Mitchell v Zhang
[2017] NZHC 3208
•19 December 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-000864 [2017] NZHC 3208
BETWEEN ALAN RICHARD MITCHELL AND
LYNDA LOU MITCHELL Plaintiff
AND
LEI ZHANG Defendant
Hearing: 21, 22 November, 13 December 2017 Appearances:
R O Parmenter for Plaintiff
E St John and D Liu for DefendantJudgment:
19 December 2017
JUDGMENT OF VENNING J
This judgment was delivered by me on 19 December 2017 at 11.30 am, pursuant to Rule 11.5 of the
High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Daniel Overton & Goulding, Auckland
Yu Lawyers, Auckland
MITCHELL v ZHANG [2017] NZHC 3208 [19 December 2017]
Counsel: R O Parmenter, Auckland
E St John, Auckland
[1] This case primarily concerns the obligations of disclosure owed by a vendor of land to a purchaser.
[2] Ms Zhang made an unconditional offer to buy the Mitchells’ property for $5.8 million on the same day she first inspected it. Later that day Ms Zhang learnt that the Auckland Unitary Plan showed an indicative road running through the eastern boundary of the property.
[3] Ms Zhang says the Mitchells should have told her about the indicative road. She also says the agent misrepresented the property to her. Ms Zhang has refused to settle and seeks to be released from the contract. The Mitchells seek specific performance of the contract.
The issues for determination
[4] The case raises the following issues:
(a) What is the extent of a vendor’s obligations under cl 7.1 of the standard form Agreement for Sale and Purchase of Real Estate Ninth Edition
2012 (5) (the ASP)?
(b) Was Ms Zhang entitled to cancel the agreement for misrepresentation?
(c) Is the Fair Trading Act 1986 (FTA) engaged, and if so, have the
Mitchells engaged in misleading and deceptive conduct?
(d)Have the Mitchells accepted Ms Zhang’s repudiation so that specific performance is unavailable?
Factual background
[5] Mr and Mrs Mitchell have owned the property at 85 Pararekau Road, Karaka for approximately 15 years. It is a lifestyle block of approximately one hectare.
[6] 85 Pararekau Road was identified as part of the Hingaia special housing area on 13 December 2013 pursuant to an order made under the Housing Accords and Special Housing Areas Act 2013.1
[7] The Mitchells joined with a number of other residents in Karaka to form a landowners’ association. The aim was to achieve a plan change to enable development of their land. The plan change request was lodged in March 2015. Ultimately that led to plan variation 7 (PV7) which was incorporated in the Auckland Unitary Plan.
[8] At the hearing stage of the plan change request, a council officer recommended that PV7 incorporate a local road. The PV7 decision established a precinct known as the Hingaia 3 Precinct. 85 Pararekau Road is within the Hingaia 3 Precinct and is zoned as Mixed Housing Suburban. The relevant planning maps show 85 Pararekau Road with an indicative road running through it. The road is annotated as “local road (flexible location) 16m width”.
[9] Ms Zhang was interested in purchasing land to subdivide and develop in the Karaka area. Initially she was interested in a property at 81 Pararekau Road, Karaka. She inspected 81 Pararekau Road and attended the auction for it. Although she bid at auction she was unsuccessful. The property sold for $5.86 million. About a week later, Ms Zhang was contacted by a real estate agent, Ms Bullock, who advised her that 85 Pararekau Road had just come onto the market. Ms Bullock invited Ms Zhang to a private viewing on 9 October 2016.
[10] Ms Zhang inspected the property on 9 October 2016 with Ms Bullock’s assistant and the listing agent, Ms Lockhart. Ms Zhang says Ms Lockhart told her that
85 Pararekau Road was, in material respects, similar to 81 Pararekau Road and suitable for immediate subdivision. She says she was told that there were other interested parties and an unconditional offer would be required to secure the property.
[11] Ms Zhang signed an unconditional offer for the purchase of the property at
$5.8 million.
1 See sch 5B to the Housing Accords and Special Housing Areas (Auckland) Order 2013.
[12] Later that day Ms Zhang shared the news of her purchase with her friends, one of whom happened to work for the Auckland Council. The friend conducted a search online which confirmed there was an indicative road running through the property.
[13] Ms Zhang took advice and on Tuesday 11 October 2016 her lawyers wrote to the vendors’ lawyers:
We received the agreement for the above property and confirm that we act for the purchaser. We note that you act for the vendor.
We understand that the agreement has no conditions.
However, our client advised that your client failed to disclose that the council had noticed [sic] your client and had a hearing that a road is planned to be built through the above property which will affect the property materially. This [indecipherable] severe breach of the warranty according to clause 7.1 of the agreement.
Our client therefore wishes to investigate this matter and will advise in 10 working days whether to proceed with the purchase or not.
[14] Ms Zhang then made further inquiries of the Council which led her to conclude that it was extremely unlikely the Council would change its requirement for the road as a condition of subdivision. The requirement to construct a road through part of the property would reduce the number of sections that could be formed by subdivision of the property.
[15] Ms Zhang therefore instructed her lawyers to cancel the sale. On 13 October
2016 Ms Zhang’s lawyers wrote again to the Mitchells’ lawyers, referring to their earlier letter and purporting to cancel the agreement as follows:
Further to Lucy’s below email, our client instructed us to cancel the agreement, therefore the agreement is at the end.
[16] In a letter of 25 October 2016 the Mitchells’ lawyer, Mr Neumegen, set out his understanding of the background to the matter and concluded:
Our clients believe they are not in breach of clause 7.1 of the agreement, and further that your client had no valid legal grounds to cancel the contract on this pretext.
Your client, having considered the contents of this letter, may care to reconsider her position.
In the event your client declines to reverse her position to cancel the unconditional contract, our client will look to their legal remedies as set out in clause 11 of the agreement.
Please take instructions and report back to us as soon as possible. The urgency is that a third party is very interested in the property, and our client currently is looking to mitigate their loss. In the event the property sells for a sum less than the contract sum in the agreement, our client will be [sic] look to your client to be reimbursed for their loss together with all costs incurred (including penalty interest).
…
[17] Further correspondence followed between the lawyers. The most relevant correspondence for present purposes is a letter from Ms Zhang’s lawyers of 7
December 2016 and a letter from the Mitchells’ lawyers of 15 December 2016 in reply. In the letter of 7 December 2016 Ms Zhang’s lawyers set out the background from her point of view, in particular noting:
A meeting was arranged to meet on-site at 5pm 9 October 2016 with Lynn, Susan Creed (another agent from Harcourts) and Sandra. During the discussion, Ms Lockhart made the following representations to Ms Zhang and her husband, Mike:
1. 85 was very similar to 81 as to its readiness for subdivision; and
2.Access can be granted through 81 as the owner of 81 was eager to subdivide immediately; and
3. She would obtain the right of way for Ms Zhang by way of a land
swap with the owner of 81.
Lynn recommended Ms Zhang submit an offer of $5,800,000 which was very close to the sale price of 81 per metre wise.
The agents said that there were 2 other conditional offers and in order to secure the site, our client should make an unconditional offer.
In reliance of these representations and the agent’s perceived intimate knowledge of the site including its development potential, our client made the offer.
…
[18] In his letter of reply Mr Neumegen stated:
Your client says she is not going to settle because, most recently, there were misrepresentations and she has cancelled the agreement. Our clients deny that your client has any right to cancel and wish to treat her purported cancellation as a repudiation, which they accept. Rather than fight our way through settlement notices and the likes, can we agree that, for one of those reasons,
the contract is ended? Then, in the event of litigation for our clients’ losses, both parties will have their positions available. …
[19] Ultimately, on 3 May 2017 the Mitchells issued these proceedings and applied for specific performance by way of summary judgment.
[20] On 31 May 2017 and before being served with the Mitchells’ proceedings, Ms Zhang filed her own proceedings. She sought a declaration that the Mitchells had breached the warranty in cl 7 of the ASP and a further declaration that she was entitled to cancel the contract.
[21] The procedural impasse was resolved practically with the assistance of counsel. Ms Zhang’s proceedings were stayed and the application for summary judgment was dismissed. Ms Zhang then filed a statement of defence and counterclaim to the Mitchells’ application for specific performance.
Pleading issues
[22] The proceeding came to trial with Ms Zhang raising two affirmative defences and a counterclaim. The first affirmative defence was breach of the warranty in cl 7.1 of the ASP. The second affirmative defence was said to be a contractual misrepresentation arising from the Mitchells’ failure to disclose the proposed road. The counterclaim was for breach of the FTA, again relying on the failure to disclose the proposed road.
[23] The evidence in the case was part-heard due to the unavailability of Ms Lockhart, the real estate agent involved in the discussions with Ms Zhang. During the adjournment between the first part of the hearing and the resumption to complete Ms Lockhart’s evidence, Mr St John filed an application seeking leave to file an amended statement of defence. The proposed amended statement of defence repeated the breach of warranty claim but abandoned the second affirmative defence of misrepresentation based on the alleged failure to disclose the proposed road. In its place Ms Zhang sought to plead that Ms Lockhart had made the following misrepresentations which had induced her to enter the contract:
(a) that the value of the property was approximately $5.86 million; and
(b)that the property was similar in all material respects to 81 Pararekau Road, especially regarding its subdivision potential, which representations were false.
[24] Ms Zhang also sought to include a further amended alternative defence. If Ms Zhang was not entitled to cancel then her purported cancellation amounted to a repudiation which had been accepted by Mr Neumegen’s letter of 15 December. As a result specific performance was not available.
[25] The counterclaim in breach of the FTA was maintained in its original form.
[26] Mr Parmenter did not oppose the application for leave to amend the pleadings. That was a realistic position to take. There could be no objection to Ms Zhang abandoning the affirmative defence of misrepresentation based on silence. The misrepresentations that were sought to be substituted were alleged to be misrepresentations by the agent, Ms Lockhart. They had been flagged in Mr St John’s opening and in Ms Zhang’s evidence. It was always anticipated that the agent would give evidence dealing with her discussion with Ms Zhang. As noted, the hearing was adjourned to enable Ms Lockhart to attend and give her evidence.
[27] The additional affirmative defence, that the Mitchells accepted Ms Zhang’s repudiation, was touched on at the first hearing. It can be determined on the basis of the existing evidence and particularly the interpretation of the lawyers’ letter.
[28] For those reasons I was satisfied that the proposed amendments did not prejudice the Mitchells. They were not facing a significantly different case and it was in the interests of justice to ensure that the real controversy was determined. Accordingly I granted leave for the defendant to make the amendments to her defence. The parties closed their cases on that basis. I return to the issues.
The extent of a vendor’s obligations under cl 7.1
[29] The first issue is the effect of cl 7.1 of the ASP. Clause 7.1 of the ASP provides:
7.0 Vendors’ warranties and undertakings
7.1The vendor warrants and undertakes that at the date of this agreement the vendor has not:
(1) received any notice or demand and has no knowledge of any requisition or outstanding requirement:
(a) from any local or government authority or other statutory body; or
(b) under the Resource Management Act 1991; or
(c) from any tenant of the property; or
(d) from any other party; or
(2) given any consent or waiver,
which directly or indirectly affects the property and which has not been disclosed in writing to the purchaser.
[30] Equivalent wording to that used in cl 7.1 has been considered by the High Court before. In Kaitaia Timber Company Ltd v Alternative Enterprises Ltd, Kaitaia Timber Company Ltd sold its sawmill property to Alternative Enterprises Ltd and left money in.2 Kaitaia later issued summary judgment proceedings to recover the balance of the purchase price. Alternative opposed the application for summary judgment alleging that, amongst other things, Kaitaia had breached its warranties under the agreement for sale and purchase. Alternative alleged that Kaitaia had breached the terms of its consents and had received notices from the Council to that effect so that it was in breach of the warranty under cl 6.1 of the agreement.3
[31] Although Alternative did not particularise the breaches, Associate Judge Bell recorded that the Council and Kaitaia had been in correspondence concerning Kaitaia’s exercise of its resource consents. At one stage an abatement notice had been issued which Kaitaia had apparently satisfied.
[32] Associate Judge Bell considered that the words “demand”, “requisition”, and
“outstanding requirement” in the clause were directive, requiring some action to be
2 Kaitaia Timber Company Ltd v Alternative Enterprises Ltd [2012] NZHC 2497, (2012) 14 NZCPR
177.
3 Clause 6.1 of the ASP in Kaitaia is in exactly the same form as cl 7.1 of the ASP in this case.
taken or avoided.4 There was no evidence of any outstanding breaches of consent conditions or other communications which satisfied those criteria.5
[33] The Associate Judge then went on to consider the meaning of the word “notice”
in the clause. He said:
[55] … Potentially, “notices” could have a much wider scope. They might not be limited to directive communications. The defendants relied on the information set out in correspondence from the council as matters that Kaitaia Timber Company Ltd ought to have passed on under condition 6.1. They can only get home on that if “notice” is held to cover communications that convey information, even if they are not directive.
[34] Ultimately the Associate Judge concluded there were a number of factors that counted against the “notice” as referred to in the clause being read to include communications that only convey information including:6
(a) In general, under an agreement for sale and purchase a vendor is not required to disclose all information known to him that may be relevant to the purchaser’s decision whether to buy, for how much and on what terms. It is not a contract requiring utmost good faith. That idea is normally referred to as caveat emptor. The risk the purchaser assumes is that the property may be subject to some defect and it is up to him to find out about it. The vendor is entitled not to say anything about the property. 6.1 is an exception to that general principle, but it is to be considered against the background that otherwise the purchaser assumes a risk.
(b) In New Zealand it has been standard practice for some time now for the vendor to give a warranty as to government or local authority requisitions and requirements. For example, in Niven v Robertson Industries Ltd the warranty was:
The Vendor warrants he has not received nor has he any notice of any requisition or outstanding requirement imposed by any local or government authority in respect of the property which he has not disclosed to the purchaser.
On these terms, the warranty is confined to directive communications received by the vendor. Since then, the warranty has been extended to apply also to directives under the Resource Management Act, from tenants and from other parties. But that does not mean that the nature of the communications to be disclosed has changed. The traditional purpose of the warranty has been to ensure that the vendor discloses to the purchaser directives which are still outstanding. It would be a
4 At [53].
5 At [54].
6 At [56] (footnotes omitted).
marked change to expand the matters to be disclosed to information, as well as directives.
(c) Both the vendor and third parties may hold information about a property. But only third parties may impose legal requirements to take some action in relation to a property. The warranty serves a useful purpose in requiring disclosure of directives from third parties. On the other hand, it would be anomalous to hold that the warranty requires the vendor to disclose information about the property he has received from third parties, when there is no obligation on the vendor to disclose information he has obtained for himself.
(d) The context supports “notice” being directive. The accompanying words, “demand”, “requisition” and “outstanding requirement” are also directive. The context does not suggest that notice should be more than directive.
[35] The Associate Judge rejected the claim for breach of warranty.
[36] In Western Park Village Ltd v Baho the issue was whether cl 6.1 required a vendor to disclose a letter from a lawyer’s firm threatening litigation for nuisance over rock debris falling on a neighbour’s property.7 Heath J concluded it did not and said, after referring to Kaitaia:8
[60] … I agree with Judge Bell that, while cl 6.1(1) warranties serve a useful purpose in requiring disclosure of directives from third parties, “it would be anomalous to hold that the warranty requires the vendor to disclose information about the property he has received from third parties, when there is no obligation on the vendor to disclose information he has obtained for himself”.
[37] The case went on appeal. The Court of Appeal agreed with the conclusion that the lawyer’s letter did not amount to a notice, demand, requisition or outstanding requirement in terms of cl 6.1(1)(d) of the ASP.9 The Court considered that the warranty clauses in the standard ASP needed to be considered together. The Court said:
[40] The Glaister Ennor letter called for negotiations and threatened the issue of court proceedings but we do not view the letter as conveying the flavour of a formal requirement or demand that specific action to be taken [sic] in the sense used in cl 6.1(1)(d). In contrast, cl 7.1(6)(b) merely requires knowledge or notice of any fact which “might give rise to or indicate the possibility of” court proceedings being instituted by or against the body
7 Western Park Village Ltd v Baho [2014] NZHC 198, (2014) 15 NZCPR 180.
8 Footnotes omitted, citing Kaitaia Timber Company Ltd v Alternative Enterprises Ltd, above n 2.
9 Western Park Village Limited v Baho [2014] NZCA 630, (2014) 16 NZCPR 139.
corporate. We regard the letter as falling more naturally within the cl 7.1(6)(b)
warranty.
[38] In closing Mr St John conceded that he accepted the statements of law by Associate Judge Bell in Kaitaia as approved by Heath J and the Court of Appeal. He sought to distinguish the Kaitaia decision on the basis that the purchasers in that case were, in his words, “wanting to escape the contract on any grounds” and the warranty issue was a throwaway claim. The notices issued by the Council were historic and in the context of past breaches which had been addressed.
[39] By contrast, Mr St John argued that the notice the Mitchells had received about the outcome of the plan change decision as a result of their involvement in advancing PV7 was a notice under cl 7.1. He submitted the correct interpretation of “notice” under cl 7.1 was that it “includes any notice which mandates an owner to positively construct something or to remove something in the event that the land is to be used for any purpose”. Mr St John submitted that notice required the Mitchells or any developer of the land to construct the local road. It effectively required some action to be taken (or avoided by making application for resource consent without the road) particular to the property.
[40] The experts called by the parties, Mr Cutler on behalf of the Mitchells and Mr Tollemache on behalf of Ms Zhang, agreed that subdivision in accordance with the Hingaia North Structure Plan of the Hingaia precinct is a restricted discretionary activity. Subdivision not in accordance with that Plan becomes a discretionary activity. An application for a subdivision which did not provide for a local road would therefore become a discretionary activity.
[41] The experts however differed on their view as to how likely it was that the Council would grant consent on a discretionary basis dispensing with the need for a subdivision providing for the road. They also differed on how broadly such an application would have to be notified. Mr Tollemache referred to his experience with other applications within the Hingaia 3 precinct. Mr Cutler focused on the practicalities of the situation. The Council has granted consent to a developer, Summerset Villages (Karaka) Ltd, to build a retirement village on the southern boundary of 85 Pararekau Road without any road connection at all. In his opinion the
road would be a road to nowhere. Further, the road as presently noted on the plan would cut through the northern neighbour’s home. Mr Cutler did not consider the Council would require the road as part of the subdivision of 85 Pararekau Road.
[42] It is unnecessary to resolve the issue between the experts. Even accepting for present purposes that it would be more difficult and more expensive to obtain consent to develop the land without providing for the local road, I am satisfied that the notice the Mitchells received about PV7 is not a notice for the purposes of cl 7.1.
[43] The starting point is that unless the terms of the contract provide otherwise, a vendor is not under an obligation to disclose information that they may hold about the property. It is a purchaser’s responsibility to carry out their own research and obtain their own information about the property. The general rule is that silence is not a representation. In Spooner v Eustace a purchaser was held to have no cause of action when the vendor failed to point out that a building encroached on neighbouring property.10
[44] The standard form ASP has mitigated the common law position by recognising that, in certain circumstances, a vendor should be required to provide information relevant to the property. That is a development from the historical position where there was no general duty to disclose defects of quality in the case of a contract for the sale of land but there was a duty to disclose defects in title.11
[45] Taken to its logical conclusion, the argument advanced on Ms Zhang’s behalf would require that a vendor of a property provide a written schedule of information concerning the property setting out the relevant provisions of the local plan which applied to the property. That is not the law. Nor should it be.
[46] The detail of the provisions of the Auckland Unitary Plan relating to the use and potential subdivision of 85 Pararekau Road is information (and relevantly is public information) rather than a notice as that phrase is used in cl 7.1. There is nothing in
the nature of a formal requirement or demand that specified action be taken.
10 Spooner v Eustace [1963] NZLR 913 (SC).
11 Bell v Lever Bros Ltd [1932] AC 161 (HL) at 227 per Lord Atkin.
[47] The reasoning of Associate Judge Bell at [34] above is applicable to the present case. I adopt it. I also agree with the Associate Judge’s observation that an obligation to comply with a duty imposed in a general way by, in this case the Unitary Plan, does not qualify as a notice or requisition under the clause in the standard ASP.
[48] The fact that, if 85 Pararekau Road is to be subdivided in the future, it must comply with the requirements of the Auckland Unitary Plan is not something that was required to be disclosed. That was public information that Ms Zhang or any other interested party could have obtained for themselves with a minimal amount of due diligence. Ms Zhang accepted as much in cross-examination. Her friend found it on the Council website as soon as Ms Zhang discussed the purchase with him.
[49] There was no communication from the Council to the Mitchells of any demand, requisition or outstanding requirement in relation to their property. They had not received any notice as that term is used in cl 7.1 of the ASP in relation to the property. Ms Zhang’s claim for breach of warranty under cl 7.1 fails.
Misrepresentations
[50] In the amended pleading Ms Zhang alleges that Ms Lockhart, the real estate agent, represented:
(a) that the value of the property was approximately $5.86 million; and
(b) that the property was in all material respects similar to 81 Pararekau
Road especially regarding subdivision potential.
[51] Ms Zhang argues the representations induced her to enter the ASP and that they were essential to her or that the effect of the misrepresentation was to substantially reduce the benefit of the contract to her.12 Mr Foote, a valuer, gave uncontested evidence that if 85 Pararekau Road had to be developed with the inclusion of the road
then as at the date of the ASP it would have been worth $4 million.
12 Contract and Commerce Law Act 2017, s 37.
[52] Ms Zhang said that Ms Lockhart suggested that she should make an offer of
$5,800,000 because the property at 85 Pararekau Road was in all material respects similar to 81 Pararekau Road and that 81 Pararekau Road had just sold for $5,860,000. Ms Zhang said Ms Lockhart further advised that if Ms Zhang wished to purchase the property she would need to make an unconditional offer straight away because the Mitchells had several other disappointed purchasers from the 81 Pararekau Road auction lined up to make an offer and she had already received two conditional offers from those purchasers. She then showed those offers to Ms Zhang and told her that she had not presented those offers to the vendors because they were only looking for an unconditional sale.
[53] Ms Lockhart had a different view of their conversation. She said that following the sale of 81 Pararekau Road for $5,860,000 she was engaged by the Mitchells to list their property at 85 Pararekau Road. The Mitchells advised Ms Lockhart they were looking for an unconditional sale. They wanted $5,800,000 for the property. She made sure all the unsuccessful interested parties who had attended the auction for 81
Pararekau Road were informed the Mitchells’ property was for sale. Ms Lockhart said the value of a property is what someone will pay. When asked by Ms Zhang what would secure the purchase of 85 Pararekau Road she said “I advised her that Mr and Mrs Mitchell were seeking $5,800,000”.
[54] I prefer Ms Lockhart’s evidence as to the discussion with Ms Zhang regarding price of the property. Real estate agents are not valuers. They are in no position to express an opinion regarding the value of a property other than in comparison to other sales of similar properties in the area. Ms Zhang, who is an experienced developer, knew as well as Ms Lockhart, that the neighbour’s property at 81 Pararekau Road had sold for $5,860,000. To pass the vendors’ expectations as to price on to Ms Zhang was not an actionable representation.
[55] Ms Lockhart also denied telling Ms Zhang, or any other potential purchaser, that the properties were ready for immediate subdivision. Ms Lockhart said purchasers were advised verbally that the properties had recently been rezoned under the new Unitary Plan to Mixed Housing Suburban and that any development would
require resource and Council consent. She referred to an advertising flyer to that effect. The flyer and information regarding 81 Pararekau Road stated:
Solid Gold – Re Zoned
Residential–MIXED HOUSING SURBURBAN ZONE Development/investment 10,492m2 – rezoned 1 per 300m2. Subject to resource consent and council approval.
Stormwater and sewage approved makes this an absolute winning opportunity to secure one of the best locations in Karaka.
[56] During the course of cross-examination Ms Lockhart accepted that the flyer only related to 81 and there was no such flyer for 85. However she confirmed that the information conveyed in relation to 85 would have been the same, namely that while it was zoned Mixed Housing Suburban any development would require resource consent and Council approval. Mr St John sought to make something of the fact that the flyer also referred to “rezoned 1 per 300m2”, but that must be read in context. It was immediately followed by reference to being subject to resource consent and Council approval. There is no evidence that Ms Lockhart orally told Ms Zhang about the “1 per 300m2” in any event.
[57] I accept Ms Lockhart’s evidence that her advice to Ms Zhang as to the subdivision potential of 85 Pararekau Road was limited to the fact the property was zoned Mixed Housing Suburban subject to resource consent and Council approval and that it had sewage and drainage approved. Importantly, it is consistent with the information portrayed on the flyer that was prepared for the auction of 81 Pararekau Road which recorded Ms Lockhart as the listing agent. It is also more likely than not that Ms Lockhart would give the same general advice and communications to the purchaser of 81. As Ms Lockhart noted, the significant feature of 81 and 85 was that they had sewage and drainage approved.
[58] To the extent there is a relevant conflict of evidence between that of Ms Zhang and Ms Lockhart on what was said, I prefer the evidence of Ms Lockhart.
[59] There are a number of other issues with the representations Ms Zhang seeks to rely on. First, as Mr Parmenter noted, they are inconsistent with the position Ms Zhang took earlier. Neither of the letters written by Ms Zhang’s advisors on 11 October or
13 October 2016 purporting to cancel the contract contained any reference to such alleged representations. Further, nor was any reference to them made in the proceedings Ms Zhang issued herself on 30 May this year. While she sought a declaration she was entitled to cancel the agreement on the basis of an alleged breach of cl 7.1 of the agreement, no reference was made to any misrepresentations at that time.
[60] It is also notable that there are differences between the representations now pleaded and the representations referred to in a previous letter from her lawyer. In that letter her lawyers said that Ms Lockhart had made a number of representations to Ms Zhang and her husband Mike:
1. 85 was very similar to 81 as to readiness for subdivision; and
2.Access can be granted through 81 as the owner of 81 was eager to subdivide immediately; and
3.She would obtain the right of way for Ms Zhang by way of a land swap with the owner of 81.
[61] Ms Lockhart denied that she ever told Ms Zhang that access would be granted through 81 or that she would obtain the right of way for Ms Zhang by way of a land swap. Ms Lockhart was clear in her evidence on the issue. She said that:
I did suggest that once Ms Zhang had full ownership of the property, I would seek to introduce the parties. There may be an option in the future to work together. I would be happy to follow this through.
[62] The suggestion that Ms Lockhart said she would obtain a right of way for Ms Zhang by way of a land swap with the owner of 81, is so improbable as to be incredible. In cross-examination Ms Zhang even accepted as much. Ms Zhang accepted that what Ms Lockhart had actually told her was that she would seek to introduce her to the owner of 81 and that there might be an option in the future to work together. That is consistent with Ms Lockhart’s evidence. I note that Ms Lockhart was not cross- examined on the issue.
[63] Next, even though Ms Zhang’s case is that she relied on Ms Lockhart’s representation that the property was similar in all material respects to 81 Pararekau Road, especially regarding its subdivisional potential, Ms Zhang actually contradicted
that in the course of her evidence-in-chief. She said that, before she entered the agreement:
At that point in time I raised issues about road access with Ms Lockhart. I
told her that I did not consider the two properties to be exactly similar because
81 Pararekau Road had immediate access to the road frontage whereas 85
Pararekau Road may need further access in order to be developed.
[64] To the extent that there was any statement regarding the subdivision of 85
Pararekau Road it was in general terms and Ms Zhang did not rely on it.
[65] The position is that Ms Zhang was anxious to buy 85 Pararekau Road having missed out on 81 Pararekau. She instructed Ms Lockhart to prepare a contract even before she had seen the property. Ms Lockhart declined. Then, on 9 October 2016, halfway through the inspection of the property, Ms Zhang again asked the agents to prepare a contract. Although Ms Lockhart asked her if she wished to continue the
inspection she declined and insisted on the contract being prepared.
[66] I am satisfied that there were no actionable misrepresentations in this case by the Mitchells’ agent, Ms Lockhart.
Is the Fair Trading Act 1986 engaged?
[67] Ms Zhang pleads that the Mitchells were in trade and their failure to disclose the proposed road constituted conduct that was misleading or deceptive in breach of the FTA.
[68] The first issue is whether the FTA can apply to the sale of 85 Pararekau Road by the Mitchells to Ms Zhang at all.
[69] Mr St John noted that the Court of Appeal has accepted that a person who engages in a one-off transaction for the sale of land may be acting “in trade” for the
purposes of the FTA.13
13 Cochrane v Clark CA66/04, 24 February 2005 at [36], referring to Undrill v Senior HC Blenheim
CP9/94, 20 August 1997 and Sunnylea Farms Ltd v Gray (2004) 21 NZTC 18,667 (HC).
[70] Trade is defined under the Act to mean “any trade, business, industry, profession, occupation, activity of commerce or undertaking relating to … the disposition or acquisition of any interest in land”.14
[71] Accepting for present purposes that the participants in a one-off disposition of land may be acting “in trade”, the real issue is whether in selling their home the Mitchells were acting in trade.
[72] In Red Eagle Corporation Ltd v Ellis the Supreme Court commented on the meaning “in trade” in broad terms:15
This is a broad term encompassing all kinds of commercial dealing by the party whose conduct is under examination. The section applies to transactions between large, sophisticated corporations as well as to those of persons dealing with consumers.
[73] While the definition of “in trade” is broad and may encompass the disposition of land in a one-off transaction, the wording of the definition of “trade” supports a finding that there must be some element of commercial dealing in the disposition.
[74] The sale of a family home lacks that element of commercial dealing. Section
13(1) of the FTA states that “No person shall, in trade, in connection with the sale … of an interest in land [do various things]”. That section contemplates that not every sale of land will be “in trade”, otherwise the words “in trade” would be completely redundant. In Hill v Juzwa the Court concluded that the sale of a family home could not be “in trade”.16 Mr St John sought to distinguish that case on the grounds that:
(a) the sale in Hill’s case was agreed in the context of a trusted family relationship;
(b)the vendors had given an assurance they would not strictly enforce the terms of the contract which was inconsistent with the sale made in
trade; and
14 Fair Trading Act 1986, s 2.
15 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [26], fn 13.
16 Hill v Juzwa HC Auckland CIV-2004-463-840, 20 September 2005.
(c) there was no evidence that the sale of the defendant’s land was intended to be part of a commercial property development.
[75] Mr St John argued that the present case was different. The sale was undertaken at arm’s length, after public advertisements and was negotiated through real estate agents. But the sales of the vast majority of domestic properties transacted in New Zealand are made that way. It cannot be sensibly suggested such sales are in trade just because they are through the agency of a real estate agent. Next Mr St John argued the sales were motivated by business rather than personal reasons. There is no evidence to support that submission. Mr Mitchell’s evidence, which was uncontested on the point, was that he and his wife were retired, and they wanted to sell their lifestyle block. Finally, Mr St John submitted the sale was intended to be part of a commercial property development as the property was sold for the purposes of subdivision. The fallacy with that argument is that whatever the purchaser might ultimately use the land for had nothing to do with the intention or the activity of the Mitchells in selling the property.
[76] In Cashmore v Sands Clifford J said of the sale by a family trust of a farm property:17
[219] … the sale of the land was motivated by personal (family) reasons. There is no suggestion that the sale proceeds were to be used to engage in further activities of commerce, as for example by the defendant, or even his son, buying another farm. There was not any continuity of farming activities (or any broader indication that the defendant had commercial aspirations for the use of the sale proceeds) such as to give the transaction a commercial flavour.
[77] The position is even stronger in the present case where the Mitchells had never used the land for commercial purposes. On the uncontested evidence of Mr Mitchell the property was their home. Mr Mitchell’s previous work was unrelated to the property. Neither of the Mitchells had undertaken any trade, business, industry, profession, occupation, activity of commerce or undertaking in relation to their land. They were retired and selling their lifestyle block. They had lived on it and kept a few sheep. Their use of the land had no commercial element to it at all. Mr and Mrs Mitchell were not in trade.
[78] Ms Zhang’s claim based on the FTA falls at the first hurdle.
Did the vendors accept Ms Zhang’s repudiation so that specific performance is unavailable?
[79] Ms Zhang argues that even if her other defences fail the Mitchells are not entitled to specific performance as they have accepted her repudiation. I set out again the letter of 15 December 2016 that Mr Neumegen, the Mitchells’ lawyer, wrote to the solicitors then acting for Ms Zhang:
Your client says she is not going to settle because, most recently, there were misrepresentations and she has cancelled the agreement. Our clients deny that your client has any right to cancel and wish to treat her purported cancellation as a repudiation, which they accept. Rather than fight our way through settlement notices and the likes, can we agree that, for one of those reasons, the contract is ended? Then, in the event of litigation for our clients’ losses, both parties will have their positions available.
[80] There was no particular response to that letter.
[81] Mr St John submitted that by the 15 December 2016 letter the Mitchells had accepted Ms Zhang’s repudiation so that they were unable to pursue a claim for specific performance.18
[82] The law is clear. If an innocent party elects to cancel a contract following breach, the contract is at an end and cannot later be affirmed. Once the decision to cancel is communicated, the choice is irrevocable. The issue is whether the Mitchells, through their authorised agent Mr Neumegen, have elected to cancel the contract and made that known to Ms Zhang. Section 41 of the Contract and Commercial Law Act
2017 provides:
41 When cancellation may take effect
(1) The cancellation of a contract by a party does not take effect—
(a) before the time at which the cancellation is made known to the other party; or
(b) before the time at which the party cancelling the contract shows, by some clear means that is reasonable in the circumstances, an intention to cancel the contract, if—
(i) it is not reasonably practicable for the cancelling party to communicate with the other party; or
(ii) the other party cannot reasonably expect to receive notice of the cancellation because of that other party’s conduct in relation to the contract.
(2) The cancellation may be made known by words or by conduct showing an intention to cancel, or both. It is not necessary to use any particular form of words, so long as the intention to cancel is made known.
[83] The issue of whether the intention to cancel has been made known is fact specific. In the House of Lords Vitol SA v Norelf Ltd the Court said:19
My Lords, the question of law before the House does not call for yet another general re-examination of the principles governing an anticipatory breach of a contract and the acceptance of the breach by an aggrieved party. For present purposes I would accept as established law the following propositions: (1) Where a party has repudiated a contract the aggrieved party has an election to accept the repudiation or to affirm the contract: (2) An act of acceptance of a repudiation requires no particular form: a communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end. (3) It is rightly conceded by counsel for the buyers that the aggrieved party need not personally, or by an agent, notify the repudiating party of his election to treat the contract as at an end. It is sufficient that the fact of the election comes to the repudiating party's attention, for example notification by an unauthorised broker or other intermediary may be sufficient: …
(emphasis added)
[84] At first reading, the words used in Mr Neumegen’s letter suggest that the
Mitchells had accepted the repudiation:
Our clients deny that your client has any right to cancel and wish to treat her purported cancellation as a repudiation, which they accept.
(emphasis added)
[85] However, the letter is not well expressed. It talks of a “wish”. Further, it concludes by seeking some form of agreement. The Mitchells did not need Ms Zhang to “agree” the contract was ended. It was at their election to either accept or reject the repudiation.
[86] In McLachlan v Taylor the Court of Appeal considered whether correspondence between the respective solicitors represented an election by the vendors to pursue damages rather than specific performance.20 In that case the purchaser sought to avoid liability under the contract. He took the position that the contract was illegal and void under the Land Settlement Promotion and Land Acquisition Act 1952. The vendor sued for specific performance. The purchaser argued that by their conduct the vendors had elected against specific performance and should be limited to damages. The argument was advanced on the basis of two letters. The vendors’ solicitors first wrote to the purchasers’ solicitors, noting that the property could be resold by private contract and the deficiency plus all conceivable costs and outgoings could be recovered from the purchaser. They asked the purchaser to reconsider his position and to complete the sale before further action was taken.
[87] But then on 22 October the vendors’ solicitors wrote again:
Having had no reply to earlier correspondence my clients are now taking active steps to secure the offer referred to in my letter of 6 October. …
[88] The Court of Appeal considered the natural reading of the letter was that the vendors were actively endeavouring to obtain or procure an offer from a third party. But even so the Court did not read the letter as an unequivocal choice of damages rather than specific performance. The vendors were doing no more than intimating they were trying to resell. In fact, the vendors went further and entered a contract for resale of the property. However, the Court noted the second agreement was conditional upon the existing agreement for sale and purchase not proceeding within a period of six weeks, and before that period expired the second agreement fell through. The Court considered that the vendors had not unequivocally communicated the contract was at an end.
[89] The evidence of the parties on the issue is limited, and to the extent it addresses the issue, ambiguous.
[90] Mr Mitchell said of Mr Neumegen’s letter of 15 December 2016:
It can be seen that we were offering Ms Zhang the chance to agree the agreement was at an end. There was no reply to that suggestion and, as it happens, we changed our mind and decided that we would seek specific performance.
[91] On one view that supports a finding that the Mitchells had decided to accept Ms Zhang’s repudiation and cancel the contract. If they had effectively communicated that decision to Ms Zhang then they would not be entitled to change their mind and pursue specific performance.
[92] On the other hand Ms Zhang did not seem to consider that the letter was a clear and unequivocal acceptance of her repudiation. She said in her evidence:
As the vendors never accepted the validity of my cancellation, to get myself some peace of mind, in May 2017 I initiated legal proceedings … to seek a declaration that the vendors had breached the sale and purchase agreement, and that the vendors’ breach entitled me to cancel the sale and purchase agreement.
(emphasis added)
[93] Ms Zhang initiated her own proceedings because she did not consider the Mitchells had accepted the validity of her cancellation. It seems clear that Ms Zhang and her advisors did not consider at that time, that the Mitchells had accepted her repudiation by the letter of 15 December 2016. It has only been during the course of the hearing that Ms Zhang has sought to rely on Mr Neumegen’s letter as an acceptance of her repudiation.
[94] The real issue then is whether the letter of 15 December 2016 is, as is required, a clear communication which made the Mitchells’ intention to cancel known to Ms Zhang. Mr Parmenter submitted the statement that the Mitchells “wish[ed]” to treat Ms Zhang’s purported cancellation as a repudiation, was only an indication as to their future intent, which he submitted was consistent with the sentence that followed seeking agreement. There was no unequivocal acceptance of repudiation.
[95] The factors pointing towards the acceptance of the repudiation is use of the word “accept” in the letter and the suggestion in Mr Mitchell’s evidence that they had made up their mind to accept the repudiation.
[96] The factors that point against the acceptance of the repudiation are the vague and ambiguous wording of the letter when read overall and Ms Zhang’s response to it by later issuing her own proceedings.
[97] On balance, I conclude the wording of the solicitor’s letter is too ambiguous to have been a clear and unequivocal communication of the Mitchells’ acceptance of Ms Zhang’s repudiation. Ms Zhang and her advisors did not consider it to be such a clear and ambiguous statement at the time, nor later in May 2017 when she issued her proceedings.
[98] If I am wrong in that conclusion, this would be an interim judgment with the Mitchells entitled to judgment on liability for breach of contract with damages to be fixed at a later hearing.
Result/orders
[99] The Mitchells are entitled to an order for specific performance.
[100] Ms Zhang is to specifically perform the agreement for sale and purchase of the property at 85 Pararekau Road, Karaka, including the payment of interest in accordance with cl 3.12(1) of the agreement for sale and purchase.
[101] Settlement is to occur within the earlier of six weeks from the date of judgment, or 10 working days of Ms Zhang notifying the Mitchells that she is ready, willing and able to complete settlement.
[102] Leave is reserved to the Mitchells to seek ancillary orders necessary (including in relation to the calculation of interest) to give effect to the above orders.
Costs
[103] The Mitchells are to have costs on a 2B basis plus disbursements.
Venning J
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