Wai v Emily Projects Limited HC Auckland CIV 2011-404-003478
[2011] NZHC 1535
•13 October 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-003478
BETWEEN LIM SOON WAI AND GOH MAI CHEE TRACY
Plaintiffs/Applicants
ANDEMILY PROJECTS LIMITED Defendant/Respondent
Hearing: 12 October 2011
Appearances: MRT Colthart for the Plaintiff/Applicant
N Carter for the Defendant/Respondent
Judgment: 13 October 2011
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
13.10.11 at 4:30 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors/Counsel:
MRT Colthart, Barrister, Auckland – [email protected]
B O‟Callahan, Carters & Partners, Auckland – [email protected] / [email protected]
LIM SOON WAI AND GOH MAI CHEE TRACY V EMILY PROJECTS LIMITED HC AK CIV 2011-404-
003478 13 October 2011
[1] On 23 August 2010, in Singapore, the plaintiffs signed an agreement to purchase apartment 1604 in the Celestion Apartments, Anzac Avenue, Auckland. At the time the plaintiffs paid commission of S$5,000 to the defendant‟s Singapore agent. Later, a further sum of NZ$49,300 was paid by way of deposit.
[2] The plaintiffs apply for summary judgment for an order „declaring the plaintiffs‟ cancellation‟ of their agreement. They claim repayment of the deposit sums paid. They also claim the sum of $5,025 „being wasted legal and accounting costs incurred‟.
[3] Essentially the plaintiffs‟ case relies upon representations, or lack of them
made at the time they signed their agreement for purchase.
[4] Essentially the statement of claim pleads that prior to the agreement for purchase being entered into the cash flow forecast and other financial information indicated that an annual rent of $44,370 was forecast, and that there was no deduction for body corporate levies, council rates or agency and letting fees. The plaintiffs claim that the information in that cash flow forecast and in other financial information was essential to them in deciding whether or not to purchase the unit. Further, they say they discovered pre settlement that that information was incorrect because the actual rental earned from the unit was $23,400 per annum, and because there was a 10 per cent management fee payable to be deduced from the rent, and because body corporate fees and council rates were payable after the first three years, and because GST would be payable if the lease was cancelled.
[5] In this manner of pleading the plaintiffs appear to seek recourse to the relief provisions of the Contractual Remedies Act 1979. By section 7 of that Act a party may exercise a right to cancel a contract if (and only if):
(a) The parties have expressly or impliedly agreed that the truth of the representation (relied upon) was essential to him, or
(b)The affect of the misrepresentational breach will substantially reduce the benefit of the contract to the cancelling party.
[6] Section 4 of the Contractual Remedies Act cannot preclude a Court from enquiring into or determining whether statements or promises or undertakings made in the course of negotiations led to the making of the contract – even though the parties‟ contract may preclude consideration of same.
[7] It appears, as Mr Carter for the defendant contends that the statement of claim pleads that representations regarding income rent receivable, and the lack of payment of a management fee, were essential terms of the parties‟ contract. By contrast, and in the manner the summary judgment application is argued, the plaintiffs‟ claim is not so much on essential terms but rather upon claims of substantial breach.
[8] Mr Carter may be correct in his submission that the plaintiffs‟ claim may have to be repleaded. But, for present purposes the manner of pleading is not going to affect the outcome of the summary judgment application.
[9] The plaintiffs have applied for summary judgment upon their claims. That should be granted unless there is a reasonably arguable defence to the claim for a declaration for cancellation of the sale and purchase agreement, based on claims of misrepresentation of essential terms.
[10] In its statement of defence the defendant admits its agent Austpac provided the plaintiffs with the cash flow forecast. It says Austpac had no authority from it to provide advice on the GST implications of the transaction – it would have had no knowledge of same in any event. It notes a disclaimer proviso in the cash flow forecast. It refers to a standard sale and purchase agreement provision wherein the parties acknowledge that the agreement contains their entire agreement notwithstanding negotiations of discussions prior to it, or contained in any brochure, report or other documents. Further a purchaser is required to acknowledge that it has not been induced to enter into the agreement by any representation made by or on behalf of the vendor or its agent.
The plaintiffs’ evidence
[11] They are Singaporean nationals. Prior to their agreement to purchase the plaintiffs had attended a property seminar presented by a Mr Yuen in Singapore. There they say „seminar representations‟ were made by Mr Yuen as to the rental returns generated by apartments in the defendant‟s Celestion development. They say those representations were also contained in written material provided to them by a Mr Liauw following Mr Yuen‟s presentation.
[12] They say that at the time they agreed to buy they were not provided with a signed copy of the lease of unit 1604. Rather the document they saw was a generic one, containing the general terms applied to all leases of apartments in the development. The plaintiffs say they did not sight a copy of the actual lease until the day of settlement. When they sighted it they say the realised the actual rental was more than $20,000 less than had been represented. Also there were numerous other fees and costs which had not been disclosed to them previously.
[13] They say on 4 October 2010 they gave notice by way of email cancelling the agreement. They sent a second notice of cancellation through their solicitors by letter dated 26 January 2011. Finally a third notice of cancellation was given by their New Zealand solicitors by letter dated 25 March 2011.
[14] They say that at the Singapore seminar there was reference to a “cash flow forecast” projecting returns of between 8 and 9 per cent per annum. They say there were numerous other fees and costs that had not been disclosed to them or had been represented as being nil. That was the reason why when they discovered those representations were wrong, they gave notice cancelling the agreement.
[15] At the conclusion of the seminar the plaintiffs paid a deposit of S$5,000 to put unit 1604 “on hold”. Later they attended Austpac‟s office in Singapore to sign an agreement for the purchase of unit 1604. They say at the time they asked for a copy of the cash flow forecast referred to at the property seminar.
[16] The following day a copy of that case flow forecast was forwarded by Mr Liauw. Nine days later they paid the deposit of NZ$49,300 to the vendor‟s solicitors.
[17] The plaintiffs say they received signed copies of the agreement for sale and purchase in late August 2010 and about two weeks later were advised that titles and certificates of practical completion had issued and therefore that settlement was scheduled for 28 September 2010.
[18] After they paid their deposit, the plaintiffs in late September 2010 instructed their solicitors to investigate the actual rental payable under the deed of lease. Then on 28 September, the settlement date, they received a copy of the deed of lease. Six days later the plaintiffs sent an email to Mr Liauw giving notice of cancellation. As earlier noted subsequent notices of cancellation were delivered.
The plaintiffs’ case
[19] It is that the defendant has no arguable defence to their claim. They say claims of representations made by sale agents of Austpac at the seminar were not contradicted.
[20] They claim that information relating to „rental returns and such like‟ was of critical importance to them. The apartment was marketed as an investment property. They specifically requested copies of the cash flow forecast. Therefore it is clear that they were induced to enter into the agreement on the strength of the returns generated by their investment.
[21] They assert that the representations (of 9 per cent per annum and no fees) were false. Instead the actual figures, only disclosed on settlement date, indicated an actual rental return of 53 per cent less than represented; that previously undisclosed management fees were payable; and as well after three years body corporate levies and council rates were payable. They say that on settlement date they became aware that GST would be payable if the lease was terminated.
[22] By their account the variance between what was represented and what was actual, was substantial and gave rise to a right to cancel.
[23] Referring to claims that the plaintiffs received an executive summary from their solicitors setting out the true position regarding the rental return, and that Mr Yuen and Mr Liauw of Austpac were not the authorised agents of the defendant, plaintiffs‟ counsel responds:
(a) That the executive summary was irrelevant because it was not provided until after the agreement was entered into and did not have the affect of „undoing‟ the representations of the defendant‟s agents made at the time the agreement was entered into.
(b)Austpac‟s sale agents were the defendant‟s agents for the purposes of marketing and selling units in the Celestion development. Although the defendant may have recourse against its agents for misrepresentations that is not a matter for concern for the plaintiffs.
Considerations
[24] The evidence is that Ms Goh, one of the plaintiffs is an experienced real estate agent who has her own real estate firm in Singapore.
[25] The plaintiffs allege the financial information they received from Austpac was essential to their decision to purchase, and that information misled them.
[26] The allegations about income are based on a cash flow forecast prepared by Austpac in Singapore. They say it was received by the plaintiffs on 13 July 2010, the day after they had executed the agreement for sale and purchase. They say that the plaintiffs have given no evidence in support of claims about the liability for GST not having been disclosed to them.
[27] The plaintiffs attended the seminar on 10 July 2010 and immediately afterwards paid the holding deposit of S$5,000.
[28] On 12 July 2010 they signed the sale and purchase agreement. At the same time they signed a document headed “Addendum to be signed and read in conjunction with (and shall form part of) the agreement”. Clause 2.1 of that agreement obliged the defendant as vendor to enter into a lease of the unit with a lessee, Emily Management Limited (EML) “for the purposes of short stay accommodation, being a taxable activity, on the terms set out in the lease”. The definitions part of the document defined “lease” as “the lease to the lessee on the terms attached to this Addendum”. The lease provided for EML to pay the outgoings. It also provided that the lessor [the defendant] to pay all costs expenses and charges relating to the property which were not the lessee‟s responsibility... in particular to pay all body corporate levies and general rates for the property and fire and insurance and other levies and other insurance premiums.
[29] Also under the Memorandum of Lease there is provision requiring the defendant to pay a management lease of 10 per cent of the gross rental, including GST.
[30] There was no reference in the form of deed of lease to a commencement date, annual rent or rental instalments. The reason is related to the fact that the rent was subject to annual review by EML wherein rent was subject to being decreased at any time where the rent was more than 10 per cent above a current market rent.
[31] The addendum to the agreement provided an assurance for a purchaser during the first three years whereby MCL was required to pay a fixed rental equal to 9 per cent per annum (plus GST) of the purchase price (GST exclusive) during which the defendant was to pay all outgoings in respect of the unit except for maintenance. In effect the defendant guaranteed a rental for the first three years but the guarantee did not persist beyond that time because EML as lessee was not bound to any party beyond that term.
[32] As Mr Carter notes the obligation, for rental payments for three years, appears to have been known to the plaintiffs for the relevant clause of the memorandum of the addendum was changed whereby the plaintiffs negotiated an increase of rental from 7 per cent to 9 per cent of capital value.
[33] The plaintiffs‟ GST concerns are addressed by the addendum wherein is contained a provision designed to ensure that the sale and purchase is zero rated for GST purposes. This is achieved by a mutual covenant that the parties are registered for GST prior to the date of taxable supply and that they agree it is a sale of a going concern permissible because of the existence of the lease.
[34] The lease contains provisions enabling a lessor to terminate in the event it has less than 25 per cent of the units in the building available for rent. Other rights of termination also exist. The plaintiffs postulate that in the event of a termination they will have to pay GST. It is not clear on what basis this argument is made.
[35] The plaintiffs do not dispute the defendant‟s claim that the plaintiffs were provided with an “executive summary” before they signed the purchase agreement. The defendant submits that summary was accurate because:
(a) The contractual provisions gave the plaintiffs a gross income for the first three years of $44,370 per annum.
(b)The defendant is performing its rental guarantee by topping up the rentals received from EML to ensure the full amount of guaranteed rent, net of levies, outgoings and management fees deductions was paid.
[36] The defendant submits that given the terms of the document signed by the plaintiffs and confirmed in the executive summary there could not have been any effective representation of fact about the income beyond the first three years.
[37] Whilst, as previously noted, the cash flow forecast provided a disclaimer encouraging investors to conduct their own enquiries, the defendant asserts anything that may have been said by Austpac or its representatives about rentals in the future, could only have been opinions. The forecast referred to the first year only and not beyond. Further that as such they would not constitute actionable representations. Also there does not appear to be any evidence about what a market rent for these apartments is or might in the future have been. Further still, a question must be
raised regarding claims of reliance upon those representations in circumstances where one of the plaintiffs operates in the market and has professed claims of skill and experience.
[38] I accept the submissions of defendant‟s counsel that the cash flow document is more in the nature of a document conveniently outlining funding scenarios, rather than one that constitutes a long term rental forecast.
[39] The defendant‟s position is that Austpac was not authorised to provide GST advice or rental forecasts. There is no evidence in fact that such representations concerning GST and liability or indeed rental forecasts were given beyond a period of three years.
[40] Also of difficulty for the plaintiffs is the disclaimer in the cash flow forecast whereby the plaintiffs acknowledged that they had not been induced to enter into the agreement by any representation which was not set out in the agreement. Such documents do not prevent a s 4 Contractual Remedies Act enquiry by the Court but such an enquiry is seldom undertaken upon a summary judgment application, and would be inappropriate in this instance.
[41] Whilst section 4 of the Contractual Remedies Act will not preclude a Court from enquiring into the nature of precontractual representations in appropriate circumstances, case authority is clear that appropriate occasions for Court enquiry are usually limited. This case concerns a commercial transaction involving a purchaser with commercial experience in the sale and purchase of commercial real estate.
[42] The plaintiffs‟ claim relies upon a seminar presenter‟s forecast summary. Upon closer inspection it is clear that summary contains no forecast beyond the first year of investment. As much is clear not only by the terms of that forecast but by reference to the executive summary and the addendum to the agreement for sale and purchase. In combination those documents cast doubt upon the plaintiffs‟ claims about the essentiality of those contractual terms which are claimed to have persuaded the plaintiffs to enter into their purchase contract. In fact, issues may properly be
raised of the plaintiffs‟ claims that those representations were indeed
misrepresentations of an essential kind.
[43] The plaintiffs do not deny that they received a copy of the executive summary at the time they attended the Singapore seminar. Such made it clear that despite the terms of the lease the defendant was obliged to pay a 9 per cent rental return for the first three years; and after that the rental payable would be market rental; and recommended professional advice be sought.
[44] The plaintiffs claim to have discovered just days before settlement about the true rental position. In fact then they discovered that what was being recovered by the defendant by way of rental was much less than what the defendant had promised for the first three years to pay to the plaintiffs.
[45] Arguably there is nothing in that situation which contains a promise of rental income beyond the initial three month period. Again, and significantly, the relevant interparties‟ papers contained suggestions of consultation in connection with contractual documents.
[46] The very forecast document the plaintiffs‟ rely upon quite clearly does not contain a forecast of income beyond one year, much less three years, during which the plaintiffs‟ 9 per cent return was assured, as was an absence of obligation to meet payment of other fees. Indeed a review of the associated documents, which have not been referred to by the plaintiffs, much less by an affidavit in reply, confirms the plaintiffs were clearly alerted to future obligations for payment of fees, rates and the kind.
[47] This is not just a case of a vendor relying upon disclaimer clauses in the usual form in these situations. One of the plaintiffs is an experienced commercial property agent. They are not in that position of disadvantage for which the provisions of the Contractual Remedies Act usually operate to assist. Rather in this case it is arguable the plaintiffs had all of the relevant information they required to make an informed decision regarding their investment. That information of course did not include the actual rental paid for their unit at the time of the purchase contract. The plaintiffs
now claim that would have affected their assessment of the worth of their investment. However, no evidence is provided regarding this and without that, this claim cannot be accepted upon a summary judgment application.
Summary
[48] The plaintiffs‟ concern with their purchase commitment arise post agreement and focuses upon claims that Singapore agents of the New Zealand vendors made representations about income returns and about a lack of obligation to pay other costs normally imposed upon an apartment purchaser. These claims have to be measured against information contained in documents available to the plaintiffs‟ pre purchase and pre commitment to settle. Arguably the plaintiffs did have the information they said they did not. Arguably they have drawn wrongful conclusions or inferences in connection with the information which was available to them. Also documentation available to them arguably committed them to make their own enquiries.
[49] The plaintiffs‟ claim is advanced on the basis of essential representations. They said they were persuaded to act. A trial is needed to test the plaintiffs‟ claims that those representations were indeed as they say they were, or could have persuaded a reasonable purchaser in their position. In the balance of things a Court will have to consider claims of the skill and experience in the particular industry by one of the plaintiffs.
[50] This sale and purchase is about a commercial transaction where an apartment unit was purchased as an investment because it was sold subject to a lease.
[51] The summary judgment application invites the Court to go behind an entire agreement clause in a commercial transaction where there has been no allegation of a fraud.
[52] This Court of course has a wide discretion to determine what is fair and reasonable and whether the entire agreement clause should be conclusive. The Court will normally be more inclined to intervene where there is an inequality of
bargaining strength between the parties. That inequality is not so apparent here and also the plaintiffs were in receipt of legal advice.
Conclusion
[53] The summary judgment application must be dismissed.
[54] In the trial outcome much will depend upon evidence disclosing reasons for the plaintiffs‟ investment, the reasonability of the plaintiffs‟ claims of misinformation and the reasonableness of information provided for the purpose of such an assessment being made.
[55] There is too much left for conjecture and further investigation; and too little upon which presumptions of an absence of a defence can be relied.
Judgment
[56] The application for summary judgment is dismissed.
[57] Costs are fixed on a 2B basis to be paid to the defendant‟s at the conclusion of the plaintiffs‟ proceeding.
Associate Judge Christiansen
0
0
1