Rondova v When Routine Bites Hard Limited
[2013] NZHC 267
•20 February 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-1486 [2013] NZHC 267
BETWEEN VALENTJNA RONDOVA Appellant
ANDWHEN ROUTINE BITES HARD LIMITED
Respondent
Hearing: 15 August 2012
Counsel: N Campbell for the Appellant
L J Turner for the Respondent
Judgment: 20 February 2013
JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 20 February 2013 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
……………………………………
Counsel:
Mr N Campbell, Barrister, Auckland
Mr L J Turner, Barrister, AucklandInstructing Solicitors:
Mr M J Robinson and Ms C Anderson (for the Appellant), Turner Hopkins, Solicitors, Takapuna
Chris Wilson (for the Respondent), Herne Bay Law, Solicitors, Auckland
RONDOVA V WHEN ROUTINE BITES HARD LIMITED HC AK CIV-2012-404-1486 [20 February 2013]
[1] This appeal concerns an agreement for sale and purchase of land between the appellant as vendor and the respondent as purchaser. I will in general refer to the parties as the vendor and the purchaser.
[2] The District Court Judge held that there had been a contractual misrepresentation by the vendor and that this misrepresentation entitled the purchaser to cancel the agreement pursuant to s 7 of the Contractual Remedies Act
1979 (the Act) and recover its deposit.1 The misrepresentation related to a stack of
fibrolite sheets on the land. Before the contract was made the vendor stated that there was no asbestos in the fibrolite. The fibrolite in fact was approximately three to five percent asbestos.
The issues
[3] The vendor does not challenge the finding that there was a misrepresentation. The vendor does challenge the findings that the purchaser was entitled to cancel and to recover the deposit. There are four issues in respect of the District Court
judgment for the purchaser:
Issue 1: Did the vendor know that the purchaser was aware of the representation?
The representation was made by the vendor, through a real estate agent, to Mr Aaron Dawson. After the representation had been made Mr Dawson became the shareholder and director of a company which became the purchaser. The essential issue of fact in this regard is whether, before the contract for sale and purchase was made, the vendor or her agent knew that Mr Dawson had passed on to the purchaser the
representation about asbestos.
1 When Routine Bites Hard Ltd v Valentjna Woodcock DC Auckland CIV-2009-044-237, 23 February
2012.
Issue 2: Was the purchaser induced by the misrepresentation to enter into the agreement for sale and purchase?
Issue 3: Did the misrepresentation substantially increase the burden of the
purchaser under the agreement?
Issue 4: Could the purchaser cancel without first making time of the
essence?
[4] The vendor also appeals against dismissal of her counterclaim. The purchaser was plaintiff in the District Court. There was a counterclaim for damages on the grounds that the vendor had properly cancelled the agreement following the purchaser’s failure to settle and the land had been resold at a loss.
Conclusion in summary
[5] I am satisfied that the appeal should be allowed. The essence of my conclusions are as follows:
(a) Issue 1: Did the vendor know that the purchaser was aware of the representation?
The Judge’s conclusion was correct. As a matter of law the purchaser was entitled to rely on the representation, even though it was made to Mr Dawson, provided the vendor, or her agent, knew that Mr Dawson had passed the representation about the asbestos on to the purchaser and knew that before the vendor accepted the tender. The evidence establishes the necessary facts.
(b)Issue 2: Was the purchaser induced by the misrepresentation to enter into the agreement for sale and purchase?
I am satisfied that the evidence did not support the Judge’s conclusion
that the purchaser was induced by the misrepresentation. The
purchaser, through Mr Dawson, knew or assumed that the asbestos did in fact contain asbestos. Mr Dawson enquired about the stack of fibrolite sheets not to find out whether the sheets contained asbestos but to find out what was going to be done with the sheets. Mr Dawson’s own evidence that he was induced by the representation cannot be given much weight and it is contrary to evidence indicating that the misrepresentation about asbestos was not an inducement.
(c) Issue 3: Did the misrepresentation substantially increase the burden of the purchaser under the agreement?
I am also satisfied that the Judge was in error in her conclusion that the misrepresentation substantially increased the purchaser’s burden. The presence of asbestos in the fibrolite sheets was in the end of no consequence because the fibrolite sheets, which remained the property of the vendor, were removed from the land and the District Council certified that this had been done appropriately with no remaining adverse consequences. There was no evidence of diminished value. There was no evidence of risk to health.
(d)Issue 4: Could the purchaser cancel without first making time of the essence?
In Mana Property Trustee Ltd v James Developments Ltd2 the Supreme Court held that, if a party wishes to cancel a contract for non-compliance with an essential term of the contract, that party must issue a settlement notice making time of the essence in respect of the essential term. The principles discussed in that case also apply when a party wishes to cancel on the grounds that a misrepresentation has substantially altered the benefit or the burden of the contract for the party wishing to cancel.
(e) The vendor’s counterclaim.
These conclusions mean that the purchaser’s notice of cancellation was ineffective. The vendor’s notice of cancellation was effective and the vendor is entitled to damages as sought.
The Contractual Remedies Act 1979
[6] The relevant provisions of the Contractual Remedies Act are as follows:
6 Damages for misrepresentation
(1) If a party to a contract has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made to him by or on behalf of another party to that contract—
(a) He shall be entitled to damages from that other party in the same manner and to the same extent as if the representation were a term of the contract that has been broken; and
(b) He shall not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, be entitled to damages from that other party for deceit or negligence in respect of that misrepresentation.
…
7 Cancellation of contract
(1) Except as otherwise expressly provided in this Act, this section shall have effect in place of the rules of the common law and of equity governing the circumstances in which a party to a contract may rescind it, or treat it as discharged, for misrepresentation or repudiation or breach.
(2) Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.
(3) Subject to this Act, but without prejudice to subsection (2) of this section, a party to a contract may cancel it if—
(a) He has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to that contract; or
(b) A term in the contract is broken by another party to that contract; or
…
(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,—
(a) The parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the term is essential to him; or
(b) The effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—
(i) Substantially to reduce the benefit of the contract to the cancelling party; or
(ii) Substantially to increase the burden of the cancelling party under the contract; or
(iii) In relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.
(5) A party shall not be entitled to cancel the contract if, with full knowledge of the repudiation or misrepresentation or breach, he has affirmed the contract.
…
The facts
[7] The vendor owned land in three titles in Pouto on the north head of the Kaipara Harbour. She had acquired the land under the will of her husband, Mr Brian Woodcock, who died in 2003. In 2008 the vendor offered the land for sale by tender. Tenders were invited for one, two, or all three titles. These may be described as parcel A, parcel B and parcel C.
[8] On 13 March3 Mr Dawson was told that the land was for sale. He was told this by relatives of Brian Woodcock who were friends of Mr Dawson. Mr Dawson had been visiting the Pouto area most of his life, staying with relatives of Brian Woodcock. He had memories of spending many holidays in the area and visiting Brian Woodcock’s property during his childhood. He contacted the agent who sent him the tender documents.
[9] Mr Dawson was aware that there was a pile of fibrolite sheets on parcel A. It appeared to him that the fibrolite may have been a grade known as ‘Super 6’. He said he knew this because he had been a builder and that if it was Super 6 it would more likely than not contain asbestos.
[10] On 1 April Mr Dawson phoned the vendor’s real estate agent, Mr Peter Marsh, and asked about the sheets of fibrolite. The only contemporaneous written record of the enquiry is Mr Marsh’s report in an email the same day to Mr George Engeler. Mr Engeler was the vendor’s friend and was assisting her in the sale. Mr Marsh said to Mr Engeler:
One point that has arisen today is the pile of asbestos sheeting up near the road and what is likely to be done about it. My response has been that we have not discussed it and they should consider this when submitting their documents. Have you any idea if the sheeting actually contains asbestos?
[11] Mr Engeler replied to Mr Marsh on behalf of the vendor. He said:
There is definitely no asbestos in the sheets. The Kaipara District Council did 3 tests whether there is any Asbestos present. The reply was each time negative. The sheets are Farberlight [sic] and not Asbestos.
[12] The vendor said that her response through Mr Engeler was based on what her late husband had told her. As earlier recorded, the vendor does not challenge the Judge’s finding that this was a misrepresentation. Mr Marsh forwarded Mr Engeler’s response to Mr Dawson on the evening of 1 April.
[13] On 3 April, the final day for tenders, Mr Dawson became a shareholder and director of a shelf company acquired from his solicitor. This company, with a change of name, became the purchaser. A tender was submitted that day by the company for parcels A and C at a total purchase price of $1,500,000. The tender document was signed by Mr Dawson. The tender records that he signed as a director of the tendering company and his name is typed under the signature. Two cheques were provided for the deposit of $150,000. One of these was Mr Dawson’s personal cheque and the initials and name “A G Dawson” are printed on the cheque. The terms of sale, stipulated by the vendor, are attached to the tender document. The backing sheet of the terms records, in handwriting, that the purchaser is “Aaron Dawson – When Routine Bites Hard Limited”.
[14] The purchaser submitted the tender without having inspected the properties and without obtaining a title search, valuation or Land Information Memorandum report (LIM). Mr Dawson had not been on the vendor’s land since 2003, although he had been to Pouto on holiday since then.
[15] The vendor accepted the tender on 6 April. The settlement date was 6
October.
[16] In about June Mr Dawson arranged for a sample of fibrolite to be tested. This came from a Pouto property owned by another member of the Woodcock family and came from the same source as the fibrolite on the vendor’s land. Mr Dawson said he had the test done because he wanted to know whether or not there was asbestos in the fibrolite on the vendor’s property. The test confirmed to Mr Dawson that the fibrolite contained asbestos. Mr Dawson did not contact the vendor or her agent about this, or take any other relevant steps, at that time. He said that he did not do anything because he understood that asbestos in bulk material like fibrolite was not hazardous.
[17] In May the Northland Regional Council took a sample of the fibrolite from the vendor’s property. The Council subsequently told the vendor that it believed the fibrolite contained asbestos and asked for it to be removed. It appears that the first request from the Council to the vendor was on 21 August. In a letter dated 3
September the Council said, amongst other things, that the sheets should be removed
and disposed of “by an accredited handler”.
[18] The vendor took issue with the Council’s proposition that “an accredited handler” had to do the work. In a letter dated 3 September the vendor referred the Council officer, Mr Tony Dwane, to regulations she had found which she noted as follows:
Legal requirements
Although a certificate of competence for work involving asbestos is no longer required for removing asbestos-cement products (provided power tools are not used and the asbestos cement sheet is not friable), the work must be done in accordance with the Health and Safety in Employment (Asbestos) Regulations 1998.
[19] Mr Dwane responded as follows:
With respect to the removal and handling of the asbestos I contacted Department of Labour and they state that a certified asbestos removalist must be used if the product is in any way friable, damaged or broken. As a safety precaution I have suggested or recommended that it is appropriate that you use a certified (accredited or registered – I may have used incorrect terminology in the past) removalist. If you … choose not to that is your decision but please be aware there are Health and Safety obligations and implications for you. This material is a hazardous substance when the fibres are ingested into the body through the airways and has been known to cause chronic illness and needs to be handled with care, as [a] minimum it should be incapsulated (doubled wrapped in plastic) prior to removal.
[20] The vendor obtained a quote from a local company, Harrison Contracting Ltd, to remove the pile of fibrolite and also to remove fibrolite sheeting that had been used to clad a shed on parcel A. On 12 September the vendor told Mr Dwane that she had engaged Harrison Contracting. On 15 September Mr Dwane spoke to the principal of Harrison Contracting. Harrison Contracting was not a company certified by the Labour Department to handle and dispose of asbestos. There is no evidence of any concern raised following this by the Council with the vendor in respect of Harrison Contracting’s qualifications. Harrison Contracting started removing the fibrolite sheeting on 19 September 2008. The Council observed and photographed the work.
[21] Mr Andrew McGillivray is a member of the Woodcock family and a friend of Mr Dawson. Mr Dawson was told by Mr McGillivray that Harrison Contracting was removing the fibrolite. Mr McGillivray also told Mr Dawson that the vendor’s husband some years earlier had crushed a large amount of “asbestos sheeting” into a driveway on parcel A. This prompted the purchaser to give notice cancelling the agreement.
[22] Evidence that Brian Woodcock had crushed “asbestos sheeeting” into the driveway was given by Mr McGillivray and Mr Mark Woodcock. Mark Woodcock is another member of the extended Woodcock family and also a friend of Mr Dawson. This evidence was not accepted by the Judge. There has been no cross- appeal by the purchaser against this finding, or any other finding. The Judge said:
[22] Mr [Mark] Woodcock has previously been trespassed from the Property. As well, the [vendor] has been successful in proceedings against Mr Woodcock in the Disputes Tribunal. Mr McGillivray has also had an unsuccessful business venture with the [vendor’s] late husband. It was plain from the evidence that there was antagonism between [the vendor] and other members of the Woodcock family. … I am not satisfied to the requisite standard on the evidence of Mr Woodcock and Mr McGillivray that asbestos was indeed present on the Property in the form alleged.
[23] The purchaser’s notice of cancellation was in a letter dated 2 October. That was four days before the settlement date stipulated in the agreement. The notice alleged a number of misrepresentations and breaches of contract. All of these were said to entitle the purchaser to cancel. The purchaser did not, before the notice was issued, give notice making time of the essence for the vendor to comply with the representations and remedy the breaches referred to. The various grounds for cancellation are noted below when outlining the District Court judgment.
[24] Harrison Contracting completed its work on 3 October, three days before the contractual settlement date. 101.44 tonnes of fibrolite sheeting was removed. The total cost was just under $40,000, although a small portion of this may have related to some work in addition to removal of the sheets of fibrolite. Some pieces of fibrolite remained. The vendor and Mr Engeler removed these by hand. They estimated that they removed approximately 100 kilos, and then a further 10 kilos or so of small fragments which the Council stipulated should be removed as the final clean up.
[25] By letter dated 13 November the Council confirmed to the vendor that the fibrolite had been removed and disposed of appropriately.4 The subject heading to the letter (following a file number reference) is “Asbestos Removal”. The relevant content is:
With reference to the asbestos on your property at Pouto, I confirm that the sheeting containing asbestos has been removed and disposed of appropriately. The site now appears to be clear of any material that may contain asbestos.
Thank you for your cooperation and effort in removing the sheeting from your property.
4 In the District Court judgment, at [41], there is reference to an email to this effect dated 17
November. The letter in evidence is dated 13 November. Nothing turns on this difference in the date.
[26] On 26 November the Council added a notation to the LIM for the property. This is under the heading “Licences/Environmental Health”. The relevant part of the notation is:
Asbestos found stored on the property. Letter on file from Harrison Contracting Limited confirming the removal and disposal of asbestos to Redvale land fill. … Confirmation of removal attached.
[27] The vendor did not accept that the purchaser was entitled to cancel the agreement. On 8 October the vendor served a settlement notice. When the purchaser did not settle the appellant gave notice, dated 11 November, cancelling the agreement and forfeiting the deposit.
[28] Parcel A was resold at auction on 10 December for $725,000. Parcels B and C were sold together pursuant to an agreement made in June 2009, after the purchaser commenced this proceeding. The purchaser of parcels B and C was Mr Engeler, who by then was the vendor’s de facto partner. The price stipulated for parcel C was $480,000. The total for parcels A and C therefore was $1,205,000.
The District Court judgment
[29] In the District Court the purchaser contended that it was entitled to cancel the agreement because of a number of misrepresentations, breaches of contractual terms and repudiation. The District Court judgment on the various contentions is discussed under the following headings, with the central contention relating to asbestos dealt with last.
Seawall and jetty
[30] The purchaser contended that there was a misrepresentation in respect of a seawall and jetty and, separately, a breach of contract in that regard. The misrepresentation was said to be that a seawall and jetty, which Mr Dawson said he had seen when inspecting the property prior to purchase, were permitted structures, but they were not. The alleged breach of contract was that the structures were features of the property to be transferred to the purchaser, but were not available for
transfer. The Judge rejected these claims. The claim that Mr Dawson had inspected the property prior to purchase and confirmed the presence of the retaining wall and jetty was not borne out by Mr Dawson’s own evidence. The Judge also held that any remedial work relating to the seawall, if it was not a permitted structure, would not have provided grounds for cancellation in any event because this would have been adequately met by a reduction in the purchase price to cover the cost of removal of the retaining blocks.
Cladding on a shed
[31] There had been a shed on Parcel A clad in fibrolite sheeting. In its cancellation notice the purchaser claimed that this had been seen when Mr Dawson inspected the property prior to purchase but, as the Judge found, there had been no inspection. In addition to the purchaser’s contention that there was a misrepresentation that there was no asbestos in this cladding (discussed below) the purchaser claimed there was a misrepresentation that the cladding on the shed was a permitted part of the shed (as complying cladding) when it was not. The purchaser also claimed that the shed, as a fixture, was to be transferred with its cladding on settlement, but the cladding was removed. The Judge made no finding as to whether there had been a misrepresentation or breach of the agreement, as alleged. She disposed of these arguments by finding that recladding of the shed could have been dealt with by a reduction of the purchase price and did not provide grounds for cancellation.
Repudiation: Sale as a going concern
[32] There was a contention that the vendor repudiated the contract “by insisting that the property be sold as a going concern”. The Judge made no finding on this. As earlier noted there was no cross-appeal by the purchaser.
Misrepresentation: Asbestos
[33] The purchaser’s contention was that the vendor had represented that there
was no asbestos anywhere on Parcel A. Mr Dawson gave evidence to that effect.
The Judge did not accept Mr Dawson’s evidence. She expressly held that the representation by the vendor, through Mr Marsh, was limited to the pile of fibrolite. In this context the Judge also made the finding, earlier recorded, that it had not been established that the vendor’s husband had crushed at least three truck loads of fibrolite sheeting into the driveway.5
[34] The Judge next considered the question whether there was a misrepresentation in respect of the absence of asbestos in the fibrolite sheets in the pile and concluded that there was. She then addressed the issues identified at the beginning of this judgment as issues 1, 2 and 3. Issue 4 was not an issue raised in the District Court. The Judge’s conclusions on issues 1, 2 and 3 are recorded under the following sub-headings.
Issue 1: Did the vendor know that the purchaser was aware of the representation?
[35] The Judge noted the evidence earlier recorded: the tender document was signed by Mr Dawson; he used a personal cheque in part payment of the deposit; and the purchaser was recorded as “Aaron Dawson, When Routine Bites Hard Limited”. The Judge noted evidence from Mr Marsh that he did not immediately connect Mr Dawson with the tenderer. Mr Marsh’s evidence was as follows:
Mr Dawson advised he would be submitting a tender and this was received prior to tender closing time of 4:00 pm 3rd April 2008. Subsequently this tender became the successful tender. I did not immediately associate that party with the previous enquirer [about the sheets of fibrolite] because the tender was in the name of a company which had tendered its deposit along with the tender following the course of these things.
[36] The Judge said:
[16] … I find that the [vendor] via her agent was well aware at the time she countersigned the tender document on 6 April 2008 that it was Mr Dawson through his company, who was purchasing the Property. Further, it can be inferred that Mr Marsh knew that the representation made by him to Mr Dawson would be relied upon by the plaintiff.
5 See above at [22].
[17] I do not accept that this is a situation of an undisclosed principal. Instead, as is not uncommon, Mr Dawson had used another entity to complete the purchase following discussion with his solicitor. In these circumstances Mr Dawson continued in his role as sole director and shareholder of the plaintiff, to rely upon the representation made.
Issue 2: Was the purchaser induced by the misrepresentation to enter into the agreement?
[37] The Judge’s discussion and conclusion on this issue was as follows:
[31] Prior to putting in the tender, Mr Dawson specifically enquired as to whether there was asbestos present in the fibrolite sheeting on the Property. It was his evidence that in reliance upon the answer received from Mr Marsh he proceeded with the tender.
[32] Mr Barter [for the vendor] submits that Mr Dawson was aware that the sheeting contained asbestos at the time he spoke to Mr Marsh and could not therefore have relied upon his answer. It was Mr Dawson’s evidence that he thought that the fibrolite may contain asbestos which is why he made the enquiry. I do not accept that Mr Dawson knew that asbestos was present in the sheeting. Instead I find that Mr Dawson made the enquiry because he was not sure.
[33] Further, I am satisfied on the evidence that Mr Dawson relied upon the representation when putting in the tender and further, that it was made by the defendant with the intention that it would be relied upon by him.
Issue 3: Did the misrepresentation substantially increase the burden of the purchaser under the agreement?
[38] The purchaser argued that it was entitled to cancel under both limbs of s 7(4) of the Act. The Judge declined to consider the purchaser’s argument under sub- section (4)(a) that the truth of representation was essential. This was because the argument was raised for the first time in closing submissions.
[39] There were four reasons for the Judge’s conclusion under sub-section (4)(b) that the effect of the misrepresentation was substantially to increase the burden of the purchaser under the contract. These four reasons are summarised under the following subheadings.
(1) Cost of removal to the purchaser
[40] Notwithstanding the fact that the sheets had been removed, the Judge considered that it was appropriate to consider the cost that the purchaser would have incurred if nothing had been done by the vendor. There was no evidence of cost for an accredited contractor. The only evidence of cost was the cost incurred by the vendor with Harrison Contracting. The Judge expressed her conclusion as follows:
[50] Putting to one side the [purchaser’s] subsequent actions, I consider that the plaintiff would have incurred considerable cost as a result of the misrepresentation in removing the asbestos using an accredited asbestos removalist.
[41] The Judge therefore, in effect, assessed the effect of the misrepresentation in this regard at the date the misrepresentation was made, or in any event on the hypothetical basis that the sheets were still on the property.
[42] The Judge concluded that an accredited or certified contractor should have been used and Harrison Contracting was not “an accredited asbestos removalist”. The issue as to whether an accredited contractor should have been used is discussed later. The Judge’s earlier findings of fact in this regard, and as to cost, were as follows:
[48] It was Council’s recommendation that an accredited firm be employed. It was inevitable that sheets would break or were broken already (for example the cladding from the shed discussed in paragraph 13 above) and fibrolite pieces would go into the ground requiring careful removal. While I was not assisted with any evidence as to the likely cost if an accredited firm had performed the work necessary to completely remove the asbestos I can infer that it would have been considerably more than that paid to Harrison Contracting.
(2) LIM report: Effect on value
[43] The Judge’s second reason for her conclusion on substantial effect was that the Council’s LIM report would have adversely affected the value of the property. Her discussion of evidence and her conclusion was as follows:
[49] No valuation evidence was produced as to the likely impact of the notice put on the LIM report. I accept Mr Turner’s submission [for the purchaser] that it is difficult to assess what impact that notice alone would have on the value of the Property. Evidence was given that the Property was subsequently sold in two blocks. The land comprised in Certificate of Title NZ194407 was immediately resold by auction on 10 December 2008 for
$725,000. On 30 June 2009 the balance of the land comprised in Certificate of Title NZ194408 was sold for $480,000. I infer in view of the prices
realised it had some negative impact recognising also the downturn in
property prices in this period.
[50] … As well there would have been a notice on the Certificate of Title recording that the Property had previously had asbestos stored on it. While difficult to quantify it could be expected that the notice would have adversely affected the ultimate value of the Property.
(3) Health risk
[44] The Judge’s findings under this heading were:
[51] The Property was to be purchased as a family home. It was against this background that Mr Dawson specifically made enquiry as to whether the sheeting contained asbestos. There are health risks in relation to asbestos particularly from inhaling asbestos fibres. This was known to Mr Dawson. Mr Faurie told the court that children because they are small and have low body weight are normally more susceptible to any contaminant including asbestos. He also stated that there are no safe lower levels for the presence of asbestos in the soil.
(4) The vendor’s removal work was unsatisfactory
[45] The Judge came to the conclusion that the first three factors, just noted, did substantially increase the burden for the purchaser. She then brought into account the work actually done by or on behalf of the vendor, found that this work was “unsatisfactory” and concluded from this, in effect, that the balance was not redressed in favour of the vendor; that a substantial increase of the burden for the purchaser remained.
[46] The central findings in this regard were as follows:
[53] … [The vendor] chose to ignore the Council’s recommendation to employ an accredited removalist and instead engaged a local contractor to do the work at the lowest quoted price.
[54] Mr Faurie6 described the work which a competent and trained operator could be expected to do in clearing asbestos sheeting from a site. It was apparent from Mr Faurie’s evidence that the work undertaken by Harrison Contracting was inadequate and was not done in accordance with the New Zealand Guidelines for the Management and Removal of Asbestos. Further, Mr Faurie observed that it would not be in accordance with the New Zealand Guidelines for a contractor to leave lay people to pick up remaining fragments. If any prospective purchaser was to follow up on the letter from Harrison Contracting on the Council file these issues would become apparent and would likely be a deterrent to a sale or would further affect the sale price.
[47] The Judge also considered that it was important that “on the date of
settlement the property was still a contaminated site”. This was a reference to the
110 kilograms of small broken fragments that were removed by the vendor and Mr
Engeler after Harrison Contracting had removed the sheets.
Overall conclusion
[48] The Judge expressed her overall conclusion as follows:
[55] … In these circumstances I do not consider that it should be for the [purchaser] to have to assume the increased risk as to possible health issues, additional remedial work and loss of value of the Property occasioned by the [vendor’s] conduct.
[56] The facts of this case are quite unusual. After careful consideration however I am satisfied for the reasons set out above, that the misrepresentation as to the absence of asbestos in the fibrolite sheeting on the Property substantially increased the burden of the [purchaser] under the Contract. Accordingly the [purchaser] was entitled to cancel the contract under s 7(4)(b) of the Act.
Discussion: Issue 1: Did the vendor know that the purchaser was aware of the representation?
[49] Section 7(3)(a) of the Act provides that a party to a contract may cancel it if that party has been induced to enter into the contract “by a misrepresentation … made by or on behalf of another party to that contract”. The misrepresentation acknowledged to have been made in this case was made on behalf of the other party,
the vendor. But the misrepresentation, at the time it was made, was not made to the
6 Mr Faurie was called as an expert witness for the vendor. He has expertise in relation to contaminated soil and ground water, and remediation work in that regard. This includes management of one of “one of the largest soil-asbestos remediation projects in New Zealand”.
purchaser. The representee was Mr Dawson and, at that time, no other party was known to the vendor or her agent, Mr Marsh, as an intended recipient of the representation. The Judge held that, before the contract was made, the vendor, through Mr Marsh, knew that the purchaser would be relying on the representation. The first question is whether this would be sufficient in law to entitle the purchaser to seek relief.
[50] The common law on parties to a representation remains relevant under the Act. In Ware v Johnson7 Pritchard J held, in reliance on a passage in the fourth edition of Halsbury,8 that a representation made to one person with knowledge on the representor’s part that that person is merely the agent of an undisclosed principal for the purpose of receiving and transmitting the representation for the principal, is
effective as a representation made to the principal.9 Reference was also made to
Spencer Bower and Turner.10
[51] Halsbury describes three broad categories of representee:11
A representee in law includes: (1) any person to whom the representation was physically and directly made, or any principal or partner of such person; (2) any specific person, not coming within the description in head (1) above, but whom the representor, either actually or in contemplation of law, intended the representation to reach and influence; and (3) any individual member of the public, or of a class, who has acted upon a representation addressed to the public or the class.
[52] Mr Campbell put the argument for the vendor on the basis that the purchaser had to prove that the vendor knew that the person to whom the representation was made, Mr Dawson, was acting on behalf of a principal. The burden of proof was on the purchaser. But the parties who may be, or become, representees are not confined to principals of the person to whom the representation was directly made. This is
clear enough from the description of the second class of representee in the general
7 [1984] 2 NZLR 518 (HC).
8 Halsbury’s Laws of England (4th ed, 1980) vol 31 Misrepresentation, para 1038.
9 Above n 7, at 537.
10 Spencer Bower and Turner Actionable Misrepresentation (3rd ed, Butterworth, United Kingdom,
1974) p 186 [164].
11 Halsbury’s Laws of England (4th ed, reissue, 2003) vol 31 Misrepresentation, para 735. Footnotes omitted.
discussion in Halsbury cited above. The second class is discussed more fully in
Halsbury as follows:12
A second class of case arises where one person makes a representation to another person, either with an express direction or authority to repeat it to a third person, or with intent that it should come to the third person's notice and be acted upon by him. Such an intent is presumed in law on proof of the fact that the representor contemplated at the time that the person to whom the representation was made would pass it on to the third person for him to act upon, or subsequently, but before the third person acted upon it, knew that the person to whom it was made had in fact so passed it on to the third person for that purpose. In any such case the third person is a representee. The person to whom the representation was made may also be a representee, depending on all the circumstances of the individual case.
(emphasis added)
[53] The facts that had to be established by the purchaser in this case are those contained in the emphasised words. There was no evidence that would enable the purchaser to rely on any other circumstance outlined in this paragraph. If the emphasised words are interpreted literally, the purchaser in this case would have to establish that the vendor or Mr Marsh knew, before the purchaser presented the tender – before the third person acted upon it – that Mr Dawson had passed the representation on to the purchaser and had done so for the purchaser to act on it.
[54] The evidence does not establish those facts and the Judge did not make a finding to that effect. However, I understood Mr Campbell to acknowledge, in his oral submissions, that the time by which the vendor or Mr Marsh would have to have had the relevant knowledge was before the vendor accepted the tender. In my judgment that must be correct. Discussed in terms of the evidence in this case, it is clear that the vendor’s representation was passed on to Mr Dawson with the intention that Mr Dawson act on it, if he chose to, for the purpose of making an offer to buy the land. Acting on it for that purpose would have become apparent to the vendor if a tender had been submitted by Mr Dawson in his own name. At that point it remained within the vendor’s power either to give legal effect to the representation by accepting the tender, or avoid whatever legal consequences the representation might otherwise have had by declining to accept the tender. These alternative courses of action would be open with knowledge, actual or presumed in law, that the
tenderer was relying on the representation. If the same facts were established in relation to a tender from the respondent purchaser in this case, with the requisite knowledge on the part of the vendor before the tender was accepted, there is not in my judgment any principled basis for distinguishing the positions between Mr Dawson as the direct representee and the respondent purchaser.
[55] The Judge’s relevant factual conclusion was that, before the vendor countersigned the tender document, she knew, through Mr Marsh, that Mr Dawson was purchasing the property “through his company”. Mr Campbell submitted that there was no evidence to support this finding. He referred to evidence from Mr Marsh that he “did not immediately associate” the company that submitted the tender with Mr Dawson. Mr Campbell noted that Mr Marsh was not challenged on this evidence.
[56] The onus of proof on the primary point was on the purchaser. However, on an appeal, the onus is on the appellant to satisfy me that the Judge was in error. I accept the submissions of Mr Turner for the purchaser that there was sufficient evidence to justify the Judge’s conclusion. In summary:
(a) Mr Marsh’s statement, contained in his brief of evidence, needs to be read in its full context, which was as follows:
Mr Dawson advised he would be submitting a tender and this was received prior to tender closing time of 4:00 pm 3rd April 2008. Subsequently this tender became the successful tender. I did not immediately associate that party with the previous enquirer because the tender was in the name of a company which had tendered its deposit along with the tender following the course of these things.
Mr Turner explained that Mr Marsh was not cross-examined on the point relied on by Mr Campbell because of the opening sentence in this statement. That is understandable. The first sentence directly connects Mr Dawson, the representee, with the tender received from the respondent company.
(b)The tender document, the backing sheet to the terms of sale, and the cheque from Mr Dawson, made Mr Dawson’s direct connection with the tenderer quite clear.
(c) It appears that Mr Marsh may not have been asked when in fact he made the association between Mr Dawson and the tenderer company. However, the Judge inferred that it would have been a short time after receiving the tender and before the vendor accepted it. That inference was justified. In addition, a reasonably quick association in Mr Marsh’s mind between Mr Dawson and the tendering company is implicit in Mr Marsh’s own words. The timeframe for Mr Marsh to make the association was considerably shorter than the receipt and acceptance. The tender was received on 3 April. It was not countersigned by the vendor until 6 April.
[57] For these reasons I am satisfied that the appeal against this finding should be dismissed. It is nevertheless appropriate to add a comment on the separate reason of the Judge for her conclusion.13
[58] The Judge’s separate reason was that it was not a case of an undisclosed principal because it is “not uncommon” for people who enquire about properties subsequently to use “another entity to complete the purchase”. The fact that this does happen in practice, from time to time, cannot justify the conclusion the Judge reached that this was not a case of an undisclosed principal. The representor, directly or through an agent, must have the requisite knowledge of the existence of a principal. The reasons for the Judge’s conclusion would nullify the law relating to agency and undisclosed principals as well as the principles outlined above, from Halsbury, as to the identification of those who may rely on a representation.
Discussion: Issue 2: Was the purchaser induced by the representation to enter into the agreement?
[59] Mr Turner submitted that, if a purchaser of land made an enquiry about something on the land before the contract was made, this “would tend to confirm that the answer to the enquiry would be relied on in that person’s decision making process as to whether or not to make an offer”. The fact of such an enquiry is a piece of evidence which may support a conclusion that the answer – the representation – was an inducement. But if it is the only evidence it may not be enough. And, when put into the context of other relevant evidence, the reason for the enquiry may be different from what the mere fact of the enquiry might suggest.
[60] Mr Turner submitted, by reference to a statement by the Court of Appeal in Nalder & Biddle (Nelson) Ltd v C & F Fishing Ltd,14 that findings of fact by the trial Judge should not be reversed unless they are plainly wrong or not supported by any evidence. In reliance on the same passage, citing Nocton v Lord Ashburton,15 Mr Turner further submitted that this constraint on an appeal “is all the more apposite where the trial Judge has made a finding ‘… as to the state of mind of the witness’”. Mr Turner’s submission about a state of mind was directed to the Judge’s finding that Mr Dawson, and through him the purchaser, was induced by the representation.
[61] The approach of an appellate court on an appeal of this nature is not confined in the manner suggested by Mr Turner.16 In my judgment the observation in Nocton v Lord Ashburton regarding a finding as to a witness’s state of mind must be applied cautiously in a case such as the present. The only direct evidence as to Mr Dawson’s state of mind is his own evidence. In the present context – civil proceedings relating to an agreement for sale and purchase – I consider that his direct evidence needs to
be weighed with care against the available objective evidence. This approach finds some support from observations of the Court of Appeal as to the manner in which the essentiality of a representation should be assessed under the Act. In Narayan v
Arranmore Developments Ltd17 the Court of Appeal said:
14 CA145/05, 31 July 2006 at [88].
15 [1914] AC 932 (HL) at 957 per Viscount Haldane.
16 See Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103; [2008] 2 NZLR 141.17 [2011] NZCA 681; (2011) 13 NZCPR 123 at [46].
Adopting the approach to essentiality identified by the Supreme Court in Mana,18 we must ask whether Mr Narayan would more probably than not have declined to enter the agreement had the representation as to intention not been made. This question is to be answered by an objective appraisal which disregards what Mr Narayan may unilaterally have said.
[62] The Judge’s reasons for concluding that the purchaser was induced by the representation to enter into the contract were briefly stated. The principal reason is that it was Mr Dawson’s evidence that he proceeded with the tender in reliance on the answer received from Mr Marsh. The only other point of evidence discussed by the Judge concerned the question whether Mr Dawson was aware that the fibrolite did in fact contain asbestos.
[63] In my opinion the issue required more scrutiny than it was given. In the first place not much weight, if any, can be attached to Mr Dawson’s own evidence that the advice from Mr Marsh induced Mr Dawson, through the respondent company, to make the tender. It is a self-serving statement without any support from independent and contemporaneous evidence. There are, in addition, the adverse findings by the Judge as to Mr Dawson’s credibility; in particular the findings that there had been no inspection by Mr Dawson of the property, contrary to what had earlier been asserted, and that there had been no representation that there was no asbestos anywhere on the land.
[64] In relative terms there is a reasonably substantial body of evidence which in fact indicates that Mr Marsh’s report about an absence of asbestos did not induce Mr Dawson, through the company, to make the tender. This is discussed in the following paragraphs.
[65] The only contemporaneous record of the terms of Mr Dawson’s enquiry is the subsequent report about the enquiry from Mr Marsh to the vendor. What Mr Dawson was concerned to know was what was going to be done with the pile of sheeting. It is significant that Mr Marsh referred to this as the “pile of asbestos sheeting”. This description must have come from Mr Dawson. It is reasonably
likely from this that he knew or assumed it contained asbestos. The text of Mr
18 Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90; [2010] 3 NZLR 805 at
[24].
Marsh’s email makes clear that the point of Mr Dawson’s enquiry was to find out whether the sheets were going to be removed. There is what amounts to a secondary enquiry, almost in passing, as to whether the vendor had any idea as to whether the sheeting did in fact contain asbestos. This enquiry appears to be Mr Marsh’s enquiry; not that of Mr Dawson. The response of the vendor may have persuaded Mr Dawson not to stipulate, in the tender, that the pile of fibrolite should be removed. But that involves a different form of inducement and, having regard to the fact that the sheets were removed, it does not assist the purchaser.
[66] In my opinion Mr Dawson’s own evidence was not as clear as the Judge
indicated. Mr Dawson, in his brief of evidence, said:
5.We are aware of the state of the property at the time we put in our tender. We knew that the jetty was there together with a seawall approximately 25 metres long. There was also a shed near the driveway down to the house which had cladding on it. We understood that the property would be handed over on settlement with these features, which were all important to us. We assumed these features were all compliant with the Council.
6.I was aware that there were some sheets of material on the property and I thought that these might contain asbestos. I contacted the real estate agent who was handling the sale. He said he would check with the owner Valentyna [sic] Woodcock. He then came back to me both by telephone and email and advised that there was no asbestos.
7.On the understanding that the property would be available on settlement in the form we had inspected, and following the statements that there was no asbestos present, we put in a tender at
$1.5 million and provided a cheque for the deposit of $150,000. Our tender was accepted.
[67] There is a clear enough statement in paragraph 5 to the essential effect that the purchaser relied on Mr Dawson’s understanding about the jetty and seawall and the shed with cladding on it. He describes all of these matters as “important to us”. The statement in paragraph 6 about the sheets of fibrolite does not contain any express evidence that the answer was an inducement. The statement in paragraph 6 is consistent with Mr Marsh’s contemporaneous e-mail record of the terms of Mr Dawson’s enquiry. It is also consistent with my further interpretation of what Mr Marsh recorded at the time; that the primary concern was whether or not the sheets should be removed from the property. Paragraph 7 does not remove the ambiguity or equivocation in relation to the sheets of fibrolite.
[68] The absence of inducement is further indicated by the fact that, after the agreement was entered into, Mr Dawson had a test done on the fibrolite. I agree with Mr Campbell’s submission that the fact that Mr Dawson had this test done, reasonably soon after entering into the agreement, supports a conclusion that he did not attach much, if any, weight to the vendor’s representation; he thought it did contain asbestos, as had been indicated by his initial enquiry, and the answer from Mr Marsh did not persuade him that it did not contain asbestos.
[69] Absence of inducement is also shown by the fact that, when Mr Dawson got the test result indicating that the representation was wrong, he did nothing about it. Mr Turner submitted that no weight can be attached to the lack of action by Mr Dawson because Mr Dawson, it was submitted, was not aware until much later that he had a right of cancellation for misrepresentation. There is some evidence of a later discussion between Mr Dawson and his father-in-law about a right of cancellation. But I am not persuaded that the evidence as a whole supports the conclusion that Mr Dawson only became aware of a right of cancellation as a consequence of advice from his father-in-law. I am satisfied that, if the vendor’s statement about an absence of asbestos in the fibrolite had been important. Mr Dawson would have done something about this when he got the test result.
[70] These conclusions are reinforced by the reason why the cancellation notice was issued by the purchaser. The notice of cancellation was, as is common with many such notices, a catchall compendium of reasons for cancellation. But the notice was prompted by the advice to Mr Dawson, from the Woodcock family members who had fallen out with the vendor, that fibrolite containing asbestos had been crushed into the driveway, and by what was asserted to be removal of the seawall and the jetty. Paragraph 10 of Mr Dawson’s brief of evidence points fairly clearly to this. This is as follows:
The changes to the property [from removal of the seawall and jetty] were significant. We were also very concerned about purchasing a property which had asbestos on it. This is particularly the case given that the material appeared to have been broken up which to my understanding meant it was more likely to get into the air and so potentially into people’s lungs.
[71] Answers from Mr Dawson in cross-examination made clear that the fibrolite sheets were not material; that what was material was the information he had got about fibrolite crushed into the drive. There were the following answers to questions in cross-examination:19
A. It wasn’t until I learned of the asbestos being crushed into the
driveway that it really – I understood.
…
A. I – I did understand that it was not the bulk material that was hazardous [that is to say the sheeting] …
…
A. Well just, I just knew, again through whatever experiences I have been, you know, building, that it was the fibre from the material that was hazardous and not –
…
Q. So all of the things that you’ve said at any stage, that you’ve cancelled this because of the existence of these large sheets having been there is not correct is it? You knew that’s not correct?
A. I didn’t – it’s not specifically the large sheets, it was the fact that there was asbestos on the property when I had been told there wasn’t.
[72] Having regard to all of the evidence I am satisfied that, at the time the contract was entered into, it was not material to Mr Dawson whether the pile of fibrolite sheets contained asbestos. This is borne out by Mr Dawson’s own evidence that he understood that there was no risk from asbestos contained in sheets of fibrolite. His concern arose from the advice he got that fibrolite sheets had been crushed into the driveway. But on that point the evidence from his informants was not accepted by the Judge and there had been no representation from the vendor in that regard.
[73] This conclusion is sufficient to allow the appeal and reverse the judgment in favour of the purchaser. However, in case I am wrong on this point, I will consider the further issues. It is also appropriate to consider issue 4 because it concerns a
point of general relevance, arising from the Supreme Court’s decision in Mana
19 Notes of evidence pp 31-32.
Property Trustee Ltd v James Developments Ltd,20 but one which does not appear to have been considered in respect of contractual misrepresentation and cancellation on the grounds of substantiality under s 7(4)(b).
Discussion: Issue 3: Did the misrepresentation substantially increase the burden of the respondent under the agreement?
[74] In MacIndoe v Mainzeal Group Ltd Richardson J described the test of substantiality under s 7(4)(b) as follows:21
Substantiality in that statutory context is a matter of fact, degree and impression.
It has the same flavour as “significantly” and “considerably”. It is equally incapable of any kind of arithmetical analysis. One must stand back and, assessing the matter objectively, determine whether the effect of the breach will be, to take the most obvious provisions subparas (i) and (ii), substantially to reduce the benefit of the contract to Mainzeal or substantially to increase the burden on Mainzeal under the contract.
[75] The onus was on the purchaser to prove that the effect of the misrepresentation was substantial. The Judge found that the misrepresentation substantially increased the burden of the purchaser under the contract. Mr Campbell submitted that the matters relied on by the Judge might more properly be described as reducing the benefit to the purchaser, but in this case nothing turns on the point.
[76] In my respectful opinion the Judge was wrong in her conclusion. The essence of my reason for coming to the opposite conclusion can be stated succinctly against the preceding factual background and the outline of the Judge’s findings on this issue. There was no material alteration of the burden, or the benefit, because the fibrolite sheets had been removed and the Council had certified that all of this had been done properly and appropriately. The representation related solely to these sheets. There was no evidence of any remaining problem. The purchaser did not adduce any evidence of diminished value from the fact that there had been sheets of fibrolite on the property. Notwithstanding this summary I will, in deference to the
Judge’s analysis, record my reasons more fully. I do so under subheadings of the four main reasons for the Judge’s conclusion in favour of the purchaser.
(1) Costs of removal to the purchaser
[77] This was not a relevant consideration. There are several reasons. The sheets had in fact been removed by the vendor. The purchaser was never going to bear this cost. A notional assessment of the total cost at the date that the misrepresentation was relied on, by entering into the contract, is not the date for the assessment. The concern is with the effect of the misrepresentation and that is to be assessed, in the
circumstances of this case, at the date of settlement at the earliest.22 The effect of the
misrepresentation could be rectified by removing the fibrolite sheets, as actually happened, because the fibrolite sheets were not being transferred pursuant to the agreement for sale and purchase. They remained the property of the vendor.
[78] The Judge, under this heading, referred to the fact that Harrison Contracting was not an accredited or certified contractor. This is conveniently considered when dealing with the fourth reason for her conclusion.
(2) LIM report: Effect on value
[79] As the Judge observed, the purchaser provided no valuation evidence as to any adverse effect from the LIM notation.23 For this reason alone I am satisfied that this could not support a conclusion of increased burden (or diminished benefit which this would clearly be). The Judge inferred that the LIM report would have a negative effect on value from the fact that the combined resale prices for parcels A and C was less than the price in the agreement with the respondent purchaser. I do not agree.
That inference could not be drawn from the single fact that the price offered by the purchaser was different from the combined prices obtained at later dates and from two different subsequent purchasers. Direct evidence was needed to indicate that the difference in prices arose at least in part from the factor advanced by the purchaser, but there was nothing to that effect. There are some matters which could have been
taken into account indicating other influences, including the global financial crisis which occurred after the purchaser offered to buy parcels A and C for $1.5 million. The basic point is that the onus was on the purchaser and this onus was not met.
[80] The Judge also referred to a notice that “would have been on the certificate of title”. There does not appear to be any evidence that there was such a notice. In any event, the points just made about the absence of probative evidence on diminished value from the LIM also apply in this respect.
[81] There is a separate point. The Judge made no explicit assessment of the words in the LIM notation. It appears to be relatively neutral in its terms. In the absence of expert valuation evidence, there is a reasonable basis for concluding that this would be unlikely to have a substantial effect on value. It could very well persuade a prospective purchaser to investigate. But such investigation, in relation to the fibrolite sheets, would disclose the Council’s effective certification that the sheets had been removed appropriately without any remaining problem. And, as Mr Campbell submitted, there was fibrolite with asbestos elsewhere on the property in respect of which there had been no misrepresentation from the vendor. In consequence, if there was any negative impact on value from the LIM notice (or in respect of perceived health risks – the third reason) they were going to arise irrespective of the misrepresentation.
(3) Health risk
[82] The Judge’s observations under this heading as to the health risks from inhaling asbestos fibres are not in issue. But these, and other known risks in respect of asbestos in particular physical states (such as fibres), are not relevant unless there is sufficient evidence that there was asbestos of that nature and that it came from the fibrolite sheets in respect of which the misrepresentation was made. The evidence is absent. In expressing this conclusion I have taken account of the submissions on both sides relating to the evidence from the expert, Mr Faurie. In this context it is again of importance that the Council confirmed that all of the relevant material had been removed.
(4) The vendor’s removal work was unsatisfactory
[83] The Judge came to this conclusion because the vendor “chose to ignore the Council’s recommendation to employ an accredited” contractor and Mr Faurie’s evidence indicated that the Harrison Contracting work was not done in accordance with the New Zealand guidelines for the management and removal of asbestos.
[84] The fact that the vendor did not do as recommended by the Council does not appear to be relevant because, notwithstanding what was, in the end, simply a recommendation, did not prevent the Council from itself certifying that all of the offending material had been removed. The guidelines referred to by Mr Faurie are also not relevant to the question of substantial effect. So far as relevant to the facts of this case, those guidelines were relevant only to the health and safety of the employees of Harrison Contracting when they were doing the work. They are not related to the condition of the property.
[85] The condition of the property comes back to a matter that I consider critical– the Council was satisfied. As Mr Faurie also said in his evidence, these are matters, in the present context, which are supervised by a council.
Discussion: Issue 4: Could the purchaser cancel without first making time of the essence?
[86] In Mana Property Trustee Ltd v James Developments Ltd24 the Supreme Court held that, if a party wishes to cancel a contract for non-compliance with an essential term of the contract, it will be necessary for that party to issue a settlement notice, making time of the essence in respect of the essential term, unless there is an existing contractual provision to that effect or it is clear that the defaulting party will not be able to comply.
[87] The question in this case is whether the same general principle applies in respect of a misrepresentation which will have a substantial effect in terms of
s 7(4)(b). In Mana the Court said that the fact that the clause in question, clause
24 Above n 2.
18.3, was an essential term, and s 7(4)(a) therefore applied, did not of itself mean that a breach of clause 18.3 on the settlement date entitled the purchaser to cancel. The purchaser first had to give notice making time for compliance with clause 18.3 of the essence followed by further default by the vendor.
[88] The Court said:
[36] Section 7 of the Contractual Remedies Act is, as we have already remarked, a code governing cancellation. It permits cancellation when an essential term is breached but leaves it to the parties to choose the respects in which a term is essential to their bargain. In determining whether they have made this choice in relation to a requirement for timely performance on a specified date, the courts continue to be guided by the prior law. A failure to settle a land sale contract on the appointed settlement date is not normally a breach regarded as having a substantial consequence enabling cancellation under s 7(4)(b). It is the same when the term which has been breached is expressly or impliedly agreed to be an essential term, unless it can also be seen that the parties have expressly or impliedly agreed that the time of performance is essential to the cancelling party (or to both). In other words, the courts normally do not attribute to the parties to a land sale contract an agreement that time for performance of the settlement obligation is essential.
[37] Clause 18.3 did not specify any time for performance of the obligation to provide a title with a minimum area. That is to be found in the provisions of the contract concerned with settlement of the transaction. As events transpired, that was supposed to occur on 28 October, which became the settlement date, but time was not expressly or impliedly of the essence in relation to that date. ... It was therefore incumbent on James, if it wished to cancel the contract on the basis of the breach which occurred when Mana failed to settle, to issue a settlement notice, wait until its expiry and then give a cancellation notice. By that process it could demonstrate that the failure to settle in accordance with the notice was a repudiation.25 If James had resorted to this process and Mana had not supplied a compliant title by the expiry of the notice, time would have become essential and it could have cancelled for breach of cl 18.3 even if Mana was in all other respects ready, able and willing to settle and notwithstanding that the breach (of an essential term) had only minor consequences for James.
…
[39] ... An argument that there had been an anticipatory breach falling within subs (3)(c) likewise could not assist James because it was never clear that Mana would, on a date for settlement of which time was essential, be unable to supply a compliant title and thus would be in breach of cl 18.3 in a way which would give rise to a right of cancellation under subs (4). Such a breach, if it does not amount to a repudiation, can be the ground of cancellation only under subs (4).
25 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 (HL) at 946; Louinder v Leis (1982) 149 CLR 509 at 526. A failure to comply with a settlement notice or a notice making time of the essence has also been said to demonstrate that the breach now has substantial consequences in terms of s 7(4)(b): MacIndoe v Mainzeal Group Ltd [1991] 3 NZLR 273 (CA) at 280 per Cooke P.
[89] Mr Turner submitted that Mana applies only to cancellation for breach of an essential term. He pointed to an absence of authority for Mr Campbell’s submission that the Mana principles are equally applicable to a party wishing to cancel pursuant to subs (4)(b). Mr Turner submitted that the District Court Judge stated and applied the law correctly.
[90] On the last point, and as earlier noted, this issue was not raised in the District Court. In that regard I note that Mr Campbell was not acting for the purchaser in the District Court proceeding. I also note that no issue arises, or could reasonably arise, from the fact that the point is taken for the first time on appeal.
[91] In Narayan v Arranmore Developments Ltd the Court of Appeal held that the approach in Mana, dealing with the performance of a term which is essential under subs (4)(a), also applies to representations in respect of which truth is essential under subs (4)(a).26 The question therefore remains whether the principles applied in Mana extend to misrepresentations or breach of contract under subs (4)(b).
[92] In my judgment the general principles discussed in Mana must apply equally to the operation of subs (4)(b) in respect of misrepresentation and breach. The apparent absence of a previous decision on the specific point is not a principled basis for distinguishing Mana Property.
[93] My reasons are as follows:
(a) There is no difference in principle, relevant to the matters being considered, between a term in the contract and a representation. The purpose of the Contractual Remedies Act was to codify the law on cancellation of contracts and part of this involved the effective merging of representations and contractual terms in relation to contractual remedies. This is explicit in s 6 when dealing with damages. Section 7, dealing with cancellation, applies to misrepresentation as well as to breach of a term.
(b)If notice making time of the essence for compliance with a contractual term will normally be required, then such notice must normally be required in respect of a representation.
(c) Subsection (4)(a) is one of the two statutory grounds for cancellation.
Subsection (4)(b) is the other. The distinctions between paragraphs (a) and (b) do not point to any basis for excluding the requirement of a notice in one when it is required in the other.
(d)If there was a distinction as to the requirement for a notice this would be likely to result in an unsatisfactory state of uncertainty, and produce inconsistency, in an important area of the law. It is also an area of law which is applied, or needs to be considered, regularly in relation to contracts affecting a wide range of everyday activities. Agreements for sale and purchase of real estate are an example of one category of contract where rules of this sort need to be considered frequently.
[94] There will be misrepresentations which, by their nature, are not capable of being rectified at any time, whether on or following the contractual settlement date. In such cases, as indicated in Mana,27 a notice making time of the essence may not be required. But this is not such a case. The misrepresentation was capable of being rectified, consistently with the representation actually made and the terms of the contract as a whole, and without reducing the purchaser’s benefit under the contract
or increasing the purchaser’s burden, or in any way making the benefit or the burden different. This was possible because the solution was to remove the fibrolite sheets. If the purchaser wished to cancel because, contrary to the representation, there was asbestos in the sheets, the purchaser should have given notice requiring the sheets to be removed, with the time for compliance being reasonable. Such notice was never given. As a result the purported cancellation by the purchaser was ineffective. For this separate reason, in respect of a matter not put before the Judge, the appeal is allowed and the judgment in favour of the purchaser is set aside.
[95] Mr Campbell advanced an alternative argument. Given the conclusion already reached I will note this briefly. On the authority of Stine v Maiden28 Mr Campbell submitted that, if the purchaser was not required to give notice making time of the essence, the notice of cancellation given by the purchaser was nevertheless premature because the earliest date for the assessment of substantiality was the settlement date. In this case the purchaser cancelled before the settlement
date. By the settlement date Harrison Contracting had finished removing the pile of fibrolite. The fragments remaining, insignificant in terms of quantity compared with the sheets removed, could not have had a substantial effect on the benefit or burden of the contract for the purchaser.
[96] I agree with the submission. The pieces of fibrolite that remained to be picked up would, at best from the purchaser’s point of view, have justified compensation, just as the Judge found was the appropriate remedy in respect of the seawall and the cladding on the shed. In terms of substantiality, on the evidence in this case, I would in fact assess what was involved in removing the remaining pieces of fibrolite as being less substantial in terms of effect than what was required to remove the seawall.
The vendor’s counterclaim for damages
[97] The findings to this point mean that the vendor was entitled to issue a notice requiring the purchaser to settle and was further entitled to cancel the agreement when the purchaser did fail to settle in terms of that notice. These things happened. This in turn means that the vendor was entitled to retain the deposit and could recover as damages any proved loss.
[98] There was no challenge to the vendor’s approach to the calculation of loss, particularised in its counterclaim, or to the evidence in this regard. After allowing for the retained deposit and some other adjustments, and adding costs associated with the re-sales after the purchaser’s default, the damages claimed are $285,248 as at 30 June 2009. The vendor is entitled to judgment against the respondent
purchaser in that sum, together with interest on that sum at the Judicature Act rate applicable from time to time from 30 June 2009 down to the date of judgment.
Result
[99] The District Court judgment for the respondent is set aside.
[100] There is judgment for the appellant on the terms recorded at [98] above.
[101] The appellant is entitled to costs and disbursements on the appeal and in respect of the proceeding in the District Court. If the parties are unable to agree, a memorandum for the appellant should be filed and served within six weeks of the
date of this judgment, with a response for the respondent within a further four weeks.
Woodhouse J
2
4
1