Mahon v Waimauri Ltd
[2022] NZCA 96
•30 March 2022 at 11.00 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA338/2020 [2022] NZCA 96 |
| BETWEEN | NEVILLE CHRISTOPHER MAHON |
| AND | WAIMAURI LIMITED |
| Hearing: | 16 September 2021 |
Court: | Cooper, Brown and Goddard JJ |
Counsel: | D G Collecutt for Appellants |
Judgment: | 30 March 2022 at 11.00 am |
JUDGMENT OF THE COURT
AThe application for leave to amend the appellants’ second amended statement of defence and counterclaim, and the notice of appeal, is declined.
BThe appeal is dismissed.
CThe appellants must pay costs to the respondents for a standard appeal on a band A basis, with usual disbursements. We certify for second counsel.
____________________________________________________________________
Table of contents
Para no
Introduction
Background[10]
The proceedings
Two sets of proceedings are filed
Application to amend counterclaim in Waimauri proceedings shortly before trial
The amended pleading before the High Court at trial
The defence to the counterclaims
High Court judgment
The appeal to this Court
Appellants’ submissions on appeal
Respondents’ submissions on appeal
Discussion
The proposed amendments amount to a new cause of action
Abuse of process
Misrepresentation claims not available as a defence to Waimauri’s claim
Other grounds for opposing amendment
Result
Appendix A
REASONS OF THE COURT
(Given by Goddard J)
Introduction
Waimauri Ltd (Waimauri) made advances to Beach Arena Ltd (BAL) under a loan agreement entered into in September 2013 (the loan agreement). Mr Mahon, the controller of BAL, guaranteed BAL’s obligations to Waimauri.
BAL’s need to borrow arose in connection with certain properties it had leased from Waikoro Ltd (Waikoro), including the former Station Hotel on Beach Road in Auckland. Waikoro, which owned the properties, and Waimauri, the company that made the advances to BAL, were both controlled by Mr Edney, a longstanding business associate of Mr Mahon.
In circumstances described in more detail below, significant differences arose between Mr Mahon and Mr Edney. Waikoro terminated the lease and sold the properties. Waimauri made demand under the loan agreement.
Waimauri brought proceedings against Mr Mahon as guarantor under the loan agreement. Mr Mahon defended that claim, and joined BAL as a counterclaim plaintiff. BAL counterclaimed against Waimauri, Mr Edney, and Waikoro. Mr Mahon and BAL pleaded that an agreement had been entered into in November 2013 (described as the “variation agreement”) under which they were released from any liability under the loan agreement, and were entitled to be paid the surplus realised by Waikoro on sale of the properties. The counterclaims were identified in the pleadings as claims in contract, estoppel and restitution. They were all founded on the variation agreement.
In the High Court the counterclaims by Mr Mahon and BAL were unsuccessful. Waimauri’s claim under the loan agreement was successful, but for a sum substantially less than it had originally claimed.[1]
[1]Waimauri Ltd v Mahon [2020] NZHC 1170 [High Court judgment].
Mr Mahon and BAL filed an appeal to this Court. Their notice of appeal contended that the High Court had erred in dismissing their arguments based on contract, estoppel and restitution.
However when the appellants filed their submissions on 12 August 2021, 25 working days before the hearing of this appeal, their submissions did not pursue any of those arguments. They subsequently confirmed that none of the original grounds of appeal was pursued. Rather, the appellants’ submissions were accompanied by an application for leave to make substantial amendments to the statement of defence and counterclaim and the notice of appeal in order to plead, and pursue on appeal, misrepresentation claims relating to insurance premiums, the earthquake rating of the Hotel, and defects in the properties. Their submissions focused on those issues.
The respondents say that the original grounds of appeal have been abandoned, so the appeal on those grounds must be dismissed. They submit that leave should not be granted to amend the appellants’ pleadings and notice of appeal to add a misrepresentation claim: they say it is much too late to add a new cause of action based on new factual allegations and with a different legal basis. In addition, they say that the same misrepresentation claims are being pursued by BAL in other proceedings between Waikoro and BAL, and it is an abuse of process for BAL to seek to pursue them in these proceedings. And they say that even if the misrepresentations were made out, that would not affect the claims by Waimauri (which is not alleged to be responsible for the misrepresentations) against Mr Mahon.
We agree it is not open to the appellants to seek to advance, on appeal, a new and materially different cause of action against the respondents. For this and other reasons explained in more detail below, the application for leave to amend the pleadings and the notice of appeal must be declined. It follows that the appeal must be dismissed.
Background
The events that gave rise to this litigation are described in detail in the High Court judgment.[2] For the purposes of this appeal, they can be stated reasonably concisely.
[2]High Court judgment, above n 1, at [2]–[30] and [129]–[157].
Waikoro, which Mr Edney controlled, owned the old Station Hotel on Beach Road and two adjacent development lots. Following lengthy discussions, Waikoro agreed to lease those properties to BAL for a term of 10 years. The lease included both put and call options in respect of the properties at a price of $12.6 million. A deed of lease was signed on 20 December 2012. A capped guarantee of the obligations of BAL under the lease was provided by interests associated with Mr Mahon.
Mr Mahon had carried out a number of inspections of the property before entering into the lease. The lease expressly provided that BAL accepted the properties at the commencement of the lease “on an as-is basis”. Waikoro gave no warranties and made no representations that the properties were suitable or would remain suitable or adequate for use by BAL. All maintenance costs were the responsibility of BAL.
BAL encountered numerous difficulties with the properties. Shortly after the lease was entered into, BAL received an account for insurance premiums of $144,815.84 (GST inclusive). This was some 12 times the sum which Mr Edney had identified as the applicable insurance premium in May 2011, in response to an inquiry from Mr Mahon. Mr Edney had become aware of the significant increase in insurance premiums for the property a few days before the lease was signed, but did not pass that information on to Mr Mahon. The insurance premium was payable immediately and BAL did not have the funds to do so. It was agreed that BAL could borrow the necessary funds from Waimauri.
More problematically still, the condition of the Hotel proved to be much worse than Mr Mahon had anticipated, with regular flooding, unsanitary overflows of sewage and falling masonry creating serious health and safety risks to the occupants and the public generally. Waikoro’s stance was that these were all BAL’s responsibilities. But Mr Edney was willing to procure Waimauri to advance further amounts to BAL to meet the cost of addressing these defects.
An initial short-form loan agreement between Waimauri and BAL was replaced by a more detailed document dated 20 September 2013. The parties were Waimauri as lender, BAL as borrower and Mr Mahon as guarantor.
As a result of these issues, BAL came under significant financial pressure. BAL fell behind with the rent payable to Waikoro, and was unable to repay its borrowings from Waimauri.
In 2014 or 2015 Mr Edney and Mr Mahon agreed that the properties should be marketed. They pursued various sale options, but none of these came to fruition. Eventually, in 2016, Waikoro entered into agreements to sell the development lots and the Hotel separately for a total consideration of $16,700,000.00. Both sales took place after the expiry of BAL’s options. Waikoro sought a surrender of the lease to enable the sales to proceed. BAL would not cooperate unless Waikoro entered into an agreement providing for a clean break. Waikoro did not accept this proposal. Waikoro terminated the lease in reliance on BAL’s defaults in payment of rent.
Following the sale of the properties and termination of the lease, Waimauri made demand under the loan agreement on 11 August 2016 for $1,633,623.18. Shortly afterwards that figure was amended to $2,420,925.22.
The proceedings
Two sets of proceedings are filed
In 2018 Waimauri commenced these proceedings against Mr Mahon as guarantor under the loan agreement, claiming $2,420,925.22 and default interest at 18 per cent per annum from 1 April 2014. As already mentioned, Mr Mahon filed a defence and counterclaim, with BAL added as a counterclaim plaintiff.
In 2019, a separate set of proceedings was commenced by Waikoro against BAL and the guarantors of BAL’s lease obligations claiming unpaid rent and outgoings under the lease (the Waikoro lease proceedings).
Application to amend counterclaim in Waimauri proceedings shortly before trial
The trial of the Waimauri proceedings was set down to begin on 2 March 2020. At the time Mr Mahon and BAL served their briefs of evidence, shortly before trial, they applied to amend their pleadings to join Mr Edney and Waikoro as counterclaim defendants, and to make various amendments to their counterclaim. That application was heard before Downs J on 13 February 2020, together with applications by BAL and Mr Mahon to adjourn the trial, and to consolidate this proceeding with the Waikoro lease proceedings.
The Judge declined to adjourn the trial, or to consolidate the two proceedings. However counsel for the respondents advised the Court that they could “live with” the proposed amendments to the pleadings. BAL was granted leave to amend its counterclaim and to add Mr Edney and Waikoro as counterclaim defendants.[3]
The amended pleading before the High Court at trial
[3]Waimauri Ltd v Waikoro Ltd HC Auckland CIV-2018-404-454, 13 February 2020 [Minute of Downs J] at [16(c)].
Mr Mahon and BAL proceeded to file a second amended statement of defence and counterclaim (2ASDCC) dated 17 February 2020. And at the commencement of the trial, the Judge granted them leave to amend their pleadings yet again, to add an alternative argument based on estoppel in the event that the variation agreement was found not to amount to a binding contract.[4]
[4]High Court judgment, above n 1, at [63]–[65]. References in this judgment to the 2ASDCC are references to that pleading as amended in the manner indicated at [63] of the High Court judgment.
In their notice of appeal filed in this Court, Mr Mahon and BAL summarised the arguments they pursued at trial as follows:
(f) By the commencement of trial on 3 March 2020, Mr Mahon and BAL:
(i) pleaded as a defence in contract and estoppel that on sale of the Properties neither side would have any liability to the other and that no sums would be due under the Loan Agreement (the “clean slate” argument);
(ii) counterclaimed in contract and estoppel seeking payment of the surplus realised by the respondents on sale of the Properties above $13,042,682.92 (being a $12.6m option price set out in the Deed of Lease plus a sum of $442,682.92 borrowed under the Loan Agreement) (the “uplift” argument);
(iii) in the alternative, counterclaimed in contract or restitution for payment of $910,026.06 being remediation costs in respect of the Properties.
The contract, estoppel and restitution claims that Mr Mahon and BAL pursued at trial were all founded on the “variation agreement” that they said they had entered into with Mr Edney, Waikoro and Waimauri in or about November 2013. The terms of the variation agreement pleaded by Mr Mahon and BAL in the 2ASDCC included:
(a)BAL would no longer pay rent for the properties or have an option in respect of those properties;
(b)Waikoro would be responsible for funding remediation of defects in the properties and would reimburse BAL and Mr Mahon for any remediation costs incurred and paid for by them;
(c)Waikoro would accept a reasonable offer to purchase the properties;
(d)BAL would vacate the properties before expiry of the lease in the event of a sale;
(e)upon sale neither side would have any liability to the other, and no sums would be due under or in respect of the loan agreement; and
(f)any surplus realised on the sale of the properties by Waikoro in excess of $13,042,682.92 (being the $12.6 million option price set out in the lease plus the original $442,682.92 borrowed by BAL) would be due to BAL.
The 2ASDCC included a brief reference to the defects in the property. Paragraph 2(e) read as follows:
Following commencement of the Lease, Mr Mahon and BAL discovered a number of significant defects (Defects) with the Beach Property which had not been disclosed to them by Mr Edney or his interests at the time the Lease was executed.
However the 2ASDCC did not plead any duty to disclose those defects, did not plead that the non-disclosures amounted to misrepresentations, did not plead that the non-disclosures induced BAL to enter into the lease, did not provide any particulars of the alleged defects, and did not plead the amounts attributable to remedial work in respect of those defects, as distinct from remediation costs in respect of the properties generally. The pleading did not contain any reference to misrepresentation, or to s 35 of the Contract and Commercial Law Act 2017, which governs claims for damages for misrepresentations that induce entry into a contract.
The 2ASDCC made no reference at all to the increased insurance premiums for the properties, or to Mr Edney’s failure to pass on information about that increase before the lease was signed. Nor did it refer to the earthquake rating of the Hotel building.
The counterclaims pleaded in the 2ASDCC were brought by BAL alone. Because the appellants now argue that a misrepresentation claim was included in these counterclaims, it is worth setting them out in full:
First counterclaim: breach of contract
18. BAL repeats paragraphs 1 to 17 above.
19. The First, Second and/or Third Counterclaim Defendants were liable to, but failed to, pay to BAL the surplus realised on the sale of the Properties, being the sum in excess of:
a. The $12.6m Option price set out in the Lease; plus
b. The original $442,682.92 borrowed by BAL.
20. The First, Second and/or Third Counterclaim Defendants thereby breached the Variation Agreement.
Wherefore BAL claims against the First, Second and Third Counterclaim Defendants:
a. Judgment in the amount of $3,457,317.08;
b. Interest under s 10 of the Interest on Money Claims Act 2016 from the date of settlement of the sale of Properties until the date of payment; and
c. Costs.
Second (alternative) counterclaim: breach of contract / restitution
21. BAL repeats paragraphs 1 to 17 above.
22. BAL has incurred and paid $910,026.06 in respect of remediation costs in respect of the Properties.
23. The First, Second and/or Third Counterclaim Defendants were liable to, but failed to, reimburse BAL for these costs in accordance with the Variation Agreement.
24. The First, Second and/or Third Counterclaim Defendants have thereby breached the Variation Agreement.
Wherefore BAL claims against the First, Second and Third Counterclaim Defendants:
a. Judgment in the amount of $910,026.06;
b. Interest under s 10 of the Interest on Money Claims Act 2016 from the date of settlement of the sale of the Properties until the date of payment; and
c. Costs.
The defence to the counterclaims
The counterclaim defendants — Waimauri, Mr Edney and Waikoro — denied the pleading in relation to the variation agreement, saying that no proposal as pleaded was ever made by Mr Edney to Mr Mahon. They also pleaded that the alleged variation agreement was inconsistent with or contradicted by a number of subsequent email communications between Mr Mahon and Mr Edney and others.
The counterclaim defendants also denied paragraph 2(e) of the 2ASDCC, set out at [26] above. In response to that allegation they pleaded (among other things) that:
(a)Mr Edney told Mr Mahon before the lease was signed that the Hotel needed significant work carried out on it.
(b)Mr Mahon had in excess of one year, prior to the execution of the lease to undertake any due diligence he wished to undertake in respect of the properties. He inspected the properties together with his wife, an architect, before the lease was signed.
(c)Mr Mahon acknowledged before he signed the lease that the Hotel needed a lot of money spent on it.
(d)Mr Mahon took legal advice before signing the lease.
(e)The lease set out the responsibilities of BAL as lessor for maintenance, and expressly provided that Waikoro gave no warranties or representations in relation to the properties.
High Court judgment
Waimauri’s claim under the loan agreement and the counterclaim by BAL went to trial before Muir J in March 2020. The Judge recorded that there were five real issues in the case:[5]
(a) Was there an agreement in or about November 2013 whereby BAL would be given relief from its financial obligations under the lease and, in the event of a proximate sale, would be entitled to have its debt wiped clean and to receive any additional “upside”?
(b) If not, should Waimauri nevertheless be estopped from asserting its strict contractual rights?
(c)If (a) and (b) are answered in the negative, can Waimauri claim sums owed by BAL to Waikoro which Mr Edney unilaterally chose to “fold” into the loan agreement?
(d)If not and Waimauri is limited to the initial advance under the agreement, how does the Court now deal with the fact that, according to Waimauri’s own internal records, such amount was overstated by $71,960.29?
(e)Can, if all else fails, BAL bring a quantum meruit claim for the moneys expended by it on the properties”?
[5]High Court judgment, above n 1, at [31].
The Judge expressly addressed the relevance to the issues before him of BAL’s complaints about non-disclosure and misrepresentation:
[32] In the background, however, lie BAL’s allegations about nondisclosure and misrepresentation. I am not required to address these directly because there is no prayer for rescission or a corresponding damages claim. However, BAL and Mr Mahon say that these issues are nevertheless important because they explain why Mr Edney would have considered it appropriate to make the concessions alleged. Accordingly, Mr Glenie submits that they go to the credibility of Mr Mahon’s assertions.
The Judge found that there was no variation agreement entered into in November 2013 along the lines claimed by BAL and Mr Mahon. He reached that conclusion “by a wide margin”.[6]
[6]At [45].
The Judge also rejected the alternative pleading based on estoppel.[7]
[7]At [63]–[66], [127].
The Judge went on to consider the amount that Waimauri could claim under the loan agreement. Waimauri’s claim included various amounts outstanding from BAL under the lease which Mr Edney had unilaterally decided to transfer across to the loan agreement. Mr Mahon had consistently rejected Mr Edney’s suggestions that the arrears under the lease should be folded into the loan agreement — unsurprisingly, since the loan agreement provided for a higher rate of interest on unpaid amounts, and the liability of the guarantors of BAL’s lease obligations was capped, but Mr Mahon’s liability as guarantor under the loan agreement was not capped. The Judge found that none of the sums unilaterally debited to the Waimauri loan account by Mr Edney were recoverable by Waimauri.[8]
[8]At [177].
After dealing with a number of other less significant issues in relation to the balance of the loan, the Judge concluded that the amount recoverable by Waimauri under the loan agreement was the original loan amount of $370,722.63 plus interest to 31 March 2014 of $23,523.11, with interest continuing to accrue from 1 April 2014.[9]
[9]At [197]–[198] and [216].
Finally, the Judge considered BAL’s restitution claim for the amounts it spent on the properties. He held that in this case the parties’ rights, obligations and remedies were governed by the lease that they had entered into. The alternative counterclaim in restitution also therefore failed.[10]
The appeal to this Court
[10]At [214]–[215].
Mr Mahon and BAL filed a notice of appeal in this Court. Their grounds of appeal were, in essence, that the Judge had erred in dismissing their defence based on contract and estoppel and their counterclaims based on contract, estoppel and restitution.
However as already mentioned, shortly before the hearing of this appeal all those grounds of appeal were abandoned. Rather, Mr Mahon and BAL now seek to pursue arguments based on alleged misrepresentations concerning the increased insurance premiums, defects in the Hotel, and the earthquake rating of the Hotel. The proposed amendments to the 2ASDCC are extensive: they are set out in full in Appendix A.
The appellants also wish to make extensive amendments to their notice of appeal to insert grounds relating to the alleged misrepresentations. The proposed amendments to the notice of appeal claim that the allegations of non-disclosure had been pleaded in the High Court but were not addressed by the Judge:
(iv)Whilst the allegations of non-disclosure were repeated in paragraph 21 of the original second alternative counterclaim, the learned judge appears to have overlooked this repetition and incorrectly found that no relief had been claimed in relation to the misrepresentations made by the second and third respondents.
(v)The learned judge accordingly failed to address the losses caused by the misrepresentations.
(Footnotes omitted).
The proposed amendments to the notice of appeal sought to overcome the difficulty that the alleged misrepresentations were not made by or on behalf of Waimauri, which was not in the picture at the time the lease was entered into, as follows:
(viii)The first and third respondents are associated companies controlled by the second respondent.
(ix)The loan from the first defendant was originally caused by the misrepresentations and non-disclosure by its director, Mr Edney (in particular the increase in the insurance premiums).
(x)In the circumstances the appellants’ second alternative counterclaim should be set off against the first respondent’s claim.
(Footnotes omitted).
The respondents filed a memorandum opposing the appellants’ application to amend their pleadings and to amend the notice of appeal.
Because the original grounds of appeal were all abandoned, it is not necessary for this Court to consider any of the appellants’ original arguments in relation to the alleged variation agreement. Rather, the live issues for determination on appeal are whether the appellants should be permitted to make the proposed amendments to their pleadings and to the notice of appeal. If those amendments are permitted, then we need to decide whether to seek to determine the merits of the claims set out in those amendments, or refer some or all of those claims back to the High Court.
Appellants’ submissions on appeal
Mr Collecutt, who appeared for the appellants before us (but not at first instance) submitted that although “it could have been plead better” there was a prayer for relief for damages in relation to the appellants’ misrepresentation claims. He submitted that it appeared that the Judge did not deal with the claim for damages for misrepresentation as “he overlooked that the allegations of misrepresentations were repeated in the second counterclaim, and accordingly formed part of the basis of the prayer for relief in that counterclaim.”
Mr Collecutt emphasised that the Court has a wide power to amend pleadings if it is necessary to determine the real controversy between the parties and does not result in injustice to other parties.[11] He submitted that as non-disclosure was pleaded, relevant evidence in relation to the proposed amendments was before the Court, and the matters which are the subject of the proposed amendments were dealt with by the Court “at least to some extent”, there is no material prejudice or injustice to the respondents due to the proposed amendments.
[11]Court of Appeal (Civil) Rules 2005, r 48(2); High Court Rules 2016, r 1.9; and Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA).
Mr Collecutt noted that the pleading of each of the counterclaims in the 2ASDCC included a repetition of paragraphs 1–17 of the defence, and thus incorporated by reference the pleading at paragraph 2(e) of the 2ASDCC in relation to defects which had not been disclosed by Mr Edney, as set out at [26] above. Mr Collecutt submitted that the Judge had overlooked the pleaded repetition of paragraph 2(e) and “incorrectly found that no relief had been claimed in relation to the [non-disclosure]”.
Mr Collecutt submitted that this Court could find that liability had been established in connection with the non-disclosure of the increase of the insurance premium, and that the issue of quantum in respect of that misrepresentation should be referred back to the High Court. Because no findings had been made in relation to the non-disclosure of the other defects, the appropriate course would be to refer the balance of the issues of non‑disclosure back to the High Court for consideration.
Respondents’ submissions on appeal
Mr Chisholm QC, counsel for the respondents, submitted that the proposed amendments should not be permitted for a number of reasons:
(a)The proposed misrepresentation claims are fresh causes of action distinct from those pleaded in the 2ASDCC.
(b)The Judge did not overlook the allegations or partially deal with them. They were not before the High Court.
(c)A misrepresentation cause of action was neither pleaded nor argued at trial. In particular, the suggestion that the second counterclaim in the 2ASDCC included a misrepresentation claim was wrong: that counterclaim was part of a breach of contract/restitution cause of action founded on the alleged variation agreement.
(d)The misrepresentation/set-off claims are time-barred.
(e)Virtually the same proposed misrepresentation counterclaim has already been pleaded by BAL in the Waikoro lease proceedings in defence/reduction of Waikoro’s claim for outstanding rent under the lease. BAL’s counterclaims in that proceeding were struck out by Associate Judge Paulsen because they were time-barred.[12]
(f)The proposed misrepresentation claim in this proceeding is accordingly an abuse of process.
[12]Waikoro Ltd v Beach Arena Ltd [2021] NZHC 1673.
The proposed amendment, Mr Chisholm said, would result in a substantial
re-run of the trial but based on a new cause of action. That would undermine the respondents’ fair trial rights. If claims in misrepresentation had been pleaded, the respondents would have defended those claims on the merits. They would have been entitled to discovery on the new issues in dispute. There would have been more extensive cross-examination of Mr Mahon, and others, on these issues. Mr Chisholm responsibly acknowledges that the non-disclosure of the defects was referred to in Mr Mahon’s evidence, and there was some cross-examination on that issue. But he says these issues would have been explored in much more detail if a misrepresentation claim had been pleaded on the basis of these non-disclosures. Similarly, the insurance premium and earthquake rating issues were not explored at trial in any detail, as they were not material to the claims before the Court. Additional witnesses would have been called.Mr Chisholm also emphasised that the respondents would have pleaded limitation defences in respect of at least some of these matters, which would themselves have been the subject of discovery, evidence and findings at trial.
Further, Mr Chisholm submitted, it is not alleged that Waimauri is directly liable for the alleged misrepresentations. There can be no set-off between Waimauri’s claim against BAL under the loan agreement and BAL’s misrepresentation claims against Waikoro and Mr Edney in connection with entry into the lease, as the parties are different. So the alleged misrepresentations do not provide a basis for calling into question the judgment entered in favour of Waimauri against Mr Mahon.
Discussion
The proposed amendments amount to a new cause of action
It is in our view quite clear that the proposed claims in misrepresentation amount to new causes of action that were not pleaded by BAL in the High Court. The suggestion that misrepresentation claims were pleaded in the 2ASDCC, but overlooked by the Judge, is plainly wrong.
The 2ASDCC did not include any reference at all to the unexpected increase in insurance premiums. Nor did it refer to the earthquake rating of the Hotel building.
The 2ASDCC did refer to defects in the properties, and allege that these had not been disclosed by Mr Edney or Waikoro. But as noted above, nowhere in that pleading is it suggested that this non-disclosure breached any obligation on the part of Mr Edney or Waikoro, or gave rise to any claim against them. Rather, as the High Court judgment records counsel for Mr Mahon and BAL submitting, these matters were raised by way of background to the alleged variation agreement.[13] The 2ASDCC did not plead other facts that would be essential elements of a misrepresentation claim in relation to the defects: for example, statements made by Mr Edney about the condition of the properties before the lease was entered into (as alleged in the proposed amendments) and, critically, reliance on the claimed representations on the part of BAL in entering into the lease.
[13]High Court judgment, above n 1, at [32].
The 2ASDCC also clearly identified the legal basis for the claims it advanced: breach of contract, estoppel and restitution. There was no reference to misrepresentation.
We think it is quite plain that the 2ASDCC did not plead the factual foundation for a misrepresentation claim in relation to the insurance premiums, the earthquake rating, or the defects in the properties. Nor did it provide any indication that a claim was being pursued on this very different legal basis.
Any doubt there might have been about the nature of the claims presented at trial is eliminated by the helpful summary in the notice of appeal, set out at [24] above. There was no suggestion at the time this appeal was filed that there had been a claim in misrepresentation that had been overlooked.
The proposed claims in misrepresentation set out in Appendix A relating to alleged non-disclosures and half-truths concerning insurance premiums, the earthquake rating of the Hotel, and defects in the properties, are on any test new causes of action.[14] They depend on facts that were not pleaded. They put forward a new legal basis for the claims. They are essentially different, both in fact and in law, from the claims pleaded in the 2ASDCC and advanced at trial.[15]
[14]See Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61]; and ISP Consulting Engineers Ltd v Body Corporate 89408 [2017] NZCA 160, (2017) 24 PRNZ 81 at [21]–[25].
[15]See Chilcott v Goss [1995] 1 NZLR 263 (CA) at 273, citing Smith v Wilkins and Davies Construction Co Ltd [1958] NZLR 958 (SC) at 961; and Gabites v Australasian T & G Mutual Life Assurance Society Ltd [1968] NZLR 1145 (SC) at 1151.
The appellants are right to say that the Judge did not make findings on factual issues relevant to the proposed misrepresentation claims. But that is not the result of the Judge “overlooking” a claim for damages for misrepresentation. Rather, it reflects the fact that no such claim was before the Judge, so no findings needed to be made on these issues.
At the risk of stating the obvious, an unsuccessful claimant cannot introduce a fresh cause of action on appeal that depends on facts additional to, and materially different from, those that were in issue at trial, and ask this Court to decide that new cause of action. This Court cannot decide a new claim, in effect at first instance. Nor, in the absence of any error in the High Court, can this Court allow an appeal on the basis that a previously unpleaded claim should be referred back to the High Court for a further trial. That would be seriously unjust. Unsurprisingly, Mr Collecutt was not able to refer us to any case in which such a course had been adopted.
In oral argument, Mr Collecutt placed some emphasis on the decision of this Court in Chilcott v Goss.[16] This Court held that it was open to the appellants in that case to reframe a claim for money had and received as a claim for repayment under a contract. Their ability to do so turned on whether the claim for repayment under a contract would amount to a fresh cause of action. The test, this Court said, was whether that claim would amount to something essentially different from that which was pleaded earlier.[17] In that case, rephrasing the statement of claim so that it alleged that the company had advanced the relevant sum to the respondents, and they had agreed to repay it:[18]
… is a re-statement of what is already there. … the gist of the cause remains. It is not essentially different. We cannot see any prejudice to the defendants in a refocusing of what is at heart and has been throughout a claim that money advanced has not been repaid.
[16]Chilcott v Goss, above n 15.
[17]At 273.
[18]At 273.
However in the present case a misrepresentation claim is something essentially different from that which was pleaded earlier. It depends on different facts. It has a different legal basis. It raises distinct limitation issues that were not canvassed at trial. There would be significant prejudice to the respondents if such an amendment were to be permitted.
For this reason alone, the proposed amendments to the pleading and to the notice of appeal cannot be permitted, and the reframed appeal must fail. But we will go on to deal with two other objections to the proposed amendments which are in our view equally fatal to the appellants’ argument before us.
Abuse of process
We accept the respondents’ submission that the appellants’ attempt to raise the proposed insurance and building defect misrepresentation claims in this proceeding, after essentially the same allegations had been pleaded in the Waikoro proceeding, amounts to an abuse of process. A plaintiff cannot bring the same claim against the same defendant twice in separate, parallel proceedings.
Even more plainly, a plaintiff whose claim has been found to be time-barred in one proceeding cannot simply ignore that result and attempt to pursue the same claims in another proceeding. The High Court struck out on limitation grounds BAL’s misrepresentation claims based on the increase in insurance premiums and the defects in the building.[19] It declined to strike out the claims relating to the earthquake rating of the Hotel. If Mr Mahon and BAL wish to challenge the finding in the Waikoro lease proceedings that some of their misrepresentation claims are time-barred, they can do so by appealing from that decision. Indeed they have done so. But an attempt to circumvent the decision of the High Court in the Waikoro lease proceedings by reviving the same allegations in this proceeding is an abuse of process.
[19]Waikoro Ltd v Beach Arena Ltd, above n 12, at [109] and [119].
Consequently, we also decline leave to amend to add the misrepresentation claims on the basis that the attempt to do so amounts to an abuse of process.
Misrepresentation claims not available as a defence to Waimauri’s claim
Another significant difficulty that the appellants face is that the proposed misrepresentation claims arise out of dealings between Mr Mahon and BAL on the one hand, and Waikoro and Mr Edney on the other hand, at the time the lease was entered into. At that time, Waimauri was not in the picture. It could not be argued — and the appellants do not seek to argue — that Waimauri is itself liable for any of the alleged misrepresentations.
Rather, the appellants seek to argue that although set-off is not usually available if the identity of the relevant parties is not the same, there are some unusual circumstances where equitable set-off may be available even though there is no identity of parties. Mr Collecutt relied on the decision of this Court in Hamilton Ice Arena Ltd v Perry Developments Ltd.[20] In that case, this Court held that the lack of identity of parties was fatal to the appellants’ claim.[21] But this Court noted the possibility that in some unusual circumstances it might be appropriate to allow equitable set-off where there is no identity of parties, where either:
(a)the cross-claim could be regarded in equity as fully or partly extinguishing the plaintiff’s right to judgment on the claim; or
(b)lifting the corporate veil would be justified.[22]
[20]Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 (CA).
[21]At [12].
[22]At [8]–[9].
The argument for set-off despite the difference in parties did not succeed in Hamilton Ice Arena Ltd v Perry Developments Ltd because the different transactions into which the parties entered had been carefully structured with legal advice on both sides. There was no basis for lifting the corporate veil and equating the companies with their principals.[23]
[23]At [9].
In the present case, Mr Collecutt did not identify any principled basis for lifting the corporate veil, or for treating a claim by BAL against Waikoro as extinguishing the debt owed by BAL and Mr Mahon to Waimauri. In this case, as in Hamilton Ice Arena Ltd v Perry Developments Ltd, the transactions into which the parties entered were carefully structured with legal advice on both sides. The separate legal identities of the parties cannot simply be ignored.
We are fortified in that conclusion by the emphasis that Mr Mahon quite rightly placed on the separate legal personalities of Waikoro and Waimauri when resisting Waimauri’s attempt to debit to the Waimauri loan agreement the overdue rent payable by BAL to Waikoro. The High Court Judge accepted Mr Mahon’s argument that Waimauri could not sue for amounts owing to Waikoro, and that those amounts could not simply be rolled into the loan agreement without BAL’s consent.[24] Mr Mahon and BAL cannot have it both ways. Just as the claims against them by Waimauri must be kept separate from the claims against them by Waikoro, so too their claims against Waikoro must be kept separate from their claims against Waimauri.
[24]See High Court judgment, above n 1, at [169] and [177].
Thus the misrepresentation claims that the appellants seek to add would not provide a basis for impugning the judgment entered against Mr Mahon in favour of Waimauri in the High Court.
Other grounds for opposing amendment
For the reasons set out above, the appellants’ attempt to amend their pleadings and their notice of appeal to add a misrepresentation claim must be rejected. It is unnecessary for us to consider the other grounds on which the respondents opposed the grant of leave to amend the 2ASDCC and the notice of appeal. In particular, we do not need to decide whether the misrepresentation claims are time-barred. That is plainly well arguable. If the misrepresentation claims had been pleaded before the High Court, and the respondents had pleaded that those claims were time-barred, the High Court would have heard evidence on, and made findings about, the relevant facts. It is neither possible nor appropriate for us to do so in the context of this appeal.[25] Again, what this underscores is that these are matters which had to be raised at first instance. It is much too late to raise them on appeal.
Result
[25]The limitation issue is likely to come before this Court in the context of the appeal from the strike‑out decision in the Waikoro lease proceedings.
The application for leave to amend the appellants’ second amended statement of defence and counterclaim, and the notice of appeal, is declined.
The appeal is dismissed.
The appellants must pay costs to the respondents for a standard appeal on a band A basis, with usual disbursements. We certify for second counsel.
Solicitors:
SDM Law, Auckland for Appellants
Brown Partners, Auckland for Respondents
Appendix A
Proposed Amendments to 2ASDCC[26]
[26]All Footnotes omitted.
a.To add a new paragraph 2(da) as follows:
Prior to the lease being executed the appellants had asked a number of questions about the insurance premiums for the property and the condition of the building, further particulars of which are set out in the brief of evidence of N C Mahon dated 11 March 2020 and at paragraphs 10, 15 – 19 of the judgment dated 29 May 2020 (“the further particulars”).
Prior to the lease being executed:
(a)On or about 25 May 2011 the second and third respondents advised that the insurance premiums were “$9K plus $1500 business interruption”.
(b) The second and the third respondents made a number of representations about the condition of the hotel which either were not accurate, or which did not disclose the full extent of the problems with the condition of the building (as per the further particulars)
(c) The lease (which was prepared by the second and third respondents) referred to an IEP report rating the hotel building at 38% NBS.
(“the half truths”)
(d) Prior to the execution of the lease the second and third respondents were aware that:
1. The insurance premiums had increased to $144,815.84;
2.The property had the defects referred to in the brief of evidence of NC Mahon dated 11 March 2020 and at paragraphs 19 of the Judgment.
(“the undisclosed defects”); and
(e) By giving the half truths, but failing to divulge the undisclosed defects, the second and third defendants misrepresented by silence that the undisclosed defects did not exist (“the misrepresentations”).
b. Amend paragraph 2(e) to add:
The Defects included the undisclosed defects and were known to the second and third respondents prior to the execution of the lease.
c. Amend paragraph 22 to read:
As a result of the half truths, failure to disclose the undisclosed defects, and the misrepresentations BAL entered into the lease and has lost:
(a)$115,426.80 plus GST per annum during the period of the lease (being the increase in the amount of the insurance premiums that was not disclosed to the defendants/appellants).
(b)$910,026.06 being costs incurred in respect of remediating the Properties, without obtaining any benefit from those payments.
d. To insert new paragraphs (aa) and (ab) in the prayer for relief in the second counterclaim as follows:
(aa) Judgment against the third defendant for the sum of $115,426.80 plus GST per annum from the date of the commencement of the lease until it was terminated.
(bb) That the above amounts ($115,426.80 plus GST per annum from the date of the commencement of the lease until it was terminated, and $910,026.06) be set off against the amounts claimed by the plaintiff, and there be an enquire as to the effect of …
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