Marlborough District Council v Altimarloch Joint Venture Ltd
[2012] NZSC 11
•5 March 2012
| For a Court ready (fee required) version please follow this link |
| IN THE SUPREME COURT OF NEW ZEALAND |
| SC 33/2010 [2012] NZSC 11 |
| BETWEEN MARLBOROUGH DISTRICT COUNCIL |
| AND ALTIMARLOCH JOINT VENTURE LIMITED |
| AND D S AND J W MOORHOUSE |
| AND VINING REALTY GROUP LIMITED |
| AND GASCOIGNE WICKS |
| SC 40/2010 |
| BETWEEN VINING REALTY GROUP LIMITED |
| AND ALTIMARLOCH JOINT VENTURE LIMITED |
| AND GASCOIGNE WICKS |
| AND D S AND J W MOORHOUSE |
| AND MARLBOROUGH DISTRICT COUNCIL |
| SC 41/2010 |
| BETWEEN GASCOIGNE WICKS |
| AND ALTIMARLOCH JOINT VENTURE LIMITED |
| AND D S AND J W MOORHOUSE |
| AND MARLBOROUGH DISTRICT COUNCIL |
| AND VINING REALTY GROUP LIMITED |
| Hearing: 15-16 February 2011 |
| Court: Elias CJ, Blanchard, Tipping, McGrath and Anderson JJ |
| Counsel: D J Goddard QC, M A Cavanaugh, and J H Morrison for Marlborough District Council |
| Judgment: 5 March 2012 |
JUDGMENT OF THE COURT
AThe appeal by the Marlborough District Council from the liability judgment given against it in favour of Altimarloch Joint Venture Limited is dismissed.
BThe appeal by the Marlborough District Council from the contribution judgment given against it in favour of D S and J W Moorhouse is allowed. That judgment is set aside and judgment in favour of the Council is entered in respect of that claim.
CThe appeals by Vining Realty Group Limited and Gascoigne Wicks against the amount of the judgment entered in favour of Altimarloch Joint Venture Limited against the Moorhouses are dismissed.
DCosts:
In the Supreme Court
(a) The Council is to pay Altimarloch costs of $10,000.
(b)Vining Realty and Gascoigne Wicks are to pay the Council costs of $5,000. They are to pay in the proportions fixed in the Court of Appeal, namely 60 per cent by Vining Realty and 40 per cent by Gascoigne Wicks.
(c)Vining Realty and Gascoigne Wicks are to pay in the same proportions costs of $10,000 to Altimarloch.
(d) In each case where costs are awarded, disbursements shall be added as agreed or fixed by the Registrar.
In the Court of Appeal
(a)The Council is to pay Altimarloch such costs as agreed or fixed by the Court of Appeal.
(b)Vining Realty and Gascoigne Wicks are to pay in the same proportions costs to the Council as agreed or fixed by the Court of Appeal.
(c)As between Vining Realty and Gascoigne Wicks on the one hand and Altimarloch on the other, Order F made by the Court of Appeal stands.
(d) All orders made in the Court of Appeal that are inconsistent with the foregoing orders are set aside.
(e)In each case where costs are awarded, disbursements shall be added as agreed or fixed by the Registrar.
In the High Court
(a)All costs orders are set aside and all matters of costs are to be as agreed or as fixed by the High Court in the light of the ultimate outcome of the case.
____________________________________________________________________
REASONS
Para No
Elias CJ [1]
Blanchard J [60]
Tipping J [78]
McGrath J [175]
Anderson J [233]ELIAS CJ
Although the appeal also concerns the important question whether a duty of care is owed by a territorial authority to someone who obtains from it a Land Information Memorandum, I write separately only on the questions concerning the measure of damages and contribution when a contract is induced by misrepresentation by both the vendors and a non-contracting party.The misrepresentation made was as to the quantity of water rights held by the vendors on the sale and purchase of 145.5 hectares of rural land, part of which was intended by the purchaser for planting in grape vines.[1] Under the agreement, all water rights held by the vendors were to be transferred to the purchaser, Altimarloch Joint Venture Limited. The same erroneous information as to the quantity of the water rights held by the vendors was given separately to the purchaser by agents for the vendors and by the Marlborough District Council in a Land Information Memorandum.
[1]The evidence is that the purchaser intended to plant vines on 95 ha of the land. Although other evidence suggested the potential for viticulture on the land was limited to between 45 and 55 ha, the High Court seems to have proceeded on the basis that irrigation was required for 95 ha, without reference to the difference in opinion.
The vendors (whose agents are required to indemnify them) are liable to pay damages to Altimarloch under s 6 of the Contractual Remedies Act 1979 “in the same manner and to the same extent as if the representation were a term of the contract that has been broken”. In the lower Courts[2] damages have been assessed against the vendors on the basis of the cost of achieving “functional equivalence”[3] in the water represented to be available. This “cost of cure” has been assessed by adding the price paid by Altimarloch after settlement to an unrelated seller to obtain part of the shortfall in water rights and the estimated cost of construction of a dam for the storage of sufficient water to make up the balance of the shortfall. (It appears to have been accepted in the lower Courts that no further water rights are available for purchase.) The effect is that the vendors are liable to pay damages of $1,055,907.16 arising out of a contract in which the purchase price of the land was $2.675 million and its value without the water rights was put at $2.55 million.
[2]The appeal is brought from the judgment of the Court of Appeal in Vining Realty Group Ltd v Moorhouse [2010] NZCA 104 (William Young P, Hammond and Robertson JJ). The Court of Appeal largely upheld the High Court in which two judgments were delivered by Wild J: Altimarloch Joint Venture Ltd v Moorhouse HC Blenheim CIV-2005-406-91, 3 July 2008; Altimarloch Joint Venture Ltd v Moorhouse HC Blenheim CIV-2005-406-91, 23 March 2009 [recall judgment].
[3]As it was described by the Court of Appeal at [38].
The Marlborough District Council has been held liable in the High Court for negligent misstatement about the extent of the water rights. Its appeal was dismissed by the Court of Appeal. The Council’s misstatement was contained in a Land Information Memorandum obtained by Altimarloch from the Council under s 44A of the Local Government Official Information and Meetings Act 1987. Damages against the Council were assessed in the High Court at $400,000, representing the difference between the value of the property without the rights represented ($2.55 million) and the value of the property on the basis that the full rights represented had been available to be transferred ($2.95 million).[4] The Judge found this to be the appropriate award of damages against the Council:
[235] Had it known the true position prior to settling the agreement on 30 July, Mr McNabb’s evidence was that the plaintiff would have either renegotiated the agreement down at least to the value of Altimarloch, or have cancelled the agreement. I accept Mr McNabb’s evidence. The consequence is that the plaintiff has paid $400,000 too much for Altimarloch, and that is the appropriate award of damages to the plaintiff against the [Council].
The Court of Appeal held that the High Court had adopted the contractual measure of damages which was not appropriate for the Council’s liability in tort. It accordingly reduced the damages against the Council to $125,000, representing the difference between the purchase price paid ($2.675 million) and the value of the land without the water rights ($2.55 million).[5]
[4]At [229]–[235].
[5]At [113].
In the first judgment in the High Court, the Judge apportioned liability between the vendors and Council at 66 per cent to the vendors and 34 per cent to the Council.[6] This was applied to the full cost of cure basis (assumed in that judgment to be $777,000 but subject to updating information then still to be provided). The proportions were set by the Judge to take account of the fact that the Council was liable on his approach for damages of $400,000.[7] This part of the judgment was recalled by the Judge in his second judgment, in which he held that the damages of $400,000 were to be apportioned equally between the defendants on the basis that “equity is equality”.[8] He accordingly made an order for contribution of $200,000 against the Council.[9] The Court of Appeal upheld the High Court’s equal apportionment of damages between the vendors and the Council, but only in respect of the Council’s liability on the tortious measure of $125,000.[10] In the result, therefore, following the Court of Appeal determination, the Marlborough District Council would pay $62,500 and the vendors $993,407.16.
[6]At [239].
[7]The 34 per cent did not exceed the $400,000 the Judge held to be the liability of the Council.
[8]At [61]–[63].
[9]At [89] of the recall judgment.
[10]At [125].
The agents, Vining Realty Group Limited and Gascoigne Wicks, appeal to this Court against the damages of $1.055 million for which, subject to recovery of the contribution ordered against the Council, they must indemnify the vendors.[11] They contend that the proper measure of damages is the loss of value which would have been gained by Altimarloch in the bargain if the representation had been true ($400,000). Vining Realty and Gascoigne Wicks say that it was not correct to award damages on a “cost of cure” assessed in part by reference to the cost of building a dam to supply the eventual deficiency. They argue that such a measure is unreasonable in the circumstances.
[11]Vining Realty Group Ltd v Altimarloch Joint Venture Ltd [2010] NZSC 81.
The Marlborough District Council appeals the findings in the High Court and Court of Appeal that it owed Altimarloch a duty of care.[12] If wrong in that contention, it accepts that it breached the duty. In that event, it appeals the damages awarded on two bases which, however, substantially overlap. First, the Council claims that its negligence caused no loss to Altimarloch because it is accepted that Altimarloch will recover in full from the vendors, who are treated under s 6 of the Contractual Remedies Act as having warranted the truth of the representation made on their behalf. Secondly, the Council says that contribution should not have been ordered as between it and the vendors because their liability to Altimarloch was not of the same nature as the liability of the vendors, as is necessary before equitable contribution may be ordered.[13]
[12]Marlborough District Council v Altimarloch Joint Venture Ltd [2010] NZSC 82.
[13]It was accepted that the conditions for contribution under the Law Reform Act 1936 are not made out since the vendors and the Council are not joint tortfeasors.
For the reasons that follow, I would allow the appeals by Vining Realty and Gascoigne Wicks. I consider that attempting what the Court of Appeal called “functional equivalence” in a cost of cure assessment was not justified in awarding damages under s 6 of the Contractual Remedies Act. The proper measure of damages was the extent to which Altimarloch suffered loss in the bargain because, contrary to the representation made, the vendors did not hold the water rights represented and therefore could not transfer them under its contractual obligation. Their expectation loss in my view is properly reflected in the difference in the value of the property with and without the represented water rights. On the valuation evidence accepted in the High Court such difference amounted to $400,000. In this conclusion I differ from other members of the Court, who would uphold the award made in the High Court and confirmed in the Court of Appeal.
On the Council’s appeal against liability, I agree with the reasons given by Tipping J in this Court for holding that the Council owed a duty of care to Altimarloch. On this issue, I add no further reasons of my own.
I would allow the Council’s appeal against the damages awarded against it. I accept that Altimarloch suffered loss and obtained a cause of action in negligence against the Council which accrued when it confirmed the contract as unconditional in reliance on the Council’s negligent representation and paid the contract price, receiving in exchange land which was worth less than the price paid. The measure of damages it is able to recover from the Council is however limited to the loss which resulted from the contract. The potential claim available to Altimarloch against the Council arising out of its entry into a loss-making contract, in the absence of any claimed consequential loss, was for loss in value of $125,000, representing the difference between the price it paid and the value of the land without the water rights. The Court of Appeal was correct to reject the loss of bargain measure of $400,000 adopted in the High Court as inappropriate for the claim in negligence against the Council. The potential damages due to Altimarloch by the Council must, however, be adjusted for recovery obtained or reasonably in prospect under s 6 of the Contractual Remedies Act from the vendors because, to the extent of such recovery, loss through the Council’s negligent inducement of a disadvantageous contract is eliminated.
On the question of contribution as between the Council and the vendors, I consider that there is no basis for an order because the liabilities of the Council and the vendors to the purchaser were not of the same nature.[14]
History of the litigation
[14]See Burke v LFOT Pty Ltd [2002] HCA 17, (2002) 209 CLR 282 at [15] per Gaudron ACJ and Hayne J, at [38] per McHugh J, at [92] per Kirby J, at [143] per Callinan J; see also BP Petroleum Development Ltd v Esso Petroleum Co Ltd [1987] SLT 345 (OH) at 348 per Lord Ross.
In 2004 Altimarloch Joint Venture Limited purchased from David and Jillian Moorhouse a rural property in the Awatere Valley at a price of $2.675 million. It is now established by concurrent decisions in the High Court and Court of Appeal that Altimarloch was induced to enter into the contract by misrepresentations made both by agents for the vendors in the sale and by the Marlborough District Council in a Land Information Memorandum provided under s 44A of the Local Government Official Information and Meetings Act. The vendors themselves were unaware of the misrepresentations made on their behalf. The material misrepresentation was that the vendors held and were able to transfer under the contract resource consents for Class A rights giving priority to take up to 1,500 cubic metres of water a day from the Altimarloch Stream for the purposes of irrigation.[15] Altimarloch intended to plant part of the property in grapevines and the availability of the resource consents was important for its development. The representations about the resource consents were wrong. At the date of the contract Mr and Mrs Moorhouse held resource consents to take only 750 cubic metres a day from the stream. The correct position was not discovered until shortly after settlement of the sale in late July 2004, when Altimarloch was embarking on its planting programme.[16] Altimarloch issued proceedings in the High Court seeking damages against both the vendors and the Council.
[15]The vendors’ agents (but not the Council in preparation of its Land Information Memorandum) also misrepresented that Class B rights to take water were held by the Moorhouses and therefore able to be transferred. The absence of these rights is not material to the losses claimed by Altimarloch. Class C rights, also to take water for storage purposes, were correctly represented by the vendors’ agents and the Council and were transferred on settlement of the sale and purchase agreement.
[16]Some planting of vines took place in 2004, although Mr McNabb, the sole shareholder in Altimarloch, is not specific about timing. It seems from correspondence that Altimarloch had been given access to the property for the purpose of soil assessment and other preparatory work and in submissions its counsel spoke of planting occurring before and after settlement. It seems therefore that by early October, when the error as to the extent of water rights held by the Moorhouses was discovered, some planting was underway.
Against the vendors, Altimarloch claimed damages under s 6 of the Contractual Remedies Act. Under s 6(1)(a) a party to a contract who has been induced to enter it by a misrepresentation by or on behalf of another party to the contract is entitled to damages “in the same manner and to the same extent as if the representation were a term of the contract that has been broken”.
The vendors joined their agents as third parties. They are Vining Realty Group Limited, who acted as real estate agents for the vendors in the sale, and Gascoigne Wicks, the solicitors who acted for them in the transaction. The vendors and the third parties claimed that the negligence of Altimarloch had contributed to the error and denied that their misrepresentations induced the entry into the contract.
Against the Council, Altimarloch claimed damages for breach of a duty of care it said was owed to it by the Council in providing the Land Information Memorandum.[17] The Council denied that it owed a duty of care to Altimarloch. It accepted that, if a duty of care were found, it had been in breach of it in preparing the Land Information Memorandum but it alleged that Altimarloch had caused or contributed to its loss by its own negligence.
(i) The claim against the vendors
[17]Altimarloch also claimed damages against the Council for breach of statutory duty and for breach of the Fair Trading Act 1986. It was successful in contending breach of statutory duty in the High Court but Wild J chose not to deal with the Fair Trading Act cause of action beyond offering a tentative view: see [155]–[159] of the first High Court judgment. It is not necessary to refer further to these causes of action as they are not in issue on appeal to this Court.
In the High Court, Wild J found that the misrepresentations on behalf of the vendors had been material in inducing Altimarloch to enter into the contract.[18] He rejected suggestions of contributory negligence on the part of Altimarloch, although he considered such contributory negligence, if established, would have required adjustment of damages under s 6 of the Contractual Remedies Act on the basis that claims under that provision are “essentially negligent misrepresentations”.[19] In his second judgment, the Judge awarded damages of $1,055,907.16 to Altimarloch against the vendors.[20] In turn, the vendors were held entitled to be fully indemnified by judgments in their favour against their agents. The proportion in which the agents were to contribute to the indemnity for the vendors was set by the Judge at 80 per cent for Vining Realty and 20 per cent for Gascoigne Wicks.[21]
[18]At [97]–[100] of the first High Court judgment.
[19]At [106].
[20]Recall judgment at [13].
[21]At [284] of the first High Court judgment.
The quantum of damages for which judgment was entered against the vendors was fixed by the Judge on the basis of the price paid by Altimarloch after the hearing to obtain additional water rights of 400 cubic metres together with the cost of constructing a dam capable of storing water to ensure supply throughout the year at the represented rate.[22] The estimates in the claim on which the trial proceeded had put the cost of constructing a dam to supply 750 cubic metres of water at $699,255. That assessment was later amended in opening submissions to $776,751. After the trial and before the first judgment of the High Court, Altimarloch had managed to acquire additional water rights for 400 cubic metres of water at a cost of $320,000.[23] Meanwhile, however, the costs of constructing a dam had escalated so that, despite the reduced capacity required following the purchase of the additional 400 cubic metres, the eventual cost of a dam to supply the 350 cubic metres of ultimate deficiency was $735,907.16. The “cost of cure” measurement was claimed and adopted despite the fact that the sole shareholder in Altimarloch, Mr McNabb, gave evidence in the High Court that, had he been aware of the correct position in relation to the water rights, he would either not have confirmed the contract or would have negotiated a reduced price for the land to reflect its real value given the actual water supply.[24]
[22]Wild J in his first judgment indicated that the judgment sum would be quantified in this manner at [286], and confirmed the exact amount following receipt of memoranda in his recall judgment at [13].
[23]There is no explicit consideration in either of the two judgments delivered in the High Court of whether the $320,000 paid for the additional water rights was reasonable market price in reasonable mitigation of Altimarloch’s loss.
[24]Referred to in the first High Court judgment at [235].
Perhaps because of the way in which the matter was heard in the High Court, with additional information being received after trial but before the first judgment was issued and the second judgment given on the basis of memoranda filed rather than after further oral hearing, some of the evidence at the hearing bearing on quantum was dated and some of the implications of the changed position may not have been fully addressed.[25] In particular, there does not seem to have been any reassessment of the evidence of value of the land with and without the represented 750 cubic metres of water following the purchase of the additional 400 cubic metres of water.[26] Such reassessment may well have been relevant to consideration of the reasonableness of the cost of cure measure adopted and the reasonableness of the mitigation of loss undertaken by Altimarloch in the price paid for the additional water rights.
[25]The revised costs of building the dam were not provided until some months after the first judgment of the Court was received. Although the parties had the opportunity to make submissions on the information (which was provided by affidavit evidence), it was not suggested in the High Court that the cost of building a dam contained in the revised proposal, accepted by Wild J in his second judgment, was the wrong measure of loss.
[26]It cannot be assumed that the diminution in value of the land would have been proportionately reduced by the rights purchased.
The $320,000 paid for the additional 400 cubic metres may be contrasted with the finding made by Wild J that, without the rights to 750 cubic metres, the property was worth $400,000 less than it would have been with them. Although Gascoigne Wicks argued in the Court of Appeal[27] that the diminution of value of the property was the proper measure of Altimarloch’s loss, its fall-back position was that the ultimate deficiency in the water rights of 350 cubic metres should be compensated for on the basis of the purchase price paid by Altimarloch for the rights to the additional 400 cubic metres.[28] The eventual shortfall on that basis would be valued at approximately $280,000[29] which, when added to the outlay of $320,000, would suggest a damages figure of $600,000 for the breach of s 6. Instead, as explained, the High Court compensated for the deficiency by awarding the estimated cost of a dam capable of storing sufficient water to supply 350 cubic metres a day. In the result, the eventual assessment of damages at $1,055,907.16, made in the second judgment in the High Court following receipt of memoranda relating to costings and as to the purchase of the additional water rights, was made up of the $320,000 spent on the additional 400 cubic metres of water, $661,660.00 for the cost of construction of the storage dam, $21,558.00 for power connection, and $52,689.16 for the cost of irrigation and pumping equipment.
[27]The Court of Appeal permitted Gascoigne Wicks to challenge the measure of damages in its appeal to that Court, albeit acknowledging procedural issues arising from the manner in which appeals were lodged: at [9] and [37].
[28]At [59].
[29]At the purchase price rate of $800 per cubic metre of water a day.
On appeal to the Court of Appeal, the award of damages against the vendors was upheld. So too was the judgment that the third parties indemnify the vendors. It was argued again in the Court of Appeal that Altimarloch was not induced by the misrepresentations to enter into the agreement and, in the alternative, that damages otherwise payable to Altimarloch ought to be reduced to allow for contributory negligence on its part. The Court of Appeal found that Altimarloch had been induced by the misrepresentations and had not acted unreasonably in relying upon them.[30] The Court also expressed disagreement with Wild J’s view that any contributory negligence by Altimarloch was able to be raised as an issue on behalf of the vendors.[31] The Court of Appeal pointed out that s 6 of the Contractual Remedies Act treats the representation as if a term of the contract for the purpose of damages, and considered it followed that any negligence by Altimarloch would have been irrelevant in any event.[32] The Court of Appeal adjusted the apportionment between the third parties to require the burden to be shared as to 60 per cent by Vining Realty and as to 40 per cent by Gascoigne Wicks.[33] On the further appeals to this Court by the third parties the only matter in issue is whether damages awarded against the vendors under s 6 of the Contractual Remedies Act were properly set on a “cost of cure” basis which was “functionally equivalent” to the water that would have been available if the representations had been true.
(ii) The claim against the Marlborough District Council
[30]At [51]–[53].
[31]The vendors themselves had not sought to rely on any contributory negligence by Altimarloch on the appeal to the Court of Appeal, but it was raised by Vining Realty and Gascoigne Wicks.
[32]At [66]–[67].
[33]At [129].
Wild J found the Marlborough District Council to have breached a duty of care owed to Altimarloch in the error in identifying the resource consents affecting the land in the Land Information Memorandum provided to Altimarloch. On appeal, the Court of Appeal confirmed the view taken in the High Court that the Council owed Altimarloch a duty of care in respect of the provision of the Land Information Memorandum.[34] It also rejected a submission on behalf of the Council, made for the first time on appeal, that it had immunity under s 41 of the Local Government Official Information and Meetings Act (on the basis that the Land Information Memorandum was official information to which s 41 applies).[35] On further appeal to this Court the Council continues to contend that it owed no duty of care in the provision of the Land Information Memorandum. It is accepted that, if a duty of care was owed, the Council was negligent in supplying the information contained in the Land Information Memorandum.
[34]At [97].
[35]At [79]–[91].
The Court of Appeal affirmed Wild J’s rejection of the Council’s contention that Altimarloch had suffered no loss for which it was liable once the vendors’ liability to pay damages under s 6 was taken into account.[36] Wild J indicated in his first judgment that the quantum of loss for which the Council was liable was $400,000, an amount representing the difference between the value of the property with the represented consents ($2.95 million) and without them ($2.55 million). As the Court of Appeal correctly identified, this was the wrong measure of the loss for which the Council was liable in negligence. The measure adopted by the High Court would have been appropriate for breach of contract, because it reflected the bargain lost (which should have been a good one for the purchaser who had paid only $2.675 million for a property that would, had the representation been correct, have been worth $2.95 million). It was not, however, the appropriate measure to restore the purchaser to the position it would have been in had it not been induced by the Council’s negligence to enter into the contract. The Court of Appeal therefore indicated that the Council’s liability was limited to $125,000, being the loss that resulted when Altimarloch was induced to pay $2.675 million for an asset worth only $2.55 million.[37] Judgment for this sum has not yet been entered.
(iii) Apportionment between vendors and Council
[36]At [110].
[37]At [113].
In the second judgment, the High Court recalled those portions of the first judgment dealing with apportionment between the vendors and the Council.[38] The second judgment fixed the contributions equally on the basis that “equality is equity”.[39] When the Court of Appeal reduced the liability of the Council to the tortious measure, it held that the 50/50 apportionment made in the High Court was to be applied to the overlap in liability, amounting to $125,000.[40] On this basis, the Council could ultimately expect to be responsible for $62,500 of the judgment.
The claim against the vendors: loss of value or cost of cure?
[38]At [8].
[39]At [61]–[63].
[40]At [123]–[125].
Assessment of damages is a matter of fact.[41] The general principle is that where loss is caused by breach of a term of the contract the purpose of damages is “to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed”.[42] This approach secures the benefit expected under the contract and is to be contrasted with the detriment measure applied to loss arising from non-contractual negligent misstatement (a measure that does not, however, preclude taking account of the value of loss of prospects).[43] In most cases recovery on the contractual measure will be more extensive but, in cases where the plaintiff has made a bad bargain, the loss flowing from reliance on the misrepresentation in tort may lead to greater recovery.
[41]Stirling v Poulgrain [1980] 2 NZLR 402 (CA) at 419 per Cooke J.
[42]Victoria Laundry(Windsor) Ld v Newman Industries Ld [1949] 2 KB 528 (CA) at 539 per Asquith LJ.
[43]As recognised by Cooke J in Gartside v Sheffield, Young & Ellis [1983] NZLR 37 (CA) at 43; and see the discussion in DW McLauchlan “Assessment of Damages for Misrepresentations Inducing Contracts” (1987) 6 Otago L Rev 370 at 384–409.
Where property transferred under a contract is not as represented, the usual measure of the purchaser’s loss is by deduction of the actual value of the property from its value as represented.[44] This usual measure is applicable to both land and goods,[45] but whether it is the appropriate measure depends on the circumstances. As has frequently been emphasised, because quantum of damage is a question of fact, the general principle is a guide only.[46] In addition to damages for the loss of bargain, someone who has been induced to enter a contract by misrepresentation of the other contracting party may be entitled, on proper proof, to damages for consequential loss, subject to questions of causation and remoteness. Altimarloch did not make claim for consequential loss in the present case.
[44]Harvey McGregor McGregor on Damages (18th ed, Sweet & Maxwell, London, 2009) at [2‑011].
[45]Walsh v Kerr [1989] 1 NZLR 490 (CA) at 493.
[46]See, for example, Radford v De Froberville [1977] 1 WLR 1262 (Ch) at 1270–1271 per Oliver J.
In some cases damages may more appropriately be measured by the cost of cure through securing performance through a third party, as where replacement goods can reasonably be acquired, or non-performance or defective performance can reasonably be remedied by another contractor. Indeed, such cure may well be necessary mitigation of loss and the cost of cure may be the best means of establishing the value of non-performance or non-delivery. Where there is a market for substitute goods or substitute performance, there may be no effective difference between damages based on difference between the value contracted for less the value delivered and damages based on cost of cure. There are some cases, however, where cost of cure is appropriate because the performance interest under the contract will not otherwise be recognised in damages. An example of such a case is Radford v De Froberville,[47] where the construction of a wall stipulated for in a contract added no value to the land of the plaintiff but was what he had bargained for.
[47]Radford v De Froberville [1977] 1 WLR 1262 (Ch).
Where the expectation loss on breach of contract is not adequately measured by loss of value and cure is not practical or reasonable, damages may measure loss of expected amenity. Well-known examples are Jarvis v Swans Tours Ltd[48] (where a holiday did not conform to the contractual representation) and Ruxley Electronics and Construction Ltd v Forsyth[49] (where a swimming pool, though constructed to the wrong depth, was perfectly functional and caused no loss in value and cost of cure was out of proportion to any benefit to the owner).
[48]Jarvis v Swans Tours Ltd [1973] 1 QB 233 (CA).
[49]Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344 (HL).
The usual measure of damages for breach of a term of a contract is the difference between the value contracted for and the value obtained. That measure may not be appropriate where achieving substitute performance is necessary mitigation of loss or itself establishes the value lost, or in cases where the performance interest in a contract is not captured through damages representing the economic loss on the bargain. The last are usually encountered where the contractual breach consists of failure to perform or defective performance of contracts to supply services, construct buildings or keep premises in repair, and where the usual measure is inadequate to meet the failure in stipulated performance.[50] In such cases, the appropriate measure of damages may be the cost to the innocent party of having substitute performance undertaken by a third party.
[50]As in the example of contractual breach in construction of a folly, relied upon in Ruxley at 358 per Lord Jauncey, at 360–361 per Lord Mustill and at 370–371 per Lord Lloyd. See also the article of Brian Coote “Contract Damages, Ruxley, and the Performance Interest” [1997] CLJ 537 at 541.
Resort to cost of cure to measure loss resulting from breach of warranty (as the damages under s 6 are treated) is unusual. There is, however, very little consideration in the reasons given in the High Court or in the Court of Appeal of the appropriateness or reasonableness of assessing damages under s 6 of the Contractual Remedies Act on a cost of cure basis.
In his first judgment, Wild J, after citing Stirling v Poulgrain[51] and McElroy Milne v Commercial Electronics Ltd[52] for the proposition that the starting point is that damages aim as far as possible to put the injured party in the position in which he would have been if the breach of contract had not occurred, said simply:
[223] I accept the plaintiff’s submission at trial that, applied here, that measure of damages is the cost of building a storage dam large enough to provide the plaintiff with the irrigation water it would have had had it received the transfer of the whole of the A water permit.
The second judgment contains no further discussion of the appropriate measure of damages.
[51]Stirling v Poulgrain [1980] 2 NZLR 402 (CA).
[52]McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39 (CA).
The Court of Appeal upheld the cost of cure measure in brief reasons, in which it rejected an argument, applying the approach in Ruxley Electronics and Construction Ltd v Forsyth, that damages based on cost of cure were unreasonable. In Ruxley, cost of cure was rejected in favour of a modest award based on loss of amenity when a swimming pool was not constructed to the depth specified in the contract but with no economic or functional disadvantage and the owner did not intend to rebuild. The Court of Appeal treated Ruxley as “an exception to the general rule”:
[60] We accept that a plaintiff cannot always insist on being placed in precisely the same situation as would have obtained if the contract had been correctly performed and indeed that this is likely to be particularly so in building cases where the cost of performance may far exceed any realistic assessment of the loss to the plaintiff. That said, Ruxley is fairly regarded as an exception to the general rule that the purpose of an award of damages is to place the injured party as nearly as possible in the position it would have been in if the contract had been performed. In other words, the primary measure of damages is expectations based.
[61] In this case, the unchallenged evidence was that AJVL’s expectations as to the availability of water could only be satisfied by the building of a dam. The only challenge to AJVL’s contention that this was the appropriate measure of damages was based on the contention (no longer relied on) that a dam would be necessary for frost control purposes.
[62] In the subsequent phase of the case – that is after the first judgment – AJVL submitted affidavit evidence as to the costs of the revised proposal. It was not then suggested by Gascoigne Wicks that the wrong measure of damages was being relied on. There was no suggestion of betterment and in particular the arguments now advanced by Gascoigne Wicks were not put forward.
[63] There has thus been something of an attempt to run a new case on appeal and this provides a context which is inauspicious (from the viewpoint of Gascoigne Wicks) for an evaluation of their arguments, albeit that, as already explained, we are prepared to entertain them. The truth is that an award of damages on either of the bases contended for by Gascoigne Wicks would not satisfy AJVL’s expectations. The requirement for irrigation water is real and tangible and there is no obvious reason why AJVL should be not compensated for the actual cost of obtaining the functional equivalent of what was warranted (via s 6 of the Contractual Remedies Act) as being available. And as to the time at which the cost of building a dam should be assessed, there comes a time (and we are well satisfied that this time has been arrived at in this case) when the music has to stop and a final decision is made.
The way in which the case developed between the two judgments in the High Court and on appeal may have meant that the arguments earlier addressed to the High Court were somewhat overtaken. Although the Court of Appeal accepted the burden of addressing the merits of all contentions advanced on appeal, it acknowledged “considerable scope for disagreement as to whether all arguments which were put to us are legitimately on the table”.[53] The quantum argument addressed to the Court of Appeal seems to have been distracted by points about betterment (for which the Court of Appeal considered no proper foundation had been laid in the High Court). The Court of Appeal seems, however, to have proceeded on the basis that only cost of cure through delivery of water equivalent to that able to be taken under the water rights would achieve the purpose of putting Altimarloch in the position it would have been in if the representation as to the quantity of the water rights had been true. It seems not to have considered that detriment in value on the contractual measure of difference between value obtained and expected was a measure of loss based on expectation. Nor did the Court explain why such “functionally equivalent” cost of cure was appropriate in circumstances where performance of the contract did not entail construction of a dam or even delivery of water, but transfer of rights to take water under a statutory regime under which the rights are limited in term (although with expectation of renewal if sought[54]) and subject to powers of restriction at times of scarcity.[55]
[53]At [9].
[54]The material Class A water rights in issue on this appeal were of a 10 year term, as were the Class C rights to take water for storage purposes. These rights expired in 2007 and 2011 respectively. Mr McNabb gave evidence that he expected the important Class A water rights to be renewed by the Marlborough District Council, provided the rights were being exercised. This expectation of renewal was confirmed by the expert evidence of Mr Sutherland.
[55]Section 329 of the Resource Management Act 1991 provides powers of control to regional Councils at times of water shortage. The Class C rights to take water for storage purposes were themselves subject to minimum water flows in the Altimarloch Stream.
As I come to explain further, I consider that expectation losses, in application of the usual approach to measurement of damages, were properly met by damages reflecting the loss of value in the bargain. I do not think that the authorities on cost of cure support use of that measure to achieve “functional equivalence” of a representation the value of which was able to be measured in loss of value in the bargain. In any event, such measure could not be used to achieve cure if unreasonable and I consider that the measure of damages adopted in the High Court and approved by the Court of Appeal was unreasonable in circumstances where it would amount to $1.055 million in respect of a property valued at $2.55 million and for which the purchaser paid $2.675 million.
It is necessary first to mention the reliance placed by the Court of Appeal on the evidence. It is not inaccurate to say, as the Court of Appeal does, that the “unchallenged evidence” was that, in the absence of the Class A rights, additional water for the dry months could only be secured by Altimarloch through construction of a water storage facility to store the 350 cubic metres of eventual deficiency. It may, however, be misleading if the impression is left that there was no evidence supportive of a different measure of expectation loss. Mr McNabb, the sole shareholder of Altimarloch, gave evidence that, had he known of the deficiency, he would either not have gone ahead with the purchase or would have obtained a reduced purchase price because “the land is simply not as valuable with the limited water available”. While this evidence is not determinative of the appropriate measure of damages, it is evidence supportive of the usual expectation measure, based on the value of the bargain had the contract been properly performed. The valuation evidence that the land was worth $400,000 less than the bargain would have delivered to Altimarloch (on the expectation measure of difference between the value without the water rights and the value with them) was also evidence supportive of the usual measure. The comment that the evidence of loss was unchallenged should not be taken to suggest that the evidence did not support any other measure.
More importantly, there is no discussion in the Court of Appeal’s reasoning of why the expectation loss based on diminution of value was rejected in favour of the cost of cure through acquisition of additional water rights and construction of a dam to supply the ultimate deficiency. Nor does it emerge from paragraphs [60]–[63] of its reasons that the Court of Appeal kept sight of the fact that restoring loss of value in the bargain is itself an expectation-based measure.[56] It seems, rather, to have taken the approach that only cost of cure through ensuring supply of sufficient water would meet the general principle that the injured party is to be placed as nearly as possible in the position he would have been in had the contract been performed.
[56]That was a point the Court had made in reducing the damages ordered against the Council in the High Court of $400,000 to $125,000: at [113]. As it said, $400,000 represented the expectation loss appropriate for breach of contract, but not for tort.
In Tito v Waddell (No 2), in a passage subsequently adopted by Oliver J in Radford v De Froberville,[57] Megarry V-C described the basis on which damages on a cost of cure basis is appropriate in a case of non-performance of work stipulated for in a contract:[58]
... if the plaintiff can establish that his loss consists of or includes the cost of doing work which in breach of contract the defendant has failed to do, then he can recover as damages a sum equivalent to that cost. It is for the plaintiff to establish this: the essential question is what his loss is.
... In the end, the question seems to me to come down to a very short point. The cost is a loss if it is shown to be a loss.
To similar effect, the High Court of Australia held in Bellgrove v Eldridge that cost of cure is an appropriate measure of damages when it is the cost of work which is “necessary to produce conformity” with the contract.[59]
[57]At 1282–1283.
[58]Tito v Waddell (No 2) [1977] Ch 106 (Ch) at 332 and 334.
[59]Bellgrove v Eldridge (1954) 90 CLR 613 at 618.
The reasons identified in the authorities for preferring cost of cure measurement of damages are not engaged in the present case so as to justify its use here. They were illustrated by Dixon CJ in Bellgrove v Eldridge when he pointed out that the building case there was not comparable to one where a plaintiff sues for damages for breach of warranty with respect to “marketable commodities”:[60]
In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract.
The interest in performance could not there be met except by damages to enable the plaintiff to achieve substitute performance. The loss could be measured only by damages equivalent to enable rebuilding on the plaintiff’s land.
[60]At 617 (emphasis in original).
By contrast, the contract in the present case was one for the purchase of land, in respect of which a market existed and value could be objectively assessed to reflect the breach of warranty. It was not a contract for the performance of building work on the plaintiff’s property, which the plaintiff was entitled to have performed as stipulated. The construction of a storage dam for water in the present case is not stipulated performance under the contract. It is not “work which in breach of contract the defendant has failed to do”. Nor is it work which is “necessary to produce conformity” with the contract. The authorities concerning defective performance of contracts to supply services, construct buildings, or keep premises in repair do not seem to me to be in point. The contractual stipulation here was that the vendors held water rights for 1,500 cubic metres of water which, under the terms of the contract, they were obliged to transfer to the purchasers of the land on settlement. Altimarloch’s loss under the contract was that the property it obtained was worth less than it would have been had the representation been true. Such loss can be met in full by damages for the difference in value, which is the usual and appropriate measure to achieve full expectation loss for breach of the deemed warranty.
If sufficient water rights had been available for purchase, this could well have been a case where, depending on the reasonableness of price, cost of cure in such purchase could be an appropriate way to value the loss in the bargain, in the manner discussed at [25], and itself constituting reasonable mitigation. As Oliver J pointed out in Radford v De Froberville, the measurement of damages and the duty to mitigate can be seen as “mirror images”:[61]
[T]he inquiry as to what sum would be required to put the plaintiff in the same situation as that in which he would have been if the contract had been performed almost necessarily involves an inquiry as to what sum would be reasonably required by him to mitigate by putting himself into that position.
[61]At 1272–1273.
In addition, and even if cost of cure had been appropriate to achieve conformity with the contract, I do not consider that cost of cure was reasonable. That cost of cure must be reasonable to be the appropriate measure was made clear by the High Court of Australia in Bellgrove v Eldridge. The work must not only be “necessary to produce conformity”, it must also “be a reasonable course to adopt”:[62]
Many examples may, of course, be given of remedial work, which though necessary to produce conformity would not constitute a reasonable method of dealing with the situation and in such cases the true measure of the building owner’s loss will be the diminution in value, if any, produced by the departure from the plans and specifications or by the defective workmanship or materials.
Ruxley Electronics and Construction Ltd v Forsyth was a building contract case where cost of cure measurement was held not to be appropriate because the cost of cure was disproportionate to the benefit to be obtained.[63] The reasonableness of cost of cure is, then, a necessary test of whether it is appropriate measure of damages.
[62]At 618–619.
[63]At 358–359 per Lord Jauncey, at 361 per Lord Mustill and at 370–371 per Lord Lloyd.
Here, Altimarloch has undertaken a partial cost of cure in purchasing additional water rights for 750 cubic metres of water. It has not, however, undertaken the cost of cure entailed in building the dam to store the eventual deficiency of 750 cubic metres. While the fact that Altimarloch has not built the dam is not determinative, it is some check as to whether building a dam is a reasonable course.[64] It is not necessary to question the evidence accepted by the Judge that, if awarded damages on this basis, Altimarloch will undertake the construction, to take the view that the failure to do so to date is relevant to the question whether such a course can be seen as reasonable mitigation.
[64]Ruxley, above n 49, at 373 per Lord Lloyd.
The purchase price paid for the additional water rights of $320,000 (which is likely to have reflected the scarcity evident from the lack of other rights to be purchased) was itself partial cost of cure, to which the additional cost of constructing the dam was added to obtain the measure of damages awarded. That total cost is to be contrasted with the purchase price of the property ($2.675 million) and its value without the water rights ($2.55 million). The disparity between the accepted valuation of the land with and without the water rights is direct evidence against which to assess the reasonableness of this cost of cure. I consider it is out of proportion to the increase in the value of the property and unreasonable.
As some of the cost of cure cases indicate,[65] the reasonableness of the proposed measure of damages may not always be adequately assessed by a purely economic comparison. It is necessary however to identify some justification for departing from the usual approach. Professor Coote, invoking Francis Dawson, suggests that damages on the contractual measure should meet the reasonable expectations of the parties.[66] Where performance has been stipulated for, the parties may more readily be taken to expect that damages should enable the party to obtain performance. As already indicated, however, this is not a case where the parties stipulated for the construction of a dam. The cost of such storage is rather a proxy for achieving “functional equivalence”. It is not a case where the parties can reasonably have expected such result, at any cost. Nor is it a case where the usual measure of damages based on difference between value received and the bargain as represented is inadequate to meet the expectations of the parties under the contract.
[65]See, for example, Bellgrove v Eldridge, above n 59, at 618–619, where the United States doctrine of “economic waste” was said to provide an inappropriate basis for an assessment of reasonableness. See also Ruxley, above n 49, at 360–361 per Lord Mustill.
[66]Brian Coote “Contract Damages, Ruxley, and the Performance Interest” [1997] CLJ 537 at 563–564.
Because the additional water rights were purchased by Altimarloch after the hearing, some of the implications for the measure of damages may not have been fully considered. The price paid for the additional rights suggests a higher value for them than is reflected in the valuation of the land with and without the represented rights. It is not clear whether that represents the scarcity of such rights in relation to the Altimarloch Stream or an increase in market price between the date of the breach of contract and the acquisition (in which case it might be expected to have some impact on the land valuations with and without the water rights). Nor is it clear that, even if the price paid for the additional rights were reasonable, it should be extrapolated out as a measure of the loss in respect of the total shortfall, so requiring revaluation of the $400,000 deficiency in the land valuation accepted by the Judge. Issues such as these were not adequately ventilated at first instance.
The Court of Appeal considered that no evidential foundation had been laid for any advantage obtained by Altimarloch in the cure obtained, for which credit should be given in calculation of damages.[67] It is not, however, difficult to envisage that the construction of permanent storage capacity may have had advantages over water rights which are limited in duration (although generally renewed), and which may be subject to controls in times of shortage, despite their priority over other water rights. Although it may have been accurate enough to characterise the lost expectation in terms of water, the contract was not for the supply of water but the delivery of rights to take water.
[67]At [62].
I consider that the loss flowing from the breach of contract is fully recognised by damages representing the difference in valuation of the property with and without the water rights. I would accordingly allow the appeals brought by the third parties and enter judgment against the vendors for $400,000 together with costs.
The measurement of damages for which the Council is responsible
The effect of s 6 is to merge the misrepresentation, once shown to have induced the contract, into the contract.[68] The occasion for the claim for damages under s 6 is a misrepresentation inducing entry into a contract, but the measure of loss against the vendors is no longer the pre-Contractual Remedies Act tortious measure.
[68]To similar effect the common law merged representations and warranties in cases such as Pennsylvania Shipping Co v Compagnie Nationale de Navigation [1936] 2 All ER 1167 (KB). See further JF Burrows “The Contractual Remedies Act 1979 – Six Years On” (1986) 6 Otago L Rev 220.
The tortious measure is however the measure applicable to Altimarloch’s claim against the Council. It depends on identification of the loss resulting from the Council’s negligence. The measure of the loss for which the Council is liable in negligence is therefore distinct from the measure under s 6 of the Contractual Remedies Act which applies to the vendors.[69] It depends on there being a net contractual loss. And its measurement is a question of fact. This is not to give primacy to contract over tort. It is to recognise that where misrepresentation induces entry into the contract, the loss occasioned is consequential on the net position under the contract.
[69]Section 6 treats the representation as a contractual warranty and compensates for the expectation loss that results from the representation being untrue.
Here, actual damage was suffered by Altimarloch when, in reliance on the Council’s negligent misinformation, it paid more for the land than it was worth. This is the “simple case”, giving rise to no difficulty, given by Lord Nicholls in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) as an illustration of the principle.[70] A similar illustration is provided by the entry into the flawed matrimonial property agreement in Davys Burton v Thom.[71] Actual damage was suffered immediately the transaction was entered into.
[70]Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 (HL) at 1630.
[71]Davys Burton v Thom [2008] NZSC 65, [2009] 1 NZLR 437.
Although there may be cases where it is difficult to determine when loss has been suffered,[72] this is not such a case. As Lord Nicholls made clear in Nykredit, for the purposes of identifying when a cause of action in tort or contract arises loss includes “any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency”.[73] The only limit is that the loss must be “relevant loss”: “loss falling within the measure of damage applicable to the wrong in question”.[74] Here, the loss was suffered and the cause of action arose when the purchaser became committed to payment of the purchase price. The question in this case is not when loss was suffered and the cause of action arose. There was undoubted immediate detriment for the purpose of the cause of action. The question, rather, is the measurement of the loss ultimately suffered by Altimarloch as purchaser for which it is entitled to damages.
[72]As was recognised in Nykredit, above n 70, by Lord Nicholls at 1631, discussing the timing of loss suffered by a lender who, on receipt of a negligent valuation, acquires property as loan security.
[73]At 1630, adopting submissions approved by Stephenson LJ in Forster v Outred & Co [1982] 1 WLR 86 (CA) at 94, 98.
[74]At 1630.
Detriment through inducement of a contract of sale is diminished by value obtained by the purchaser in exchange for the price paid. It is the ultimate net position of the purchaser that establishes his loss. All gains or advantages obtained through the transaction must be brought into account to offset the loss.[75] In Canavan v Wright, FB Adams J emphasised that it is the plaintiff’s net loss on the transaction as a whole that establishes the extent of the loss:[76]
Where the tort consists in inducing him to enter into a single transaction, the net loss is the difference between what he gains and what he loses by entering into that transaction. It is the entirety of the transaction that matters, with all its gains and losses. If, by a fraudulent misrepresentation that one of two articles is worth £5, a man is induced, in one indivisible transaction, to buy two articles for £10, the misrepresented article being in fact valueless, but the other worth £10 or more, then, unless there be some recoverable consequential damage, the damages are nil, because the plaintiff has suffered no loss by reason of the fraud. He has got full value for his money, and cannot subdivide the transaction into two parts for the purposes of a claim for damages. Conversely, if both articles were valueless the damages amount to £10, even though the misrepresentation applied to one only. He is, of course, not entitled to claim in tort for the profit he would have made if the representation had been true: aliter, if he can found his claim in contract on the footing that the representation amounted to a warranty.
[75]See New Zealand Refrigerating Co Ltd v Scott [1969] NZLR 30 (SC).
[76]Canavan v Wright [1957] NZLR 790 (CA) at 802 (emphasis in original).
I do not think that the general principle that the measurement of damages for inducing entry into a contract must reflect the net position of the plaintiff is affected by the cases principally relied upon by counsel: Nykredit (relied upon for the Council) and Eastgate Group Ltd v Lindsey Morden Group Inc (relied upon for the third parties).[77] Both were concerned, not with measurement of damages, but with whether a cause of action against the defendant had arisen.[78]
[77]Eastgate Group Ltd v Lindsey Morden Group Inc [2001] EWCA Civ 1446, [2002] 1 WLR 642.
[78]Nykredit was concerned with whether loss had been suffered on the negligent valuation of a security before recourse to the debtor primarily liable. Eastgate was concerned with a claim for contribution between a vendor contract-breaker and the valuer who had advised the purchaser of a business under the Civil Liability (Contribution) Act 1978 (UK) and the result turns on the breadth of the statutory claim, which has no equivalent in New Zealand.
There is nothing in Nykredit to suggest departure from the general approach to assess the net position under the contract for the purpose of damages for the tort of negligent misstatement. So, Lord Nicholls (taking the view that the first step in identifying when the lender first suffered “measurable, relevant loss” was to start by identifying the relevant measure of loss) said that the liability for damages for negligent misstatement were “for the adverse consequences, flowing from entering into the transaction, which are attributable to the deficiency in the valuation.”[79] In this, the “basic comparison” was “between the plaintiff’s position had he not entered into the transaction in question and his position under the transaction”.[80]
[79]At 1631.
[80]Ibid.
In Eastgate, Longmore LJ drew a distinction between debt and claims for damages in suggesting that, while the value of a covenant to repay a debt must be taken into account in identifying the loss for which a valuer of a security is liable in negligence, a claim in damages need not be brought into account unless recovery has actually been obtained. This conclusion was, however, concerned with the question whether the “damage” for which the vendor of a business was liable was “the same” as that for which the negligent valuer of a security was liable for the purposes of a claim for contribution under the Civil Liability (Contribution) Act 1978 (UK).[81] If Longmore LJ was suggesting that the same distinction should be drawn in assessing damages, I would not apply it. As was explicitly recognised in Eastgate, actual recovery on a claim for damages in tort for breach of duty would have to be taken into account in assessing the damages for breach of warranty.[82] While prospective assessment of the value likely to be recovered may be more difficult in the case of a claim for damages than in a claim for debt, I do not consider that there is a distinction in principle between a claim for debt and a claim for damages. Both should be taken into account in measuring the net loss under the contract induced. Indeed, where no recovery has yet been obtained, it is I think necessary to put a value on the claim for damages, as it is necessary to put a value on the claim in debt, because of the requirement that the plaintiff must act reasonably to mitigate loss. Like Tipping J, and for the purposes of measurement of the damages resulting from entry into the contract, I do not think there is any difference in principle between claim for repayment of a debt and a claim for damages.
[81]The distinction was drawn in considering the application of a test of “mutual discharge”, which Lord Steyn in Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14, [2002] 1 WLR 1397 considered to add unnecessary complexity to questions of contribution; rather, one should simply apply the statutory test: at [28].
[82]At [14].
In some cases a purchaser in Altimarloch’s position may be able to recover directly from a tortfeasor in the position of the Council because recovery against the vendor is shown not to be realistically in prospect (whether because of impecuniosity of the vendor or because of some legal impediment to the cause of action or for some other reason). In still other cases, the claim against the tortfeasor may be discounted by attributing a lesser value to the recovery reasonably in prospect from the vendor. While such assessments may be difficult, assessments of this kind are not uncommon in measurement of damages.[83] In a case where there is doubt about the ability of the contracting party to pay the damages ordered, sequencing of recourse could be provided for in the judgment of the Court. Similarly, judgment against the tortfeasor could be deferred pending determination of the net loss on the contract attributable to the misrepresentation. Such complications do not however arise in the present case because the vendors are acknowledged to be in a position to meet the full claim against them arising out of the breach of the deemed term of the contract.
[83]The necessity for estimates of contingencies to be made in quantification is discussed by Lord Diplock in Mallett v McMonagle [1970] AC 166 (HL) at 176E–G.
While in some cases measurement may be difficult, a plaintiff cannot recover damages for loss he could reasonably have taken steps to mitigate.[84] Although what is expected by way of mitigation is no more than is reasonable, reasonable steps may include those to recover all or part of the loss, as through the action for rectification considered in Walker v Medlicott & Son (A Firm).[85] In others, litigation against a third party may be more than it is reasonable to require of the plaintiff.[86] Whether it is, is a matter of fact. A potential claim of doubtful success may well be more than is reasonable to expect. Difficulties in assessment of the reasonableness of mitigation through pursuit of a claim are, like all assessments of damages, “evidential and practical difficulties, not difficulties in principle”, as Lord Nicholls pointed out in Nykredit.[87] Moreover, uncertainties at the outset of a claim, often resolve:[88]
The amount of a plaintiff’s loss frequently becomes clearer after court proceedings have been started and while awaiting trial. This is an everyday experience.
[84]British Westinghouse Electric and Manufacturing Co, Ltd v Underground Electric Railways Company of London, Ltd [1912] AC 673 (HL) at 689.
[85]Walker v Medlicott & Son (A Firm) [1999] 1 WLR 727 (CA).
[86]The “complex litigation” indicated in Pilkington v Wood [1953] Ch 770 is an illustration.
[87]At 1632.
[88]At 1633.
In this case, where the plaintiff has brought proceedings against the vendors, the Court is not directly concerned with whether such a claim was reasonable mitigation, but with the connected question of causation of loss.This is not a case where it is necessary for the Court to estimate the recovery reasonably in prospect under the contractual warranty. Both parties who made misrepresentations are before the Court as defendants. It is acknowledged that the vendor is able to meet the full measure of damages flowing from breach of the contractual term. The Judge did not attempt proper measurement of the damages flowing from entry into the contract and for which the Council was responsible. He assumed concurrent responsibility rather than sequential responsibility according to the net position under the transaction for sale and purchase and he applied contribution principles on the assumption that equality met the equity of the case rather than measuring the detriment flowing from the Council’s negligence. This was, I think, the wrong analysis. Since it is clear that the remedy obtained from the vendors will eliminate the loss flowing from the negligence of the Council, I would allow the appeal by the Council on damages.
Contribution
I consider there is no basis for an order of contribution as between the Council and the vendors. This conclusion does not turn on the form of action; I accept that equitable contribution is available where liabilities are in substance coordinate although the legal basis of the claim differs.[89] On the view I take, however, the liability of the vendors was to remedy their breach of what is treated under s 6 of the Contractual Remedies Act as a term of the contract, while the liability of the Council was to remedy the loss suffered through the purchaser’s entry into the contract. The liability for damages of the Council was accordingly dependent on the net position reached on the liability of the vendors for breach of contract. There is accordingly no occasion for contribution between vendors and the Council and the loss should not have been apportioned between them in the judgment given for Altimarloch. Indeed, in circumstances where the vendors’ representation is treated by statute as though a term of the contract, I consider that it does not accord with the principles upon which contribution is ordered[90] that the vendors should be able to spread the liability while retaining the benefit of overpayment.[91] In this conclusion I agree with the result reached by Blanchard and Tipping JJ while not joining in the reasons they give.
[89]Street v Retravision (NSW) Pty Ltd (1995) 135 ALR 168 (FCA) at 176.
[90]As to which, see Deering v Winchelsea (1787) 1 Cox 318, 29 ER 1184 (Exch); BP Petroleum Development Ltd v Esso Petroleum Co Ltd [1987] SLT 345 (OH); and Burke v LFOT Pty Ltd [2002] HCA 17, (2002) 209 CLR 282.
[91]See Burke at [66] per McHugh J.
I would be reluctant to think that a just distribution of responsibility in a case where two or more parties are liable to the plaintiff in respect of damage which is in substance the same[92] cannot be achieved outside the application of the Law Reform Act 1936. [93] That Act, which overturned the rule in Merryweather v Nixan,[94] should not be taken to prevent further application of the general principles of the common law to fresh circumstances. I therefore see force in the approach to the question of contribution taken by McGrath J in this Court. Outside the application of s 6 of the Contractual Remedies Act, where two defendants separately induce the plaintiff to enter into a contract, as was comparable to the position in Burke v LFOT Pty Ltd,[95] I would want to consider further whether the liability of each is properly seen as coordinate or of the same nature, justifying contribution. On my view of the nature of the loss, that point, which divided the High Court in Burke, does not however arise here.
Disposition
[92]As opposed to being “substantially or materially similar”: see Lord Steyn in Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14, [2002] 1 WLR 1397 at [27].
[93]Perhaps statutory reform – as proposed by the Law Commission in its report, Apportionment of Civil Liability (NZLC R47, 1998) – would provide clarity, but I am not persuaded that the circumstances of this case suggest that such reform is necessary.
[94]Merryweather v Nixan (1799) 8 TR 186, 101 ER 1337 (KB).
[95]In Burke, it was claimed against LFOT that it had induced entry into the contract through misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act (Cth). It was claimed against Burke that he had induced entry into the contract through breaching a duty of care owed to the purchaser.
In light of the views of all the members of the Court, the issues raised by the case should be determined as follows:
As the Court is unanimous that the Council owed Altimarloch a duty of care and by majority considers the Council did cause Altimarloch loss (see point 3 below), the Council’s appeal from the liability judgment given against it in favour of Altimarloch should be dismissed.
By majority (Blanchard, Tipping and McGrath JJ) the appeal of Vining Realty Group Limited and Gascoigne Wicks against the quantum of damages awarded in favour of Altimarloch on a “cost of cure” basis is dismissed.
As a majority of the Court (Blanchard, McGrath and Anderson JJ) considers that the Council’s negligence did cause Altimarloch loss, the Council’s no loss argument in opposition to the contribution order made against it in favour of DS and JW Moorhouse must fail.
As a majority of the Court (Elias CJ, Blanchard and Tipping JJ) are of the view that a contribution order cannot in any event be made against the Council in favour of the Moorhouses, the Council’s appeal from the contribution judgment should be allowed. That judgment should be set aside and judgment entered in favour of the Council in respect of that claim.
BLANCHARD J
One cannot but have sympathy for both the vendors, Mr and Mrs Moorhouse, and the purchaser, Altimarloch Joint Venture Ltd, for finding themselves in the predicament of this complex and difficult litigation because of the compound errors of the real estate agents, the solicitors for the vendors and the Council. If any one of them had done their job competently the sale and purchase is unlikely to have proceeded as it did and the purchaser would not have found itself embarked on its viticulture development without adequate water rights and having paid more than the property was worth.
Through the negligence of the real estate agents and the vendors’ solicitors (who have been ordered to indemnify the vendors), the vendors became committed to a conditional sale and purchase agreement in respect of which the quantity of water rights being sold to the purchaser had been misrepresented. The vendors were unaware of the misrepresentation made on their behalf. The Council then issued a Land Information Memorandum (LIM) to the purchaser which made the same misstatement about the water rights. That led to the purchaser declaring the contract unconditional. The error was not picked up when the conveyancing documents were signed by the vendors because they were not shown the transfer of the water rights, which the vendors’ solicitor chose to sign in their names. Settlement occurred and it was only later, after planting of vines was underway, that the fatal discrepancy in the water rights emerged.
The High Court found that the value of the property if all the represented water rights actually were available to the purchaser was $2.95 million. Without the “missing” water rights its value was $2.55 million – a difference of $400,000. But, as the Court of Appeal correctly pointed out, because the contract price was only $2.675 million, the purchaser had lost only $125,000 on an orthodox diminution in value measure of damages, which compares the price paid with the value of the property absent those water rights. That was the only measure available for the purchaser’s claim in tort against the Council.
The vendors were, however, being sued under s 6(1) of the Contractual Remedies Act 1979, which creates an entitlement to damages for a misrepresentation inducing the contract in the same manner and to the same extent as if the misrepresentation were a term of the contract. It also prevents the claim for damages being advanced as one in tort (deceit or negligence) in respect of the misrepresentation. Under s 6(1), the purchaser was able to claim against the vendors the cost of putting itself in the position which the vendors had represented it would be in when the contract was completed – a performance measure of damages available in a contract claim but not in a tort claim. The vendors, through the misrepresentation and the operation of the section, were treated as though they had made a contractual promise which the purchaser sought to have made good. In contrast, the Council had simply performed in a careless manner its statutory obligation to supply information by means of the LIM. It had made no promise to the purchaser about the content of the LIM.
Unfortunately for all concerned, the vendors and the third parties did not respond positively to the purchaser’s efforts to settle its claim against the vendors and the matter went to trial some years after the problem became apparent. In the meantime the cost of building a dam to hold water for availability in dry seasons (which was possible under the existing water rights) escalated hugely. Much of that cost was in the operation of earthmoving machinery. A very significant increase in the cost of diesel fuel occurred during the period before trial.
The High Court awarded damages against the vendors of $1,055,907.16 based on the cost of a dam plus an amount spent by the purchaser to acquire some additional water rights which happened to become available before the trial.
In agreement with Tipping and McGrath JJ, I consider that in the particular and unusual circumstances of the case the purchaser’s damages against the vendors should be measured by the costs of remedying the vendors’ failure of performance – the failure to supply the represented quantity of water rights. The diminution of value measure would be quite inadequate. It would be unrealistic to treat the purchaser as if it were able to sell the property and use the proceeds to establish its vineyard on other land, even if it were the case that a comparable property with equivalent water rights to those promised by the vendors were actually available. In the circumstances, and given that the purchaser was entirely an innocent party and that the delay and cost escalation do not seem to have been attributable to any position adopted by it, the admittedly high amount of the performance damages is not disproportionate to the benefit the purchaser will gain from the dam and the additional water rights. The purchaser’s disadvantage stemming from the misrepresentations made by the vendors’ agents cannot be fairly corrected in any other way. It should not be penalised when its original decision to solve its water problem was entirely reasonable and the large cost escalation has come about primarily because the vendors and the third parties chose to fight the case, rather than paying the then current cost of remedying the problem. The purchaser could not be expected, in view of the uncertainty caused by the attitude of the vendors and the third parties, to proceed to do so in anticipation of eventually receiving judgment.
Turning then to the claims against the Council, I begin by expressing my agreement with Tipping J’s conclusion that the Council did owe a duty of care to the purchaser in respect of the misstatement of the water rights in the LIM. The trial Judge correctly so concluded and entered judgment on liability against the Council in favour of the purchaser. The Judge had not at that stage fixed the quantum of any of the claims[96] but he did make an apportionment of liability for the judgment “once I have quantified it”.[97] Curiously, in his quantum judgment he did not proceed to fix the quantum of liability as between the purchaser and the Council, though he recalled the paragraph of his liability judgment which made the apportionment. He ordered the Council to pay the vendors $200,000, being 50 per cent of the $400,000 difference between the value of the land with and without the water rights. As the Court of Appeal appreciated, however, to the extent that that amount represented an excess over the contract price, it was an expectation or performance measure not available in a claim by the purchaser against the Council. The Court of Appeal reduced the contribution order to $62,500 (50 per cent of the difference between the contract price and the value of the land without the water rights).
[96]Although indicating at [235] that “the appropriate award of damages to the plaintiff against the MDC” was $400,000, the Judge made no order to that effect. He expressly reserved the amount of the judgment against both defendants: at [286].
[97]At [287].
That brings me to the argument made for the Council that it has caused the purchaser no loss because the purchaser retained the ability to claim damages for misrepresentation under the contract with the vendors and indeed has obtained a judgment against the vendors for a sum exceeding the amount of the loss caused by the Council’s negligence. I observe, first of all, that one possible obstacle in the way of this argument, namely that the purchaser had failed to mitigate its loss by suing the vendors, has of course been removed because the purchaser did choose to sue them. If it had not chosen to do so there may well have been an issue over whether the so called duty to mitigate (which is in fact not a duty but a rule which disallows the claiming of avoidable loss) required the purchaser to become involved in complex litigation against the vendors. Generally, a plaintiff is not required to take such a step in mitigation.[98] As matters have transpired, such an argument is not open to the Council.
[98] Pilkington v Wood [1953] 1 Ch 770.
The injustice of the rule precluding contribution between tortfeasors led to reforming legislation in the United Kingdom in 1935,[224] which was replicated in New Zealand in 1936.[225] The New Zealand statute remains in force. Under it, if a tortfeasor who sued in time would have been liable to the plaintiff, any other tortfeasor liable for the same damage may claim contribution. The amount of contribution recoverable is what the court finds to be just and equitable.
[224]Law Reform (Married Women and Tortfeasors) Act 1935 (having effect in England), s 6.
[225]Law Reform Act 1936, s 17.
The common law was not, however, as rigid in relation to contribution between wrongdoers other than tortfeasors. Where liability was joint and did not arise in tort, a right to equitable contribution could arise in cases involving a common obligation and burden. This was typically the case where the same liability arose in debt between sureties.[226] The law of joint obligations has developed in equity to permit contribution in cases of common obligation. Without it, there could be no contribution.[227]
[226]Deering v The Earl of Winchelsea (1787) 2 Bos & Pul 270, 126 ER 1276.
[227]Law Commission Apportionment of Civil Liability: A Discussion Paper (NZLC PP19, 1992) at [34].
In England and Wales, the scope of the legislation was extended in 1978. It now applies to any person liable to compensate a plaintiff who has suffered damage, whatever the basis of that person’s liability.[228] Parties must be liable for “the same damage” for contribution to apply. Although the New Zealand Law Commission, as long ago as 1992, made similar proposals for the extension of civil liability where acts of two or more persons give rise to loss or damage, its proposals have not yet progressed to legislation.[229] The present case accordingly requires this Court to consider whether the law of common obligations in New Zealand permits the Court to order contribution between the vendors, who are liable to the purchaser for damages for breach of contract on account of misrepresentations by their agents, and the Council, which is also liable to the purchaser, but in negligence, for the errors in its Land Information Memorandum.
Equitable contribution in Australia
[228]Civil Liability (Contribution) Act 1978 (UK), s 6(1).
[229]Law Commission Apportionment of Civil Liability: A Discussion Paper (NZLC PP19, 1992).
The decisions of the courts of Australia provide the greatest assistance in ascertaining the principles underlying the current state of the law of contribution. Although state legislation has largely intervened, case law continues to apply in the area not covered by statute. In an influential judgment, Albion Insurance Co Ltd v Government Insurance Office (NSW),[230] Kitto J observed that the basic concept of the general doctrine of contribution was one of natural justice.[231] He referred to Justice Story of the United States Supreme Court who, in his Commentaries on Equity Jurisprudence, said:[232]
The claim certainly has its foundation in the clearest principles of natural justice; for, as all are equally bound and are equally relieved, it seems but just that in such a case all should contribute in proportion towards a benefit obtained by all ... And the doctrine has an equal foundation in morals; since no one ought to profit by another man’s loss where he himself has incurred a like responsibility. Any other rule would put it in the power of the creditor to select his own victim; and, upon motives of mere caprice or favouritism, to make a common burden a most gross personal oppression. It would be against equity for the creditor to exact or receive payment from one, and to permit, or by his conduct to cause, the other debtors to be exempt from payment ... It can be no matter of surprise, therefore, to find, that courts of equity, at a very early period, adopted and acted upon this salutary doctrine, as equally well founded in equity and morality.
[230]Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342.
[231]At 350–352.
[232]Joseph Story Commentaries on Equity Jurisprudence (3rd ed, Sweet & Maxwell, London, 1920) at §493.
Kitto J himself in Albion Insurance Co said that the right of contribution exists in law:[233]
... when one of several persons has paid more than his proper share towards discharging a common obligation ... and it arises in equity when a liability of one of several to pay more than his share is ascertained ...
[233]At 351 (footnotes omitted).
According to Kitto J, what attracted the right to contribution between insurers was that each, under contracts of indemnity, covered the identical loss that the identical insured had sustained in a situation in which the insured received one satisfaction.
On the approach taken to contribution in Mahoney v McManus,[234] a case of a claim for contribution between co-sureties, Gibbs CJ said:[235]
It should be remembered that the doctrine of contribution is based on the principle of natural justice that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation. The operation of such a principle should not be defeated by too technical an approach to the question whether a surety has paid the creditor, when he has supplied moneys to the principal debtor for the purpose of making such payment.
[234]Mahoney v McManus (1981) 180 CLR 370.
[235]At 378.
It has been suggested by the English text, Goff and Jones in The Law of Restitution that contribution is only available at law and equity when obligors are liable to a common demand. By this reasoning, it is only by virtue of the 1978 Act that contribution between parties both liable in damages is available in the United Kingdom.[236] This was certainly the case for tortfeasors before remedial legislation was enacted. In the Federal Court of Australia’s decision in Burke v LFOT Pty Ltd,[237] however, Lehane J demonstrated that the old authorities did not lay down any general rule that a shared obligation to pay damages or compensation for a civil wrong ruled out an award of contribution. He also pointed out that cases allowing contribution among defaulting trustees are inconsistent with this proposition,[238] citing Lingard v Bromley.[239]
[236]Lord Goff and Gareth Jones The Law of Restitution (7th ed, Sweet & Maxwell, London, 2007) at 385.
[237]Burke v LFOT Pty Ltd [2000] FCA 1155, (2000) 178 ALR 161.
[238]At [130].
[239]Lingard v Bromley (1812) 1 V & B 114; 35 ER 45 at 45 per Grant MR.
A recent description of the requirements of equitable contribution is that of Gauldron ACJ and Hayne J in Burke v LFOT Pty Ltd:[240]
The doctrine of equitable contribution applies both at common law and in equity. It is usually expressed in terms requiring contribution between parties who share “co-ordinate liabilities” or a “common obligation” to “make good the one loss”. More recently, in BP Petroleum Development Ltd v Esso Petroleum Co Ltd, the right to contribution was said to depend on whether the liability was “of the same nature and to the same extent”.
The notion of “co-ordinate liability” is one that depends on common interest and common burden. Perhaps because, at common law, there was no general right of contribution between tortfeasors, the notion of “co-ordinate liability” has not traditionally been expressed in terms requiring equal or comparable culpability or a requirement that the acts or omissions of the persons in question be of equal or comparable causal significance to the loss in respect of which contribution is sought. However, the requirement that liability be “of the same nature and to the same extent”, as stated in BP Petroleum, is apt to include notions of equal or comparable culpability and equal or comparable causal significance.
[240]Burke v LFOT Pty Ltd [2002] HCA 17, (2002) 209 CLR 282 at [15] and [16] (footnotes omitted).
Consistent with this formulation is the earlier judgment of Gummow J at first instance in a case concerning contribution between persons respectively liable for debts and under guarantee:[241]
It would be taking too narrow a view of the matter and give insufficient weight to the preference equity has for substance over form to hold that there could be no common obligation if there were different “causes of action” against the co-obligers. In BP Petroleum Development Ltd v Esso Petroleum Co Ltd, Lord Ross preferred the statement of the criterion as whether the liability “is of the same nature and the same extent”. This was the phrase used by Lord Chelmsford in Caledonian Railway Co v Colt.
[241]Street v Retravision (NSW) Pty Ltd (1995) 135 ALR 168 (FCA) at 176 (citations omitted).
The judges of the High Court of Australia in Burke differed on the scope of what constitutes coordinate responsibilities for the purposes of contribution. McHugh J was of the view that there must at least be an involvement of the parties in a common design to achieve a common end.[242] His approach narrows the class of claims for which contribution is available.[243] Gauldron ACJ and Hayne J in their formulation did not include the limitation. They emphasised the requirement that liability be of the same nature and extent, including the notions of culpability and causal significance.[244]
[242]At [48], endorsing a view expressed in the first edition of Keith Mason and JW Carter Restitution Law in Australia (Butterworths, Sydney, 1995) at [622]. The passage is repeated in the second 2008 edition at [623].
[243]In the Federal Court Lehane J doubted this view, saying at [133] that the law had “advanced beyond the stage where it is possible to limit rights of contribution to cases where a common liability arises from an (antecedent) common design to achieve a common end”. The majority of the High Court of Australia agreed that a “common design” is not required before an equity for contribution can arise in Friend v Brooker [2009] HCA 21, (2009) 255 ALR 601 at [42] per French CJ, Gummow, Hayne and Bell JJ.
[244]At [16].This formulation was accepted by the High Court of Australia in Friend at [40] per French CJ, Gummow, Hayne and Bell JJ.
Kirby J adopted the following test for coordinate liabilities:[245]
The test for “coordinate liabilities” which I would accept as giving rise to contribution is whether “the liabilities of the co-obligors to the principal claimant are such that enforcement by [the claimant] against either co‑obliger would diminish that obligor in his material substance to the value of the liability. Any alternative or additional requirement in the doctrine of contribution ... between the liabilities to which the co-obligors are exposed would produce intolerable uncertainty and obscure the true object of the doctrine.
[245]At [103]. The passage cited appeared in the third edition of RP Meagher, WM Gummow and JRF Lehane Equity: Doctrines and Remedies (3rd ed, Butterworths, Sydney, 1992) at [1006].
Kirby J accordingly took a wider view of the class of coordinate liabilities. He was critical of attempts to narrow the scope of contribution which he saw as contrary to the history and source of the principle.[246] He endorsed the view, already cited, of Gibbs CJ, saying that:[247]
The operation of the principle of contribution must not be “defeated by too technical an approach”. Courts must keep their eye fixed on the purpose of the remedy, that is, on the essential concept, not just particular past applications.
[246]At [90].
[247]At [96]. See [217] above.
Although Callinan J’s view of the scope of coordinate liabilities was closer to that of McHugh J, the other three Judges expressed views which indicate a broader ambit for equitable contribution. While in policy terms there is much to be said for the straightforward approach of Kirby J, which would come close to giving effect to the position proposed in the Law Commission paper, that can only be reached by legislation. I prefer in the New Zealand context to adopt the formulation for coordinate liabilities of Gaudron ACJ and Hayne J which looks to whether the liability was of the same nature and extent. But applying that approach, I would heed what Gibbs CJ and Kirby J have said, keeping the essential concept of contribution in mind and not allowing the principle to be defeated by too technical an approach.[248]
[248]This accords with the majority view of the High Court of Australia in HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31, (2011) 280 ALR 1 as I agree that, even though the substance of the transaction is important, this cannot trump the need to demonstrate coordinate liabilities before equitable contribution can operate. See HIH Claims Support at [47] per Gummow ACJ, Hayne, Crennan and Kiefel JJ.
On this basis I now consider whether the liabilities of the Council and the vendors are of the same nature and extent so as to be coordinate and amenable to a contribution award. On this issue, Mr Goddard QC’s contribution and no loss arguments for the Council converge. He submits that it would not be appropriate or just to allow contribution in respect of s 6 damages which reflect a strict obligation to make good a loss as if that were a term of the contract. The Council’s obligation in negligence is not of the same nature or extent. As well, the contract claim is logically prior to that in tort.
In each case, however, the liability arose because the party liable represented to the purchaser the extent of water rights associated with the land which became the subject of the contract. The liabilities arose from different facts, occurring at different times and giving rise to different causes of action. As indicated, equity eschews too technical an approach to the question of contribution. Liability need not be predicated on the nature of the cause of action. It is now recognised that application of the “nature and extent” test is on the parties’ liability for the same damage.[249] Here that inquiry establishes that the parties made the same error in their representations which, in each case, induced the purchaser to enter the contract under a mistaken belief that the water rights were of the extent the parties had stated to the purchaser.
[249]BP Petroleum Development v Esso Petroleum Co Ltd (1987) SLT 345 (OH) at 346–347.
In each case the wrongful act was an operative cause of the inducement to enter the contract. Importantly, and unlike the facts in Burke, neither party was misled by the other. Had either correctly stated the position in respect of water rights, the error by the other would not have had the inducing effect. No question of different degrees of culpability between the parties arises. The combination of wrongful acts of each party was the primary cause of the same damage.
It is not a disqualifying factor that the Council’s liability is tortious and that of the vendor is contractual in nature. The authorities cited make plain that whether liabilities are of the same nature and same extent does not turn on such a narrow and technical view. The reality in this case is that both the Council and the vendors made the same error of communication, with the same result that caused the purchaser loss which in my view was of the same nature.
A more difficult question is whether the loss was of the same extent. The measure of the purchaser’s loss in tort is the difference between the contract price and the value of the property with the water rights actually transferred. That has been fixed at $125,000. In relation to the loss for which the vendors are liable for breach of contract, however, the purchaser was able to elect between that loss and the reliance based loss, fixed by reference to what it would reasonably cost the purchaser to be put in the same position as if the contract were performed. The purchaser elected in favour of that loss which was fixed at $1,055,907.
The Court of Appeal pointed out that the purchaser did not, under s 6(1)(a) of the Contractual Remedies Act, have an absolute entitlement to damages fixed on the reliance basis. Nor was it clear at the outset that damages would be so based. If detriment damages had been awarded against the vendors, there would have been no fair and obvious reason for the Council to demand that the purchasers first resort to the vendors for damages.[250] In my view, the Court’s decision on the measure of damages would be a very narrow basis upon which to determine whether the loss was of the same extent, under the test for coordinate liability. I am reinforced in this view by decisions that indicate that liability in different sums does not preclude contribution.
[250]As William Young P points out at [106]–[107].
Having regard to the correct approach to equitable contribution, and to ensuring that the loss is of the same extent, the Council’s contribution should be confined to one based on its liability so that it is liable to contribute a share of the loss borne by the vendors (effectively their agents) in proportion to its contribution. I do not accept that this results in the vendors being “overpaid” for the property as a result of their misrepresentation. They will not receive any “profit” from the sale, even with contribution. The sum the Council must pay should not be treated as being a supplement to the purchase price, a reimbursement of difference in value damages, or any other form of inequitable benefit. Rather, it is ensuring that all wrongdoers are held to account for their actions without relief from the exercise of their own causative power. Equity must seek to do justice in the particular circumstances, without being defeated by too technical an approach. Indeed, the Courts below were not concerned about the concept of unjust enrichment when assessing the situation as a whole. This is not a case like Burke where the negligent party had been misled by the vendors. Both parties had a causative effect on the facts of this case; therefore, both parties should contribute.
Conclusion
For these reasons I would dismiss the appeal of the Council and that of the real estate agent and solicitors. I would uphold the Court of Appeal’s judgment as to quantum and direct that the Council contribute half of the shared liability, that is, $62,500, to the overall amount payable as damages to the purchaser.
ANDERSON J
Having had the advantage of reading in draft the reasons of the other members of the Court I think it unnecessary to reiterate or paraphrase the considerations which have led me to the conclusions expressed below.
For the reasons given by the other members of the Court I agree that both proximity and policy considerations favour the imposition of a duty of care on territorial authorities so that if they negligently give erroneous information in a LIM and the recipient relies on that information to its detriment, they will be liable for the loss their negligence has caused, save possibly when the information is given under subs (3) of s 44A of the Local Government Official Information and Meetings Act 1987. Accordingly I also would dismiss the Marlborough District Council’s appeal against the liability judgment.
For the reasons given by McGrath J, including his finding that the Council’s negligence was an operative cause of the loss, I would dismiss the Council’s appeal against the judgment requiring it to contribute $62,500 to the overall amount payable as damages to the purchaser.
On the question of damages, I entirely agree with the Chief Justice’s reasons and conclusion that the appropriate measure of damages in this case was the difference in valuation of the property with and without the water rights. Therefore I also would allow the appeals brought by the third parties and would enter judgment against the vendors for $400,000 together with costs.
Solicitors:
Heaney & Co, Auckland for Marlborough District Council
Buddle Findlay, Christchurch for Altimarloch Joint Venture Limited
Duncan Cotterill, Nelson for Vining Realty Group Limited
Anderson Lloyd, Dunedin for Gascoigne Wicks
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