Vincent Street Trustee Ltd v Jackson HC Auckland CIV 2009-404-8236

[2010] NZHC 2139

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-008236

BETWEEN  VINCENT STREET TRUSTEE LTD Plaintiff

ANDGARRY JACKSON AND NANCY JACKSON

Defendants

Hearing:         1 November 2010

Appearances: B M Hojabri for Plaintiff

F C Monteiro for Defendants

Judgment:      1 November 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

KeeganAlexander, PO Box 999, Auckland

Wilson Harle, PO Box 4539, Auckland

VINCENT STREET TRUSTEE LTD V G JACKSON AND N JACKSON HC AK CIV-2009-404-008236  1

November 2010

[1]      The defendants have applied for particular discovery under r 8.24 of the High Court Rules.  The substantive proceeding is a claim by a vendor against defaulting purchasers. The property in question is unit 1205 in a block of apartments called the Eclipse Building at 156 Vincent Street, Auckland.   The defendants, who live in England, bought the unit off the plan under an agreement dated 30 March 2007 for a price of $439,000, including GST.  The plaintiff says that the agreement was to settle on 23 November 2009 but the defendants did not pay the price on that date.  Later, the plaintiff cancelled the agreement after a settlement notice had not been complied with.  It resold the unit for $352,000.  It now claims damages of $84,663.33, plus interest and costs.

[2]      The plaintiff engaged HomeLink Realty MREINZ to market the apartments. HomeLink Realty in turn engaged another agent to market the apartments, and that agent in turn engaged Elite Property Investments Ltd, an English company, to market the apartments to prospective purchasers in the United Kingdom.

[3]      There are 177 apartments in this block.  The sale price of the apartment in this case is $439,000 and I take that as being the typical price of these apartments. That means that the total selling prices for the apartments must be over $70 million. Clearly, the marketing and selling of these apartments was a major exercise.

[4]      One   of   the   defences   raised   by   the   defendants   is   misrepresentation. Paragraph 21 of the statement of defence says:

In its capacity as the plaintiff’s agent, EPI contacted one of the defendants, Garry Jackson, and, with a view to selling one of the Eclipse apartments to him, made the following representations to him:

(a)That the value of the apartment would increase above the purchase price by completion;

(b)That  non-status  or  self-cert  mortgages  would  be  available  to overseas investors like the defendants;

(c)That  mortgages  for  80-85%  of  the  value  of  the  apartment  on completion would be available;  and

(d)That because the level of mortgage finance would depend on the valuation on completion, not the purchase price, and because the value on completion would be higher than the purchase price, the defendants would be able to borrow, on the security of the apartment

alone, sufficient funds to complete settlement of the purchase of the apartment (including payment of deposit) without introducing any new funds.

Particulars

a)        The representations at (a) and (b) above were made in an e-mail from

EPI to Garry Jackson dated 22 March 2007;

b)The representations set  out at (c) and  (d) above were made by a director of EPI in a telephone conversation with Garry Jackson in March 2007.

[5]      The defendants say these representations induced them to enter into the agreement with the plaintiff and they say that these representations were untrue and made without any actual or justifiable belief in their truth.   The effect of these representations is said to come within s 7(4)  of the Contractual Remedies Act, allowing them to cancel the agreement.

[6]      In its first reply to the statement of defence, the plaintiff denied making these representations and alternatively pleaded that the representations were reasonable at the time they were made.   Later, the plaintiff filed an amended reply and in that amended reply it has admitted for this proceeding that the statements pleaded in paragraph 21 of the statement of defence were made.  It also admits that it marketed the apartments through HomeLink Realty and that through sub-delegation Elite Properties  Investments  Ltd  was  appointed  HomeLink’s  agent  to  market  the apartments in the United Kingdom.   It pleads matters which it says make the statements justifiable at the time they were made.   It says that it did not retain HomeLink Realty or Elite Property Investments Ltd to provide the defendants with financial advice.   It says that, to the extent that the representations were financial advice, they were not made with the actual or ostensible authority of the plaintiff.  It also relies on certain written terms of the agreement which purport to acknowledge that the plaintiff and its agents had made no representations or warranties in regard to the unit which were not contained within the agreement, that that the defendants entered  into  the  agreement  solely in  reliance  on  their  own  judgment,    that  the

plaintiff and its agents would not be responsible for the correctness or completeness of  any  advertising  or  promotional  material  which  the  defendants  might  have received;  and that the agreement was entered into after a period of due diligence.

[7]      The plaintiff seeks recovery of three classes of documents which they say should have been discovered:

a)       Documents in the plaintiff’s control which relate to allegations by other  actual  and  potential  purchasers  of  other  apartments  in  the Eclipse apartment building of misrepresentations made by agents of the plaintiff, including Elite Property Investments Ltd, relating to the likely value of the apartments on completion and the availability of mortgage finance for settlement;

b)Communications between the plaintiff and its agents, including Elite Property  Investments  Ltd,  relating  to  the  representations  to  other actual and potential purchasers of their apartments in the Eclipse apartment building regarding likely value of the apartments on completion and the availability of mortgage finance for settlement;

c)       Communications between the plaintiff and its agents, including Elite Property Investments Ltd regarding the nature and scope of the relationship between them and the authority of the agents.

[8]      Generally, the defendants say that all three classes of documents are relevant to their defence of misrepresentation.

[9]      While the plaintiff admits for this proceeding that its agent or sub-agent made statements alleged by the defendants, it says that a number of live issues remain. They include these questions:

a)        Were the representations false?

b)Did  the  representations  induce  the  defendants  to  enter  into  the agreement?

c)       Were the representations within the actual or ostensible authority of the plaintiff’s agents?

d)Was the effect of the misrepresentation serious enough to allow cancellation under s 7(4) of the Contractual Remedies Act?

e)       Should the Court exercise its discretion under s 4 of the Contractual Remedies Act to inquire whether the representations were made and were relied on?

[10]     On the question of falsity, the representations set out in the statement of defence are about matters that would happen in the future.   A representation is a statement of past or present fact.  Statements about the future can imply statements as to the present. A statement that something will happen in the future may be found to include a representation that the person making the statement has good grounds for believing that what he has said about the future will in fact occur.  If a person making the statement does not honestly believe what he states will occur, then that can also amount to a misrepresentation.

[11]     In this case, the plaintiff indicates in its amended reply that at the time the statements are alleged to have been made, the state of the property market in Auckland and the availability of mortgage finance in Auckland were such that the plaintiff’s agents had good grounds for making the statements alleged.    Because they are statements of past or present fact, the veracity of such statements is determined at the time the statement is made.  That does not mean that documents which come into existence later may not be discoverable, but it does mean that a statement  about  the  future  may  not  necessarily  be  a  misrepresentation  simply because the event predicted does not occur.

[12]     As for the test whether documents are discoverable, the parties agreed that the current test is that laid down by  Lord Justice Brett in Compagnie Financiere et Commerciale Du Pacifique v The Peruvian Guano Co (1882) 11 QB 55 at 62–63:

In Jones v Monte Video Gas Co 5 QBD 556 the Court stated its desire to make the rule as to the affidavit of documents as elastic as was possible.

And I think that is the view of the Court both as to the sources from which the information can be derived, and as to the nature of the documents.  We desire to make the rule as large as we can with due regard to propriety;  and therefore I desire to give as large an interpretation as I can to the words of the rule, “a document relating to any matter in question in the action”.   I think  it  obvious  from  the  use  of  these  terms  that  the  documents  to  be produced are not confined to those, which would be evidence either to prove or to disprove any matter in question in the action;   and the practice with regard to insurance cases shows, that the Court never thought that the person making the affidavit would satisfy the duty imposed upon him by merely setting out such documents, as would be evidence to support or defeat any issue in the cause.

The doctrine seems to me to go farther than that and to go as far as the principle which I am about to lay down.  It seems to me that every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information  which may  – not  which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary.  I have put in the words “either directly or indirectly”, because, as it seems to me, a document can properly be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences: ...

In order to determine whether certain documents are within that description, it is necessary to consider what are the questions in the action:  the Court must look, not only at the statement of claim and the plaintiffs’ case, but also the statement of defence and the defendants’ case. ...

First category of documents

[13]     The plaintiff now accepts that the alleged statements were in fact made.  It is possible that complaints of misrepresentation made by other purchasers might be relevant if those complaints went to show a modus operandi by the plaintiff.   But here, because the plaintiff has accepted that the statements concerned were made, the defendants have not been put to the proof on that question.  So it is not necessary to require the plaintiff to make discovery of complaints by other purchasers to prove that the relevant statements were made.

[14]     The defendants say that the documents sought are still relevant to matters in issue.  They say that there are still live issues as to the veracity and reasonableness of the statements.  They say they are relevant to any belief by the plaintiff and its agents in the truth of the statements. They say that  widespread  complaints  from other

purchasers will go to the reasonableness of the statements. They also say that documents may contain concessions, exaggerations or other statements by the plaintiff or its agents which are relevant to veracity and reasonableness.

[15]     I do not accept that.  It is the veracity of the statements in this case that are relevant, not statements made to other purchasers.   I accept that some of the representations alleged in this case were contained in a written statement which may well have been distributed to a number of other interested purchasers, particularly in the United Kingdom    The fact that the written statement contains these representations relied on by the plaintiff makes the plaintiff’s concession that the statements were made understandable, but the falsity of the statements will not turn on whether other purchasers have complained about the statement.   Thus, if these purchasers were the only ones to complain about the statements and they establish that the plaintiff and its agents did not honestly believe the statements when they were made, those statements  will  still be false,  even  if  no  other  purchaser had complained about them.   Conversely, if the plaintiff and its agent had made the statements truthfully, those statements would not lose their veracity because other purchasers had complained about them.

[16]     On  this  point,  I  draw  support  from  the  decision  Mao-Che  v  Armstrong

Murray (1992) 6 PRNZ 371, where Wallace J said at 375:

While it is clear that similar fact evidence can be relevant, it is also clear that the courts are cautious about admitting such evidence.   Further, the courts are  cautious about  extending the  ambit  of  discovery in  relation to  such evidence because of the delay and expense which may result.

[17]     Wallace J then went on to quote Lord Herschell in Kennedy v Dodson [1895]

1 Ch 334 to that effect. I have found that approach helpful in ruling that the plaintiff cannot be required to make discovery of complaints made by other purchasers.

Second category

[18]     The second category for which discovery is sought goes to representations made to other actual and potential purchasers of apartments regarding likely value of

the apartments on completion and likely availability of mortgage finance for settlement.

[19]     I accept  that  the  marketing undertaken  by the  plaintiff  and  its  agents  is relevant to this proceeding.  I repeat that this apartment block contained about 177 apartments and the total value of the sales is likely to have been in excess of $70 million.   Clearly, the sale of these apartments was a major exercise and I would expect any reasonable businessman to undertake that with some care.   Certainly I would expect the developer to be concerned to achieve the sales that he had planned for.  I would expect any developer to have some form of marketing plan for those apartments.  The plaintiff has disclosed a certain amount of material and has said that is the extent of the documentation that relates to these aspects.   It has disclosed a marketing agreement with HomeLink Realty.   It has disclosed certain information about apartments, but I am not satisfied that that documentation is complete.  The simple reason for that is that any developer selling units in an apartment is likely to have predetermined the prices he wishes to achieve for his apartments.  He will not simply give authority to agents to sell and leave the agents to negotiate the price. Completed developments are not marketed in that way. Yet there is nothing in the documentation that shows me that the developer actually had a price list which he gave to his agents to indicate what prices the units were to be sold at.  That is enough to indicate the inadequacy of the present discovery.   At least, I would expect the developer to ensure that the apartment block was properly marketed simply so that the developer would know that he would not experience the kind of problems that he is subject to in this case with purchasers defaulting and alleging misrepresentation. There  is  simply  a  lack  of  documentation  showing  how  these  units  should  be marketed. I am concerned that the developer has other documents which it may be able to produce which bear on how these units were to be marketed.

[20]     To  that  extent,  I  regard  documents  within  the  second  category  of  the application as relevant and as likely to be in existence.  That is documents that go to the marketing of the apartments in 2007.

[21]     As to particular representations made to other purchasers, that goes too far, in my view.  I am only concerned about the approach taken as to marketing apartments generally.

Third category

[22]     The third category of documents goes to the nature and scope of the authority relationship between the plaintiff and its agents and sub-agents.  This matter is quite clearly in issue given the plaintiff’s denial that it did not authorise its agents to give purchasers financial advice.   At present, the plaintiff has disclosed its marketing agreement between it and HomeLink.  That marketing agreement does not appear to give any limit on the authority of the agents.  There seems to be no limit on how they are to market these apartments, no limit on what kind of statements might be made to induce purchasers to buy the apartments.  Given this, I would have thought that the plaintiff had every interest to produce all documentation which might suggest that there was some limitation and, if anything, the plaintiff ought to be self-motivated to put all the documentation in front of the Court that it can to show any limits on the authority it conferred.  Certainly, I regard that class of documents as relevant and as requiring discovery. The plaintiff will be well aware of the risks it will run if it claims there are documents which limit agents’ authority, which it has not produced by way of discovery.

[23]     Accordingly, I find that there is no requirement on the plaintiff to discover documents within category (a).  The discoverable documents within category (b) are the plaintiff’s marketing plan and related documents.  That is to include documents in the possession of its agents or sub-agents.   On the authority of Equiticorp Industries Group Ltd v Hawkins [1994] 2 NZLR 738, documents within the possession of agents are under the plaintiff’s control and the plaintiff is in a position to extract documents from its agents and sub-agents that bear on the marketing plan. However, as recorded above, I do not require the plaintiff to discover particular representations made to other purchasers. Documents that fall within category (c) are discoverable.

[24]     The plaintiff is to file and serve its affidavit of documents addressing these matters by 17 November 2010 and inspection is to be made promptly afterwards in time for the settlement conference which is to take place on 29 November 2010.

[25]     There is also the question of costs.  The defendants say that scale costs on a

2B basis is $3,008 but they claim increased costs because they say that the plaintiff has unreasonably refused to make discovery. This is not a case for increased costs. The order I have made has given the parties mixed success in that the plaintiff has been partly vindicated for the first class of documents.   It is nevertheless a case where the defendants have had some success by obtaining orders for discovery. Accordingly, the order I make is that the defendants are entitled to costs on a 2B scale  but  without  any  adjustment.    The  amount  of  the  costs  is  $3,008,  plus

disbursements as fixed by the Registrar.

R M Bell

Associate Judge