Humphries and Humphries v Edinborough and Edinborough

[2009] NZHC 2572

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-3735

BETWEEN  CLIFFORD HUMPHRIES AND DOREEN HUMPHRIES AS TRUSTEES OF THE C&D HUMPHRIES FAMILY TRUST OF SURFERS PARADISE, QUEENSLAND, AUSTRALIA, TRUSTEES

Plaintiffs

ANDMARTIN PHILLIP EDINBOROUGH AND SHARON MARGARET EDINBOROUGH AS TRUSTEES OF THE EDINBOROUGH FAMILY TRUST OF AUCKLAND, TRUSTEES

Defendants

Hearing:         23 October 2009

Counsel:         K G Davenport for Plaintiffs

D Tobin for Defendants

Judgment:      13 November 2009 at 11.30 am

RESERVED JUDGEMENT OF ASSOCIATE JUDGE H SARGISSON (Application for Summary Judgment)

This judgment was delivered by me on 13 November 2009 at 11.30 am pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Sue Stodart Law Office, PO Box 302-690, North Harbour, Auckland

Home Transfer Centre, Property Lawyers, PO Box 9, Auckland

HUMPHRIES  V EDINBOROUGH  HC AK CIV-2009-404-3735  13 November 2009

[1]      The  plaintiffs,  Mr  and  Mrs  Humphries,  are  the  trustees  of  the  C&D Humphries Family Trust.   In that capacity they seek summary judgment on their claim  against  the  defendants,  Mr  and  Mrs  Edinborough,  who  are  sued  in  their capacity as trustees of Edinborough Family Trust.

[2]      The basis of the Humphries’ claim is an agreement for sale and purchase the parties entered into on 9 September 2008. The agreement was for the sale of the Humphries  Family Trust’s  apartment  at  The Nautilus,  an  apartment  complex  in Orewa,  to  the  Edinboroughs.    The  orders  the  Humphries  seek  are  an  order  for specific performance of the agreement plus an order for costs.

[3]      The Edinboroughs contend they have an arguable defence based on certain pre-contractual misrepresentations they allege were made to them confirming the weathertightness of the apartment and The Nautilus complex.

[4]      The Edinboroughs and the Humphries have never met.   The negotiations leading to the agreement were conducted on the Humphries behalf by their real estate agent, Ms Adams of Bayleys Real Estate, whom the Edinboroughs say made the misrepresentations.

[5]      The sole issue counsel have raised for determination is whether statements Ms Adams is alleged to have made to the Edinboroughs shortly before they signed the agreement are incapable on the evidence of being viewed as misrepresentations under the Contractual Remedies Act 1979.  If it is clear that the statements cannot be viewed as misrepresentations, then it is common ground that the Edinboroughs will have no defence to the claim for specific performance. In that case the Edinboroughs will be obliged to settle, having declared the agreement unconditional.  Conversely, if the alleged statements are capable of being viewed as misrepresentations then notwithstanding that the Edinboroughs declared the agreement unconditional, they will have an arguable defence to the claim for specific performance.

The Agreement

[6]      The agreement for sale and purchase was conditional upon:

a)        The purchasers arranging finance by 12 September 2008;

b)        Their solicitor’s approval by Friday 19 September  (clause 15);

c)        The provision of a LIM report within five working days (clause 8.2). [7]      The three conditions were met and the solicitors for the purchasers declared

the contract unconditional within time, on 30 September 2008.

[8]      Settlement was due to take place on 5 February 2009.   The Edinboroughs gave notice of cancellation on 30 January 2009 based on the alleged misrepresentations of Ms Adams. They had by then discovered the existence of a report commissioned in October 2008 by the committee of the Body Corporate of The Nautilus from Prendos, experts in weathertightness problems.   The report indicated that The Nautilus, including the Trust’s apartment, suffered extensive damage from defective construction and water ingress that would involve the Body Corporate and its members in very significant repair costs.

[9]      The Humphries served a settlement notice on 18 February 2009, but again the Edinboroughs declined to settle. The Humphries do not accept there was any right to cancel, and as a result, commenced this proceeding.

The Law – Summary Judgment

[10]     The principles are well settled and are not in dispute.  As the Court of Appeal stated  succinctly in  Krukzeiner  v  Hanover  Finance  Ltd  [2008]  NZCA  187,  the question  on  a  summary  judgment  application  is  whether  the  defendant  has  no defence to the claim. That is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus remains on the plaintiff throughout and summary judgment will be denied if on the hearing of the application it appears there is an issue to be

tried.  But where the plaintiff’s evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA).   While the Court need not accept uncritically evidence  that  is  inherently lacking  in  creditability,  it  will  not  normally  resolve material conflicts of evidence or assess the credibility of deponents: Eng Mee Young v Letchumanan [1980] AC 331 at 341 (PC).

Discussion

[11]     Both counsel agreed at the hearing that the Humphries’ evidence in support of their application establishes their entitlement to an order for specific performance on a prima facie basis.  It is therefore for the Edinboroughs to respond and to tender material sufficient to indicate a defence that is at least arguable.

[12]     Counsel also agreed, with one key proviso, that the Edinboroughs have laid a sufficient foundation for an arguable defence based on the right to cancel the agreement.

[13]     In this respect it was agreed that the Court cannot properly discount the possibility that the statements may have been made.   This is because there is a material conflict about what it was exactly that Ms Adams said on the subject of leaks and weathertightness, and that cannot be resolved in the context of this summary proceeding.  Accordingly the Court must assume for present purposes that the statements complained of were made.

[14]     It was also agreed that the statements, if indeed made as claimed by the

Edinboroughs:

a)        Induced them to enter into the agreement, and

b)Have had the effect of substantially depriving them of the benefit of their bargain.  The costs they would face for the necessary repairs to the apartment and common property at Nautilus would be very substantial.

[15]     There was also a measure of agreement that the Prendos report provides a substantial indication that the leakage and weathertightness problems at The Nautilus could not have happened overnight, and that it is arguable that the resulting damage would have begun to occur well before Ms Adams’ statements were made.

[16]     That brings me back to the proviso, as it is the proviso that is very much the issue. It raises the contentious question whether the alleged statements are indeed capable of being actionable misrepresentations.  The question is, as counsel for the Humphries noted, the fundamental question in the application. In dealing with the question I start by considering what were the statements allegedly made.

The statements

[17]     The Edinboroughs say they asked Ms Adams several questions, in response to which she made certain statements.  The questions and answers were in essence:

a)      Q: Does the apartment have any water leaks or weathertightness problems?    A: No;

b)Q: Does The Nautilus building have any leaks at all or any weathertightness issues?    A: No.   The building was built after the leaky homes era and all the problems were sorted out by the time it was built.  It is a concrete building and concrete buildings do not leak. It has no issues and is well constructed;

c)       Q: Is there anything in the future that will have any impact on the Body Corporate charges? A: No, the only things that are likely to cause a rise in the Body Corporate charges is, for instance the spa pool motor blowing up, the car park doors needing replacing, or something similar.  That is the only reason I can see there being an increase of Body Corporate charges.

[18]     The Edinboroughs also contend that Ms Adams went on to reiterate that the building was a concrete building and that concrete buildings do not have problems.

The Edinboroughs say there was also a discussion about the desirability of inserting a building inspection report clause in the agreement, to which Ms Adams allegedly responded that a building report would be a waste of time and that it would not find anything wrong as the building was a concrete building which would not leak or rot, and that it was well built, secure and dry.

Are  the  statements  incapable  on  the  evidence  of  being  actionable misrepresentations?

[19]     It  was  Ms  Davenport’s  contention  that  all  of  the  alleged  statements  are simply  incapable  of  being  treated  as  misrepresentations  on  which  an  action  or defence based on a right of cancellation could be founded under the Act.  The reason relied on was that it cannot be established as fact, that on 9 September (when the statements were allegedly made) The Nautilus had significant leaks of such significance as to make it a “leaky building.” This, she submitted, was because:

a)      In order for the alleged statements to amount to actionable misrepresentations, the truth about the weathertightness problem (i.e. that the building was leaky) had to be established as known fact or the truth prior to or by the time the statements were made.  She said that required  the  Humphries  or  at  least  some  member  of  the  Body Corporate to have had knowledge of the true position when the statements were made.  She submitted this approach is supported by Prime Commercial Ltd v Wool Board Disestablishment Co Ltd (2008)

14 NZBLQ 3 (CA 110/04, 18 October 2006);

b)No member of the Body Corporate  knew or had established that The Nautilus was a leaky building (as opposed to having some leaks) until Prendos provided its report to the Body Corporate committee on 23

October.   It was the report that alerted the committee to the true position, and therefore the truth was not established as a fact until October at the earliest;

c)       Indeed, until the committee received the Prendos report all members of the Body Corporate held a continuing contrary belief, as evidenced by at least two factors.  The first factor is the decision of the AGM of the Body Corporate on 21 April 2008 to fail a motion that the Body Corporate  should  arrange  an  investigation  of  outstanding remedial problems.  The second is the absence of any evidence of reporting on problems of this kind at any earlier meetings of the Body Corporate or its committee;

d)Although it is conceded that Mr Humphries’ evidence in reply shows he had knowledge of a leak at the Trust’s apartment, the leak was an insignificant leak that would have been too minor to alert him to a problem sufficiently serious to permit the Edinboroughs to cancel the agreement.

[20]     Ms Davenport submitted the result is that there can have been no statement that amounted to a misrepresentation that would permit cancellation under the Act.

[21]     I am unable to accept counsel’s argument.

[22]     Sections 6 and 7 of the Act govern misrepresentation giving rise to a right to damages or a right to cancellation.  Under the provisions of s 6 where a party to a contract has been induced to enter into it by a misrepresentation made by or on behalf of another party to that contract, a right to recover damages is provided for. Section 7 goes further in that it recognises a right of cancellation in certain circumstances. Applying the section to the facts of this case, the right can be said to exist if the Edinboroughs were induced to enter into the agreement for sale and purchase by misrepresentation and the effect of the misrepresentation was to substantially reduce the benefit of the agreement to them.

[23]     To  be  actionable  under  either  section,  a  misrepresentation  must  be  a statement that relates to or implies some existing fact or some past event: see Ware v Johnson [1984] 2 NZLR 518 at 537. The statement must of course also be untrue. As Mr Tobin submitted a misrepresentation concerns a statement of fact either past

or present which is false: see Awaroa Holdings Ltd v Commercial Securities and

Finance Ltd [1976] 1 NZLR 19 at 30 where the Court stated:

A representation is a statement made by or on behalf of one person to … another person which relates by way of affirmation denial description or otherwise to a matter of fact, that is, either an existing fact or thing or a past event.

[24]     As counsel also submitted, whether the maker of the statement knew it to be untrue is irrelevant in actions based on or raising innocent misrepresentation between contracting parties under the Act.  Sections 6 and 7 of the Act both confer remedies in contract for misrepresentation “whether innocent or fraudulent”.  In Snodgrass v Hammington [1994] ANZ ConvR 159 (Affd CA 254/93, 22 December 1995), a vendor who represented to a prospective purchaser that a house was not affected by subsidence was held liable when that proved not to be the case, even though the vendor and agent honestly believed what had been said.

[25]     I therefore accept Mr Tobin’s submission that for the purpose of determining whether  the  Edinboroughs  have  a  defence  based  on  the  misrepresentations  as pleaded, it matters not what Ms Adams or the Humphries may have believed when Ms Adams is alleged to have represented that the apartment did not have a problem with leaks and The Nautilus did not have weathertightness issues.  What matters is whether or not the existence of a problem with leaks or weathertightness was said not to exist and whether, if indeed said, the statements were true or untrue when they were made.

[26]     Whether or not the apartment did have a problem with leaks and whether The Nautilus had weathertightness issues is a matter of fact, and whether or not that fact can be established is not a matter of the subjective belief held by individual owners or the Body Corporate committee, but a matter to be established objectively on the available evidence. No doubt if the case goes to trial there would be objective expert assessments of the condition of The Nautilus at the time the statements are said to have been made, as there was in La Grouw v Cairns (2004) 5 NZCPR 434 where damages were allowed for the cost of curing the leaks where there was a misrepresentation that a house did not leak.

[27]     In  the  meantime  it  is  not  appropriate,  given  the  nature  of  the  current application, for the Court to determine the existence or otherwise of a leaking problem or weathertightness problems at the time of the representation.   What is important is whether there is sufficient evidence to indicate the possibility that the Humphries Trust’s apartment and The Nautilus did in fact suffer significant leaking problems by 9 September when the statements were allegedly made.  I am satisfied that the evidence is sufficient.

[28]     The Prendos report indicates extensive water problems that Ms Davenport fairly recognised could not have happened overnight. Furthermore, the report was given to the committee a matter of weeks after the statements by Ms Adams were allegedly made.   It is reasonable to infer that the report was requested sometime beforehand because a need to investigate was recognised.  That need provides further support for the possibility that the problems existed as a matter of fact well before the report was given to the committee.

[29]     For completeness, I should note that I also accept Mr Tobin’s submission that Prime Commercial Ltd does not provide support for the arguments advanced on behalf of the Humphries.  That was a case about deceptive and misleading conduct and whether an opinion was expressed on reasonable grounds.  Here, as both sides accept, the case concerns whether statements that on their face are statements of fact, were true if indeed they were made.

Result

[30]     I am satisfied for the reasons discussed above that it is clearly arguable that Ms Adams misrepresented the position with respect to the weathertightness of The Nautilus.  In those circumstances, I can only conclude, given the concessions made at the hearing, that all other elements of a defence based on misrepresentation of sufficient  gravity  or  effect  to  permit  cancellation  are  at  least  arguable,  and accordingly that the Edinboroughs have a tenable defence to the action for specific performance.

[31]     The result is that the claim for an order for specific performance by way of summary judgment must fail.  If the plaintiffs wish to pursue their claim for specific performance, or wish to pursue an amended claim, then it will have to proceed to trial.

[32]     The case is adjourned to the chambers list on 2 December 2009 at 2.15 pm

for the purpose of further direction.  Counsel are to file and serve memoranda at least

2 days in advance setting out their proposed directions.

[33]     In accordance with NZI Bank Ltd v Philpott [1990] 2 NZLR 403, costs are reserved.

Associate Judge Sargisson