Peck v Grasshopper Lawnmowing Services Limited
[2018] NZHC 2615
•8 October 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-980
[2018] NZHC 2615
IN THE MATTER of an appeal under section 124 of the District Court Act 2016 BETWEEN
JASON PECK
Appellant
AND
GRASSHOPPER LAWNMOWING SERVICES LIMITED
Respondent
Hearing: 4 October 2018 Appearances:
P McCutcheon for the Appellant E Taia for the Respondent
Judgment:
8 October 2018
JUDGMENT OF GORDON J
This judgment was delivered by me
on 8 October 2018 at 3.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: P McCutcheon, Auckland
Franklin Law, Pukekohe, Auckland
PECK v GRASSHOPPER LAWNMOWING SERVICES LTD [2018] NZHC 2615 [8 October 2018]
Introduction
[1] On 6 January 2011, GT & SJ Peck Ltd (Peck), the first plaintiff in the District Court, entered into a contract with the defendant, Grasshopper Lawnmowing Services Ltd (Grasshopper). Under the contract, Grasshopper sold to Peck the right to mow the lawns at various commercial properties in the greater Auckland area. In return, Peck paid Grasshopper $30,000 at the outset. Grasshopper was also to receive 20 per cent of the payment for the various jobs undertaken from the commencement date of the contract, 1 February 2011.
[2] In early 2014, Peck assigned the contract to Jaslin Enterprises NZ Ltd (Jaslin), the second plaintiff in the District Court. Jason Peck, the third plaintiff in the District Court, is the sole director of Jaslin. Mr Peck and his wife jointly own Jaslin.
[3] In early 2016, just prior to the expiry of the five-year term of the contract, Jaslin cancelled the contract.
[4] Peck, Jaslin and Mr Peck brought proceedings against Grasshopper. It was alleged that Grasshopper breached various terms of the contract, including that Grasshopper did not pay the plaintiffs correctly for work completed under the contract.
[5] Mr Peck’s claim was based on the tort of deceit. He alleged that Grasshopper, through its director Peter Luxford, overpromised or created a false impression of the business, and its intentions or strategies, to induce reliance and sell the contract.
[6] Grasshopper applied to strike out portions of the claim by Peck and Jaslin, and the entirety of the claim by Mr Peck based on the tort of deceit.
[7] In the District Court at Auckland on 26 April 2018, Judge Harrison relevantly struck out Mr Peck’s claim.1
[8]Mr Peck now appeals that decision.
1 GT & SJ Peck Ltd v Grasshopper Lawnmowing Services Ltd [2018] NZDC 7333.
Factual background
[9] Peck is owned by Mr Peck’s parents. Mr Peck has a background in commercial lawnmowing, and wanted to use that background to make money.
[10] Prior to the signing of the contract, Mr Peck and his parents agreed that since Mr Peck did not have the money to buy a business at the time, his parents would buy a lawnmowing business through Peck for Mr Peck to work in, and Mr Peck would take ownership of the business when he was financially able to repay his parents.
[11] Mr Peck’s father subsequently identified Grasshopper as a viable option. There were two meetings between Mr Peck’s father and the director of Grasshopper, Mr Luxford. Mr Peck attended the second meeting with his father in early January 2011, at which the contract between Peck and Grasshopper was signed.
[12] Mr Peck says that, during this meeting, he told Mr Luxford about the agreement with his parents, namely that he would be obliged to repay his parents the purchase price of any business purchased. He says Mr Luxford knew that he would be taking over the business after he repaid his parents.
[13] Mr Peck claims that Mr Luxford made oral representations on behalf of Grasshopper at the meeting, specifically that:
(a)Grasshopper would provide ride-on catch lawnmowing work to the owner of the business;
(b)The lawnmowing work would be predominantly commercial;
(c)The business was being sold as going concern;
(d)Grasshopper would give the owner of the business all new ride-on catch lawnmowing work Grasshopper obtained, in the greater Auckland area. Mr Luxford said, “it’s all yours”;
(e)The term of the general contract would be “5+5+5”;
(f)Grasshopper would advertise aggressively, to grow the business and its own business; and
(g)Grasshopper and Peck would work together in a good faith manner.
[14] These alleged representations (except for (e) above) were subsequently incorporated into the contract as terms. Mr Luxford denies that he made the representation at (e) and says that the purchase price for a 15-year term would have been significantly higher. The contract term, as to duration, provided:
This contract is for 5 years. If both parties agree it can be extended for a further 5 years and again for a 3rd 5 year period if both parties agree.
[15] Mr Peck says that because of those representations, he told his father he considered the contract and the business suitable. Peck then entered into the contract. In doing so, Mr Peck incurred an obligation to repay his parents the purchase price of the business, namely $30,000, when he was able to do so.
[16] Mr Peck claims that soon after the contract was formed, “something funny” started happening with the money that was due to Peck. Despite the contract providing for the relevant plaintiff company to be paid 80 per cent of the customer’s payment to Grasshopper for the work, Mr Peck says that Grasshopper never provided independent verification of what it received for the work the plaintiffs did.
[17] Due to financial pressures, Mr Peck and his parents had to sell the house Mr Peck lived in. In early 2014, Mr Peck incorporated Jaslin. He paid $30,000 of the freed-up capital from the sale of the house to Jaslin, which then on-paid that $30,000 to Peck in observance of his agreement with his parents.
[18] Consequently, Peck assigned its rights under the contract to Jaslin and all of Peck’s lawnmowing assets were transferred to Jaslin.
[19] Jaslin eventually cancelled the contract on or about 27 January 2016, alleging multiple breaches of contract.
Strike out principles
[20]Rule 15.1 of the District Court Rules 2014 provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as it considers just.
[21] In Attorney-General v Prince, the Court of Appeal set out the principles that apply to strike out applications:2
A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed … the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material … but the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction …
[22]As the Court of Appeal commented separately:3
[7] … The statement of claim must be beyond repair. It must be plain that even if it is reformulated the claim cannot succeed.
2 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
3 van Soest v Residual Health Management Unit [2000] 1 NZLR 179 (CA).
District Court decision
[23] As noted above, the application for strike out was only pursued in respect of several causes of action. It was not pursued in respect of Jaslin’s claim against Grasshopper for breach of contract.
[24] Judge Harrison first acknowledged that the claim on behalf of Peck, the first plaintiff, had been discontinued (counsel having accepted that the presence of Peck as a party was superfluous).4
[25] After summarising the factual background and principles relating to strike out, Judge Harrison struck out claims relating to a separate alleged oral agreement.5 It is unnecessary to discuss this further because it does not form part of the scope of the appeal.
[26] The Judge then turned to Mr Peck’s claim. He stated that the cause of action advanced on Mr Peck’s behalf was “confusing to say the least”.6
[27] It is useful to quote directly from the relevant part of the plaintiffs’ amended statement of claim dated 5 September 2017:
Jason Peck
44.Jason Peck introduced $103,221.00 (total) of funds into Jaslin in the 2014 and 2015 financial years.
Particulars
(a)$96,366.00 in the 2014 financial year.
(b)$6,855.00 in the 2015 financial year.
45.The oral representations of Grasshoppers at the first and second meetings were not true.
46.Grasshoppers was reckless as to the truth of the oral representations; intended Jason Peck would rely on them; and Jason Peck did rely on the oral representations, by entering into the buyback agreement with Peck he was obliged to perform.
4 GT & SJ Peck Ltd v Grasshopper Lawnmowing Services Ltd, above n 1, at [3].
5 At [26] and [31].
6 At [32].
47.This caused loss to Jason Peck of $30,000 and other losses.
WHEREFORE, THE THIRD PLAINTIFF CLAIMS FROM GRASSHOPPERS BY REASON OF TORTIOUS RECKLESSNESS AS TO TRUTH
(a)Judgment in the amount of $30,000 for Jason Peck’s payment for the business, he was obliged to pay under the buyback agreement.
(b)Judgment in the amount of $73,221, for additional funds Jason Peck put into the business, lost when the plaintiff breached the oral representations (i.e., that the terms of the general contract would be “5+5+5” and Grasshoppers and the business would work together in good faith).
(c)Judgment in the sum to be determined by an enquiry by the Court into damages, for breach of the representations Grasshoppers would advertise aggressively.
(d)Judgment in the amount of $10,000 or such other amount as the Court may consider appropriate in general damages for stress, anxiety, or other adverse consequences.
(e)Interest.
(f)Costs.
(g)Any other orders the Court considers just.
[28] Judge Harrison first commented that there is no tort of recklessness as to truth.7 Recklessness as to truth forms part of the tort of deceit. The Judge then set out the requirements for the tort of deceit,8 quoting the Court of Appeal’s decision in Amaltal Corp Ltd v Maruha Corp.9
[29] Applying those criteria to this cause of action, Judge Harrison concluded that it was clear that “no representation as to past or existing fact is alleged”.10 Instead, all of the alleged representations were as to future conduct, except for the representation “that the business was being sold as a going concern, but no allegation is raised in respect of that representation”.11
7 At [35].
8 At [36]-[37].
9 Amaltal Corp Ltd v Maruha Corp [2007] 1 NZLR 608 (CA) at [46]-[50].
10 At [38].
11 At [38].
[30] Therefore, the cause of action failed “at the first hurdle”.12 In any event, the Judge noted that there was “no basis alleged of any dishonesty on the part of Mr Luxford nor recklessness as to the truth of any representation made”.13
[31] Furthermore, Judge Harrison stated that the cause of action failed in another respect.14 Relying on s 35(1)(b) of the Contract and Commercial Law Act 2017 (CCLA), the Judge stated:
[41] Clearly, Peck would not have been entitled to damages from Grasshopper for deceit, where its only remedy would be in damages for misrepresentation.
[42] Furthermore, I do not accept that [Mr Peck], who with his father was representing the interests of Peck at the discussion leading to the contract, can now claim a personal cause of action in deceit.
[32] For those reasons, Judge Harrison struck out Mr Peck’s cause of action as it disclosed “no cause of action that could possibly succeed”.15
[33] Grasshopper had also raised the possibility of Mr Peck’s claim being statute- barred by the Limitation Act 2010. The alleged representations were made in January 2011, while Mr Peck was joined as the third plaintiff on 5 September 2017, more than six years later.
[34] Mr Peck had relied on s 50 of the Limitation Act, which provides the Court with a discretion to allow relief for an ancillary claim. In this regard, the Judge commented:
[47] The cause of action in deceit purports to rely upon the same representations that are advanced as establishing a breach of contract for which Peck is seeking damages. Without having to decide the issue I am of the preliminary view that the cause of action in deceit, if properly available, could have been regarded as an ancillary claim.
[35]The Judge concluded:
[48] Standing back, and viewing the proceeding objectively, if Jaslin succeeds in its claim for breach of contract then [Mr Peck] will benefit as a
12 At [39].
13 At [39].
14 At [40].
15 At [43].
consequence and theoretically would recover the funds advanced by him to Jaslin. It would be incongruous to permit him also to advance a personal claim which, if successful, could result in a double recovery.
Approach on appeal
[36] Section 124(2) of the District Court Act 2016 provides Mr Peck with a right of appeal to this Court.
[37] Section 127 of that Act provides that the appeal must be by way of rehearing. Mr Peck is, therefore, entitled to judgment in accordance with the independent opinion of this Court based on the material before Judge Harrison.16
[38] This Court must therefore form its own view as to whether Mr Peck’s claim should be struck out. Nevertheless, Mr Peck ultimately bears the onus of persuading this Court to reach a different conclusion.17
[39]On appeal, the powers of this Court are as follows:
128 Powers of High Court on appeal
(1)The High Court may, after hearing an appeal,—
(a)make any decision it thinks should have been made:
(b)direct the District Court—
(i)to rehear the proceeding; or
(ii)to consider or determine, whether for the first time or again, any matters the High Court directs; or
(iii)to enter judgment for a specified party to the proceeding:
(c)make any further or other orders the High Court thinks fit:
(d)make an order as to costs.
…
16 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
17 Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [30].
Submissions
[40] Mr McCutcheon, for Mr Peck, submits that Judge Harrison erred in the following respects:
(a)The tort of deceit can apply to representations about future conduct where the representation implies the fact of a present intention that is false or misleading or recklessly deviated from (with knowledge of reliance on it);
(b)If the pleadings did not expressly allege dishonesty or recklessness as to the truth of any representation made, the Judge should have allowed Mr Peck to amend his pleadings to include them;
(c)As Mr Peck was not a party to the contract, s 35(1)(b) of the CCLA does not apply to him;
(d)As Mr Peck was representing his own interests at that meeting, and not those of Peck, Judge Harrison’s factual determination that Mr Peck was representing Peck at the meeting led him to conclude that s 35 of the CCLA applied. Ultimately, whose interests Mr Peck was representing at the meeting is a factual question, more properly determined at the final hearing after all the evidence has been heard; and
(e)While accepting the double recovery concern, that concern does not apply to the $30,000 purchase price of the contract. Jaslin cannot recover the purchase price, as the purchase price was paid by Peck. Mr Peck then reimbursed the purchase price to Peck through his own company, Jaslin. The reimbursement was sourced from Mr Peck. The Judge should have allowed Mr Peck to amend his pleadings, to limit them to $30,000, in order to address the double recovery concern.
[41] As to the limitation issue, Mr McCutcheon maintains that Mr Peck should be allowed to continue his claim as an ancillary claim under s 50 of the Limitation Act. He asks this Court to affirm that position.
[42] Therefore, Mr McCutcheon submits that Mr Peck’s claim in tortious deceit should be reinstated and allowed to continue. He submits that Mr Peck should be granted leave to amend his pleadings to address Judge Harrison’s concerns, namely by expressly pleading dishonesty or recklessness as to the truth of any representation made and by reducing the claim to $30,000.
[43] Mr Taia, for Grasshopper, submits that none of Mr Peck’s claims for relief, or any claim under the tort of deceit, can succeed. He submits the alleged representations were not as to a past or existing fact. He also submits there is no alleged basis for any claim of dishonesty or recklessness as to the truth by Mr Luxford on behalf of Grasshopper.
The alleged false representations
[44] As noted above, Mr McCutcheon submits that the tort of deceit can apply to Mr Luxford’s representations in the meeting because he either misrepresented the fact of an intention or was reckless in departing from it with knowledge of Mr Peck’s reliance on it. He focuses specifically on the following representations which he says were untrue:
(a)Grasshopper would give the owner of the business all new ride-on catch lawnmowing work Grasshopper obtained, in the greater Auckland area;
(b)The term of the general contract would be “5+5+5”;
(c)Grasshopper would advertise aggressively, to grow the business and its own business; and
(d)Grasshopper and Peck would work together in a good faith manner.
[45] Mr Taia submits the alleged representations are as to future conduct. In any event, he submits there is no clear evidence of fraud or dishonesty, or anything to objectively infer such intention by Mr Luxford on behalf of Grasshopper.
Discussion
[46] In Amaltal Corp Ltd v Maruha Corp, the Court of Appeal set out the requirements for the tort of deceit:18
(a)A false representation as to a past or existing fact was made by the defendant;
(b)The defendant knew that representation to be untrue, or had no belief in its truth, or was reckless as to its truth;
(c)The defendant intended that the plaintiff should act in reliance on the representation; and
(d)The plaintiff acted in reliance on the representation and suffered damage as a result.
[47] Mr Peck, as the plaintiff, has the burden of proving these elements on the balance of probabilities.19
[48] A statement of intention is not actionable as a statement of fact. As Stephen Todd comments:20
A statement of intention is not a representation as to whatever is said to be intended, for whether the intention is carried into effect lies in the future and is not a matter of present or past fact …
[49]Similarly, as Andrew Tettenborn states in Clerk & Lindsell on Torts:21
A representation as to the future will not as such found liability in deceit. Nor will a broken promise, as such …
(Citations omitted)
18 Amaltal Corp Ltd v Maruha Corp, above n 9, at [46] and [55].
19 At [69]-[70].
20 Stephen Todd “Deliberate Falsehoods” in Stephen Todd (ed) The Law of Torts in New Zealand
(7th ed, Thompson Reuters, Wellington, 2016) 811 at [15.2.02(1)].
21 Andrew Tettenborn “Deceit” in Michael Jones (ed) Clerk & Lindsell on Torts (22nd ed, Sweet & Maxwell, London, 2018) 1297 at [18-09].
[50] In this case, Mr Luxford’s relevant statements to Mr Peck and his father, upon which Mr Peck says he relied, were all based on future action. They all involve statements of intention as to how the lawnmowing business would operate in future if Peck were to enter into the contract. The statements were premised upon Peck entering into the contract with Grasshopper.
[51] However, such statements may involve representations as to the existence of a present intention, and that is a matter of fact.22 Edwin Peel accurately encapsulates the position:23
… A person who promises to do something may simply be making a statement as to his future conduct; if so, he does not misrepresent a fact merely because he fails to do what he said he would do. But he may also be making a statement of his present intention; if so, he does misrepresent a fact if, when he made the statement, he had no such intention. In Edgington v Fitzmaurice the directors of a company procured a loan of money to their company by representing that the money would be used to improve the company’s buildings and to expand its business. In fact the directors intended to use the money to pay off the company’s existing debts. They were held liable to the lender in deceit …
(Citations omitted)
[52] Similarly, Hugh Beale, in Chitty on Contracts: Volume 1 General Principles, notes that a statement of intention “may itself be a misrepresentation if the maker does not in fact … have the intention stated”.24
[53] The difficulty for Mr Peck is that there is no evidence in this case that Mr Luxford intended to do something else at the time of the meeting or that he was reckless as to the truth of the representations, and that he was misrepresenting his state of mind.
[54]Rule 5.20(2) of the District Court Rules provides that:
(2)If a party alleges a state of mind of a person, that party must give particulars of the facts relied on in alleging that state of mind.
22 Todd, above n 20, at [15.2.02(1)]; Tettenborn, above n 21, at [18-09].
23 Edwin Peel Treitel — The Law of Contract (14th ed, Sweet & Maxwell, London, 2015) at [9-014].
24 HG Beale “Misrepresentation” in HG Beale (ed) Chitty on Contracts: Volume I General Principles
(32nd ed, Sweet & Maxwell, London, 2015) 643 at [7—006].
[55] Where, as in this case, there is an allegation of fraudulent intent or recklessness as to the truth of representations, the party pleading is required to give particulars of the facts relied on in alleging that state of mind. As is said in McGechan on Procedure:25
As a serious allegation, fraud or dishonesty must be alleged with care and particularity. A pleading may not contain any allegation of fraud in the absence of reasonably credible material that, as it stands, establishes a prima facie case of fraud – that is, material of such a character which would lead to the conclusion that serious allegations could properly be based upon it. Fraud cannot be left to be inferred from the facts – fraudulent conduct must be distinctly alleged and as distinctly proved …
[56] There is a detailed and helpful discussion in Ng v Harkness Law Ltd, where Associate Judge Bell, after referring to rr 5.17(2) and 5.26 of the High Court Rules,26 stated as follows:27
[41] Where a cause of action involves fraud, dishonesty or other reprehensible conduct as one of the matters to be proved, plaintiffs are required to make sure that they have a proper basis for alleging fraud, to plead it clearly and to give adequate particulars. The Court of Appeal stated the standard approach in Schmidt v Pepper New Zealand (Custodians) Ltd:
Allegations of fraud or dishonesty are very serious. They must be pleaded with care and particularity. As the authors of Bullen & Leake & Jacobs Precedents of Pleadings emphasise, counsel must not draft any originating process or pleading containing any allegation of fraud unless they have reasonably credible material which, as it stands, establishes a prima facie case of fraud – that is, material of such a character which would lead to the conclusion that serious allegations could properly be based upon it. Fraud cannot be left to be inferred from the facts – fraudulent conduct must be distinctly alleged and as distinctly proved. General allegations, however strong the words may appear to be, are insufficient to amount to a proper allegation of fraud.
[42] In a different context (a proceeding to set aside a judgment on the grounds that it was fraudulently obtained), the Supreme Court has taken a similar position on allegations of fraud, saying that “[t]he plaintiff’s claim of fraud must be one that is fully and precisely pleaded and particularised and of sufficient apparent cogency that it should go to trial.” It also indicated that the adequacy and cogency of the pleadings could be tested by a strike-out application under r 15.1 of the High Court Rules:
So where a defendant in a proceeding involving the fraud exception applies to strike it out, the plaintiff is required to discharge the onus
25 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR5.26.08(1)].
26 These are materially identical to the relevant rules in the District Court Rules 2014.
27 Ng v Harkness Law Ltd [2014] NZHC 850.
of showing it has a case with an evidential foundation amounting to a prima facie case of fraud.
[43] Lord Millett set out the pleading requirements more fully in Three Rivers District Council v Bank of England (No 3):
It is well established that fraud or dishonesty (and the same must go for the present tort) must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake, 7th ed (1952), p 644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney General for Victoria
[1901] AC 196; Armitage v Nurse [1998] Ch 241, 256. This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.
It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means "dishonestly" or "fraudulently", it may not be enough to say "wilfully" or "recklessly". Such language is equivocal…
The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.
In Davy v Garrett 7 Ch D 473, 489 Thesiger LJ in a well known and frequently cited passage stated: "In the present case facts are alleged from which fraud might be inferred, but they are consistent with innocence. They were innocent acts in themselves, and it is not to be presumed that they were done with a fraudulent intent." This is a clear statement of the second of the two principles to which I have referred.
In Armitage v Nurse [1998] Ch 241 the plaintiff needed to prove that trustees had been guilty of fraudulent breach of trust. She pleaded that they had acted "in reckless and wilful breach of trust". This was equivocal. It did not make it clear that what was alleged was a dishonest breach of trust. But this was not fatal. If the particulars had not been consistent with honesty, it would not have mattered. Indeed, leave to amend would almost certainly have been given as a matter of
course, for such an amendment would have been a technical one; it would merely have clarified the pleading without allowing new material to be introduced. But the Court of Appeal struck out the allegation because the facts pleaded in support were consistent with honest incompetence: if proved, they would have supported a finding of negligence, even of gross negligence, but not of fraud. Amending the pleadings by substituting an unequivocal allegation of dishonesty without giving further particulars would not have cured the defect. The defendants would still not have known why they were charged with dishonesty rather than with honest incompetence.
It is not, therefore, correct to say that if there is no specific allegation of dishonesty it is not open to the court to make a finding of dishonesty if the facts pleaded are consistent with honesty. If the particulars of dishonesty are insufficient, the defect cannot be cured by an unequivocal allegation of dishonesty. Such an allegation is effectively an unparticularised allegation of fraud.
[44] It follows that a plaintiff must be able to show a proper case, that is, a prima facie case, for alleging fraud or dishonesty at the time of filing the pleading. A plaintiff cannot get by in the hope that something might turn up in discovery or on cross-examination.
(Citations omitted)
[57] I note that in this case I was informed that all relevant discovery was complete but for Grasshopper’s provision of details of receipt of payment from various entities (in relation to the allegation of short payment by Grasshopper).
[58] Mr McCutcheon submits that the available evidence does establish such a prima facie case. He refers to the following evidence:
(a)Mr Peck in his affidavit said that they had seen little to no effort on the part of Grasshopper to advertise. The Court was informed that, in answers to interrogatories, Mr Luxford accepted that there had been no aggressive advertising.
(b)In relation to the representation that Grasshopper would advertise aggressively to grow the business, Mr Luxford’s response to interrogatories was that there had been no suitable rounds to purchase.
(c)In relation to the alleged misrepresentation that Grasshopper and Peck would work together in a good faith manner, Mr Peck deposed that from the early days of the contract, Grasshopper paid them late, that
Grasshopper had been secretly mowing sites in breach of the contract, and that Mr Luxford had not worked with them co-operatively.
[59] From those matters, Mr McCutcheon submits that an inference can be drawn that the representations made by Mr Luxford at the meeting were false, and that he knew the representations were false or he was reckless as to their truth.
[60]However, as is noted in Clerk & Lindsell on Torts:28
… Thus a promisor generally represents by implication that he has at the moment of making the promise the intention of fulfilling the obligations that he is undertaking; and if it can be shown that no such intention existed in his mind at that moment, he is guilty of a misrepresentation. Nevertheless, this principle cannot be taken too far. The mere fact that the intention which was represented to exist was not eventually carried into effect is little or no evidence of the original non-existence of the intention …
(Citations omitted)
[61] That is the position in this case. There is simply no clear evidence or any evidence at all of fraud or dishonesty on the part of Mr Luxford, or anything to objectively infer such intention by Mr Luxford on behalf of Grasshopper at the time he made the alleged misrepresentations. There is nothing to indicate that Mr Luxford knew the representations to be untrue, or that he was reckless as to their truth.
[62] Judge Harrison was correct that Mr Peck’s claim, as pleaded, disclosed no reasonably arguable cause of action. It also follows from the above discussion that even if Mr Peck were to amend his pleading, there is not a sufficient evidential basis to support the proposed amendments. Judge Harrison was therefore correct to strike out the claim rather than permitting amendment to the pleadings.
[63] The foregoing is sufficient to dispose of the appeal. However, I briefly address two further matters. The first is the matter of reliance as it relates to the $30,000 payment.
28 Tettenborn, above n 21, at [18-12].
[64] As noted above, in his notice of appeal, Mr Peck seeks reinstatement of his claims but now limited to $30,000. In other words, he seeks damages based on the agreement he reached with his parents to repay them when he was able to do so.
[65] However, it was Jaslin, as the assignee of the contract, that paid Peck $30,000, not Mr Peck.
[66] But, Mr McCutcheon says that Mr Peck advanced $30,000 to Jaslin which then paid Peck. Even accepting that is so, the advance by Mr Peck was in 2014. Mr Peck’s evidence is that by that date, he was aware that the representations he says Mr Luxford made were (he says) not true. It is therefore questionable as to whether the advance Mr Peck made to Jaslin was in reliance on the representations made by Mr Luxford.
[67] A party is not capable of being misled or induced into action by representations or conduct that the party knows to be false. The authors of the Laws of Contract in New Zealand, referring to Smith v Chadwick state:29
Knowledge of the untruth of a representations is a complete bar to relief, since the plaintiff cannot assert that he or she has been misled by the statement, even if the misstatement was made fraudulently … If knowledge of the truth is obtained at any time before the contract is made, the representee cannot rely on the statement as a misrepresentation.
[68] This principle may well have application in this case, but a determination on the issue is unnecessary having regard to my conclusion on the main issue.
[69] The second matter relates to the application of s 35(1)(b) of the CCLA which provides that a party who has been induced to enter a contract by a misrepresentation is not entitled to damages for deceit.30 Judge Harrison determined that Mr Peck, together with his father, was representing the interests of Peck at the discussion leading to the contract, and because Peck would not have been entitled to damages from
29 Matthew Barber “Misrepresentation” in Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) 365 at [11.2.4(c)].
30 The Contract and Commercial Law Act 2017 is the correct legislation to apply because sch 1, cl 4 of that Act states: “Subpart 3 of Part 2 of Part 2 applies to any contract made on or after 1 April 1980.”
Grasshopper for deceit, Mr Peck would similarly be unable to bring a personal claim in deceit.31
[70] Mr Peck’s position is that he was representing his own interests at the meeting and so s 35(1)(b) of the CCLA does not prevent him from bringing a claim in deceit. There was evidence that entitled the Court to conclude that Mr Peck was not representing his own interests. Mr Peck deposes:
(a)That his parents purchased the business for him through Peck;
(b)Ownership of the business would transfer when Mr Peck could afford to repay his parents;
(c)That he was the main worker or ride-on mower for Peck when it owned the lawnmowing business;
(d)He was involved in negotiations on behalf of Peck relating to Hawkes Bay work in August 2011 and entered into agreements to purchase equipment on behalf of Peck; and
(e)Around this time, Mr Peck was “mowing for Peck”.
[71] All of the above evidence is consistent with both Mr Peck and his father representing the interests of Peck when the representations were allegedly made. However, bearing in mind that this was a strike out application, I am not certain that it could confidently be said that the position is so clear cut that the cause of action fails in this respect. But having regard to my decision on the main issue, this does not assist Mr Peck.
[72] The Judge’s comments on s 50 of the Limitation Act were obiter and it is not necessary for me to decide whether Mr Peck’s claim is an ancillary claim.
31 GT & SJ Peck Ltd v Grasshopper Lawnmowing Services Ltd, above n 1, at [41]-[42].
Result
[73]The appeal is dismissed.
Costs
[74] My preliminary view is that costs should be awarded in favour of Grasshopper against Mr Peck on a 2B basis with disbursements to be fixed by the Registrar. I encourage the parties to agree a joint memorandum, to be filed within 15 working days of this judgment. If costs cannot be agreed, Grasshopper should file and serve a memorandum within five working days of the date for the joint memorandum, and Mr Peck should file and serve his memorandum within a further five working days.
[75]Memoranda should not exceed four pages.
Gordon J
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