Steel v Spence Consultants Ltd
[2017] NZHC 398
•9 March 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-000672 [2017] NZHC 398
BETWEEN EMMA JOY STEEL AND
SARAH NANCY OTT
AS TUSTEES OF THE NINFIELD TRUST
Plaintiffs
AND
SPENCE CONSULTANTS LIMITED First Defendant
GARY BRENT SPENCE Second Defendant
Hearing: 14-16 November 2016 Appearances:
G A Cooper and S Cowan for Plaintiffs
H C Matthews and K Graham for DefendantsJudgment:
9 March 2017
JUDGMENT OF GENDALL J
STEEL v SPENCE CONSULTANTS LIMITED [2017] NZHC 398 [9 March 2017]
Table of Contents
Para No
Introduction [1] Background facts
[4]
First cause of action
Breach of the Fair Trading Act 1986
[23]
(a) Have the defendants engaged in misleading and deceptive conduct in breach of s 9 of the FTA?
[23]
- Positive representations in the report?
[31]
- Misrepresentation by omission?
[40]
(b) Applicability of the disclaimer clause?
[46]
(c) Is Mr Spence personally liable under FTA?
[54]
(d) Measure of loss under the FTA?
[65]
Second cause of action
Negligent misstatement
[87]
- What was the purpose of the advice known to the defendants at the time of the assessment?
[93]
- Did the defendants know (at least inferentially) that their advice would be communicated to the plaintiffs in order that it could be used by the plaintiffs for the purpose of considering a purchase of the property?
[94]
- Did the defendants know (at least inferentially) that the advice was likely to be acted on without independent inquiry?
[96]
- Did the plaintiffs act on the advice to their detriment?
[98]
- Breach of duty of care?
[100]
- Reasonable reliance and the defendants’ disclaimer?
[106]
- Measure of loss for negligent misstatement?
[111]
Result
[112]
Costs
[113]
Introduction
[1] The plaintiffs seek damages from the defendants in two claims they bring in
this proceeding as a result of a “moisture assessment” property report dated 16 April
2013 (“the report”) the defendants prepared on a residential property at
36A Brookside Terrace, Christchurch (the property), which the plaintiffs were purchasing. The plaintiffs say the report (which they describe as a form of “pre- purchase report”) was misleading in terms of s 9 of the Fair Trading Act 1986 (FTA) as it misrepresented the condition of the property when instead it should have alerted them to signs the house on the property was a “leaky building” in that there was moisture damage to the house and associated concerns. As a result the plaintiffs contend first, the report was false as to weathertightness issues and therefore it was misleading and deceptive, secondly they relied on it and were misled, and thirdly this caused them loss or damage.
[2] As an alternative, the plaintiffs contend the defendants breached a duty of care owed to them as prospective purchasers of the property. This was because the report made representations about the property which were incorrect and it omitted matters concerning moisture which should have been reported upon, thus rendering the report false. Again, the plaintiffs say the house was a “leaky building” in that it had significant moisture damage, and subsequently they had no alternative but to sell the property for a substantial loss because of that moisture damage.
[3] The defendants, in turn, maintain that the report was not misleading. Further, and in any event, the defendants contend the report was issued on a limited basis and with a significant disclaimer. Finally, they say that, even if the first defendant company had some liability here, this was not a case where the corporate veil should be pierced and personal liability be attributed to the second defendant.
Background facts
[4] The plaintiffs are the present trustees of the Ninfield Trust. The trustees of the Ninfield Trust at the time purchased the property at auction on 29 August 2013.
[5] The second defendant (Mr Spence), is a licensed building practitioner/ property assessor/inspector. The first defendant Spence Consultants Limited (Spence Consultants) is a company, effectively owned and controlled by Mr Spence and his family, which prepared the report in question here.
[6] The previous owners of the property were Craig Dixon and Kathryn Matthews (the Dixons). Prior to their listing the property for sale, the Dixons engaged the defendants to prepare the report on the property, in particular relating to what is described as “moisture assessment”. The plaintiffs suggest that the property had all the features of a “leaky” home as well as signs, at the time, of moisture damage, such that this was likely to be the reason the Dixons as intending vendors decided to obtain this report.
[7] According to the defendants’ website reports they prepared would improve sale prospects from a vendor’s perspective. Obtaining a fully independent report on a property, in particular relating to moisture ingress issues, could be entirely beneficial and helpful for a possible sale of a property in question. This independent report would also enable prospective purchasers to make informed decisions whether or not to proceed. In addition, it would give a degree of peace of mind to any such potential purchaser.
[8] On 16 April 2013, Mr Spence himself inspected the property. His inspection initially was an internal one, but then it involved an external walk-around the house and the taking of moisture readings with a protimeter at various sites throughout the interior of the house. A protimeter measures the existence and extent of moisture content.
[9] The defendants then produced a report on the property on Spence Consultants letterhead which was headed “Moisture Assessment” (the report). It is useful to set out the report in full.
16 April 2013
MOISTURE ASSESSMENT
Client Craig and Kate Dixon
C/- Harcourts Grenadier
Property Inspected 36a Brookside Terrace
Inspection Date 9am 16 April 2013
Scope of Report Carry out visual inspection for signs of moisture damage and associated concerns
General Assessment
Moisture readings range from 7 – 14% (average should be about 10 – 12% ) No signs of serious leaks or moisture concerns internally
In summary The house has sustained the seismic loads very well and there is no structural damage (very minor cosmetic damage only.)
The Property has been well maintained and in good order
Recommendations
Check out velux skylight to upper bathroom. There was a slightly higher reading on the left hand side (the skylight is obviously left open regularly and it could be wind blown rain)
Ensure gutters are clear – gutter above garage frontage has excess of leaves.
[10] The report was addressed to the Dixons as vendors of the property care of their real estate agent, Harcourts Grenadier (Harcourts). Harcourts included the one page report in an auction pack which it had prepared for the sale of the Dixon’s property. The defendants say that when they provided the one page report, it had with it an attached disclaimer sheet as page 2. It is useful to set out this disclaimer in full which I now do:
Disclaimer
This is a report of a visual, non invasive inspection of the areas of the building which are readily visible at the time of inspection. The inspection does not include any areas or components which were concealed or closed in behind any surfaces (such as plumbing, drainage, heating and ventilation, framing, insulation or wiring) or which required moving of anything which impeded access or limited visibility (such as floorcoverings, furniture, appliances, personal property, vehicles, vegetation, debris or soil)
The inspection did not assess compliance with the NZ Building Code
including the Code’s weather tightness requirements, or structural aspects.
On request specialist inspections can be arranged for these purposes or of any systems, including electrical, plumbing, gas and heating.
As the purpose of this inspection was to assess the general condition of part or all of the building based on the limited visual inspection, this report may not identify all past, present or future defects that become apparent.
Descriptions in this report of systems or appliances relate to existence only and not adequacy or life expectancy.
Any area or component of the building or any item or system not specifically identified in this report as having been inspected was excluded from the scope of this inspection.
[11] It is accepted by all parties that the disclaimer sheet was not included in the auction pack.
[12] Prior to the auction of the property on 29 August 2013, the first-named plaintiff, Emma Joy Steel (Ms Steel), had obtained a copy of the auction pack and read the report. In addition, in evidence she gave before the Court, Ms Steel said she referred the report to her solicitor Mr Sweeney, who was also at that time a trustee of the Ninfield Trust along with Ms Steel.
[13] Ms Steel maintains that on the basis of the report she and Mr Sweeney were satisfied that weathertightness issues relating to the property were covered, and that there was no indication of any kind that the property had moisture damage or concerns relating to this.
[14] The plaintiffs went ahead and purchased the property at auction for $615,000.
They say they did so relying on the report and the “peace of mind” it provided.
[15] Following settlement of the sale, the plaintiffs arranged to rent the property to a third party family as tenants through Harcourts Property Management. Soon after the tenancy commenced, following complaints from the tenants, the plaintiffs established that the property did have moisture damage. The tenants sought to terminate their lease agreement.
[16] The plaintiffs then obtained several reports on the property which they say confirmed their fears that the property had significant damage caused by moisture ingress.
[17] The plaintiffs’ position is that when the report was completed by the defendants, as experts in the area, visual signs of moisture damage and related concerns at the property should have been clearly apparent. These ought to have
been noted in their report but they were not. According to the plaintiffs these included:
(a) The house was constructed at a time and was of such a design for it to be clear that it was a potentially “leaky” home. It had monolithic cladding which was a common feature of houses subject to this syndrome.
(b) An inside wardrobe in the house had mould which was visible to
Mr Spence when he inspected the property.
(c) There were water stains down some internal walls of the house which were visible to Mr Spence when he inspected the property.
(d)There was a leak in the roof which Mr Spence knew about when he inspected the property.
(e) The cladding of the property was cracked which was visible to
Mr Spence when he inspected the property.
(f) The gutters of the house were blocked with leaves which had the potential to cause water ingress, again a factor visible to Mr Spence.
(g)The house had not been recently painted and was well overdue for a repaint, this being apparent to Mr Spence as he acknowledged in his evidence. This was a real concern for any monolithic clad house.
[18] The plaintiffs’ position is that, had the moisture damage and related concerns been pointed out to them in the report they had received prior to the auction, they would not have purchased the property.
[19] Finally, the property was sold to the existing tenants at a price of $400,000. The plaintiffs maintain this represented its then true market value, given its weathertightness issues. The plaintiffs say this resulted in them incurring a loss of
$215,000.
[20] As to this aspect, however, it is clear that subsequent to their purchase of the property the plaintiffs had received an EQC payment of just under $45,000 presumably for earthquake damage to the house. This $45,000 (approximate) payment was not expended by the plaintiffs in carrying out any repairs to the property, nor was it passed on to the ultimate purchasers.
[21] So far as the first defendant Spence Consultants is concerned, Mr Spence owns 75 per cent of the shares in this company, the remaining 25 per cent being owned by his wife. Mr Spence is also the sole director of Spence Consultants. And, as to the work carried out by Spence Consultants, it seems to be accepted too that the majority of building assessment reports produced by the company have been undertaken by Mr Spence personally.
[22] With regard to the evidence before the Court relating to Mr Spence’s inspection of the property and his production of the report, important factors appear to be:
(a) At the time Mr Spence carried out his inspection, requested by the vendors’ real estate agent Harcourts, he was aware that the vendors were considering selling the property and as a result had engaged Harcourts.
(b)A real estate agent from Harcourts met Mr Spence at the property and remained there whilst he carried out his inspection.
(c) Mr Spence was advised by the Dixons as vendors of a historical leak in the walk-in wardrobe of the master bedroom.
(d)Mr Spence had no written contract with the Dixons or with the real estate agent before embarking on his work. It seems that only Ms Matthews, one of the vendors, had received at the time a copy of Spence Consultants’ standard disclaimer although a copy of this was sent to the other vendor Mr Dixon with the final report. Neither of the
vendors, nor anyone from Harcourts, signed Spence Consultants’
standard disclaimer.
(e) At the property Mr Spence took moisture readings with the protimeter but only in the interior of the house.
(f) Mr Spence in his evidence acknowledged that it was obvious there had been a leak which had originated from the roof, but this appeared to him at that point to be dry. Despite this Mr Spence did not enter the roof cavity to inspect the source of the leak or to look for any other moisture damage.
(g)Following a request by the vendors, Mr Spence then did “a circuit of the outside of the house to establish the general structure of the house and the condition of the house”. His evidence is that he did not observe any significant cracks to the exterior cladding. The plaintiffs contend however that there were hairline cracks to that cladding which carried with it a risk that ingress of water would be allowed through the cracks.
(h)Mr Spence did note that the house was in need of a repaint and that there were blockages in the gutters above the garage.
First cause of action – Breach of the Fair Trading Act 1986
(a) Have the defendant/s engaged in misleading and deceptive conduct in breach of s 9 of the FTA?
[23] The plaintiffs’ first cause of action against both Spence Consultants and
Mr Spence relates to alleged breaches of s 9 of the FTA. That s 9 provides:
9 Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[24] A leading decision in determining whether conduct is misleading or deceptive or is likely to mislead or deceive is the relatively recent decision of the Supreme Court in Red Eagle Corporation Limited v Ellis.1
[25] In that case, a statement was made by Mr Ellis to Red Eagle that a third party, Ms Black, owned certain assets of value which could be provided as security for a loan. Funds were advanced by Red Eagle in reliance on Mr Ellis’ statement but those funds were not repaid. It was discovered that Ms Black did not in fact own the assets Mr Ellis had earlier said she did. The Supreme Court found that although the statements were made honestly, Mr Ellis’ comment about Ms Black’s assets was misleading or deceptive and breached s 9 of the FTA.
[26] In making this finding the Supreme Court held that misleading and deceptive conduct should be assessed by asking the question at para [28]:
Whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or which the defendant ought to have been aware – would likely have been mislead or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else. If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so.
[27] These key findings in the Supreme Court decision in Red Eagle were recently summarised by Palmer J in Clode v Sullivan where at para [85] he noted that the Supreme Court decision makes clear that:2
(a) “In trade” is “a broad term encompassing all kinds of commercial dealing by the party whose conduct is under examination”.
(b) The test for misleading or deceptive conduct is objective – intention to mislead or deceive does not have to be shown. Neither does it have to be proved that the defendant was actually misled or deceived.
(c) Context is crucial, including the circumstances in which the conduct occurred and “the characteristics of the person or persons said to be affected”. The Court distinguished between a sophisticated businessman, a consumer and someone with intellectual difficulties.
1 Red Eagle Corporation Limited v Ellis [2010] NZSC 20, [2010] 2 NZLR 492.
2 Clode v Sullivan [2016] NZHC 1561.
(d) The question to be answered in relation to s 9 in a case of this kind is accordingly whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived.
(e) If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so.
[28] It is clear too from s 2(2) of the FTA that “a reference to engaging in conduct” is to include omitting to do an act. Silence or omissions therefore can amount to misleading or deceptive conduct if there is a relationship between the parties which imposes an obligation to disclose.3 In the present case I am of the clear view that, given Mr Spence and Spence Consultants’ history and holding out of an expertise in providing property inspection or assessment reports (including on leaking and moisture issues), there is a relationship and obligation to disclose in a case such as the present where certain issues with a property are observed during an
inspection which have implications for the report provided. This is a situation not dissimilar in certain ways to that which prevailed in Mok v Bolderson.4
[29] The plaintiffs contend here that both Spence Consultants and Mr Spence have breached s 9 of the FTA in two ways:
(a) First, by making positive statements in the report regarding the property that were untrue and misleading or deceptive; and
(b)Secondly, by omitting to include in the report, any comments regarding visual signs of moisture damage or associated concerns at the property which were apparent and rendered the report untrue and misleading or deceptive.
[30] In response, the defendants’ position is that Spence Consultants was engaged by the Dixons as vendors of the property to complete a limited report only and not a detailed pre-inspection report. It related to a specific concern the Dixons had. This
related to one roof leak which they thought had been repaired and had resulted in the
3 Hieber v Barfoot & Thompson Ltd (1996) 7 TCLR 301 (HC).
4 Mok v Bolderson (HC) Auckland CIV-2010-404-7292, 20 April 2011, Whata J.
damage which had occurred to the bedroom wardrobe area. That original engagement the defendants note, resulted in their scope of work being expanded slightly on the day so that Mr Spence was requested also to complete a brief visual inspection of the house exterior and non-invasive moisture testing of the interior of the house itself.
Positive representations in the report?
[31] The plaintiffs say that the report was misleading and deceptive in terms of s 9 of the FTA because:
(a) The scope of the report was to carry out a visual inspection for signs of moisture damage or associated concerns.
(b) The report made specific statements that the dwelling had:
(i) Moisture levels within a range considered to be normal;
(ii) No signs of serious leaks or moisture concerns internally; and
(iii) No structural damage.
(c) It also made general statements that the dwelling was: (i) well maintained: and
(ii) in good order.
[32] The plaintiffs contend that, taken as a whole, the report portrayed a good impression of the property. During cross-examination, Ms Steel gave evidence that she read the report as meaning that the property was completely weathertight. The only matters of significance were first, a slightly higher reading on the left hand side of the velux skylight in the upper bathroom and secondly, a need to ensure the gutters were clear as there were excess leaves in the gutters above the garage.
[33] As noted at [27] above, the test for misleading and deceptive conduct is an objective one, paying particular attention to the context in which the conduct occurred. The question to be answered is whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived.
[34] The defendants argue that the content of the report is not objectively misleading. It is the defendants’ position that apart from a leak which Mr Spence believes has reoccurred in the walk in wardrobe, the readings taken internally at the property have remained within the normal range. Furthermore, placing emphasis on the fact that the nature of the report was limited to a visual inspection, the comments made about the property being “well maintained and in good order”, and that there was “no signs of serious leaks or moisture concerns internally” were not objectively misleading.
[35] However, as I see it, the report, read objectively, was misleading and deceptive. At trial, the Court heard from Mr Simon O’Brien (Mr O’Brien), an expert chartered building surveyor. Mr O’Brien provided evidence that the dwelling suffered from weathertightness issues. In his evidence, Mr O’Brien confirmed he had undertaken visual and destructive inspections of the house and he had also undertaken 30 moisture readings around the house using the same type of protimeter device used by Mr Spence. Of these 30 moisture readings, 12 had readings which exceeded 18 per cent and two exceeded 30 per cent. Mr O’Brien also confirmed first, that timber decay can be established when prolonged moisture content in excess of 30 per cent occurs and secondly, that decay can be sustained with prolonged moisture content between 18 per cent and 30 per cent. The house was generally what is described as a “leaky home”. The report, which significantly was headed “Moisture Assessment” and the description in the report of the moisture readings which were taken (including the comment “no signs of serious leaks or moisture concerns internally”) downplayed this entirely. The property it said was “well maintained and in good order”. There was in the report itself a complete absence of any warnings or encouragement to have further weathertightness testing (invasive or otherwise) and inspections completed.
[36] Furthermore, under his cross-examination before me, Mr Spence admitted that when he inspected the dwelling in April 2013, it “was immediately obvious where the leak had been as there was water marking on the wall and there was mould damage on the carpet”. Mr Spence confirmed that the leak, mould, and water stains were signs of moisture damage and that the hairline cracking on the exterior of the dwelling was a potential point of water ingress and a concern. While an intent to mislead or deceive need not be established, Mr Spence’s evidence goes towards demonstrating the fact that the property assessed could not be said to be “well maintained and in good order” or that “there was no signs of serious leaks”.
[37] The defendants also attempt to dispute the fact that, taking into account the characteristic of Ms Steel and her business expertise, it was not reasonable for her to rely on the report. Ms Steel has had ten years’ experience as a company director. The defendants also suggest that when Ms Steel viewed the property, she made her own favourable judgment. However, as I see it, I do not find that Ms Steel’s business acumen or personal judgment of the property excludes her from relying on a professional report. Her business acumen was not derived from property inspection or claiming to be an expert in weathertightness. For all intents and purposes, she was a lay person in this transaction.
[38] Furthermore, I also do not find that the plaintiffs’ willingness to commission further reports after finding out that the property had weathertightness issue demonstrates that she should necessarily have commissioned these reports prior to purchase such that this exonerates the defendants from all liability under the FTA here. Generally, they were entitled initially to rely on the report attached to the auction pack, to a large extent, when seeking assurance that the property had no moisture damage issues. But, as will become apparent later in this judgment, I find that the initial failure on the part of the plaintiffs to commission further reports will contribute to some extent in their entitlement to damages here.
[39] I therefore find that the defendants were liable in positive misrepresentation and therefore liable under s 9 of the Fair Trading Act.
Misrepresentation by omission?
[40] Section 2(2) of the Fair Trading Act supports the contention that “conduct” also includes “refusing or omitting to do an act”. Silence or omission may amount to misleading or deceptive conduct if there is a relationship between the parties which imposes an obligation to disclose.
[41] Whether a relationship to disclose is deemed to exist was considered by Kerr J in Hieber v Barfoot & Thompson Ltd.5 The issue in that case was whether a real estate agent had a duty to disclose to a prospective purchaser that a yacht club was intending to move its clubhouse to a position on the foreshore almost directly in front of the property which would impede the property owner’s views.
[42] After considering a number of Australian authorities, the Court accepted that, if there is a reasonable expectation of disclosure either objectively or from the perspective purchaser’s point of view, then an obligation to disclose exists. It then found that the real estate agent had engaged in misleading or deceptive conduct by failing to give the prospective purchaser information known to the real estate agent.
[43] Here, the plaintiffs say the defendants were obliged to disclose in the report completed by Mr Spence all matters relating to moisture or associated concerns at the property. The scope of the report was to “carry out a visual inspection for signs of moisture damage and associated concerns”. The plaintiffs submit that a reasonable prospective purchaser reading the report would take from this scope that Mr Spence had agreed to produce a report on a visual inspection of the property for signs of moisture damage and associated concerns.
[44] The plaintiffs also note that the report does not make mention of “obvious signs of previous water damage.” Rather, the report states that there are “no signs of serious leaks or moisture concerns internally”. The plaintiffs therefore submit that the damage and concerns visible to Mr Spence ought to have been noted in his report
and that the report was misleading because it did not record them.
5 Hieber v Barfoot & Thompson Ltd (1996) 7 TCLR 301.
[45] As noted above at [36], when Mr Spence was carrying out the assessment, he did notice obvious signs of moisture damage, being leaks, mould and water stains. As also repeatedly stated, the scope of the report was to carry out visual inspection for signs of moisture damage and related concerns. I find therefore that, considering matters either from an objective point of view or through the perspective of a potential purchaser, there was a reasonable expectation that any moisture damage noticed by Mr Spence should have been noted in his report and made known to the vendors and potential purchasers. Failing to do so has also led to a misrepresentation by omission under the FTA.
(b) Applicability of the disclaimer clause?
[46] The defendants contend that their liability is limited by the disclaimer clause that was attached to the original report. They say that, even if it was not included by the Dixons as vendors or their agents Harcourts in the auction pack, it still applies to the plaintiffs’ reliance on the report. For convenience, I again set out the disclaimer clause:
Disclaimer
This is a report of a visual, non invasive inspection of the areas of the building which are readily visible at the time of inspection. The inspection does not include any areas or components which were concealed or closed in behind any surfaces (such as plumbing, drainage, heating and ventilation, framing, insulation or wiring) or which required moving of anything which impeded access or limited visibility (such as floorcoverings, furniture, appliances, personal property, vehicles, vegetation, debris or soil)
The inspection did not assess compliance with the NZ Building Code
including the Code’s weather tightness requirements, or structural aspects.
On request specialist inspections can be arranged for these purposes or of any systems, including electrical, plumbing, gas and heating.
As the purpose of this inspection was to assess the general condition of part or all of the building based on the limited visual inspection, this report may not identify all past, present or future defects that become apparent.
Descriptions in this report of systems or appliances relate to existence only and not adequacy or life expectancy.
Any area or component of the building or any item or system not specifically identified in this report as having been inspected was excluded from the scope of this inspection.
[47] The fact that the page containing the disclaimer clauses was omitted from the plaintiffs’ auction package does not prevent the defendants limiting their liability. A similar fact scenario occurred in Bonney v Cottle where the page containing the disclaimer clauses was not forwarded to the plaintiff. The Court in that case nevertheless held:6
It is a proper answer to a claim for negligent misstatement that the advisor has made it clear that he does not assume responsibility for the accuracy of the advice he gives. The plaintiffs say that they were not told of the disclaimers and refer to the missing eighth page of the report which they did not receive. When an advisee claiming for negligent misstatement has not received the information directly from the advisor, but only indirectly through some intermediary, the liability of the advisor will be decided by reference to the information that the advisor has given, not the information that the advisee has received. His conduct is relevant to his liability. If the advisor has attached qualifications to his advice, so that with those qualifications, his advice cannot be faulted, but his advice is passed on without those qualifications, the advisor cannot be held liable for faulty advice, even though someone within the ascertainable class of recipients has relied on it to their detriment.
[48] However, the more contentious issue in the present case is whether, at the time of the assessment, a disclaimer clause can be pleaded as a defence to potential breaches of the FTA. Under the current statutory regime, s 5C limits the use of disclaimers for alleged breaches of the FTA. It states that “[a] provision of an agreement that has the effect of overriding a provision of this Act (whether directly or indirectly) is unenforceable.” However, this amendment only came into force of
17 June 2014. This was prior to the relevant events in this case.
[49] The defendants do acknowledge however that there have been a number of authorities which have considered the use of disclaimers prior to the enactment of s
5C. In PAE (New Zealand) Ltd v Brosnahan, the Court of Appeal held that parties cannot contract out of the s 9 prohibition on misleading and deceptive conduct.7
This is because the policy of the FTA would be defeated by allowing express disclaimers. The Court of Appeal however did hold that this was only a starting point
and not an absolute rule. Exceptions, as for example in David v TFAC Limited,8
6 Bonney v Cottle HC Auckland CIV-2010-303-427, 11 November 2011 at [21].
7 PAE (New Zealand) Ltd v Brosnahan [2009] NZCA 611.
8 David v TFAC Ltd [2009] NZCA 44.
apply in commercial transactions where there are independently advised parties negotiating from a position of equality.
[50] Furthermore, before me the defendants have referred to the decision of this Court in Body Corporate 90315 v Redican Allwood Ltd where lengthy and detailed disclaimers were used in respect of a property inspection.9 In Redican, the owner of a leaky apartment building sued parties said to be responsible for its construction and, among others, the Wellington City Council (WCC). WCC attempted to join the building inspectors, Reassure Limited (RL) to the proceeding. RL applied to strike out the WCC’s application on the grounds that :
(a) The person suing was not the person the report was prepared for and the terms of engagement expressly stated that no other third party could rely on the report;
(b)The report expressly excluded responsibility for weathertightness issues; and
(c) The report did raise concerns about weathertightness issues and recommended further evaluation, but none occurred.
[51] In my view, however, the facts in Redican are significantly different from the facts in the present case. First, in the present case there were no expressed clauses limiting the audience of the report to the vendors. To the contrary, the defendants carried out the inspection on instructions from the Dixon’s real estate agents Harcourts with the inferred knowledge that it was likely to be read by potential purchasers of the property. Furthermore, the report was specifically commissioned to address moisture-assessment issues. Indeed, it was headed “Moisture Assessment”. The purpose for which the defendants were instructed to investigate seemed generally to be the same purpose for which the plaintiffs here relied on the
report. I therefore find Redican of limited assistance in the present circumstance.
9 Body Corporate 90315 v Redican Allwood Ltd [2014] NZHC 1212.
[52] Furthermore, I reject the notion that the parties in the present case were negotiating from an equal position. The defendants held themselves out to have expertise in this field, and to provide services of this type to lay persons.
[53] In terms of the plaintiffs’ claim under the FTA, established authorities accept that disclaimers such as the one here will not assist the defendant’s position. The present disclaimer, even if otherwise effective, will not in the present circumstance absolve the defendants from liability under the FTA. While I accept that the scope of the report initially stated that it was limited to visual inspection through non invasive means, the signs of moisture damage, being leaks, mould, water stains and hairline cracks were readily visible at the time of the inspection. These were well within the scope of the assessment and should have been disclosed in the report. In addition, some moisture readings were also taken internally with a positive “General Assessment” added in the report that these showed “No signs of serious leaks or moisture concerns internally”.
(c) Is Mr Spence personally liable under the FTA?
[54] I turn now to a further issue which must be dealt with under this FTA consideration. That is the question whether Mr Spence is personally liable for a breach of s 9 of the FTA given that the report was issued by Spence Consultants or whether he is protected by the separate legal identity of his company.
[55] As to this matter, it was not disputed before me that Spence Consultants was acting in trade in terms of the FTA as a provider of building inspection or assessment reports when the report in question here was issued. Mr Spence argues however that the same cannot be said for him because at all times he was acting only as an agent of Spence Consultants. Mr Spence maintains that he himself was not acting “in trade”. It follows therefore, according to Mr Spence, that any liability which may subsequently arise for the plaintiffs’ claims here should be against Spence Consultants alone and not him.
[56] The plaintiffs take issue with this. They submit that Mr Spence is also personally liable in this case for breach of s 9 of the FTA and shares this liability with his company, Spence Consultants.
[57] On this aspect, from Court of Appeal decisions dating back to Trevor Ivory Ltd v Anderson10 and Body Corporate 202254 v Taylor11 it seems the corporate veil, which exists between companies and their directors, will only be pierced when there is a personal assumption of responsibility by that director.
[58] In Body Corporate 202254 v Taylor, which was a decision of the Full Bench of the Court of Appeal, Mr Taylor was a developer who undertook an apartment complex development through a company of which he was the sole director. The apartment complex suffered from leaky building syndrome. The company which completed the development had long been struck off the register. The plaintiff apartment owners joined Mr Taylor to proceedings alleging he had been involved in the development as a “project manager to such an extent that he was personally negligent”. In addition they allege that Mr Taylor had breached the FTA, being a party who produced a promotional brochure for the development which the plaintiffs said contained misrepresentation.
[59] Although this Court of Appeal decision was one relating to a strike-out application brought by Mr Taylor it seems clear that in its decision the Court of Appeal dismissed any notion of confining s 9 of the FTA only to corporate liability. In this regard the Court noted at [19]:
…there can be no doubt that consumer protection considerations underpin
…s 9 of the Fair Trading Act. Unsurprisingly, therefore, the Courts have not paid much heed to attempts by those in trade to distance themselves from
liability to disappointed consumers. For instance, exclusion of liability
clauses are not effective to limit liability under the Fair Trading Act. As well there is nothing in the legislation which confines liability to cases where
there is a contractual or quasi-contractual assumption of responsibility by the
defendant to the plaintiff. Further, and at least to date, the Courts have not regarded corporate form (and particularly the separate legal identity of companies) as precluding personal liability on the part of senior employees who engage in misleading and deceptive conduct.
[60] In the Body Corporate 202254 decision, the Court of Appeal said that the representations made in the brochure in question presumably originated from Mr Taylor or were at least approved by him and if they were misleading or deceptive
then neither the disclaimer nor the exclusion clause in the brochure were of any help
10 Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517.
11 Body Corporate 202254 v Taylor [2009] 2 NZLR 17.
to him. Neither was the corporate form through which Mr Taylor chose to conduct business of assistance to him.
[61] This decision has since been recognised by Woolford J in this Court in Gilmore v Decisionmakers (Waikato) Ltd as authority for the proposition that an employee, manager or director of a company can be personally liable under the FTA for statements they make in the course of employment. 12 In this regard, Woolford J said at [87] – [88]:
[87] …Taylor makes it clear that an employee may be personally liable under the Act for statements they make in the course of employment and no assumption of responsibility is required. Gloken Holdings Limited v The CDE Company Limited [(HC) Hamilton, CP28195, 24 June 1997] is also authority for the proposition that where a person is the manager or director and where the breach of the Fair Trading Act is theirs, they can be considered the “alter ego” of a company and will be personally liable. A director who participates directly in his or her company’s business will not ordinarily be able to avoid liability under s 9 of the Act and such representations must be regarded as in trade for the purpose of the liability under s 9.
[62] An arguably different approach was taken in the decision in this Court in North Shore City Council v Wightman.13 In his decision in that case, MacKenzie J considered the position of a building inspector who was employed by a pre-purchase inspection company. There, purchasers of a property made a claim including against a Mr Beazley personally as an employee of a property inspection company which they had engaged to report on a property. The purchasers relied on the fact that the
employee had made the inspection, had written and sent the report, had offered to discuss the report with the purchasers and had assured them that he had the skills necessary to provide the report. Notwithstanding this, MacKenzie J found that these matters fell short of indicating an acceptance of personal responsibility on the part of Mr Beazley, as distinct from responsibility on behalf of his employer company, and he declined the claim.
[63] In my view, however, the position of Mr Spence in the present case is entirely different from that which Mr Beazley occupied in the Wightman decision. In
Wightman, MacKenzie J found that the building inspector was not himself acting “in
12 Gilmore v Decisionmakers (Waikato) Ltd [2012] NZHC 298.
13 North Shore City Council v Wightman (HC) Auckland CIV-2010-404-3942, 30 November 2010.
trade” as distinct from performing actions in the course of his employer’s trade. Although he was a senior employee, he did not have a sufficient degree of involvement in the governance or management of the company such that he was assuming a degree of personal responsibility. In the case before me, however, Mr Spence’s position is entirely different.
[64] Notwithstanding this, Mr Spence has attempted to distance himself personally from any responsibility. I am satisfied however that, in light of current authorities, Mr Spence is personally liable under s 9 of the FTA for any misleading or deceptive conduct in relation to the report for the following reasons:
(a) Mr Spence is the sole director and 75 per cent shareholder of Spence
Consultants, his wife owning the remaining shares.
(b)Mr Spence on his own evidence produces most of the building inspection reports for Spence Consultants. In doing so, he clearly relies upon his personal skills and long building industry expertise and experience.
(c) Mr Spence himself inspected the property, prepared, endorsed and, indeed, signed off the report.
(d)Although the report was notionally on Spence Consultants’ letterhead, and thus the contract for provision of the report seems to have been between the Dixons as original vendors and the company, no one else was involved with the inspection of the property or the preparation of the report other than Mr Spence.
(e) The conduct in inspecting the property and completing the report was unquestionably that of Mr Spence.
(f) Under the Gloken principle referred to in the Taylor decision and noted at [61] above, I am satisfied Mr Spence was the alter ego of Spence Consultants and was himself “in trade” for the purposes of the
FTA. I find therefore that, if it is found that Spence Consultants and Mr Spence have engaged in misleading and deceptive conduct relating to the report, then Mr Spence can himself be personally liable for the contents of that report.
(d) Measure of loss under the Fair Trading Act?
[65] Having found that the defendants conducted themselves in a misleading and deceptive way, I now consider whether the plaintiffs are entitled to relief. In their statement of claim the plaintiffs seek relief in the following terms:
A. An order in terms of s 43 of the Fair Trading Act that the defendants are jointly and severally liable to pay damages to the plaintiffs in the sum of
$220,000 being the diminution of value of the Property, or $255,001.81
being the projected cost to repair the Property, or $345,000 being the loss suffered by the plaintiffs.
B. Interest.
C. Such other relief as the Court deems just. D. Costs.
[66] Section 43 of the FTA states:
43 Other orders
(1) This section applies if, in proceedings under this Part or on the application of any person, a court or a Disputes Tribunal finds that a person (person A) has suffered, or is likely to suffer, loss or damage by conduct of another person (person B) that does or may constitute any of the following:
(a) a contravention of a provision of Parts 1 to 4A (a relevant provision):
(b) aiding, abetting, counselling, or procuring a contravention of a relevant provision:
(c) inducing by threats, promises, or otherwise a contravention of a relevant provision:
(d) being in any way directly or indirectly knowingly concerned in, or party to, a contravention of a relevant provision:
(e) conspiring with any other person in the contravention of a relevant provision.
…
(3) The orders are as follows:
…
(f) an order directing person B to pay person A the amount of the loss or damage.
…
[67] As the Supreme Court decision in Red Eagle made clear, the proper approach to be adopted in terms of s 43 is to consider whether it is proved the claimant has suffered loss or damage “by” the conduct of the defendant. And, the question of damages under s 43(2)(f) was considered by the Court of Appeal in Cox & Coxon v Leipst.14 The critical words of the provision are that the person who engaged in the wrongful conduct may be ordered “to pay the person who suffered the loss or damage the amount of [that] loss or damage”. Again, Henry and Blanchard JJ held:15
Section 9 creates a duty not to mislead. If the duty has been breached money may be awarded to make good, or compensate for, loss or damage which has been caused by the breach. Where there has been an actionable wrong, it is a general and basic principle of law that the remedy by way of monetary award is to put the wronged party in the same position as he or she would have been but for the wrong.
[68] Furthermore, in Joblin Insurance Brokers Ltd v ME Joblin Insurances Ltd (No 2), Hammond J further refined the principles of awarding damages for breaches of the FTA:16
… the injured party is entitled to reparation for all the actual damage flowing directly from the false and misleading statement… “Actual” damages are a powerful measure, and will sometimes exceed expectancy or reliance interests.
[69] It follows that reliance cost is the norm when awarding damages in breach of the FTA. Ms Steel has given evidence as to the steps she took after learning that the dwelling suffered from leaky home syndrome. She obtained an independent report from professional property consultants and building surveyors, Hampton Jones. She
then obtained an estimated cost of repair. Finally, she obtained an appraisal from
14 Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15; (1998) 8 TCLR 516 (CA).
15 At 26.
16 Joblin Insurance Brokers Ltd v M E Joblin Insurances Ltd [2001] 1 NZLR 753, (2000) 10 TCLR
58 (HC) at 753- 754.
real estate agents as to the value of the property. Taking all this advice, a sale of the property at a price of $400,000 was achieved, $215,000 less than the price that the plaintiff trust had paid.
[70] However, the plaintiffs were compensated by EQC for $45,000. Therefore, the actual loss incurred by the plaintiffs when relying on the misleading and deceptive conduct was no more than $170,000, being the difference between the total loss of value on the subsequent sale and the EQC payout.
[71] In determining here what loss has been suffered as a direct result of the misleading report, it is useful also to note that this Court has a discretion as to any damages award. In this respect, Gault on Commercial Law17 addresses this issue and states:
FT43.04 Discretion as to amount
(1) Amount awarded
The Court has discretion under this section [s 43] to award damages that are less than the full amount of the loss suffered: Goldsbro v Walker (1993) 1 NZLR 394…The section says the Court “may” make the order, whereas the Australian Consumer Law says in s 236 that the person who suffers loss or damage “may recover the amount of the loss or damage”.
(2) Factors taken into account
In Foseco NZ Ltd v Cumberworld Contracting Limited (1997) 6 NZBLC
102,033 (CA), Foseco appealed against a judgment ordering it to pay damages of $381,539.56 and interest to the respondent after a contravention
of ss 19 and 13. Blanchard J, delivering the judgment of the Court, noted that the Act imposes a stricter standard of behaviour than the common law of
contract or tort, but that, under the latter, a defendant found liable is, subject to contributory negligence in tort, responsible for the whole of the damage caused to the plaintiff. The position under the Act is different and more
flexible, as s 43 gives the Court a discretion, allowing the Court to soften the consequences for the wrongdoer, as outlined in Goldsbro v Walker (1993)
1 NZLR 394…in which Richardson J said at page 404; page 56;…;
“In many cases there may be no reason why the plaintiff should not obtain full recovery in respect of his or her loss but in others the culpability of third parties, the gross carelessness of the consumer, the minor role of the contravener of s 9, may lead to the conclusion that the justice of the case does not require that the full loss sustained by the consumer be visited on the contravener.”
17 Gault on Commercial Law Thomson Reuters NZ Ltd 2016 at Vol II, para FT43.04.
The Court is thus able to take account of all factors contributing to the loss, including actions of third parties who are not wrongdoers and actions of the plaintiff which do not amount to contributory negligence or default…
[72] In his judgment in Mok v Bolderson18 Whata J in completing the assessment of damages held that it would be disproportionate for the report writer in that case Mr Bolderson to bear the full loss suffered by the plaintiffs, as he had only received
$200 for his services in completing the report compared with the position of the developer/vendor of the property. On this aspect relating to Mr Bolderson’s role Whata J held that:
While a more robust report from Mr Bolderson may have averted that loss, I
do not consider it realistic to say that he was the primary cause of that loss.
[73] Although Whata J said that his own analysis on the question of the nexis between Mr Bolderson as the report writer and the plaintiffs was purely a broad brush one, nevertheless, in completing an assessment of damages he gave consideration to:
(a) The benefit obtained by the misleading statements; (b) The role played by the defendant;
(c) The nexis between the misleading statements and the loss; and
(d) The defendant’s direct relationship with the purchasers.
[74] In completing this consideration Whata J held finally that Mr Bolderson should be liable for some of the plaintiffs’ loss suffered under the FTA, but that this needed to be limited to 25 per cent.
[75] In the present case, an issue also arises as to whether the plaintiffs might be considered to be blameworthy (in part) in the sense that they should bear an element of responsibility for, and thus contribution towards, the whole misfortune in which
they have found themselves. This relates to conduct on the part of the plaintiffs
18 Mok v Bolderson, above n 4.
which might be considered in some way causative of their loss, for example through their own carelessness as a contributing operative cause.
[76] On this aspect, in expert evidence advanced before me on behalf of the plaintiffs by Mark Peter Foster, a Christchurch registered valuer, he stated in his brief at para 42:
42. My general observation as a valuer is that given the historical claims associated with monolithic construction techniques, all informed buyers acting prudently would investigate the subject property endeavouring to satisfy themselves of any pending issues which have occurred with the structure. Anybody dealing with these properties such as real estate agents, valuers, insurance companies, purchasers or their funders who may consider being involved with this form of construction should commission a building report to expose any matters which may require consideration prior to purchasing, particularly leaky home issues which may have caused deterioration to the framework. (Emphasis added)
[77] In this case no further building report was commissioned by the plaintiffs after they had seen the one page report from the defendants in the auction package.
[78] Although I have found that the report itself was misleading and deceptive, nevertheless, in my judgment, a reasonable argument exists here that there was a degree of imprudence on the part of the plaintiffs who were not unsophisticated purchasers in proceeding with the purchase of the property without a further detailed building report on the dwelling (with invasive moisture testing carried out) being obtained. I say this given the fact that the defendants had referred in their report to certain moisture issues although downplaying them significantly. Whether or not that amounted to some form of contributory negligence on the part of the plaintiffs is unclear. In my view, however, it is a factor which, along with the fact that the defendants received only some $300 for their services in completing the report compared with benefits received by the Dixons as vendors, leads me to the conclusion that it would indeed be disproportionate here for the defendants to bear the plaintiffs’ full loss.
[79] Further factors might well be seen as amounting to carelessness on the part of the plaintiffs in the circumstances prevailing in the present case. One of these was their failure, having seen the report in the auction pack from the defendants, to make
any approach to Mr Spence to have him amplify or clarify moisture issues addressed in his report. A second, arguably, is their failure to employ their own builder or property inspection expert to carry out a full inspection of the house before agreeing to buy it. And lastly, it is perhaps curious in light of the moisture comments in the report that the plaintiffs did not ask the specific question “Is this a leaky home” of the vendors, their agents, or an appropriate expert.
[80] With these matters in mind, it is my view that the misleading and deceptive conduct on the part of the defendants here was not the sole cause of the plaintiffs’ loss. Clearly it was a significant contributing cause however, such that the justice of this case requires the defendants to bear responsibility for 50 per cent of the total loss incurred by the plaintiffs. In my judgment the remaining 50 per cent of this loss is attributable to the plaintiffs’ own carelessness in failing to protect their position as prudent purchasers of the property, along with the potential liability of the vendors who in particular benefitted from the conduct complained of.
[81] That said, the measure of loss under the FTA which the defendants and each of them are to bear here, being 50 per cent of the total loss incurred by the plaintiffs is to be $85,000. This represents one half of the $170,000 figure noted at para [69] above. The plaintiffs before me also sought interest on this sum from 5 May 2015, the date when they finally sold the property and when their losses crystalised. Little argument was advanced before me on the part of counsel for the defendants on this interest claim. But in any event, I am satisfied that, to place the plaintiffs as the wronged party in the same position as they would have been but for the defendants’ behaviour here, they are entitled to the interest sought as reparation for the actual damage that has flowed. The plaintiffs therefore are entitled to interest on this
$85,000 loss from the date the loss crystalised, being 5 May 2015, to the date of final payment at a reasonable interest rate which I determine at 5 per cent per annum.
[82] Although that disposes of the plaintiffs’ FTA claims here, in the alternative relief claim in their statement of claim and before me it was contended that cost to cure damages might be awarded in the circumstances prevailing in the present case. Certain evidence was then provided by the defendants that the estimated cost of repairs to fix the original weathertightness issue was only approximately $50,000.
The plaintiffs suggested a much higher repair cost figure. However, in my view, damages awarded on a cost to cure basis are not appropriate in this case. As I see it, first, the plaintiffs here took all reasonable steps to seek proper advice on the value of the property after discovery of the leaks and secondly, they acted properly in selling the property under an arm’s length transaction at a valuation figure. Therefore, they should and can only really be awarded damages calculated on the basis of the loss actually incurred by them here. Furthermore, the plaintiffs have already sold the property. They are no longer in a position to remediate.
[83] Having said that, I do need to add that I accept there:19
…are no absolute rules in this area…the key purpose when assessing damages is to reflect the extent of loss actually and reasonably suffered by the plaintiff.
[84] Relevant considerations in cases such as the present include the nature of the property concerned and the plaintiffs’ relationship with it, the defendants’ connection with the property, if any, the nature of the wrongful act and the conduct of the parties subsequent to the wrong, whether it is reasonably possible to remediate what has been unsoundly constructed, and the general principle that it must always be reasonable for a plaintiff to seek to have her/his property reinstated if that is
determined to be a genuine intent.20
[85] In the case before me, as I have noted, the plaintiffs having sold the property, they ceased to be in any position to carry out remediation work. Damages, being the loss calculated on a diminution of value basis as opposed to that calculated on a cost of cure basis, are appropriate and all that are realistically available in this case.
[86] That said, as I note at para [81] above, the damages to be awarded to the plaintiffs against the defendants are to be $85,000 representing one half of their total
$170,000 loss figure plus interest on the $85,000 amount at 5 per cent per annum
from 5 May 2015 to the date of final payment.
19 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, per Tipping J at
[156].
20 On this, see generally Tipping J in Dynes v Warren & Mahoney (HC) Christchurch A242/84, 16
December 1987 at [68]-[73].
Second cause of action – negligent misstatement
[87] The second claim by the plaintiffs against the defendants is in negligence, specifically negligent misstatement. Given my decision on the plaintiffs’ FTA first cause of action noted above, generally I need only deal briefly with this second alternative claim which I now do.
[88] The tort of negligent misstatement was established by the House of Lord in Hedley Byrne & Co Ltd v Heller & Partners Ltd where it was held that someone with special skills who made a statement or gave advice to another person which was false could owe them a duty of care and be liable for loss flowing therefrom.21 Lord Morris said that:22
… if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies on such skill, a duty of care will arise. The fact that the service is to be given by means of, or by the instrumentality of, words can make no difference. Furthermore, if, in a sphere in which a person is so placed that others could reasonably rely on his judgment or his skill or his ability to make careful enquiry, a person takes it on himself to give information or advice to, or allows his information or advice to be passed on to another person who, as he knows or should know, will place reliance on it, then a duty of care will arise.
[89] The requirements that must generally be met to establish a claim for negligent misstatement are summarised by the House of Lords in Caparo Industries Plc v Dickman. It held:23
[T]he necessary relationship between the maker of a statement or giver of advice (“the adviser”) and the recipient who acts in reliance upon it (“the advisee”) may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually on inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for the purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment. That is not, of course, to suggest that these conditions are either conclusive or exclusive…
21 Hedley Bryne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
22 At 502-503.
23 Caparo Industries Plc v Dickman [1990] 2 AC 605 (HL) at 638.
[90] In Attorney-General v Carter, Tipping J elaborated that while in most cases there would be no voluntary assumption of responsibility, the law would deem the defendant to have assumed responsibility if the defendant foresaw or ought to have foreseen that the plaintiff would place reasonable reliance on what was said.24
[91] Particular ingredients of this tort require:
(a) The advice is required for a purpose, particularly or generally described, which purpose is made known, either actually or inferentially, to the advisor at the time the advice is given;
(b)The advisor knows that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by that advisee for that purpose;
(c) It is known, actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purchase without independent inquiry;
(d) The advice is so acted upon by the advisee to his detriment;
(e) To establish personal liability there has to have been such an assumption of responsibility as to create a special relationship with the plaintiff.
[92] I now turn to the specific facts at hand to determine whether the defendants owed a duty of care to the plaintiffs when preparing the report, albeit the report was prepared for the Dixons as vendors through Harcourts, the real estate agency.
What was the purpose of the advice known to the defendants at the time of the assessment?
[93] As already noted, the scope of the report was said to be to “carry out visual inspection for signs of moisture damage and associated concerns”. Furthermore, as
24 Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [26].
the disclaimer noted, the assessment was carried out by non-invasive means. However, during cross examination, it was noted that on Spence Consultants’ website, a claim was made that they prepared reports in order to improve the attractiveness of a property in question by giving potential purchasers “peace of mind”. Furthermore, Mr Spence in cross-examination also stated that “people seek me out to solve their leak problems”. This suggests that notwithstanding the stated scope and purpose in the report, a further purpose of the assessment, known to some at least inferentially at the time of the assessment, was to improve the attractiveness of the property by including the report to give potential buyers a “peace of mind”.
Did the defendants know (at least inferentially) that their advice would be communicated to the plaintiffs in order that it could be used by the plaintiffs for the purpose of considering a purchase of the property?
[94] As I see it, there is no doubt that the report was being obtained for the purpose of marketing the property for sale. It was specifically requested by the real estate agents Harcourts on behalf of the vendors, the Dixons. Further, I find that the defendants knew (at least inferentially) that the report would be provided to prospective purchasers no doubt to assist in giving them “peace of mind” over issues with the house on the property. During cross-examination, before me Mr Spence acknowledged:
Q. But you knew that the property was being sold didn’t you?
A. At the time of the inspection they hadn’t made a decision to sell it, they were considering it. From what I’ve since learnt Harcourts were not signed up until end of June/July and marketed it over the next month and sold it within that month I think it was, about August, early August.
Q. Yes, but you met with the agent at the property didn’t you?
A. I only got called in by Sarah on Alison’s recommendation, who is the listing agent because they know I do specific reports on leaks. People seek me out to solve their leak problems.
Q. But you are producing a report for potential vendors?
A. No, I’m producing a report for Kate and Craig Dickson.
Q. Yes. But you know that they had already been speaking to Harcourts
Genadier?
A. No that was the – the first day – I actually was on my way home at about half past four when Sarah rang me and I got there and it was the first day she’d been involved with the Dixons and from what I understand they were just suggesting the sale of the property, but certainly they’d made no decision at that point.
Q. But it would’ve been obvious to you that if there was an estate agent at your inspection, in fact the estate agent’s actually showing you the leak, that an estate agent was being engaged by the Dixons to assist them with the sale of the property?
A. Yes, but they wanted clarification on that one leak.
[95] The defendants, at least inferentially, in my judgment would have known that the report was likely to be provided to potential sellers. The defendants, having been engaged by real estate agents to investigate and report on a leak ought to have reasonably foreseen that the advice given would be relied on by potential purchasers, including the plaintiffs. When asked during cross-examination whether it was obvious that when a real estate agent engaged the defendants to investigate a leak it was to assist with a potential sale of the property, Mr Spence finally agreed yes – it was obvious. And lastly, as Mr Spence acknowledged, the defendants specialise in preparing “reports on leaks” and Mr Spence confirmd “people seek me out to solve their leak problems”.
Did the defendants know (at least inferentially) that the advice was likely to be acted on without independent inquiry?
[96] Given that the defendants in my judgment must have known the report prepared was likely to be communicated to potential purchasers, it follows that the defendants ought to have known, at least inferentially, that the advice was likely to be acted on without further independent inquiry.
[97] The purpose for which the defendants were engaged to prepare the report, albeit a brief report, was the same purpose for which the plaintiffs relied upon it. By inference at least, I am satisfied the defendants knew that the advice provided was likely to be acted upon by potential purchasers without further independent inquiry. There was nothing in the short report itself to suggest that the advisee/reader should make further enquiries.
Did the plaintiffs act on the advice to their detriment?
[98] There is no dispute that the plaintiffs acted on the defendants’ advice to their detriment. They purchased the property, which the evidence before me showed they would not have done had they known in advance it was a leaky home, and then sold it to “get out of the mess” at a price some $215,000 lower than they had paid for it.
[99] I therefore hold that in the circumstances prevailing in this case the defendants owed a duty of care to others including the plaintiffs when they prepared the report.
Breach of duty of care?
[100] The standard of care which every defendant must conform to is one of reasonableness. As Todd on Torts notes, it is an objective standard that “eliminates the personal equation and is independent of the idiosyncrasies of the particular person whose conduct is in question”.25 Laidlaw JA in Arland v Taylor sums up the test as follows:26
[The reasonable man] is not an extraordinary or unusual creature; he is not superhuman; he is not required to display the highest skill of which anyone is capable; he is not a genius who can perform uncommon feats, nor is he possessed of unusual powers of foresight. He is a person of normal intelligence who makes prudence a guide to his conduct. He does nothing that a prudent man would not do and he does not omit to do anything that a prudent man would do. He acts in accordance with general and approved practice. His conduct is guided by considerations which ordinarily regulate the conduct of human affairs. His conduct is the standard adopted in the community by persons of ordinary intelligence and prudence.
[101] In the case of the specially skilled, the standard of conduct must conform to that which ought to be attained by persons holding themselves out as possessing those relevant skills. In the profession relevant to the defendants, they must exhibit the care reasonably expected of the building inspection industry, judged as at the
time the work is done.
25 Stephen Todd (ed) The Law of Trots in New Zealand (7th ed, Thomson Reuters, Wellington,
2016) at [7.2.01] quoting Glasgow Corp v Muir [1943] AC 448 (HL) at 457 per Lord Macmillan.
26 Arland v Taylor [1995] OR 131, [1955] 3 DLR 358 (ONCA) at [29].
[102] The defendants contend here that the report does not contain any negligent misstatement and therefore they did not breach their duty of reasonable care. It is the defendants’ position that the statements made in the report were not false or misleading. On this basis, they contend that the report was prepared with reasonable care and skill and therefore the defendants cannot be liable for negligent misstatement.
[103] On this aspect, the defendants note comments made in Mok where Whata J
held:27
I do not consider, however, it is sufficient to show that the statements were simply wrong. Experts can disagree on the implications of the same facts. One opinion may be proven to be correct, but that does not make the other opinion negligent.
[104] The defendants maintain here that at the time of the inspection of the property on 16 April 2013, no defects were discovered by the internal moisture testing Mr Spence undertook. They argue that the testing carried out later by Mr O’Brien was more invasive and beyond the scope of the initial assessment. Therefore, the results obtained by Mr O’Brien would not reasonably have been noted by the defendants during the visual and non-invasive moisture testing Mr Spence carried out to the interior of the house in April 2013.
[105] However, I do not find this case to involve a mere difference in opinion of experts or as to standards as Whata J decided in Mok. For reasons I have addressed above at some length, I am of the view that the defendants here breached their duty of care both by making statements in their report that were simply misleading and by failing to note risks and defects that even a simple non-invasive and visual inspection would suggest for the property here as a leaky home.
Reasonable reliance and the defendants’ disclaimer?
[106] Turning now to the issue of reasonable reliance, before me counsel for the defendants suggested it was not reasonable for the plaintiffs to rely on the report in
all the circumstances here as it was a very brief report, clearly limited in scope, and
27 Mok v Bolderson, above n 4, at [141].
not a full property inspection report. In addition, counsel noted that no further inquiry was made of it by the plaintiffs. I disagree as to this reliance point. The evidence before me was clearly to the effect that the report was in fact discussed with the plaintiffs’ lawyer and co-trustee and heavily relied upon in the purchase decision. Admittedly it was only a brief report but it was clear and unequivocal and I am satisfied it was reasonable for the plaintiffs to rely on it as they did.
[107] Another important consideration here must be Spence Consultants’ disclaimer. In Redican, when considering disclaimer of liability clauses in negligent misstatement cases such as this, Kós J held at [48]:
A disclaimer of liability can make reliance unreasonable and therefore give “immunity to a negligent answer”. In Hedley Byrne & Co Ltd v Heller & Partners Ltd the House of Lords held the disclaimer “CONFIDENTIAL…For your private use and without responsibility on the part of this bank or its officials” prefacing a letter meant the plaintiffs could not reasonably rely on statements contained within it, and was thus effective in excluding liability. In general “a disclaimer will be determinative in cases where the cause of action is negligent misstatement.”
[108] As Bonney v Cottle28 which I referred to at [47] above notes, a proper disclaimer clause can provide a total defence to a negligent misstatement claim. It was also found in Bonney that it could be immaterial whether or not plaintiffs had received a copy of a defendant’s disclaimer in advance of their reliance. The disclaimer in those circumstances could still apply and therefore the defendants in that situation might not be liable for a negligent misstatement.
[109] In the present case, the defendants had absolutely no control over whether or not the plaintiffs saw the disclaimer. It was simply omitted from the auction package handout. It is true the disclaimer clause was not a particularly extensive one but it did explain the limited inspection undertaken and noted that it did not assess compliance with the NZ Building Code including the code’s weathertightness requirements or structural aspects. Further specialist inspections were invited on
request.
28 Bonney v Cottle (HC) Auckland CIV-2010-404-427, 24 November 2011, Bell AJ.
[110] Although as I have noted above, I find that the defendants did not meet the required standard of care expected from competent pre-purchase inspectors carrying out this inspection at the time it occurred, and thus reasonable care was not exercised, there is a reasonable argument here that the disclaimer might be determinative insofar as the negligent misstatement cause of action is concerned. If I pursue this argument to its logical conclusion, it means therefore that I stop short here of finding liability against the defendants or either of them on the negligent misstatement cause of action. Given that, I need go no further to consider whether Mr Spence would be personally liable here for the negligent misstatements given that the report was issued by Spence Consultants, or whether he is protected by the separate legal identity of his company. Had I been required otherwise to consider this issue, I express my initial view that personal liability on the part of Mr Spence would have been established here as there was such an assumption of responsibility in all the circumstances as to create a special relationship with the plaintiffs.
Measure of loss for negligent misstatement?
[111] And, given my comments above, there is also no need here to consider this aspect. If I am wrong, however, in the tentative conclusion I have reached at para [110] above and I do need to consider the measure of loss on the second negligent misstatement cause of action, then I find that it would be the same measure of loss as for the FTA first cause of action. This would amount to $170,000 with a
50 per cent contribution by way of contributory negligence and otherwise leaving a liability here of $85,000 plus interest.
Result
[112] For the reasons I have outlined above, the plaintiffs’ claim against the first defendant and the second defendant but only under their first FTA cause of action succeeds. Judgment is entered accordingly, and I order that the first defendant and the second defendant jointly and severally are liable to pay the plaintiffs $85,000, plus interest on this sum from 5 May 2015 to the date of final payment at the rate of
5 per cent per annum.
Costs
[113] At the hearing of this matter, no submissions were advanced before me on the issue of costs. Costs are therefore reserved.
[114] In the event that counsel are unable to agree between themselves as to costs, then they may file memoranda sequentially which are to be referred to me and in the absence of either party indicating they wish to be heard on the question of costs I will decide that issue based upon the memoranda and the material then before the Court.
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Gendall J
Solicitors:
Cavell Leitch, Christchurch
White Fox & Jones, Christchurch
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