Windsor v Sloane
[2016] NZHC 3197
•22 December 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-000723 [2016] NZHC 3197
BETWEEN JOHN ALBERT WINDSOR, LARRY
OWEN PARK AND KATHRYN ANNE PARK
Plaintiffs
AND
DENNIS MICHAEL SLOANE Defendant
Hearing: 9 December 2016 Appearances:
N Craig for Plaintiffs
B Molloy for DefendantJudgment:
22 December 2016
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 22 December 2016 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Davenports West Lawyers, Auckland
Haigh Lyon, Auckland
M Colthart, Auckland
WINDSOR & Ors v SLOANE [2016] NZHC 3197 [22 December 2016]
[1] The plaintiffs claim summary judgment against the defendant, Mr Sloane, for the full amount of their claim (as pleaded in their amended statement of claim dated 19 September 2016) for $244,321.63.
[2] The basis of the plaintiffs’ claim is an unconditional written agreement
for sale and purchase entered into between the parties sometime between
29 December 2015 and 2 January 2016. Mr Sloane agreed to purchase the plaintiffs’ property at 302 Henderson Road for $1,987,690 plus GST (if any), and to pay a deposit of $198,769 plus GST (if any) immediately upon execution of the agreement by the parties.
[3] The agreement records that settlement date was 15 December 2015, but both parties acknowledge that the agreed date for settlement was 11 February 2016. The interest rate for late settlement was 14% per annum.
[4] The property was leased to two long term tenants. The basic details of the two leases were included in the agreement for sale and purchase.
[5] One of the tenancies was used for a childcare centre with a long term lease, a copy of which was provided to Mr Sloane before he entered into the agreement.
[6] Mr Sloane failed to pay the deposit required under the agreement for sale and purchase, and it is common ground that he did not respond to a solicitor’s notice sent to his solicitor on 19 January 2016 requiring payment of the deposit, or to several other similar requests. Nor did Mr Sloane and his solicitor respond to the plaintiffs’ solicitor’s advice that they were ready, willing and able to settle the sale of the property on settlement day, or to the settlement statement that was duly provided to Mr Sloane’s solicitor prior to settlement date.
[7] On 12 February 2016 the plaintiffs served a settlement notice under clause 10 of the agreement requiring settlement by 1 March 2016. Mr Sloane did not respond or comply with the settlement notice. It is the plaintiffs’ contention that the failure to settle is a breach of clause 3.8 of the agreement for sale and purchase. It is not disputed that if the failure does amount to a breach, that the plaintiffs will be entitled
to the relief they seek. However, Mr Sloane contends he has an arguable defence to the plaintiffs’ claim based on misrepresentation, making him the party entitled to cancel the agreement. If he is right about that, the plaintiffs will not be entitled to summary judgment, and their claim would have to be determined at trial in the normal way.
[8] The only issue for determination is therefore whether or not it is arguable that Mr Sloane was induced by the plaintiffs to enter into the agreement for sale and purchase on the basis of one or two misrepresentations (admittedly made for the purpose of the present application), and whether or not the effect of such misrepresentations was to substantially reduce the benefit of the agreement for sale and purchase to Mr Sloane.
[9] The plaintiffs have the overarching onus to demonstrate their entitlement to judgment (substantiated on a prima facie basis), but if the Court’s finding on this issue is that these contentions are indeed arguable, Mr Sloane will have provided a sufficient response to the plaintiffs’ claim for summary judgment.
The agreement for sale and purchase
[10] The agreement for sale and purchase is in the standard form Auckland District Law Society Agreement For Sale and Purchase (ninth edition). It comprises operative provisions together with a schedule and a number of appendices. Only a few provisions are relevant to the determination of the present application:
(a) Clause 3.8 relevantly provides that:
On the settlement date:
(1) The balance of the purchase price, interest and other provisions shall be paid by the purchase in cleared funds.
(b) Clause 3.12 provides that:
3.12 If any portion of the purchase price is not paid upon the due date for payment, then provided that the vendor provides reasonable evidence of the vendor’s ability to perform any obligation the vendor is obliged to perform on that date in consideration for such payment:
1)The purchaser shall pay to the vendor interest at the interest rate for late settlement on the portion of the purchase price so unpaid for the period from the due date for payment until payment, but nevertheless this stipulation is without prejudice to any of the vendor’s rights or remedies including any right to claim for additional expenses and damages. For the purposes of this subclause, a payment made on a day other than a working day or after the termination of a working day shall be deemed to be made on the next following working day and interest shall be computed accordingly.
2)The vendor is not obliged to give the purchaser possession of the property or to pay the purchaser any amount for remaining in possession, unless this agreement relates to a tenanted property, in which case the vendor must elect either to:
(a) Account to the purchaser on settlement for incomings in respect of the property which are payable and received during the default period, in which event the purchaser shall be responsible for the outgoings relating to the property during the default period; or
(b) Retain such incomings in lieu of receiving interest from the purchaser pursuant to subclause 3.12(1).
(c) Clause 19.1 provides:
19.1 The vendor and purchaser both acknowledge that before signing this agreement they have had a reasonable opportunity to seek legal, technical and other advice or information and that they have either obtained that information, or have included a provision in this agreement to obtain that information, or have decided not to do so on their own accord.
(d) Clause 20 provides that:
20.1 The parties to this contract confirm that the sale of this property evidenced by this contract is unconditional in all respects and the agent is authorised to release the deposit on cleared funds being confirmed.
(e) The agreement provides for a settlement date of 11 February 2016.
The misrepresentations
[11] There is no dispute that the advertising material made available to Mr Sloane by or on behalf of the plaintiffs, prior to purchase, contained certain statements as follows:
(a) Describing the property as “a quality, passive long-term commercial
investment for generations to come”.
(b) Describing the childcare centre as “well-established, good track
record, with waiting list”.
(c) Describing the childcare centre as “very popular and has a waiting list of families keen to enrol their children…”.
[12] The first two statements were in an auction booklet produced by the vendors’ real estate agent, Colliers, and the third was in a local newspaper article published by Colliers on behalf of the vendors.
[13] In his statement of defence Mr Sloane says that in reliance on the first two representations made on behalf of the vendors, he entered into the agreement for sale and purchase. He pleads that at the time the parties entered into the agreement, the childcare centre was not in fact operating at full occupancy, and did not have a waiting list. He relies for this on the third statement.
[14] He says he is entitled to relief under s 7 Contractual Remedies Act 1979, namely cancellation of the agreement, or alternatively to damages under the Act. He pleads further that he was not required to comply with the settlement notice, as these statements were material representations that entitled him to cancel, and that his failure to settle amounted to lawful cancellation of the agreement due to the above misrepresentations.
[15] Mr Sloane elaborates on these allegations in his evidence. His essential position is that the reference in the advertising material to a “waiting list” was central to his purchase, and that when he subsequently came across information in the local newspaper that indicated there was no waiting list, he was surprised. He says this was central to his decision to cancel.
[16] The fact that the childcare centre advertised that it had a waiting list was, according to Mr Sloane, of considerable importance. He deposes:
I only entered into the agreement for sale and purchase for the property in reliance on the representations made on the occupancy rates of the childcare centre.
Subsequent to signing the agreement for sale and purchase for the property I became concerned that the occupancy rates of the childcare centre was less than represented. This was brought to my attention by my business manager at ASB Glen Eden, who told me that he was aware that the childcare centre was not at full occupancy, nor did it have a waiting list.
I then saw in the Western Leader an advertisement for the childcare centre stating that there were spaces open for new children. This is in complete contradiction from the representations that the centre has a waiting list.
It was very important to me to have a low-risk investment….
If I had known that the childcare centre was not operating at full occupancy I
would not have entered into the contract.
Right to cancel for misrepresentation
[17] It is common ground that Mr Sloane may invoke the right to cancel the agreement in one of two contingencies set out in s 7 of the Contractual Remedies Act.
[18] Mr Sloane relies on the right set out in s 7(3)(1) and (4). The relevant parts of s 7 state as follows:
7 Cancellation of contract
…
(3) Subject to this Act, but without prejudice to subsection (2), a party to a contract may cancel it if—
(a) he has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to that contract; or
…
(4) Where subsection (3)(a) … applies, a party may exercise the right to cancel if, and only if,—
…
(b) the effect of the misrepresentation … will be,—
(i) substantially to reduce the benefit of the contract to the cancelling party; 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.
(5) A party shall not be entitled to cancel the contract if, with full knowledge of the repudiation or misrepresentation or breach, he has affirmed the contract.
…
Legal principles – summary judgment
[19] The principles applicable to summary judgment are well-established.
[20] The Court of Appeal succinctly summarised the principles in
Krukzeiner v Hanover Finance Ltd [2008] NZCA 187:
Summary judgment principles
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA).
The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ
84 (CA).
[27] Under r 141A the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
The plaintiffs’ case
[21] The plaintiffs accept that the alleged representations were made on behalf of the vendors, and that they might affect a purchaser’s understanding as to the attractiveness of the purchase as an investment, but submit that a robust approach is warranted to the question of inducement because:
(a) The property being sold was the subject of a long term lease. The lease was to a model tenant, and fully guaranteed by the directors of the tenant, EIO Limited. It was the epitome of a quality investment.
(b)The first representation describing the child care centre as “a quality, passive long-term commercial investment for generations to come” was therefore true. There is nothing in the statement of defence to suggest that the first representation was not true.
(c) The second representation that the child care centre had a waiting list would not induce any reasonable person to enter into the contract, and it could not have had the effect of substantially altering the benefit of the bargain. Any reasonable person would ask about the reliability of the tenant and to see the rent records. Such a person would also ask to see the statement of accounts or other relevant material from the tenant if concerned to substantiate the reliability of viability of the childcare tenancy.
(d)Clause 19.1 of the agreement for sale and purchase gave any reasonable purchaser ample opportunity to make full enquiries if concerned about these issues, or if the purchaser attached significance to the content of the representations.
[22] Counsel further submitted that it was not until many months later, indeed until a statement of defence was filed, that Mr Sloane made the claim that he had been induced to enter into the contract by the representations. He argues that this is a case for the application of the approach discussed in Bilbie Dymock Corp Ltd v
Patel – a robust and realistic attitude is called for when looking at the facts.1 He
argues that this is not a case where the buyer could be said to have been induced into
entering into a sale and purchase agreement on the basis of the wording “waiting list” or “no waiting list”.
1 Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[23] Counsel for Mr Sloane points out that the fact that the childcare centre advertised that it had a waiting list was, according to Mr Sloane, of considerable importance to him. He submits that there is therefore sufficient evidence of inducement and that formal discovery is needed from the operator of the childcare centre to determine the issues relevant to loss; and whether or not it was operating at full occupancy with a waiting list (and if it was not, what the impact of that was on Mr Sloane’s bargain).
[24] I asked counsel for the plaintiff whether the tenant’s strength and viability might be important to a buyer, and whether the existence of a waiting list might reasonably be seen to have a beneficial impact on viability or profitability of a business. Though accepting the first possibility, he submitted that whether or not there is a waiting list has nothing to do with the strength of the tenant. He submits that if Mr Sloane was concerned with the viability of the childcare centre, he could have asked for its financial statements; and that without them he would have had no idea what full occupancy meant in relation to the viability of the childcare centre. Nor would he have had any idea what the effect of a drop in full occupancy might mean. The reference to occupancy and waiting lists is, he submits, so vague as to have no real bearing on the question of whether or not the childcare tenant was a viable tenant.
[25] Counsel for the plaintiffs also submits that what the defendant was purchasing was a very substantial property subject to substantial leases. He was not buying a childcare centre. He was buying a leased property for $2 million, and what was relevant was the quality of the lease, not the kindy business itself. It was beside the point whether the kindy was good or not, therefore there could not be a right to cancel because there could be no inducement.
[26] Turning to Mr Molloy’s submissions for the defendant, he accepts that
inducement must be reasonable.
The law
[27] The plaintiffs under s 6 will not succeed unless it can be shown that the misrepresentation did not induce Mr Sloane to enter into the contract. The representation must have produced a misunderstanding in his mind, he must have relied on it, and it must have been one of the reasons that induced him to make the contract.
[28] The principle that representation should be understood in the context in which the person reasonably understood it, has been held to apply under s 6
Contractual Remedies Act 1979. In West v Quayside Trustee Ltd, the Court said it must determine “whether the representation was a representation by examining its meaning. The meaning of relied upon by the representee must be reasonable in all the circumstances”. 2 A representation will also not be actionable if it was of such a kind that no reasonable person in the position of the representee would have relied on it.3 The meaning should therefore be obvious, if not the most obvious meaning of the representation.
[29] Section 6 contains no express requirement that the misrepresentation must also be material but while this may appear to mean that any misrepresentation is actionable, that is unlikely because if a misrepresentation is not material, it would be difficult prove there was inducement.4 At common law a misrepresentation also had to be made with the intention causing the representee to enter into the contract. The law now however is that there is no inducement to contract unless the representor intended there to be or at least unless he or she wilfully used language which induce a normal person.5
[30] It has also been held that a misrepresentation which induces a party to make a contract unconditional can be regarded as a misrepresentation inducing the party to
enter into the contract. As Tipping J said:
2 West v Quayside Trustee Ltd [2012] NZCA at [30].
3 Western Park Village Ltd v Baho [2014] NZHC 198 at [67].
4 Savill v NZI Finance Ltd [1990] 3 NZLR 135 at 145.
5 At 145.
Any misrepresentation materially influencing a party along that continuum is, in my view, capable of being a misrepresentation inducing that party to enter into the contract.6
[31] In this case it must be asked whether the representation was of a kind that a reasonable person in the position of Mr Sloane would have relied on it, or that any sensible person would have regarded as a statement going to viability of the child care centre
Evaluation
[32] In my assessment the statements “with waiting list” must be read in the context of the wider factual circumstances known to Mr Sloane. The circumstances included the fact that there was a long-term lease which had been in place for a number of years; and vendors who were promoting the property as a quality investment. It could hardly be an accident that the vendors thought reference to a waiting list was material in that context.
[33] Taking these factors together I accept it is possible that a reasonable person would conclude that a childcare business that has a waiting list is one that is able to pay its rent on a regular and ongoing basis. Such a person could believe that it was a viable business and therefore a low-risk investment. If a child care centre does not have a waiting list, that fact may have an effect on this situation.
[34] It is not in dispute that the child care centre did advertise for spaces, so the centre did not have a waiting list as Mr Sloane was given to believe. The advertising on this was therefore a misrepresentation. Mr Sloane says this induced him into entering the agreement. No doubt there were other reasons for entering into the contract but the waiting list was one reason and that it all that is needed.
[35] Applying the principles of misrepresentation, I am satisfied that there is a tenable argument it is possible that the misrepresentation in this matter materially influenced Mr Sloane along the continuum and was capable of inducing him to enter into the contract. He says he understood a waiting list to mean that the business was
viable – an arguably reasonable assumption in the circumstances. It was one of the reasons which induced him into entering the agreement. He says he did not consider whether no waiting list meant the business was not viable, and that he had no reason to, as he relied on those positive statements about the centre having a waiting list as being true. Whether Mr Sloane and his lawyers could have enquired further about the viability of the business is not the point. Given Mr Sloane’s contention that he relied on that statement which later proved not to be true, when making his decision to purchase the property, there is an arguable case.
[36] In these circumstances I am satisfied that this is not a case for a robust approach.
Result
[37] Summary judgment is declined.
[38] In accordance with the Court of Appeal’s approach in NZI v Philpott, costs are reserved.7
[39] The Registrar is to allocate an initial case management conference for this proceeding.
[40] I add a postscript. At the hearing counsel for the plaintiff advised that the amended statement of claim had been filed. I am told by the Registrar that this is not so, and that the plaintiff appears to have overlooked doing this, as well as paying the filing fee. The plaintiffs are to attend to filing of the amended statement of claim
immediately.
Associate Judge Sargisson