Fowler Developments Limited v Robertson
[2012] NZHC 1218
•1 June 2012
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2009-409-000454 [2012] NZHC 1218
BETWEEN FOWLER DEVELOPMENTS LIMITED Plaintiff
ANDCRAIG JAMES ROBERTSON First Defendant
ANDDELTA ASSETS LIMITED Second Defendant
ANDPETER JOHN CARR AND TINA MARIA CARR
Third Defendants
ANDNEW ZEALAND HOME BONDS LIMITED
Fourth Defendant
Hearing: 31 October, 1 and 2 November and 2 December 2011
Appearances: G M Brodie for Plaintiff
C J Robertson (In Person)
D M Lester for Second and Third Defendants
J Moss for Fourth Defendant
Judgment: 1 June 2012
JUDGMENT OF FOGARTY J
This judgment was delivered by Justice Fogarty on
1 June 2012 at 11.00 a.m., pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Rhodes & Co., PO Box 13444, Armagh, Christchurch 8141
GCA Lawyers, PO Box 3241, Christchurch Mail Centre 8140
Copy to:
Christopher Morrall, PO Box 1935, Christchurch Mail Centre 8140D M Lester, PO Box 9344, Tower Junction, Christchurch 8149
FOWLER DEVELOPMENTS LIMITED V ROBERTSON HC CHCH CIV-2009-409-000454 [1 June 2012]
Introduction
[1] The plaintiff sues for specific performance for the sale of four residential sections in a new subdivision called Seafield Lagoon at Brooklands on the outskirts of Christchurch. This is an area of flat land adjacent to the large tidal Brooklands Lagoon, which is adjacent to the mouth of the Waimakiriri River.
[2] The defendants are: Mr Robertson - one section; his company, Delta Assets Limited - two sections; Mr Carr and his former wife, Ms Abernathy – one section; and New Zealand Home Bonds Limited. New Zealand Home Bonds promised the plaintiff to pay the deposits due by Delta Assets Limited and Mr Robertson upon settlement, when settlement was due on their contracts. Delta Assets Limited was reinstated by the Court on the register, for the purpose of this litigation. This was a necessary step in order to enable the question of whether or not New Zealand Home Bonds was liable to pay the deposits in the Delta sections to the plaintiff.
[3] The sale and purchase contracts provided for the settlement date to be fixed at a time of date of issue of title. This was expected to be on 30 November 2008. The purchasers were entitled to cancel if title had not been issued on or before 27 June
2009. Mr Robertson entered into his agreement on 26 March 2008. He had contracted as director of Delta Assets Limited for their two sections on 19 December
2007. Mr and Mrs Carr contracted on 20 February 2008.
[4] The plaintiff’s solicitors called for settlement of all the sales on 2 December
2008.
[5] The defendants refused to settle. They gave as their reason the failure of the plaintiff to construct a lagoon adjacent to the subdivision. The sections they had bought were among the higher priced sections fronting the lagoon development.
[6] When the sections were sold in the beginning of 2008 there was a large paddock adjacent to the 36 lot subdivision. It was greater in area than the
subdivision. It had been used for grazing. It was and is owned by the Christchurch
City Council (“the Council”).
[7] The plaintiff had acquired its land for subdivision from another property developer. The earlier property developer had an arrangement with the Council to excavate channels and ponding areas in the Council’s paddock. The developer intended to use the excavated material from the Council land to dump it on the land to be subdivided, in order to raise the level of the land to a higher benchmark against sea level and to create a bund preventing the escape of water from this area onto residential sections.
[8] The Council did not call this development the Seafield Lagoon. The objective of the Council was to expand the salt marsh and salt meadow plant communities already established, to some degree, on the eastern extremity of the Council paddock. The channels were to be connected via a culvert weir structure known as “the gate” to the Brooklands Lagoon and a short channel was to be constructed on the Brooklands Lagoon side of the gate. The intent was to allow water at high tide to come from the Brooklands Lagoon into this area and for the gate to hold a significant part of that water so that it did not drain out at low tide. This would ensure that appropriate water levels would be maintained in the salt marsh.
[9] One of the issues in this case was whether or not the description “Seafield Lagoon” is itself a misrepresentation. As it turns out, I do not think the dispute resolves on this point. In Judgment No.1[1] the Court granted leave to the defendants to plead that implicit in the representations made by the plaintiff, was that the plaintiff at the time of making the statements was ready, willing and able to complete the lagoon and its features and attributes as depicted and described, in particular that
all necessary regulatory consents were in place to complete the works, and secondly that as a matter of fact not all regulatory consents necessary for the work were in place at the time of the contract with the third defendants. The plaintiff was relying
on a “non-enforcement letter” of 20 September 2007 from Environment Canterbury
(“ECan”), which was limited to storm water issues only. The defendants were arguing that they were entitled to cancel as the implied representations were impliedly agreed to be essential and those representations were incorrect.
[1] Fowler Developments Limited v Robertson HC Christchurch CIV 2009-409-000454, 9 December
2011 at [2].
[10] Those representations are addressed not to the presence of regulatory consents for the land to be subdivided, but as to the presence of regulatory consents for the development of the Council land. The agreements for sale and purchase contained “further terms of sale” as to the completion of the subdivision. In particular, in clause 14 the vendor undertook “to carry out such works and pay such money … as the vendor considers are necessary to have a land transfer plan of subdivision … which conforms with the subdivision proposal plans attached to the agreement.”
[11] There were no express obligations assumed by the vendor in the contracts to carry out the works on the Council land.
[12] I will call this Council land “the salt marsh”, as a neutral term, independent of the issue of whether or not the “Seafield Lagoon” was simply the name of the subdivision and did not extend to the salt marsh, and independent of the issue as to whether or not the salt marsh had lagoon-like qualities.
[13] What is common ground is that the salt marsh was to be excavated, bunded, and planted by the developer, to the end that it would produce an attractive amenity neighbouring the subdivision. That amenity would include water features which would be attractive.
[14] The excavation of the ponds and channels was undertaken by contractors for the plaintiff after the contracts were signed. In May 2008, ECan placed a stop work on the construction of the engineering works designed to facilitate the flow of water at high tide from the Brooklands Lagoon into the salt marsh and in turn allow some discharge of water from the salt marsh to the Brooklands Lagoon. ECan called for the making of a number of resource applications for a discharge from the salt marsh to the Brooklands Lagoon. This included an unexpected application to dig a much
longer 400 metre channel, rather than a simple 40 metre channel, on the Brooklands
Lagoon side of the gate structure.
[15] The first application to seek consents was made by the Christchurch City Council on 4 August 2008. The consents were obtained, but two years after the “due date” of settlement, 2 December 2008.
The trial issues
1.What did the buyers see before they entered into the agreement for sale and purchase of the sections fronting the salt marsh?
2. What were they told and shown by representatives of the plaintiff?
3.Did the illustrations and conversations contain an implied representation that the necessary regulatory consents to develop the salt marsh were in place?
4. If so, did the buyers rely on that representation?
5. If so, was the representation essential to the buyers?
Issue 1: What did the buyers see?
[16] When the buyers purchased the sections, the salt marsh was at that stage an undeveloped paddock. Near the entrance to the subdivision was a prominent sign. It was headed in bold “Seafield Lagoon” and below it had a coloured plan showing both the sections for sale, painted green, and then the salt marsh in its fully developed stage, showing blue water coming in from the Brooklands Lagoon and circulating around the salt marsh in a number of linking channels at different depths, with green planting on the verges and, to some extent, in the interior. Altogether it was an attractive prospect.
Issue 2: What were the purchasers told and shown by representatives of the plaintiff?
[17] Mr and Mrs Carr spoke directly to Mr Fowler who controlled Fowler Developments Ltd. Mr Robertson discussed the project with the plaintiff’s sales agent, Mr Twiss.
[18] The Carrs met with Mr Fowler in his home. And were shown a large plan, being the same as the sign on the site but with more detailing of planting. Mr Fowler told them his company was going to do the construction work and the planting on the salt marsh. He did not promise a completion date.
[19] Mr Fowler naturally talked of development of the salt marsh, alongside the subdivision. This is because at that time the plan was to use the material excavated to deposit on the land in order to raise it to the required height, without which the titles would not issue.
[20] The evidence established that the Carrs appreciated that this was a development converting the paddock into an area of islands threaded by channels of water, some parts of the channels ponding out into broader areas; that the water would be kept up to good levels by an intake of sea water from the Brooklands Lagoon; that this would be artificially maintained by a gate; and the area would be attractively planted and be accessible to the public by walkways.
[21] It was to be an attractive amenity justifying the sections immediately adjacent to it being priced above the interior sections, as they were.
[22] It was obvious, however, that this amenity would take years to mature and no-one could expect the vision in the Council concept plan to be realised as to planting by the proposed settlement date. But the purchasers would expect the excavation and water features. They would expect the area to be planted (though it was contentious as to when – for Christchurch is very dry in the summer).
[23] Mr Fowler was aware that a resource consent would be required to discharge storm water from the subdivision and indeed this has been the subject of an
application made by Davis Ogilvie on behalf of the plaintiff on 29 August 2007. The Council intended to apply for a seven-year catchment-wide storm water consent “for this area”. No applications had been processed and granted at the date that the plaintiff entered into the contracts with the defendants.
[24] Mr Fowler expected all the channels and ponds to be excavated and filled with water before the titles would issue.
[25] Mr and Mrs Carr had the expectation, now common place with quality subdivisions throughout New Zealand, that by settlement date the subdivision would have an attractive entranceway, with some planting and a valuable statue and that the salt marsh would be excavated, the channels filled and the planting done, or imminent, and there would be a water amenity attractive to bird life with native plantings on the Brooklands Lagoon side of the subdivision, all in all as described in the brochures as Seafield Lagoon. In that context Seafield Lagoon was not just the name of the subdivision, but it included the amenity and was a descriptive name of the subdivision and the developed salt marsh. Though, to be sure, the development would be raw, at settlement date.
[26] Unlike Mr and Mrs Carr, Mr Robertson was a Brooklands local. He was familiar with the area and discussed the project with the plaintiff ’s agent, Mr Twiss. Mr Robertson also likewise assumed that the channels and ponds would be excavated and filled before the titles would issue. Like Mr and Mrs Carr, he could not, however, expect that the amenity would be in place by the settlement date; it would take years to mature.
Issue 3: Did the illustrations and conversations contain implicit statements of fact that the necessary consents to develop the salt marsh were in place?
[27] In supplementary submissions in respect of this issue, Mr Brodie argued that the sale and purchase agreements related only to the development of a substantial residential subdivision. He noted that the subdivision consent had only been obtained on 19 February 2008. He referred to clause 14 in the subdivision which I have just summarised at [10]. He submitted:
Clearly [these] contract[s] amount[s] to an engagement by the plaintiff to carry out all of the work and do everything necessary to bring about the subdivision. That is the complete antithesis of a statement to the effect that everything required had already been completed or was already in hand.
[28] His submissions continue on that basis. I do not think he directly confronts the point, which is as to representations of the development of the Council land, upon which the contracts for sale and purchase are silent. Inasmuch as there is an implied term that all regulatory consents are in place, extending to the Council land, he argues it is not necessary to imply such a term to give business efficacy to the contract. I agree and no term would have been implied if the vendor plaintiff had not by the sign and the map shown the subdivision set against the developed salt marsh, calling the development “Seafield Lagoon”. After that the issue becomes whether a term should be implied that there was legal authority for Fowler Developments to develop the Council land, the salt marsh. And if so, whether or not these representations induced the buyers to enter into the contracts to purchase lots in the adjoining subdivision.
[29] Mr Brodie is arguing that the buyers could not be sure that regulatory consents were in place both for the subdivision and for the Council land, and that so, whether there were or were not regulatory consents did not matter. They had entered a contract to settle when title was provided.
[30] The salt marsh development was not in place at the time of the contracts. None of the physical construction work had commenced. The information the buyers were receiving particularly from the signage, and the coloured plan, was about an intended future amenity adjacent to the subdivision. The presence of this amenity would enhance the quality of life for the residents of the subdivision. The information was a description of the physical characteristics of the lagoon when completed. It contained an explanation as to how the amenities would be achieved by it being explained how it would be built, planted and the water levels maintained. It included oral information that the work was to be done by the developer though it was on Council land. That information was a selling point. It explained the premium price for the lots adjacent to the salt marsh. It contained an implicit
assurance that the development of the salt marsh would take place, alongside the subdivision.
[31] Mr Brodie argued there was no representation at the time the contract was made. He said that is the time at which it is to be judged. Further, he quoted Burrows Finn and Todd[2] for the proposition that:
[A misrepresentation] relates to some existing fact or some past event, and contains no element of futurity. ... An affirmation of the truth of a fact is different from a promise to do something in the future. That distinction was clearly drawn under the pre-Act law, and cases under the Act say that it must still be drawn.
[2] J Burrows, J Finn and S Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington,
2007) at 304.
[32] Accepting that statement as correct law, I examine whether there was any misrepresentation as to some existing fact. As I have found above, the statements being made by Mr Fowler were as to construction that was to be done and facilities that were to be put in place. These are forecasts, and arguably promises to do something in the future. Mr Robertson said that he presumed that all necessary RMA consents were in place. That would be a presumption of an existing fact.
[33] Mr Carr and Ms Abernathy’s evidence was that Mr Fowler talked of the salt marsh project as though it was his or to be his doing. What Mr Fowler did not inform to either of these two sets of prospective buyers was that there was no regulatory consent for the salt marsh. He would not have, as he thought a letter of
20 September 2007 from ECan and the Council gave him authority to do the work.
[34] There is no reason to doubt that Mr Fowler did talk to the Carrs about the development in terms as to how the excavation would be done and the planting and so on, because he was going to be in control of that. That was the arrangement he had with the Council. But this arrangement was very peculiar, a promise of non- enforcement.
[35] Mr Fowler had taken over this project from another property developer. As already noted, in 2007 the plaintiff had made an application for storm water consent
to discharge storm water from the subdivision. On 20 September 2007, the plaintiff
received a joint letter both from ECan and the Christchurch City Council. Both regulatory authorities advised:
In the interests of not unduly delaying your development while this process is undertaken and in view of the commitment of CCC to the short term catchment wide storm water consent process, ECan has agreed to exercise its discretion under Resource Management Act 1991 and not take enforcement action should you decide to commence the discharge from your development prior to full authorisation being granted.
[36] Mr Fowler assumed that assurance of non-enforcement covered also the excavation works and the structures and channels for development of the salt marsh. Then about eight months later came a most unexpected letter. On 11 April 2008
ECan wrote to Fowler Developments Limited, referencing the letter of 20 September
2007. ECan said:
The letter dated 20 September 2007 refers to and only applies specifically to the discharge of storm water; it covers no activities undertaken as part of your development that may need resource consent.
Your storm water discharge consent states you will also need consent for:
1) Placement of structures in the foreshore
2) Placement of structures on the seabed
3) Diversion of coastal water
4) Discharge of coastal water
5) Excavation
6) Earthworks in the coastal marine area.
You may also require consent for construction phase discharges.
Applications for these activities have not been received by Environment Canterbury. Undertaking these activities without the appropriate authorisation is a breach of sections 12, 14 and 15 of the Resource Management Act. These activities may not be undertaken until such a time as the appropriate authorities have been granted. (Emphasis added)
This letter led to the work on the salt marsh, by then already underway, being stopped.
[37] In conclusion, I have no doubt that Mr Fowler was confident at the time that the contracts were made, that he had clearance, albeit informal, from the
Christchurch City Council and ECan to do the development works to develop the salt marsh. He was wrong. He did not. Inasmuch as he talked about the work being done, it carried within it an incorrect statement of present fact: that Fowler Developments Ltd had legal authority to do so. That was an innocent misrepresentation of fact. It was a misrepresentation that the necessary regulatory consents were granted for the development of the salt marsh.
Issue 4: Did the buyers rely on that representation?
[38] The defendants were buying sections fronting onto the salt marsh development. There is no doubt that they considered those sections to be more attractive than the other sections and thus worth more. So did the plaintiff. They were priced by the plaintiff at a higher price than the back sections. I am satisfied from the evidence that Mr Robertson and Mr and Mrs Carr relied on the development of the salt marsh to take place. That was not and could not be substantially disputed at the trial. I am also satisfied that the signage was intended to, and did in fact, have a significant causative role in selling these sections to these buyers. It was an idealised version of the plans that Mr and Mrs Carr saw. All three were sufficiently experienced not to be dewy eyed about real estate signs and banners. Nonetheless, the signage and in the case of the Carrs the large plan, were consistent with what they were told would happen; that there would be channels filled with good quality water and maintained at an adequate level amidst islands which would be partly planted in trees and foliage and partly be grassland.
[39] It was public knowledge that the project was stopped by ECan in May 2008, a few months after the contracts were signed, and well before the titles were ready, and settlement was due. There is no evidence that the Carrs or Mr Robertson knew before the stopping that neither the Christchurch City Council nor the developer had resource management consents for the salt marsh project.
Issue 5: Was the representation essential to the buyers?
[40] The defendant buyers argue that their refusal to settle was a valid cancellation, relying upon s 7 of the Contractual Remedies Act. The Carrs had
originally pleaded loss of substantial benefit of the agreement relying on s 7(4)(b). Their latest amendment, though, relied on s 7(4)(a). Mr Robertson pleaded both. Section 7(4)(a) and (b) provide:
(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,—
(a) The parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the term is essential to him; or
(b) The effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—
(i) Substantially to reduce the benefit of the contract to the cancelling party; or
(ii) Substantially to increase the burden of the cancelling party under the contract; or
(iii) In relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.
[41] I turn then to apply s 7(4)(a) using the test formulated by the Supreme Court in the decision of Mana Property Trustee Ltd v James Developments Ltd,[3] informed by the subsequent application of the test in the Court of Appeal in Pegasus Town Limited v Draper.[4] The question here becomes whether or not the parties to the contract, at the time they entered the contracts, impliedly agreed that it was essential that there were regulatory consents in place for the construction of the salt marsh, and its filling with water from the Brooklands lagoon.
[3] Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90 at [24]–[25].
[4] Pegasus Town Limited v Draper [2011] NZCA 140.
[42] That issue is resolved objectively. At para [25] in Mana the Supreme Court said:
[25] In the end, the preferable approach is to ask whether, unless the term in question was agreed at the time of contracting to be essential, the cancelling party would more probably than not have declined to enter into the contract. That question must be answered by an objective contextual appraisal which disregards what a party may unilaterally have said about its intention in that regard.
An objective contextual appraisal is needed for two reasons. Firstly, we are not exploring an actual state of mind as to what the parties would do without regulatory consents. This is so because they did not know at the time that there were no RMA consents. The actual state of mind was the other way, namely, an assumption of the ability to lawfully construct the salt marsh.
[43] The context needs to include the position these buyers were in. Mr Robertson and Delta were speculators: 100% financing the acquisition of three sections, borrowing in excess of $750,000. Naturally enough, Mr Robertson was assuming that upon getting title he would be in a position to build and sell, with a good expectation of buyers seeing in place the developed wet marsh, be it a lagoon or not. To take advantage of the wetlands outlook, the development of the salt marsh needed to be in place with the planting in place, albeit not mature. When one borrows that kind of money, time is of the essence. Interest rates are running and will continue to run. On top of the borrowing for the sections there is the future borrowing to build the houses.
[44] The prospect that the attractive wetlands salt marsh development might be stalled for years, for want of resource consent, would, in my judgment, have Mr Robertson and his company, Delta, more probably than not, decline to enter into the contracts in the absence of regulatory consents.
[45] The position of the Carrs is not quite as clear cut. They were also property developers. But they had in mind the prospect of occupying the home they were going to build on the property. They were a couple with a history of buying and selling residential properties. They liked to keep their options open. As it happened, before it got to the date of settlement they had already bought another property and were planning to live there. I do not think this is a change of behaviour. That is the way they were at the time they entered into the agreement. Therefore, again on the probabilities, they would have not run the risk of the development of the salt marsh being delayed for an indefinite period of time for want of regulatory consent. They would have been quite alarmed had they known that regulatory consents were not in place. On the probabilities, had they known there were no regulatory consents they would not have entered into the contract.
[46] Therefore the performance of the representation of the plaintiff that the regulatory consents were in place to develop the salt marsh was essential for the Carrs and Mr Robertson, and his company Delta Assets Ltd. They would otherwise have not entered into the contracts. Mr Fowler and Mr Twiss knew they were selling these sections at a premium price on the promise that the salt marsh would be developed. Had they been asked, they would have said Fowler Developments had the authority to do the work. On a purposive interpretation of s 7(4)(a) that assumption was then common to the parties and an implied agreement that the authority to do the work was essential.
Conclusion
[47] Following the stop work, Mr Robertson said he made enquiries of the consent authority, ECan, as to what would be the worst possible scenario. He was told the worst possible scenario is that the land would have to be reinstated. The Carrs did not make such an enquiry.
[48] Come the plaintiff’s demand for settlements on 2 December 2008, the
defendants refused to settle. Other buyers did settle.
[49] Clearly, both Mr Robertson and his company, Delta Assets, and the Carrs were motivated not to settle by disappointment at the raw state of the lagoon development (all the defendants) and by want of finance (Mr Robertson) only. They were given no assurances by the plaintiff that the problem was just a hitch. They could not have been, because it was not a hitch. As everybody knows, obtaining resource management consents involving the taking and use of water is a complicated and time-consuming exercise.
[50] The contracts were lawfully cancelled by the refusal to settle. The bond falls
away accordingly. The plaintiff’s action to enforce the contracts and the bond fails.
[51] The defendants are entitled to costs on a 2B basis. If the parties are unable to agree, I will receive written submissions.
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