Sutherland v Kao HC Auckland CIV 2006-404-5990

[2008] NZHC 2490

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2006-404-5990

BETWEEN  ARTHUR M SUTHERLAND & ANOR Plaintiff

ANDCHING M KAO & ORS Defendant

Hearing:         4 August 2008

Appearances: G J Kohler for Plaintiff

D C Liu for First Defendant
F Divich for Fifth Defendants

Judgment:      8 August 2008 at 4 pm

JUDGMENT OF ASSOCIATE JUDGE ROBINSON

This judgment was delivered by me on 8 August 2008 at 4 pm, Pursuant to Rule 540(4) of the High Court Rules

Registrar/Deputy Registrar

Date……

Counsel/Solicitors:           Sean P Kelly & Associates, PO Box 56230, Dominion Road, Auckland

Heaney & Co, PO Box 105391, Auckland

Yu Lawyers, 711 Dominion Road, Balmoral, Auckland

ARTHUR M SUTHERLAND & ANOR V CHING M KAO & ORS HC AK CIV 2006-404-5990  8 August

2008

[1]      The plaintiff purchased a town house at 2/62 Atkin Avenue, Mission Bay from Mr and Mrs Kao who are the first defendants. Following the purchase, the plaintiffs became aware of substantial defects in the construction of the town house. They estimate the cost of repair at about $300,000. They are bringing these proceedings   against   Mr   and   Mrs   Kao   alleging,   inter   alia,   pre-contractual misrepresentations.

[2]      Mr and Mrs Kao apply to strike out the plaintiffs’ claim against them on the following grounds:

a)       As the proceedings were not served within twelve months after the day on which the statement of claim and notice of proceedings were filed, the proceedings should be deemed to have been discontinued in terms of r 127(2) High Court Rules.

b)That the plaintiffs have not established a good arguable case against Mr  and  Mrs  Kao.  As  Mr  and  Mrs  Kao  reside  in  Taiwan,  in  the absence of a good arguable case against them the proceedings should be dismissed.

[3]      Mr and Mrs Kao object to the jurisdiction of the court to hear and determine these  proceedings  against  them.  They  have  filed  an  appearance  under  protest pursuant to r 131.

Background

[4]      The property purchased by the plaintiffs is one of three town houses built by

Joyce Developments Limited, the second defendants, in 1994. On 10 February 1995

Mr and Mrs Kao purchased the property from Joyce Developments Limited.

[5]      At some time prior to 11 February 2003 Mr and Mrs Kao became aware of defects in the construction of the dwelling causing water leakage. They arranged for Joyce Developments and Lionel Joyce, the third defendant to complete remedial work to repair the defects and to obtain a code compliance certificate.

[6]      On 30 June 2003, the Auckland City Council, being the fifth defendant, issued an interim code compliance certificate in respect of the property.

[7]      On 17 August 2003 the plaintiffs viewed the property as an open home. They revisited the property on 18 and 19 August 2003 when they also discussed the state of the property with Mrs Kao.

[8]      The plaintiffs attended the auction of the property on 20 August 2003. The property was presented as a sound well constructed property. The plaintiffs were the successful bidders at the auction and in terms of the agreement entered into at that time, they acquired the property for a sum of $780,000, settlement to be on 30

September 2003.

[9]      They settled the purchase on 12 September 2003 when they entered into possession of the property.

[10] On 29 March 2005, staff from the Auckland City Council conducted a site inspection. At that site inspection the council officers determined that the building work was defective and by notice dated 13 June 2005 wrote to the plaintiffs pursuant to ss 164 and 165 Building Act 2004 advising inter alia:

On 29 March 2005 Council conducted a site inspection of the above mentioned property. As a result of this inspection, Council identified that there is building work which:

Has not been undertaken in accordance with the requirements of the New  Zealand  Building  Code  (“the  Building  Code”)  and  in particular,  is  in  breach  of  clauses:  B2  durability,  E2  external moisture of the Building Code.

Has not been undertaken in accordance with the requirements of the Building Act 2004 (“the Act”) and in particular, is in breach of sections 17, 40(1 & 2), 44(1) and 168(1) of the Act.

[11]     The notice went on to specify the defects requiring remedy. The plaintiffs have obtained evidence that it will cost over $300,000 to remedy the defects that have been identified.

[12]     The plaintiffs have obtained information that Mr and Mrs Kao received a comprehensive report on the defects in construction of the property prepared by Mr Trevor Jones of Alexander & Co on 29 July 2002. The plaintiffs claim that the work undertaken by Joyce Developments Limited and Lionel Joyce did not remedy the defects identified in the report from Alexander & Co Limited. The plaintiffs further claim that Mr and Mrs Kao were aware that the work undertaken by Joyce Developments Limited and Lionel Joyce did not remedy the defects. They therefore claim that the pre-contractual representations to the general effect that the property was soundly built and in good condition were false. They also claim that Mr and Mrs Kao were aware that the representations being made were false.

[13]     The plaintiffs issued these proceedings on 2 October 2006. Mr and Mrs Kao claim that they were served with the proceedings in Taiwan on 15 November 2007. As the proceedings were served over twelve months after the date of the filing of the plaintiffs claim, the plaintiffs seek an extension of time.

Plaintiffs’ Application for extension of time for service of proceedings on Mr and Mrs Kao

[14]     It is pointed out on behalf of Mr and Mrs Kao that as they were served with the proceedings over twelve months after the filing of the statement of claim and notice of proceedings, pursuant to r 127(2) the proceedings are deemed to have been discontinued by the plaintiffs against Mr and Mrs Kao unless the time for service is extended pursuant to r 128 High Court Rules.

[15]     Mr and Mrs Kao oppose any application to extend the time for service of the proceedings on them. Mr and Mrs Kao claim to have been embarrassed and prejudiced by what their counsel describes as the extraordinary delay. In particular, they say that as a consequence of the delay they have lost documents that could potentially assist  their  case.  They  also  point  out  that  in  the  evidence  from  the plaintiffs as to efforts made to serve them, there is a delay of some nine months between October 2006 and July 2007 where the plaintiffs appear to have taken no action whatsoever to locate and serve Mr and Mrs Kao.

[16]     Counsel for Mr and Mrs Kao relied upon the decision in Watson v Watson (1990) 4 PRNZ 397. In Watson’s  case, the court refused an application to extend the time for service of proceedings for orders under the Family Protection Act 1955.

[17]     In  support  of  the  application  to  extend  the  time  for  service  of  these proceedings, counsel for the plaintiffs referred to the plaintiffs’ evidence of the attempts made to locate and serve Mr and Mrs Kao. It was also emphasised that the claim  by  the  plaintiffs  against  Mr  and  Mrs  Kao  is  not  statute  barred  and consequently, if the application to extend time should be declined, the plaintiffs would be entitled to bring separate proceedings against Mr and Mrs Kao.

[18]     The application to extend time for the service of the proceedings on Mr and Mrs Kao is supported by the fifth defendant, namely the Auckland City Council. The Auckland City Council intends to serve a notice on Mr and Mrs Kao under r 163 claiming contribution from Mr and Mrs Kao in respect of any award of damages made in favour of the plaintiffs against the Auckland City Council. If Mr and Mrs Kao succeed in having the proceedings against them dismissed the Auckland City Council is likely to apply to have Mr and Mrs Kao joined as third parties.

[19]     The evidence establishes that prior to the issue of these proceedings, the solicitors for the plaintiffs contacted Dawsons solicitors of Auckland who were the solicitors acting for Mr and Mrs Kao when the plaintiffs purchased the property. That correspondence discloses that in October 2006, Dawsons advised the plaintiffs’ legal advisors that they last acted for Mr and Mrs Kao in late 2003 when they corresponded with Mr and Mrs Kao at an address in Taiwan. Dawsons also advise that they have no recent contact, let alone instructions, to accept service of court documents.

[20]     As a result of that correspondence, the plaintiffs believed Mr and Mrs Kao to have returned to  Taiwan.  The plaintiffs  attempted to  locate a process  server  in Taiwan for the purpose of locating and serving Mr and Mrs Kao with these proceedings. They say there were difficulties because they were unable to provide the Chinese spelling of Mr and Mrs Kao’s names. As it happens, the plaintiffs son lives  in  Taiwan  and  is  married  to  a  citizen  of  Taiwan.  The  plaintiffs  say they

attempted without success to instruct a lawyer in Taiwan and a process server in

Taiwan through their son to assist in service of these proceedings.

[21]     The plaintiffs say that on reviewing the documents on their conveyancing file in July 2007 they located a power of attorney given by Mr Kao to Mrs Kao for the purpose of executing all documents relating to the sale of the unit to the plaintiffs. The power of attorney is dated 26 August 2003 and was executed in Taiwan at the office of a notary public of the Taiwan Shihlin District Court ROC.

[22]     On  becoming  aware  of  the  information  on  the  power  of  attorney,  the plaintiffs instructed their son in Taiwan to make inquiries of the Shihlin District Court. That court required authority confirmed by the Taiwanese Economic and Cultural Centre in Auckland. The plaintiffs’ son continued to make inquiries in Taiwan. Finally, the plaintiffs’ son located Mr and Mrs Kao and arranged for service on 15 November 2007.

[23]     The documents produced by the plaintiffs establish that they made extensive efforts to locate Mr and Mrs Kao following the issue of these proceedings. It is correct that there is no direct evidence of efforts to locate and serve Mr and Mrs Kao between  October  2006  and  July 2007.  In  July 2007  the  plaintiffs  reviewed  the conveyancing file and located the power of attorney. However, I do not consider the lack of such evidence indicates undue delay. I accept the plaintiffs would have had considerable difficulties in locating Mr and Mrs Kao in Taiwan. Those difficulties would have been exaggerated because the plaintiffs did not have the Chinese spelling of Mr and Mrs Kao’s names. If anything, the plaintiffs are to be commended because of the detective work involved in locating Mr and Mrs Kao through the information contained on the power of attorney.

[24]     It must be accepted that Mr and Mrs Kao could suffer prejudice because of the alleged destruction of essential documents. However, there is no evidence that those documents were destroyed in the few months that elapsed between the expiry of twelve months from the date of the issue of these proceedings and the date of service. Furthermore, a number of documents were produced. Other defendants may

be able to assist Mr and Mrs Kao in providing copies of documents that have been destroyed by them.

[25]     It must also be borne in mind that the plaintiffs claim against Mr and Mrs Kao  is  not  statute  barred.  Consequently,  they  are  entitled  to  issue  separate proceedings against Mr and Mrs Kao. Furthermore, Mr and Mrs Kao were ill advised to destroy documents until such time as any claim by the plaintiffs would become statute barred. In other words, they should have ensured that their documents were retained for up to ten years and at least seven years from the date of the sale of the property to the plaintiffs.

[26]     In Watson v Watson the decision relied upon by counsel for Mr and Mrs Kao, there were considerable delays in completing the affidavits to be filed in support of the application that must be made for directions for service of proceedings issued under the Family Protection Act 1955. In Watson v Watson the statement of claim was filed on 10 February 1989. It was accompanied by an ex parte application for directions   for   service   but   that   application   did   not   include   the   mandatory memorandum of counsel, as required by rule 451(4), together with the filing of an affidavit. That was not completed until June 1990. Thus there was substantial unexplained delay caused by the solicitors in completing the necessary documents to obtain directions for service. There  were further delays in arranging service.  In Watson v Watson case the court refused to extend the time for service and dismissed the proceedings. In coming to that conclusion, the court considered that the plaintiff had not established good reason for not serving the proceedings within the twelve month  period  and  concluded  that  there  was  no  justification  for  the  delay  in completing the documents and arranging service.

[27]     Rule 128 High Court Rules provides as follows:

128     Extension of time for service

(1)The  plaintiff  may,  before  or  after  the  expiration  of  the  period referred to in rule 127, apply to the Court for an order extending that period in respect of any person (being a defendant or other person directed to be served) who has not been served.

(2)On  application  under  subclause  (1),  the  Court,  if  satisfied  that reasonable  efforts  have  been  made  to  effect  service  on  that

defendant or person, or for other good reason, may extend the period of service for 6 months from the date of the order and so on from time to time while the proceeding is pending.

[28]     Consequently, the court can extend the time if it is satisfied that reasonable efforts have been made to effect service or for other good reason. In the present case, I am satisfied that reasonable efforts were made by the plaintiff to effect service. The plaintiff clearly went to considerable lengths to locate Mr and Mrs Kao in Taiwan. The plaintiffs were fortunate in having their son in Taiwan who could assist them. They are to be commended for the amateur detective work involved in locating Mr and Mrs Kao through the power of attorney that was executed by Mr Kao. I do not consider that the prejudice suffered by Mr and Mrs Kao in granting an extension of time for service for two months to be sufficient to justify declining the plaintiffs’ application for an extension of time.

[29]     I  also  take  into  account  the  advice  from  counsel  for  the  Auckland  City Council to the effect that if the proceedings against Mr and Mrs Kao should be dismissed the Auckland City Council is likely to join Mr and Mrs Kao as third parties.

[30]     For the above reasons, I am satisfied that the application by the plaintiffs to extend the time for service of the proceedings on Mr Kao and Mrs Kao should be granted. Accordingly, there is an order extending the time for service of the proceedings on Mr and Mrs Kao to 15 November 2007 which is the day they say they were served with these proceedings in Taiwan.

Whether the plaintiffs have a good arguable case

[31]     It is accepted by Mr and Mrs Kao that the property concerned is located in New Zealand; the agreement for the sale of the property was negotiated and settled in New Zealand, and most of the witnesses relating to the state of the property and the renovations to the property are located in New Zealand. There is prima facie jurisdiction for these proceedings to be determined in New Zealand under r 219. However, it is submitted on behalf of Mr and Mrs Kao and accepted by counsel for the plaintiffs  that before the plaintiffs can proceed with these proceedings against

Mr and Mrs Kao, who reside in Taiwan, the plaintiff must show a good arguable case.

[32]     Counsel for Mr and Mrs Kao relied on the terms and conditions set forth in the written agreement for sale and purchase executed by the parties on the sale of the property to the plaintiffs. In this respect, it was pointed out that immediately prior to sale, Mr and Mrs Kao had received an interim code compliance certificate issued by the Auckland City Council without any conditions. Consequently, Mr and Mrs Kao could not be held to be in breach of the warranty contained in paragraph 11 of the agreement for sale and purchase to the effect that they had not “received any notice or demand or had any knowledge of any requisition or outstanding requirement imposed by any local government authority”.

[33]     Mr and Mrs Kao also relied on clause 4.3 of the agreement which provides:

That neither the vendor, the vendor’s agent nor the auctioneer shall be liable in any manner whatsoever in respect of the condition of the property and in particular but not in limitation in respect of the condition or structural soundness of the buildings and the condition or functioning of the drains, the water pipes and the installation thereon.

It was submitted on behalf of Mr and Mrs Kao that following Aggracote Industries

Ltd (in liquidation) v AC Hatrick NZ Ltd HC CHCH A 135/81 21 November 1986, s

4 Contractual Remedies Act 1979 could not apply to limit the effect of paragraph 4.3 of the agreement for sale and purchase.

[34]     It was acknowledged that Mr and Mrs Kao became aware of defects in the construction of the unit which were set forth in the report by Mr Trevor Jones of Alexander & Co Limited of 29 July 2002. However, they claim to have instructed Joyce Developments Ltd and Lionel Joyce to rectify to those defects. Consequently, they claim to be exonerated from any liability.

[35]      It is submitted on behalf of the plaintiffs that following the report received by Alexander & Co, Mr and Mrs Kao were aware of the substantial defects in the construction  of  the  unit.  In  particular,  the  report  brought  the  following  to  the attention of Mr and Mrs Kao:

a)        That the unit was substantially defective. b)     Destructive testing was required.

c)        The remedial work would be significant and expensive.

d)That all the exterior cladding may need to be replaced and a cavity installed.

e)       The  remedial  work  would  require  the  ongoing  supervision  by  a building consultant experienced in remedial work.

f)        Most importantly, Mr and Mrs Kao were explicitly advised that they would need to: “make application for building consent to Auckland City Council using suitable documentation. The remedial work is not exempt  from  the  requirements  to  obtain  a  building  consent.  (this report can be part of that documentation)”.

[36]     Mr and Mrs Kao chose not to follow the report, nor did they obtain a building consent. Such building consent was a statutory obligation placed on them at that time by virtue of s 7, 32, and 33 Building Act 1991.

[37]     It is submitted that rather than comply with their statutory obligations to obtain a building consent and to attend to all the matters set forth in the report from Alexander & Co, they, in association with Joyce Developments and Lionel Joyce, attended  only  to  such  work  as  was  required  to  obtain  the  outstanding  code compliance certificate and they dealt with the obvious visual defects without disclosing the Alexander & Co report to the Council. Consequently, the significant and expensive underlying problems with the house were not addressed, rather they were covered up.

[38]     It   is   further   submitted   that   Mr   and   Mrs   Kao,   together   with   Joyce Developments Ltd and Lionel Joyce, deliberately covered up the faults, and arranged for the property to be auctioned, thus considerably restricting their potential liability for any misrepresentations with regard to the state of the property. As it happens, the

property was auctioned the day after proceedings were issued by Mr and Mrs Butterworth who owned one of the three units forming the building constructed by Joyce Developments Ltd and Lionel Joyce. Those proceedings were for damages for defective construction in the unit.

[39]   The plaintiffs say that when inspecting the property they observed that floorboards near the dining room door had been repaired and skirting on the back wall of the garage appeared wet. On questioning Mrs Kao about these items they were advised that the door had been left open when Mr and Mrs Kao were away on holiday and consequently the floor had been damaged by rain water. They were advised that the skirting on the back wall of the garage was wet because of the removal that morning of a washing machine when the tap had been left on flooding the garage.

[40]   Based on the above evidence the plaintiffs rely upon pre-contractual misrepresentations by Mr and Mrs Kao. They say the property was marketed to them as being sound. It was presented visually as sound and in very good condition. They point out that it was freshly painted.

[41]     The evidence produced by the plaintiffs establishes that the Kaos must have been aware of the extent of the defects in the construction of the unit they eventually sold to the plaintiffs. They had received a very extensive report from Alexander & Co Limited. That report not only identified apparent defects, but made recommendations for the purpose of locating latent defects. In particular, the report from Alexander & Co notes:

a)This property is built with many poor details that are allowing water entry into the frame and represent a failure of the cladding. The exact point of entry of all signs of entry is not certain. However, some of the areas where this is, or has occurred are obvious and others remain to be investigated. We expect to find timber decay in the frame (in addition to that seen in the dining room under the windows) where saturation moisture readings have been obtained.

b)Recommendations for proceeding are as listed in the report. Before a commitment is made to such repairs, the following further investigations should be completed; fully exposed, by localised destructive testing, the  timber  frame  in  the  worst  effected  areas. Investigate the frame elsewhere by hammer moisture probe in areas

that  may  be  effected.  This  will  give  a  good  indication  of  the condition of the frame and that our remedial proposals are justified.

c)You could expect repair costs to be expensive and should budget in addition for GST and other defects.

d)        This preliminary inspection and report has not attempted to;

•     Find every point of water ingress

•    Determine  all  the  reasons  for  cracking  of  the  stucco plaster and water ingress

•    Allocate responsibility for defects

[42]     The report included the following recommendations:

i)	Make further investigations involving targeting destructive testing.
ii)	Produce documents to describe the works required and the conditions of contract once a scope of work has been established by the further investigations.
iii)	Make application for building consent to Auckland City Council using suitable documentation. The remedial work is not exempt from the requirements to obtain a building consent. (this report can be part of that documentation).
iv)	This work will require ongoing observation and supervision by a building consultant experienced in this type of problem.
v)	Experience on similar work indicates that the repair work costs will be significant but it is too early to provide you with a budget on this. Will depend on how far repairs have to go. This type of work is slow and far more expensive than new construction.
a)	If there is any exterior cladding after all of the above matters are addressed, it would not be sensible to leave it in place. The  results  of  this  preliminary  survey  suggest  that  all exterior cladding may have to be replaced.
b)	Any new cladding system will have to address all the current issues. A drained cavity cladding system should be one of the remedial options considered.

[43]     The evidence adduced by the plaintiffs establishes that rather than attend to the extensive and expensive remedial work recommended by Alexander & Co, including recladding, Mr and Mrs Kao required Joyce Developments Ltd and Lionel Joyce to only do sufficient to obtain a code compliance certificate. They did not

obtain a building consent as required by the Building Act which was then in force and as recommended by Alexander & Co, nor did they arrange for the work to be supervised by a competent person.

[44]     According  to  Mr  Hursthouse,  a  building  consultant  instructed  by  the plaintiffs, significant issues identified by Alexander & Co in its report were not addressed by the remedial work undertaken to attend to those problems. In particular, decaying timber framing discovered in the dining hall was not replaced, elevated ground levels in three significant areas were left untouched, and the bottom plate does not appear to have been exposed anywhere. Furthermore, Mr Hursthouse found that some issues raised by Alexander & Co in the report were only dealt with in a limited  and  unsatisfactory manner.  In  particular,  the  systemic  problem  with  the cladding was not addressed by the remedial works. Mr Hursthouse identified work completed not for the purpose of rectifying a defect, but for the purpose of hiding the defect. That work included removal of carpet which, according to the report from Alexander & Co, had been water damaged and replacement with tiles so that the tell- tale signs of existing decay had been removed. The cladding had been repainted but not repaired. Mr Hursthouse concluded that even a visitor with some industry knowledge would believe that all the problems had been addressed and the house was then code compliant when in fact there were serious problems including decayed structural framing which were hidden despite having been explicitly described in the Alexander & Co report.

[45]     Mrs  Kao  in  her  evidence  in  support  of  the  application  to  dismiss  the plaintiffs’ claim, states that she acquired the unit from Joyce Developments Ltd in

1995. She says that settlement occurred before the issue of an interim code compliance certificate. At the time of settlement, she had received a letter from the solicitors from Joyce Development Ltd enclosing a letter from the City Council dated 2 February 1995 advising that at a recent inspection the council considered that the work had been completed satisfactorily and that on receipt of  a  “advice  of completion of builders work” form, the Council anticipated issuing an code compliance certificate.

[46]     According to Mrs Kao, some months after taking possession of the property, she and her husband returned to Taiwan leaving her children residing at the property. In August 2001 Mrs Kao received a letter from the council advising that a final inspection had not been undertaken and seeking arrangements for such inspection at a time convenient to the parties. She says she referred the problem to her solicitors who in turn entered into negotiations with Joyce Developments Ltd to carry out remedial  works  on  the  property so  that  a  code  compliance  certificate  could  be obtained. She has produced details of the work she arranged with Joyce Developments Ltd. She states that she considered it unreasonable to have to pay for the remedial work as Joyce Developments Ltd had constructed the house. However, she did enter into an arrangement with Joyce Developments Ltd to complete work to the stage where a code compliance certificate would issue. She has exhibited a specification for the work to be completed by Joyce Developments Ltd. That specification includes a provision for the painting of the exterior cladding with good quality exterior paint and a comment that the item is obviously needed as a maintenance item.

[47]     Mrs Kao makes no reference to the report she received from Alexander & Co Ltd and there is no reference to that report in the specification for the work to be undertaken by Joyce Developments Ltd. The evidence establishes that no building consent was obtained and the work was not supervised by a competent person.

[48]     Based on that evidence, there is an arguable case that Mr and Mrs Kao had not arranged for the defects in construction identified by Alexander & Co Limited’s report to be rectified but together with Joyce Developments Ltd arranged for work to be done to cover up the defects. In this way they were able to present the property as being soundly built and in good condition when they were aware that this was not correct.

[49]     The plaintiffs can rely on s 4 Contractual Remedies Act 1979 with regard to pre-contractual representations notwithstanding any provision in the agreement purporting to make such representation unenforceable. S 4 of the Contractual Remedies Act 1979 provides:

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.

[50]     With regards to attempts to conceal defects, Dr McMorland in “Sale of Land”

in paragraph 2.04 states:

Though there is no duty to draw a purchaser’s attention to defects in quality, the  vendor  may  not  deliberately  conceal  a  defect,  as  by  plastering  and painting over cracks in walls, thereby making latent an otherwise patent defect. This and any other conduct intended to prevent discovery by the purchaser of a defect in quality is fraudulent misrepresentation.

[51]     In support of the claim by Mr and Mrs Kao that the plaintiffs could not rely on the pre-contractual representations, counsel for Mr and Mrs Kao referred to the decision of Aggrecote Industries Ltd (in liquidation) v A C Hatrick (NZ) Limited. However, in that case the court concluded that there were no pre-contractual representations. The case concerned the sale of coated wall board marketed under the name “Bricklite”. At the conclusion of the decision Cook J at page 24 stated:

I have been unable to find that there were any terms or conditions in the contract between the parties whereby the defendant was to manufacture and supply a product reasonably fit for the plaintiffs’ purpose, as first claimed by the plaintiff, but, even if there were, there is no evidence whatsoever of any negotiations between the parties.

The operation of the section is limited to negotiations leading to the making of a contract. As I see it the purpose of the section is to prevent the evil which may result when one party enters into a contract on the strength of statements made or undertakings given, by the other, but, when he finds the

statements to be incorrect, or the undertakings not fulfilled action against the other party is barred by provision in the contract document.

[52]     I therefore conclude that the plaintiffs have a good arguable case against Mr and Mrs Kao based on representations which were false, and which they knew to be false, that the unit being purchased by the plaintiffs was soundly built and in good order and condition. It must follow, therefore, that the application by Mr and Mrs Kao to dismiss the plaintiffs’ claim against them cannot succeed. Consequently, the application is dismissed. The plaintiffs are entitled to costs which I assess on a 2B basis with disbursements as fixed by the registrar. The fifth defendant, which also entered an appearance at the hearing, is entitled to costs on a 2B basis with regard to that appearance.

[53]     I direct the registrar to arrange a further judicial telephone conference for the purpose of making any directions required concerning the filing of the pleadings and

disposal of any interlocutory applications that may be filed.

Associate Judge Robinson