him distinct from losses suffered by the trust fund. Here, the plaintiffs’ pleading is that the trustees of the Assurer Trust purchased the property, undertook the repairs and paid the cost of those repairs. There is no pleading that Mr Forbes has personally suffered any loss distinct from that which the trustees seek to recover. It is the trustees who must bring an action to recover losses suffered to the trust fund.14 It would be absurd if Mr Forbes were able to recover such losses under s 35 of the CCA when the trustees themselves have no such entitlement.
[42] The decision in Mitchell v Murphy does not advance the plaintiffs’ position. There, Gordon J said she tended to the view Thomas J was correct in Closurepac that
14 High Court Rules 2016, rr 4.23 and 5.35.
a pre-contractual representation is not a “promise contained in a deed or contract” for the purposes of s 12.15 However, her Honour decided the matter before her on agency principles and held that the purchaser under the agreement in question had entered into it on behalf of himself and his wife, who accordingly had standing to bring the claims.16 The case before me is not pleaded on the basis that Mr Forbes was an agent for Mrs Forbes. There is also insufficient evidence to make such a finding, which would also be incongruent with the fact that the plaintiffs as trustees of the Assurer Trust were nominated and took title.
[43] The next argument the plaintiffs advance is that a term of a contract that identifies the purchaser as “X and/or nominee” is capable of several meanings and it will be necessary to interpret that meaning in the context of the particular agreement and circumstances before the Court. Mr Price submits that, here, the agreement means that upon nomination Mrs Forbes and Mr Gallaugher became parties to the agreement along with Mr Forbes.
[44] He referred to the definition of purchaser as “Grant Forbes and/or nominee” which he submits could not be objectively interpreted as meaning anything other than the purchaser comprised Mr Forbes and/or nominee/s. He argues that to interpret it as only meaning Mr Forbes would necessarily require ignoring the express words contained in that definition. Mr Price also submits that if such was the case, the reference to “nominee” both in the definition of purchaser and in cl 3.4(2) of the agreement would be redundant and meaningless.
[45] Mr Price also submits that to hold that a nominee cannot sue for pre-contractual misrepresentations is misaligned with the approach in the case law allowing nominees to access remedies under s 12 of the CCA.
[46] The effect of a nomination at law is well understood. In Cashmore v Sands, Clifford J described it as follows:17
… It is settled law that, in the absence of compelling language to the contrary, where a contract of sale is to a named purchaser and their nominee, the named
15 Mitchell v Murphy, above n 5, at [17].
16 At [18].
17 Cashmore v Sands, above n 5, at [180] (citation omitted).
purchaser is and remains through any nomination the only party to the contract. The additional words “or nominee” are a statement of right which the purchaser has, and would have even in the absence of express stipulation, to nominate the persons whose name is to be put into the memorandum of transfer as the person who is to take the legal title. This was stated by the Court of Appeal in Lambly v Silk Pemberton Ltd ...
[47] The use of the formula describing parties as “X and/or nominees” is commonplace and understood to have the meaning that Clifford J describes. Mr Price did not refer me to any authority where the description had been interpreted in the manner he proposes.
[48] I accept that such a meaning could be attributed to those words by clear language in the contract, but the learned author of Sale of Land notes:18
First, the common law right of a purchaser to a conveyance by direction, that is, to nominate the person to take title in the memorandum of transfer, remains, and is the prima facie interpretation to be placed on a description of a purchaser in a contract for the sale of land as a named individual or that person’s nominee.
[49] None of the matters Mr Price relies upon come close to satisfying me that I should take a different view here. Contrary to his submissions, it appears to me that cl 3.4(2) of the agreement makes a clear distinction between an original purchaser and other persons who may take the benefit of the contract. It provides:
Where the purchaser executes this agreement with provision for a nominee, or as agent for an undisclosed or disclosed but unidentified principal, or on behalf of a company to be formed, the purchaser shall at all times remain liable for all obligations on the part of the purchaser.
[50] I also do not accept that I should take a more liberal approach than the Court has to date in interpreting s 12. The argument that s 12 should be interpreted in the manner proposed is contrary to the clear words of the section and has been rejected by Gault J in Do Yay Ltd.19
[51] I am satisfied the defendants do have an arguable defence to the plaintiffs’ claim based on s 35 of the CCA and that the summary judgment application must be declined.
18 McMorland, above n 4, at 93 (footnote omitted).
19 Do Yay Ltd (in liq) v Wei, above n 5, at [56].
[52] It is unnecessary for me to consider the other issues that counsel identified, and I am hesitant to do so given that to my mind their resolution is highly fact specific. If this case goes to trial, the Court will have the benefit of a great deal more evidence than is before me, and my conclusions on these issues may be of little assistance or relevance. However, out of consideration for counsel’s submissions, I will express my view on each of the issues.
Issue 2 — Was Ms Townsend’s representation false?
[53] The plaintiffs say that the representation “Sarah confirms no leaks to her knowledge” can only be interpreted in one way, which is that there had not been any leaks or weathertightness issues with the property. They say that representation was plainly false in light of the historical leaks that had occurred.
[54]Mr Price went through the relevant matters in the evidence including:
(a)In around May 2018, both upstairs decks were found to be damp and rotting, and remedial work was undertaken including waterproofing and tiling.
(b)In March 2019, FBI Ltd conducted an investigation and notified the defendants of several issues including excessive moisture readings at three locations, a lack of flashings at the top of the chimney and cracked sealant on the ridging tiles of the roof. Water ingress was also discovered in the wall elevation between the upstairs and downstairs bathrooms where a hole was discovered and patched. Only some of the recommended remedial work was undertaken.
(c)Ms Townsend states that FBI conducted a second inspection on 24 July 2019. Mr Thomas, from FBI, says contrary to Ms Townsend’s evidence, there remained an area under the window in the downstairs bathroom that had a high moisture reading.
(d)A week prior to the sale of the property FBI undertook a third inspection of the property and found a 100 per cent moisture reading under a window in the downstairs bedroom.
[55] Ms Townsend says that the representation recorded her honestly held belief at the time that there were no leaks in the property. Mr Murray argues Ms Townsend’s evidence is to be believed. He argues she has been entirely candid and has provided extensive details of work undertaken to the property while it was owned by the defendants and the works and inspections undertaken to prepare the property for sale. The defendants also rely on the evidence of Mr Thomas, who says that Ms Townsend was particularly diligent and conscientious in her approach to preparing the property for sale.
[56] Mr Murray argues the question asked by Mrs Forbes to which Ms Townsend responded is irrelevant to determining the objective meaning of the representation. I do not accept that submission. The meaning of Ms Townsend’s representation cannot be understood in isolation. The submission is contrary to the Court of Appeal’s approach in Ridgway Empire Ltd v Grant, where the Court said:20
Whether there has been a misrepresentation of fact is not determined merely by considering the literal meaning of the words used without regard to the context. The enquiry is what a reasonable person would have understood from those words in all the circumstances. Relevant considerations will often include the nature and subject-matter of the transaction, the respective knowledge of the parties, their relative positions and the words used. Where a party with superior knowledge takes it upon itself to make a representation of fact without qualifying it by reference to the basis for its assertion, it will generally have to accept the consequences of being wrong. However, each case will ultimately turn on its own facts.
[57] I raised with Mr Price whether the plaintiffs had overlooked the fact that the query put to Ms Townsend asked her to confirm that there had not been any leaks or watertightness issues “that we should be aware of?”. I suggested it might be thought this did not require her to disclose all leaks but required her to exercise her own judgement as to the matters required to be disclosed. Mr Price submitted that while
20 Ridgway Empire Ltd v Grant [2019] NZCA 134, (2019) 20 NZCPR 236 at [11] (footnotes omitted).
Ms Townsend might not have been required to disclose very minor leaks, the leaks that occurred were not in that category.
[58] There were a series of emails between Mrs Forbes and Ms Wallace leading up to the 8 November 2019 email in which the representation was made. It would have been obvious to Ms Townsend that Mr and Mrs Forbes were concerned to know if historically there had been any leaks or other weathertightness issues and that might well influence whether they bid at the auction or not. Her response was unequivocal and conveyed there had been no leaks and did not disclose any weathertightness issues. Not all of the leaks that had occurred were minor and the repairs to the decks were significant works. Her statement that there were no leaks without further elaboration was, in my view, a misrepresentation.
Issue 3 — Was Mr Forbes induced to enter into the agreement on the basis of the representation, and was it reasonably relied upon?
[59] Whilst there is no explicit requirement in s 35 for reliance to be reasonable, the Court of Appeal has recognised such a general reasonableness requirement.21
[60] In Magee v Mason, the majority stated, to be actionable, the representee must show:22
(a)the representor intended that he or she would be induced by the misrepresentation to enter the contract; or
(b)the representor used language that would induce a reasonable person in the same circumstances to enter the contract;
(c)the representee relied on the representation when entering the contract and that such reliance was reasonable.
[61]The majority also made the following points about inducement:23
21 Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2010) 11 NZCPR 879 at [46].
22 Magee v Mason [2017] NZCA 502, (2017) 18 NZCPR 902 at [42] and [51].
23 At [48] (footnotes omitted).
(a)There may be more than one factor inducing entry. The test for any single inducement is whether it had a material effect on the decision.
(b)In New Zealand conveyancing practice it is usual to reduce the material terms to writing, meaning to be bound by the document, but each case turns on its own facts.
(c)A purchaser’s independent inquiries may bring reliance to an end, so negating the effect of a misrepresentation, but that need not be so.
[62] I have no doubt that Ms Townsend made the representation intending that it would be relied upon by Mr and Mrs Forbes. I am also satisfied Mr Forbes relied upon the representation. As noted, the tenor of the email correspondence was that Mr and Mrs Forbes required information to bid at the auction. The real issue upon which the parties engaged was whether reliance upon the representation was reasonable in all the circumstances.
[63] The plaintiffs submit it was reasonable for Mr Forbes to rely on the representation as it was a clear representation and in the words of William Young P in Vining Realty Group Ltd v Moorhouse:24
[I]t does not normally sit well in the mouth of someone who has been guilty of misrepresentation to blame the other person for believing the misrepresentation.
[64] The plaintiffs say it is not sufficient for the defendants to point out other information available to them which might also have led them to enter into the agreement as a misrepresentation need not be the sole reason for the party entering the contract, only an inducing cause. Here, they say the builder’s report did not put them on notice of leaks or weathertightness issues.
[65] Mr Murray submits it was not reasonable for Mr Forbes to have relied upon a one-line representation made very shortly before the auction. He argues that Mr Forbes obtained a comprehensive builder’s report and had extensive access to the property, including to the roof cavity on several occasions. In his written submissions, Mr Murray argues that Mr Forbes may have entered into the agreement not by reason of the representation, but due to the content of the builder’s report. However, he also argues Mr Forbes could not reasonably have relied upon the representation when the
24 Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2010) 11 NZCPR 879 at [53].
builder’s report identified there were damp moisture readings taken at the property and that it had a high risk for weathertightness issues to arise. Mr Murray also submits whether it was reasonable for Mr Forbes to rely on the representation is a trial issue not suitable for summary judgment.
[66] I am not satisfied that it was reasonable for Mr Forbes to rely upon the representation to enter into the agreement. A comprehensive builder’s report was obtained, and in my view, it is arguable it was sufficient to put Mr Forbes on notice that there may have been leaks or other weathertightness issues and that a reasonable person in his position would not have relied upon the representation without making further enquiries. The report noted there were moisture readings taken that were not within an acceptable range and importantly stated:
Recommendation:
All damp moisture readings require further investigation by licensed builder using invasive pin/probe meter to confirm readings and advise repair solution as/if required.
[67] The report also stated that non-invasive moisture testing was only a guide that establishes the likelihood of the presence of moisture, which emphasised the need for further investigations to be conducted. The report also identified weathertightness risk factors affecting the property. It was a very high risk for roof/wall intersection design and eaves width, a high risk for wind zone and number of stories, and medium risk for envelope complexity and deck design.
[68] Further, I have a residual concern as to what work Mr Forbes actually understood had been done on the decks. I accept Mr Price’s submission that on the evidence, it is not open to me to find that Mr Forbes knew that the work was required to correct weathertightness issues. That said, the builder’s report does note that there was “recent waterproofing works done to the decks – as per vendor’s information”. The evidence does not identify that “vendor’s information”, and so I cannot assess to what extent it may have put Mr Forbes on notice of the possibility that the property had leaked.
[69] Finally, while I have found, based on the evidence presently available to me, Ms Townsend’s representation was false, the question that was put to her was in the context where Mr Forbes had the builder’s report identifying issues of concern requiring further investigation. The question asked of Ms Townsend did not provide that context for her to comment upon and, for that reason, might not be considered a substitute for further investigations.
[70] In a summary judgment context, the plaintiffs have not satisfied me that it was reasonable for Mr Forbes to rely upon the representation. I consider that this is an issue the Court can only fairly resolve at a trial.
Issue 4 — Can liability be determined separately?
[71] Rule 12.3 of the High Court Rules permits the Court to give judgment on the issue of liability and to direct a trial on the issue of amount if the party applying for summary judgment satisfies the Court that the only issue to be tried is one about the amount claimed.
[72] The defendants argue that there is not a clear dichotomy in this case between the issues of liability and quantum making it unsuitable for a liability only judgment. They rely upon 246 Investments Ltd v Herbert where Associate Judge Osborne said of applications for summary judgment for liability:25
The dearth of “liability only” judgments has come about not by chance, but by principled reasoning. That reasoning is exemplified in the judgment of Eichelbaum J in Ghent v Brinkman … That case involved a claim for breach of fiduciary duty and breach of a duty of care. At pages 12-13 Eichelbaum J said this:
Even had I taken a different view of the issues discussed so far, I would not have felt able to accede to the plaintiffs’ application for judgment on liability. This is not a case where there is any clear dichotomy between issues affecting liability on the one hand and damages on the other. The claims for aggravated and exemplary damages appear to open up virtually the whole field of the conduct of the respective parties, necessarily leading to an examination of all aspects of the relationship between them. Likewise with the question of the possible reduction of the plaintiffs’ damages, whether on the basis dealt with in Day v Mead or (on the second cause of action) by way of a plea of contributory negligence on conventional grounds. Thus the Court would perforce have to examine
25 246 Investments Ltd v Herbert HC Auckland CIV-2008-404-6612, 10 July 2009 at [63] (citation omitted).
and pronounce upon the very issues which by virtue of a summary judgment would have been presumed to have been decided in favour of the plaintiffs. Not only would that mean that the summary judgment procedure would have conferred little advantage from the point of view of saving expense and time but it would put the Court in the position where it might make findings which would not readily be reconciled with a holding that there was no tenable defence. For these reasons therefore I would in any event decline to enter summary judgment.
[73] They also rely on Fullarton v Arowana International Ltd where Fitzgerald J said in respect of an application for summary judgment on liability:26
For the Court to be satisfied that the only issue to be tried is one about the amount claimed is a reasonably high threshold. There must be a “clear dichotomy” between issues affecting liability and damages. The rationale for this is self-evident. 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.
[74] The plaintiffs submit that liability can be determined irrespective of loss. They say that while there is an implication the defendants may argue the plaintiffs failed to mitigate loss, that is not a matter that cuts across liability as it assumes the plaintiffs have established an entitlement to damages.27
[75] It appears to me in this case issues of liability and quantum are not cleanly divided. To take one issue, the degree to which Mr Forbes was aware of the extent of repairs undertaken to the decks and the reasons for those repairs have the potential to engage issues of both liability and quantum, likewise some of the issues raised in the builder’s report.
[76] For that reason, also, the plaintiffs’ application for summary judgment will be dismissed.
Result
[77]The plaintiffs’ application for summary judgment is dismissed.
26 Fullarton v Arowana International Ltd [2021] NZHC 931, [2021] NZCCLR 28 at [80] (footnotes omitted).
27 McRaeway Group Ltd v Lane Neave [2017] NZHC 1138 at [84] and [88].
[78] I am not aware of any reason why costs should not be reserved in the usual manner. If either party wishes to apply for costs, I will reserve leave for them to do so within 14 days, with seven days for any reply. I should not be taken as encouraging that.
[79] I direct that the case be called on the next available date before an Associate Judge for case management purposes and that the defendants’ application to debar the plaintiffs’ solicitors from acting further may be timetabled to a hearing at that time, if it is to be pursued. Counsel are to confer and file preferably a joint memorandum for the case management conference with proposed timetable directions at least three working days prior.
O G Paulsen Associate Judge
Solicitors:
MinterEllisonRuddWatts, Auckland
Paterson Legal Limited (A Paterson), Auckland
Addendum:
After completing this judgment, I was provided with memoranda of counsel dated 7 September 2023 (for the plaintiffs) and 8 September 2023 (for the defendants). For the reasons which are set out above, I am not prepared to deal with the plaintiffs’ application except on the pleadings that were before me at the hearing.
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