Ladstone Holdings Ltd v Leonora Holdings Ltd CP308/SD00 - [2006] NZHC 300

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CP.308/SD00
BETWEEN LADSTONE HOLDINGS LIMITED

First Plaintiff

ANDPS PROPERTY NEW LYNN LIMITED
Second Plaintiff

AND LEONORA HOLDINGS LIMITED

First Defendant

AND WAITAKERE CITY COUNCIL
Second Defendant

Hearing: 24 November 28 November 2003;

December 2003

Appearances: P. Dale and T. Bowler for plaintiffs

D. Jenkin and M. Tetley-Jones for first defendant K. Berman and S. Macky for second defendant

Judgment: 17 May 2004

JUDGMENT OF POTTER J

Solicitors: Grove Darlow & Partners, P.O. Box 2882, Auckland

Tetley-Jones Thom Sexton, P.O. Box 111, Auckland Heaney & Co, P.O. Box 105-391, Auckland

Copy for: D.J. Jenkin, P.O. Box 4338, Auckland

K.W. Berman, P.O. Box 105-358, Auckland

LADSTONE HOLDINGS LIMITED And Anor V LEONORA HOLDINGS LIMITED And Anor HC AK CP.308/SD00 [17 May 2004]

INDEX

Introduction [1] - [4]

The Pleadings [⁵] - [⁹]

Issues [10] — [12]

The property [13] - [15]

The drain [16] - [29]

Ladstone v Leonora [30] - [87]

Contractual Remedies Act  [30] — [62]
Fair Trading Act  [63] — [69]
Contractual Mistakes Act  [70] — [87]

Leonora v Ladstone — counterclaim [88] — [101]

Ladstone v WCC [102] — [139]

Result [140]

Costs [141]

Introduction

On 12 April 2000 the first plaintiff, Ladstone Holdings Limited (together
with the second plaintiff PS Property New Lynn Limited called "Ladstone" and "the plaintiff') successfully bid at public auction for the purchase of a parcel of land comprising 8408 sq m situated at the junction of Portage Road and Clark Street, New Lynn ("the property") from the first defendant, Leonora Holdings Limited ("Leonora" and "the first defendant"). Before bidding at auction Ladstone caused inquiry to be made on 6 April 2000 concerning the property from the second defendant, Waitakere City Council ("WCC", "the Council", and "the second defendant"). That inquiry revealed (among other things) that there was a 375 mm diameter stormwater drain which passed beneath part of the property, but WCC incorrectly advised that the drain was publicly owned by WCC (not a private drain in favour of Vuksich & Borich Ltd), that it was ceramic (not reinforced rubber ring jointed ("rcrrj")), and failed to advise that the drain was housed in a 900 mm diameter tunnel. This information became known to Ladstone about a month after the auction.
At the hearing Ladstone accepted that at the time of the sale by Leonora to
Ladstone, Leonora was unaware that the 375 mm drain was private, ceramic and housed in a tunnel.
Ladstone claims against Leonora and against WCC damages for the
diminution in value of the property plus professional costs incurred, together with interest, arising from the existence of the drain and tunnel. Leonora counterclaims for late settlement interest because Ladstone failed to settle in terms of the agreement for sale and purchase which resulted from the auction.
On the third day of the hearing WCC admitted liability to Ladstone for
negligent misstatement in relation to the inquiry made of WCC by Mr John Martin on behalf of Ladstone on 6 April 2000, conceding on the basis of principles going back to Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, that the

Council owed a duty of care when giving advice to Mr Martin and assumed responsibility for the advice, and that Ladstone would and did rely on that advice.

The pleadings

[⁵] Ladstone v Leonora - Ladstone alleges against Leonora —

a)Misrepresentation in fact or alternatively by silence under s.6(1)(a) of
the Contractual Remedies Act 1979;
b)Misleading and deceptive conduct under s.9 of the Fair Trading Act
1986;
c)Common mistake under s.6(1)(ii) of the Contractual Mistakes Act
1977.

In addition to compensation for loss, the plaintiff seeks an order that the plaintiff be relieved from paying any interest otherwise payable to Leonora until February 2002 (when the plaintiff claims it was first able to commence construction on the property).

Leonora v Ladstone - Leonora counterclaims against Ladstone for —
a) Penalty interest arising under the agreement for sale and purchase of
the property as the result of Ladstone's failure to settle in terms of the agreement for sale and purchase. This is pleaded as $143,691.78 but amended in evidence to $149,234.17, being interest from the due date for settlement 13 June 2000 to 10 May 2001 (when the plaintiffs paid the balance of the purchase price less $100,000) together with ongoing penalty interest of $38.36 per day from 10 May 2001 to the date of judgment on the balance of $100,000.
b) $100,000 being the balance of purchase price as yet unpaid.

c) Consequential loss including legal costs and disbursements and
management and administration time and expenses of Leonora's directors and management staff

Ladstone v WCC - Ladstone's statement of claim alleges against WCC
negligent misstatement, breach of statutory duty, negligence and deceit. The admission of liability for negligent misstatement having been made by WCC by memorandum filed in Court on 28 November 2003, Ladstone does not seek a determination from the Court on the other heads of claim. The relief sought against WCC is compensation for loss in the sum of $434,360.94 plus interest and costs, and in the alternative, additional foundation costs incurred as a result of the presence of the drain. Ladstone also seeks indemnity from WCC for any contractual/penalty interest it may be ordered to pay Leonora.
Leonora v WCC - Leonora alleges against WCC misrepresentation by silence
arising from failure by WCC to advise Leonora of the tunnel, misleading and deceptive conduct under s.9 of the Fair Trading Act, unilateral mistake by Leonora known to WCC under the Contractual Mistakes Act 1977 (this cause of action was not pursued at the hearing), and breach of warranty under the option agreement with WCC. Leonora seeks against WCC a declaration that WCC is liable to compensate Leonora for all and any damages it may have suffered arising from of the alleged misconduct of WCC.
It was common ground that Leonora would be entitled to succeed against
WCC only if and to the extent that it was judged liable to Ladstone; and that Ladstone would be entitled to succeed against WCC only if and to the extent it did not succeed against Leonora.

Issues

Ladstone v Leonora

Misrepresentation — s.6 Contractual Remedies Act 1979

Did Leonora expressly or impliedly misrepresent to Ladstone —

[a] In fact; or
[b] By silence.
that —
[i]The property was presently available for redevelopment with
the consent and support of WCC.
[ii]There was nothing of a geotechnical nature, or contained in
any Town Planning report, that would restrict or impede the immediate redevelopment of the property.

[c]        If the answer to [a] or [b] is "Yes" —
[¹]       Did Ladstone rely on the misrepresentations; and
[ii]          Was Ladstone induced to enter into the contract with Leonora
by the misrepresentations.

Misleading and deceptive conduct — s.9 Fair Trading Act 1986

If the answer to (1)[a] or [b] is "Yes", did that constitute misleading and deceptive conduct in terms of s.9 of the Fair Trading Act?

Common Mistake — s.6 Contractual Mistakes Act 1977
[a]Were Ladstone and Leonora in entering into the agreement for sale
and purchase of the property, both influenced by the same mistake or mistakes?
[b]Can the parties be mistaken in terms of s.6 Contractual Mistakes Act
if neither of them knew the subject matter of the alleged mistake?

[c] If they were both mistaken, what relief should be granted?

[11] Leonora v Ladstone (counterclaim)

Was Ladstone entitled to or justified in refusing or postponing settlement on or from the due date for settlement (13 June 2000) under the agreement for sale and purchase with Leonora.

[12] Ladstone v WCC — liability for negligent misstatement having been admitted -

(1) What is the loss suffered by the plaintiff?
(2) Is the plaintiff entitled to indemnity from WCC for any penalty interest they may be liable to pay Leonora?

The property

[13] The property is an area of 8408 sq m situated on the junction of Clark Street and Portage Road New Lynn. It is comprised in 3 certificates of title —

[a]        2427 m² Lot 1 DP 195490 (CT 124C/95),
[b]        3623 m² Lot 5 DP 201113 (CT 129B/372);
[c]        2358 m² known as section 1 5069897 (CT 128C/186).

[14] In December 1999 Leonora acquired an option over section 1 from WCC in a land swap deal, and with the other two lots previously owned by them, marketed the property for sale by auction on 12 April 2000, through Bayleys Real Estate.

[15] The property was not a straightforward site. The land sloped gradually in a north easterly direction from Portage Road towards the Clark street frontage. It was subject to fill particularly towards the Clark Street frontage which would require deep pile foundations for development in the northern and eastern parts of the

property. A sanitary sewer line traversed part of the property from the eastern to the southern boundary, and 900 mm and 375 mm rcrrj stormwater pipelines were shown on WCC plans. There was also some contamination affecting the site.

The drain

It is now common ground that the 375 mm rcrrj stormwater pipeline shown on the WCC plan at the time Ladstone made inquiry on 6 April 2000, was not a public drain but a private drain owned by Vuksich & Borich Limited ("V&B"), the owner of an adjoining property. The drain was encased in a 900 mm square tunnel, but neither its depth nor its precise location were known. The tunnel had been constructed in the 1920's and used to drain clay pits from adjoining property. It was believed to be in a poor state of repair.
WCC had been in negotiation for some time with V&B regarding the drain and the Council taking over the drain as a public drain, but Council required the drain to be upgraded or replaced before it became a public drain. A report for a meeting of Council on 9 September 1999 concerning a resource consent application by V&B for the continuation of its clean fill operation, noted —
The present 375 mm pipe and tunnel providing for the discharge from the site may not be the best long term solution, due to the reported collapse of the tunnel and the unknown condition of the pipe.
The Resource Consent issued to V&B was subject to conditions directed to stormwater disposal and abandonment of the "temporary drainage system", a reference to the drain at the centre of these proceedings. There are numerous other references in correspondence and Council records, which show clearly that WCC were aware not only that the drain was a private drain, but that it was encased in a tunnel, that its precise location was not known, and that its state of repair was believed to be poor.
None of this information was conveyed by WCC to either Leonora before they acquired section 1 from WCC in the land swap deal in December 1999, or to Ladstone when Mr John Martin on the instructions of Ladstone prior to their bidding

at auction, visited the offices of WCC on 6 April 2000 and made specific inquiry about the property.

Mr Martin requested a copy of the WCC asset plan which showed a 375 mm diameter rcrrj stormwater drain. Mr Martin's evidence was that he made specific inquiry of Mr Razzak, the Council officer, in relation to that drain and was advised that WCC had no further information on the drain. Mr Razzak was not called as a witness in the proceeding. It appears that Mr Razzak at a much later date, 22 January 2002, created a file note which indicated that he had given to Mr Martin on 6 April 2000 appropriate advice about the 375 mm pipeline. WCC have accepted the falsity of Mr Razzak's computer entry, and on 7 April 2003 discontinued against Mr Martin who WCC had joined as a party at the proceedings. WCC have subsequently (at the hearing) admitted the negligent misstatement.
On 5 May 2000 WCC informed Leonora's solicitors about the drain. Mr Hieatt a solicitor with WCC wrote —
We are further advised that there is a 375 mm pipe in a tunnel crossing the site but the route is unknown to Council and it is apparently not readily capable of being ascertained. This is a private stormwater drain, which serves land owned by Vuksich & Borich. We enclose a letter from the solicitor to this company, which sets out their concerns.
Ladstone learned for the first time about the true nature of the drain on 17/18 May 2000. There was a site meeting involving Ladstone, V&B and others on 18 May 2000.
As the owner of land served by the private drain, V&B has the following rights pursuant to s.461 Local Government Act 1974 —
Further provisions with respect to private drains -
(1) Where any private drain constructed with the consent of the owners
of all the lands affected or constructed by the council pursuant to section 460 of this Act passes through or serves separately owned premises, there shall be attached to each and all of the lands served by that private drain the following rights, namely —
(a) A right to the free and uninterrupted use of that private
drain; and

(b)A right for the occupiers or any of them to enter upon all lands served by that drain, or through, which it passes, for the purpose of relaying or effecting necessary repairs to the drain; and
(c)A right to contribution from the owners or occupiers of other lands so served by that drain towards the cost of executing, providing, and doing all or any of the things required in respect of the drain by this Part of this Act or any bylaw; and
(d)A right to contribution from the owners or occupiers of those other lands towards the cost of all necessary relaying of or repairs to the drain; and
(e)A right to the recovery from the owners or occupiers of other lands through which that drain passes but which are not served by the drain of the cost of any repairs to the drain necessitated by any wilful or negligent act of those owners or occupiers.

Section 461(1) further provides —
... and those rights, upon a certificate being furnished by the principal administrative officer that any of the lands is actually served by that drain, together with such plans (if any) as the District Land Registrar requires, shall be registered by the District Land Registrar against the titles to all the other lands so served by the drain, and also, in the case of the right to free and uninterrupted use of the drain and the right to enter upon land to effect necessary relaying or repairs, or to recover under paragraph (e) of this subsection the cost of any repairs to the drain, against the titles to the land through which the drain passes.
WCC had not registered a certificate under s.461 against the property, which would have provided notice to Leonora, Ladstone and anyone else searching the titles to the property. Section 461 places no obligation on WCC to register a certificate, but WCC had expressly turned its mind to the desirability of registering a certificate in March 2000.
An internal memorandum from Mr James Puketapu to Mr Maurice Hieatt referring to the land swap deal with Leonora, stated —
Hold exchange pending investigation of culvert/drain under subject land may require easement! James.
A memorandum from Mr Puketapu to Mr Peter Reid dated 29 March 2000 raised the same issue —

It has been brought to my attention that a large culvert (drain) runs under the land (former road) to be exchanged ... It seems that Council is well down the track for completing the exchange but early signals on this matter needs to be made to Astley Leathers Limited.

Mr Hieatt, the only WCC officer of the three abovementioned who gave evidence, considered that the land swap deal with Leonora having been finalised, it was too late to encumber the property in a manner not previously advised to Leonora. But he accepted in answer to cross-examination, that "something should have been done". Unlike other WCC officers who gave evidence, Mr Hieatt did not consider there was any obligation for WCC to advise a prospective purchaser about the drain. He saw a s.461 easement simply as for Council's benefit. Other WCC officers, and the Leonora witnesses, all considered that had there been knowledge of the drain, it should, and would in the case of Leonora, have been notified to Leonora/Ladstone. (Ultimately, WCC required as a condition of the subdivision consent issued to Ladstone on 20 September 2000 that Ladstone at their cost provide a survey plan to enable a s.461(1) certificate to be registered).
It was not until 5 May 2000 that Mr Hieatt wrote to Leonora's solicitors advising about the drain, by which time both Leonora and Ladstone had become purchasers without notice of the drain.

Ladstone v Leonora

The Issues are set out in paragraph [10] and for the sake of convenience are repeated here.
Misrepresentation — s.6 Contractual Remedies Act

Issue - Did Leonora expressly or impliedly misrepresent to Ladstone —

[a] In fact; or
[b] By silence.

that —

The property was presently available for redevelopment with the consent and support of WCC.

[ii] There was nothing of a geotechnical nature, or contained in
any Town Planning report, that would restrict or impede the immediate redevelopment of the property.

[c]      If the answer to [a] or [b] is "Yes" —
[1]       Did Ladstone rely on the misrepresentations; and
[ii]       Was Ladstone induced to enter into the contract with Leonora
by the misrepresentations.

Section 6(1) of the Contractual Remedies Act 1979 relevantly provides — 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 —
(i) 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; ...
"Misrepresentation" is not defined in the Contractual Remedies Act. Burrows Finn & Todd "Law of Contract" Butterworths Wellington 2002 at p.326 describe a misrepresentation as "a representation of fact which is untrue". Or as Hardie Boys J said in Savill v NZI Finance [1990] NZLR 135, at p.145 —
The term "misrepresentation" is not defined in the Act and is therefore to be understood in its established sense of a false or erroneous statement of fact.
Leonora marketed the property through Bayleys Real Estate for sale at auction on 12 April 2000. Bayleys presented an Information Sheet for the benefit of prospective purchasers. On the first page of that Information Sheet under the heading "Location and Site Description" there is the following statement —
The parcel is in three titles and has a large frontage to the intersection of the western corridor linking the boundaries of Auckland City to Waitakere City.

Presently the land is available for redevelopment, with City Council prepared to grant credit for any development that may incorporate a public carpark on the land. Some initial plans are available at request detailing the provision. Attached is a full geotechnical investigation of the site together with town planning information.

[34] The "full geotechnical investigation of the site" was annexed. It is a report by Soil & Rock Consultants Ltd dated 2 March 1999, addressed to Astley Leathers Ltd, a company associated with Leonora. The report relates only to the first two parcels of land offered for sale. Section 1 was acquired by Leonora from WCC in the land swap deal finalised in December 1999. Accordingly the Soil & Rock Consultants Ltd report makes no reference to section 1, nor to the drain which lies beneath that part of the property.

[35] The plaintiff's third amended statement of claim pleads at paragraph 22 —

The First Defendant's representations referred to in paragraph 13 above*, were misrepresentations in terms of clause 6(1)(a) of the Contractual Remedies Act, in that —

(a)The property was not presently available for redevelopment.
(b)The second defendant would not consent to, or support the plaintiff's redevelopment of the property unless and/or until the plaintiffs complied with the terms and conditions set out in the second Defendant's Resource Consent, and subdivision (sic) referred to in paragraphs 19 and 20 above;
(c)The drain and the tunnel were matters of a geotechnical nature and would restrict or impede the immediate redevelopment of the property, or use of the property.
(* As set out in para [30](i) and (ii) above).

[36] The plaintiff submitted that the statement in the Information Sheet "presently the land is available for redevelopment" was untrue and remained untrue for sometime. Ladstone referred to WCC's responses to its application for resource management consent to construct public storage facilities, where the Council replied on 1 June 2000 and 9 June 2000 that the information provided with the application was not sufficient to enable the Council to carry out adequate analysis of the nature of the proposal and its impact on the environment, and referred in particular to stormwater issues associated with the road stopping —

Until such time that a decision has been made on these issues, the application will be suspended.

On 9 June 2000 Council required of Ladstone a geotechnical investigation specific to the development to be provided with the resource consent applications. The geotechnical report was required to address flood risk assessment and stabilising measures to achieve long term stability in view of any development encroaching into the vicinity of the stream banks.
On 20 September 2000 when Council issued a subdivision consent in relation to the property on the application of Ladstone, it was a condition of the consent that any proposed building works were to be clear of the zone of influence of the private drain traversing the property or certified by an engineer that the building had been designed to withstand damage from ground conditions within the zone of influence or in the event of any subsequent collapse or other failure of the private drain. Conditions also required that future construction work should not cause any damage to the private drain and that access to the private drain must continue to be provided at all times to the parties served by the private drain. A further condition required the provision of a survey plan at the cost of Ladstone to enable the DLR to register a certificate under s.461(1) of the Local Government Act 1974 to provide statutory notice of the private drain.
Mr Martin, who was instructed by Ladstone to investigate services in relation to the property and prepare draft layouts for the storage facilities Ladstone proposed to develop on the property, said in evidence that he formed the view that the property could not be developed until the issue of the drain and tunnel had been resolved. He noted that this was exactly the situation when Ladstone applied for a land use consent for the subdivision - Council sought to put the onus back on Ladstone to locate the tunnel and to take all steps to protect the rights of the owners of the private drain.
Various submissions were made by counsel as to what meaning should be attributed to the statement "presently the land is available for redevelopment", but I consider in its context the meaning is plain and does not warrant tortuous analysis. The adverb "presently" qualifies the verb "available". The New Shorter Oxford

English dictionary defines "presently" as meaning "At the present time: now"; "At the time referred to: just then"; "Without delay, immediately, instantly, quickly, promptly".

A commonsense reading of the statement is simply, that at the time the property was offered for sale, it was available for redevelopment. The statement does not promise, imply or infer that any proposed redevelopment by a prospective purchaser will be without any difficulty, impediment or delay. Nor does it promise, imply or infer that any redevelopment a prospective purchaser may choose to advance, can be undertaken. It is simply a statement of the "now" position, i.e. that the property is available for redevelopment.
I would not expect any reasonable prospective purchaser, let alone a purchaser prepared to spend in excess of $ lm at auction on a commercial site that had known complexities such as fill, underlying services and some contamination, to attribute such a meaning to the statement. It would denigrate the experience and professionalism of Ladstone as property and business developers and managers (which the evidence of Mr Bennett and Mr Pendergrast confirmed is considerable), to suggest that such a general and simplistic statement would carry to them the conviction that they could proceed with the development they chose on the property without any difficulty or impediment, and without the need for further inquiry and research. I do not accept that it did.
It was not untrue or erroneous that the property was at the time it was offered for sale, available for redevelopment. It was not rendered untrue by the fact that redevelopment would be hampered and delayed by the existence and nature of one of the drains under the property, nor by the fact that upon subsequent investigation the plaintiff was not able to construct on the property buildings as they initially envisaged. It does not follow that because the redevelopment designed by the plaintiff could not proceed in the timeframe they envisaged, that the statement in the Information Sheet was untrue. Mr Martin's view of Council's intentions in the matter referred to in paragraph [39], does not impact the situation. At the time the statement was made, the property was available for redevelopment. As far as it went, the statement was true.

Paragraph 22(b) of the third amended statement of claim alleges a misrepresentation because WCC would not consent to or support the plaintiff's redevelopment of the property unless and/or until the plaintiff complied with the terms and conditions in WCC's resource consent and subdivision consent.
The consent and support of WCC for redevelopment of the property was not the subject of any representation in the Information Sheet. The relevant statement merely refers to WCC being prepared to grant credit for any development that may incorporate a public carpark on the land. The statement takes the matter no further than that very limited indication. I do not consider the context permits or supports the inference the plaintiff claims.
The plaintiff alleges in paragraph 22(c) a misrepresentation because the drain and tunnel were matters of a geotechnical nature that would restrict or impede the immediate redevelopment, or use of the property.
Leonora does not dispute that the drain and tunnel were matters of a geotechnical nature and they have of course subsequently been the subject of numerous geotechnical opinions and reports. But the statement in the Information Sheet makes no representation of the nature claimed by the plaintiff. It simply refers to "a full geotechnical investigation of the site" being attached. It is true that the geotechnical report attached did not cover the full site and did not refer to the drain. So the statement was incorrect in describing the investigation as being "of the site". But by referring the reader to the attached report, the statement makes no representation in relation to the report. It does not, as the plaintiff claims, represent, infer or suggest that there was nothing arising from the geotechnical investigation of the site that would restrict or impede the immediate redevelopment of the property.
The plaintiff's alternative allegation is that the failure of Leonora to advise Ladstone of the existence of the drain and the tunnel and of the private nature of the drain, constituted a misrepresentation by silence.
Leonora did not know, at the time the Information Sheet was issued to potential purchasers, of the facts that Ladstone says it failed to disclose.

The general rule is that mere silence is not a misrepresentation. The rule is based on the principle that there is no duty on parties to a contract to disclose material facts to each other (Chitty on Contracts Sweet & Maxwell Ltd 2004, (29^th ed) at p.436). However, there are exceptions to the general rule. Where the silence distorts a positive representation, this may amount to misrepresentation under s6 of the Contractual Remedies Act. Thus a party to a contract may be legally justified in remaining silent about some material fact, but if he or she ventures a representation upon the matter it must be a full and frank statement, and not such a partial and fragmentary account that what is withheld makes that which is said absolutely false (Oakes v Turquand and Harding (1867) LR 2 HL 325 at pp.342-343).
Leonora made a representation in the Information Sheet that the property was presently available for redevelopment. It has since transpired that there is a private drain encased in a tunnel underneath the front portion of the property which the plaintiff claims has impeded and delayed development of the site. For the reasons set out in paras [36]-[43] of the judgment, I do not consider that the existence of the drain, its private nature and condition rendered that general representation untrue. Therefore even if this was a case of a half truth, the undisclosed facts were not such that rendered the positive representation false. On that basis I would conclude that there is no misrepresentation by silence.
However even if I am wrong on that point, a further problem faced by Ladstone is that the facts which it relies on as supposedly rendering Leonora's representation false, were not known to Leonora at the time the representation was made. Most cases of misrepresentation by half truth involve the representor knowing of the fact which invalidates the positive statement and which the representor deliberately conceals (Burrows Finn & Todd Law of Contract in New Zealand Lexis Nexis Butterworths 2002 (2^nd ed) p.333).
It is arguable that because under s.6 of the Contractual Remedies Act a misrepresentation can be innocent or fraudulent then if the representor's statement is in fact false it is irrelevant whether or not the representor knew of the undisclosed facts (see Burrows Finn & Todd Law of Contract at Chapter 11.2.1, page 333). I do not accept that argument.

Hardie Boys J in Savill v NZI Finance said at p.145 —
At general law, inducement involves purpose as well as result. Not only must a representation have caused the representee to enter into the contract but also the representor must, either in fact or in contemplation of law, have intended to cause him to do so. ... I cannot think that the legislature intended such a change, which would make the test of inducement a purely subjective one, judged from the point of view of the representee. Not only is there no spelling out of an intention of that kind; but the familiar verb "induce", which has always had its two aspects, has been retained. Therefore I consider that it remains the law that it is not enough for a party to say that a representation caused him to act in a particular way. He must also show either that the representor intended him to do so, or that he "wilfully used language calculated, or of a nature, to induce a normal person in the circumstances of the case to act as the representee did". I quote from Spencer Bower & Turner at p.132. To view the Act in this way is to be consistent with the objective approach generally taken in regard to the Law of Contracts. (Emphasis provided)
It follows that for there to be a misrepresentation by silence it would generally relate to deliberate non-disclosure of a fact known by the representor. . It would not serve either the policy of the Act or the objective approach espoused by Hardie Boys J in Savill if that non-disclosure of facts unknown to the representor could constitute a misrepresentation, whether innocent or fraudulent, in s.6,
Accordingly, the answers to Issues (1)[a] and [b] would be "No".
But even if there were misrepresentations by Leonora whether in fact or by silence — which I have held there were not — I am not persuaded that Ladstone relied on the misrepresentations and were thereby induced to enter into the purchase at auction. In terms of Savill v NZI Finance the question is whether Ladstone have shown that Leonora intended the particular representations to be acted upon in the way Ladstone claim, or, in the circumstances, that the representation was of a kind a reasonable person in that situation would rely on.
For the reasons set forth above, it was not reasonable for Ladstone to rely on the statements in the Information Sheet as an accurate representation of Ladstone's ability immediately to redevelop the property without any difficulty, impediment or delay. Further, Ladstone carried out their own investigations. They instructed Mr Martin to carry out investigations on Ladstone's behalf prior to committing to the purchase. Mr Martin had been engaged by Ladstone in relation to two previous
18

storage facilities developments of Ladstone — Public Storage Remuera and Public Storage Henderson. His firm was instructed by Ladstone in early April 2000 to provide information about the services that existed on the property that Ladstone intended purchasing, and to prepare draft layouts to look at what configuration would be suitable for a storage facility. He visited the property. He visited the offices of WCC on 6 April 2000. There he received the asset plan and noted (inter alia) the 375 mm diameter rcrrj stormwater drain. He knew from previous experience, he said in evidence, that the green line on the plan indicated it was a stormwater drain.

Further, as the plan was the WCC's asset plan it meant that the drain was a WCC (public) drain. He stated that had it been a private drain it either would not have been shown, or it would have been specifically noted as being a private drain. Mr Martin's evidence was that because it was a 375 mm rcrrj drain, that meant it was a standard stormwater drain generally installed by trenching. It followed that it would be at a maximum of 5 metres deep as it is not practical to trench pipe any deeper. On the information he received about the drain and his own knowledge of what that meant in relation to the drain, he proceeded on the basis that no further investigations were needed. The situation would have been otherwise had he been advised that it was a private drain. Mr Martin said that had WCC on 6 April 2000 provided him with the correct information about the drain in the tunnel, then further investigations could have been conducted. That would have been his advice to Ladstone.
It is therefore apparent that not only did Ladstone have from their own experience with similar developments, considerable knowledge of the matters which required investigation to ensure that the property they were considering purchasing was suitable for their purposes, but they employed Mr Martin to check and advise them concerning the property and its suitability.
While Mr Bennett of Ladstone in his brief of evidence states that he discussed the Information Sheet with John Martin prior to purchase, that John Martin informed him that as far as he was aware there was no impediment to the land being developed, and that as a result of these discussions and the information conveyed to

Ladstone by Bayleys, they decided to proceed with the acquisition, it is not open to Ladstone with the benefit of hindsight, to claim reliance on the Bayleys' Information Sheet as part of the inducement to enter the contract. For given the plain meaning of the statement as analysed above, it was not reasonable for Ladstone to take from it the assurances they now claim. Rather, they relied on their own experience and expertise, and the inquiries made by Mr Martin on their behalf, to provide the information they needed on these aspects, to form the decision to purchase at auction.

Accordingly, although I would hold under Issue (1)[a] and [b] that there were not misrepresentations as alleged, I find also under (1)[c] that Ladstone did not rely on and was not induced to enter into the contract by the alleged misrepresentations.
Fair Trading Act

Issue - If the answer to Issue(1)[a] or [b] is "Yes", did that constitute misleading and deceptive conduct in terms of s.9 of the Fair Trading Act?

Ladstone's second cause of action alleges that in making the representations in the Bayleys' Information Sheet and in failing to advise Ladstone of the existence of the private drain and tunnel Leonora's conduct was misleading and deceptive under s.9 of the Fair Trading Act.
For the reasons stated above I do not consider the statements in the Information Sheet to be misrepresentations. Nor can they amount to misleading and deceptive conduct under s.9.
Ladstone's contention that Leonora's failure to inform of the private drain and tunnel amounts to misleading and deceptive conduct suffers from the same difficulty as under the Contractual Remedies Act. Leonora did not know about the tunnel and the drain. While in some circumstances silence can mislead and deceive conduct cannot properly be regarded as misleading and deceptive which is wholly unconscious, as was held by Elias J (as she then was) in Des Forges v Wright [1996] 2 NZLR 758.

Des Forges v Wright involved a claim for, amongst other things, a return of goodwill paid under a distribution agreement when the business on which it depended was diverted. Prior to the contract being signed the purchaser had asked the vendor and AFFCO (the company providing the business on which the distribution agreement was based), whether the business would continue in the same form. He had effectively been given to understand that such was the case, though the AFFCO representatives who created that understanding were unaware that the company was in the process of undertaking transactions which would significantly reduce the volume of business. The appellant purchasers argued that the vendor's failure to inform them of this constituted misleading and deceptive conduct, and that his lack of knowledge of those facts was irrelevant for the purposes of relief under the FTA.
Dismissing the appeal Elias J held, in relation to the Fair Trading Act claim, (at p.764) -
Silence may constitute misleading or deceptive conduct, but whether it does is to be objectively assessed in all the circumstances: Gregory v Rangitikei District Council [1995] 2 NZLR 208; Mills v United Building Society [1988] 2 NZLR 392; Smythe v Bayley's Real Estate Ltd (I993) 5 TCLR 454; Lam v Ausintel Investments Australia Pty Ltd (I989) ATPR; 40-990; Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (I986) I2 FCR 477. Conduct not misleading or deceptive may become so by an omission to inform arising out of altered circumstances: Gregory v Rangitikei District Council. Conduct may be misleading or deceptive within the meaning of s.9 of the Fair Trading Act 1986 by an omission to provide information even if no obligation to provide such information exists as a matter of general law, outside the standards of conduct required by the Fair Trading Act. The question whether conduct is misleading or deceptive is substantially a question of fact and degree: Goldsbro v Walker [I993] I NZLR 394 at p.401 per Richardson J. Whether conduct is to be so characterised does not turn on any intention to mislead or deceive: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (I978) I40 CLR 2I6 at p 233 per Murphy J. It is to be objectively assessed: Mills v United Building Society at p 413. It is necessary, however, that the conduct is deceptive or misleading or is "likely" to mislead or deceive, a point emphasised by McGechan J in Gregory.
Some caution is perhaps proper in cases of commercial dealings between parties at arm's length. Section 9 is not to be turned into a general warranty by a vendor of the expectations of the purchaser.

And at pp.765-766 -

As Cooke P said in Goldsbro at p 399 -
The policy of the Act is to insist on acceptable standards of conduct by those in trade . .

That policy is not furthered by imposing liability for conduct which does not entail any volition from which assumption of responsibility can be inferred, or where the conduct could not with the exercise of vigilance have been avoided.
I reject, however, the suggestion here made that non-disclosure of information not known to a vendor in the position of Mr Wright and in circumstances where he had not assumed any responsibility to inquire (as might have been the case had he made a representation as to the future conduct of the distribution agreement) constitutes conduct which is misleading or deceptive. I agree with the learned District Court Judge that no policy of the Act is served by imposing liability for an omission which is wholly unconscious.

Therefore given that Leonora did not know of the existence of the drain, and did not assume responsibility to inquire about nor could reasonably have become aware of it because the information was withheld from them due to the negligence of WCC, Leonora's failure to advise Ladstone of these unknown facts was not misleading and deceptive conduct under s.9 of the FTA.
The answer to Issue (2) is accordingly, "No".
Contractual Mistakes Act
Issue -
[a]Were Ladstone and Leonora in entering into the agreement for sale and purchase of the property both influenced by the same mistake or mistakes?
[b]Can the parties be mistaken in terms of s.6 Contractual Mistakes Act if neither of them knew the subject matter of the alleged mistake?
[c]If they were both mistaken, what relief should be granted?

[70] The plaintiff in reliance on s.6 of the Contractual Mistakes Act 1977 pleads that the agreement for sale and purchase between Leonora and Ladstone was entered into on the assumption of common mistakes namely —

[i]That there were no problems of a geotechnical nature with the
property; and
[ii]That the property was presently or immediately available for
redevelopment.

[71] The plaintiff claims that the common mistakes resulted in substantially unequal exchange of values or the imposition of an obligation on the plaintiff which was in all the circumstances a benefit or obligation substantially disproportionate to the consideration therefor.

[72] Ladstone accordingly seeks relief pursuant to s.7 by way of diminution in the purchase price payable to Leonora and waiver of the penalty interest otherwise payable.

[73] In the circumstances of this case it is clear that the parties gave no thought to the existence or non-existence of the private drain; they simply did not know, and could not have known, about it, because the party possessed of relevant information with whom both dealt in different ways in relation to the matter, did not convey it. That, I believe, was the subject matter of the mistake. The parties were not mistaken that "there were no problems of a geotechnical nature with the property". They knew full well there were, as described in the Soil & Rock Consultants' report, and described in evidence. Nor were they mistaken that "the property was presently or immediately available for redevelopment". It was, as reasoned above (refer paras [36] to [43]. The error was in relation to the existence of the private drain beneath section 1. Neither party knew about it.

[74] Section 6(1) of the Contractual Mistakes Act 1977 relevantly provides as follows —

(I) A Court may in the course of any proceedings or on application
made for the purpose grant relief under section 7 of this Act to any party to a contract -
(a) If in entering into that contract -
(i)
(ii)All the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; or
(iii)...; and

(b) The mistake or mistakes, as the case may be, resulted at the
time of the contract —
(i)In a substantially unequal exchange of values; or
(ii)In the conferment of a benefit, or in the imposition
or inclusion of an obligation, which was, in all the circumstances, a benefit or obligation substantially disproportionate to the consideration therefor; and

(c) Where the contract expressly or by implication makes
provision for the risk of mistakes, the party seeking relief or the party through or under whom relief is sought, as the case may require, is not obliged by a term of the contract to assume the risk that his belief about the matter in question might be mistaken.

[75] The Contractual Mistakes Act has proved a challenging piece of legislation.

There are conflicting decisions of the Courts on the issue of whether ignorance of a fact can amount to a common mistake. On one side is the case of The New Zealand Refining Company Ltd v Attorney-General (1992) 14 NZTC 9,006 (Grieg J) and (1993) 15 NZTC 10,038 (Court of Appeal). The dispute concerned GST, specifically whether payments totalling $85 million made to the Company by the Crown pursuant to a contract, were inclusive of GST or whether GST was payable by the Crown over and above the $85 million. The contract was silent on the GST issue and there was no evidence that the parties discussed or even turned their minds to it. At first instance before the arbitrator, the Company advanced a number of arguments and all were rejected including the argument that both parties entered into a contract under a common mistaken belief and were therefore entitled to rectification under the Contractual Mistakes Act.

The arbitrator held against the company, a view that was endorsed by both the High Court and the Court of Appeal who held that the Award did not disclose any error of law. Cooke P on appeal at p.10,051 stated —
The arbitrator took the view that there could not be a common mistake as to a matter to which the parties do not even turn their minds. As he said, "mistakes means something more than an omission". It connotes a positive belief on a matter wrongly held, rather than the complete failure to consider the matter at all.

And at p.10,045 —

It cannot be said that there was either a unilateral or a common mistake or indeed any mistake at all.

A different approach was taken in Slater Wilmshurst Ltd v Crown Group Custodian Ltd [1991] NZLR 344 where parties to a contract for the sale and purchase of a property had both forgotten that a third party had a right of preemption over the property. While declining in the circumstances of the case to grant relief under s.7, Gallen J nevertheless held that there was a mistake that fell within the ambit of the Act.
In the Laws of New Zealand an attempt is made to reconcile the two decisions as follows —
There can only be a mistake where a person has turned his or her mind to the matter in question; this is because a person who gives no thought to the existence or non-existence of something is ignorant of it rather than mistaken about it (New Zealand Refining Company Ltd v Attorney-General). However, a person who has a current erroneous belief about a matter is mistaken about it, even though that person once knew, but has forgotten, the true position (Slater Wilmhurst Ltd v Crown Group Custodian Ltd).
The reconciliation is not entirely satisfactory. In the Slater Wilmhurst case, as in The New Zealand Refining Co, the parties did not turn their minds at all to the matter alleged to be the subject of the mistake.
The New Zealand Refining Company case has been the subject of academic criticism (see McLauchlan and Rickett (1995) 8 Journal of Contract Law, 193) on the basis that if a mistake within the meaning of the Act requires a wrongly held positive belief on a matter, and does not include the complete failure to consider the matter,

many situations commonly considered to involve mistake would fall outside the ambit of the Act.

However, in its ordinary meaning the term mistake implies "a misconception about the meaning in something; a thing incorrectly done or thought; an error of judgment" (New Shorter Oxford English dictionary). Where a party or parties have not turned their minds to the matter in issue it cannot be said that they have misconceived it or indeed formed any belief or conception about it. They are neither correct nor mistaken.
This approach is reinforced by the requirement in s.6(1)(a)(ii) of the Contractual Mistakes Act that the parties alleging the mistake were influenced in the decision to enter into the contract by the mistake.
In Ware v Johnson [1984] 2 NZLR 518 (referred to by Greig J in the New Zealand Refining Co case), Prichard J stated at p.540 that the requirement of s.6(1)(c)(ii) in a case of common mistake means that —
... both parties must necessarily have mistakenly accepted in their minds the existence of some fact which affects to a material degree the worth of the consideration given by one of the parties.
It is difficult to accept that a party can be influenced in its decision to enter
into a contract by a matter to which it has not turned its mind at all. Thus, even if it were accepted that a mistake could arise out of complete ignorance of a matter or aspect of a matter, the requirement for the so called mistake to have influenced the party to enter the contract, will not be met.
When the alleged "mistake" is accurately analysed in this case, i.e. that Ladstone and Leonora were ignorant about the existence of the private drain beneath the property, then it is not an erroneous belief or a misconception "... or indeed any mistake at all". The circumstances of this case clearly fall within the ratio of the New Zealand Refining Company case. The parties did not turn their mind to that matter. There is no common mistake that can qualify for relief under the Contractual Mistakes Act.

[87] Issues (3)[a] and [b]) must therefore be answered in the negative. Accordingly, Issue (3)[c] has no application. It is thus unnecessary to consider Leonora's claim that the terms of the contract provided for the risk of mistake to be assumed by Ladstone so as to exclude Ladstone from relief, pursuant to s.6(1)(c).

Leonora v Ladstone — counterclaim

[88] The Issue is set out in paragraph [11] and for the sake of convenience is repeated here.

Issue: Was Ladstone entitled to or justified in refusing or postponing settlement on or from the due date for settlement (13 June 2000) under the agreement for sale and purchase with Leonora?

[89] Ladstone purchased the property from Leonora at auction on 12 April 2000 and nominated the second plaintiff PS Property New Lynn Limited to take title. The purchase price was $1,250,000 plus GST of $156,250 amounting to a total price of $1,406,250.

[90] The relevant provisions of the agreement for sale and purchase state —

3.THE PURCHASE OF THE PROPERTY shall be completed and the balance of the purchase price shall be paid in cash to the Vendor's solicitors on or before the 12^th of May 2000 or five (5) working days after a search copy of the title for Lot 5 Plan to Be Deposited Number 20III3 available to the purchasers for searching whichever shall be the later (herein called "the date for completion").
4.IF FROM ANY CAUSE WHATEVER (other than the wilful default of the Vendors) the purchase shall not be completed on or before the date for completion the Purchaser shall pay interest at the rate of 8% above the BNZ 90 day bill rate on the unpaid portion of the purchase money form the due date for payment until full payment thereof.

[91] The "date for completion" became 13 June 2000. Ladstone failed to settle by or on that date.

[92] Ladstone made payments towards the total purchase price as follows —

·I7 April 2000 in the amount of $I25,000.00 on account of the purchase price
·I8 April 2000 in the amount of $I5,625.00 on account of GST on the purchase price
·29 May 2000 in the amount of $I40,625.00 being the balance of GST payable
·10 May 200I in the amount of $I,025,000.00 on account of the purchase price.

There is an unpaid balance of $100,000 which remains outstanding and is included in the counterclaim by Leonora.

Ladstone issued a settlement notice on 13 June 2000. On 10 May 2001, approximately 11 months after due date, Ladstone paid the purchase price less the balance of $100,000 still outstanding, the basis for which retention is unclear.
Leonora claims penalty interest on the unpaid balance as at 13 June 2000 of $1,125,000 from 13 June 2000 to 10 May 2001 and on the outstanding balance of $100,000 from 10 May 2001 to the date of judgment. The interest rate under the contract is 8% above the BNZ 90 day bill rate. The 90 day bill rate was established in evidence and I do not understand Ladstone to dispute the evidence of Mr Nigel Dobson of Leonora on this aspect. Mr Dobson's calculation was a total of $183,819.90 to 30 November 2003 with interest on the unpaid balance of $100,000 continuing to run.
Ladstone pleads Leonora's breach of contract as relieving it from its contractual obligation to settle. Ladstone has failed to establish any grounds which would put Leonora in default under the contract. There was thus no justification for Ladstone to decline to settle on due date in performance of its obligations under the agreement for sale and purchase.
The circumstances of this case may be contrasted with those in New Zealand Trustees Ltd v Stiassny (1994) 2 NZConvC 191,809 where Temm J was satisfied that the vendor was in default because it had failed to discharge an obligation imposed upon it by the contract, such failure providing a ground for the purchaser to cancel

the contract. The Judge concluded that as the vendor was in default, the purchaser's obligation to settle was deferred until compliance by the vendor.

This case can also be contrasted with Lingens v Martin (unreported, CA. 234/93, 7 September 1994) which is authority for the proposition that where the vendor is in default and the purchaser has a contractual right of compensation for that default, the vendor cannot insist on settlement until the amount of compensation is agreed or some sensible arrangement is reached by the parties in order to protect their respective interests.
Lingens v Martin involved an application by the vendor for removal of a caveat registered against the property on behalf of the purchaser. The vendor claimed that since the contract for sale and purchase was cancelled due to the purchaser's failure to settle, the caveat should be removed. The purchaser argued that settlement and cancellation notices were invalid on the basis that at the time of their issue, the vendor was not ready, willing and able to settle in accordance with the contract as it was in breach of the warranty relating to building consent compliance. The Court found that the vendor's breach amounted to misdescription of the property entitling the purchaser to compensation under c15.3 of the agreement which stated, amongst other things, that no misdescription of the property was to annul the sale but compensation if demanded in writing before settlement, but not otherwise, should be made or given. The Court of Appeal held that the vendor was not entitled to give something less than promised while insisting on payment of the full purchase price. Therefore the vendor could not compel settlement where the parties failed to agree on the amount of compensation, or on some sensible arrangement to protect their respective interests so that settlement can proceed. The Court ultimately concluded that because there was an arguable case that the contract had not been effectively cancelled, the purchaser was entitled to the continued protection of her caveat.
The circumstances are different here. Leonora was not in default. Ladstone would not be entitled to, and does not claim, compensation in terms of clause 5.3 or otherwise under the agreement with Leono ra. The agreement expressly provides (clause 5.3) —

... the property is believed and shall be taken to be correctly described in all respects and no error, misstatement or misdescription shall annul the sale of the property or entitle either party to compensation.

[100] Since Leonora was able to pass good title and to give possession, Ladstone had no right to refuse to settle on due date in terms of the agreement. Ladstone's proper course of action was to complete settlement on due date and to seek such relief as they were entitled whether against Leonora or WCC or both, in causes of action outside the agreement for sale and purchase. Any non-contractual entitlement to compensation (and none has been found from Leonora) did not entitle Ladstone to delay or withhold settlement.

[101] Accordingly the Issue stated in paragraphs [11] and [88] is answered in the negative. Leonora is entitled to penalty interest under the agreement for sale and purchase.

Ladstone v WCC

[102] The Issues are set out in paragraph [12] and for the sake of convenience are repeated here.

Issues: Liability for negligent misstatement having been admitted:

(1)What is the loss suffered by the plaintiff?
(2)Is the plaintiff entitled to indemnity from WCC for any penalty
interest they may be liable to pay Leonora?

[103] Damages are reparation for the harm done —

... to restore the claimant to the position in which he would have been if the negligent misrepresentation had never been made. (Mc Gregor on Damages I7^th ed at para 4I-054)

They are not related to expectation or loss of bargain as in a breach of contact case.

Mr Berman for WCC quoted from Scott Group v McFarlane [1978] 1 NZLR 553 where Cooke J as he then was) said at p.585 —
It is not a case in contract where the damages broadly represent the benefit which the plaintiff was promised. In an action in tort for deceit leading to a contract of purchase the normal measure of damages is the difference between the price paid and the fair market value at the time of purchase ... Where the contract has been induced by the negligence of a third party rather than by fraud, I think the same measure should prima facie apply. ... To avoid misunderstanding, one should add that ... there may be consequential losses which are also recoverable.

And at p.587 —

In considering damages one has to start, not before sale, but immediately after it was completed ... because the tort measure is the plaintiff's loss, which cannot be ascertained without taking into account the benefit that the transaction has in fact brought him.

The plaintiff submitted that in this case the measure of damages is the difference between the price paid by Ladstone and the fair market value of the property at the time of, or immediately after, purchase and that Mr Gribble's valuation completed as at 21 September 2000 when the full extent of the problems were unknown and the benefit of hindsight was not available, provides an appropriate basis for assessing loss.
Although Ladstone presented a valuation by Mr Stephen Dean on a loss of profits basis, Mr Dale was quick to acknowledge that the plaintiff's claim was not based on loss of profits as such an assessment relates to events after the breach.
Mr Berman, on the proper approach to the assessment of damages, quoted from Court v Dunedin City Council [1999] NZRMA 312 where William Young J having found that planning advice given by the Dunedin City Council to the plaintiffs was incorrect, concluded with regard to damages at p.326 of the judgment —
The damages must be assessed on an A minus B basis; where A is the position in which the plaintiff would have been had there been no negligence and B is the position as events turned out. In this case there is no major difficulty in determining the B part of the exercise. However, deciding what would have happened, if appropriate advice had been given, is necessarily

hypothetical; that is, what would have happened if appropriate advice had been given.

On the strength of this authority Mr Berman submitted (supported by Mr Jenkin for Leonora, although Mr Jenkin acknowledged that this was a matter between WCC and Ladstone), that the question was: if Ladstone had been advised of the true position in respect of the drain and tunnel on 6 April 2000 when Mr Martin made inquiry of WCC, what would have followed?

He submitted that in the 5/6 days between Mr Martin's visit to WCC and the auction on 12 April 2000, Ladstone would have sought further information (he referred to Mr Martin's evidence that if the pipe had been shown as a privately owned drain or he had been told it was a private drain he would have told Ladstone that more investigation into the pipe was required), and that Ladstone could readily have ascertained that they could have built on the area of land which was affected by the tunnel for a modest extra cost. He submitted —
It is not credible that in the time available, an engineer could not have given a ball park extra cost for the tunnel. Mr Luxford (an engineer called by WCC), would have advised a $30-40,000 contingency.
He referred to the agreement reached during the course of the hearing by the engineering experts for the plaintiff and WCC who gave evidence as to the additional foundation costs for building, as the result of the drain and tunnel. They included allowance for design costs and a contingency sum but excluded GST. The experts reached a worst case scenario (on the assumption that there was no bedrock) of $143,900, compared to a situation where there was no drain and tunnel where their worst case scenario was $81,500, giving a worst case cost increase of $62,400. The engineers agreed, however, that the most likely cost range was $28,500 to $39,700 (of which the average is $31,500) ("the engineers' agreement").

[111] Mr Berman submitted that —

Against that the $200,000 to $300,000 loss range of Ladstone's valuers seems excessive.

Mr Jenkin submitted that a prudent commercial developer would have made an allowance for additional costs involved in locating the drain and overcoming 32

engineering problems associated with it. On the evidence of Mr Luxford and Mr Millar, engineers called for WCC, and the engineers' agreement, he put that figure at between $30,000 and $50,000, though noted that Mr Goldsmith, the engineer who advised Ladstone following discovery of the drain, and gave evidence on their behalf, said his estimate would have been in the vicinity of $100-150,000 to take account of the range of contingencies.

That approach, it seems to me, relies heavily and conveniently, on the benefit of hindsight. If Mr Martin had been advised on 6 April that the drain shown on the WCC's asset plan was a private drain in favour of V&B he would undoubtedly have sought further information about it (as indeed he did in respect of the 375 mm drain shown on the asset plan which was not designated as a private drain). Further information available from WCC would have indicated to Ladstone and their advisers, that the location of the drain was unknown, that the drain had been constructed in about 1922-1926 and was housed in a tunnel, that its state of repair was believed to be poor, that it was not known at what depth the drain was, nor how access to it could be achieved, that V&B were asserting their rights over it, and that the Council had been endeavouring to reach agreement in relation to the drain with V&B over a lengthy period of time but had not achieved resolution (which situation continued at the time of the hearing). WCC could and should also have advised that the issues with the drain, and protection of V&B's rights, would be a concern of Council in relation to any application for resource consent to develop or subdivide the property.
Those indications would have introduced significant uncertainty in relation to the drain and its impact on the property, in particular as to what could be built, where, and at what cost on that part of the property which comprised section 1. The situation, had it been presented fully and accurately, was one of considerable uncertainty with implications for cost and delay.
Indeed, when Ladstone were advised in May 2000 about the existence and private nature of the drain, they made inquiry and sought professional advice. The professional advice they received did not correspond with that which, it was submitted for WCC and Leonora, they would have received and should have

accepted at the time. Ladstone's advice from Fraser Thomas Ltd (Mr Goldsmith) and from their own solicitors was that building could not safely proceed in the area of the drain and the area of influence upon which it impacted. Further, the position of the drain needed to be located before the area of influence could be assessed. That advice obviously impacted significantly on the building Ladstone had been contemplating in respect of the property and required a revised set of building plans to be developed which limited the development on section 1 to re-locatable office buildings.

The approach submitted by WCC as appropriate for Ladstone at the time, does not reflect the seriousness with which their own officers approached the issue of the drain in relation to resource consents sought by Ladstone. Mr Graeme McCarrison, the Manager Resource Consents at WCC gave evidence. In the conclusion to his brief of evidence he stated —
Based on the information contained in the Council's subdivision and landuse files, it is clear that the issues related to the Vuksich & Borich stormwater tunnel were significant.
Council approached those significant issues with a good deal of care and caution eventually issuing to Ladstone a land use consent which contained several conditions in relation to the drain and a subdivision consent subject to conditions, including requirements that Ladstone locate the position of the drain and either obtain the consent of V&B to any buildings in the area of influence, or obtain further geotechnical assessments as to the effects of Ladstone's building proposal on the stormwater line. On 28 July 2000 WCC appointed an independent Planning Commissioner Mr Peter Reaburn, to consider Ladstone's resource consent application. Mr McCarrison gave evidence that due to the Planning Commissioner's concerns about the impacts on the V&B stormwater line, on 2 August 2000 Hugh Fendall, a geotechnical consultant, was instructed to consider the potential adverse effects of the building works on the V&B stormwater line. Mr Fendall reported back to Council in a letter dated 9 August 2000 concluding that if his recommended conditions were imposed the adverse effects on the V&B stormwater line would be de minimus. This was a situation Council wished to achieve before granting resource consents, to avoid any criticism or claim from V&B who by letter from

their solicitors Wynyard Wood on 6 July 2000 had formally recorded to WCC, that they regarded themselves as an adversely affected party in relation to Ladstone's application for land use consent. So, based on the recommendations made by Mr Fendall in his report of 9 August 2000 that the V&B stormwater line be located before building works commenced near the line, that became a condition of the resource consent issued on 10 August 2000.

It appears that by December 2000 the drain had been located and defined on a plan by engineers for V&B, although according to the evidence of Mr Glenn Metcalf a surveyor from Barry Satchell Consultants Ltd instructed by Ladstone, confirmation of this was not received by Ladstone until 21 February 2001.
The engineers' agreement reached at the hearing may well support Mr Berman's submission that the costs of building over the drain would be comparatively modest, and it may also be that the uncertainties could have been resolved by different routes, possibly more quickly and simply on the basis of evidence given by Mr Luxford and Mr Millar, engineers called by the Council.
But that is not the point. WCC who knew as much or more about the drain than anyone, other than perhaps V&B, did not at any stage suggest the uncertainties could be readily resolved at modest cost. The issues were significant according to Council's own Resource Consent Manager, Mr McCarrison. Ladstone took appropriate advice, and the uncertainties which surrounded the drain at the time led, unsurprisingly I consider, to the cautious professional advice they received at the time.
In short, I do not consider in all the circumstances, that assuming appropriate advice by WCC on 6 April 2000, the hypothetical scenario as put forward by Mr Berman, is realistic or reasonable, and I reject it.
Additionally, I consider Mr Berman's reliance on the approach to assessment of damages applied in Court v Dunedin City Council to be flawed. In that case the vendors lost a potential sale because the Council negligently failed to advise them of the conditions required before their property could be used for residential purposes

and a certificate of compliance issued therefor. When the purchaser found out the true position, he cancelled the agreement because of inability to comply with the Council's conditions.

William Young J, having found negligence by the Council, stated that the assessment of loss required a "loss of chance calculation". At p.326 he said —
Situations of this sort are not uncommon. They are often resolved by an award of damages based on a loss of chance calculation — that is, by assessing the gross figure based on the plaintiffs hypothesis of what would have happened but for the defendant's tortious conduct and then reducing that figure to reflect the possibility that events might have panned out otherwise than as hypothesized by the plaintiffs.
In this case, there is no "loss of chance" involved in the assessment of damages. Ladstone say they would not have purchased had they been correctly advised about the drain by WCC. But it is not necessary to determine that likelihood. Ladstone purchased the property and holds an asset which they claim has a value less than the price they paid for it. The question is simply, how much less?
The correct approach to the assessment of damages is to ascertain what element of the loss suffered as the result of the purchase having been completed, was attributed to the inaccuracy of the information. That will be done by comparing the price paid with the correct value of the property at the time —
This means the figure which (the Court) considers most likely a reasonable valuer, using the information available at the relevant date, would have put forward as the amount which the property was most likely to fetch if sold on the open market. While it is true that there would have been a range of figures which the reasonable valuer might have put forward, the figure most likely to have been put forward would have been the mean figure of that range. (Emphasis added) (Lord Hoffman, South Australian Asset Management Corp v York Montague Limited [I996] 3 All ER 365, at p.379)
I return therefore to the appropriate approach to assessing loss, the diminution in value of the property.
Four valuers gave evidence —
[a] Mr Iain Gribble instructed by Ladstone inspected the site on 8
September 2000 and prepared a report dated 21 September 2000. Mr 36

Gribble thus carried out his valuation before the position of the drain had been located.

Mr Gribble was the only one of the four valuers to proceed purely on a "before and after" basis. He took as the "before" value of the property the purchase price paid by Ladstone $1,250,000 plus GST. He considered the purchase price, the size of the site, the advantage of exposure and location and the restrictions on development in the front portion of the site.

In considering the restrictions on the front portion of the site (which he took as 2090m² to include the drain and the "zone of effect"), he set out the effects of the drain on development of the front portion of the site as follows —

(a)To reduce the area available for the development of the storage facilities;
(b)To increase the cost of any development within that area with extra foundation costs down possibly to 14 ms in depth (it is now known that the depth of the drain is 18 ms approximately);
(c)The requirement to have a greater area of seal because of the restriction on building, which would be required by comparison with other development. This is to ensure that the users of the stormwater can enter the land for repairs and maintenance.

Mr Gribble took two different approaches to assessing the "after" value of the site. First, he assessed the value of the front portion of the property (2090m²) and then considered the impact of the restrictions referred to above, on that value. He assessed the impact of the zone of effect at 40% to 50% on the front portion of the property to give a value per m² of $145.00 (as against a non-restricted rate per m² of $265.50). He valued the balance of the land at $110 per

_m2_.

He included a 5% risk factor to allow for the exact location of the drain not being known.

On that basis he calculated a total loss of $301,872.
On his second approach he treated separately the pipeline area and the balance of the zone of effect. He assessed the pipeline area (950 m²) as reduced in value by 75%, and the zone of effect (1140 m²) as reduced in value by 50% and assessed a loss of $240,563.
Mr Gribble regarded the second approach as more subjective, and preferred the first approach under which he assessed the loss in the round at $300,000.

[b] Mr Stephen Dean, also called by Ladstone, prepared a valuation

report for other purposes in October 2002 on a profit and loss basis.
Without hesitation Mr Dale for Ladstone accepted that this was not the appropriate valuation basis for the purposes of Ladstone's claim against WCC.
In a supplementary report Mr Dean carried out an assessment of the market value of the site on a "before and after" basis.
He made the assumption for valuation purposes that the area of the site contained within the zone of influence of the drain could not effectively be built upon. He calculated the area of the zone of influence to be 1600m².
He compared other valuation evidence and took as a "before" value of the site the sum of $1,050,000 approximately. He considered that purchasers in an open market when faced with the uncertainty created by the existence of the drain and tunnel would probably have considered the land within the zone of influence to be entirely worthless, particularly at the date of purchase when neither the position nor condition of the tunnel were known. Taking these factors

into account Mr Dean considered the "after" value to be $800,000 giving a loss in value of $200,000.
[c]Mr Michael Gamby carried out a valuation and gave evidence on
behalf of Leonora. Although he purported to adopt a "before and after" methodology, before assessing the "before" value Mr Gamby deducted from the property an area which Ladstone sold to Gull for a service station after it purchased the property from Leonora. So Mr Gamby valued the property as comprising only 6177m² (the remainder after sale to Gull). The sale to Gull was settled on 17 September 2001 after the subdivision had been completed and a title issued for the Gull land. After the sale to Gull at $650,000 the cost of the remainder to Ladstone was $600,000. But Mr Gamby considered that a purchaser would have paid $150 per m² for the remainder site, giving a "before" value of $925,000 plus GST.
In assessing the "after" value Mr Gamby did not consider that the existence of the drain altered the desirable attributes of the site in any way. He considered that any development opportunities of the site would be restricted not by the drain but rather by the other aspects, such as uncontrolled fill and other infrastructure services on the site. These would require additional piling quite apart from the drain. He concluded that the property had suffered no loss of land area as the result of the drain, no loss of exposure, and that there were restrictions on building and development other than the drain which might hamper the development potentional of the front portion of the site.
As a fallback position, Mr Gamby carried out an alternative assessment of the area of land which he considered would require piling. He identified this as an area of 170 m² and assessed a loss in value of that area of land at $15,000 plus GST.
[d]Mr Campbell Barber gave valuation evidence for the Council. He had
prepared a valuation of the two parcels of land involved in the land

swap deal between WCC and Leonora. One of the parcels involved in the land swap deal was section 1, the front portion of the property, which was passed to Leonora in the land swap deal. He applied a rate of $130 per m² to that area reflecting, he said, its wide range of potential industrial and quasi-commercial type uses. That value was adopted as being fair between the two parties to the land swap deal. He concluded, however, that good quality industrial land in the New Lynn/Henderson region would attract a sale price in the range of $100-150 per m² and that the price paid by Ladstone of approximately $148.67 per m² represented market value at the time and was in fact "good buying", having the benefit of the potential of on-sale of part of the land to Gull.
Mr Barber was made aware by counsel for WCC, that various engineers had assessed the cost of additional foundations as the result of the drain under section 1 in the range of $30-40,000. However, he did not consider that the market would discount the price per square metre in relation to section 1 given those additional costs. He thought it unlikely that knowledge of the drain would have had any significant effect on the market value and that the $30-40,000 additional costs estimated by the engineers were within the margin of error.

I found Mr Barber's valuation the least instructive of the four. He had prepared his initial valuation for a specific purpose, the land swap deal, and in doing so had aimed to achieve equity between the parties to that transaction. He did not define with any precision the methodology he adopted to reach his conclusion that the existence of the drain would not have affected the market value of the property at the time. Rather he responded to the estimate of $30-40,000 additional costs obtained by WCC's counsel well after the event.
Mr Gamby's valuation and his responses to cross-examination were carefully considered, but I am of the view that his valuation was fundamentally flawed in excluding from the "before" valuation, the land sold to Gull. Although the potential to sell part of the property to Gull or a like entity was recognised by Ladstone at the

time of purchase (and would no doubt have been factored in by any party bidding at the auction), there was no concluded agreement. Ladstone purchased the property and then negotiated with Gull and other interested parties to achieve a sale (at $650,000 plus GST) and take a development profit some 17 months after the auction. The price that Gull were prepared to pay reflected their specialised interest in the exposure available from the Clark Street frontage which Ladstone were able to offer them. It should not be viewed as in any way offsetting or reducing the loss that Ladstone continued to incur from diminution in value of the remaining site due to the existence of the drain under the front portion (section 1). The profit on subdivision available to Ladstone is a separate item which would have been available to any purchaser of the property who was willing and able to carry out the subdivision and an on-sale of part of the property. It is irrelevant in determining the diminution in value of the property due to the existence of the drain under section 1. As it was, Ladstone were kept out of their development profit for several months because of the requirements of the subdivision consent in relation to the drain. That aspect, however, in my view, is appropriately taken into account in a valuation that in assessing the diminution in value, allows for the uncertainties and risks associated with the drain.

Further, Mr Gamby paid considerable attention to Ladstone's development plans for the property, stating there was no evidence that Ladstone proposed to build a storage facility over the entire site. Mr Gamby accepted that those plans were speculative in terms of final outcome and would have gone through a number of changes before being finalised. I fail to see that Ladstone's particular development plans at whatever stage and in whatever form, have any bearing on how the value of the property affected by the drain is to be assessed.

Mr Dean's valuation was essentially for other purposes and was initially on a profit and loss basis although he provided a supplementary valuation which in essence supported that of Mr Gribble.
Mr Gribble's valuation has the advantage of being undertaken while many of the unknowns and uncertainties which are required to be taken into account in assessing loss at the time of breach remained unresolved. The location of the drain

had not been determined, the depth of the drain was unknown, engineering experts had not then had the opportunity to consider what expenditure might be needed to build in the zone of influence, and what was required to protect the rights of the private drain owner V&B. He did know that the land use consent had been issued on 10 August 2000 by Council on conditions which required Ladstone to carry the burden of the uncertainties and to take the requisite steps to protect the interests in the drain of V&B.

Counsel for WCC criticised Mr Gribbles's and Mr Dean's valuations from a number of perspectives, in particular that they approached their valuations on the basis that storage facilities could not be constructed over the drain and tunnel, nor over the zone of influence. This was described as "a fundamental shortcoming". Also that account was not taken that because the site was filled, deep piles would be required in any event, and there were other services that had to be bridged.
These criticisms were made with the benefit of hindsight. Many of the uncertainties that related to the drain at the time of purchase have been assessed and defined to the point where the options and alternatives available are known, and reasonably accurate cost estimates can be made. The outcome may be a comparatively "modest" cost estimate for additional foundation costs, but as at April 2000 the limited information available and the uncertainties that attached to the drain and tunnel, did not permit such an assessment reliably to be made. (And the uncertainty of V&B's attitude to building and construction over the drain and the area of influence continued at the time of hearing).
I do not accept that a prudent purchaser, faced with the information at that time reasonably available concerning the drain, would not have factored in a significant discount because of the drain and the uncertainties it introduced, to any assessment of market value.
Mr Bennett, chief executive of Ladstone, said that Ladstone would not have purchased the property had they known of the existence of the drain. That may be so, but I accept that a prudent purchaser would have required at least, to place an estimated value on the impact of the drain, had they known of it.

I consider Mr Gribble's approach to be rational and reasonable. There is a considerable difference in the outcome of Mr Gribble's first approach and second approach. The $240,000 loss which results from the second approach, approaches Mr Dean's valuation of the diminution in value of approximately $200,000. I therefore adopt $240,000 as the diminution in value for which Ladstone is entitled to be compensated.
The plaintiff claims interest which in the third amended statement of claim, is calculated on the basis of a return on the purchase price to compensate for the period (19 months) during which the plaintiff claims they were delayed in commencing construction of the storage facility on the property. This would seem a cost to be factored into a loss of profits calculation, which the plaintiff accepted is not the correct basis on which to assess loss in this case. Rather, I consider the appropriate approach is to consider what is just compensation for the plaintiff in all the circumstances (Williams v Kirk [1988] 1 NZLR 452, 453 (CA); Day v Mead [1987] 2 NZLR 43(CA)). The plaintiff was bound by contractual obligations to Leonora for the purchase price, which I have held exceeded the value of the property by $240,000. The plaintiff is entitled to interest, which I award at the Judicature Act rate of 7.5% from the date when Ladstone became contractually liable to pay the purchase price (13 June 2000), to the date of judgment, approximately 47 months. I calculate that amount to be $70,500.
The Issues stated in paragraphs [12] and [102] are answered as follows —
(1) The loss suffered by the plaintiff is —
(a)Diminution in value $240,000;
(b)Consultancy and legal costs (as claimed) $34,860.94;
(c)Administrative time (as claimed) $12,000;
(d)Interest at the Judicature Act rate of 7.5% on $240,000 from
13 June 2000 to the date of judgment.

(2) Ladstone is not entitled to indemnity for penalty interest payable to
Leonora. That liability arises from Ladstone's contractual obligations
with Leonora independently of WCC. The entitlement to
compensation from a party outside the contract, does not relieve Ladstone of its contractual obligations to Leonora.

[140] Result

[1]       Ladstone's claims against Leonora are dismissed.
[2]       There will be judgment for Leonora against Ladstone on Leonora's
counterclaim as follows —
[i]       Balance purchase price  $100,000.00
[ii]Penalty interest on unpaid purchase
price to 10.5.01 (per Dobson brief of
evidence, para 33, as amended)  $149,234.17
[iii]Penalty interest on unpaid balance of
$100,000 from 10.5.01 to date of judgment @ $38.36 per day ‑
as at 14.5.04  $40,607.42
[iv]Administration expenses  $6,200
[v]Legal expenses (relating to late/non
settlement under agreement for sale
and purchase)  $4050.56

[³]      There will be judgment for Ladstone against WCC as follows —
[1]      Damages (diminution in value)  $240,000.00
[ii]Consultancy and legal costs  $34,860.94
[iii]Administration expenses  $12,000.00
[iv]Interest @ 7.5% from 13.6.00 to
date of judgment  $70,500.00

[4]As Ladstone's claims against Leonora have been dismissed, no determination is required on Leonora's claims against WCC.
[5]If there should be any error in the calculation or detail of the above orders, leave is reserved to apply.

Costs

[141] The parties may file memoranda as to costs —

[a]Ladstone and Leonora within 21 days;
[b]WCC and Ladstone in reply within 28 days.
_Judith

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CP.308/SD00
BETWEEN LADSTONE HOLDINGS LIMITED First Plaintiff

AND PS PROPERTY NEW LYNN
LIMITED formerly known as
LADSTONE NEW LYNN LIMITED
Second Plaintiff
ANDLEONORA HOLDINGS LIMITED
First Defendant
ANDWAITAKERE CITY COUNCIL
Second Defendant

Minute: 18 August 2004

MINUTE OF POTTER J

Relating to judgment of the Court issued on 17 May 2004

Solicitors: Grove Darlow & Partners, P.O. Box 2882, Auckland

Tetley-Jones Thom Sexton, P.O. Box II1, Auckland Heaney & Co, P.O. Box 105-391, Auckland

Copy for: D.J. Jenkin, P.O. Box 4338, Auckland

K.W. Berman, P.O. Box I05-358, Auckland

[¹] Pursuant to r 12 of the High Court Rules the following error and omission in

the judgment shall be corrected as follows —

[a]On the cover sheet the hearing dates should be shown as follows —
24 November-28 November 2003; 1 December-4 December 2003.
[b]In para [1] of the judgment the words "on 6 April 2000" are deleted
from the end of line 6 of para [1].