Water View Property Limited v Gardner
[2016] NZHC 2247
•23 September 2016
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2016-470-61 [2016] NZHC 2247
BETWEEN WATER VIEW PROPERTY LIMITED
First Plaintiff
MARTIN WILLIAM ASKES Second Plaintiff
AND
DAVID BURTON GARDNER AND LORRAINE ANN GARDNER Defendants
Hearing: 1 August 2016 at 2:15pm and 2 August 2016 at 10:00am Appearances:
T Conder and D Fraundorfer for Plaintiffs
P A B Mills and G Abdale-Weir for DefendantsJudgment:
23 September 2016
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 23 September 2016 at 2:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………………………………….
Registrar/Deputy Registrar
Solicitors:
Holland Beckett (D Fraundorfer/T Conder), Tauranga, for Plaintiffs
Beach Law Papamoa Ltd (Jenny McDonnell), Tauranga, for Defendants
Copy for:
Patricia A B Mills, Auckland, for Defendants
WATER VIEW PROPERTY LIMITED v GARDNER [2016] NZHC 2247 [23 September 2016]
[1] On 9 September 2015 Mr and Mrs Gardner agreed to sell their property at
267 Cambridge Road, Tauranga to Mr Askes for $1,200,000. The purchase was to settle on 21 December 2015, but on 18 December they cancelled, alleging misrepresentation by Mr Askes and breach of the Fair Trading Act 1986. He and his nominee, Water View Property Ltd, do not accept that the Gardners were entitled to cancel. They sue for specific performance and have applied for summary judgment.
[2] The principles the courts apply on summary judgment applications are not in dispute and do not need repeating.1 Under those principles, to grant summary judgment the court must be satisfied that there could be no useful purpose in requiring the case to follow the normal course including an exchange of pleadings, discovery, other interlocutory steps and a hearing with witnesses giving evidence in person and being cross-examined.
[3] A feature of the Gardners’ case is that Mr Askes misrepresented his intentions at the time of contracting. Allegations that he misstated his intentions go to his honesty. They are serious and must be alleged with care and particularity, as the Court of Appeal explained in Schmidt v Pepper New Zealand (Custodians) Ltd:2
Allegations of fraud or dishonesty are very serious. They must be pleaded with care and particularity. As the authors of Bullen & Leake & Jacobs Precedents of Pleadings emphasise, counsel must not draft any originating process or pleading containing an allegation of fraud unless they have reasonably credible material which, as it stands, establishes a prima facie case of fraud — that is, material of such a character which would lead to the conclusion that serious allegations could properly be based upon it. Fraud cannot be left to be inferred from the facts — fraudulent conduct must be distinctly alleged and as distinctly proved. General allegations, however strong the words may be appear to be, are insufficient to amount to a proper allegation of fraud.
That approach also applies when allegations of dishonesty are raised in opposition to a summary judgment application. While the onus to show that the defendant has no
defence remains on the plaintiff throughout, a defendant may not advance a defence
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
2 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].
based on allegations of dishonesty unless the requirements repeated by the Court of Appeal in Schmidt v Pepper are applied. Where I find facts for the defendants, I am satisfied that they are at least reasonably arguable. But where Mr Askes’ honesty is in issue, I have checked that there are proper grounds to challenge it.
Facts
The subdivision consent
[4] The Gardners’ property at 267 Cambridge Road, Tauranga, is 4,752m2 in area. Maurice and Anne O’Reilly own the property of 3,049m2 next door at 269 Cambridge Road. In 2014 the O’Reillys and the Gardners agreed to subdivide their two properties together. They saw advantages in combining efforts by sharing costs of
development and using their properties to the best advantage. Dealing with sewage and stormwater disposal would be a significant issue in the subdivision. Their surveyor, Mr Crane of RPC Land Surveyors Ltd, prepared a scheme plan, identified as 5990D, under which their two properties would be divided into seven lots. Three of the lots were wholly inside the O’Reilly property, two wholly inside the Gardner property and two straddled their boundary. That is not however the way the subdivision is described in parts of the evidence. There are references to the Gardner property being divided into three lots.
[5] They applied to the Tauranga City Council for subdivision consent. With their application they provided the council with site investigation plans, drainage assessments by an engineer and geotechnical reports by engineers. Mr and Mrs O’Reilly were nominated as the consent-holders. Between the O’Reillys and the Gardners, Mr O’Reilly managed the subdivision and was the contact person for the surveyor and the council.
[6] The Tauranga City Council granted a subdivision consent, RC24333.3
Consent conditions included a requirement to submit plans for servicing the subdivision for approval before work started. As-built plans were also required, as
were a report giving a detailed site investigation showing any soil contamination, a
3 Including also a land use component for a setback encroachment.
demonstration that conditions as to a stormwater soakage field had been met, and a geotechnical completion report along with other conditions typically found in subdivision consents.
The agreement
[7] During 2015, the Gardners put their property on the market for sale on the basis that the subdivision was being carried out. There was interest from a number of potential purchasers including Mr Askes. Mr Gardner says that during August
2015 he gave Mr Askes a copy of the subdivision consent together with the scheme plan 5990D.4 Later that month, the Gardners decided to withdraw the property from the market as they considered that the Tauranga property market, which had been relatively sluggish until then, was about to take off. They would not sell until their subdivision was completed. By that stage all the major works on the subdivision had been carried out and services were being installed. The Gardners anticipated new titles issuing in early 2016. The Gardners told all their interested purchasers, including Mr Askes, of their decision to withdraw the property from the market.
[8] Mr Crane, the surveyor, has given an affidavit for the Gardners. His company has also undertaken other subdivision and property development work for Mr Askes. Mr Crane says that in August 2015 Mr Askes approached him to provide assistance for a possible subdivision of the Gardners’ property – to create a total of eight lots. Mr Crane did not consider that he had a conflict of interest, because RC24333 is a matter of public record.5 Mr Crane confirms that Mr Askes knew of the subdivision by the O’Reillys and Gardners. RPC Land Surveyors Ltd prepared a new subdivision plan for him. It shows eight lots, is dated 28 August 2015 and is identified as 5990-13. Mr Crane did not, however, attach that to his affidavit,
explaining that it has not been disclosed to third parties.
[9] Mr Askes says that after his initial dealings with the Gardners he texted them on 23 and 29 August advising that he wanted to make an offer. He offered $1.1
million. Mr Askes also contacted Mr Gardner by telephone. Mr Gardner puts that
4 The consent plan is identified as 5990D in condition 1 of the consent.
5 This case does not require a decision whether Mr Crane breached any duties to the
O'Reillys/Gardners or Mr Askes.
call as early September 2015. He turned down the offer of $1.1 million. Mr Askes increased his offer to $1.2 million. Eventually Mr Askes offered to pay $1.2 million and all the subdivision costs up to the end of the subdivision and the issue of new titles. Mr Gardner says that he made it clear that he and his wife were to receive
$1.2 million clear, Mr Askes was to complete the subdivision as quickly as possible because he did not want the O’Reillys’ subdivision held up at all and Mr Askes was to pay all the subdivision costs which the Gardners had agreed to pay Mr O’Reilly.
[10] The next day Mr Askes visited Mr Gardner at his office with an agreement for sale and purchase form. Mr Gardner says:
11. …I made it clear to Mr Askes that that we were selling him the house and two lots subject to the resource consent RC24333 and that he was expected to complete the subdivision at his expense. I told him he would have to work with Maurice O’Reilly. He assured me that he intended to complete the subdivision with all due alacrity and he would pay all the bills associated with the subdivision from the date of signing the agreement.
12.Mr Askes did ask for a due diligence and finance conditions and the ability to seek a variation to RC24333 as it applied to our property. I thought that these requests were fair enough. Mr Askes assured me that any variation to RC24333 would be minor and they would not affect the completion of the subdivision. I knew that timely completion of the subdivision was very important to Mr O’Reilly. I would not have agreed to sell if I had known what plans Mr Askes had in store.
…
14At no stage did Mr Askes advise me that he intended to subdivide our property into more than the three lots in RC24333. From our discussions, Mr Askes led me to believe that there might be changes to the internal boundaries to our 3 lots required by Tauranga City Council when it came time for the titles to issue, but that was all. He also assured me that any changes would not affect Maurice’s subdivision. I knew that due to District Plan requirements there was no scope for more than 3 lots on our property given the problems with sewage and stormwater restrictions. Had Mr Askes told me it was his intention to subdivide our property into 5, 6 or 8 lots, I would have refused to sell the property to him.
[11] While Mr Askes spoke of variations to the existing subdivision consent, there is no evidence that Mr Askes told Mr Gardner of the survey plan Mr Crane had prepared for him or of any intention to undertake a more extensive subdivision than RC24333 or any variation of that consent.
[12] Mr Gardner and Mr Askes agreed on terms for an agreement for sale and purchase of the Gardners’ property using the Auckland District Law Society form. They disagree whether they drew up the agreement at the meeting or whether Mr Askes came to the meeting with it already written up. That point does not need to be resolved here. Neither of them signed it. It provides for the sale at $1,200,000 with a deposit of $100,000 and includes these handwritten further terms of sale,
which are relevant to the misrepresentation issue:6
18.0 (i) It is the purchaser’s intent to subdivide the land and he will
do everything in his power to do so in a timely manner:
(ii)
The purchaser will pay all costs associated with subdividing the land as at the date of signing this agreement.
(iii)
The vendor agrees to allow access to the property for the purpose of subdividing as at the date of signing.
(iv)
The vendor will not object to any variation in subdivision consent that the purchaser may decide.
19.0The balance of the purchase price is due seven days after clear title of two additional lots or 22nd December whichever is the sooner 22nd December.7
20.0This agreement is conditional upon due diligence by the purchaser being satisfied within 30 days of signing.
21.0 This agreement is conditional upon solicitors’ approval by both
parties for 30 days after signing
[13] Mr Askes took the handwritten document to his lawyers who prepared a fresh agreement, again using the ADLS form. Mr Askes signed it as purchaser and Mr Gardner as vendor, including on behalf of his wife in the exercise of a power of attorney. Under this formal agreement, the purchase price is $1,200.00, with a deposit of $100,000 payable upon the agreement becoming unconditional. There were conditions as to finance, vendors’ solicitor’s approval, purchaser’s solicitor’s approval, obtaining a land information memorandum, and the purchaser completing
due diligence. The further terms of sale include these:
6 For this decision the contractual effect of the document does not matter – whether it was a draft for a proposed contract or a written agreement unenforceable for lack of signatures under s 24 of the Property Law Act 2007. It was superseded by the signed agreement of 9 September.
7 This is a reconstruction after taking into account deletions and insertions.
19.0 Subdivision
19.1 The vendor warrants that the vendor has a subdivision consent for a
3 lot subdivision of the property (“the subdivision consent”).
19.2It is the purchaser’s intention to subdivide the property and the purchaser will do everything in his power to do so in a timely manner.
19.3The purchaser will pay all costs associated with subdividing the property from the date this agreement is signed.
19.4The vendor agrees to allow access to the property for the purpose of completing the subdivision from the date this agreement is signed.
19.5The vendor will not object to any variation of the subdivision consent that the purchaser may decide and the vendor will co- operate when requested to do so to sign any paperwork to enable the purchaser to complete the subdivision.
20.0 Possession
20.1 The purchaser shall be entitled to possession of the property on
1 December 2015 or as mutually agreed (“the possession date”).
21.0 Settlement
21.1The balance of the purchase price is to be paid on that date which is the earlier of:
(a) 21 December 2015 or
(b) Seven days after new titles are issued following subdivision of property.
Events between the agreement and 18 December
[14] The conditions of the agreement as to solicitors’ approval, obtaining a satisfactory land information memorandum, due diligence and finance were declared satisfied. On 8 October 2015 the agreement became unconditional and Mr Askes paid the deposit of $100,000.
[15] In other respects matters did not run smoothly. While certain events are not in dispute, the parties put them in a different light. Broadly, Mr Askes was intent on subdividing the Gardners’ property into more lots. He considered that he could do so as a variation of the current subdivision consent and that he was entitled to start physical works for further subdivision ahead of any new consent or any approval by the council under the current consent. He encountered resistance from the Gardners
and the O’Reillys. By the time settlement of the purchase was approaching, he had modified his plans to make completing the purchase the priority while deferring further subdivision of the Gardner property.
[16] Mr Askes began with the intention of creating an eight lot subdivision of the Gardner property. When Mr O’Reilly would not co-operate in this, he reduced the number of lots – to seven, then six, then five. Mr Askes refers to these changes as Variation One and Variation Two, even though there were more. Proposed subdivision plans have been put in evidence, but it is not easy to link these to Mr Askes’ changing variation plans. For example, the plan Mr Askes describes as Variation Two with two additional titles shows a seven lot subdivision of both
Gardner and O’Reilly properties not much different from the scheme plan 5990D.8
He refers to certain subdivision plans for the Gardner/O’Reilly subdivision as “5990-
1c” and “5990-2a” but has exhibited his own plans, “6296-2a” and “6296-1c”, which
have the same date but show different subdivisions.9
[17] Mr Askes says that in developing his plans for further subdivision he took advice from surveyors and engineers to work out how to dispose of increased storm water from extra lots. There is no evidence to substantiate his assertions. He says that a Tauranga City Council engineer orally approved the storm water solution, but that also is not corroborated. There is no evidence of his applying to the council for any other resource consents or for approval of any other work under the current consent.
[18] For his solutions he wanted to change the works under the current subdivision so as to avoid increased costs later. That would apply whether he increased the lots to be created before or after he took title. He did not get buy-in from the Gardners or the O’Reillys.
[19] Mr O’Reilly says that Mr Askes approached him towards the end of
September 2015 and showed him a proposed subdivision for the Gardners’ property
8 Askes affidavit in chief, paragraph 44 and exhibit “O”. The parties disagree on the significance of the differences. The plaintiffs say that they are minor, but the Gardners say that they involve changes to boundaries, alter the driveway plan, enlarge a stormwater swale and increase the loading capacity on stormwater and sewerage infrastructure.
9 Askes affidavit in chief, paragraph 65 and exhibit “Y”.
into eight lots. Mr O’Reilly explained to Mr Askes that it would be impossible to add those further lots to the subdivision of the Gardner property, giving as a reason issues with stormwater and sewage reticulation in the street below, which would be at its maximum load following the connection with the current subdivision. It might not be possible to add further lots with the existing infrastructure. Another issue would be that the driveway would have to be re-formed differently from the engineering plan that had been approved for RC24333. Boundary changes would also be required. While Mr Askes believed that the work would be minor, Mr O’Reilly told him that he was mistaken. Fresh consent applications would be required. Mr O’Reilly would not support his application for a variation. Mr O’Reilly told Mr Askes that he should complete the current subdivision, and then begin a fresh subdivision application.
[20] While that states Mr O’Reilly’s position at the end of September and Mr Askes modified his plans, the O’Reillys remained fixed on completing the current subdivision and did not want to become involved in Mr Askes’s plans for further subdivision. Mr Crane, the surveyor, approached Mr O’Reilly in November
2015 on behalf of Mr Askes, seeking his consent to one of Mr Askes’s new subdivision plans. Mr O’Reilly did not give his consent. Mr O’Reilly understood, on the basis of what Mr Crane had told him, that there would be significant delays if an application to vary the current consent were made to the Tauranga City Council. That was not acceptable to Mr O’Reilly. Mr Askes and his wife also came to Mr O’Reilly personally to ask for his consent. Mr O’Reilly says that he would not agree to any variation that involved a change in boundaries, a relocation of the driveway or changes to the existing approved effluent and stormwater plans and would not agree to create any new easements which would affect the O’Reilly property.
[21] In December 2015 the O’Reillys consulted their lawyers who wrote to the lawyers for the other parties pointing out the effects of Mr Askes’ proposed changes, that the O’Reillys did not consent to them, that the changes would cause the O’Reillys major costs and delays, that the O’Reillys stood to lose sales they had made, that clause 19.5 did not require the Gardners to co-operate with Mr Askes’
proposals, and that the O’Reillys would not put up with any interference by
Mr Askes in the current subdivision.
[22] Mr Askes says that in the early stages he consulted Mr Gardner about his plans for increased subdivision and met no opposition. Mr Gardner’s evidence is otherwise. He says that any conversations with Mr Askes during the due diligence period were only about the existing three-lot subdivision and did not involve additional titles being created. Mr Gardner agrees that once the agreement was unconditional, he told Mr Askes to deal with Mr O’Reilly over the subdivision but they did not discuss any details about the work involved. He says he learned for the first time that Mr Askes planned to create further lots on their property only when Mr O’Reilly told him after 23 October 2015.
[23] Mr Askes gave directions for work to be done on the Gardner property. In mid-October he arranged for aborists to cut and remove a shelter-belt to open up the views and to remove other trees which would be in the way for services to be installed. The Gardners’ emailed that they did not consent to the trees being removed. He agreed not to remove any trees apart from a single one in the accessway which would hold up the subdivision. He attaches to his affidavit emails showing Mrs Gardner’s consent to that removal. He says however that when the aborists turned up, the Gardners refused them access. Mr O’Reilly deposes that the Gardners did not prevent the trees being removed. He says that he discussed the matter with the aborists when they came on site. According to Mr O’Reilly, once the aborists learned that they were doing the work for Mr Askes, they did not take the matter any further.
[24] On 23 October, Mr Askes emailed Mr O’Reilly’s contractor, All About Construction Ltd, advising that he was the new owner of 267 Cambridge Road. He sent a scheme plan showing three additional lots to be added, and requested that power be laid to include the additional lots. The scheme plan sent with the email changed the driveway design and made boundary adjustments to the O’Reilly property. Mr O’Reilly objected to this interference in the subdivision works.
[25] On about 29 October 2015, Mr Askes contacted the O’Reillys' plumbing contractor with instructions to carry out further plumbing work to service three new lots. The plumber contacted Mr O’Reilly. The plumber did not do the work, as the plumber and Mr O’Reilly considered that a resource consent was required and it might jeopardise an imminent inspection by the Tauranga City Council.
[26] Mrs Gardner emailed Mr Askes on 28 October 2015 pointing out that changes to the subdivision would delay titles being issued and that Mr O’Reilly needed the titles to be issued as soon as possible. She advised that changes to the subdivision would create delay and it was giving rise to friction between the three of them (the O’Reillys, the Gardners and Mr Askes).
[27] In his reply advising that he would move things along as quickly as possible, Mr Askes requested Mrs Gardner not to sign off any accounts that they would want him to pay without first obtaining prior approval from him.
[28] On 1 November 2015, Mrs Gardner emailed Mr Askes on behalf of both the O’Reillys and the Gardners. She stated that no work for a new subdivision was to go ahead until the Council had approved the current application and provided its authorisation. That meant that no trees or buildings would be touched and no earthworks undertaken until the titles for the current application had been issued. Mr Askes could, however, instruct his surveyor, engineering and geotech people to complete “exploration tasks”. The email ended:
Given the confusion that has arisen as a result of your new proposed subdivision that we were unaware of at the time of signing the Sale and Purchase Agreement, we do not accept Clauses 20 and 21. Given these decisions we are prepared to release you from the Sale and Purchase Agreement is (sic) you so desire.
Mr Askes did not accept the offer to abandon the agreement.
[29] In a letter of 19 November 2016 to the Gardners’ lawyer, Mr Askes’ lawyer requested the Gardners to obtain the O’Reillys’ consent to a proposed variation.
[30] Under the agreement for sale and purchase, Mr Askes was entitled to take possession of the property on 1 December 2015. That did not happen. On
25 November 2015 Mr Askes’ lawyers wrote to the Gardners’ lawyers asking for co- operation in Mr Askes’ proposed variation, particularly in regard to services being installed in places that did not suit Mr Askes’ requirements. He would not pay for services that did not suit him. On 30 November 2015 the Gardners’ lawyer emailed Mr Askes’ lawyer advising that the Gardners required the costs of subdivision under cl 19.3 of the agreement for sale and purchase to be paid as a condition of granting possession. The amount required was $92,904.32. Mr Askes had not been given the invoices for the subdivision costs until then and had not had the opportunity to consider them. His lawyer contended that the payment was not due until settlement date. When Mr Askes arrived to take possession on 1 December 2015, he was turned away. Mr Askes says that he has incurred costs in arranging to move his household belongings and in arranging alternative accommodation. He also claims damages for lost income for not being able to rent the place out.
[31] Mr Askes has taken issue with the subdivision costs claimed by the Gardners. He points out that the invoices total $83,230.87 and contends that some of them relate only to the O’Reilly property. The Gardners and the O’Reillys respond that the costs are appropriate and work carried out on the O’Reilly property was for the benefit of both properties.
[32] Leading up to the settlement date in December, the parties’ lawyers corresponded, putting their respective clients’ cases. The Gardners’ lawyer’s letter of
15 December confirmed that settlement would take place but the Gardners would require payment in full of all sums due under the agreement including all costs associated with subdividing the property from 9 September 2015. The letter referred to Mr Askes’ request to change the subdivision to a five lot subdivision:
The request to change the resource consent to a five lot subdivision was not a variation. It was a novation. Such a subdivision was never in the contemplation of our clients at the time of entering into the agreement. Your client may have had something like this in mind at the time, but he did not communicate his intentions to our client. In fact, what your client said to Mr O’Reilly about his intentions for the property prior to entering into the agreement for the sale and purchase was completely at odds with his current position.
Had your client communicated an intention to subdivide the property into five lots, our clients would have refused to sell the property to him.
[33] Mr Askes’ lawyer’s letters of 17 December and 18 December 2015 confirmed Mr Askes’ intention to complete the purchase. Mr Askes has shown that he had arranged funds from a bank to complete the purchase and also to pay $100,000 towards the invoices in relation to the subdivision (while reserving his rights to dispute his liability for all of them). In the letter of 18 December 2015 Water View Property Ltd was nominated as purchaser. Mr Askes had taken all the appropriate steps required for a purchaser to complete the purchase.
[34] On 18 December 2015 the Gardners’ lawyer replied to the letter of
17 December 2015. This letter made the point that Mr Askes’ five lot subdivision was different from the three lot subdivision and was outside what the Gardners had contemplated when they entered into the agreement. The letter advised that the lawyer had contacted Mr Crane, the surveyor, who had advised of Mr Askes’ intention, before the agreement for sale and purchase had been signed, to undertake a multi-lot division greater than the three lot subdivision under RC24333. Mr Askes had misled the Gardners through his silence as to his plan to carry out such a multi- lot subdivision. The letter gave notice of cancelling the agreement for misrepresentation and also invoked s 9 of the Fair Trading Act.
The plaintiffs’ case
[35] The plaintiffs’ statement of claim has three causes of action:
(a) The first, alleging breach for failure to settle the agreement on
21 December 2015, seeks specific performance, with damages in the alternative.
(b)The second, alleging breach of contract for failure to give vacant possession on 1 December 2015, seeks damages.
(c) The third, alleging breach of contract for failure to co-operate with Mr Askes’ proposed variations of the subdivision, seeks damages for costs incurred in trying to carry out a variation of the subdivision, costs incurred in having access to the property refused, costs incurred
for re-locating services, and damages for the loss of opportunity to complete the subdivision under one of his variations.
[36] In their application for summary judgment, the plaintiffs seek specific performance requiring the defendants to give them possession of the property and to transfer title, liquidated damages for failure to settle on time under cl 3.13(2) of the Auckland District Law Society’s agreement for sale and purchase, and damages for breach of cl 19 of the agreement for sale and purchase. At the hearing, they sought less extensive relief. They accepted that there were arguable issues as to their liability for the costs of subdivision. The full amount claimed by the Gardners could be secured pending resolution of those issues. They recognised that the Gardners may have an arguable claim for damages for misrepresentation (but not for cancellation of the contract) but proposed that any damages claim by the Gardners should be deferred for later consideration. It would not stand in the way of an order for specific performance. They did not seek summary judgment for damages for the failure to co-operate on Mr Askes’ subdivision variations or for the failure to give possession on 1 December 2015.
[37] As I understand their case, they broadly sought specific performance under which they would pay the purchase price of the property, the costs of subdivision with which they agree, and would secure funds required for the balance of the subdivision costs claimed by the Gardners, while leaving to be decided later all other claims for damages for breach of contract by either side and by the Gardners for misrepresentation.
[38] While it did not appear on the copy of the title put in evidence, the plaintiffs have lodged a caveat in support of their claim under the agreement.
The defendants’ case
[39] The defendants’ case is that Mr Askes induced the Gardners to enter into the agreement by falsely representing that he would complete the subdivision in accordance with subdivision consent RC24333, subject to any minor variations. They validly cancelled the agreement under s 7 of the Contractual Remedies
Act 1979. They also allege misleading conduct under s 9 of the Fair Trading Act
1986 and seek an order under s 43(3)(a) voiding the agreement.
Some contextual aspects
The Gardners’ agreement with the O’Reillys
[40] The Gardners’ agreement with the O’Reillys that they would subdivide their properties as a joint project accounts for the subdivision consent and why the Gardners could give the warranty in cl 19.1 of the agreement. The Gardners continued to be contractually bound to the O’Reillys for the subdivision project. There was no novation by which Mr Askes stepped into their shoes, assumed their responsibilities and the Gardners were released from any obligations to the O’Reillys. The Gardners remained liable to pay their share of the subdivision costs, even though they had agreed to sell their property to Mr Askes and settlement would take place before the subdivision was completed. It is arguable for the Gardners that under their agreement with the O’Reillys they could not do anything which would stall the subdivision. Under the agreement, Mr O’Reilly had project management responsibility for the subdivision. In submissions, the Gardners tried to elevate the O’Reillys’ position as consent-holders so as to give Mr O’Reilly sole say in exercising the subdivision consent and making any variations to it. That may be overstating matters. While for resource management purposes the O’Reillys were the consent-holders, they had responsibilities to the Gardners under their agreement. It is arguable for Mr Askes that under the O’Reilly-Gardner agreement the Gardners could request adjustments to the subdivision, so long as any adjustment concerned only the Gardner property, the Gardners carried the costs of the adjustment and the whole subdivision was not delayed. The qualifications need to be noted. The O’Reillys could fairly object to adjustments that would affect their property (including their proposed access to their new lots and services), which would prolong the project or which would cost them more. They could veto any such adjustments. The plaintiffs have not shown that under the agreement with the Gardners the O’Reillys were required to accede to the changes proposed by Mr Askes.
[41] Mr Gardner says that when Mr Askes came to his office to discuss terms for an agreement, he told Mr Askes that he would have to work with Mr O’Reilly. Mr Askes would also have known of the arrangements from earlier information he was given as to the joint subdivision.
The scope for variation of the subdivision consent under the Resource Management
Act 1991
[42] Under s 127 of the Resource Management Act 1991 consent holders may apply for changes of conditions:
127Change or cancellation of consent condition on application by consent holder
(1) The holder of a resource consent may apply to a consent authority for a change or cancellation of a condition of the consent, subject to the following:
(a) the holder of a subdivision consent must apply under this section for a change or cancellation of the consent before the deposit of the survey plan (and must apply under section 221 for a variation or cancellation of a consent notice after the deposit of the survey plan); and
(b) no holder of any consent may apply for a change or cancellation of a condition on the duration of the consent.
(2) …
(3) Sections 88 to 121 apply, with all necessary modifications, as if—
(a) the application were an application for a resource consent for a discretionary activity; and
(b) the references to a resource consent and to the activity were references only to the change or cancellation of a condition and the effects of the change or cancellation respectively.
…
(4) For the purposes of determining who is adversely affected by the change or cancellation, the consent authority must consider, in particular, every person who—
(a) made a submission on the original application; and
(b) may be affected by the change or cancellation.
That applies to subdivision consents, at least until the subdivision has been carried out.10
[43] A question can arise whether a proposed change is no more than a change of condition under s 127 or a new activity for which a fresh consent is required. In Body Corporate 97010 v Auckland City Council, Randerson J said:11
[73] Whether an application is truly one for variation of the condition under s 127 or whether in reality it is seeking consent to an activity which is materially different in nature, is a question of fact and degree to be determined in the circumstances of the case. Relevant considerations to the determination of this issue will include a comparison between the activity for which consent was originally granted and the nature of the activity if the variation were approved. In approaching that question, regard may be had to the form of the original application and the terms of the consent granted. However, I accept Mr Loutit’s submission on behalf of the Council that the terms of the resource consent are to be considered as a whole. Artificial distinctions should not be drawn between the activity consented to and the conditions of consent. The scope of the activity is not defined solely by the introductory language of the consent but is also delineated by the conditions which follow.
[74] It is trite that a principal focus of the RMA is the control of adverse effects of activities on the environment. In deciding whether an application for variation is in substance a new application, the consent authority should compare any differences in the adverse effects likely to follow from the varied proposed with those associated with the activity in its original form. Where the variation would result in a fundamentally different activity or one having materially different adverse effects, a consent authority may decide the better course is to treat the application as a new application. That will particularly be the case where the application for variation seeks to expand or extend an activity with a consequential increase in adverse effects.
(emphasis added)
[44] On appeal, Blanchard J said:12
[45] Section 127 permits an alteration to a condition but not an alteration to an activity. The question of what is an activity and what is a condition may not be clear-cut and will often, as the Judge recognised, be a matter of fact and degree. In differentiating between them, the consent authority need not give a literal reading to
10 Section 221 of the Resource Management Act deals separately with variation of consent notices, which provide for compliance with conditions after new titles have issued.
11 Body Corporate 97010 v Auckland City Council [2000] NZRMA 202 (HC) at [73].
12 Body Corporate 97010 v Auckland City Council [2000] 3 NZLR 513 (CA) at [45]-[46].
the particular wording of the original consent. Mr Brabant pointed out to the Court that the exact wording may, as in this case, have been supplied by a planner who is not a lawyer and who has not really addressed the distinction.
[46] It is preferable to define the activity which was permitted by a resource consent, distinguishing it from the conditions attaching to that activity, rather than simply asking whether the character of the activity would be changed by the variation. An activity may have been approved at a relatively high level of generality which, subject to stipulated conditions, may be capable of being conducted in different ways. …
[45] In that land use case there was a variation under s 127, under which two buildings were to be built within the building envelope the subject of the original consent. Blanchard J said:13
The approved activity in this case consisted of the use of a defined space (the original building envelope) for residential occupation in separate units or apartments. The exact shape and dimension of the units in which that activity could be carried on, including their number, was delimited by the conditions attaching to the approval of the activity. A change, for example, in the number of apartments is therefore merely a change to the conditions so long as those apartments are to be constructed within the same overall space or envelope as was delineated by the original building plans. Accordingly the changes proposed in this case were changes to conditions within s 127 notwithstanding that a different “twin tower” building emerged. This did not of course mean that the applicant was free to seek under that section any necessary approval to re-position the building on the site or to change its use to something other than residential apartments. That would have involved a change in the activity, in the former example, as to such part of the site as was not approved by the original consent for the locating of the single tower building. But within the building envelope, changes could be made to the features and dimensions of the building and its component parts – apartments, parking spaces and common areas – including the creation of separate structures (if indeed the twin towers are to be viewed as such).
A word of caution is necessary about the part of that paragraph dealing with variations involving a land use outside the consent building envelope. It should not be applied too rigidly. Many such changes do not materially change effects on the environment and can be dealt with under s 127, as happens in practice. Even so, an increase in lots in a subdivision is more likely not to come within s 127, given the resulting intensification of development with associated increased effects on the
environment.
13 At [48].
[46] In the light of that, it is arguable for the Gardners that any increase in the lots for the subdivision on their property is more than a variation of conditions under s 127 but must be treated as a fresh subdivision requiring a new resource consent. Such a proposal would result in more intensive development of the Gardners’ property than under the consented subdivision. The evidence of the Gardners and the O’Reillys is that stormwater and effluent disposal had been designed for a seven lot subdivision of their properties but that a subdivision with more lots would require those services to be re-designed. An application for a new consent to subdivide the Gardners’ property into even more lots would require more extensive information (by way of assessment of adverse environmental effects) backed up by appropriate expert reports, than might be required for a variation of conditions of the existing consent. An application for a fresh consent is likely to cost more and take more time than a variation of conditions under s 127.
Clause 19 of the agreement for sale and purchase
[47] Generally once the purchaser has taken title, the vendor no longer has control of the use of the property and the purchaser can do with the property what they wish, unless bound by some restrictive covenant or equivalent binding restraint in favour of the vendor. Ordinarily Mr Askes could carry out any subdivision of the Gardner property after he takes title. But this case concerns the Gardners’ ongoing interest in their project with the O’Reillys and Mr Askes’ intentions to work before settlement towards another subdivision.
[48] Through their arrangements with the O’Reillys the Gardners had an interest in completing the subdivision in RC24333. It was foreseeable that it would not be completed before the purchaser took title. After all, the settlement date was fixed to be the earlier of 21 December 2015 or seven days after titles issued. The Gardners would continue to be liable to the O’Reillys for their share of the costs of subdivision. They also faced potential exposure to the O’Reillys if they delayed the project or caused them extra costs.
[49] Mr Askes did not want to wait until he took title before starting work on further subdividing the Gardner property. Given his plans, he wanted the current
subdivision to be changed to avoid increased costs in undoing and replacing work for services. There were limits on his ability to do so: his plans would affect the O’Reillys because the services would be changed and there would be boundary adjustments. He would also need to apply for a fresh subdivision consent that would allow for different arrangements for services.
[50] Clause 19 of the agreement makes only partial provision for each of these different interests. The subdivision consent in clause 19.1 is RC24333. The subdivision in clause 19.2 that Mr Askes intended to carry out is that subdivision, subject to any ability to vary it. His undertaking to do everything in his power to carry it out in a timely way went towards the Gardners’ interest in having the subdivision completed. His undertaking in clause 19.3 to pay all costs associated with subdividing the property went towards meeting the Gardners’ obligations to the O’Reillys to pay their share of the costs of the subdivision, even if the clause did not expressly say that Mr Askes was to pay those costs. There is however no provision that Mr Askes was to indemnify the Gardners for any liability to the O’Reillys arising from his subdivision work.
[51] Under clause 19.5 the Gardners were not to object to any variation of the subdivision consent. That does not prevent them from objecting to any new consents that Mr Askes might apply for. “Variation” assumes that the consent will continue, albeit changed, not replaced by something else. That is consistent with the way s 127 of the Resource Management Act works. Any subdivision with increased lots is arguably not a variation of the subdivision consent.
[52] The other co-operation required of the Gardners was to sign any paperwork required to complete the subdivision and to allow access to complete the subdivision. They could not be required to allow access for work not related to the consent subdivision or any variation. Nor could they be required to sign documents for some other subdivision activity. Arguably the Gardners could be required to sign instructions to the O’Reillys to make changes to the current consent and its works, but they would be effective only if they did not go beyond a variation and did not impact adversely on the O’Reillys’ interests, that is, subject to the limitations in
[40] above. There was nothing in the agreement to deal with co-operation by the
O’Reillys.
The parties’ non-compliance with the agreement for sale and purchase
[53] For Mr Askes, it is arguable that the Gardners breached the agreement by refusing him possession on 1 December 2015. He would not have to pay the subdivision costs until settlement date. The agreement does not specify any other time for payment of the subdivision costs. Even if he was required to pay the subdivision costs before settlement date, his failure to pay does not give the Gardners grounds to refuse him possession. His right to possession was not conditional on his performance of other obligations under the agreement. The agreement was still in full force on 1 December 2015. The Gardners had not tried to cancel it then. Their cancellation came later.
[54] Mr Askes’ actions in giving instructions to Mr O’Reilly’s construction contractor and plumber, and in trying to fell trees are arguably not in accordance with cl 19. That is because those steps were taken towards carrying out a subdivision with increased lots, something for which he had not obtained resource consent and which went beyond a variation of the subdivision consent. It was not a variation of the subdivision consent under clause 19.5. It was outside his access right under clause 19.4.
[55] Mr Askes’ case is that notwithstanding the differences between the parties up until 18 December 2016 and any breaches by the Gardners, he reaffirmed the contract. As to any breaches of contract on his part, Mr Gardner says that they do not give grounds for cancellation. Any delay in payment by him was not of the essence and could be remedied by tendering payment on settlement. While his actions in trying to carry on with his subdivision plans may have been disruptive, ultimately they did not cause any lasting harm. They got nowhere because Mr O’Reilly was able effectively to veto his steps. The Gardners could not invoke substantial burden under s 7(4)(b) of the Contractual Remedies Act so as to justify cancellation.
[56] The Gardners have implicitly accepted that they could not cancel for breach of contract. Apart from any breaches of contract by Mr Askes not giving a substantial burden under s 7(4)(b) of the Contractual Remedies Act, they would also face the objection that they affirmed the contract through their lawyer’s correspondence of 15 December 2015 agreeing to settlement proceeding. Instead, the Gardners rely on misrepresentation.
Misrepresentation
[57] For the Gardners it was submitted that this was a case of misrepresentation by silence based on part-truths – positive representations but omitting relevant facts.14
This led to questions whether Mr Askes had told the full story and whether he had a duty to say more. In my view there is more direct approach available here – assess the case on the basis of what Mr Askes did say. In many successful representation claims the defendant might have said more: after all, the misrepresentation worked because the claimant did not know enough. But it is not always necessary to posit a duty to tell more.
[58] The representations the Gardners rely on go to Mr Askes’ stated intention in
September 2015, namely:
[a] that he intended to complete the subdivision work with all due alacrity or in a timely manner;
[b] that any variation to RC24333 would be minor; and
[c] that any variation would not affect the completion of the subdivision,
including the subdivision of the O’Reillys’ property.15
[59] As representations are about existing or past facts, they must be either true or
false. A statement as to a person’s intention may be a statement of fact, as Bowen LJ
explained in Edgington v Fitzmaurice:16
14 Authorities cited included Ware v Johnson [1984] 2 NZLR 518 (HC), Smith v Hughes (1871) LR
6 QB 597 and Wakelin v RH & EA Jackson Ltd (1984) 2 NZCPR 195 (HC).
15 See [10] above.
There must be a mis-statement of an existing fact: but the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained, it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a mis- statement of fact.
[60] Mr Askes made representations as to his intent three times: [a] his oral statements recorded by Mr Gardner;17
[b] the written representations in the partly handwritten, unsigned
agreement;18
[c] his representations on entering into the contract.
[61] To explain the third aspect. Making a promise is an act (a performative utterance) not a statement. It creates an obligation. A contractual promise sets a standard against which the promisor can be held to account for his or her later performance.19 Acts cannot be true or false; they just happen. But making a promise also involves passing information to the promisee. And information may be true or false. In the act of promising the promisor tells the other that he or she intends to
keep the promise. You cannot sincerely and without contradiction promise to pay
$100 and at the same time intend not to pay it. A promise made without intending to keep it is a false promise.
[62] To say that a contractual term is both binding in contract law and is also a statement of intent for a misrepresentation claim means keeping a distinction between contract and misrepresentation. Under the common law it was held that in the case of innocent representation where the representation was made a term of the
contract, there was merger of the representation in the contract, rescission at equity
16 Edgington v Fitzmaurice (1885) 29 Ch D 459 (CA) at 483.
17 See [10] above.
18 See [14] above.
19 Sometimes the promisee’s performance involves undertakings as to a past or existing state of affairs, as in the warranty in cl 19.1 in the agreement in this case. An enquiry into the due compliance with the warranty involves checking whether it is true or not, but that is distinct from the act of giving the warranty.
was not available and the only remedy was for breach of contract.20 It is doubtful that that was ever the law for fraudulent representation, for which a contract was voidable at common law. It is not the law under the Contractual Remedies Act. Section 7 repealed it:
7 Cancellation of contract
(1) Except as otherwise expressly provided in this Act, this section shall have effect in place of the rules of the common law and of equity governing the circumstances in which a party to a contract may rescind it, or treat it as discharged, for misrepresentation or repudiation or breach.
The section specifies grounds for cancellation. Section s 7(3) maintains the distinction between misrepresentation in s 7(3)(a) and contract s 7(3)(b) and (c) without suggesting that cancellation for misrepresentation is lost if the inducing statements become contractual terms.
[63] Once it is seen that making a contractual promise involves a representation as to intent, some of the difficulties in making a case for misrepresentation become easier. Upon the terms of the agreement being found, there can be no argument as to the promisor’s stated intention. That saves resolving factual disputes as to oral statements before the agreement. Any arguments as to the meaning of the stated intention are resolved in the same way as contracts are interpreted: a stated intention to carry out a contractual promise cannot be different from the promised
performance.21 Inducement questions also fall away. A stated promise to perform a
contract is invariably an inducement to the other party to enter into the agreement.
The meaning of Mr Askes’ representations
[64] As the Gardners’ rely on representations by Mr Askes on three occasions, it is not surprising that they do not align exactly. Mr Gardner says that Mr Askes told him that he would complete the subdivision with “all due alacrity” whereas the
written representations use “in a timely manner”. Mr Askes orally assured
20 Pennsylvania Shipping Co v Compagnie Nationale de Navigation [1936] 2 All ER 1167.
21 There is an objective approach to finding the meaning of a representation, as with construing the terms of a contract: Primus Telecommunications plc v MCI WorldCom International Inc [2004] EWCA 957, Collings v McKenzie (1988)( 2 NZBLC 102,997 at 103,011.
Mr Gardner that any variation would be minor, but the written documents do not have that express qualification. Little turns on these differences for summary judgment purposes. After all, on its true construction the agreement for sale and purchase does not allow for changes to the subdivision that would require a new subdivision consent.
Inducement
[65] Under the Contractual Remedies Act as under the common law inducement involves purpose and result.22 That is, the representor intended the other to enter into the contract on the basis of what he said or he made statements that would lead an ordinary person to do so. The representations do not need to be the only reason for making the agreement. Mr Askes does not contest making the representations in this case. It is clearly arguable for the Gardners that his statements led them to agree to
sell to him. Mr Askes does not suggest that there were any intervening factors that would negate inducement. And in so far as the representations became terms of the agreement, he can hardly argue against inducement.
Are the representations false?
[66] Establishing the falsity of the representations requires a finding that Mr Askes did not intend what he stated. What counts is his state of mind at the time of the representations. A change of mind later, after he had entered into the contract, does not make his representations false.
[67] The primary basis for the Gardners’ misrepresentation allegations is Mr Crane’s evidence that even before he began negotiating the agreement in this case with the Gardners, he had gone to Mr Crane for advice as to further subdivision of the Gardner property and instructed Mr Crane to prepare a scheme plan for an eight-lot subdivision.
[68] Mr Askes’ evidence on this is revealing. In his first affidavit in support of the
summary judgment application, he says that he began due diligence after he had
22 Savill v NZI Finance Ltd [1990] 3 NZLR 135 (CA) at 145.
entered into the agreement. The due diligence included meetings with engineers and surveyors for the subdivision. His evidence in chief suggests that the option of further subdividing the property only became apparent after he entered into the agreement. On that evidence, he never consulted Mr Crane before he entered into the agreement.
[69] Mr Askes’ reply affidavit, given in response to Mr Crane’s affidavit (and
others), tells another story:
6.During the initial negotiations, in August 2015 I did approach Peter Crane and asked him to prepare an initial concept plan. I had not reached any firm views about how I would proceed at this stage. I had in mind that I would probably complete the subdivision as planned, then look to divide it into further sections at a later date. However, I wanted to have an idea of what I could expect from an early stage.
…
8.I did not advise the Gardners that I was considering subdividing the property further. I was concerned that if they were aware of this they might realise that they could make more money from the property and would charge me a higher price. I did not actively conceal my intentions – the agreement itself recognised that I may wish to alter the subdivision – but I did not actively advise them of my intentions further. I do not consider that this was misleading, particularly as I had not reached any firm view as to what I wanted to do.
…
12.When I signed the agreement I intended to complete the subdivision in terms of the agreement. However, I also had in mind that I may try to vary the resource consent to allow for more lots – this was why I negotiated for a clause that would require the Gardners to consent to any variation. I did not expect this to delay the subdivision, as I assumed that all parties would co-operate with the variation to allow it to be completed quickly.
This inconsistency in Mr Askes’ position between his first affidavit (no intention of further subdivision) and his reply affidavit (further subdivision considered but not decided) plays into Gardners’ hands. As does his admitted non-disclosure of his intentions for further subdivision. They also point out that the plan was more than a concept, it was a proposal.
[70] There is further evidence of Mr Askes concealing his intention in a scheme plan of the subdivision which Mr Askes showed to Mr O’Reilly on or about
28 September 2015.23 This is a redacted version of another plan, showing an eight-
lot subdivision of the Gardner property. The redacted plan leaves out the usual descriptive and identifying information that cadastral surveyors typically include in their subdivision plans. The original, from which the redacted version is taken,24 does show all that information. The redacted plan was taken from a subdivision plan prepared by Mr Crane. It is dated 28 August 2015. The reference number is 5990-
13. 5990 is the reference for subdivisions of the O’Reilly-Gardner subdivision. A likely explanation for Mr Askes showing Mr O’Reilly the redacted version is to avoid showing Mr O’Reilly that he had planned the further subdivision of the Gardner property even before he entered into the agreement with the Gardners. That concealment is consistent with Mr Askes having the intention to subdivide further even before he entered into the agreement with the Gardners.
[71] In these circumstances, the Gardners have done enough to show that there is a proper issue for trial; that when he entered into the agreement with the Gardners Mr Askes did not intend to limit his subdivision activities to carrying out the existing subdivision or any variation within s 127 of the Resource Management Act, but intended something more extensive – an eight-lot subdivision - that would delay completion of the O’Reilly-Gardner subdivisions. His representations as to his intention are arguably false.
Cancellation
[72] The Gardners can cancel the agreement for sale and purchase only if they can show one of the grounds under s 7(4) of the Contractual Remedies Act:
7 Cancellation of contract …
(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c)
applies, a party may exercise the right to cancel if, and only if,—
23 O’Reilly affidavit Exhibit MO5.
24 Exhibit A of Mr Askes’ reply affidavit.
(a) the parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the term is essential to him; or
(b) the effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—
(i) substantially to reduce the benefit of the contract to the cancelling party; or
(ii) substantially to increase the burden of the cancelling party under the contract; or
(iii) in relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.
[73] Just as I do not consider that the Gardners would have an arguable case for cancellation for a substantial breach of contract under s 7(4)(b), I also consider that the effect of the misrepresentation by Mr Askes as to his intention did not have any of the substantial effects under that subsection. By the time settlement date arrived, Mr Askes was ready willing and able to complete the agreement for sale and purchase. While matters had not gone smoothly and the Gardners may have incurred greater legal expenses than they may have anticipated, any adverse effects arising from the misrepresentation were not so great as to be substantial. Instead, to succeed, the Gardners must show essentiality under s 7(4)(a).
Essentiality
[74] Discussions of essentiality under s 7(4)(a) usually go to contractual terms. In Mana Property Trustee Ltd v James Developments Ltd, the Supreme Court stated the test:25
In the end, the preferable approach is to ask whether, unless the term in question was agreed at the time of contracting to be essential, the cancelling party would more probably than not have declined to enter into the contract. That question must be answered by an objective contextual appraisal which disregards what a party may unilaterally have said about its intention in that regard.
25 Mana Property Trustee Ltd v James Developments Ltd [2010] SC 90, ]2010] 3 NZLR 805 at
[25].
[75] As for the essentiality of pre-contractual representations, the judgment of Tipping J in Progeni Systems Ltd v Hampton Studios Ltd is valuable.26 After referring to Dawson and McLaughlan’s The Contractual Remedies Act 1979,27
Tipping J said:28
I tend to agree with the learned authors of Dawson and McLaughlan On the Contractual Remedies Act 1979 when they say at page 48 that there is some conceptual difficulty in regarding a representation as either essential or inessential. One normally finds essential matters referred to within the contract itself and they would then be terms and their falsity in fact would then fall more harmoniously into the concept of broken stipulations.
But I agree also with the learned authors that the intention behind s 7(4)(a) is clear. A misrepresentation as such only gives a right of cancellation where there is agreement expressly or by implication that the truth of the representation is essential to the party wishing to cancel.
The Legislature has therefore clearly contemplated that there will be certain statements made by parties which have not become contractual terms but nevertheless by reason of their essentiality give rise to a right of cancellation if they constitute misrepresentations.
…
And after referring to the judgment of Jordan CJ in Tramways Advertising Pty Ltd v
Lunar Park (NSW) Ltd29 as to conditions at common law:30
Adapting what Jordan CJ said from conditions and warranties to representations, the stated test becomes: does it appear from the surrounding circumstances that the misrepresentation was of such importance to the representee that he would not have entered into the contract if the representation had not been made, and this ought to have been apparent to the representor.
The learned authors suggest that an essential representation is one which forms an indispensable part of the inducement to enter into the contract and is basic or crucial to the representee’s decision to enter into the contract and not merely one of the factors which he weighed in his mind
I agree with that general approach and consider that the truth of a representation will be essential when the representation is of such fundamental importance to the representee in his consideration whether to enter into the proposed contractual relationship that without it he would not have contracted with the representor either at all or on those particular terms.
26 Progeni Systems Ltd v Hampton Studios Ltd HC Christchurch, CP.105/86, 11 August 1987.
27 Francis Dawson and David WMcLaughlan The Contractual Remedies Act 1979, (Sweet & Maxwell, Auckland, 1981) at 48.
28 At 38.
29 Tramways Advertising Pty Ltd v Lunar Park (NSW) Ltd (1938) SR (NSW) 632 at 634.
30 Above n 26, at 39.
…
If the parties have expressly agreed that a particular represented fact is of such fundamental importance then s 7(4)(a) will be satisfied expressly.
Although the concept is the same, more difficulty will obviously arise on the facts if the allegation is that the agreement of the parties can be spelt out by implication.
[76] Clearly expressions such as “fundamental importance” show that essentiality should not be assumed too quickly. In a cognate area, classification of contractual terms at common law, Carter’s Breach of Contract expresses similar caution:31
Except in respect of time stipulations in commercial contracts, the courts now generally take the view that the enforcement principle is advanced by construing terms as intermediate terms rather than conditions. Applying this view serves to prevent the avoidance of contractual obligations by termination in respect of a commercially insignificant breach. It also promotes good faith, since the most likely motive for termination in such a situation is an adverse market movement. Because termination disrupts commercial activities, there are also sound economic reasons for not treating terms as conditions unless the parties clearly intended this to be the case.
[77] Notwithstanding the caution in finding that the truth of a representation must be essential, there can be little room for argument that it is of fundamental importance to any party entering into a contract that, at the time of agreement, the other party intends to perform their side of the bargain. If anyone negotiating with another party found out that the other party did not intend to do what they promised, bargaining would stop. There would be no interest in concluding an agreement. The good faith requirement, an honest intention to do what was promised, is fundamental
in the sense described in Progeni Systems Ltd v Hampton Studios Ltd.32 Allowing
cancellation holds parties to honesty in contracting. It is not necessary to show substantial effect under s 7(4)(b).
[78] It is accordingly arguable for the Gardners that when Mr Askes negotiated with Mr Gardner, he held out that he would complete the current subdivision and that while he might make changes to it they would only be variations of that consent and would not disturb the timely completion of the subdivision of the O’Reilly property.
Although he did not disclose this to Mr Gardner, Mr Askes arguably intended to
31 J W Carter Carter’s Breach of Contract (LexisNexis, Australia 2011) at [5-09] (footnotes omitted).
32 Progeni Systems Ltd v Hampton Studios Ltd, above n 26.
create an eight-lot subdivision, contrary to his stated intention. That intention to perform other than he had shown in the agreement goes to the essentiality of the truth of his representations and provides grounds for cancellation under s 7(4)(a).
The affirmation reply
[79] The plaintiffs say that even if the Gardners had grounds for cancellation, they affirmed the contract when their lawyers agreed on settlement in their letter of
15 December 2015. Under s 7(5) of the Contractual Remedies Act, cancellation is barred if, with full knowledge of the misrepresentation, the party has affirmed the contract. The Gardners have an arguable response that on 15 December 2015 they did not have full knowledge of the misrepresentation. They were suspicious. That is apparent from the passage quoted from the lawyers’ affidavit quoted from [35] above. Suspicion is not full knowledge. Between 15 December 2015 and
18 December 2015 the Gardners’ lawyer found out from Mr Crane that Mr Askes had approached him and asked him to prepare a plan for an eight-lot subdivision even before Mr Askes entered into the agreement with the Gardners. That was enough to tell them that Mr Askes had misrepresented his intention when he negotiated with Mr Gardner. Even that may not have been full knowledge, but it was enough to show the Gardners that they could give notice cancelling the agreement. The plaintiffs have not shown that the Gardners had full knowledge of Mr Askes’ misrepresentation before then – and indeed, Mr Askes has continued to deny misrepresentation even until now. I do not find for the plaintiffs on the affirmation reply.
Fair Trading Act
[80] The Gardners’ submissions also covered misleading conduct under the s 9 of the Fair Trading Act. Given that Mr Askes was planning a subdivision for the purpose of re-sale, he was arguably acting in trade. In their counterclaim, the Gardners seek an order under s 43(3)(a)(i) declaring the agreement void. Clearly the court could not order specific performance of an agreement when a defendant has an arguable case for the agreement to be declared void under the Fair Trading Act. It is not, however, necessary to give extended consideration to relief under s 43(3),
because the Gardners have already shown an arguable case for cancellation under the
Contractual Remedies Act.
Nomination
[81] The Gardners have put the nomination of Water View Property Ltd in issue. The letter nominating Water View Property Ltd as purchaser was sent on the same day as the cancellation letter by the Gardners’ lawyer. The question of nomination is academic at this stage. If the Gardners’ cancellation turns out to be effective, there will be nothing to be enforced. On the other hand, if the cancellation was ineffective, presumably the nomination would stand up as well. But those are matters to be found out after a hearing on the merits.
Outcome
[82] The Gardners have an arguable defence to the claim for specific performance on the ground that Mr Askes misrepresented his intention when negotiating and entering into the agreement for sale and purchase of the Gardners’ property. The truth of the representation was essential and the Gardners have an answer to the claim that they affirmed the contract. Overall, the plaintiffs have not satisfied me that the defendants do not have an arguable defence to the claim. The summary judgment must accordingly be dismissed. Costs on the summary judgment application are reserved.
[83] I direct a telephone case management conference for Wednesday 19 October at 12.30 pm. Ahead of the conference, the plaintiffs should advise how they wish to continue from now on. If they wish to go to a hearing, the parties should submit as to the appropriate directions for discovery and other interlocutory steps as well as directions for trial.
………………………............
Associate Judge R M Bell
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