Zhou v Watson
[2025] NZSC 89
•24 July 2025
| IN THE SUPREME COURT OF NEW ZEALAND I TE KŌTI MANA NUI O AOTEAROA |
| SC 27/2025 [2025] NZSC 89 |
| BETWEEN | LEI ZHOU AND QIUYING ZHANG |
| AND | ELIZABETH WATSON |
| Court: | Ellen France, Williams and Kós JJ |
Counsel: | D Wang for Applicants |
Judgment: | 24 July 2025 |
JUDGMENT OF THE COURT
AThe application to adduce new evidence is dismissed.
BThe application for an extension of time to apply for leave to appeal is granted.
C The application for leave to appeal is dismissed.
D The applicants must pay the respondent costs of $2,500.
____________________________________________________________________
REASONS
Introduction
The applicants purchased a home from the respondent. Almost immediately after settlement they discovered it had weathertightness issues. They brought proceedings in the High Court against the respondent. They succeeded in part.[1] The High Court held there was a common mistake between the parties that the property was sound and did not leak. The High Court also found Mrs Watson liable for breach of warranty in relation to work undertaken on the property, regarding a retaining wall, which needed a consent where the consent had not been obtained. The High Court concluded there was no oral misrepresentation. The other aspects of the claim in relation to breach of contractual warranty were dismissed.
[1]Zhou v Watson [2023] NZHC 2328 (Gendall J) [HC judgment].
Mrs Watson appealed to the Court of Appeal against the finding there was a mistake in terms of the Contract and Commercial Law Act 2017 and alternatively against the quantum of damages ($271,600 plus interest). The applicants cross‑appealed against the High Court’s conclusion that there was no oral misrepresentation and in relation to the findings associated with the unsuccessful parts of the claim for breach of contractual warranty.
The Court of Appeal allowed Mrs Watson’s appeal in relation to the finding of contractual mistake.[2] The cross‑appeal in relation to the oral misrepresentation was unsuccessful. The Court of Appeal also agreed with the High Court there should be no award in relation to the deck work however, the cross‑appeal succeeded in relation to the drainage work. This aspect was remitted back to the High Court to determine the quantum of damages. The applicants seek leave to appeal from this decision to this Court.
Background
[2]Watson v Zhou [2024] NZCA 417 (Cooke, Venning and van Bohemen JJ) [CA judgment].
In 1969, Mrs Watson, now in her 80s, and her late husband bought the section on which they built their home.[3] They undertook various alterations and repairs to the property over the years. They listed the property for sale in early 2020.
[3]Mr Watson passed away after the sale, before the High Court hearing.
The applicants went to see the Watsons’ property in February 2020. Other than the alterations and repairs, it was largely in its original condition. They viewed the property on three occasions before making an offer to purchase. On their viewing on 10 February 2020, they had arranged for a builder to come along. Mr and Mrs Watson were both also present. It is common ground that there were some discussions about features of the property during this viewing. There is a dispute as to whether Mrs Watson made a statement about whether the house suffered from leaks. This disagreement underpins the claim relating to an oral misrepresentation.
After the inspection, the builder advised the applicants that the property looked to be in good condition and that there was only minor wear to some weatherboards and deck support that would require remediation. The applicants made an unconditional offer for purchase on the standard Auckland District Law Society/Real Estate Institute of New Zealand terms.[4] There was a pre‑settlement inspection on 18 March 2020 during which the applicants identified some minor issues with the property but these were not resolved. Settlement went ahead on 19 March 2020. Only a week after settlement, the property experienced substantial leaks during rainfall. The applicants then obtained a report from a building specialist firm which identified significant defects and damage.
[4]Auckland District Law Society and Real Estate Institute of New Zealand “Agreement for Sale and Purchase of Real Estate” (10th ed, 2019).
It was against this background that the claim against Mrs Watson was advanced.
Proposed appeal
The applicants raise three grounds of appeal, the first relating to the oral misrepresentation claim; the second to mistake; and the third concerning the claim for damages relating to the deck.
A misrepresentation?
The applicants’ case was that Mrs Watson was asked during the property inspection “[are there] any other leaks elsewhere in the house?”, to which she responded “no”.[5] Mrs Watson denied making that representation. In the High Court, the Judge concluded that the applicants had not established on the balance of probabilities that such a statement had been made. The High Court also considered that the alleged misrepresentation would not have made a difference.
[5]CA judgment, above n 2, at [14].
The Court of Appeal upheld the High Court’s finding noting, amongst other matters, that the applicants’ evidence was difficult to reconcile with the contemporaneous documents. The Court of Appeal also agreed that even if Mrs Watson had made the misrepresentation, there would have been an issue as to whether what was said was sufficiently clear cut to reasonably be relied on given the circumstances.[6]
[6]The circumstances identified included the briefness of the alleged exchange and the difficulties Mrs Watson was experiencing in coping with the number of people in the house.
The applicants’ challenge is to factual findings. No question of general or public importance or of commercial significance accordingly arises.[7] Further, there are concurrent findings of fact on the question of whether Mrs Watson made the misrepresentation. Nothing raised by the applicants suggests that this is a case in which the Court should revisit those factual findings.[8] There is accordingly no appearance of a miscarriage of justice as that term is used in the civil context.[9]
The mistake claim
[7]Senior Courts Act 2016, s 74(2)(a) and (c).
[8]See Perkins v Purea [2010] NZSC 15, (2010) 19 PRNZ 666 at [6].
[9]Senior Courts Act, s 74(2)(b); and see Junior Farms Ltd v Hampton Securities Ltd (in liq) [2006] NZSC 60, (2006) 18 PRNZ 369.
The applicants wish to argue that the Court of Appeal erred in its approach to s 21 of the Contract and Commercial Law Act particularly in terms of its purpose. The applicants also say the Court of Appeal was wrong to treat inadvertence as not amounting to a mistake. Finally, the applicants challenge the formulation of their belief as a belief the property was “sound” rather than “sound and did not leak”.
In allowing the appeal on this point, the Court of Appeal referred to authorities, dating back to New Zealand Refining Co Ltd v Attorney‑General, which have found that inadvertence is not mistake.[10] Here, the finding was that there was no relevant discussion about weathertightness nor any other evidence either party directly considered weathertightness. The Court observed that, in different contexts, “when both parties have forgotten about a particular matter, a mistake has been found”.[11] The Court referred to academic commentary making the point that the difference between these cases may depend on how the mistake contended for is formulated, and that it may be possible to reformulate the inadvertence cases in a way that identifies a mistake.[12] The Court was therefore required to make an assessment as to whether a qualifying mistake arose from the states of belief the parties to the contract held.
[10]New Zealand Refining Co Ltd v Attorney‑General (1993) 15 NZTC 10,038 (CA) at 10,045 per Cooke P, 10,047 per Gault J and 10,051 per McKay J.
[11]CA judgment, above n 2, at [45] citing Slater Wilmshurst Ltd v Crown Group Custodian Ltd [1991] 1 NZLR 344 (HC) at 356–357.
[12]See D W McLaughlin and C E F Rickett “Mistake and Ignorance under the New Zealand Contractual Mistakes Act 1977” (1995) 8 JCL 193 at 196; and Stephen Todd and Matthew Barber Burrows, Finn and Todd on The Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [10.3.3], as cited in CA judgment, above n 2, at [45], n 30.
The Court of Appeal took the view that s 21(2)(b) of the Contract and Commercial Law Act limited what might be sufficient in the context of the relevant contract. Section 21 provides that the purpose of Subpart 2 of the Act, which relates to contractual mistakes, “is to mitigate the arbitrary effects of mistakes on contracts by giving courts appropriate powers to grant relief in the circumstances mentioned in s 24 [when relief may be granted]”. Section 21(2)(b) provides that the court’s powers “must not be exercised in a way that prejudices the general security of contractual relationships”.
The Court of Appeal noted the mistake found by the High Court was “a belief of the parties that ‘the house was sound and did not leak in any significant way’”.[13] The Court of Appeal considered that the associated operative concept was “that there was a belief by the purchaser that the house was sound — the reference to leakiness is really an illustration of the soundness”.[14] The Court said that the difficulty with treating this as a qualifying mistake in the context of the standard agreement for sale and purchase was that in any case where there was an “underlying problem” of which the parties were unaware, a mistake could arise.[15] Accordingly, some particularity was required in the present context.
[13]CA judgment, above n 2, at [46] (footnote omitted).
[14]At [46].
[15]At [47].
In addition, the Court of Appeal found that the mistake had not influenced the entry of the contract. That was because, in order to qualify, the parties had to have been influenced in their respective decisions to enter the contract by the same mistake.[16]
[16]Contract and Commercial Law Act 2017, s 24(1)(a)(ii).
The extent to which, in light of s 21(2)(b), a common assumption without some evidence of the parties turning their minds to it will suffice in the present contractual context may be a question of general or public importance or of general commercial significance.[17] However, we do not see this case as providing an appropriate vehicle to consider the point where there are insufficient prospects of success. As the Court of Appeal said, this case can be distinguished on its facts “from other cases where mistake has been upheld with the sale and purchase of real estate” on the same contractual terms.[18] The house was an old one, “with potential issues apparent on inspection, and, as noted, a builder was with the purchasers during the inspection”.[19] Further, as the Court of Appeal also highlighted, the applicants did not insert any conditions into the agreement although they had brought a builder along with them. In these circumstances, there are insufficient prospects that, even if mistake were found on a different view of the law, any relief would be granted under s 28(1).
Claim relating to the deck
[17]Senior Courts Act, s 74(2)(a) and (c).
[18]CA judgment, above n 2, at [32].
[19]At [32].
The final proposed ground concerns the approach to damages in relation to the deck. The applicants submit that the Court of Appeal should have found they were entitled to damages and made an award accordingly. We agree with the respondent that this submission overlooks that neither Court made a definitive finding that a breach of the vendor warranty had in fact occurred. Both Courts found the applicants failed to prove, on the balance of probabilities, that the deck work did, in fact, require a building consent. Nothing raised by the applicants suggests any error in the assessment of the Court of Appeal on this issue.
Other matters
We are satisfied we can deal with this application without an oral hearing, as sought by the applicants.[20] That application is formally dismissed.
[20]Senior Courts Act, s 76(2).
The applicants also purport to file an affidavit from Qiuying Zhang. The affidavit canvasses various factual issues such as what Mrs Watson is alleged to have said about the leaks. The evidence is not fresh and if not already adduced in the High Court, should have been. It is not admissible as new evidence.[21] The application to adduce new evidence is dismissed.
[21]Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641 (CA) at 649–650.
The application for leave is well out of time. While the applicants’ explanation for the delay does not fully account for it, the application is not unmeritorious. The application for an extension of time to apply for leave to appeal is granted.
Result
The application for leave to appeal is dismissed.
The applicants must pay the respondent costs of $2,500.
Solicitors:
Bush Forbes Ltd, Tauranga for Respondent
0