Pacific Basin Education Foundation Limited v Richina Limited
[2016] NZHC 2193
•15 September 2016
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CIV-2016-476-000024 [2016] NZHC 2193
BETWEEN PACIFIC BASIN EDUCATION
FOUNDATION LIMITED AND OTHERS
Plaintiffs
AND
RICHINA LIMITED Defendant
Hearing: 7 September 2016 Appearances:
J W A Johnson and G J C Carter for Plaintiffs/Applicants
C I Hadlee and R E Schultz for the Defendant/RespondentJudgment:
15 September 2016
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
ON PLAINTIFFS' SUMMARY JUDGMENT APPLICATION
Introduction – the plaintiffs’ claim
[1] The plaintiffs (for convenience collectively “Pacific Basin”) entered into a contract (the Pacific Basin/Richina contract) to sell their Waitaki Valley property (Campbell Park) to the defendant (Richina).1
[2] On the eve of settlement, Richina raised issues in relation to the property which it said required compensation. In keeping with the provision for the compensation claims in the Pacific Basin/Richina contract, the parties agreed that an interim amount of $550,000 be deducted on settlement and paid by Richina to a stakeholder pending determination of any amount of compensation. Settlement of the Pacific Basin/Richina contract duly occurred on 30 March 2016, with the
stakeholding put in place.
1 For their contract, the parties utilised the REINZ/ADLS form of Agreement for Sale and Purchase of Real Estate (9th ed, 2012(3)), adopting the standard terms in their entirety and adding further terms of sale and purchase.
PACIFIC BASIN EDUCATION FOUNDATION LIMITED AND OTHERS v RICHINA LIMITED [2016] NZHC 2193 [15 September 2016]
[3] By late April 2016 the issues raised by Richina had not been resolved. There had been no determination of any amount of compensation to be paid.
[4] Pacific Basin on 29 April 2016 commenced this proceeding, at the same time applying for summary judgment. It claims judgment for the sum of $550,000 (with interest). It makes no express claim in relation to the interim amount in the stakeholding.
The opposition – Richina’s claims
[5] Richina by its notice of opposition asserted that it is entitled to compensation or damages from Pacific Basin by reason of three matters:
(a) Pacific Basin’s failure to grant Richina vacant possession of Campbell
Park (“Issue 1”);
(b)Pacific Basin’s misrepresentation that Campbell Park had physical priority over its neighbour MFS Ventures Ltd (MFS) for the taking of water from a source on Campbell Park (“Issue 2”); and
(c) Pacific Basin was in breach of its warranty (clause 6.2(5)(a) of the Pacific Basin/Richina contract) whereby it had warranted that the required resource consent had been obtained in relation to the pond and associated works constructed on Campbell Park (“Issue 3”).
Issue 1 (vacant possession) resolved
[6] The issue arising from Richina’s first ground of opposition (as to vacant
possession) has been resolved.
[7] Of the $550,000 placed on stakeholding, a sum of $20,000 was held on account of Richina’s complaint that vacant possession had not been given. Richina adduced evidence as to the cost of remedying what it asserts was the consequence of Pacific Basin’s failure to give vacant possession (a sum less than the $20,000 withheld on that account). Counsel have informed me that arrangements have been
made for the pro-rata distribution to the parties of the $20,000 (plus accrued interest).
[8] The ground of opposition relating to vacant possession thereby fell away.
The context of the two remaining grounds of opposition
[9] Both Pacific Basin and its neighbour, MFS, draw water from a well situated on Campbell Park. Ponds had been constructed for the accumulation of the water to be drawn by Campbell Park (Pond A) and MFS (Pond B) respectively.
[10] MFS had acquired the right to take water from Campbell Park when it purchased its (neighbouring) land from one of the plaintiffs (Warnbro) in 2012 (the MFS/Warnbro contract). The MFS/Warnbro contract contained the following provision:
37. Water – proposed easement
The vendor, Warnbro Enterprises Limited, in the event that the purchaser is able to move their supply source for consent number CRC950552 as outlined in clause 36 above, agrees to grant an easement to the purchaser allowing the purchaser to take 34 litres per second from the spring situated on land owned by Warnbro which currently provides water to Campbell Park provided however that Campbell Park shall have a first priority for any water take to ensure that Campbell Park’s water supply remains uninterrupted.
[11] By the time of the sale to Richina in 2016, Warnbro had yet to grant a formal easement to MFS but the obligation to grant the easement remained in force.
[12] In the discussions leading to the Pacific Basin/Richina contract, the existence of clause 37 was disclosed to Richina. If there was to be a sale of Campbell Park to Richina, Pacific Basin would require Richina to acknowledge the existence of the clause 37 obligation and to commit to the process of registering the easement.
[13] In late January 2016, as negotiations between Pacific Basin and Richina proceeded, Pacific Basin provided the terms of the further term which it required to be included in any contract (to deal with the MFS easement). This wording became Further Term 18.1 of the Pacific Basin/Richina contract and provides:
18.0 Easement
18.1The purchaser acknowledges that the vendor has granted an easement to be registered in favour of an adjoining property (registered proprietor MFS Ventures Limited) as shown on the attached easement plan in accordance with an agreement entered into between the Vendor and MFS Ventures Limited (as attached) reflecting this. In the event MFS Ventures Limited is granted approval by the relevant authorities, to move the take point to the area shown in the easement plan. This easement would entitle MFS Ventures Limited to draw water from a well situated in the Vendors [sic] property. The purchaser acknowledges that this easement will be registered over Certificate of Title 621859 (registered proprietor Warnbro Enterprises Limited) and will sign all documents necessary to allow creation of the easement. The easement instrument will record that Campbell Park (Certificate of Title 621856, registered proprietor Pacific Basic [sic] Educational Foundation Limited) will have priority for water supply ahead of the neighbouring property.
Issue 2 – Richina’s misrepresentation claim
Campbell Park’s legal priority
[14] The MFS/Warnbro contract, and in particular clause 37, established what came to be described as Campbell Park’s “legal priority” by Pacific Basin, Richina and indeed by counsel in this case. By “legal priority”, the parties were referring to the contractual right of Warnbro and now Richina to retain (as against MFS) a priority of water supply.
Pacific Basin’s provision of easement information to Richina
[15] The primary negotiating role for Richina was adopted by Frank Chan, an Auckland lawyer who deposes that he has been advising Richina and its associated companies for several years.
[16] On 26 January 2016, he emailed to Pacific Basin’s agent a signed form of agreement for sale and purchase incorporating the Further Term 18 wording required by Pacific Basin.2 The offer also included Further Terms 19.1 – 19.3 which permitted the purchaser to reasonably request further information in relation to Campbell Park and to enter onto the property to carry out assessments and
investigations. While Richina’s offer included those further terms as to supply of
2 As set out above at [13].
information, the proposed agreement was to become unconditional immediately upon execution.
[17] Mr Chan’s 26 January 2016 email to Pacific Basin’s agent further explained
Richina’s offer in these terms:
Please note that the clause in the offer about the water easement records that the agreement relating to the water easement is attached. Our client will need to see and approve that agreement to ensure it is accurately described before it is attached to the offer, making the offer complete;
We have included the clauses referred to in our client’s term sheet relating to the vendor co-operating with further investigation and the provision of documents on settlement. We believe these are reasonable provisions given the circumstances of the abbreviated due diligence timetable; and
Given the reasons previously explained relating to our client not being able to properly complete its due diligence in the limited due diligence timetable dictated by the vendor including the uncertainty and risk relating to the water easement above, the price is NZ$2.75m.
[18] Richina’s offer was acceptable to Pacific Basin. The Pacific Basin/Richina contract was signed by a director of all three plaintiffs on 27 January 2016.
[19] Although Mr Chan’s 26 January 2016 email the previous day had spoken of the MFS/Warnbro clause 37 provision being “attached to the offer”, it appears from the copy of the Pacific Basin/Richina contract exhibited in evidence that the clause
37 provision was never in fact attached to the contract. Rather, it appears that Mr Chan’s request for a copy of the clause 37 provision was referred on to Pacific Basin’s solicitor, Patrick Costelloe. Mr Costelloe on 28 January 2016 sent an email to Mr Chan, to which he attached the relevant page from the MFS/Warnbro contract including clause 37. Mr Costelloe stated:
We act for the vendor companies.
We understand the purchaser has asked for evidence of the original arrangement with MFS Ventures Limited in relation to the proposed water easement.
I attach a copy of one page taken from the special conditions of an agreement between Warnbro Enterprises Limited and MFS Ventures Limited dated 19 February 2012. I have highlighted clause 37 which deals with the proposed easement.
There is no other documentation surrounding the proposed easement.
I note that the contract shows Pidgeon Law as acting for the purchaser. Could you please confirm that is correct and that Pidgeon Law will act on the conveyancing aspects.
I look forward to hearing from you.
[20] Shortly afterwards Mr Chan replied by email. He stated that he would revert to Mr Costelloe if he required anything else on the proposed water easement. He advised Mr Costelloe that Pidgeon Law had been instructed to act in relation to the property aspects, including the conveyancing.
[21] On the following day (29 January 2016), Joanna Pidgeon of Pidgeon Law emailed Mr Costelloe a request for the front page of the MFS/Warnbro contract. She recorded that on the basis the front page was provided, Richina would waive its right (under clause 5.2 of the general terms of the contract) to requisition title.
[22] On the same day, Mr Costelloe emailed Ms Pidgeon the requested front page. He recorded that (with the right to requisition having been waived) the Pacific Basin/Richina contract had now become unconditional. Thereby the settlement date for the Pacific Basin/Richina contract became 30 March 2016.
The issue as to Campbell Park’s physical priority
[23] As earlier noted,3 on the eve of settlement Richina raised issues in relation to the property which it said required compensation. Pidgeon Law, in a letter dated 29
March 2016, identified two issues which it had been instructed to raise and on account of which it proposed to withhold $550,000, representing 20 per cent of the purchase price.
[24] The first issue identified by Pidgeon Law related to the matter of vacant possession which has now been resolved between the parties and is no longer a point of opposition.
[25] The second issue related to what the parties and counsel have come to refer to
as Campbell Park’s “physical priority” in relation to Campbell Park water.
3 Above, at [2].
[26] On this issue, Pidgeon Law’s 29 March 2016 letter recorded:
2.In your email dated 28 January 2016 you sent the special conditions of an agreement between Warnbro Enterprises Limited and MFS Ventures Limited dated 19 February 2016. Clause 37 of this agreement sets out that Campbell Park shall have a first priority for any water take to ensure Campbell Park’s water supply remains uninterrupted. The Park draws its water from an aquifer sourced pond on its property and this is pumped up to the Park. On the Park’s property, the neighbour with the asserted water rights has a deeper pond drawing water from the same aquifer source and has large pipes pumping water to the neighbouring property. The deeper pond and the large pipes in practice mean that the Park does not have an enforceable priority for water use. The neighbour is able to draw water that directly affects the water available for the Park, to the extent that the Park has no water available at all. The purchaser understands that in December 2014, there were 2 or 3 days when the Park had no water due to the neighbour’s increased usage. This is likely to impact the purchaser to a greater extent because of the increased use of water once the Park increases its operations from the minimal state that the vendor was operating the Park. Until the neighbour ceases using the deeper pond and large pipes and installs another system giving the owner of the Park true priority for the use of water, the neighbour is in breach of the terms of the water arrangement. Given the amount of water being used, to the extent that the Park is deprived of the use of any water, our client queries whether a resource consent must be necessary which we understand the neighbouring property does not have. Please supply information on how the neighbour intends to comply with the water agreement as its current use is in breach. Pending dealing with this issue, to our client’s satisfaction, our client considers this situation a misrepresentation and breach of contract.
[27] In summary, Richina was observing a distinction between the contractual (clause 37) provision for first priority and a physical or “true” priority which MFS was in fact receiving. This was said to result from the way in which Pond B and the water system had been constructed. Richina was asserting that it would not be able to ensure in practice that it received, ahead of MFS, all the water Richina desired.
Richina’s pleading of misrepresentation
[28] In opposition to Pacific Basin’s summary judgment application, Richina asserts that MFS and not Campbell Park has physical priority for the water extracted from the well on Campbell Park.
[29] Richina asserts that such lack of “physical priority” means that the representation which Pacific Basin made to Richina was in fact a misrepresentation. In its grounds of opposition, Richina identifies the representation is in these terms:
(a) Prior to Richina Limited (Richina)’s entry into the agreement for sale and purchase for Campbell Park Estate, Waitaki Valley (Campbell Park) dated 27 January 2016 (Agreement), the plaintiffs’ agents represented to Richina that the present state of affairs in relation to Campbell Park’s water supply was that:
(i) Campbell Park had its own water supply by way of artesian bore situated within the grounds of Campbell Park (Bore);
(ii) One of the vendors under the Agreement had previously agreed to grant a future easement to the neighbouring farm property, MFS Ventures Ltd (Neighbour) which would allow the Neighbour to draw water from Campbell Park’s Bore (Easement);
(iii) However, the arrangement that had been reached with the Neighbour, as recorded in the Easement, was that Campbell Park would retain priority for its water usage, so that the Neighbour’s water usage could not interrupt or otherwise detrimentally affect the water supply to Campbell Park;
(iv) The Neighbour had not yet obtained permission from the regional authority to move its supply source, but may do so in future, at which time the Easement would need to be agreed to by Richina; and
(v) The current physical state of affairs regarding Campbell Park and the Neighbour’s water supply was that Campbell Park retained priority over the Neighbour for Campbell Park’s water usage;
(together, Representations).
[30] Richina’s case as to misrepresentation has not been advanced on the basis that any of the statements identified as (i) – (iv) in the preceding paragraph was incorrect. Richina’s allegation is that it is the final representation (numbered (v)) as to the “current physical state of affairs” which was incorrect.
Richina’s evidence as to representations/misrepresentations
[31] For Richina, Mr Chan gave the primary evidence as to the information which
Richina sought and received from Pacific Basin. His evidence, in sequence, deals
with what he first came to know about the water arrangements and secondly what further information he sought and received.
[32] In relation to what Mr Chan first came to understand, he deposed:
The water situation
6.Dale [Franklin, the Campbell Park farm manager] took us to the water pond, where the underground artesian water source surfaced and collected water in a paddock on Campbell Park land. Dale explained that there was a pipe which took water from the pond to the pump house shed, and from there the water was pumped uphill above the Campbell Park buildings, from which point the water used gravity to flow to the tanks of the individual buildings within Campbell Park.
7.I recall Dale telling us that the neighbouring farm property (Neighbour) was also using the same source of water that Campbell Park was using under an arrangement between the Neighbour and the owner of Campbell Park. He said the Neighbour was using this water for both watering stock, which I was told the Neighbour did not need a resource consent for, and also for irrigation, which I was told the Neighbour did need a resource consent for.
8.I immediately thought this was an important legal matter that needed investigation because it affected the use of water on the Campbell Park land that Richina was interested in purchasing. I did not recall any reference to any water rights granted in the written information that had been provided by Mr Robertson [the real estate agent marketing Campbell Park] and he had not mentioned this during our visit the day before. I realised that this situation may cause a practical concern for Richina, because Richina would need an uninterrupted water supply in order to run the tourism activities and English language school that it planned to establish at Campbell Park. This would mean a lot more people on site than was the case at that time and therefore a greater demand for water.
9.I understand that Mr Nathan Tompkins, for the plaintiffs, has suggested that on 20 January 2016, we were told by Dale that there have been occasions where Campbell Park has had to ask the Neighbour to reduce its water intake, to enable filling of the water tanks at Campbell Park.
10.I was not told that the Neighbour’s water supply was physically set up in such a way that it had physical priority over the Campbell Park water supply, such that it would ever be necessary to ask the Neighbour to stop taking water in order for the Campbell Park tanks to be filled. All I was told was that the Neighbour had some rights to take water.
[33] In his affidavit, Mr Chan then went on to explain the enquiry he made in
relation to “the water rights situation”. He deposed:
Offer to purchase
11. While we were preparing to find out more about the water rights situation, the plaintiffs’ real estate agent Mr Robertson, told us that there was another purchaser interested in Campbell Park, so he said we would need to make an offer within a very short time frame if Richina wanted to have a chance to purchase it. As a result, we did not have time to investigate the water rights situation further before making that offer.
12.We made an offer (by way of an email containing the key terms of purchase, with an agreement for sale and purchase to follow) for
$2.25m on 25 January 2016. This offer is annexed marked "C" to Mr
Tompkins’ affidavit. Our offer made reference to the fact that we had not been able to complete the necessary due diligence in the time
provided. At about the time I sent this offer, I told Barry Robertson
by phone that we were mainly concerned that we had not yet had a chance to complete due diligence on the water supply issue and the price offered reflected this.
13.The plaintiffs rejected our offer (and also the other offer that they said they had received). However, Mr Robertson submitted a form of counter-offer on 26 January 2016 that he said they would accept, which included a purchase price of $2.95m. That form of counter- offer was accompanied by an additional clause in the proposed agreement for sale and purchase, which I assumed was intended to address the concerns that I had raised about the water supply issue. Mr Robertson's email, with the form of counter-offer and additional water rights clause added, is annexed to this affidavit marked "A".
14.The additional clause that I received confirmed that the plaintiffs had granted an easement to the Neighbour (MFS Ventures Ltd) to use the Campbell Park water supply, which would be registered at some stage in the future if the Neighbour obtained approval, which we understood to mean a consent, for it. However, importantly for our purposes, this clause confirmed that the arrangement with the Neighbour was that Campbell Park retained priority for its own water usage. Priority for water usage was very important to Richina, due to its plans to establish tourism activities and an English language school at Campbell Park. We assumed (on being provided with this clause) that:
(a) the Neighbour was adhering to this arrangement and;
(b) the physical water supply systems for both Campbell Park and the Neighbour had been set up in accordance with this arrangement.
15.We understood the arrangement with the Neighbour meant that as long as there was enough water in the aquifer/bore itself, Campbell Park would have first priority for that water and the Neighbour could
then only take surplus water, so it would only be droughts or issues with the artesian water supply itself that could potentially cause Richina water supply problems.
16. Richina therefore presented a further offer on 26 January 2016 for
$2.75m. I noted in the covering email that the clause in the attached agreement for sale and purchase about the water easement (which had originated from the plaintiffs’ form of counter-offer) recorded that the agreement (with the Neighbour) relating to the water easement was attached to it. I said that Richina would need to see and approve that agreement to ensure it was accurately described before it was attached to the offer, making the offer complete. This was done to ensure the agreement with the Neighbour specified that Campbell Park would get priority for its water usage. We also included clauses in the agreement for sale and purchase about the plaintiffs cooperating with further investigation and providing documents on settlement due to the abbreviated due diligence period. I said the offer price reflected the incomplete due diligence, including in relation to the water rights, as a result of the plaintiffs’ timetable.
17. This offer was executed and returned by the plaintiffs on 26 January
2016, but the agreement with the Neighbour relating to the water easement was not able to be provided until the return of the
plaintiffs’ solicitor. Richina staff then made arrangements to visit
Campbell Park again to do further due diligence and inspect the property. At this stage, I understand that further information was
supplied to Richina by Mr Tompkins, including contact details for
the various consultants that the plaintiffs had previously used for issues relating to water, sewerage and construction.
Information received post-offer
18.Upon the return of the plaintiffs’ solicitor on 28 January 2016, we were provided a copy of part of an agreement between one of the plaintiffs and the Neighbour, which contained what we were told was the plaintiffs’ easement agreement with the Neighbour (annexed marked “G” to Mr Tompkins’ affidavit). We were once again reassured that the easement stipulated that Campbell Park’s water supply had priority over the Neighbour’s water supply. It stipulated that the arrangement was that “Campbell Park shall have a first priority for any water take to ensure that Campbell Park's water supply remains uninterrupted”. We were told that there was no other documentation.
[34] In Mr Chan’s paragraphs 14 and 15 respectively, he refers to matters which “we assumed” and “we understood”. It is clear from the correspondence that it was Mr Chan who was conducting the negotiation for Richina. Mr Chan does not refer to any other operative mind being involved. I must treat Mr Chan as being the only person for Richina who reached a relevant “assumption” or “understanding”. That is the basis upon which Richina’s opposition on this ground is advanced.
Was there a misrepresentation as to “physical priority”?
[35] Richina’s ground of opposition in relation to misrepresentation first stands or falls on whether Pacific Basin arguably made a representation as to Campbell Park having physical priority for the taking of water from the Campbell Park water source. This is reflected in the way which Miss Hadlee, for Richina, formulated Richina’s ground of opposition, namely:
The Plaintiffs misrepresented that Campbell Park’s physical water supply was set up in such a way that Campbell Park had physical priority for the taking of water from its water source (which is an artesian bore on the boundary of its property (Bore)) over any water that may be taken by Campbell Park’s neighbour MFS Ventures Limited (MFS), such that MFS’s water take could not detrimentally affect Richina’s water take and the arrangement reached would “ensure that [Richina’s] water supply remains uninterrupted”.
[36] In her written synopsis, Miss Hadlee alternatively formulated Pacific Basin’s lead representation (rather than in terms of Campbell Park having “physical priority”) as Campbell Park having “its own uninterrupted water supply that could not be interfered with by … MFS”. I do not view the two formulations as being materially different – they both focus on Campbell Park’s physical ability to access its water.
[37] Miss Hadlee identified only two events which might be said to have created such a representation, namely (quoting from Miss Hadlee’s synopsis):
(a) In response to the concerns raised verbally by Richina regarding the Campbell Park water supply, the Plaintiffs supplied a proposed easement that was to be granted to the neighbour in future, if MFS ever gained the necessary resource consent to take ground water from Campbell Park’s land and only on the basis that Richina's water supply would “remain uninterrupted” and that Richina would retain priority for its water supply;
(b) The Plaintiffs inserted condition 18.1 in to the Agreement, which advised that an easement may be registered in future “in the event [MFS] is granted approval by the relevant authorities to move the take point” …
[38] Miss Hadlee’s confining the “representation” argument to these two events is entirely understandable as Mr Chan, in his evidence, identifies in relation to this issue no other communications or statements.
[39] To bridge the gap between the two events relied upon by Richina (above at [37]), Miss Hadlee developed orally a submission as to representation by way of half-truth.
[40] Miss Hadlee referred to the discussion under the heading “Can silence constitute misrepresentation?” in Law of Contract in New Zealand.4 The authors discuss the case law as to what may constitute misrepresentation. The starting point is that there is a general rule that mere silence is not misrepresentation.5 Miss Hadlee, referring to the authors’ proposition that “if silence distorts a positive representation, this may amount to misrepresentation for the purposes of s 6 [Contractual Remedies Act 1979]”, referred me particularly to this Court’s judgment in Wakelin v RH & EA Jackson Ltd.6
[41] Wakelin’s case concerned the sale of a lunch-bar business. The vendor had made a literally true representation that the nearest competitor was a half a mile away. In fact, another operator had taken possession of premises in the immediate vicinity and was at the time setting up a lunch-bar business there. As Henry J
observed:7
… this is a typical case where an answer given to a specific question, although theoretically true, constitutes a misrepresentation for the reason that it does not indicate the true position.
His Honour similarly referred to the answer given by the vendor as “misleading and therefore false”.
Discussion of misrepresentation
[42] This case is distinguishable from Wakelin’s case.
4 John Burrows, Jeremy Finn & Stephen Todd (eds) Law of Contract in New Zealand (5th ed, LexisNexis, 2016) at [11.2.1(e)].
5 At [11.2.1(e)], n 43.
6 Wakelin v RH & EA Jackson Ltd (1984) 2 NZCPR 195 (HC); discussed in Law of Contract in
New Zealand, above n 4, at [11.2.1(e)].
7 At 197.
[43] In Wakelin’s case the vendor, in a reply to a specific question by the purchasers, indicated that the nearest competitor was at Neilson Street (while knowing of the imminent opening of nearer competition).
[44] The subject-matter of the vendor’s response was precisely the subject-matter
of the purchaser’s enquiry (namely – competition in the vicinity).
[45] In this case, the only information sought by Richina from the purchaser was the contractual arrangements between MFS and Warnbro, namely what counsel have referred to as “the legal priority”. Richina was being asked to take on Warnbro’s obligations in relation to the intended easement. It was entirely understandable that Richina would wish to identify what obligations it was to take on. Richina accepts that the information provided by Pacific Basin as to “legal priority” was correct.
[46] The wording and context of Mr Chan’s enquiry of Pacific Basin did not suggest that Mr Chan was seeking information from Pacific Basin as to the physical performance of the ponding and other water services which had been created on the Campbell Park land. What Pacific Basin provided (through Mr Costelloe) was the requested information as to the MFS/Warnbro contract (involving the legal priority) and nothing else.
[47] To adopt the description in Law of Contract in New Zealand, there was no silence on the part of Pacific Basin which distorted a positive representation. There was no half-truth which created a misleading impression because of what it left unsaid.
[48] What happened, as Mr Chan’s affidavit frankly discloses (at his paragraph
14), is that it was the receipt of the MFS/Warnbro clause 37 which led to his “assuming” that the physical water supply for Campbell Park and its neighbour had been set up so as to ensure that Campbell Park achieved its contractual right of priority.
[49] It is not arguable that the assumption made by Mr Chan on the basis of the information he received in response to his enquiry was reasonable. Equally, it is not
arguable that Pacific Basin’s provision (through Mr Costelloe) of the clause 37 information (as specifically requested) in some way distorted a positive representation.
[50] In rejecting Richina’s allegation of misrepresentation as unarguable, I have not overlooked a submission of Miss Hadlee to the effect that summary judgment should be refused because it deprives the Court and parties of an opportunity to explore the content of discussions which Mr Chan had with Pacific Basin’s real estate agent, Barry Robertson. Miss Hadlee submitted that such evidence needs to be further explored as “Mr Robertson has not given evidence about the telephone conversation that Mr Chan deposes to”. In fact, all that Mr Chan stated in relation to that event was:
I told Barry Robertson by phone that we were mainly concerned that we had not yet had a chance to complete due diligence on the water supply issue and the price offered reflected this.
(The “reflection” referred to by Mr Chan was Richina’s pitching its offer at a figure
$200,000 below Pacific Basin’s requirements). Nothing in Mr Chan’s records of his conversation with Mr Robertson alters the extent of query on Richina’s part or the scope or meaning of the information provided by Pacific Basin.
[51] Pacific Basin’s evidence concluded on affidavit of its consultant, Nathan Tompkins who was involved in Pacific Basin’s sale process. Mr Tompkins deposed that he had had a meeting on site with Richina representatives on 20 January 2016, at which the pumping arrangements at the pond were explained by Dale Franklin, the farm manager at Campbell Park. The explanation included that:
There have been occasions when Campbell Park has asked MFS to reduce its water take to enable filling of the water tanks; and
If Richina required a greater water supply, they would need to improve and/or redesign the system.
[52] Dale Franklin has provided an affidavit for Richina. He describes the 20
January 2016 site meeting as involving “high level” rather than detailed discussion in relation to the water supply. Mr Franklin says that the more detailed subject- matter (referred to by Mr Tompkins) occurred not on 20 January 2016 (before the
Pacific Basin/Richina contract was entered into) but at a later meeting around 10
March 2016 (after the contract was signed).
[53] The timing of the discussion is clearly open to argument, and not resolvable in this context. But it does not need to be – Mr Chan, as the operative mind of Richina, does not identify anything arising from Mr Tompkins’ discussions (wherever they occurred) as being a matter of representation on which he was relying.
Outcome in relation to Richina’s misrepresentation argument
[54] Pacific Basin has established that Richina does not have an arguable claim based on misrepresentation which would afford Richina a right of equitable set-off (or an entitlement to any distribution of the stakeholding monies held on account of the misrepresentation argument).
Other arguments in relation to misrepresentation
[55] By reason of my stated conclusion, it is unnecessary that I rule on alternative arguments advanced for Pacific Basin by Mr Johnson. I record that Pacific Basin asserted also that:
(a) Pacific Basin’s evidence (particularly from MFS personnel) established that Campbell Park will in fact retain physical priority in relation to water because MFS has provided an assurance that it will cooperate in that regard; and
(b)Richina has not provided a satisfactory evidential foundation as to the alleged loss flowing from any misrepresentation.8
8 Miss Hadlee, apparently anticipating a difficulty in relation to Richina’s evidence as to quantification, sought to hand up at the hearing the report of a planner, received by her on the day of the hearing, which contains some explanation of remedial work and quantification of costs. In case it became necessary for the Court to consider quantification issues, I granted Richina leave to adduce the report under cover of an affidavit to be filed. The report requires no further analysis given my above conclusions.
The parties’ obligations in relation to the stakeholding
[56] By its notice of opposition, Richina advanced an additional ground in relation to its misrepresentation claim. Richina asserted that:
(a) by the stakeholding arrangements entered into between the parties, the issues raised by Richina were to be addressed post-settlement by the parties; and
(b)at the time Pacific Basin commenced this proceeding Richina was continuing to investigate the remedial costs arising from its vacant possession and misrepresentation claims.
[57] In her submissions, Miss Hadlee developed this ground of opposition, concluding that the stakeholding arrangements entered into by the parties represented a variation of contract which required the parties to cooperate to address the issues raised by Richina. She submitted that Pacific Basin had failed to cooperate in addressing issues. She submitted that Pacific Basin was, through the variation of contract, precluded from commencing a proceeding of the present kind as such would have the effect of circumventing the process of cooperation anticipated by the parties.
[58] The evidence on which Miss Hadlee based these submissions comprises the two emails exchanged on 29 March 2016 (the eve of settlement) and 30 March 2016 (the day of settlement).
[59] I have earlier set out detail from Ms Pidgeon’s 29 March 2016 letter, by which she set out Richina’s two matters of complaint.9 Ms Pidgeon had concluded that letter with the following threat:
In consideration of the issues listed above our client will be proceeding with settlement tomorrow only on the basis that we hold back twenty percent of the purchase price in our trust account, being $550,000.00, until the issues above in paragraphs 1 and 2 are resolved. The $20,000.00 portion of this retention is in consideration of the issue listed in paragraph 1 and the
9 Above at [26].
$530,000.00 portion of the retention is in relation to the issue listed in paragraph 2.
If the issues in paragraph 1 and 2 are not resolved to our client’s reasonable satisfaction within 6 weeks from the date of settlement our client will proceed with remediating the issues above and will deduct all costs incurred in doing so from the retention funds. The balance after the costs incurred by our client have been deducted will be paid to your Trust Account.
[60] To that letter, Mr Costelloe responded by letter on 30 March 2016, recording:
We refer to your letter of 29 March 2016. Our client does not accept the position outlined in your letter.
Nonetheless, in the interests of achieving settlement, our client will allow the sum of $550,000.00 to be retained in your trust account earning interest for the benefit of the party to whom the funds are eventually paid, on the basis that the parties will, post-settlement, address the issues raised by you. We point out that there is no contractual term that allows your client to retain funds on settlement.
[61] There is no evidence of a written response to Mr Costelloe’s letter. It appears that the parties simply proceeded to effect settlement on the basis that Richina that day established the stakeholding for the identified $550,000 and settled payment of the balance of the purchase price.
The clause 7 provisions as to compensation disputes
[62] The exchange of correspondence on 29 March 2016 and 30 March 2016 has to be seen in the context, as counsel accepted, of the provisions in clause 7 of the Pacific Basin/Richina contract in relation to claims for compensation. In terms of clause 7.4, the parties agreed on $550,000 as the interim amount and it was paid to the agreed stakeholder.
[63] In its entirety, clause 7.0 of the standard form contract provides:
7.1If the purchaser claims a right to compensation either under subclause 5.4 or for an equitable set-off:
(1) the purchaser must serve notice of the claim on the vendor on or before the last working day prior to settlement; and
(2) the notice must:
(a) in the case of a claim for compensation under subclause 5.4, state the particular error, omission, or
misdescription of the property or title in respect of which compensation is claimed;
(b) in the case of a claim to an equitable set-off, state the particular matters in respect of which compensation is claimed;
(c) comprise a genuine pre-estimate of the loss suffered by the purchaser; and
(d) be particularised and quantified to the extent reasonably possible as at the date of the notice.
7.2For the purposes of subclause 7.1(1), “settlement” means the date for settlement fixed by this agreement unless, by reason of the conduct or omission of the vendor, the purchaser is unable to give notice by that date, in which case notice maybe given on or before the last working day prior to the date for settlement fixed by a valid settlement notice served by either party pursuant to subclause 10.1.
7.3If the amount of compensation is agreed, it shall be deducted on settlement.
7.4 If the amount of compensation is disputed:
(1) an interim amount shall be deducted on settlement and paid by the purchaser to a stakeholder until the amount of the compensation is determined;
(2) the interim amount must be a reasonable sum having regard to all of the circumstances;
(3) if the parties cannot agree on the interim amount, the interim amount shall be determined by an experienced property lawyer appointed by the parties. The appointee’s costs shall be met equally by the parties. If the parties cannot agree on the appointee, the appointment shall be made on the application of either party by the president for the time being of the New Zealand Law Society;
(4) the stakeholder shall lodge the interim amount on interest- bearing call deposit with a bank registered under the Reserve Bank of New Zealand Act 1989 in the joint names of the vendor and the purchaser;
(5) the interest earned on the interim amount net of any withholding tax and any bank or legal administration fees and commission charges shall follow the destination of the interim amount;
(6) the amount of compensation determined to be payable shall not be limited by the interim account; and
(7) if the parties cannot agree on a stakeholder, the interim amount shall be paid to a stakeholder nominated on the
application of either party by the president for the time being of the New Zealand Law Society.
7.5The procedures prescribed in subclauses 7.1 to 7.4 shall not prevent either party taking proceedings for the specific performance of the contract.
[64] Accordingly, what the parties expressly agreed by the contract (and by clause
7 in particular) is that the interim amount would be held on the stakeholding until any amount of compensation was determined. Implicitly, the determination might be reached by agreement or by judicial or quasi-judicial process. Unless there was a variation to the contractual provision, either party was therefore entitled to have the determination reached through a Court proceeding such as this.
Discussion – the alleged variation of contract
[65] The variation for which Miss Hadlee contends is that the parties agreed to cooperate in a process of “addressing the issues raised” and would not circumvent such a process by Court action.
[66] The suggested variation of contract – whereby a determination as to the arguability of the misrepresentation claim by a proceeding such as this while the parties were yet to “address the issues” – is not arguable. The following matters lead to that conclusion:
(a) Richina does not suggest that on 30 March 2016, when the contract was signed for Pacific Basin and thereby concluded, Richina sought any variation of the contract provisions.
(b)There is no evidence of a meeting of minds as to a variation of contract which would have precluded a party’s right to a judicial determination of a determinative matter while the parties were “addressing the issues”.
(c) When the determinative issue is as to whether there had been a misrepresentation at all, matters such as Richina’s alleged costs of remediation (for which Miss Hadlee contends the parties were obliged
to continue in discussion) must be seen as secondary. Their relevance falls away if Richina fails on the underlying issue of liability for misrepresentation.
[67] Nothing in the documents or surrounding circumstances can be construed so as to have precluded Pacific Basin, by variation of contract, from obtaining a proper judicial determination of that underlying issue.
Issue 2 – the residual discretion
[68] As an alternative to her argument in relation to the stakeholding arrangements, based on a variation of contract, Miss Hadlee submitted that the Court (if finding the misrepresentation claim was not arguable) should nevertheless exercise its discretion to refuse summary judgment.
[69] It is well-established that such residual discretion exists. The decision of the Court of Appeal (by a majority) in Herring v Herring10 emphasises that it can only be “a discretion of the most residual kind”.11 Miss Hadlee effectively invoked the analysis of Ellen France J, in delivering the judgment of the majority in hearing, where her Honour concluded:12
[29] Because of the nature of the underlying issues and the desirability of resolving all of the issues between the parties, we consider summary judgment should be declined. This is a case where, as in Sayles, the grant of summary judgment will entail “some injustice” and, “whether intentionally or not” an oppressive use of the procedure of the Court. Accordingly, we dismiss the appeal.
[70] The major emphasis of Miss Hadlee’s submissions in relation to the residual discretion, as in relation to the variation of contract argument, lay in the proposition that the parties need to allow a proper time for Richina’s identification of the extent of problems, plans for remediation and quantification of the cost of the remediation.
As the determinative issue in relation to the claim of misrepresentation has become
10 Herring v Herring [2010] NZCA 500, [2011] 2 NZLR 433.
11 This taken from the judgment of Robert Goff LJ in European Asian Bank AG v Punjab and Sind Bank [1983] 2 All ER 508 (EWCA) 515 as adopted by the Court of Appeal in Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 5.
12 The reference being to Sayles v Sayles (1986) 1 PRNZ 95 (HC) at 98.
whether the alleged representation was made or not, Richina’s perceived need to
explore other issues is rendered irrelevant.
[71] On the issue of what representation was relied upon by Mr Chan, as the operative mind of Richina, Richina already possessed all relevant information at the time this proceeding was commenced. This is not a case where, as in Herring and Sayles, there is such an interrelationship of issues (in those cases, relationship property issues) arising between the parties that the comprehensive assessment of the parties’ respective positions needs to be undertaken before just conclusions can be reached and just orders made. In this case, where Richina’s alleged misrepresentation is not arguable, there is no injustice to either party in dealing with the claim now. Quite the opposite.
[72] This is therefore not one of those unusual cases in which the summary judgment claim should fail despite the plaintiff’s establishing the absence of an arguable defence.
Issue 3 – Richina’s breach of warranty claim
The resource consent warranty – clause 6.2(5)
[73] By (standard) clause 6.2(5) of the Pacific Basin/Richina contract, Pacific
Basin warranted and undertook that at the date of the agreement (27 January 2016) –
(5) Where the vendor has done or caused or permitted to be done on the property any works:
(a) any permit, resource consent, or building consent required by law was obtained; and
(b) to the vendor’s knowledge, the works were completed in
compliance with those permits or consents; and
(c) where appropriate, a code compliance certificate was issued for those works.
Richina’s complaint
[74] By its notice of opposition, Richina identified the creation of the ponds on Campbell Park as having occurred without the required permits and/or consents having been obtained.
[75] Expert evidence has been adduced as to the likelihood that the creation of the ponds required a resource consent. This failure to obtain consent, identified through Richina’s opposition, was not a resource consent issue identified by Pidgeon Law in its 29 March 2016 letter which led to the creation of a stakeholding – the only resource consent identified in that letter was as to MFS’s use of water from the Campbell Park pond. There is therefore no stakeholding sum on account of the resource consent issue relating to the construction of the ponds. In pursuing this ground of defence, Richina asserts an equitable set-off.
Pacific Basin’s concession and response
[76] Responsibly, Mr Johnson for Pacific Basin has conceded (for the purposes of the summary judgment application) that it is reasonably arguable that the work to create the ponds required a resource consent and that Pacific Basin’s clause 6.2(5) warranty may have been breached.
[77] Mr Johnson nevertheless submitted that Pacific Basin was entitled to summary judgment on either of two bases:
(a) Richina’s breach of warranty claim is not sufficiently related to Pacific Basin’s claim to make it unjust to allow the one to be enforced without account being taken of the other because the Pacific Basin/Richina contract itself creates a framework for such claims to be dealt with; or
(b)in the event an equitable set-off defence is arguable, there is no substantial evidence as to any loss beyond $10,000.
Sub-issue 1: arguable set-off?
[78] In something of a reversal of emphasis, Mr Johnson founded his submission that a right of equitable set-off is not arguable on the specific arrangements made by the parties for the stakeholding at the time of settlement. In particular, Mr Johnson observed that Richina had not, before the last day prior to settlement, claimed a right of compensation or equitable set-off by reason of a breach of warranty relating to the construction of the pond (which Richina clearly had not).
[79] Mr Johnson referred to the judgments of the Supreme Court in Property Ventures Investment Ltd v Regalwood Holdings Ltd,13 in which the Court analysed the then-standard form agreement.14 It was found that a purchaser faced with a vendor’s breach of warranty was entitled to an appropriate abatement of the purchase price on settlement. As a consequence of the decision in Property Ventures, clause
6.5 of the standard form agreement was amended so that it now reads:
6.5If the purchaser has not validly cancelled this agreement, the breach of any warranty or undertaking contained in this agreement does not defer the obligation to settle but that obligation shall be subject to the rights of the purchaser at law or in equity, including any rights under subclause 5.4 and any right of equitable set-off.
[80] Also as a consequence of Property Ventures, clause 7 (“claims for compensation”) was introduced to establish a process for claiming compensation. Mr Johnson’s submission (somewhat parallel to the submission of Miss Hadlee in relation to misrepresentation which I have rejected) is that the REINZ/ADLS agreement creates a framework for dealing with claims for compensation and equitable set-off. He submits that if Richina is now able to assert its equitable set-off claim in this proceeding (which he accepts would be an arguable claim in the absence of this argument), “the agreed contractual framework would be undermined and purchasers could retrospectively defeat the obligation to settle in full”.
[81] Mr Johnson’s submission glosses over the fact that Pacific Basin has not
specifically brought a proceeding for determination of rights in relation to the
13 Property Ventures Investment Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR
231.
14 REINZ/ADLS standard form (7th ed, 1999(2)).
stakeholding. It has elected to sue simply for $550,000 on the basis Richina breached the contract by failing to pay that amount on the settlement date. By Pacific Basin’s decision to pursue judgment on that basis, the Court and the parties are not directly engaged with rights in relation to the stakeholding. In response to Pacific Basin’s claim simply for the balance of the purchase price, there is no equitable principle or aspect of the contract which arguably precludes Richina from asserting an equitable set-off for what Pacific Basin accepts was an arguable breach of its clause 6.2(5) covenant.
Sub-issue 2 – the evidential foundation as to Richina’s loss
[82] The consequence of the breach of the clause 6.2(5) covenant asserted by Richina is that Richina has on Campbell Park a pond which is not authorised or “consented” under the Resource Management Act 1991.
[83] Richina in its evidence (from its planner) chose not to provide any information as to the prospect of retrospective consent or the cost of such consent.
[84] The only such evidence came from Angela Fenemore, a planner called by Pacific Basin. Her evidence is that if a resource consent for a discretionary activity is required under r 5.105 of the Canterbury Land and Water Regional Plan, then the effect of classifying the excavation of the pond as such will not seriously impede any application made for retrospective consent. She estimates the cost to prepare an application for the pond as between $2,000 and $3,000, to which must be added the fixed charge of Environment Canterbury ($1,725) for the application.
[85] Richina did not seek leave to respond to that evidence (which had been filed in reply). Such leave would have been granted in the circumstances. The Pacific Basin evidence as to costings stands unchallenged.
[86] The evidence of Richina’s planner, as initially filed and the supplementary evidence for which leave was granted at the hearing, addresses in detail matters of remediation and (in the second report) quantifies the cost of such remediation. But it is clear from a reading of Ms Cooper’s full report that her report is not designed to identify ultimately the cost of obtaining a retrospective consent for the pond (to
repair the breach of the resource consent covenant). Rather, she identifies the cost of decommissioning the ponds, constructing another ponding system and of obtaining consents for that new system. In explaining the need for those steps, Ms Cooper records:
Mr Franklin considers that the water take from Pond B for the neighbouring property at times interferes with the water take for Campbell Park from Pond A, meaning that at times water cannot be accessed for Campbell Park.
[87] In short, it is clear that the report was commissioned in order to obtain expert opinion as to the requirements which would exist if Richina was to achieve a situation of physical priority of water supply in accordance with what Richina asserted was Pacific Basin’s representation (contrary to my above finding).
[88] Ms Cooper’s initial report did not contain any quantification of either the physical costs associated with a redesigned waterworks system or of the planning costs which would arise.
[89] This situation led to Pacific Basin’s filing its reply evidence from its planner with the figures as to the cost of retrospective consent. It also led to Mr Johnson’s appropriate submission on the evidence then before the Court that the amount properly claimable by Richina (should it have an arguable set-off claim) is less than
$10,000. Mr Johnson had filed his written synopsis containing that submission, as directed, two weeks before the hearing.
[90] The additional report of Richina’s planner produced (by leave) at the hearing does not take Richina’s argument any further. Because the focus of Ms Cooper’s quantification evidence is the redesigned works envisaged in her first report, Richina has failed to provide an evidential foundation of substance as to any costs of remedying the breach of warranty which would exceed the figures deposed to by Pacific Basin’s planner. It is only this evidence as to quantification which addresses quantification of the relevant remedy.
[91] Richina does not have an arguable case of set-off beyond the costs of obtaining retrospective consent in relation to Pond B.
[92] In Freshmax NZ Ltd v Oak Glen Orchards Ltd, I adopted the principles stated by Ronald Young J in Gray v Stevenson.15 I concluded:
[23] Gray v Stevenson exemplifies the application of settled principles in this area. Arguable breach (supported by evidence) is insufficient unless accompanied by arguable damage or loss (supported by evidence).
I adopt this passage as a correct statement of the law.
[93] The relevant evidence the Court is left with is Ms Fenemore’s cost estimates which total $4,725 at most. Allowing for the passage of time to the framing of the consent application and the obtaining of consent and the contingencies, Mr Johnson’s implicit concession that Richina might ultimately have a quantified loss arguably as high as $10,000 is realistic. There is not substantial foundation on which to base an expectation that the cost of achieving the relevant remedy would be beyond $10,000.
Issue 3 – the residual discretion
[94] Although Miss Hadlee’s submissions in relation to the exercise of the residual discretion were made generally in relation to the summary judgment application, the argument that the residual discretion should be exercised (which I have rejected) was at its highest in relation to the complaints for which the interim amount was retained. The interim amounts were not retained in relation to this head of complaint (breach of the clause 6.2(5) warranty in relation to the creation of Pond B) which was not one of the complaints notified prior to settlement. Richina, having not made that complaint one of the matters to be covered by the stakeholding arrangement, cannot now assert that any failure by Pacific Basin to first seek to resolve matters in relation to the stakeholding should cut across its right to obtain the balance of the purchase price save in relation to the loss of up to $10,000 which Richina has arguably
sustained.
15 Freshmax NZ Ltd v Oak Glen Orchards Ltd [2012] NZHC 1560; citing Gray v Stevenson HC Wellington CIV-2008-485-1935, 15 October 2008.
Interest
[95] By clause 3.12 of the contract, where any portion of the purchase price is not paid upon the due date for payment, the purchaser is to pay to the vendor interest at the interest rate for late settlement (15 per cent per annum) on the portion of the purchase price so unpaid for the period from the due date for payment until payment.
[96] Although the point was not directly taken in the notice of opposition, and not developed in Miss Hadlee’s written synopsis, Miss Hadlee submitted that the interest rate for late settlement no longer applies because (through the stakeholding arrangement) the parties have introduced a substituted interest rate. I took her to refer to such interest as accrued on the sum held on deposit through the stakeholding account. Having regard to current interest rates, I take judicial notice of the fact that the rate which will be recovered through an interest-bearing deposit will be substantially below 15 per cent per annum.
[97] It is not arguable that the setting up of the stakeholding pursuant to clause 7 of the Pacific Basin/Richina contract extinguished Pacific Basin’s entitlement to interest at the full measure of 15 per cent per annum for the period during which Pacific Basin was not paid the full purchase price. There is nothing in the wording of the standard provisions of the contract to preclude a vendor claiming the balance of the late settlement interest rate where the interest on any stakeholding under clause 7 falls short of that rate.
[98] In the event that the parties, in light of this judgment, agree to a release of
$540,000 from the stakeholding funds, with pro rata distribution to Pacific Basin of accrued interest (in terms of clause 7.4(5)), such distribution will fall to be accounted for in calculating the interest payable to Pacific Basin. That will be taken into account in the order below.
Outcome
[99] Richina has an arguable set-off (for which there is a proper evidential foundation) only as to $10,000. As to the balance of the purchase price, Pacific
Basin is entitled to summary judgment because that balance is indisputably owed to
Pacific Basin.
[100] The appropriate sum for judgment falls to be calculated as follows: Balance of purchase price $550,000
Less equitable set-off claim $10,000
Balance of summary judgment $540,000
[101] Pacific Basin is entitled to interest at the contractual rate on the judgment sum as above at [95].
Costs and disbursements
[102] I indicated to counsel that I would reserve costs unless the outcome was entirely in favour of one party. The outcome has been almost but not fully in favour of the plaintiffs. My preliminary view is that the plaintiffs should have costs on a 2B basis together with usual disbursements. I will nevertheless reserve costs.
Order
[103] I order:
(a) There is judgment for the plaintiffs in the sum of $540,000.
(b) The defendant is to pay interest on the sum of $540,000 from 30
March 2012 until the date of payment of the judgment sum at the rate of 15 per cent per annum but after crediting against the said interest such amount of interest as the parties cause to be distributed to the plaintiffs by way of interest from the stakeholding sum held by Pidgeon Law.
(c) Except to the extent of the judgment granted at (a) and (b) above, the
plaintiffs’ summary judgment application is dismissed.
(d) Costs and disbursements are reserved.
Solicitors:
Wynn Williams, Christchurch
Lee Salmon Long, Auckland
Associate Judge Osborne
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