Sipka Holdings Ltd v Merj Holdings Ltd
[2015] NZHC 1980
•20 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-000199 [2015] NZHC 1980
BETWEEN SIPKA HOLDINGS LIMITED
First Appellant
AND
ANG PROPERTY INVESTMENT LIMITED
Second Appellant
AND
MERJ HOLDINGS LIMITED Respondent
Hearing: 28 July 2015 Appearances:
B M Stainton for Appellants
SRG Judd & S Plummer for RespondentJudgment:
20 August 2015
RESERVED JUDGMENT OF WYLIE J
This judgment is delivered by Justice Wylie on 20 August 2015 at 3.00pm
pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:…………………………..
SIPKA HOLDINGS LIMITED & ANOR v MERJ HOLDINGS LIMITED [2015] NZHC 1980 [20 August 2015]
Introduction
[1] The appellants, Sipka Holdings Limited and ANG Property Investment Limited, appeal a decision of Judge Blackie given in the District Court at Papakura on 19 December 2014.1 The respondent, Merj Holdings Limited, cross appeals against Judge Blackie’s decision.
[2] Judge Blackie found that the respondent had made a misrepresentation in relation to the sale of a commercial property in Matamata, and that it had engaged in misleading and deceptive conduct. He declined the appellants’ claim for damages in the sum of $156,185.17, but awarded damages in the sum of $37,000.
[3] The appellants seek to overturn the Judge’s finding on damages. They seek damages in the sum of $120,684.07 which they say are the losses they incurred (net of GST). They also seek additional damages of $23,000, for a claimed loss of profit.
[4] The respondent seeks that the judgment should be set aside, or alternatively that the award of damages should be vacated.
Background
[5] As at May 2013 the respondent owned a commercial building situated in Matamata. It had owned the building for a number of years, and it was leased to the ANZ Bank. The bank had vacated, because of concerns it had over the structural integrity of the building in the event of an earthquake. The respondent nevertheless continued to receive rental from the bank. The lease of building to the ANZ was due to expire in October 2013.
[6] In June 2007 the Matamata-Piako District Council had written to the respondent. Pursuant to a new policy it had adopted, the Council was concerned that the respondent’s building might be prone to damage in the event of an earthquake and it required the respondent to obtain an engineering assessment and submit the
same to the Council by 30 June 2010.
1 Sipka Holdings Limited v Merj Holdings Limited DC Papakura CIV-2013-055-000557, 19
December 2014.
[7] As a result, the respondent obtained a report from structural engineers – CPG New Zealand Limited. CPG assessed the building on 15 July 2009, and sent a report to the respondent dated 12 August 2009 (the “first report”). It recorded that the assessment had been undertaken using the New Zealand Society for Earthquake Engineering’s initial evaluation procedures. Those procedures allowed the strength of a building to be determined as a percentage of the then applicable new building standard. The report recorded that guidelines and legislation in place at the time provided that a score of less than 33 per cent of the new building standard meant that a building should be considered earthquake prone. The assessment carried out by CPG concluded that the respondent’s building was not earthquake prone, because it had achieved a score of 43 per cent of the new building standard. The report noted that the then current legislation, and the Council’s policy, did not therefore require that any strengthening be undertaken on the building. It however concluded as follows:
“However the building does not achieve 67% NBS and it would be our recommendation…that the structure should be considered for strengthening…”
[8] The respondent made a copy of this report available to the Council as required.
[9] Although the building was not then for sale, in late May 2013 a Mr Sipka of Sipka Holdings Limited telephoned a Mr Burns of Merj Holdings Limited. Mr Sipka expressed an interest in the property. He asked Mr Burns if the Council had required any reports into the same. Mr Burns told Mr Sipka that there was a report recording that the building had achieved 43 per cent of the new building standard, and that that report had been filed with the Council. Mr Burns also referred Mr Sipka to the respondent’s real estate agent, a Mr Bell.
[10] On the same day Mr Sipka sent a text to Mr Burns indicating that he was prepared to offer $650,000 for the building.
[11] There was no immediate response from Mr Burns and Mr Sipka followed matters up with Mr Bell on the 6 June 2013. Mr Sipka advised Mr Bell that he was
interested in purchasing the property, because he wanted to fit it out as a restaurant for an Italian restaurant chain with which he was associated.
[12] On 14 June Mr Sipka sent an email to Mr Bell asking him to make available the structural report and the Council’s seismic evaluation. He advised that once he had received those documents, he would make an offer.
[13] It seems that this request was declined by Mr Bell.
[14] On 17 June 2013, Mr Bell, after discussions with Mr Sipka, prepared a draft sale and purchase agreement between the parties. It provided for a purchase price of
$650,000 plus GST (if any). It was conditional on the purchaser undertaking due diligence into, inter alia, the soundness and quality of the building, and any engineering aspects relating to the property and its potential development. The draft agreement was forwarded to Mr Sipka. Mr Sipka signed the agreement, and returned it to Mr Bell later that day. The agreement was then signed by the respondent.
[15] On 20 June 2013, Mr Sipka asked Mr Bell for any documents he had on file, including any structural reports, valuations and the like. Mr Bell replied and he sent Mr Sipka a copy of the first report. Mr Bell also advised Mr Sipka that he would be sent a letter from both the respondent and the ANZ bank giving him authority to access Council files in relation to the building.
[16] It seems that Mr Bell met with Mr Burns on 21 June 2013, and that Mr Bell asked Mr Burns if he had any other reports. Presumably Mr Burns replied in the negative because no further reports were provided to Mr Sipka.
[17] The due diligence period expired on 4 July 2013. By this date Mr Sipka had undertaken initial due diligence. After consulting with an engineer, Mr Sipka had prepared a report and he made a copy of it available to Mr Bell. The report noted that the building was vacant and that banks and Government tenants required that leased buildings were rated at over 67 per cent of the new building standard. The report concluded that the building would be hard to lease, unless it was structurally
upgraded to over 67 per cent of the new building standard and divided into several tenancies. Under the heading seismic rating, the report noted as follows:
The building was built in the 1950s with renovations ongoing. The current seismic rating is 43% NBS as per CPG report dated 12 August 2009… Council has accepted this report and the building is currently rated as non potential earthquake prone. However engineer recommendation to strengthen the building over 67% NBS.
Since 2009 there are some changes and if building have to be evaluated in details seismic rating can be decreased. We have instructed our engineer to give us some light on this issues, he visited the site last week but was still waiting for Property CD to arrive from Matamata council. After site visited his recommendation is to strengthen the building in any case. Most of the building from this era are build with concrete blocks but not properly reinforced and not filled with concrete. We have not obtained costs in relation to this work as yet.
[18] On 4 July 2013:
(a) Mr Sipka advised by email that Sipka Holdings Limited was prepared to proceed with the purchase, offering $600,000 conditional on obtaining another 10 days to complete due diligence, or alternatively offering $570,000 on an unconditional basis.
(b)In a further email, Mr Sipka indicated he was prepared to increase the offer on an unconditional basis to $580,000.
(c) Mr Bell advised that the respondent had decided not to accept any of the revised offers made by Mr Sipka, and that it would try and re-let the building.
[19] Five days later, on 10 July 2013, Mr Sipka contacted Mr Bell again. He continued to express interest in the property, but said that it was not worth over
$600,000 to him, and that he would not be interested in buying if the respondent had signed up a new tenant.
[20] Mr Bell relayed this email to the respondent, and on 11 July 2013 it responded through Mr Bell, by submitting a variation to the original agreement for Mr Sipka’s consideration. The variation had been prepared by the respondent’s solicitors.
[21] The variation revived the original agreement for sale and purchase. It recorded that due diligence had been satisfied, and that the land information memorandum had been approved. The contract was deemed unconditional, and the purchase price was reduced from $650,000 plus GST (if any) to $600,000 plus GST (if any). Relevantly, the variation contained the following clause – clause 19:
19.0 PURCHASE BASIS
For the avoidance of doubt the property is sold on an “as is where is” basis. The purchaser acknowledges and confirms that the vendor has supplied to the purchaser a copy of the seismic report for the premises by CPG dated 12 August 2009 pursuant to the requirement of the Matamata-Piako District Council dated 27 June 2007 under the Building Act 2004. The vendor does not give any warranties at all regarding the suitability, structural condition or fitness of the property for any purpose or use whatsoever.
This clause shall prevail over any contrary clause in the Agreement for Sale and
Purchase dated 20 June 2013 and has been inserted for the benefit of the vendor.
In furtherance of this provision the following clauses in the General Terms of Sale are amended or deleted:
Clause 5.2 (1) – The words “The purchaser is deemed to have accepted the vendors title”. Shall remain but the remainder of the clause is deleted.
Clause 5.2 (2) to clause 5.4 inclusive – deleted. Clause 6.1 deleted.
Clause 6.2 (2), (3), (5), (6) and (8) deleted. Clause 6.3 deleted.
Clause 6.4 (4) deleted. Clauses 7.0 and 8.0 deleted.
The general terms of sale which had formed part of the original agreement were annexed, incorporating the variations detailed in clause 19. Both Mr Sipka and Mr Burns stated in evidence that the first report was annexed to the variation as well.
[22] Mr Bell’s email attaching the variation advised Mr Sipka to discuss the
variation with this solicitor.
[23] The variation was accepted by Mr Sipka. There is nothing to suggest that he followed Mr Bell’s advice and consulted his solicitor. Rather the variation was signed by Mr Sipka on behalf of Sipka Holdings Limited and then by Mr and Mrs Burns on behalf of the respondent. The variation was dated 12 July 2013.
[24] Sipka Holdings Limited nominated ANG Property Investment Limited to complete the purchase. A deed of nomination was completed on 20 July 2013.
[25] The sale and purchase was settled on 1 August 2013. The transfer to ANG Investment Limited was registered on the same day.
[26] ANG Property Investment Limited in turn leased the building to a restaurateur. The lease provided that the tenant was to fit the premises out at its own cost. The lease also recorded the following:
Seismic rating: its landlord responsibility to provide to the tenant tenancy with seismic rating minimum over 34% NBS. The building has current seismic rating of
43% NBS as per CPG structural report dated 12 August 2009 and as per Council records. Its landlord responsibility to maintain current seismic level (43% NBS). In case landlord have to do any seismic upgrade tenant reserve the rights not to pay rent until upgrade is completed and recover financial loss damages up to 10,000 per month or to cancel this lease by giving one month’s written notice.
[27] ANG Property Investment Limited had to finalise the termination of the lease with the ANZ. In the course of its negotiations with Bell Gully as solicitors for the ANZ, it became apparent that the respondent had obtained a more detailed engineering evaluation into the building by CPG New Zealand Limited. The report detailing that evaluation was dated April 2012 (the “second report”). It indicated that the building was earthquake prone, and that it needed to be strengthened. It noted that the Matamata-Piako District Council required a minimum rating of 33 per cent of the new building standard. CPG recommended that the strengthening be carried out as soon as practicable to achieve a minimum of 67 per cent of the new building standard minimum, and preferably to full current code strength. The report referred to the earlier report prepared by CPG dated 12 August 2009, and noted that that report involved “coarse screening”, involving as few resources as reasonably possible to identify potentially earthquake prone buildings. It noted that the detailed engineering evaluation the subject of the April 2012 report was a more specific evaluation, on which a final decision could be made on whether or not the building was to be considered high risk. The report also recommended that a copy of the detailed engineering evaluation should be provided to the Matamata-Piako District Council.
[28] The respondent did not make a copy of the second report available to the
Council. It was not disclosed to Mr Sipka or Sipka Holdings Limited. Nor did the
respondent discuss the second report with its solicitors when they were preparing the variation agreement.
The proceedings
[29] The appellants’ notice of claim is dated 20 November 2013. It asserted that the respondent had represented that the building was not earthquake prone, that it had been assessed at 43 per cent of the new building standard, and that it did not require strengthening. It was asserted that the agreement for sale and purchase was entered into on the basis of this representation. It was alleged that the representation was false and misleading, as the respondent was at all material times in possession of the second report stating that the building was earthquake prone, that it was below 33 per cent of the new building standard, and that it required strengthening. It was asserted that the appellants purchased the property with the intention of renovating the same and leasing it out, that the renovations would cost significantly more than anticipated, and that the value of the building was significantly less than the purchase price paid. The Contractual Remedies Act 1979 was raised. So was the Fair Trading Act 1986. Damages of $191,300 were sought.
[30] The respondent in its notice of response asserted that the building had been sold on an “as is, where is” basis, and that all warranties and representations made or allegedly made by it were excluded. Further, it asserted that it did not make the representation alleged by the appellants. It denied that it was required to provide the second report to the appellants, and denied that the damages sought by the appellants were caused by any breach of the legal obligations owed by it.
The District Court’s decision
[31] Judge Blackie found that the respondent had not been upfront with the appellants, because it had failed to disclose the second report. Indeed, he considered that the respondent, as vendor, had endorsed the first report through clause 19 in the variation agreement.2 He noted that Mr Sipka had wanted an engineer to assess the building’s seismic strength, and that he had given the engineer a copy of the first
report. However the engineer required further time to carry out his own detailed
2 Sipka Holdings Ltd v Merj Holdings Ltd, above n 1, at [16].
evaluation. He noted that the respondent as vendor would not allow an extension of time for the completion of due diligence, and that therefore Sipka Holdings Limited could only rely on the first report when it entered into the unconditional variation agreement.3 He considered that, from Sipka Holdings’ perspective, the importance of the first report was that it confirmed that the building was not earthquake prone. Otherwise, it would have insisted on a detailed engineering evaluation, and costings,
because it needed that information to determine whether the property should be purchased, and at what cost.4
[32] The Judge considered that the provision of the first report gave confidence to Sipka Holdings to proceed with the purchase, at the price dictated by the vendor. He noted Sipka Holdings’ assertion that if it had been aware of the second report, it would not have agreed to the price.
[33] Judge Blackie referred to s 6 of the Contractual Remedies Act 1979. He also considered s 9 of the Fair Trading Act 1986.
[34] The Judge considered that the evidence was quite clear, and that at all material times, the respondent knew that it had in its possession the second report. He was satisfied that the respondent misrepresented the position because it left matters unsaid, and because of its failure to be honest and upfront when meeting Mr Sipka’s request for the recent seismic report. He was satisfied that this misrepresentation induced Sipka Holdings to enter into the agreement. He considered that it was clear that the building’s earthquake status was relevant and important to Sipka Holdings, and that it was induced by the respondent’s
representation to enter into the agreement and subsequent variation.5 He held that
the respondent could not rely on the fact that Sipka Holdings had time to undertake due diligence, and that it could not rely on the “as is, where is” clause contained in the variation agreement, because the only contracting out permitted under the Contractual Remedies Act is in relation to the substitution of remedies provision - s 5
of the Act.6 He rejected outright an assertion by the respondent that Sipka Holdings
3 At [17].
4 At [18].
5 At [63] and [65].
6 At [66] and [67].
was aware of the second report. He considered it extraordinary that the respondent sought to put the blame on Sipka Holdings, when at all time it had the report in its possession, and had made the conscious decision not to disclose it.7 The Judge went on to find that the respondent was in trade, and that it had also engaged in misleading and deceptive conduct under the Fair Trading Act.8
[35] The Judge then turned to damages. He noted that, at the hearing, the appellants were claiming $156,185.17, which was the sum they had spent in making the building fully earthquake compliant – that is taking it up to 100 per cent of the new building standard, as opposed to 43 per cent of the new building standard which is what Sipka Holdings thought was the position when it entered into the agreement for sale and purchase. The Judge referred the respondent’s assertion that there had been a break in the chain of causation, because the appellants had changed the use of the building. The Judge referred to the relevant policies put in place by the Matamata-Piako District Council, and concluded that the change in use in the building only triggered the need to strengthen the building by virtue of the fact that it was 33 per cent or below. He considered that the issue was - what loss was the respondent liable for, if any? The Judge referred to the evidence of the expert consultants for both parties. He referred to s 6(1)(a) of the Contractual Remedies Act, and concluded that the appellants had elected to proceed to repair the building to 100 per cent of the new building standard. He considered it appropriate to put the appellants as near as possible into the position they would have been in had the representation – 43 per cent of the new building standard - been true. On the basis of the evidence of a Mr Radley, who was the expert engineer called by the respondent, he awarded $37,000, which was Mr Radley’s estimate of the cost of increasing the building from below 33 per cent to 43 per cent of the new building standard. He considered that it was not appropriate to award the appellants the full cost to bring the building up to 100 per cent of the new building standard, and that were he to do
so, there would be betterment for the appellants.9
7 At [68].
8 At [69]-[71].
9 At [73]-[90].
Submissions
[36] I summarise first Mr Judd’s submissions given the respondent’s cross appeal challenges the Judge’s findings as to liability.
[37] Mr Judd submitted that the Judge made various “critical factual errors”, and in particular that he erred when he stated that the building was occupied by the ANZ as a tenant. He further said the Judge failed to refer to evidence from both expert witnesses to the effect that an assessment of the earthquake proneness of a building is not a question of fact, but rather a question of engineering opinion on which reasonable engineers could reasonably differ. He argued that as a result, there could not be an actionable misrepresentation. In addition he put it to me that the Judge erred in failing to give effect to cl 19 in the variation agreement, and that the District Court’s decision undermined freedom of contract and the doctrine of caveat emptor.
[38] Mr Judd argued that there was no causal link between the alleged misrepresentation and the damages claimed. He noted that the appellants had not claimed damages based on the price being too high, but only for their expenditure incurred in converting the building into a restaurant. He argued that the appellants would have spent the same amount of money on the renovation work which they chose to undertake, whatever the true earthquake rating of the building. He submitted that the expenditure incurred was not caused by any representation made by the respondent, but that it was work that the appellants were always intending to do. In the alternative, he argued that the Judge was entitled to award damages in the sum of $37,000, based upon the evidence before him. He argued that the Judge was entitled to prefer the evidence of the respondent’s expert, to that of the appellants’ expert.
[39] Mr Stainton for the appellants sought to uphold the Judge’s findings on liability. He submitted that it was a matter of fact that the two reports existed, and argued that the first report allowed consent to renovate without further strengthening, whereas the second report required strengthening work before renovation. He said that the Council’s policy only required strengthening if the building was less than 33 per cent of the new building standard, and that if the building had been 43 per cent of
the new building standard as represented, the use of the building could have been changed, without any need for further strengthening. He argued that the respondent had represented that the building was rated at 43 per cent of the new building standard, and that the Judge erred when he took into account the respondent’s engineer’s “bald estimate” of $37,000. He submitted that the minimum work required to get over the 33 per cent threshold turned out to be 100 per cent of the new building standard. He said that betterment cannot be a relevant consideration when the appellants had no choice but to strengthen to 100 per cent of the new building standard.
Analysis
Liability
[40] First I deal with the respondent’s submission that the Judge made “critical factual errors”.
[41] This assertion was an overstatement. In fact it was only asserted that the Judge made a factual error because he observed that the building was, in May 2013, occupied by the ANZ. At this stage the ANZ had vacated. It was still the lessee however, albeit that it was no longer in occupation. Nothing turns on the point and it was certainly not a critical factual error.
[42] I now turn to the crux of the argument for the respondent in relation to misrepresentation. It turns on s 6 of the Contractual Remedies Act. Relevantly that section provides 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
…
[43] As has been observed by the commentators, the section lays down a rule which is starkly simple - any misrepresentation inducing entry into a contract is redressable in damages as if it were a term of the contract.10
[44] The word “misrepresentation” used in s 6 is not defined in the Act. It is generally accepted that a representation must be of present or past fact, and contain no element of futurity.11 The expression of an opinion properly so called – that is a statement of a belief based on grounds incapable of actual proof - is not generally considered to be a representation of fact, and in the absence of fraud, its falsity will not afford a plaintiff relief.12
[45] In the present case, Mr Sipka asked Mr Burns whether the Council had required any reports in relation to the building. Mr Burns told Mr Sipka that there was a report recording that the building had achieved 43 per cent of the new building standard, and that that report had been filed with the Council.
[46] This statement was true insofar as it went, but it was only a half truth. Mr Burns knew that the second report had been obtained, that it was a more detailed and comprehensive report, that it advised that the building had been re-assessed at less than 33 per cent of the new building standard and that it concluded that the building needed strengthening. The existence of the second report was a matter of existing fact. Mr Burns, by his half truth, misrepresented the position.13 Silence as to the full truth rendered what was said untrue. A half truth is an untruth, and what was said by Mr Burns was at best a half truth.14
[47] Both the first and second reports expressed opinions, yet they were professional opinions made by appropriately qualified structural engineers after inspecting the building. They were more than statements of opinion based on
grounds incapable of actual proof. The opinions were professional assessments as to
10 J Burrows, J Finn and S Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington,
2012) at 374.
11 Ware v Johnston [1984] 2 NZLR 518 (HC) at 537.
12 Bisset v Wilkinson [1927] AC 177 (PC); McAlpine Snowline Limited v Wethey (1986) 2 NZCPR
388 (HC).
13 Wakelin v R H & E A Jackson Ltd (1984) 2 NZCPR 195 (HC); Heiber v Barfoot & Thompson
(1996) 7 TCLR 301(HC) at 306.
14 Thompson v Vincent [2001] 3 NZLR 355 (CA) at [70].
the state of the building and the extent to which it complied with the new building standard.
[48] Mr Burns implicitly represented that there was only one report. He also expressly represented that the building was at 43 per cent of the new building standard, as stated in the first report. In making that assertion Mr Burns was repeating the engineer’s professional assessment; he could not however honestly have held the opinion that that assessment remained correct, given his knowledge of the second report, and its contents. An opinion can be a misrepresentation of fact if it was not actually held, or if a reasonable person possessing the knowledge of the
representor could not honestly have held it.15
[49] Mr Judd’s argument that the second report was a private report is flawed. The respondent was in possession of it. Notwithstanding Mr Burns' reluctance to accept the obvious when he gave evidence, the second report in effect overtook the first report. The fact that the respondent obtained the second report in an attempt to assuage the ANZ’s concerns rather than to address a request from the Council is irrelevant. It should have made the second report available to both the Council and to Mr Sipka. It misrepresented the position by leading Mr Sipka to believe that the first report was the only relevant and recent report in its possession.
[50] Judge Blackie found that the misrepresentation induced Sipka Holdings Limited to enter into the agreement. There has been no challenge to that finding, and rightly so. Judge Blackie was clearly correct. Mr Sipka and Sipka Holdings relied on the first report in their dealings with the respondent. I note cl 19 in the variation agreement. It repeated the misrepresentation. Further, ANG Property Investment Limited relied on the first report in their lease with the restauranteurs. I noted the term in the lease agreement between ANG Investment Limited and the restauranteur at [26] above.
[51] In my judgment the respondent misrepresented the position and s 6 of the Contractual Remedies Act was engaged. The Judge was correct in his findings in this regard.
[52] For the same reasons, the respondent’s conduct was misleading and deceptive pursuant to s 9 of the Fair Trading Act. Judge Blackie’s decision that the respondent was “in trade” was not challenged. Nor could it be given the broad definition of the word “trade” in s 2 of the Act. As Chambers J noted in Gunton v Aviation Classics Ltd,16 people in trade should choose their words carefully, so that wrongful impressions are not conveyed. In the present case, the respondent, through Mr Burns, did not choose its words carefully. The respondent, through Mr Burns, led the appellants to believe that the only report in its possession was the first report.
The respondent cannot be heard to complain when the appellants allege, quite reasonably, that they were misled by the respondent.
[53] Further, I do not consider that the respondent is entitled to rely on the “as is, where is” clause – cl 19 of the variation agreement.
[54] Relevantly, s 4 of the Contractual Remedies Act provides as follows:
4 Statements during negotiations for a contract
(1) If a contract, or any other document, contains a provision purporting to preclude a court from inquiring into or determining the question—
(a) whether a statement, promise, or undertaking was made or given, either in words or by conduct, in connection with or in the course of negotiations leading to the making of the contract; or
(b) whether, if it was so made or given, it constituted a representation or a term of the contract; or
(c) whether, if it was a representation, it was relied on -
the court shall not, in any proceedings in relation to the contract, be precluded by that provision from inquiring into and determining any such question unless the court considers that it is fair and reasonable that the provision should be conclusive between the parties, having regard to all the circumstances of the case, including the subject matter and value of the transaction, the respective bargaining strengths of the parties, and the question whether any party was represented or advised by a solicitor at the time of the negotiations or at any other relevant time.
…
[55] Clause 19 in the variation agreement is, in effect, an “entire agreement” clause. It repeats the misrepresentation by referring only to the first report, but then goes on to say that the respondent has not given any warranties at all as to the structural condition of the building.
[56] Entire agreement clauses are not absolute or conclusive. As the Court of Appeal has noted, s 4(1) confers a wide judicial discretion to determine whether it is fair and reasonable that such provisions should be conclusive.17 The discretion falls to be exercised having regard to all the circumstances of the case. The section focuses particular attention on the subject matter and value of the transaction, the respective bargaining strengths of the parties and whether any party was represented or advised by a solicitor at the time of the negotiations or at any other relevant time. The section’s apparent purpose is to protect one party’s relative vulnerability from
another party’s power to impose an exemption from liability which is contrary to the factual reality or an existing legal obligation and is thus unreasonable and unfair. The section is a mechanism for striking balances, both individually between parties and conceptually between freedom of contract and unfair or unreasonable commercial conduct.18 It can cut across the doctrine of caveat emptor relied on by the respondent.
[57] In my judgment, it would not be fair or just to find that cl 19 in the variation agreement should be conclusive between the parties in this case. The subject matter of the variation agreement was land, and the price being paid was not insignificant. That should have engendered in each party a need for caution. At the outset the respective bargaining positions of the parties were equal. By the time the variation agreement was signed, however, the appellants were constrained by the fact that the true state of affairs had been misrepresented to them. They not fully informed. There was then a knowledge imbalance which affected the parties’ bargaining
positions.
17 PAE (New Zealand) Ltd v Brosnahan [2009] NZCA 611, (2010) 9 NZBLC 102,862 at [15]; and see Ellmers v Brown (1990) 1 NZ ConvC 190,568 (CA) at 190,571; Brownlee v Shotover Mining Ltd CA 187/87, 21 February 1992.
18 PAE (New Zealand) Ltd v Brosnahan, above n 17, at [15].
[58] There are other circumstances which are relevant and which in my judgment tip the balance in the present case:
(a) The variation was prepared by the respondent’s solicitors. It was presented to Mr Sipka and Sipka Holdings Limited. In cross examination Mr Burns accepted that it had been put Mr Sipka on a “take it or leave it” basis;
(b) The respondent failed to alert its solicitors to the second report;
(c) The respondent had been sent, via its agent, a copy of Mr Sipka’s due diligence report. It knew that Mr Sipka needed more time if he was to get his engineer to assess the building. Mr Sipka had been upfront with the respondent;
(d)The respondent denied Mr Sipka and Sipka Holdings more time. In effect it exploited Mr Sipka’s vulnerability when it knew that any further inspection would be likely to derail the agreement or at least result in a reduction of the purchase price;
(e) The variation agreement repeated the misrepresentation – namely that the only relevant report was the first report. The respondent knew that this was not the case. It knew that the appellants were proceeding on an erroneous basis;
(f) Mr Sipka and Sipka Holdings had no alternative but to rely on the respondent’s representation that the only report in existence was the first report;
(g)Without additional time, there is no other way in which Mr Sipka and Sipka Holdings could seek to protect their own position. Notwithstanding its engineer’s recommendation, the respondent did not provide a copy of the second report to the Council. The appellants could not therefore access the second report. Obtaining a land
information memorandum would not have disclosed it. The
appellants were dependant on the respondent’s honesty;
(h)Notwithstanding Mr Bell’s advice noted above at [22], there is nothing to suggest that Mr Sipka and Sipka Holdings had legal representation at the time the variation agreement was entered into.
[59] In my judgment, cl 19 is no more than an attempt by the respondent, which was in a dominant position, to protect itself from liability for its own dishonesty. It would be unconscionable to allow the respondent to hide behind the clause.
[60] Judge Blackie referred to s 5 of the Contractual Remedies Act in his decision.
[61] I do not consider that s 5 is relevant. It records that ss 10 to 11 of the Act have effect subject to any provision in a contract which expressly provides a remedy in respect of misrepresentation. Clause 19 in the variation agreement does not provide a remedy for the misrepresentation which was made. Rather it seeks to deny any remedy to Sipka Holdings at all.
[62] In my judgment, neither ss 4 or 5 of the Act are engaged, and s 6 applies.
[63] Turning to the Fair Trading Act, the variation agreement is dated 12 July
2013. At that time there was no specific provision prohibiting parties from contracting out of the Act.19 However s 9 is mandatory, and I do not consider that cl
19 in the variation agreement operates to exclude the provisions of the Act.20
[64] Accordingly I dismiss the respondent’s appeal against liability. In my
judgment Judge Blackie’s findings in this regard were correct.
19 Such provision has since been introduced, as from 17 June 2014, by s 8 of the Fair Trading
Amendment Act 2013.
20 Burrows, Finn and Todd, above n 10, at 270; and see Smythe v Bayleys Real Estate Ltd (1993) 5
TCLR 454 (HC) at 472.
Damages
[65] As noted above, clause 6 of the Contractual Remedies Act provides that a party who has been induced to enter into a contract by a misrepresentation, is entitled to damages from the 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. Thus a successful plaintiff can recover damages according to the contractual measure. Damages are awarded to put the injured party as nearly as may be in the position he or she would
have been in if the contract had been performed.21
[66] As noted above, Judge Blackie awarded the appellants $37,000. The Judge referred to the Matamata-Piako District Council’s policy. He considered that any change of use of the building only triggered the need to strengthen the building if it was 33 per cent or below of the new building standard, and that if it had been 43 per cent of the new building standard, then the policy would not have required the
building to be strengthened, notwithstanding a change of use.22 The Judge referred
to evidence given by Mr Radley, where he estimated that the cost of undertaking sufficient work to increase the percentage compliance with the new building standard from 33 to 43 per cent would have been approximately $20,000, plus
$17,000 for professional fees.23
[67] In my view the Judge erred in his approach to damages. [68] The Council’s policy reads as follows:
4.6 Interation Between The Earthquake Prone Building Policy And
Related Sections of the Building Act 2004
Where a building consent is received under section 112 for any alteration or addition to a building, section 115 for a change of use to a building or section 116 for a subdivision of a building that is included on the register of potential earthquake-
21 Stirling v Poulgrain [1980] 2 NZLR 402 (SC) at 402-403; Marlborough District Council v
Altimarloch Joint Ventures Ltd [2012] NZSC 11, [2012] 2 NZLR 726 at [23], [63] and [158].
22 Sipka Holdings Limited v Merj Holdings Limited, above n 1, at [78].
23 The estimate for professional fees was contained in a letter sent by Mr Radley to the
respondent’s counsel dated 23 July 2014. The letter was produced as an exhibit. Mr Radley was not cross examined on his estimate that the cost of the works (excluding professional fees) would be $20,000. This estimate was at odds with an earlier estimate he had given in a letter dated 3 July 2014, when he said that the costs of bringing the building up to 34 per cent of the new building standard would be $78,100. This letter was also before the Court. Why there was such a significant difference was not explained and it was not pursued in cross examination.
prone buildings, a report from a structural engineer will need to be submitted in support of the application. The report must use the criteria specified in section 4.5 of this policy and identify that the building is:
·Of strength greater than 33% of the engineering code and is not considered to be earthquake-prone in terms of the Building Act 2004; or
·Include calculations and plans detailing how the building will be upgraded to at least 33% of the engineering code.
In no circumstances will a building consent for any alteration, addition or change of use be issued for an earthquake-prone building unless Council is satisfied that the building has a strengthening programme in place. In all circumstances Council may elect (if it has not already done so) to serve a formal notice on the building owner in terms of section 124 of the Act advising the owner that the building must be strengthened to at least 33% of the code. The timeframes for strengthening will be the same as those detailed in section 4.2 of this policy.
[69] While the policy seeks to cover matters dealt with in the Building Act, I am not sure that it does so. Section 115 of the Building Act 2004 was not considered by Judge Blackie. In my view it was determinative. Materially it provides as follows:
115 Code compliance requirements: change of use
An owner of a building must not change the use of the building,—
(a) …
(b) …unless the territorial authority gives the owner written notice that the territorial authority is satisfied, on reasonable grounds, that the building, in its new use,—
(i) will comply, as nearly as is reasonably practicable, with every provision of the building code that relates to the following:
(A) means of escape from fire, protection of other property, sanitary facilities, structural performance, and fire-rating performance:
…
[70] Here the appellants were seeking to change the use of the building. They wanted to convert part of it into a restaurant, and leave the balance as commercial space. Section 114(1) of the Building Act provides that, in s 115, the words “change of use” mean to change the use of the building in a manner described in the regulations. The relevant regulations are the Building (Specified systems, Change to use and Earthquake-prone Buildings) Regulations 2005. Clause 6 in the regulations refers to Schedule 2, which provides that every building has a use specified in the table contained in that schedule. To use the words in the schedule, it would appear
that the building was used for business purposes by the ANZ Bank. Clause 5 provides that for the purposes of s 114 and 115 of the Act, a change of use, in relation to a building, means that a change of use of all or part of a building from one use, to another use, with the result that the requirements for compliance of the Building Code in relation to the new use are additional to, or more onerous than the requirements to comply with the Building Code in relation to the old use. Again using the terms in schedule 2, the appellants changed the business use to a use associated with “crowd activities” – namely a restaurant.
[71] Section 115 provides that where the use of the building changes, then the building needs to comply as nearly as is reasonably practicable with every provision of the Building Code that relates to, inter alia, the structural performance of the building.24 This section applies in the present case, notwithstanding the somewhat ambivalent policy the Matamata-Piako District Council had in place.
[72] The appellants had to upgrade the building to 100 per cent of the Building Code requirements, because they elected to change its use. The work necessary to comply as near as reasonably practicable with 100 per cent the Building Code was required whether or not the representation made by the respondent was accurate, and the time taken to do the work was likewise not affected by the misrepresentation.
[73] This means that the appellants’ appeal cannot succeed. The actual costs they incurred in strengthening the building would have been incurred regardless, and they are not attributable to the respondent’s misrepresentation. Similarly the time taken would have been the same, and no loss of profit claim for lost rental is attributable to the misrepresentation. The appellants’ appeal fails.
[74] The respondent sought that the damages award should be vacated, arguing there was no causative link between the damages claimed by the appellants and the
misrepresentation.
24 See, University of Canterbury v Insurance Council of New Zealand Inc [2014] NZSC 193, [2015] 1 NZLR 261 at [36](d) and footnote 27. See also obiter observations in Lambton Quay Properties Nominee Ltd v Wellington City Council [2014] NZHC 878, [2014] NZRMA 257 at [38].
[75] In a case such as this, one would expect a plaintiff to call evidence that he or she paid too much for the building and that but for the misrepresentation, the price paid would have been lower. Indeed Mr Sipka said in his “will say” statement, that was read into the evidence, that the building was less valuable “with the second seismic report than the purchase price of $600,000”. There was no evidence however quantifying this loss of value. Rather the appellants ran their case on the basis that they were entitled to recover as damages the costs they incurred in bringing the building up to 100 per cent of the new building standard. I have already held that those costs were not attributable to the misrepresentation but rather resulting from the appellants’ decision to change the use of part of the building.
[76] Nor was there any evidence that the costs of upgrading the building to 100 per cent of the new building standard were increased as a result of the misrepresentation. Rather, Mr Radley gave evidence that it would have made no difference at all if the starting point had been 40 per cent, 30 per cent or 25 per cent of the new building standard. He explained this by referring to the actual works carried out by the appellants. He said:
…the process is to evaluate the earthquake loads on the building, which is completely independent of the structural state of the building as it was and then to calculate the strength you’re going to put into the building and by putting a steel jacketing in, it did not make any difference what, it could have been zero to start with, you still would have done the same strengthening.
[77] Mr Radley was not cross examined on this assertion. Nor did the appellants’
expert engineer, a Mr Osborne, give any evidence which contradicted it.
[78] It follows, that there is no evidence that there was any loss to the appellants which was caused by the misrepresentation, and there was no material available on which Judge Blackie could properly assess damages following on from the breach of s 6 of the Contractual Remedies Act.
[79] Under the Fair Trading Act, damages are reliance based.25 A claimant has to be put in the position he or she would have been in had the representation not
occurred. The position is the same as that which applies under the Contractual
25 Cox & Coxon v Leipst [1999] 2 NZLR 15 (CA).
Remedies Act. There was nothing in the evidence which established that the appellants had been placed in a worse position as a result of the misleading and deceptive conduct.
[80] I acknowledge that the courts have frequently said that a robust approach is required to the assessment of damages, and that the ends of justice are best served if the courts fix damages as best they can upon the available evidence, such as it is.26
Judge Blackie cited the relevant authorities. The difficulty in the present case, is that there is a complete absence of available evidence from which damages can be calculated. I am not prepared to pluck a figure out of the air.
[81] Judge Blackie’s award of damages is vacated.
[82] It would be possible to award nominal non-compensatory damages to the respondent.27 I do not however consider that nominal damages would be appropriate from the appellants’ perspective given the blatant misrepresentation and the deceptive conduct which occurred in this case.
[83] The appeal is brought pursuant to s 72 of the District Courts Act 1947. Section 76(1)(b) permits me to direct the District Court to re-hear the matter and consider or determine any matter which I direct.
[84] I have upheld Judge Blackie’s decision that the respondent misrepresented the position to the appellants and that that misrepresentation induced the appellants to enter into the agreement for sale and purchase. I have also agreed with the Judge that the respondent’s conduct was misleading and deceptive. An appropriate award of damages properly attributable to the misrepresentation and the misleading and deceptive conduct should flow as a result. I remit the matter to the District Court, and direct it to re-hear the matter insofar as it needs to do so, so that it can consider and determine what damages should properly flow from the respondent’s breach of
the Contractual Remedies Act and of the Fair Trading Act.
26 Newbrook v Marshall [2002] 2 NZLR 606 (CA) at [30]; Walsh v Kerr [1989] 1 NZLR 490 (CA)
at 494.
27 Clark v Kirby Smith [1964] Ch 506, and see Sir Peter Blanchard (ed) Civil Remedies New
Zealand (2nd ed, Brookers, Wellington, 2011) at 47.
Costs
[85] Both parties have had a measure of success, and a measure of failure. It is my preliminary view that costs should lie where they fall. I will however reserve leave to the parties to file memoranda if they disagree with this view. In this regard, I direct as follows:
(a) The respondent is to file and serve any memorandum it wishes to put before the Court seeking costs within 10 working days of the date of release of this judgment;
(b)The appellants are to file any memorandum in reply, or seek costs if they wish to do so, within a further 10 working days;
(c) The respondent is to file any memorandum in reply to the appellants’
memorandum within a further five working day period.
[86] I will then deal with the issue of costs on the papers, unless I require the assistance of counsel.
Wylie J
Solicitors:
Stainton Chellew, Auckland for Appellants
King Gerrard Partners, Pukekohe for Respondent
9
4
0