LSD 2017 Ltd v Landscaping Direct Ltd
[2021] NZHC 3386
•10 December 2021
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2019-463-101
[2021] NZHC 3386
BETWEEN LSD 2017 LTD
Plaintiff
AND
LANDSCAPING DIRECT LTD
Defendant
Hearing: 3 June 2021 Appearances:
P Bell-Connell for the Plaintiff No appearance for the Defendant
Judgment:
10 December 2021
JUDGMENT OF POWELL J
This judgment was delivered by me on 10 December 2021 at 3.30pm pursuant to R 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
LSD 2017 LTD v LANDSCAPING DIRECT LTD [2021] NZHC 3386 [10 December 2021]
[1] The plaintiff, LSD 2017 Ltd (“LSD”), seeks damages under the Contract and Commercial Law Act 2017 (“CCLA”)1 and/or the Fair Trading Act 1986 (“FTA”).2 It alleges that misrepresentations made by the defendant, Landscaping Direct Limited (“Landscaping Direct”), induced it to enter into two contracts in October 2017. Specifically, LSD claims that Landscaping Direct repeatedly advised that Landscaping Direct’s rights to mine a quarry at Acacia Bay near Taupo (“the quarry”) had been extended from 2026 to 2041 and on this basis LSD had entered into the contracts by which it:
(a)obtained exclusive rights to the supply of scoria from the quarry for a period of five years;
(b)obtained an option to take over Landscaping Direct’s interest in the quarry at the end of the five year period; and
(c)agreed to purchase various assets and assume various liabilities from Landscaping Direct.
[2] LSD’s claim has proceeded to hearing by way of formal proof, Landscaping Direct having gone into voluntary liquidation after the issue of proceedings.
[3] In its statement of defence filed prior to liquidation, Landscaping Direct admitted it had represented that an extension of Landscaping Direct’s right in the quarry had been agreed, but said that LSD was aware “the extension was not documented” and that otherwise the representation was truthful. Landscaping Direct also pleaded that the representations did not induce LSD to enter the contracts, nor that any such reliance was reasonable.
[4] As Mr Bell-Connell submitted on behalf of LSD, the following issues must be determined:
1 CCLA, s 35.
2 FTA, s 9.
(a)Was Landscaping Direct’s representation regarding the extension a misrepresentation under the CCLA and/or misleading or deceptive conduct in terms of the FTA?
(b)Did Landscaping Direct’s representation regarding the extension induce LSD to enter into the contracts?
(c)Was LSD’s reliance on Landscaping Direct’s representation regarding the extension reasonable?
(d)Is LSD is entitled to damages?
Factual background
[5] According to the principal witness for LSD, Alex Semenoff, the Semenoff Group of companies (“the Semenoff Group”) have a range of business interests, including transport, and operate three quarries in Northland. In 2017, Landscaping Direct was operating in a similar space, quarrying and transporting building materials from the quarry to depots in Silverdale and Takanini for sale to the Auckland building industry.
[6] In July 2017, Stan Semenoff and Alex Semenoff of the Semenoff Group became aware that Landscaping Direct appeared to be having difficulties supplying scoria to its customers and was also not paying its transport operators. Landscaping Direct subsequently approached the Semenoffs to explore ways of working together.
[7] On 21 July 2017, Alex Semenoff, Stan Semenoff and a business advisor, Lloyd Dixon-Parrant, met with Shaun Fredericksen, the director of Landscaping Direct, and his manager, Rob Yeoman. According to Alex Semenoff, either in the course of that first meeting or in two subsequent meetings held in August 2017, Landscaping Direct provided the Semenoff Group with a copy of an agreement dated 7 June 2011 between Landscaping Direct and the owners of the quarry which provided the legal basis for Landscaping Direct to “quarry and win quantities of … basalt and scoria from the quarry” (“Royalty Agreement”).
[8] The Royalty Agreement confirmed that in addition to Landscaping Direct there were two other parties to the Royalty Agreement, Te Rangatira E Trust and the Māori Trustee, being the owners of the Māori land upon which the quarry was located. These were described in the Royalty Agreement as the grantors, being the proprietors of the Rangatira E Block and the Rangatira B 617/618 (Combined) Block respectively on behalf of the beneficial owners of each of those blocks. The actual quarry was located on the 11-hectare Rangatira B 617/618 (Combined) Block which was surrounded by and accessed over the 1002-hectare Rangatira E Block.
[9]The Royalty Agreement relevantly provided:
(a)Landscaping Direct was the exclusive contractor “to quarry and win quantities of basalt and scoria from the quarry”.3
(b)As such, Landscaping Direct was entitled to “occupy and use without charge the quarry land … access roads, … during the said term”.4
(c)Payments were by way of royalty – initially $2 per tonne of basalt, $10 per tonne of “feature rock/spaulls, 200 mm or over” and $5 per tonne of scoria (0-200mm),5 subject to review during the term of the agreement6 and upon renewal.7
(d)The Royalty Agreement commenced on 20 May 2011 for an initial five year term with two rights of renewal of five years each provided for in the agreement,8 with the final termination of the Royalty Agreement being variously specified as 1 May 20269 or 19 May 2026.10
3 Royalty Agreement, cl 1.1.
4 Royalty Agreement, cl 2.
5 Royalty Agreement, cl 3.
6 Royalty Agreement, cls 4.1 and 4.2.
7 Royalty Agreement, cls 8(6)(a) and (b)
8 Royalty Agreement, cl 4.
9 Royalty Agreement, cl 8(6)(c).
10 Royalty Agreement, cl 8(6)(e).
(e)The obligations of Landscaping Direct to the landowners were guaranteed by Mr Fredricksen.11
[10] Significantly given that throughout his evidence Alex Semenoff referred to Landscaping Direct’s interest in the quarry as a lease,12 the Royalty Agreement made it clear that it was not. Clause 7 provided:
This agreement shall not be deemed to create a partnership nor the relation of employer and worker between the parties hereto nor shall this agreement be construed to be a lease or agreement for tenancy of the said land or a bailment of any chattels thereon …
(emphasis added)
[11] Clause 7 also explicitly provided that Landscaping Direct’s interests in the quarry could not be assigned, providing that:
… nor shall the benefit of this agreement be capable of being assigned or any manner disposed of by the contractor or his representatives or pass in bankruptcy or be attached and sold by process of law.
(emphasis added)
[12] In addition to obtaining a copy of the Royalty Agreement, the evidence of Alex Semenoff and Mr Dixon-Parrant is that in the course of the meetings they and Stan Semenoff were told that the Royalty Agreement had been extended by a further 15 years, so that it would now expire in 2041.
[13] Following the three meetings, Alex Semenoff and Mr Dixon-Parrant received an email from Mr Yeoman on 28 August 2017 which identified three options for working together. Options 1 and 2 both involved the Semenoff Group taking a direct shareholding in Landscaping Direct. In relation to both of those options, Mr Yeoman’s email noted specifically that Landscaping Direct had “25 years remaining on their current lease”.
11 Royalty Agreement, cl 9.
12 As did other third parties including Telfer Young in the valuation provided to Landscaping Direct on 10 May 2017. See [15] below.
[14] However, for reasons that Alex Semenoff set out in his affidavit, the Semenoff Group was not interested in either Option 1 or Option 2. Instead Mr Yeoman’s Option 3 formed the basis for the contracts subsequently entered into in October 2017. In contrast to Options 1 and 2, Option 3 included no reference to the length of time remaining on the current lease but instead provided:
Option 3
The Semenoff Group purchase the 3 Volvo truck & trailers, the 6 tonne tip truck, the loader at Silverdale and the SsangYong Ute, all at market value.
Volvo FH540 and trailer ( 2 yrs old and completed km's) $ 450,000 2 x Volvo FMX Series trucks & trailers $ 890,000 (purchased in Feb/Mar 2017)
Volvo L 150 Loader $ 215,000
Zippy tip-truck (6 tonne) $ 80,000
SsangYong Ute $ 25,000
Total $1,660,000
In addition to this, The Semenoff Group take over the two Auckland leases (Takanini & Silverdale), including all staff and operation costs associated with these yards.
[Landscaping Direct] would then enter into an agreement to sell scoria to The Semenoff Group at the Taupo Quarry for a price of $20.00 per tonne plus GST. A minimum tonnage of 100,000 tonnes would need to be agreed between the parties for a minimum period of 5 years. In return [Landscaping Direct] would undertake not to sell scoria to any other parties that operate in the greater Auckland area.
This is the least preferred option as it does not allow Shaun sufficient capital to complete the developments needed at the Taupo Quarry once the lease is granted on the adjoining parcel of land
[15] In support of the options identified, Mr Yeoman forwarded a copy of a registered valuation of Landscaping Direct’s interest in the quarry prepared by Telfer Young. This document valued Landscaping Direct’s interest in the quarry at
$3,500,000, referring specifically to Landscaping Direct having a:
leasehold interest (expiring 2026 with renewal rights) and consent to mine (under resource consent expiring 2034) over 11.0378 hectares.
(emphasis added)
[16]What this meant was confirmed elsewhere in the valuation:
Landscaping Direct hold a relatively long-term lease over the area. We have been supplied with a copy of the lease. Final expiry is May 2026.
(emphasis added)
[17]Likewise:
The lease held by Landscaping Direct commenced 20 May 2011 and
terminating in May 2026.
(emphasis added)
[18]Telfer Young did however note:
While the lease expires in 2026, we are advised that a further 15 year extension
has been approved to circa 2041.
Adequate aggregate reserves are available for extraction at the advised levels for at least 25 years.
(emphasis added)
[19] In response to the three options, Mr Dixon-Parrant prepared what he described as a “Strategic Alliance Proposal”. Like Mr Yeoman’s Option 3, the Strategic Alliance Proposal provided for the Semenoff Group to take over Landscaping Direct’s Silverdale and Takanini depots and Landscaping Direct’s transport fleet and gave exclusive rights to scoria for a five year term upon payment of royalties.
[20] The Strategic Alliance Proposal went further than Option 3 however, making the payment of the royalties a basis for the acquisition of Landscaping Direct’s interest in the quarry. In particular, the Strategic Alliance Proposal, expressed to be between the Semenoff Group and Landscaping Direct, provided:
Proposal
An opportunity exists for the two companies to form a strategic alliance as the basis for Semenoff Group to acquire the leasehold Interest from Landscaping Direct in the scoria and pumice quarry at Taupo over a period of time.
Transaction
Scoria Quarry
Landscaping Direct grants a "call option" to acquire the leasehold interest
(expiring 2026 with renewal rights) in a 11 ha block of land mining pumice and scoria materials on the following basis:-
1.Call Option Fee (non-refundable):
Based on extraction of 100,000 tonnes of Scoria per annum being
$5.00 per tonne for a 5 year term payable 6 months in advance by way of initially acquiring the debt to Regal Haulage Limited.
2.Leasehold Interest
$750,000 payable on the 6th anniversary if option exercised.
3.Landscaping Direct shall be granted the right/licence to mine the aforesaid scoria quarry once the leasehold interest is purchased by Semenoff Group through to the expiration of the existing lease and any further right of renewals exercised by them.
Product Payments (during option period) from Semenoff to Landscaping: Semenoff will pay landscaping $17.25 per tonnes of scoria at the gate.
Semenoff will limit the extraction of Scoria from Semenoff’s Kamo Quarry to 25% of the total amount sold between Taupo and Kamo quarries. Scoria product stockpiled in Auckland will be purchased from Landscaping at $40 per tonne on sale at gate before any other scoria is sold.
[21] The proposal, with slight amendments, was accepted by Landscaping Direct on 16 September 2017 and subsequently signed by representatives of both the Semenoff Group and Landscaping Direct. Both parties were apparently oblivious to the implications of clause 7 of the Royalty Agreement which, as noted, made it clear that Landscaping Direct neither had a leasehold interest in the quarry nor that its interest in the Royalty Agreement could be assigned to a third party. There was also no reference in the Strategic Alliance Proposal that the Royalty Agreement would expire in 2041. The phrase “expiring 2026 with renewal rights”, as in the Telfer Young valuation, on the face of it simply reflected the position in the Royalty Agreement that it would expire in 2026 in the event that the existing renewal rights were exercised, rather than that any additional extension had been agreed to 2041.
[22] In any event, the Semenoff Group’s solicitors, Kensington Swan, were in mid- September instructed to document the Strategic Alliance Proposal. They subsequently prepared the two contracts at issue in these proceedings:
(a)An agreement for sale and purchase of assets (“the purchase agreement”) documenting the transfer of Landscaping Direct’s transport fleet to the Semenoff Group and the assignment of leases of the Silverdale and Takanini depots; and
(b)An agreement (“the supply agreement”) documenting the exclusive supply of scoria from the quarry and the option for Semenoff to acquire Landscaping Direct’s interest in the quarry.
[23] At about the time the Strategic Alliance Proposal was accepted, Mr Yeoman, in an email to Mr Dixon-Parrant, advised:
I have asked our solicitor to provide a copy of the extension granted to [Landscaping Direct] giving a further 15 year ROR beyond the expiry of the current lease tenure.
[24] A week later, on 26 September 2017, Mr Yeoman emailed Mr Lloyd Dixon- Parrant to report:
As per our phone call earlier today, we have hit a small hurdle which we are currently trying to resolve. When the original lease was signed by Rangatira E Trust, the negotiations allowed for a further 15 years at the expiry of the current lease, which all parties have agreed to, but the paperwork was never completed.
I have spoken with the Trust chairman, and their consultant, and both agree that this should have been completed some time ago, but was an oversight. So on that basis, we are currently getting the second term of 15 years documented into a lease extension. We expect to have this resolved very quickly and will attend to this urgently.
Attached are the two lease agreements for the Auckland yards as requested
[25] Mr Yeoman then contacted Peter Faulkner, an advisor to the Te Rangatira E Trust and advised:
Further to our telephone discussions the other day, I believe we are all of the same understanding, that there was a verbal agreement for Shaun Fredricksen’s company to be granted a further 15 years Right of renewal on at the expiry of the current lease with Rangatira E Trust. This agreement predates my involvement with LSD however has never been documented, not that I can find anyway.
Please find attached a document that extends the term of the lease for a further 15 years beyond the expiry of the current lease in May 2026. Given our plans
to substantially enhance the property over the coming years, we need to ensure that we can get an acceptable return on our investment in the remaining tenure of the lease. Not to mention, the Trust will benefit significantly from the annual royalties they will receive and the proposed infrastructure we will leave it upon final expiry of the lease.
Can you please give me a call to discuss, once you have reviewed the document.
[26] The email enclosed a draft document purporting to vary the Royalty Agreement by the grant of a further right of renewal from 19 May 2026 to 19 May 2041, as well as increase the size of the quarry on to the Rangatira E Block.
[27]Mr Faulkner responded the next day and advised:
Position summarised as follows:
Existing licence was signed 7 June 2011 (effective May 2011)
·Term 5 years + 2 ror's of 5 years each
·Discussions on extension of term, alternate road access, alternate pumice pit site started some stage after that
·A request from Dig4u to extend the term by 10 years (to 2036) was made early 2015 (28/1/15)
·The Trusts response was as per our letter·dated 8 April 2015
·A further request was made 18 May 2016 to extend the lease by 15 years as part of the alternate accessway proposal
It seems that there has been an implicit assumption that the lease extension has been agreed to (our records and minutes are silent on this) but this does not appear to be documented.
[28] No copies of the correspondence referred to by Mr Faulkner have been provided. Mr Yeoman subsequently followed up his draft on 11 October 2017, to which Mr Faulkner advised:
… The extension of the existing will have to be done as a separate, but simpler document, variation. Alec is going to talk to [the Māori Trustee] direct about this.
[29] Mr Faulkner’s response reflected the fact that any agreement to further extend the Royalty Agreement not only had to secure the approval of Te Rangatira E Trust, but also the Māori Trustee on behalf of the owners of the Rangatira B 617/618
(Combined) Block. Despite this further email correspondence, Mr Yeoman provided no further update to the Semenoff Group.
[30] At about this time, on 16 October 2017, LSD was incorporated, apparently as the Semenoff Group vehicle for the purposes of the purchase agreement and the supply agreement. No details with regard to the incorporation nor any communications with Landscape Direct with regard to the incorporation of LSD have been provided to the Court.
[31] Despite the fact that Landscaping Direct had advised the 15 year extension to the Royalty Agreement had not been documented into a lease extension and although both agreements contained a number of express warranties given by Landscaping Direct, with the Royalty Agreement being referred to specifically, there was no reference in either agreement to the Royalty Agreement having been extended, let alone any reference to an expiry date of 2041. On the contrary, both agreements contained entire agreement clauses in the following terms:
(a)in the Purchase Agreement:
It sets out the only conduct relied on by the parties and supersedes all earlier conduct and prior agreements, representations and understandings between the parties in connection with its subject matter.
(b)in the Supply Agreement:
It sets out the only conduct relied on by the parties and supersedes all earlier conduct and prior agreements and understandings between the parties in connection with its subject matter.
[32] The Purchase Agreement largely reflected the Strategic Alliance Proposal. The Supply Agreement contained a number of key differences to what had been agreed in the Strategic Alliance Proposal:
(a)Although LSD would continue to make royalty payments totalling
$500,000 per year (the “annual option fee”) based on a rate of $5 per tonne of scoria taken by LSD,13 it left it for LSD to advise Landscaping
13 Supply Agreement, cl 2.1.1.
Direct annually whether it wished to continue with the Supply Agreement.14
(b)The first half of the annual option fee payable in the first year of the Supply Agreement was covered, not by royalties payable on the scoria taken by LSD, but by LSD clearing a trade debt of Landscaping Direct owed to one of its transport providers, Regal Haulage Limited, in the sum of $250,000 (“the Regal debt”).
(c)LSD also agreed to purchase approximately 6,200 tonnes of scoria stockpiled at the Silverdale and Takanini depots (transferred to LSD under the Purchase Agreement), with the ongoing acquisition of scoria to be paid for by LSD at a rate of $40 per tonne.
(d)In the event Landscaping Direct breached the Royalty Agreement giving rise to the right of termination:
[LSD] shall be entitled to immediately exercise its Call Option under clause 2.17 and become the contracting party. In such event [LSD] shall be entitled to pay the sum of $1.00 to validly exercise the Call Option (i.e. $750,000 will not be payable).
[33] Little information has been placed before the Court as to the operation of the agreements in practice. It appears clear that the various transactions set out in the Purchase Agreement were completed and the Regal debt was paid off by LSD by 23 July 2018. No details have however been provided by LSD as to whether it paid the balance of the $250,000 annual option fee for the 2017/2018 year,15 nor whether notice was given by LSD to roll the agreement over to the 2018-19 year.
14 Clause 2.2.
15 There was some suggestion in the submissions made on behalf of LSD at the hearing that the annual operating fee was not payable in the first year. On the face of the documents, that cannot be correct. There is nothing in the supply agreement that indicates the annual operating fee was not payable in the first year other than half was credited as a result of the payment of the Regal debt. In addition, the call option could have been exercised in the 12 months before the sixth anniversary of the agreement (cl 2.17) which reflects the fact that five years of annual operating fee would have been paid by that point. That would not have been the case had no annual operating fee been required to be paid in the first year of the supply agreement.
[34] Furthermore, LSD did not follow up with Landscaping Direct about any extension to the Royalty Agreement until January 2019, which was by then nearly 15 months after the contracts had been signed. It appears that, sometime in late 2018, Stan Semenoff was notified by an owner of the Rangatira B 617/618 (Combined) Block and provided minutes of a meeting in November 2018 confirming that the beneficial owners had not agreed to any extension when the issue was put to them by the Māori Trustee. Even then, it was not until 18 January 2019 that Mr Dixon-Parrant emailed Mr Fredricksen to obtain “a copy of the 15 year extension”. Mr Fredricksen responded by saying “have requested a copy so will forward it to you when it is received”.
[35] Surprisingly in light of what had been advised by the Rangatira 617/618 (Combined) Block owner, LSD did not take the matter further at that time. Instead LSD continued to make payments towards the annual operating fee for the 2018-19 year. A meeting then took place between LSD and Landscaping Direct at the quarry on 16 March 2019. According to Alex Semenoff, at the meeting both he and Mr Dixon-Parrant asked Mr Fredricksen about the extension and were told “the Trust had agreed to the extension in principle but they wanted to deal with it formally at the end of 2026”. This account of the meeting is however not supported by Mr Dixon- Parrant in his own affidavit which contained only a brief mention of the meeting.
[36] In any event, neither the extension nor any proposals to amend the annual operating fee were taken further until Mr Dixon-Parrant emailed Mr Fredricksen on 26 July 2019 (a further four months later) to advise:16
Further to my email earlier this year, I was wondering how you were getting the 15 year extension of the Scoria leases from the trust.
Also Alexander was trying to get hold of you to arrange a meeting with us. Can you let me know when will suit.
[37]Mr Fredricksen responded on 29 July 2019:
16 In his affidavit, Mr Dixon-Parrant suggested there were earlier phone calls but this is not apparent from his email.
We have had multiple meetings and many discussions with the two trusts in regards to the further 15 year extension although they are in agreeance on the formalisation they have definitively come back with the response that it is too messy to change and prefer to leave it as it is for now and they will look at the formalisation closer to the expiry of the current lease period being 2026.
Further to Robs email the fact that the further 15 year extension had not been formalised was disclosed prior to the signing of the agreement.
[38] A week later, the solicitors for Landscaping Direct gave notice that LSD was in breach of its obligations under the Supply Agreement to pay the progressive annual operating fee for February-June 2019 in the sum of $74,772.15, and that unless those amounts were paid within five working days Landscaping Direct would terminate the Supply Agreement.
[39] In response, Kensington Swan on behalf of LSD expressed its concern that the “extension has still not been formalised 18 months after the supply agreement was signed” and advised:
Given this concern, our client discussed with Mr Fredricksen that rather than a $5 per tonne payment in respect of the annual option fee, a rate of $1.70 per tonne should apply pending the 15 year extension being formalised. We are advised that it was accepted by Mr Fredricksen to Alex Semenoff that further annual option fees would not be paid until the effective ‘over-payment’ (the difference between $5 per tonne and $1.70 per tonne) had been applied. Accordingly, the reason why the monthly payments have not continued is because of this agreement being reached between our respective clients.
Our client therefore disputes that it is in breach of the supply agreement and hereby give notice to your client pursuant to clause 10.1 of the supply agreement that this dispute be referred to our client’s respective managers for resolution.
[40] Consistent with Alex Semenoff’s evidence in the hearing before me, Stace Hammond disputed any agreement had been reached to reduce the annual option fee. They advised with regard to the extension:
Our client recalls no agreement being reached to reduce the per tonne rate. Our client has been chasing payment of the annual option fee defaults every month since February. Our client advises that your letter is the first time it is learning of an alternate agreement being reached and says that it would not have agreed to a reduction. With no minimum tonnage uplift requirement and the rule of exclusivity, our client says it makes no sense that it would further put itself at risk by cutting the annual option fee by two thirds.
[41] Kensington Swan did not dispute the application of clause 8.2 but instead simply advised:
Our client remains concerned that the extension has still not been formalised 18 months after the supply agreement was signed and is not persuaded that your client has taken ‘all steps to exercise all renewal rights…’
[42] Further correspondence ended on 16 September 2019 when Stace Hammond confirmed termination as a result of the non-payment of the annual option fee.
Issue One – was there a misrepresentation by Landscaping Direct in terms of the CCLA and/or FTA?
[43] “Misrepresentation” is not defined under the CCLA; nor are the terms “misleading” and “deceptive” defined in the FTA. For a representation to be actionable, it is well established that such has to be a representation of a past or present fact. The intention of the representor is irrelevant as the focus is on the way their words would have reasonably been understood by the representee.17 Relevant factors to consider include the nature and subject matter of the transaction, the respective knowledge and relative positions of the parties, and the actual words the representor used.18 In terms of the FTA, the Courts have adopted the plain meaning of “misleading” and “deceptive”.19 Whether conduct is misleading or deceptive is an objective assessment, taking into account circumstances including the identity, experience and knowledge of the party claiming to have been misled or deceived.20
[44] In this case, I am satisfied that there was at least initially an unambiguous representation or representations that Landscaping Direct had obtained a 15-year extension to the Royalty Agreement which would otherwise expire in May 2026. Not only was that the evidence from Alex Semenoff and Mr Dixon-Parrant but Landscaping Direct had also clearly advised Telfer Young along similar lines in May 2017 when the valuation of Landscaping Direct’s interests in the quarry was undertaken.
17 See West v Quayside Trustee Ltd (in rec and in liq) [2012] NZCA 232 at [30].
18 Ridgway Empire Ltd v Grant [2019] NZCA 134 at [11].
19 See Taylor Bros Ltd v Taylors Textile Services Auckland Ltd [1988] 2 NZLR 1 at 39.
20 See Red Eagle Corporation v Ellis [2010] NZSC 20 at [28].
[45] It is clear from the narrative that this was not correct and could well have had a tendency to mislead or deceive, notwithstanding the statements made by Landscaping Direct clearly reflected the position as Mr Fredricksen considered it to be, evidenced by Mr Yeoman’s correspondence with Mr Faulkner with regard to the extension.
[46] It is equally clear that those unequivocal representations were not made to LSD as LSD had not been incorporated at that time. In Do Yay Ltd (in liq) v Wei, this Court dealt with the question of whether a misrepresentation could have been “made”21 to a company prior to the purchase of a business where the sale and purchase agreement was entered into by an individual who later incorporated the company (the purchaser having been noted as “Mr Wei ‘and/or Nominee’”).22 Gault J held that the representations could not have been made to the company on the basis that Mr Wei was acting as its agent because he could not have acted as agent for a company that was not yet incorporated.23 Neither could it be argued that the representations were made to the company in the context of a pre-incorporation contract under ss 182 to 185 of the CCLA, as there was no indication the contract was a pre-incorporation contract.
[47] LSD submitted that the misrepresentations which occurred prior to the company’s incorporation were “continuing representations” that were still standing at the time the Supply and Purchase Agreements were entered into. It submitted that the time of the misrepresentations are immaterial provided that Landscaping Direct intended or expected the misrepresentations would be passed on to LSD. Although LSD argued that Do Yay is at odds with established English and Australian case law and that this overseas approach should be adopted, Gault J’s approach is consistent with the earlier decision of Body Corporate 90315 v Redcan Allwood Ltd.24 As a result, I follow the approach set out by Gault J and Kós J and find that no representations could have been made to LSD in these circumstances.
21 CCLA, s 35(1).
22 Do Yay Ltd (in liq) v Wei [2020] NZHC 759 at [51]-[57].
23 A principal is generally not imputed with knowledge possessed by its agent where the agent gained that information prior to the commencement of the agency: Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 31 at [194]-[195].
24 As set out by Kós J: Body Corporate 90315 v Redcan Allwood Ltd [2014] NZHC 1212 at [30]- [45].
[48] The position had in fact already changed significantly over a month before the two agreements were signed by the parties. There is no dispute that on 26 September 2017 Mr Yeoman advised Mr Dixon-Parrant by email that “while the extension had been agreed between all the parties, the paperwork had not been completed”. While the actual position was considerably less advanced than Mr Yeoman indicated, the communication nevertheless fundamentally changed the nature of the representations that had previously been made to the Semenoff Group. From 26 September 2017, the Semenoff Group personnel (and presumably their advisors including Kensington Swan) knew that a 15 year extension had not been put in writing and that given the number of parties to the Royalty Agreement, further steps would have to be taken by all of those parties even if no further discussions were required.
[49] Given that position, it is difficult to say that an undocumented agreement could amount to an actionable misrepresentation in this case or was misleading or deceptive, as the nature of the representation now merely amounted to a statement of future intent. As mentioned above, the representation must relate to a past or present fact. It is well established that a pre-contractual statement about future conduct or events does not generally amount to a representation in the sense of a warranty or promise that the conduct or event will occur.25
[50] Thus, even if the email of 26 September 2017 could still be construed as some form of representation, just as with the preceding representations it was not made to LSD and for the reasons set out above LSD is not able to rely upon it.
[51] On this basis alone, LSD’s claims against Landscaping Direct under both the CCLA and FTA must fail.
Issue Two – did any representation induce the contracts?
[52] Given the equivocal nature of the statement with regard to the extension as ultimately communicated by Mr Yeoman to the Semenoff Group such that it could be considered a representation it is difficult to see that the narrative supports the conclusion that it induced the agreement.
25 McKenzie Institute International v ARCIC (1997) 8 TCLR 329 (CA) at 331.
[53] Whether a misrepresentation induced a party to enter into a contract is an objective inquiry, involving consideration of whether a contracting party in the position of the representee would reasonably have been induced.26 Although misleading or deceptive conduct under the FTA can be committed by merely making a false statement, the Court must be satisfied that the plaintiff was induced to rely on that statement before it can grant a remedy under the Act.27
[54] There is in fact no correspondence or other contemporary evidence to suggest that a 15 year extension from 2026 was critical to the agreements ultimately entered into, as Alex Semenoff and Mr Dixon-Parrant now assert.
[55] As noted, neither Option 3 drafted by Mr Yeoman nor the Strategic Alliance Partnership drafted by Mr Dixon-Parrant explicitly referred to any extension to 2041, while the phrase “expiring 2026 with renewals” was most naturally read as referring to the current position.
[56] The contracts ultimately entered into (drafted by the Semenoff Group / LSD’s solicitors Kensington Swan) and, in particular, the Supply Agreement do not refer to the Royalty Agreement expiry in 2041. On the contrary, the definition of Royalty Agreement contained in the Supply Agreement referred only to the agreement dated 7 May 2011, which of course provided it would expire in 2026 if all renewals were exercised. Furthermore, notwithstanding a range of explicit warranties included in both agreements, these did not include any representation by Landscaping Direct as to any extension of the Royalty Agreement beyond 2026, notwithstanding the Semenoff Group was aware that any such extension had not been documented. Instead, both contracts included whole agreement clauses drafted by Kensington Swan making it even more unlikely that the extension induced those agreements.
[57] It is equally difficult to place too much weight on the evidence of Alex Semenoff and Mr Dixon-Parrant that LSD would not have purchased the assets of Landscaping Direct without the assurance that the Royalty Agreement would
26 See West v Quayside Trustee Ltd (in rec and in liq) [2012] NZCA 232 at [30]; NZX Ltd v Ralec Commodities Pty Ltd [2016] NZHC 2742 at [200] and Closurepac v WS 2014 Ltd [2015] NZHC 1587 at [131].
27 See FTA, s 43.
continue through until 2041 given the Supply Agreement, in contrast to the Strategic Alliance Partnership, envisaged that LSD reserved to itself multiple options for walking away from further performance of the Supply Agreement (including the acquisition of Landscaping Direct’s interest in the quarry), but in the event that it did this did not unwind or otherwise effect LSD’s obligations under the Purchase Agreement.
[58] The actions of Mr Dixon-Parrant in particular after the agreement was signed also do not support the importance now asserted. As noted, there was no follow up by Mr Dixon-Parrant after the 26 September 2017 email until January 2019, even after LSD had been informed late in 2018 the Rangatira B 617/618 (Combined) Block owners did not at that stage support an extension.
[59] For these reasons, there is insufficient evidence to conclude that the contracts were induced by any representation that the Royalty Agreement had been extended. Again, this means LSD’s claims cannot succeed under either the CCLA or FTA.
Issue Three – was it reasonable for LSD to rely on any representation?
[60] Even if the final version of the representation had, inexplicably and against the odds and contemporary evidence, induced the agreements, it clearly was not reasonable for the Semenoff Group/LSD to rely upon it once it became clear the extension to the Royalty Agreement had not been agreed to in writing. In particular:
(a)The equivocal nature of the representation and the knowledge possessed by the Semenoff Group/LSD about the Royalty Agreement meant that once LSD was aware that no extension was documented in writing it was by no means clear that an extension would result. After 26 September 2017, both the Semenoff Group and LSD knew that not only did the Royalty Agreement involve the operation of a quarry on Māori land, it also involved two distinct groups of Māori owners with
both having to agree in writing if the Royalty Agreement was to be extended beyond 2026.28
(b)Likewise, any reliance upon the representation also cannot be seen in isolation from clause 7 of the Royalty Agreement which made it clear that Landscaping Direct’s interests could not be assigned to any third party.29
(c)In any event, the agreement drafted by Kensington Swan made it clear that the Semenoff Group/LSD was not relying upon representations outside the agreements themselves, and the range of specific warranties provided by Landscaping Direct to LSD.30
[61]On this basis as well LSD’s claims must fail.
Decision
[62] For the reasons set out above, the claims by LSD are dismissed. Given this matter has proceeded by way of formal proof there is no issue as to costs.
Powell J
28 Noting that although the combined block had been leased to the Te Rangatira E Block, the combined block owners were still the grantor of the quarry for the purposes of the Royalty Agreement and, on the evidence before the Court, the lease to the Rangatira E Block expired in 2026 as well.
29 See this judgment above at [11].
30 See this judgment above at [31].
0
6
0