Shabor Limited v Graham

[2017] NZHC 3146

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV 2017-419-000088 [2017] NZHC 3146

BETWEEN

SHABOR LIMITED

Plaintiff

AND

ROBERT GRAHAM First Defendant

AND

PINE RIDGE TRUSTEE COMPANY LIMITED

Second Defendant

AND

SUCCESS REALTY LIMITED Third Defendant

Hearing:	6 December 2017
Appearances:	K Quinn for the Plaintiff D O'Neill for the First and Second Defendants I Rosic for the Third Defendant
Judgment:	19 December 2017

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

19.12.17 at 11:30am, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

SHABOR LIMITED v SHABOR LIMITED v R GRAHAM, PINE RIDGE TRUSTEE COMPANY LTD AND SUCCESS REALTY LTD [2017] NZHC 3146 [19 December 2107]

Background

[1]      The plaintiff purchased a farm at Oparau, Waikato (the property) from the first and second defendants (vendors) pursuant to a sale and purchase agreement dated 11

February 2014.   The third defendant (Bayleys) acted as real estate agent for the vendors.

[2]      The plaintiff says it purchased the property in reliance on statements the vendors and Bayleys made to its directors that were not true.  It says therefore it paid considerably more for the property than it was worth.

[3]      The claim against the vendors was for breach of the Fair Trading Act 1986 (FTA), misrepresentation and mistake. The claim against Bayleys alleges a breach of the FTA.

[4]      The first and second defendants have applied for summary judgment. Bayleys has applied to strike out the plaintiff’s claim on the grounds that it discloses no reasonably arguable cause of action, and for summary judgment on the grounds that the claim cannot succeed.

Principles

[5]      A Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.1

[6]      A defendant must demonstrate that none of the plaintiff claims can succeed and that the defendants’ evidence cannot be contradicted.

[7]      A pleading may be struck out if it discloses no reasonably arguable cause of action.  The principles are well understood.   Causes of action are analysed on the

assumption that all facts pleaded in the statement of claim are true.

1 HCR 12.2(2).

The third defendant’s strike out application

[8]      It is Bayleys’ position that there is no dispute, that the farm was advertised as comfortably carrying 7,500 plus stock units with capacity for more, and that the plaintiffs were told the vendor did not use supplement feed at the farm.   These representations were made, Bayleys say, by the first and second defendant vendors and  were  carried  through  by Bayleys  in  advertisements,  a  property information memorandum and orally during the plaintiffs’ inspection of the farm on 7 April 2014.

[9]      Bayleys say:

(a)      It informed the plaintiff in a clear, express and written disclaimer that it was merely passing over information provided by the vendor and that it did not check that information or take any responsibility for its accuracy, and that purchasers should conduct their own investigations.

(b)The purchaser was content to proceed with the purchase relying on its own judgment; that it made no further enquiries of Bayleys about the farm or its stock carrying capacity, or consult a valuer or a farm consultant prior to purchase.

(c)      The vendors assert the purchaser expressly acknowledged, by contract, that they relied upon their own judgment and not upon any representations made by the vendor or Bayleys, apart from those expressly referred in the contract.  The purchaser did not require any warranty as to the farm’s capacity or supplement feed.

[10]     Evidence for Bayleys is provided by its agent Mr Gudsell.  He met the vendor on 18 December 2013 to inspect and discuss the marketing of the farm.  Mr Gudsell says he was told the farm had carried over 8,000 stock units in previous years but that overall the farm had a carrying capacity of 7,500 or more stock units.

[11]     Mr Gudsell and Ms Evans, also a Bayleys agent, met with the vendor on

30 January 2014 to sign up the agency agreement.   Mr Gudsell also completed a

property information sheet and took notes recording the information provided by the vendor.

[12]     One of the recorded items was “no supplement made” and that the vendor did not use any supplementary feed throughout winter.   He said stock numbers were discussed and Mr Gudsell noted the numbers as at 30 June 2013 provided by the vendor.

[13]     Marketing material was, he says, based on information obtained by the vendor. The draft marketing material stated that “the farm comfortably winters 7,500 plus stock units with capacity for more”.  That material was sent to the vendor for review and some amendments were made but no changes were made to the statement about the farm’s capacity.

[14]     Bayleys prepared a Property Information Memorandum (PIM) for distribution to prospective purchasers. Bayleys say it was prepared using the information provided by the vendor and sent to the vendor in draft form for review. Again, no changes were made to the statement as to the farm’s carrying capacity.   Bayleys say all the information in the PIM was prefaced with a “statement of passing over information” signed by the vendor which made it clear that Bayleys were merely passing over information provided by the vendor, that it did not check that information or take any responsibility for its accuracy, and that the purchasers should conduct their own investigations. The statement also noted:

We cannot guarantee its accuracy and reliability as we have not checked, audited, or reviewed the information and all intending purchasers are advised to conduct their own due diligence investigation into the same.

To the maximum extent permitted by law (Bayleys) does not accept any responsibility to any person for the accuracy of the information herein.

[15]     On 7 April 2014 the purchasers arranged to view the farm and arrived with their bank manager.  They met the vendor and had a discussion about the farm.  Mr Sharp of the purchaser deposes that the vendor told him he did not use supplement feed.

[16]     Mr Gudsell then drove the purchasers around the farm.  He says there is no dispute that during that viewing he repeated the statements that the farm wintered

7,500 plus stock units and that the vendor did not use supplement feed at the farm.

[17]     Later Ms Evans emailed the tender documents to Mr Sharp and advised that “prior to signing your tender you take any legal, technical, insurance or other advice that you feel is necessary”.   Also, attached to her email was a “Memorandum to Tenderers” confirming that the purchasers may amend the tender contract.

[18]     The tender contract was signed on 11 April 2014 and became unconditional on

17 April 2014 and settlement was completed 3 June 2014.

[19]     Bayleys are aware the purchasers alleged in late-May 2014 that they had suspicions about the farm’s carrying capacity; that the day before settlement they instructed their solicitors to write to the vendor’s solicitors claiming, inter alia, that they as  purchasers  had  relied  upon  Bayleys  representation  relating  to  the stock carrying capacity of the farm and had reason to question it. Bayleys said the letter was not sent to them. It was not aware of this correspondence until sometime in November

2016, some months prior to the proceeding being commenced.  Bayleys note by that proceeding the purchasers claim that the farm’s true carrying capacity is 5,500 stock units and that they overpaid $1.4m for it.

[20]     Ms Rosic counsel for Bayleys submits that case authority which applied at the time of this transaction generally held it was not possible to contract out of the FTA and consumer transactions as that would be contrary to the FTA’s consumer protection policy.   Counsel submits however that in commercial transactions involving substantial independently advised parties negotiating from positions of equality, the position is different.

[21]     Ms Rosic submits an analysis of the disclaimer and exclusion clauses is important for they will affect liability for misleading or deceptive conduct if they deprived the conduct of that quality or breached the causal connection between conduct and loss. Referring to the approach taken in Overton Holdings Ltd v APN NZ

Ltd2 counsel submits it was clear from that case the Courts will look at the disclaimer clause as well as the surrounding circumstances before determining whether that clause can be engaged to defeat a claim that a misrepresentation was made.

[22]     Counsel contends that approach is available also on a summary judgment application and notes that in the Guardian Property Management3  case Associate Judge Sargisson considered a non-reliance clause and held:

Although it is not possible to simply exclude the operation of Fair Trading Act

1986 by contract, I accept that there is merit in the submission and that there has been no reliance on the allegedly misleading or deceptive statement.  As discussed above, the terms of the contract of assignment make it clear that Bridgecorp does not in any way or manner rely on any representations or statements made by ANZ. The fact is, the parties have included provisions in the contract that allow and lead me to conclude that there has been no reliance on the settlement statement insofar as it amounts to a representation as to what is owing and its enforceability.  Further, this was an agreement entered into between sophisticated commercial parties, and there are no other factors which would make it unreasonable for the Court to enforce the terms of the non-reliance clauses of the contract.

[23]     Bayleys’ position is that it merely acted as a conduit and did no more than pass on instructions from its principal and therefore does not become responsible for anything misleading in that information passed on.   If there was any misleading conduct then that was of the principal, the vendors and not of Bayleys, the intermediary. As counsel acknowledges an agent who does not merely purport to pass on what they have been told but who passes it on inaccurately or in some way adopts it as their own or adds to it, then that person may engage in misleading conduct.

[24]     Bayleys’ position is that it did not make it appear to be providing information that Bayleys had first-hand knowledge of and says that a reasonable person would not likely have been misled or deceived by Bayleys’ conduct and that there was no conduct thereby which caused the purchaser’s loss.

[25]     It is the essence of Bayleys case that the claim against them cannot succeed because the purchasers acted in reliance on their own judgment and not upon any

2 [2014] NZHC 1966 and [2015] NZCA 526.

3 Guardian Property Management Ltd as trustee of 11 The Avenue Trust & as trustee of Whitney Park

Trust & Anor v Bridgecorp Ltd and Anor HC Auckland CIV 2005-404-3219, 26 January 2007.

representation made by Bayleys and that they knew Bayleys was merely passing over information and had disclaimed responsibility.

[26]     Bayleys say that the surrounding circumstances are not in dispute and claim that clause 27 of the tender contract was conclusive by its unambiguous provision that the vendor has not warranted the accuracy of any statement about the farm nor given any warranties other than those expressed in the tender contact and, importantly, because the purchaser acknowledged thereby that it did not rely on any representation made by the vendor or Bayleys.

[27]     Counsel notes the purchasers were experienced deer farmers and farm owners, and they inspected the farm and were provided with a comprehensive PIM, and they chose not to seek further information from Bayleys or require any additional inspections.   They chose not to engage a valuer or a farm consultant prior to the purchase despite having been told to conduct their own due diligence.

[28]     Counsel submits this was a significant commercial transaction; that clause 27 was not of a standard form, and it was a further term of sale.

[29]     Bayleys position is there was no suggestion it knew or suspected that the vendor’s statements as to the farm’s carrying capacity and use of supplement feed were untrue.   Rather and by their contract the purchasers expressly and unequivocally declared they relied on their own judgment and not upon representations.

[30]     Bayleys says the vendor now accepts that at the time of the listing it was he who told Bayleys about the stock unit carrying capacity and that there had been no supplements.  Therefore reference to that detail in the advertising material and in the PIM was of material the vendor had reviewed and approved and Bayleys’ agents had assumed and were entitled to assume the information given to them was authorised and correct. Also all of the information in the PIM clearly stated it was a “statement of passing over information”.

[31]     Counsel submits the purchasers have attempted to get around the disclaimer on page 2 of that ‘statement’ by claims that during the 7 April viewing Mr Gudsell was

knowledgeable and confident and did not say he would have to ask the vendor nor that that he was merely passing on information.

[32]     Bayleys’ case is that Mr Gudsell did not need to tell the purchasers that he was simply passing on information, that Bayleys had given that advice to them in writing before and at the viewing.  It was obvious, Bayleys say that the information passed over came from the vendor because Bayleys could not have had any personal or first- hand knowledge of those matters.

The first and second defendants’ summary judgment application

[33]     The first and second defendants owned the property.   It was a 982-hectare sheep and beef farm. They say the purchasers were experienced farmers.

[34]     The property was listed in mid to late March 2014.  The marketing campaign featured advertisements in a number of newspapers and magazines.   Those advertisements stated “the property comfortably winters 7,500 stock units with capacity for more”.

[35]     The first and second defendants stand by that figure and say it is supported by evidence proffered by Bayleys.   In that regard reference is made to the affidavit evidence of Mr Gudsell, on behalf of Bayleys wherein he deposed:

[8]       In  my  experience,  the  stock  unit  system  is  commonly  used  for measuring and estimating how many stock units can be fed and carried on a farm during winter.  This is when pasture growth is slowest, and when stock will not have lambed or calved so only require “maintenance” feed.   The carrying capacity is calculated on 30 June each year.  Cattle, sheep and deer are each given differing stock – unit values, the basic measure being the ewe equivalent.  However an assessment of a farm’s carrying capacity generally also takes into account soil, rainfall, soil fertility, stock control on the farm and other factors.

…

[12]      We also discussed the stock that Mr Graham had on the Property and the Property’s carrying capacity in terms of stock units. Annexed and marked “SJG4” is a true copy of the notes that I took at the meeting recording the information given to me by Mr Graham. The note records details concerning the useable or effective areas of the farm, contours and the stock numbers as at 30 June 2013, provided to me by Mr Graham.  Mr Graham confirmed at

this  meeting,  what  he  had  advised  me  previously,  that  the  property comfortably wintered (or had a carrying capacity of) 7,500 plus stock units.

[36]     The defendant vendors claim:

(a)       Clause 27 provides a comprehensive limitation liability.  It states:

27.0     Limitations of liability

The vendor does not warrant:

27.1     The accuracy of any matter, fact or statement in any report or other information on the property prepared or provided by the Vendor’s or its Managers or Agents (including information contained in Schedules to this Agreement), any advertising of the sale of the property or any statement made except in relation to any specific warranty given in this agreement or;

27.2     …

27.3     The Purchaser shall be deemed to have purchased the property acting solely in reliance on the Purchasers’ own judgment and upon its own inspection of the property and all other information regarding the property, and not in reliance upon any representative or warranty made by the Vendor, the Vendor’s Agent, or Managers other than as expressly set out in this Agreement.

(b)      The agreement did not contain any reference to stock carrying capacity.

[37]     On 11 April 2014 the defendant vendors accepted the plaintiff’s tender by signing the tender contract.

[38]     On 2 June 2014 the plaintiff’s solicitors wrote to the defendants’ solicitors stating they had reason to query the carrying capacity as it had been represented.

[39]     On 3 June 2014 the sale of the farm was settled for the full purchase price.

[40]     Mr O’Neill notes that pleaded causes of action focus on whether the defendants made representations concerning the farm’s carrying capacity in breach of s 14 of the Fair Trading Act 1986 and submits therefore that issues for the Court, concern whether clause 27 overrides/defeats claims of a false representation being made, or precludes the bringing of such a claim in any event, or the bringing of a claim based on material mistake.

[41]     The defendant vendors submit clause 27 overrides any representations which might have made by them or Bayleys to the plaintiff and that it is reasonable that clause be conclusive because it concerns the commercial transaction for the sale of a farm when the vendors and the purchasers were both commercially astute farmers and when both were represented by a solicitor at the time.

[42]     The vendor defendants deny any representations were misrepresentations or were misleading or deceptive.

[43]     Mr O’Neill submits this case ought to be viewed by reference to the High Court and Court of Appeal decisions in Overton4 which case was also about representations made in the course of negotiating a contract and of a contract concluded containing a clause similar to clause 27.

[44]     The Courts there noted that clause s 4(1) of the Contractual Remedies Act 1979 could only prevent a Court from investigating statements in the course of negotiating a contract where it was fair and reasonable for an exclusion provision to apply having regard to the circumstances of the case, the bargaining strength of the parties, and whether the parties were legally represented at the time.

[45]     There is nothing unfair submits Mr O’Neill in a modern approach for a contract to include terms preventing reference to any representation made outside of the written contract.

[46]     Mr O’Neill  submits  in  this  case there is  no  inequality in  respect  of  the bargaining strengths of the parties; that the purchaser’s directors were experienced farmers and were represented by lawyers at the time.

[47]     Counsel submits this case is about a commercial transaction involving parties who by their contract have effectively contracted out of the protected provisions of the FTA and that clause 27 can be invoked to avoid liability under s 14 of the Fair Trading Act 1986 which, in connection with sale of the land, or promotion of that sale,

prohibits the making of false or misleading representations.

4 Overton Holdings Ltd v APN NZ Ltd, [2014] NZHC 1966 and [2015] NZCA 526.

[48]     Mr O’Neill submits there is no reason for this Court not to follow the same path  as  to  the  Courts  in  Overton  in  respect  of  the  Fair Trading Act  1986  and Contractual Remedies Act 1979 causes of action.

[49]     Counsel refers to the decision of Crown Health Financing Agency v Napier Heights Holdings Ltd 5. Mr O’Neill notes the Court there had to deal with a summary judgment application and that the present clause 27 was similar to the clause used in that case being a purchaser judgment clause. The Court canvassed the applicability of s 4 of the Contractual Remedies Act 1979 and commented that a fair and reasonable assessment is different in a commercial context where an experienced commercial party enters into the contract, and held that it would be unfair and unreasonable to allow an experienced commercial party to avoid summary judgment.   The Court referred to the fact that the purchaser relied on an agreement which excluded liability for pre-contractual representation and did not request or undertake any formal due diligence that should have been undertaken.

[50]     Mr O’Neill submits that if this Court is to grant relief the purchasers would have to satisfy the Court they were influenced in the making of a mistake that was material and resulted in a substantially unequal exchange of values but only if the vendors were aware of the existence of the mistake i.e. regarding stock carrying capacity and non-use of supplements. Mr O’Neill notes the vendors did not know and deny that any mistake was made and it is Mr Graham’s evidence that the representations as to the stock unit figure were in his view correct.

[51]     Relief can be denied counsel submits where specific terms of the contract place responsibility on the purchaser to undertake its own due diligence and not to rely on representations made by the vendor. Therefore, the purchaser cannot rely on a mistake as the vendor had earlier provided for the assumption of risk and the burden of mistakes to the purchaser.

[52]     This case, Mr O’Neill submits is about a contract containing an express clause which limits the purchasers cause of action to those based on terms set out in the

contract rather than upon any representations or warranties made outside the contract.

5 CIV 2008-485-1787 [19 December 2008].

[53]     Mr O’Neill submits also that s 6 of the Contractual Mistakes Act 1977 does not assist the plaintiff.

Considerations

[54]     A summary judgment application cannot succeed if there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits and where ultimate determination requires a full hearing of the evidence.6

[55]     In short, the Court needs all the material that would assist in its determination of these applications. All that evidence may not necessarily be before the Court upon these applications but a Court may otherwise accept it would be.

[56]     It is the defendants’ case that there is no factual controversy. Mr Quinn for the plaintiff challenges that submission.   He notes by reference to the evidence of Mr Graham (in response to the purchasers’ solicitors letter of 2 June 2014 pre-settlement stating there was reason to question the represented carrying capacity), that Mr Graham’s solicitors stated that in the past he had carried at least 7,500 stock units on the farm but that “with the drought conditions, and a different fertiliser policy, our client has utilised over the last couple of years this has affected the carrying capacity”. His solicitor also stated that there was a wide variation as to how stock units were calculated and said that Mr Graham had advised the real estate agents the exact numbers of stock he had carried in the past and that the agent had prepared and presented the stock unit figures themselves.

[57]     Mr Quinn submits that in this manner the vendor was moving back from the representation of the 7,500 stock unit carrying capacity.

[58]     Mr Graham’s evidence has to be measured against Bayleys’ advertisement which noted that currently the farm comfortably wintered 7,500 plus stock units with

a capacity for more.

6 Westpac Banking Corp v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 at [61] and [62].

[59]     It is clear Mr Graham relies upon what he considers is the protection provided by clause 27.

[60]     Bayleys’ position is that it was the provider of information as a conduit for the vendor.   Its Agency Contract clause 7 warranties and acknowledgements provision records that the owner warrants to Bayleys that it has provided all material information pertaining to the property and that all information provided to Bayleys by or on behalf of the owner is accurate, complete and correct in all respects.

[61]     However the information sheet attached to that Agency Contract clearly noted

“no supplement made”.

[62]     On an attached page there is a reference to stock ‘units’ with the word ‘units’ being crossed out and the word ‘numbers’ used instead. The total stock numbers noted, amounted to 4,028. It appears that even by reference to the term ‘units’, stock numbers were significantly short of the 7,500 referred to in the advertising material.

[63]     In his affidavit Mr Graham accepts when listing the matter with Bayleys he agreed he stated that the property had traditionally carried 7,500 stock units and that he had stated he made no supplements on the property.

[64]     In summary therefore there appears to be a conflict of position between vendor and agent for by his evidence Mr Graham says he did feed out supplement while Mr Gudsell says he was told there was no supplement feed-out.  Mr Graham says he told Mr Gudsell that he did  not make  supplements, i.e. by implication he does not claim he

did  not  feed  out supplements.

[65]     There  appears  to  be  a  difference  between  Mr  Graham  and  Mr  Gudsell regarding what information was provided regarding stock numbers.  As Mr Quinn notes why would, as clearly he did, Mr Gudsell provide a detailed stock calculation if he had been given a stock unit number by the client and on that basis advertised it.

[66]     Also Mr Gudsell’s record notes “no supplement made”, whereas Mr Graham deposed he had used supplementary feed.

[67]     The Court agrees there is an element of uncertainty regarding those differences.

[68]     A careful analysis of the affidavit evidence of Mr Graham and Mr Gudsell indicates differences in each of their calculations of the number of stock that can be carried on the property.  It seems to the Court that it is unclear upon what basis the calculation of stock unit capacity was advertised.  In the beginning Mr Graham said he gave a stock unit figure which was that which was marketed.  Mr Gudsell deposes having been advised by Mr Graham that the property has carried over 8,000 stock units in previous years.  Mr Quinn asks why, Mr Gudsell having been provided with those figures, he should undertake a detailed stock calculation that was attached to the marketing material.

[69]     Mr Quinn submits the differences of recollection of Mr Graham and Mr Gudsell about what was said concerning stock numbers and the provision of supplement feed focusses upon an issue of considerable importance.

Conclusions

[70]     The issues for a Court concern whether a reasonable person in the position of the plaintiff could or could not have been misled regarding two elements of undoubtedly importance. A reasonable inference of the evidence and issues raised by this proceeding is that stock carrying capacity and whether or not supplements were needed has a significant bearing for commercial purposes.  Arguably it is not just a matter which a vendor or a sales agent can bypass with reference to exclusion clauses for the information is that which a vendor of a farming business can always expect to provide.

[71]     A large number of factors influence the stock carrying factor including the location and terrain of the property.  Prior details are important. Arguably a vendor’s obligations are not so simply discharged by contract terms enabling access to farming records when the farm vendor and the sales agent have undertaken their own calculations which appear quite different to each other.

[72]     For reasons identified earlier by reference to variations and the recollections of Mr Graham and Mr Gudsell it is arguable the Court cannot be satisfied that Bayleys was doing nothing more than just passing over information for Mr Graham.

[73]     Both vendor and agent rely upon clause 27 of the conditions of sale.  By that clause the plaintiffs expressly acknowledged that they relied on their own judgment. This, counsel for the defendants submits should signal the end of any opposition to the current applications. However, and as Mr Quinn submits issues arise regarding words and terms used by that clause. As counsel noted by its terms the vendor did not warrant anything.  Rather it is saying to the purchaser that there can be no reliance upon any representation or warranty made by or on behalf of the vendor. Yet by its very nature a purchaser of a farm must have access to and must rely on sales information provided because arguably they are without means to question it. It is arguable therefore that it was important information which had to be relied on.

[74]     This case is different from that reviewed by the Court decisions in Overton where the plaintiff’s case failed because the Court did not accept the defendant vendor was aware of earthquake – prone issues affecting the property sold.

[75]     In our present case the defendant vendor had full knowledge regarding the farm’s stock carrying capacity and whether or not supplements were required.

[76]     If there was an error, mistake or disregard of relevant detail contained in the advertising material and if either Mr Graham or Mr Gudsell was responsible for any error then that may have significance for a Court determining the viability or otherwise of the pleaded causes of action and whether in that context the defendants ought to assume responsibility notwithstanding claims of exclusion clauses or indemnity.

[77]     What is needed in the present case is for the Court to make a fair and reasonable assessment having regard to all the circumstances of the case to decide whether there is an actionable claim on behalf of the plaintiff.

[78]   In the Court’s view this cannot be done in this case upon summary judgment/strike out applications where it is claimed that a non-warranty clause should

prevent the use of information provided by the vendor and or through its agent for the very purpose of selling the farm.

Orders

[79]     The summary judgment/strike out applications are dismissed.

[80]     Costs will be determined upon application in due course.

Associate Judge Christiansen