Geraghty v Sutherland

[2013] NZHC 3011

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-004237 [2013] NZHC 3011

UNDER  the District Courts Act 1947 and Part 20 of the High Court Rules

BETWEEN  ARLENE LORETTA GERAGHTY Appellant

ANDKELLY JOSEPH SUTHERLAND, DOMINIQUE PATRICIA SUTHERLAND AND BENJAMIN JAMES SHAW (as Trustees of the SUTHERLAND FAMILY TRUST) Respondents

Hearing:                   11 November 2013

Counsel:                  Appellant in person

C Matsis for Respondents

Judgment:                14 November 2013

JUDGMENT OF COLLINS J

Introduction

[1]      Ms Geraghty appeals a judgment of Judge S E Thomas delivered on 26 July

2013.

[2]      Judge Thomas substantially found for the trustees of the Sutherland Family Trust (the Sutherlands) who sued Ms Geraghty for misrepresentations made either by Ms Geraghty or her real estate agent when she sold the Sutherlands her former home in Raumati Beach (the property).

[3]      Judge Thomas found Ms Geraghty was liable for:

GERAGHTY v SUTHERLAND [2013] NZHC 3011 [14 November 2013]

(1)misrepresentations relating to the roof of the property.  Ms Geraghty was found liable to pay the costs incurred by the Sutherlands when they repaired the roof. Those repairs cost the Sutherlands $18,865.13.

(2)       misrepresentations  relating  to  the  swimming  pool  at  the  property.

Ms Geraghty was required to pay the estimated cost of repairs to the swimming pool, namely $10,230.

[4]     Ms Geraghty says Judge Thomas was wrong to find her liable for misrepresentations because she maintains she did not make any misrepresentations. Ms Geraghty also challenges the amount she should have to pay the Sutherlands because she says the amount she has been ordered to pay includes an element of betterment, that is, the new roof and proposed pool repairs are above and beyond what is necessary.

Leave to appeal

[5]      Ms Geraghty may require leave to appeal because although her notice of appeal was filed within time, it was not served on the Sutherlands’ solicitors within the prescribed time.1

[6]      Ms Geraghty has explained that when she filed her notice of appeal she asked if she needed to do anything else.  She received an assurance from court staff that nothing further was required.

[7]      I propose to grant Ms Geraghty leave to bring her appeal out of time. [8]      Thus, I shall assess the merits of Ms Geraghty’s appeal.

Principles governing this appeal

[9]      As Ms Geraghty wishes to pursue a general appeal, I apply the principles articulated by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar.2

Those principles are:

(1)       I must make my own assessment of the merits of the parties’ cases.

(2)       Ms Geraghty bears the onus of satisfying me I should differ from

Judge Thomas’s conclusions.

(3)It is only if I consider Judge Thomas was wrong that I am justified in interfering with her judgment.

(4)If my view is different from the conclusions of Judge Thomas, then her decision is wrong in the only sense that matters, even if it is a conclusion upon which minds might reasonably differ.

(5)      In  such  circumstances  I  should  not  defer  to  Judge  Thomas’s assessment  of  the  acceptability and  weight  to  be  accorded  to  the evidence rather than my own judgement.

Background

[10]     Ms Geraghty and her former partner, Mr Henderson, purchased the property in March 2004.

[11]     In November 2006 the property was flooded.   Mr Henderson’s evidence in the District Court was that the flooding was apparently caused when extensive rain overwhelmed the capacity of the roof guttering and downpipes.   At that time an insurance claim was filed by Ms Geraghty and Mr Henderson.

[12]     Mr  Burgess,  the  director  of  a  roofing  contractor  business,  was  called  to inspect the roof by Ms Geraghty and Mr Henderson in November 2006.  Mr Burgess did  not  carry  out  any  remedial  work  at  that  stage,  but  he  recalled  telling Mr Henderson that there was an issue with the “internal gutter” which could not be easily accessed.  Mr Burgess said that the solution to the problem was to realign the roof because part of the roof sloped back towards the house and that the internal gutter at the transitional point was inadequate.

[13]     In March 2008 Mr Henderson and Ms Geraghty separated.   Mr Henderson left the property and thereafter Ms Geraghty and Mr Henderson became embroiled in Family Court proceedings.

[14]     In  December  2008  Ms  Geraghty  and  Mr  Henderson  agreed  to  obtain  a valuation of the property for the purposes of determining how much Ms Geraghty should pay to purchase Mr Henderson’s interest in the property.  The valuation report of December 2008 refers to the roofing issue in this way:

The balance of the roof which, has a relatively low pitch, may need to be replaced, and we have been provided with a quote to replace the roof and alter the internal guttering system.   There is evidence in the hallway and family room of leaking from these internal gutters.

... As mentioned above there is evidence of leaking in the entry foyer and family  room  to  the  walls  which  will  need  to  be  redecorated,  after rectification work has been carried out.

[15]     On 22 December 2008 Ms Geraghty obtained a quote from Mr Burgess to “re-pitch the roof and re-fit the internal guttering”.  Mr Burgess estimated this work would cost $25,552.24.

[16]     The Family Court issued a decision on 20 October 2009 concerning the relationship property dispute between Ms Geraghty and Mr Henderson.3   Paragraphs [30] and [47] of that judgment are relevant:

As far as the roof is concerned, prior to the parties separating they had lodged an insurance claim because of a leak in the roof.   The house construction is such that some of the guttering is internal and the problem has emanated from that area ... It was accepted at the hearing ... that if Ms Geraghty  obtains  the  house,  she  would  keep  the  proceeds  of  the insurance (approximately $1,500) because no doubt she will have to have the work done.  Ms Geraghty has not had the work done to date, because she considers that the underlying cause of the problem needs to be addressed. The insurance payment is merely repairing the immediate problem, but does not address the cause.   In order to address the cause, Ms Geraghty has obtained a quote from a roofing company to give her advice as to what needs to be done ... The quote suggests that the pitch line of the roof will need to be altered.

So there is no misunderstanding between the parties, Mr Henderson is not required to contribute towards any of the suggested remedial costs to either the roof or the pool. The valuation reflects those figures, and if Ms Geraghty

purchases  Mr  Henderson’s  interest,  she  purchases  that  interest  with  the knowledge that those defects exist and will need attending to ...

[17]     Ms Geraghty said in the District Court hearing that she did not in fact get anyone to carry out any of the work suggested by Mr Burgess because in March

2007 she discovered a tennis ball in the internal guttering and that after the tennis ball had been removed there were no more problems with the roof.   However, in order to ensure easier access to the internal guttering Ms Geraghty said she arranged for Mr Crimp to install a manhole or hatch through which the internal guttering could be accessed. This work was done in September and October 2010.

[18]     At the time of the Family Court proceeding, Ms Geraghty and Mr Henderson were aware of defects in the concrete walls to the swimming pool at the property. Those defects were rust marks that were probably caused by reinforcing steel or steel ties being too close to the surface of the walls of the pool or through the concrete walls being too porous.

[19]     The Family Court proceedings refer to the defects in the pool possibly being remedied  by  Ms  Geraghty  fitting  a  pool  liner.    However,  in  November  2010

Ms Geraghty  decided  to  repaint  the  pool  rather  than  fit  a  pool  liner.    In  the District Court Ms Geraghty said repainting the pool was a more expensive option than fitting a pool liner.

The sale of the property

[20]     The repair work carried out by Ms Geraghty in September and November

2010 was done in preparation for her selling the property.  The property was placed in the hands of a real estate agent, Ms Randall at RE/MAX New Zealand Real Estate, in January 2011.   At that time Ms Geraghty signed a property description form presented to her by Ms Randall. That form did not disclose any defects.

[21]     The Sutherlands inspected the property in early March 2011.  They signed an offer to purchase the property on 3 March 2011.   Before making their offer the Sutherlands asked Ms Randall if there were any issues or problems with the house that they should know about.   Mr Sutherland’s evidence in the District Court was

that Ms Randall said there was nothing wrong with the property other than an issue with the diesel heating system for the property.  However, she told them to obtain a building report and undertake their own due diligence.

[22]     On  8  March  2011  Ms  Geraghty  made  a  counter-offer.     On  receiving Ms Geraghty’s counter-offer the Sutherlands again asked Ms Randall if there were any defects with the property.   They were again reassured that there was nothing wrong with the property other than the diesel heating system.   Thereafter, the Sutherlands agreed to purchase the property at the price set out in Ms Geraghty’s counter-offer, namely, $469,000.

[23]     Ms Geraghty signed two documents on 8 March 2011:

(1)      A    “purchaser/vendor    acknowledgement    form”    supplied    by

Ms Randall. That form contains the following statement:

I  ...  confirm  the  property  is  not  subject  to  any  defects, hazards or requisitions or notice from any Council or other territorial authority and there are no other matters affecting the Property which are required by law to be disclosed to prospective Purchasers other than all those notified to the Agent which are specified in the Property Description Sheet.

(2)The agreement for sale and purchase which contained the following clause:

This offer and any contract arising herefrom is conditional upon the Purchasers within 5 working days and at their own expense   arranging   and   receiving   a   report   which   is satisfactory to themselves in all respects on the said property from a Builder. This condition is inserted for the sole benefit of the purchaser.

[24]     The building report prepared by the Sutherlands’ building inspector suggested

the property was a sound home and in reasonable order. The report said:

The roof has been replaced and is in good condition.  The flashing around the skylight needs attention, as leaking in below (sic).  The outlets from the internal gutters need looking at as some showing leaks.  Some flashing work needed in between roof junctions and internal gutters.  There is some work needed at the soffit and faciers areas as has come away in places.

The flood damage and pool issues

[25]     The Sutherlands took possession of the property on 13 May 2011.  On 14 and

15  May 2011  Raumati  Beach  suffered  a  heavy  rainstorm.    To  the  Sutherlands’ dismay “water started pouring through the ceiling [of the property], down into the kitchen and entranceway”.4

[26]     The Sutherlands  called  an  emergency roof repairer,  who happened  to  be Mr Burgess  who  was  already  familiar  with  the  roofing  issues  at  the  property. Mr Burgess advised that the roof needed to be realigned.  The Sutherlands tried to engage with Ms Geraghty through her solicitor.   Those efforts were unsuccessful. Therefore the Sutherlands retained Mr Burgess’ company to:

(1)       test for asbestos  $   126.50 (2)     get a building consent  $  1,800.00 (3)   realign the roof     $15,888.63 (4)  raise and reinstate the skyline           $  800.00.

[27]     The Sutherlands also had to pay $250 insurance excess, meaning they spent a total of $18,865.13 on repairing the roof.

[28]     Since Mr Burgess’ company has carried out the remedial work there have

been no further issues with flooding through the roof.

[29]     By  September/October  2011  the  Sutherlands  noticed  rust  marks  were beginning  to  emerge  on  the  walls  of  the  swimming  pool.    They  approached Mr Edwards, a director of Pool & Spas Ltd.  He inspected the pool and said that in his opinion:

... The rust and stains were caused by the reinforced steel being too close to the surface of the walls of the pool, or tie wires being too close to the surface

4      Kelly Sutherland affidavit quoted in Sutherland v Geraghty DC Porirua CIV-2011-091-327,

26 July 2013 at [22].

of the walls of the pool, or the surface of the walls of the pool being too porous ...

...  The pool has been repainted or touched up between four to 12 months

[since his last visit].

Mr Edwards estimated the cost of remedying the defects of the pool would be

$10,230.

The District Court judgment

[30]     Judge Thomas considered evidence from a number of witnesses in relation to the roof and pool problems with the property.  The witnesses whose evidence was relevant  to  those  issues  were  Mr Sutherland  (one of the trustees), Mr Burgess, Mr Henderson,  Mr Edwards,  Ms  Geraghty,  Mr  Craig  (who  installed  the  roof  in

2003), Ms Press (who was Ms Geraghty’s cleaner from 2009 to when the property was  sold),  Mr Crimp  and  Mr  Thurlow  (a  building  consultant).     Importantly, Ms Randall was not called as a witness.  Nor did Ms Geraghty join Ms Randall or her company as a party to the proceeding.

[31]     Judge Thomas concluded that representations about the roof and pool were made to the Sutherlands in the way they alleged.  Those representations were made by Ms Randall to the Sutherlands before they made their offer to purchase the home and again, before they accepted Mr Geraghty’s counter-offer.

[32]     Judge Thomas  concluded  that  the  representations  that  there  was  nothing wrong with  the property other than the diesel  heating system,  were misrepresentations because:

(1)Ms Geraghty knew from Mr Burgess about the structural difficulties with the roof and guttering system.

(2)It was highly unlikely removing a tennis ball from the internal gutter in 2007 remedied the roof problem because Ms Geraghty obtained a further quotation from Mr Burgess in December 2008 to address the roof and gutter problem.

(3)Ms Geraghty acknowledged in the Family Court the existence of the roof and swimming pool issues.  The Family Court judgment records Ms Geraghty acquired Mr Henderson’s interest in the property knowing about those defects and the value of his interest reflected them, and that it was likely she would have to arrange for them to be remedied.

(4)       Mr Crimp’s work only provided access to the internal guttering and

did not address the fundamental structural problems with the roof.

(5)Mr Burgess was able to fix the problem of flooding by realigning the roof.

(6)Ms Geraghty painted the pool in order to cover the rust marks on the walls of the pool.

[33]     Judge Thomas concluded that the Sutherlands were induced by Ms Randall into purchasing the property because they believed that there were no defects with the property other than the diesel heating system.   Judge Thomas also found that Ms Randall intended the Sutherlands to rely on her representations.

[34]     Judge Thomas therefore concluded that the Sutherlands had established their claim under s 6(1) of the Contractual Remedies Act 19795 and that they were entitled to damages.

[35]     Judge  Thomas  also  concluded  that  the  Sutherlands’ claim  contained  no

element of betterment and thus they were entitled to the damages which they sought.

5    Damages for misrepresentation

(1) If a party to a contract has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made to him by or on behalf of another party to that contract— (a)   He shall be entitled to damages from that other party in the same manner and to the

same extent as if the representation were a term of the contract that has been broken;
and

(b)   He shall not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, be entitled to damages from that other party for deceit or negligence in respect of that misrepresentation.

Appeal by Ms Geraghty

[36]     Ms  Geraghty’s  appeal  against  her  having  been  found  liable  can  be summarised in the following way:

(1)She did not make any misrepresentation about the property.  On the contrary she spent three hours telling Ms Randall everything about the property.

(2)The purchaser/vendor acknowledgement form only required her to disclose if the property was subject to “any defects, hazards or requisitions or notice from any Council or other territorial authority

...”.    The alleged defects to the roof and pool do not have to be

notified to any council or territorial authority.

(3)       Everything    Ms   Randall    told   the   Sutherlands    was   “hearsay”.

Ms Geraghty   should   not   be   liable   for   Ms   Randall’s   hearsay

statements.

(4)Under cl 7.1 of the agreement for sale and purchase any claims for compensation had to be served by the Sutherlands before settlement.

(5)The damage, which the Sutherlands claim was caused by defects to the roof, occurred in a totally different place from where the leaks occurred in 2004 and therefore had nothing to do with the alleged deficiencies in the roof.

(6)The pool was properly painted by her in accordance with instructions issued by Resene.

(7)The rust spots on the pool walls are not significant.   It is an old concrete pool which will require constant maintenance and the rust spots are acceptable wear and tear.

[37]     Ms Geraghty’s appeal against the amount of damages she is liable to pay is based on her concern that the Sutherlands opted for an expensive alteration to the roof and have therefore now got a better property than  the one she sold them. Ms Geraghty also says the costs of repairing the pool will also result in significant betterment.

Analysis

[38]     A vendor is liable to a purchaser under s 6(1) of the Contractual Remedies Act  1979  where  a  misrepresentation  is  made  “by or  on  behalf  of”  the  vendor. Therefore a vendor can be liable for misrepresentations made by a real estate agent acting within the vendor’s authority.6      The agent must by his or her misrepresentations have intended to induce the purchaser to enter into the purchase contract.7

[39]     Ms Geraghty says she told Ms Randall about the defects to the roof and to the pool and that she had no reason not to make full disclosure of everything that was relevant.  If Ms Geraghty is correct, then it would appear from her perspective that Ms Randall failed to tell the Sutherlands about the defects to the roof and pool when she was specifically asked if there were any problems with the property.   In this scenario,  both  the  Sutherlands  and  Ms  Geraghty are  the  unfortunate  victims  of Ms Randall’s failure to discharge her responsibilities as a real estate agent.

[40]     However, the key difficulty for Ms Geraghty is that she cannot avoid her liabilities to the Sutherlands because it was her agent, acting within her apparent authority, who made the representations which proved to be incorrect and which the Sutherlands relied upon when agreeing to purchase the property.8

[41]     It is most unfortunate that Ms Randall and/or her company was not made a party to the proceeding in the District Court.  Had that occurred, then Ms Geraghty

may have been able to obtain some relief from Ms Randall and/or her company.

6      Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2011) NZCPR 879.

7      Stephen Todd (ed) The Law of Torts in New Zealand (6th  ed, Thomson Reuters, Wellington,

2013) at 233.

8      Burrows, Finn and Todd Law of Contracts in New Zealand (4th  ed, LexisNexis, Wellington,

2012) at [11.2.2].

Absent the joining of Ms Randall and/or her company Ms Geraghty is obliged to accept full responsibility for the representations made by her agent.

[42]     Nothing hinges on the wording of the purchaser/vendor acknowledgement form.  The reason why that is not relevant is because Ms Geraghty believes she told Ms Randall everything during a three hour conversation about the property.

[43]     The comments that Ms Randall made to the Sutherlands when she assured them that there were no defects in the property other than in relation to the diesel heating system were not hearsay statements.  In terms of the definition in s 4 of the Evidence Act 2006, the statement was not made by a witness, and therefore it could not be tested in cross-examination.  But the Sutherlands are not relying on it to prove the truth of its contents, but rather the fact that it was said.  Even if it was a hearsay statement, I would have been satisfied that the circumstances relating to it provide reasonable assurance that it is reliable and that as the parties had every opportunity to call Ms Randall as a witness, by the time of the hearing undue delay and expense

would have been caused if Ms Randall had been required to be a witness.9

[44]     Clause 7.1 of the agreement for sale and purchase relates to misdescriptions of the property or title.   Clause 7.1 does not relate to misrepresentations about defects to the property which are only discovered after settlement.  The Sutherlands were entitled to pursue a claim under s 6 of the Contractual Remedies Act 1979 following settlement.

[45]     The rust spots on the pool walls do not appear to be insignificant according to the unchallenged and uncontradicted evidence of Mr Edwards, who was not required to be cross-examined.

[46]     Ms Geraghty’s submission that the leaks occurred in a completely different place from where rainwater penetrated in 2004 is not relevant to the Sutherlands’ misrepresentation claim.  Their claim is based upon the misrepresentations made by

Ms Randall that aside from the diesel heating system, the property had no defects.

9      Evidence Act 2006, s 18.

[47]     Ms Geraghty’s claim that the amount that she should pay by way of damages is extravagant is also unable to succeed.  The purpose of an award of damages for a misrepresentation is to place the party who has relied on the misrepresentation in the position they would have been in had the representation been true.10    In this case, that  is  achieved  by  the  reasonable  cost  of  repairs  to  the  roof  undertaken  by Mr Burgess and the repairs to the pool which Mr Edwards’ company is willing to

undertake.

[48]     Therefore there is no “betterment” in the claim by the Sutherlands because the repairs that had been done and which are proposed to be done to the pool will simply place the Sutherlands in the position they would have been had the contract been performed.   That is, they will acquire a property pursuant to the sale and purchase agreement that is without significant defects. The repairs do not leave them with anything more than what they were entitled to under the contract.

[49]   Having considered the evidence presented in the District Court and the arguments that have been advanced by Ms Geraghty, I reach the same conclusions as those reached by Judge Thomas.  In my assessment, the judgment is well supported by the evidence and draws logical and obvious conclusions.  I would have reached the same conclusions.

Conclusion

[50]     Ms Geraghty’s appeal is dismissed.

[51]     The Sutherlands are entitled to costs on a scale 2B basis.

D B Collins J

Solicitors:

Gault Mitchell Law, Wellington for Respondents

10     Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR

726 at [23]-[27] per Elias CJ and at [157] per Tipping J.