Sullivan v Wellsford Properties Limited - [2019] NZCA 168

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA727/2017
[2018] NZCA 168

BETWEEN	PETER ANTHONY SULLIVAN First Appellant PORT ALBERT INVESTMENTS LIMITED Second Appellant
AND	WELLSFORD PROPERTIES LIMITED First Respondent GARRY EDWARD HANNAM Second Respondent

Hearing:	18 September 2018
Court:	Kós P, Winkelmann and Clifford JJ
Counsel:	P J Dale and A J Steel for Appellants J K Goodall, J P Golightly and K M Venning for Respondents
Judgment:	20 May 2019 at 11.30 am

JUDGMENT OF THE COURT

AThe appeal is allowed.
BJudgment is entered for the appellants against the first and second respondents in accordance with [119] of this judgment.
C The first and second respondents must pay the appellants one set of costs for a standard appeal on a band A basis and usual disbursements.
DCosts in the High Court are to be determined in that Court.

____________________________________________________________________

REASONS OF THE COURT

(Given by Clifford J)

Table of Contents

Introduction  [1]
Background  [4]
The High Court decision  [41]

Causes of action  [41]
Breach of the Agreement  [44]
Misrepresentation by silence  [46]
Misrepresentation of fact  [47]
Misleading and deceptive conduct  [51]
Causation and quantum  [52]

The appeal [53]

Appellants’ submissions [53]
Respondents’ submissions [56]

Analysis [60]

Overview  [60]
Clause 18 and Wellsford’s disclosure obligation  [61]
The Fair Trading Act claims  [77]
Causation  [99]
Quantification of loss  [106]
Summary of findings  [118]

Result [120]

Introduction

In August 2014 the second appellant, Port Albert Investments Ltd — acting as nominee of the first appellant, Peter Sullivan — settled the purchase of a property (the Property) from the first respondent, Wellsford Properties Ltd.
Mr Sullivan and Port Albert subsequently sued Wellsford and the second respondent Garry Hannam, a shareholder in and the sole director of Wellsford, for $428,377.43. They said that was the loss they had suffered by reason of the failure of Wellsford and Mr Hannam to disclose material information to them during their due diligence investigation of the Property.
Those claims were unsuccessful in the High Court.[1] Mr Sullivan and Port Albert now appeal.

Background

[1]Sullivan v Wellsford Properties Ltd [2017] NZHC 3047 [High Court judgment].

The facts are not in material dispute. They were comprehensively recorded by Gordon J in the judgment under appeal. We can therefore summarise them reasonably succinctly for our purposes.
The Property comprises a service station and an adjoining food court. There are a total of seven tenants.[2] The service station occupies the larger part of the Property. Wellsford put the Property up for sale in early June 2014. Wellsford hoped that, at a rate of return of between six and seven per cent, the Property might generate offers of close to $6 million. It engaged Jones Lang LaSalle Ltd as its agent. Jones Lang prepared and circulated an information memorandum. The information memorandum disclosed total rental income of $438,114, operating expenditure (OPEX)[3] shortfall of $32,563 and, hence, net income of $405,551. The Property came to the attention of a group of family and friends (the Group)[4]…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] NZCA 168
Decision Date: 20 May 2019 at 11.30 am

CaseChat Overview and Summary

In this case, the appellants, Peter Sullivan and Port Albert Investments Ltd, sued the respondents, Wellsford Properties Limited and Garry Hannam, for breach of contract, misrepresentation, and misleading and deceptive conduct under the Fair Trading Act 1986. The case was dismissed in the High Court, and the appellants appealed the decision. The Court of Appeal allowed the appeal, finding that the respondents breached their disclosure obligations under the contract and engaged in misleading and deceptive conduct. The Court found that the loss suffered by the appellants was the capitalisation of the reduction in net rent caused by the lower recovery of operating expenses (OPEX) from one of the tenants, Caltex No 8. The damages were calculated using a capitalisation rate (CAP rate) of 7.55%, which amounted to $424,371. The respondents were ordered to pay the appellants the damages, as well as one set of costs for a standard appeal on a band A basis and usual disbursements. The costs in the High Court were to be determined in that Court.

Orders