Zhou v Watson
[2023] NZHC 2328
•24 August 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-000435
[2023] NZHC 2328
UNDER THE Contract and Commercial Law Act 2017 IN THE MATTER OF
A claim for relief under the Contract and Commercial Law Act 2017 and for breach of contract
BETWEEN
LEI ZHOU AND QIUYING ZHANG
Plaintiffs
AND
ALAN GORDON WATSON AND ELIZABETH WATSON
Defendants
Hearing: 13 – 23 June 2023 Appearances:
J T Wollerman and D A Fry for the Plaintiffs
D M Fraundorfer and A G Needham for the Defendants
Judgment:
24 August 2023
JUDGMENT OF GENDALL J
ZHOU v WATSON [2023] NZHC 2328 [24 August 2023]
Table of contents
Introduction [1]
Background [8]
The Parties [8]
The property, and its marketing [10]
Viewing of the Property [17]
The SPA and Subsequent events [26]
First cause of action – breach of contractual warranty in the SPA [33]
Upper deck [44]
Retaining wall [48]
Drainage work [49]
Analysis [67]
Second and third causes of action – oral misrepresentations and misrepresentation by
concealment [73]
The oral and general misrepresentations here [85]
Misrepresentation by concealment [113]
Fourth and fifth causes of action – mistake [121]
Common mistake [126]
Unilateral mistake [150]
Relief and quantum [151]
Affirmative defences [173]
Contractual waiver [174]
Estoppel [180]
Failure to mitigate loss [184]
Betterment [190]
Result [194]
Costs [196]
Introduction
[1] In February 2020, the plaintiffs, Lei Zhou (Rocky) and Quiying Zhang (Veronica), recent immigrants to New Zealand from Singapore, purchased a house at 84 Dowse Drive, Maungaraki (the Property) as a family home for themselves and their two young children.
[2] The house on the property (the house) was around 51 years old at the time of sale. The defendants Alan Gordon Watson (now deceased) (Mr Watson) and Elizabeth Watson (Mrs Watson), (together referred to hereafter as “the Watsons”), had been its sole owners since they purchased the section at 84 Dowse Drive, and built the house in 1969. Although the house was largely in original condition, in February 2020 Rocky and Veronica say they thought they were buying a sound and weathertight house in reasonable condition for its age. In addition, they maintain that during a pre- purchase inspection at the property, Mrs Watson had been asked the question whether there were any leaks in the house and she answered “no”.
[3] Only around a week after their settlement of the purchase, Rocky and Veronica discovered significant leaks in the house. They say it is not in dispute that the house leaks and had leaked for some time prior to the time of sale.
[4] Rocky and Veronica maintain they want to carry out the substantial repairs required to the house and to remain living there as their family home. Financially, however, they say they are unable to repair or to sell the property, without recovering their losses.
[5] The plaintiffs’ case arises largely from the sale and purchase agreement between the parties dated 13 February 2020 (SPA). Their case is based on breach of a vendor warranty in the SPA, contractual misrepresentations and mistake. Underpinning each cause of action is the assertion that the house was “leaky” and/or it suffered from widespread weathertightness defects. The damages claimed by Rocky and Veronica are for the cost of repairs (as at 2023) or, alternatively, the loss in value.
[6] The defendants, the Watsons, deny the claims. They say each of the plaintiffs’ causes of action must fail as they have not met the required standard of proof. Nor have they proved any causative link to the damages and the losses they claim.
[7] However, in the event I find for the plaintiffs on any of their causes of action, the Watsons rely on four affirmative defences – estoppel, contractual waiver, failure to mitigate and betterment, which they say must result in any liability being reduced or avoided entirely.
Background
The parties
[8] The defendants, Mr Watson and Mrs Watson, as I note had owned the section at the property and built the house on it in 1969. In October 2022, subsequent to these proceedings being issued, Mr Watson died. Mrs Watson, his widow, is now aged 83. She gave extensive evidence at the hearing of this matter before me, and she was supported throughout by members of her family. Mrs Watson has now relocated to Tauranga to be with family members. Although Mr Watson had died prior to the hearing of this matter, where she was able to, Mrs Watson in her evidence indicated the position as she saw it on behalf of them both. For present purposes, however, all evidence on behalf of the defendants was given by Mrs Watson. I will refer in this judgment to “the Watsons” where appropriate to describe both Mr Watson and Mrs Watson together.
[9] The plaintiffs, Rocky and Veronica, as I have noted, shortly prior to February 2022, emigrated to New Zealand from Singapore with their two young children. Rocky and Veronica say their immigration to New Zealand was for a better lifestyle for them and their family. Although English is not Rocky and Veronica’s first language, before me in their evidence and otherwise they indicated significant English language proficiency and understanding throughout, both written and oral.
The property and its marketing
[10] The house on the property was constructed for the Watsons in or around 1969. Over the 50 plus years they owned and lived in the property, the Watsons undertook various alterations and repairs to the house and certain development undertakings to its grounds and surrounds. Generally, the alterations to the house were completed under building permits or building consents. The plaintiffs confirm they have no dispute as to the permitted and consented building work here.
[11] Rocky and Veronica say however that, following settlement of their purchase, they discovered first, that the house was subject to a long history of leaks and secondly, that the Watsons undertook various unconsented repair works which only patched over leaks and damage rather than adequately remediating the problems. They contend water entry to the house had carried on for some time and, as a result, at the time of sale it continued to leak. The evidence of both the expert building surveyors called by the parties, Mr Haydon Miller for the plaintiffs and Dr Dirk Stahlhut for the defendants, appears to confirm that the house leaks.
[12] Rocky and Veronica contend further that unconsented works carried out to the house suggest too that the Watsons had knowledge of leaks and damage which were never properly addressed. In particular, they allege:
(a)Remedial work to repair “rotten” deck joists and construct a new deck handrail in 2006, and the addition of timbers to provide structural support to decayed joists and to construct a new deck handrail in 2006 and the addition of timbers to provide structural support to decayed joists (that is, to sandwich a rotten joist) was undertaken without a building consent which should have been obtained.
(b)Cut-outs to the cantilevered deck surface were made above rotten timber.
(c)Sealant was liberally applied around joinery and deck junctions which the experts now agree are locations of water ingress or leaks.
(d)In 2013, replacement of internal linings and installation of new timber occurred adjacent to damaged or decayed timber framing.
(e)Newspaper dated 2016 was found within wall linings in the lower northern bedroom, a location where the experts agree the property does leak and where from her evidence it seems Mrs Watson had previously noticed leaking.
(f)Plastering and painting occurred in locations of water ingress and damage.
(g)Around December 2019/January 2020, shortly before the sale by the Watsons of the property, work was undertaken to waterproof the foundation wall and carry out associated drainage works. Mrs Watson says this was to prevent water ingress in an area where water had been seen entering by the Watsons and where they had removed water- damaged carpets. The plaintiffs say building consent was required for this work if it was to control water ingress and/or was “new work” but was not obtained.
(h)Additionally, in 2008 the Watsons constructed a retaining wall which all the experts before me agreed did require a building consent which was not obtained. Expert evidence before me given for Rocky and Veronica suggests that the retaining wall may act as a dam itself causing water to enter the property.
[13] It is Rocky and Veronica’s position that it is not a pure coincidence or first- time occurrence that the works they describe at [12] above correspond with locations where, soon after settlement of their purchase of the property, they first identified water entering the house. This, it seems, started to occur around a week after that settlement date.
[14] It is significant also, they say, that shortly after the work noted at [12(g)] above to prevent water ingress in late 2019/early 2020 was completed by the Watsons’
contractors, BRC Ltd, the property was listed for sale and marketed through their agents Redcoats Ltd. The selling agent from Redcoats Ltd for the Watsons was Chrissy Kibblewhite (Chrissy). A further agent working for Redcoats Ltd, was Annie Liu (Annie) who worked directly with Rocky and Veronica to assist them with this purchase.
[15] A Land Information Memorandum (LIM), dated 27 November 2019, was obtained for the property. Amongst other things it showed that the property was in a high wind zone, in accordance with NZS3604:2011. Permits or consents obtained were detailed. The LIM noted the current capital value of the property in November 2019 was $570,000 with a land value of $205,000 although it did go on to note that the capital value effective from 1 July 2020 would be $710,000 with an effective land value from that date of $325,000.
[16] Marketing material prepared by Redcoats Ltd for the Watsons’ sale described the Property in these terms:
This large family home is on the market for the first time ever and it has everything you need for your growing family. With four bedrooms, three living areas, two bathrooms and plenty of storage space. There is room for everyone. On top of that we have a great view of the harbour, lots of sun and plenty of privacy. With a balcony off the upstairs living area and a large deck downstairs for entertaining. A car pad by the front door for two cars and another access off Dowse Drive with enough room for several cars or to maybe even build a garage.
A number of photos of the property were included in the listing material.
Viewing of the Property
[17] Rocky and Veronica viewed the property on three occasions prior to making their purchase offer. In the context of their present claim, the most important viewing took place on 10 February 2020. On that date, they were at the property for over one hour with Annie and a builder, Mr Huang, who Annie had arranged to come with them.
[18] At this 10 February 2020 viewing, both Mr Watson and Mrs Watson were present. It is accepted that around this time Mr Watson was suffering from dementia and other significant health issues.
[19] All parties agree that, at this 10 February 2020 viewing, there was some discussion about construction features of the house. Mrs Watson, it seems, explained amongst other things that parts of the house were insulated; some windows were double glazed and the main heating was gas which, in her words, kept the property “nice and warm” as there was also a heat pump there.
[20] The parties also accept that Rocky and Veronica asked Mrs Watson particularly about a pipe penetrating the ceiling in a downstairs bedroom and whether there was a leak there. Mrs Watson has confirmed that she said “no” it was not a leak.
[21] On this issue, Mrs Watson’s evidence before me was particular. She stated from her brief of evidence:
[64] During the viewing, while I was upstairs with Chrissie and my family, Rocky came to me with a photograph on his phone. The photograph was of a lump in the ceiling, which I recognised as the downstairs northeast bedroom.
[65] Rocky asked: “Is this a leak?” showing me the photograph on his phone. I looked at the photograph and said “no”, it was not a leak. I explained it was plaster covering a pipe which had dropped below the ceiling. The room used to be a workshop.
[66] Afterwards, we went downstairs to look at the plaster on the ceiling. I told Rocky that it was not a leak. Veronica and Rocky were there, but I don’t remember seeing Annie Liu or Mr Huang.
[67] I don’t recall Rocky and Veronica asking me generally whether there were any leaks in the house. The only question I was asked was in relation to the pipe in the ceiling in that room.
……
[72]I was not asked any questions about the balcony or deck.
[73]I cannot recall any questions about the house needing maintenance
[22] In addition, in her cross-examination evidence before me, Mrs Watson was asked the question:
So…you say you don’t recall Rocky and Veronica asking you whether there were any leaks in the house. Is it possible that Annie [Liu] asked the question?
And she answered:
I mean there was quite a few – there was quite a few voices and questions, as I said they bombarded me with questions, ah, so, and there was quite a few people around, but I couldn’t remember Annie being there.
A further question was asked:
Do you remember seeing Annie provide her evidence? And she said that she asked you as part of that discussion as a follow-up question whether there were any leaks elsewhere in the house, do you recall that?
to which Mrs Watson replied:
Well, that’s probably what she said but I couldn’t remember her recall – I couldn’t recall her asking me that question because she hardly ever said anything. Most of the times they were there she didn’t really – she just kept in the background most of the time, she didn’t say much.
As a follow-up cross-examination question, Mrs Watson was asked:
So you think she [Annie] might have asked the question?
And she answered:
Well, I don't know. Not that I know of.
[23] On all these matters, Rocky and Veronica contend that the parties had all turned their minds to the question of whether there were leaks in the house, in the context of discussing its construction features and thus it was a live issue for all.
[24] But this issue of what was said at the 10 February 2020 property inspection involves a significant dispute between the parties. Rocky and Veronica say that, via a question from Annie, they had at that point asked Mrs Watson the specific question:
Are there any leaks elsewhere in the house?
Both Rocky and Veronica and Annie say in their evidence they were all there at the time this question was asked by Annie and that Mrs Watson responded “no”. Mrs Watson says however that she does not recall being asked this as I note above at [21]. Her evidence is that the only “leak” question put to her related to the protruding pipe in the downstairs bedroom to which she answered “no” directly. It seems there may also be some dispute between the parties about whether the condition of the deck, and maintenance required generally, were also discussed.
[25] Following this 10 February 2020 inspection of the house, Mr Huang advised Rocky and Veronica that the property looked to be in good condition and there was only minor work required to some weatherboards and a deck support. On the basis of all these matters, Rocky and Veronica, after discussion with Annie, then proceeded to make their purchase offer for the property.
The SPA and subsequent events
[26] Because the selling arrangements were that this sale was to be by way of a form of closed tender, Rocky and Veronica decided to put their best foot forward with an unconditional offer. They did so in the hope of securing the property which they said they thought would provide them with a perfect family home.
[27] Some brief negotiations continued. Then, on 13 February 2020 the parties entered into the SPA at a sale price of $848,000.
[28]Settlement occurred on 19 March 2020.
[29] Just over a week after settlement, Rocky and Veronica experienced substantial leaks in the house. They obtained an initial report from a building specialist firm CheckHome which identified significant defects and damage and suggested the previous owners might have been likely aware of the issues.
[30] Around 6 May 2020, Rocky and Veronica provided Annie with videos and told her of the major issues they had discovered. Annie advised them to address the issue through their lawyers, which they attempted. Unable to resolve the matter with the Watsons, Rocky and Veronica filed the present proceedings.
[31] They confirm the property continues to leak and they have been required to undertake temporary measures as far as possible to prevent further leaks. Rocky and Veronica say they want to repair the house and seek damages for the cost of repair in order to do so.
[32] The expert evidence supports the conclusion that there are significant leaks in the house. A “leak map” they have prepared shows 11 leak areas in the house in total.
First cause of action – breach of contractual warranty in the SPA
[33] Rocky and Veronica’s first cause of action relates to the provisions of clause 7.3(6) of the SPA which provide:
7.3(6) Where the Vendor has done or caused or permitted to be done on the property any works:
(a) Any permit, resource consent, or building consent required by law was obtained;
(b) To the vendor’s knowledge, the works were completed in compliance with those permits or consents;
(c) Where appropriate, a Code Compliance Certificate was issued for those works.
[34] Paragraph 7 of the plaintiffs’ Amended Statement of Claim, dated 31 October 2022 (the ASOC) pleads:
[7] During their ownership, the defendants between about 2012 and 2020, carried out various repairs to the property without obtaining a building consent, including but not limited to:
(a)In relation to the cantilevered deck on the southwestern elevation:
(i) Removal and replacement of soffit, outer joist, timber blocking and deck substrate timbers;
(ii) Removal and reinstallation of the deck safety rails;
(iii) Applying sealant to deck junctions, deck sheet joints and to sheet cracks;
(iv) Cutting open the deck surface and patching over with new material on the northern end of the upper western elevation;
(v) Cutting open a section of deck surface and patching with new material to the upper southern elevation;
(vi) Consequential plastering and painting
(b) Constructing a retaining wall at the southern elevation exceeding 1.5 metres in height.
The building work set out in paragraph [7] above is referred to as the “unconsented building work”. The extent of the unconsented building work pleaded is based on expert investigations undertaken to date. Further unconsented building work may become apparent as a result of the plaintiffs undertaking further investigation.
[35] I refer now to arguments advanced before me by Mr Fraundorfer for the Watsons, querying the plaintiffs’ pleadings here. In particular, he refers to the pleaded dates at [7] of the ASOC for what are said to be repairs carried out to the property “between about 2012 and 2020.” The Watsons’ position is that many of these repairs were carried out well before 2012 and therefore no evidence was before the Court that this work took place on the deck or the retaining wall during this later eight year period. Further arguments were raised by the Watsons regarding the plaintiffs’ pleadings, relating amongst other things to the absence of a linkage between pleaded defects and damage.
[36] In my view, there is little in these arguments advanced for the Watsons. The dates the repairs were undertaken obviously were unknown to the plaintiffs, and in any event the timing reference in the ASOC is to repairs carried out between “about” these dates. The plaintiffs’ pleadings and evidence advanced for them are sufficient to overcome the pleading complaints Mr Fraundorfer endeavours to advance here. I will proceed to consider the substantive aspects of the plaintiffs’ claim and the Watsons’ defence.
[37] Clause 7.3(6) of the SPA involves two questions. The first is whether the clause is engaged here. The second concerns the consequences – i.e. what is to happen if the clause is so engaged?
[38] In this case the plaintiffs’ allegation is that clause 7.3(6)(a) was breached as (1) the Watsons as vendors, have done or caused to be done on the property works; (2) a building consent was required for those works, and (3) a building consent was not obtained.
[39] An issue arises as to whether liability is strict and is based, not on a wilful action or omission by the Watsons, but on their failure to obtain a consent when one was required.
[40] It is clear the purpose of a contractual warranty of this type is to protect against a possible error by the warrantors.1 A purchaser’s knowledge of issues does not relieve the vendors of their obligations under the contractual warranty.2
[41] Here, Rocky and Veronica contend that the Watsons carried out unconsented building work first to the upper deck, secondly by constructing a new retaining wall and thirdly by installing new drainage and waterproofing to a foundation wall. An initial issue is whether a building consent was required or whether a consent was not required because the work involved exempted repairs and maintenance.
[42] It does seem likely that the Building Act 2004 was in force at the time the Watsons undertook the work concerned. That said, the starting point must be that building work is not to be carried out without consent in terms of s 40 of the Building Act. Section 41, however, provides that building consent is not required in certain cases. Here, relevant exemptions are provided for by ss 41(1)(b) and 42A. Schedule 1 provides for the building work in question under these provisions for which a building consent is not required.
[43] In summary, Rocky and Veronica contend that the building work to the upper deck, the retaining wall and the drainage, does not fall within the relevant exemption sections under the Building Act. Building consents were therefore required for work carried out in these areas and as they were not obtained, the vendors’ contractual warranty in the SPA has been breached.
Upper deck
[44] Evidence provided for the plaintiffs from Mr Robert Tidd, a former council officer, confirmed that the building work carried out by the Watsons to the upper deck required a building consent:
(a)Mr Tidd’s evidence was that the replacement of a boundary joist is a structural element required to support the deck and the safety barrier and therefore required a consent;
1 Singh v Rutherford [2012] NZHC 380 at [31] – [32].
2 Ford v Ryan HC Wellington CIV-2005-485-845, 13 December 2007 at [33].
(b)He further stated that the deck joists being extensively decayed had failed to meet the minimum 50 year durability period required by clause E2 of the Building Code and therefore replacement of the joists also required a consent; and
(c)Mr Tidd’s evidence was that the work to the cantilevered beam on the southwestern deck, adding the two supporting timbers around the original beam, required a consent as the beam was providing a structural support.
[45] On these matters, Dr Dirk Stahlhut, the expert building surveyor who gave evidence for the Watsons, appeared to agree that a building consent was required for the deck work, subject to issues pertaining to the timing of that work.
[46]As to issues relating to the timing of the upper deck work:
(a)Mrs Watson’s recollection in her evidence was that work done to this deck area was carried out in 2006.
(b)Mr Pepperell, a builder from Rock Solid Construction Ltd, gave evidence before me confirming that he replaced the barriers on all sides of the deck – south and west, and although not recalling exactly the timeframe for this work, accepted that he could have done the work to the western joist in question. On this, the invoice from Rock Solid Construction Ltd in 2006 refers to “extra work done to repair rotten deck joists” (plural) and then detailed 200x50 H3 timber that Mr Pepperell agreed would have been used for the deck joists. It is the plaintiff’s position that in the absence of any other invoice for this work, it is most likely here that the 2006 work did relate to the western joist, noting that the reference to the “southern side” on the invoice is only in relation to renewing the scribers and facings work.
(c)Mr Tidd’s evidence was that the work to the western boundary joist was likely carried out within the last 10 years and although Dr Stahlhut
could not date the works, he agreed the boundary joist was newer than the other deck timbers based on the photographic evidence. He accepted the supporting timbers to the cantilevered beam were a later addition to the original construction.
(d)Mr Tidd’s evidence was that, given the state of the surrounding timbers relative to the timber replaced under the deck, this would indicate the work was done within the last 10 years.
[47] According to all of this, it is the plaintiffs’ position that the work to the upper deck was, on the balance of probabilities, undertaken in 2006. If so, Dr Stahlhut in his evidence, seemed to agree with Mr Tidd that a building consent would have been required at the time.
Retaining wall
[48] There seemed to be no question before me that the experts for both parties agreed the retaining wall in question was over 1.5 metres and required a building consent. Mr Pepperell in his evidence also accepted that a consent was required once the retaining wall, which was constructed in 2008, was built over the 1.5 metre limit. No building consent for the retaining wall was obtained. This breached cl 7.3(6) of the SPA.
Drainage work
[49] The evidence before me from Mr Tidd was also that drainage work to the southern and eastern elevations required a building consent as it performed the function of controlling water ingress, and therefore fell within cl E2 of the Building Code. The drainage work required a consent to ensure compliance with cls E2 and E1 of the Building Code. It appears that Dr Stahlhut agreed that if waterproofing was carried out to the foundation wall then a building consent (or at least an application for an exemption) would have been required for this work.
[50] Mr Ross of BRC, who gave evidence before me, confirmed that BRC undertook the work, that the previous foundation wall was not waterproofed, and that
he carried out the waterproofing work on the Watsons’ instructions in late 2019. Some issues arise as to whether work done to lay the extended drain may not have been undertaken by an “unauthorised person” being a registered drain layer, but I leave that aspect to one side here. No building consent was obtained for the overall drainage work.
[51] In response, the Watsons say, if there has been a breach of cl 7.3(6)(a) of the SPA here (and that is disputed), the ordinary requirements of proof of loss, causation and quantum must be addressed when assessing damages, and that will cause issues for the plaintiffs in this case.
[52] The Watsons also contend that, although any breach of cl 7.3(6)(a) is a question of fact (and is generally accepted as one of strict liability) in the context of vendor warranties on SPAs like the present, it has been held there can be no breach of warranty where a vendor had no knowledge of the matter.3
[53] Mr Fraundorfer says that Mrs Watson’s evidence is that to the best of her knowledge, all works done to the property had the necessary consents. He notes too that both Mrs and Mr Watson were lay people with no particular knowledge or skill of building, and they engaged professional tradespeople throughout to carry out any alterations, repairs and maintenance. Nor, he argues, were the Watsons aware of any consent or associated “weathertightness” issues with the property. This total absence of knowledge on the part of the Watsons, according to Mr Fraundorfer, is relevant when determining whether there was a breach of the vendor warranty clause and whether any relief should follow.
[54] Turning now to issues of causation, the plaintiffs argue here that had the required building consents been applied for, the Council would have undertaken a wider weathertightness assessment of the property and discovered further defects requiring a more complex and considered approach to remediation, not just to the unconsented work but to the whole property. As a result, it seems Rocky and Veronica’s argument is that the whole property would have needed to be brought up
3 Tasman Liquor Co Ltd v Nine Paddocks Ltd [2009] NZCA 593 at [21] – [23].
to current building code standards. The consequential damages should, therefore, be the costs of remediating the entire property.
[55] In response, Mr Fraundorfer noted that this was the exact argument that was rejected by this Court in Newton v Stewart.4
[56] In the Newton case, the Court found the plaintiffs could not logically show the damage to the entire property arose naturally from the failure to obtain a building consent for certain repairs and thus those repairs were not causative of the damage alleged. Damages claimed in that case were thus too remote, there being insufficient proof of causation.
[57] In Mr Tidd’s evidence, he confirmed he had never worked at the Hutt City Council and could only give evidence, in his words, as to “what Councils should have done”. On these larger issues, Mr Tidd admitted he was “absolutely guessing” whether a Council would even come out and inspect the property had a consent been applied for relating to unconsented works at the time. In particular, he did not know what the Hutt City Council’s position on this was. He did agree it was not the Council’s job to visit and “look for” faults in a property. It seems further that, for example, had the Council come out to the property to look at the safety barrier replacements on the deck, he agreed they “probably may not have” found the leaks which were affecting that area.
[58] As in Newton, issues arise in this case as to whether the links of causation are established such that the lack of consent (if any was required) for any works carried out was causative of the alleged damage to the wider property, and all the losses suffered by the plaintiffs here.
[59] That seems, however, not to be accepted as the position relating to the lack of a consent for the retaining wall. While all experts seem to agree that the retaining wall should have been the subject of a building consent (given it was constructed over 1.5 metres high), its construction is not linked to any proven defects or damage to the house itself. Rocky and Veronica have been unable to establish here that the damage
4 Newton v Stewart [2013] NZHC 970 at [126].
and subsequent cost to remediate relevant parts of the house itself are sufficiently caused by the retaining wall not having a consent. Such damage is simply too remote.
[60] Damages relating to the Watsons’ breach of the vendor warranty relating to the retaining wall as I see it must be limited to the cost now to make the wall code compliant. Both the plaintiffs and the defendants’ quantity surveyors before me gave evidence assessing this cost at $15,000 excluding GST, and I accept this.
[61] Finally, so far as the drainage work undertaken by BRC in December 2019 is concerned, there is some doubt in my view as to whether this work did require a building consent. It is suggested that in reality it was simply general maintenance work to an existing drain and as a “minor alteration” would be exempt work. Mr Ross’ evidence before me was to that effect.
[62] Further, and in any event, there is no evidence before me to establish to the required standard of proof that the 2019 drainage work was causative of significant defects or damage to the house.
[63] Lastly, it is instructive here to consider several authorities that involved situations of specific breaches of a warranty of this type and the consequent damages that have been awarded. If a breach of the building consent warranty is found, the alleged defects as a result of that breach must be established on the evidence and there must be sufficient linking evidence to establish that it was those breaches of the building consent that were causing damage.5 It is not enough that the defects “may be a possible cause of moisture ingress”.6 The defects must be causative of loss or damage and proven to be a result of the breach of warranty.7 Even if defects are proven, but they are issues of performance or quality and not issues flowing directly from the lack of consent or permit, plaintiffs cannot generally rely on the warranty to recover those costs.8 This is even the case where some damage has been caused.
5 Weaver v HML Nominees Ltd [2015] NZHC 2080 at [52].
6 Brebner v Collie [2013] NZHC 63 at [31].
7 Weaver v HML Nominees Ltd, above n 5, at [52].
8 Brebner v Collie, above n 6, at [49].
[64] In Bhargav v First Trust Ltd, this Court in considering damages for breach of a similar provision to cl 7.3(6)(a) of the SPA in particular, set aside a previous decision. The High Court accepted that awarding damages for full remediation following a breach of warranty was not appropriate in that case as that would significantly exceed the cost to remedy the breach. The Court found that a building consent might have been obtained there without remedying other underlying weathertightness issues.9
[65] In the present case, a further consideration arises. This relates to the point that, if any works which did require building consent at the time were unconsented and thus gave rise to a breach of this warranty, those works were undertaken many years ago and perhaps under a different building regime than applies today. In Ford v Ryan, this Court noted that ascertaining the proper measure of damages in such a case can present considerable difficulty:10
[46] It is first necessary to define the position which the plaintiffs would have been in if the breach had not occurred. At one level, that is very simple: they would have had a house which had a code compliance certificate. But the practical implications of that are not so simple. There is, as I have earlier noted, no warranty of quality in the contract. There is no contractual commitment by the vendors as to the standards of workmanship or materials or otherwise in respect of the property. Clause 6.2(5)(d) [a different warranty to the issue in the present case] is not a warranty of quality, though it carries with it the requirement on the vendor to ensure that the works are constructed in accordance with the building code. The fact that the breach here is of a warranty that a code compliance certificate was issued, not of a warranty that the works had been completed to a particular standard, is relevant to the measure of damages.
[66] The Court in that case found it was not appropriate to award damages calculated by reference to the means of performing not the original obligation contracted for (in that case in 2000) but what has, by change of circumstances, become quite a different obligation. Accordingly, the cost of repair was not the proper measure of damages for the breach of warranty in that case. Moreover, any damages actually awarded needed only to rectify the particular issue rather than other requirements.
9 Bhargav v First Trust Ltd [2023] NZHC 174 at [44].
10 Ford v Ryan, above n 2 at [46].
Analysis
[67] So far as the retaining wall is concerned, the evidence of Mr Tidd for the plaintiffs here, broadly accepted by other experts, is that a consent was required and, had a consent been sought, the Council would have required an engineer’s producer statement (PS1) as well as plans and calculations and a PS4 producer statement to confirm all construction was carried out in accordance with the engineer’s design for the wall. This would have included the design and approval of a barrier to prevent falling and to achieve compliance with clause E1 as well as compliance with other clauses in the Building Code. The Council would also have required a compliant soil drain to control surface water and a handrail.
[68] As I have noted above at [60] I accept that damages relating to a breach by the Watsons of their warranty relating to the retaining wall are recoverable here. But, it is clear those damages must be limited to the cost to make the wall compliant. This cost has been assessed at $15,000 excluding GST by quantity surveyors for both parties. This is a liability which will attach to the Watsons here.
[69] So far as the other alleged unconsented work is concerned, the warranty in clause 7.3(6)(a) of the SPA is not a warranty that the home in question is watertight.11 That warranty is to bear only its ordinary, natural meaning.12 Principles of caveat emptor are still generally to apply and according to the authorities, these principles are to be applied with particular stringency in relation to disputes over the sale and purchase of land.13
[70] Causation and remoteness, as I see it, are live issues here. The question is whether there is any causative link between a breach of the building consent warranty and the overall damage to the house alleged by the plaintiffs. Rocky and Veronica maintain that, had building consents been sought in particular for the upper deck and the drainage issues, it is likely that it would have been necessary for the Watsons to undertake all remedial works which are now recommended to remediate leaks to the house generally. Rocky and Veronica have endeavoured to adduce evidence to show
11 See Newton v Stewart, above n 4, at [98].
12 Brebner v Collie, above n 6, at [51] – [52].
13 Ware v Johnson [1984] 2 NZLR 518 (HC); and Mitchell v Zhang [2017] NZHC 3208 at [43].
that the consent process would (or could) have led to all the “damage” being discovered and wider remedial repairs being required by the Council. In my view, they have not succeeded in this endeavour. Broadly speaking, it is the same argument that was rejected in Newton v Stewart.14 In that case it was accepted it was too uncertain as to what the relevant Council may have done in all the circumstances and any lack of consent was not causative of the alleged damage. It was simply too remote. In my view but perhaps here only by a reasonably fine margin, that is the situation in the present case, too.
[71] I conclude, therefore, that the full extent of Rocky and Veronica’s breach of warranty claim has been unable to be made out here. Other than their claim relating to the retaining wall, Rocky and Veronica’s first cause of action claim for breach of the contractual warranty must fail. As will appear later in this judgment, however, this makes little difference to the overall outcome here. I need say no more on that aspect.
[72]In the meantime, I confirm that all other things being equal, an award of
$15,000 excluding GST in favour of the plaintiffs for the Watsons’ clear breach of the vendor warranty relating to the retaining, will follow.
Second and third causes of action – oral misrepresentations and misrepresentation by concealment
[73] These misrepresentation causes of action are contained in paragraphs 36, 41 and 42 of the plaintiffs’ ASOC as follows:
36. Mrs Watson made the representation (pleaded in paragraph 20 above)15 that the property did not leak and/or was a sound one with no likelihood of weathertightness problems.
41. The defendants physically concealed the water ingress and damage and/or likelihood of weathertightness problems as pleaded at paragraph 13 above.16
14 Newton v Stewart, above n 4, at [52].
15 Paragraph 20 of the ASOC states:
20. In response to this question (“are there any leaks elsewhere in the house?”) Mrs. Watson responded with “no”. (“the representation”).
16 Paragraph 13 of the ASOC states:
13 On various dates prior to the sale of the Property (currently unknown to the plaintiffs), the defendants moved furniture, placed rugs, nailed boards, removed and replaced interior linings and did other things physically to conceal or disguise the fact or extent of water ingress and damage….
42. The physical concealment (either of itself or in combination with the representation) constitutes a misrepresentation that the property did not leak and/or was a sound one with no likelihood of weathertightness problems.
[74] The second cause of action is one alleging misrepresentation in terms of s 35 of the Contract and Commercial Law Act 2017 (CCLA). Section 35 of the CCLA relevantly provides:
35 Damages for misrepresentation
(1) If a party to a contract (A) has been induced to enter into the contract by a misrepresentation, whether innocent or fraudulent, made to A by or on behalf of another party to that contract (B),—
(a)A is entitled to damages from B in the same manner and to the same extent as if the representation were a term of the contract that has been breached; and
(b)A is not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, entitled to damages from B for deceit or negligence in respect of the misrepresentation.
[75]Accordingly, s 35 gives rise to the following issues here:
(a)Did the words and conduct of the Watsons constitute misrepresentations?
(b)Did any misrepresentations induce the SPA?
(c)Was it reasonable for the plaintiffs to rely on any misrepresentation?
[76] The term “misrepresentation” is not defined in the CCLA, so the common law definition applies.17 The learned authors of that text explained that:18
A misrepresentation is a representation of past or present fact that is false or misleading, and excludes statements of intention, opinion and law.
[77] A statement of opinion is, on its face, not a statement of fact, because it is a belief based on grounds incapable of proof and therefore usually not actionable as a
17 Ware v Johnson, above n 13, at 537 – 538.
18 Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contracts in New Zealand (7th ed, Lexis Nexis, Wellington, 2022) at [11.2.1].
misrepresentation. Generally, a person will only be liable for expressing an incorrect opinion where fraud is established or they do not honestly hold the opinion at the time it is expressed, and/or there is no reasonable basis for it.19
[78]But, as Potter J said in Aldridge v Boe:20
[194] However, an expression of opinion contains an implied statement that:
(a)The representor actually holds the opinion; and
(b)There are reasonable grounds for such an opinion to be held, especially where the representor has greater knowledge of the situation than the representee.
[79] The statement alleged to be a misrepresentation must also be fairly capable of the meaning which is now being alleged.21 The Court must consider the words used in context and what a reasonable person would have understood them to mean in all the circumstances. Relevant considerations include the nature and subject matter of the transaction, the respective knowledge of the parties, their relative positions and the words used.22
[80] It is clear, too, that any reliance must be reasonable23 and a party to a contract is liable under s 35 of the CCLA for misrepresentations made by her/his agents.24
[81] It needs to be noted also that a purchaser’s independent inquiries may bring reliance to an end so negating the effect of a misrepresentation (but that need not be so).25
[82] And, so far as the pleaded third cause of action claim by Rocky and Veronica at [41] and [42] of their ASOC for misrepresentation by concealment is concerned, this requires some deliberate act or acts to conceal defects:26
19 David v TFAC Ltd [2009] NZCA 44, [2009] 3 NZLR 239 at [43].
20 Aldridge v Boe [2012] NZHC 277 at [194] (footnote omitted).
21 Magee v Mason [2017] NZCA 502.
22 See Ridgway Empire Ltd v Grant [2019] NZCA 134 at [11].
23 Vining Realty Group Ltd v Moorhouse [2010] NZCA 104.
24 Wakelin v RH and EA Jackson Ltd (1984) 2 NZCPR 195 (HC).
25 Magee v Mason, above n 21, at [48(c)].
26 Donald McMorland Sale of Land (4th ed, Cathcart Trust, Auckland, 2022) at [2.04].
…though there is no duty to draw a purchaser’s attention to defects in quality, the vendor may not deliberately conceal a defect, as by plastering and painting over cracks and walls, thereby making latent an otherwise patent defect. This and any other conduct intended to prevent discovery by the purchaser of a defect in quality is fraudulent misrepresentation.
[83] What is important in examining whether there may have been concealment is whether in all the circumstances of the case the facts amount to a representation that the condition of the property is different from its true condition.27
[84] The effect of s 35 of the CCLA is to merge a misrepresentation, once shown to have induced entry into a contract, into the contract itself.28
The oral and general misrepresentations here
[85] I turn now to apply the relevant misrepresentation principles to the facts of this case. Again, the principal misrepresentation claim advanced by the plaintiffs here related to Mrs Watson’s alleged response to the question the plaintiffs asked her, via Annie, “are there any leaks elsewhere in the house?” to which Mrs Watson responded “no”. This question, it is said, immediately followed the discussion where Mrs Watson accepts she was asked whether there were any leaks in relation to a pipe penetrating the ceiling in the lower-level northeast-facing bedroom. She accepts she responded to this particular pipe leak question by answering “no”.
[86] Rocky and Veronica submit that Mrs Watson’s answer confirming that there were no leaks elsewhere in the house meant:
(a)that the property did not leak and/or was a sound one with no likelihood of weathertightness problems;
(b)the representation by Mrs Watson was made to induce the plaintiffs to enter into the SPA;
27 Booth v Satherly HC Auckland CIV-2006-404-1124, 20 December 2006 at [27].
28 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 at [46].
(c)the representation was false at the time it was made as the property suffered (and suffers) from significant water leak issues and was (and is) subject to widespread weathertightness defects and damage.
(d)Rocky and Veronica, induced by and acting in reliance on the misrepresentation, entered into the SPA to purchase the property;
(e)as a result of the misrepresentation, Rocky and Veronica have suffered the damage and losses they have outlined in their ASOC.
[87] Essentially, Rocky and Veronica claim that Mrs Watson, also on behalf of Mr Watson, clearly misrepresented the state and quality of the property by saying the house was not leaking, and that it was “solid” thus suggesting it did not have any major problems, when this was not the case.
[88] In response to this claim, the Watsons’ position is that the starting point for any sale and purchase of land must remain caveat emptor. No implied term or representation without more that a property sold is fit for the intended purpose of the purchaser, is generally to apply.29
[89] Mr Fraundorfer before me emphasised a number of matters too on behalf of the Watsons. The onus lies on a purchaser to ensure the property in question they are purchasing meets their requirements. In the absence of any actual misrepresentation, a vendor will not incur contractual liability for failure to disclose general property defects, even if the vendor is aware of their existence, although a vendor cannot deliberately conceal a defect.
[90] It is for the plaintiffs in this case, therefore, to establish an actual misrepresentation has occurred being generally in most cases a representation of past or present fact that is false. What is important is the meaning that the words used convey in context.30 Silence can constitute a misrepresentation where a vendor is under a duty to disclose a material fact within its knowledge. However, the
29 Overton Holdings Ltd v APN New Zealand Ltd [2015] NZCA 526 at [18].
30 Shen v Ossyanin (No 1) [2019] NZHC 135 at [16].
circumstances where that duty will arise are limited, and there is no general duty on vendors to disclose defects in quality of land at issue.31
[91] A representation too must have induced a plaintiff to enter into the contract in question.32 To be actionable, a defendant must have intended to induce a plaintiff, or used language that would induce a reasonable person in the same circumstances, to enter into the contract in question. It need not be the sole inducement, but it must have had a material effect on the plaintiffs’ decision to enter into the contract. The onus is on the plaintiffs to establish that they were induced to enter into the contract through reliance on the representation. Such reliance must also be reasonable.
[92] As I have noted, there is a strongly-disputed issue about what was said at the property inspection on 10 February 2020. What must be determined first is whether the alleged representation was made. That is, was Mrs Watson asked by Annie on 10 February 2020: “are there any leaks elsewhere in the house?” And, if so, whether she responded: “no”.
[93] For the Watsons it is contended the question was never asked and therefore no relevant representation was made. Instead, Mr Fraundorfer in his opening submissions before me, went so far as to suggest it was more likely than not that the critical question and Mrs Watson’s alleged answer noted above were simply “hindsight-engineered” by the plaintiffs after the fact, as emotions developed and this legal dispute evolved. He maintains that this is confirmed by contemporaneous documents. He says also this is an entirely understandable circumstance as correspondence between Rocky and Veronica and Annie unfolded after March 2020 against a backdrop of “grief” for the plaintiffs and what he described as potential litigation for Annie and Redcoats Ltd. Mr Fraundorfer submitted that the closest and objective contemporaneous written records after March 2020 support this position. As to this aspect, Mr Fraundorfer contends that at trial, the accounts from the various fact witnesses about the questions asked of Mrs Watson on 10 February 2020 were conflicting and confused. Issues over whether Chrissy was present or not arose at the time as well.
31 Strategic Finance Ltd (in rec and liq) v Moss [2012] NZHC 3032 at [21].
32 Magee v Mason above n 21, at [42].
[94] He notes that, under cross-examination, Annie said in respect of the background to the conversation with Mrs Watson:
Short conversation is, Veronica asked what happened first, I said I can ask Chrissy and then Chrissy said she doesn’t know and Chrissy said we can ask the vendor, so that’s why we asked the vendor, that’s the order.
[95] Later, Annie claimed that Veronica had asked the question of Mrs Watson and she was simply translating.
[96] Chrissie, however, in her evidence was clear she did not recall any conversations between Mrs Watson, the plaintiffs and Annie, and in fact she was not present downstairs when the critical discussions were said to have taken place.
[97] Mrs Watson’s recollection in her evidence that the critical question was never asked of her, Mr Fraundorfer says, is also clearly supported here by other matters including contemporaneous text messages and emails before the Court.
[98] On 13 February 2020, Annie filled out the Redcoats Ltd “contract cover sheet” as an instruction for preparation of the SPA relating to the sale of the property. Significantly, she made no comments under the “weathertightness” section on the form. This aspect read in particular:
During the negotiations, were any of the following items discussed or commented upon by either the seller, buyer, or selling or listing persons? ….
Weathertightness Issues:
All comments or representations made concerning structural soundness of the property, or its construction, or materials used in the construction price, inspection reports.
[99] Nearly two months after settlement of the sale, around 5 May 2020, Rocky and Veronica’s lawyers emailed the Watsons’ lawyer, advising that they had experienced disastrous water ingress at the property. The email effectively gave notice that, on the basis of active concealment, the plaintiffs were holding the Watsons responsible for the substantial cost of repairs required to the property, repairs which “must be undertaken urgently.” No mention was made at that point of any weathertightness or leaking misrepresentations that were made by Mrs Watson or otherwise.
[100] Annie had received a copy of this lawyers’ email and it seems she sent it on to the plaintiffs. On 13 May 2020 the plaintiffs and Annie exchanged a series of text messages as follows:
Annie: Do you remember you asked the vendor face-to-face some questions the first time we visited the house together? I remember we asked the vendor about the patched ceiling in the bedroom downstairs. She said it was fixed with no problem. Had you asked whether there was any leak elsewhere or something like that? What did she answer? Because I was with the kids mostly on that day, I’m not sure about all the questions that you raised to the vendor.
Annie: Back then the vendor did not disclose the water leak around the window to you, right? Then I will confirm with our manager that the vendor did not tell us there was water leak issue.
Rocky: The vendor did not share any leak issue. Regarding that area she said it was a pipe popping out only.
Annie: OK.
Veronica: Whenever the vendor presented, Annie was beside us. We had no conversation with her on our own without Annie.
Annie: Regarding the patched ceiling area, I was present. I don’t know whether you had asked other questions when I was with the kids.
Veronica: We didn’t talk to her on our own. I raised the question to her whether there was any asbestos. She said no, and you were beside us.
Annie: OK.
[101] This would seem to have been a logical time for Annie, Rocky and Veronica to correct the record and confirm that Mrs Watson had told them there were no leaks. As is clear in the exchange, they did not do so.
[102] After this 13 May 2020 text message exchange, Annie emailed her manager, Morgan Phillips of Redcoats Ltd, to formally set out her recollection of the 10 February 2020 conversation. This was in an email she sent also on 13 May 2020. This email stated:
Hi Morgan,
The first time they viewed the house was through the open home. As the vendors are old people we didn’t like to bother them. The second time I viewed the property (which after school time) the buyers took two kids to the property. During that time, the vendor, other groups of buyers, listing agent and I were there as well. As the vendors were old people they didn’t like noise,
so I looked after children downstairs outside. I let the buyer and builder look over the house by themselves, and told them if they have any questions, they can ask vendors directly.
When I was upstairs with the buyers we did ask some questions about the hot water cylinder, insulation in the walls, also what happened about a trace of plaster, that was fixed in the ceiling. The vendor explained there was a pipe in the ceiling that didn’t look not nice and they plastered it themselves. The buyer also asked some other questions with the vendor face-to-face when I was outside looking after the young children. But the vendor had disclosure about the leaking problems.
Annie.
[103] And, although there were further messages exchanged between Annie and the plaintiffs after this, the first time the alleged misrepresentation from Mrs Watson was mentioned was not until 18 June 2020. By this time matters had advanced. Veronica had sent a video of the leaking to Annie and asked her “What will your company do in such a situation?” perhaps hoping that the agents might assist to make matters right for them.
[104] On that date, 18 June 2020, further messages were also sent between Annie and Veronica as follows:
Annie: How about this? You send me an email with a video, and explain the situation, and ask me to forward to my manager.
Veronica: From my point of view, you are from the same company, and I don’t need to contact one by one. Please co-ordinate internally, and discuss how to deal with it. I am in tearless grief, the reality is so cruel.
Annie: Regarding the window leaking issue last time, the vendors’ lawyer made an enquiry to us, and I told him that the vendor didn’t disclose any water leak issue to us, and back then we also asked the vendor face-to-face, together with the buyers, in person if there is any leak in the house.
[105] Under cross-examination, it seems too that Veronica gave evidence that it was Annie that had prompted her own recollection of the representation issue. Before this, Veronica suggested she had forgotten the question.
[106] In all these circumstances, Mr Fraundorfer in his closing submissions took a somewhat different position from that presented in opening which I note at [93] above. In closing, Mr Fraundorfer in his own words acknowledged:
In these circumstances, there is no need to be overly critical or to accuse anyone of dishonesty. Memory, in an obviously stressful time, can become unreliable and influenced by the recall of others. However, it cannot be escaped that the Court cannot be satisfied on the balance of probabilities that the question [related to the representation] was asked: “The doubt is substantial”.
[107] On all of these matters, Mr Wollerman’s response for the plaintiffs was to note that the 10 February 2020 visit by Rocky and Veronica to the Property involved a whole range of discussions between the plaintiffs and Mrs Watson about a number of issues including:
(a)whether there was access to the roof;
(b)whether there was some insulation to which Mrs Watson replied: “it was a nice warm house”;
(c)concerns about the deck being on a lean;
(d)comments from Mrs Watson that the house was built by a local Dutch builder and that the house was “solid”;
(e)Mrs Watson’s response to Rocky showing her a photo he had taken of a pipe bulging in the lower bedroom ceiling and being asked: ‘Is this a leak?” to which, as I have noted, she confirmed: “No, it’s not a leak.” She explained it was a pipe that jutted out from the ceiling because the room used to be a workshop and so it was plastered over to cover it and tidy it up.
(f)With respect to the bulging pipe, Mrs Watson confirms that she went downstairs with Rocky to ensure this was the same pipe she was talking about.
(g)Mrs Watson in her evidence suggesting too that she was “bombarded” that day with questions from Rocky and Veronica.
[108] Next, Mr Wollerman submits the evidence before the Court and the cross-examination of Veronica, Rocky and the Redcoats agent Annie, regarding the question asked of Mrs Watson: “Are there any other leaks?” is clear and unequivocal. He suggests too the evidence on this is not really contradicted by any clear statement from Mrs Watson. He notes other evidence, in particular by way of cross-examination of Mrs Watson, where she confirms that, in adverse weather conditions through the Watsons’ ownership of the property over the years, there were some leaks found in the Property which the Watsons had attended to. All these, she says, were fixed. As a result, Mr Wollerman attempts to argue that leaking issues would have been something in Mrs Watson’s mind. He maintains too they would have been part of the natural follow-up question relating to leaks generally asked by Annie here.
[109] It is a somewhat vexed question, in light of all the circumstances I have outlined above, as to whether or not Mrs Watson did make the alleged representation to the effect that there were no leaks elsewhere in the house. On balance, and by a rather fine margin, I find that the plaintiffs have not been able to establish to the balance of probabilities that the representation was made, such that for present purposes, I must conclude that the alleged representation was not made.
[110] If I may be wrong in that conclusion, however, then in any event I am satisfied it makes little difference here. This is because in my view if I was to find that the representation in question had been made then it was Mrs Watson’s honest and reasonably held opinion that, as earlier leaks elsewhere in the house had been fixed, at the point of sale, there were no other leaks elsewhere in the house. The alleged statement, accordingly, could not reasonably be taken as a representation that the house was an entirely sound one with no future likelihood of weathertightness issues.
[111] Again, if I may be wrong on that issue as well, then questions also arise as to whether any alleged representation would have itself induced Rocky and Veronica to enter into the SPA, bearing in mind first, the favourable advice about the house they had received from their builder, Mr Huang, and secondly, issues of reasonable reliance that arise here.
[112] For all these reasons, but again by only a rather fine margin, I find that the plaintiffs have not been able to establish that an oral misrepresentation occurred here in terms of their second cause of action in their ASOC.
Misrepresentation by concealment
[113] I turn now specifically to the third cause of action advanced by the plaintiffs of misrepresentation by concealment. Under this cause of action, it is alleged that the Watsons physically concealed water ingress, the damage it had caused and the likelihood of weathertightness problems such that these actions on their part constituted misrepresentations that the property did not leak and was sound.
[114] In my view, this misrepresentation by concealment argument is quickly disposed of.
[115] And, I need to record too at this point that, so far as the concealment allegation is concerned, Mrs Watson in her evidence indicates she is particularly affronted by the suggestion that she and her late husband went out of their way to physically conceal defects in the property at any time and particularly during the sale process. She emphatically refutes this suggestion.
[116] Notwithstanding this, the alleged concealment here, according to Rocky and Veronica, it seems, relates to claims that:
(a)furniture and rugs were placed over water-stained flooring where carpet had been removed from the lower southern bedroom;
(b)a table and tablecloth replaced in the corner of the bedroom concealing water damage, skirting boards, carpet, internal linings and paint;
(c)a timber strip had been fixed, papered and painted over the corner of the lower southern bedroom, covering exposed rotten framing and moisture-damaged wallpaper;
(d)interior linings had been replaced in patches with new GIB board (dated 2013) in the southern wall of the lower southern bedroom, plastered and painted;
(e)two additional chairs were placed in the corner of the lower southern bedroom when the plaintiffs visited the property, and in the foundation room items were stored by the Watsons preventing access for inspection of an area said to be subject to historic and ongoing water ingress and damage;
(f)in the north-western rumpus room, newspaper dated 2016 was found in the wall cavity where there was evidence of water ingress and leaking some years ago indicating removal and replacement of interior linings, plaster and painting;
(g)new drains had been laid and sealant installed to control water into the foundation room;
(h)application of sealant and paint to create junctions between joinery and interior linings;
(i)an investigation cut had been made in the surface of the cantilevered upper deck at the southwestern elevation where framing timber replacement had been undertaken and the deck surface reinstated;
(j)a further investigation cut made in the deck surface at the north-western elevation, again subject to water ingress and damage;
(k)application of sealant and paint to create junctions between joinery and interior linings and certain interior plaster patching areas.
[117] As I have noted, the house on this property in 2010 was some 51 years old. Over its life, repairs and maintenance had clearly been undertaken, some relating to original construction and others normal fair wear and tear. At one point, Mr Fraundorfer for the Watsons went so far as to submit: “This is a case of the house
reaching the end of its useful life.” I disagree. Nor do I accept another contention he advanced that in some cases the original construction of this house had “slowly failed over many years”. The house is a standard 1960’s/1970’s construction and, given the age of many houses in the Wellington area and in New Zealand generally, it would be expected to have many years of useful life ahead of it.
[118] But I do accept in this case that the alleged physical concealment claim advanced by the plaintiffs largely is not made out. Many of the matters complained of are generally acts which I consider are of ordinary maintenance, repair and decoration of the property carried out in the main by employed tradespeople from time to time over the 51 years while the Watsons owned the property. It is true that the historic installation of hardboard and painting of a rotten cantilevered deck joist, and the finding of wall linings dated 2013 in the southern bedroom covering some rotten timber framing, and also a 2016 newspaper in the north-western rumpus room wall cavity, were unfortunate and unexplained. But, I am satisfied they were clearly historic matters and, in general terms, on the evidence it cannot be established they were done by way of direct concealment by the Watsons to prevent prospective purchasers from identifying issues with the house. Further, the Watsons were not under any particular duty generally to disclose historic repairs.
[119] Many of the matters complained of I repeat would have happened over some time and in many cases well before any possible sale of the property approached. Mrs Watson too takes particular issue with the allegation she took steps to conceal problems given the background at the time of sale of three open homes, full access to purchasers to the house (including all the rugs and furniture) and the Watsons’ entire openness to the several professional building inspections that took place.
[120] I conclude that none of the pleaded physical concealment instances can be considered misrepresentations here. This third cause of action relating to misrepresentation by concealment is not made out and also must fail.
Fourth and fifth causes of action - mistake
[121] I turn now to consider the plaintiffs’ fourth and fifth courses of action under s 24 of the CCLA for unilateral and common mistake.
[122]Section 24 of the CCLA provides:
24 Relief may be granted if mistake by one party is known to another party or is common or mutual
A court may grant relief under s 28 to a party to a contract if,—
(a)in entering into the contract,—
(i)the party was influenced in the party’s decision to enter into the contract by a mistake that was material to that party, and the existence of the mistake was known to the other party or to 1 or more of the other parties to the contract; or
(ii)all the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; or
(iii)the party and at least 1 other party were each influenced in their respective decisions to enter into the contract by a different mistake about the same matter of fact or of law; and
(b)the mistake or mistakes resulted, at the time of the contract,—
in a substantially unequal exchange of values; or
(ii)in a benefit being conferred, or an obligation being imposed or included, that was, in all the circumstances, a benefit or an obligation substantially disproportionate to the consideration for the benefit or obligation; and
(c)in a case where the contract expressly or by implication provides for the risk of mistakes, the party seeking relief (or the party through or under whom relief is sought) is not obliged by a term of the contract to assume the risk that that party’s belief about the matter in question might be mistaken.
(2)The relief may be granted in the course of any proceeding or on application made for the purpose.
(3)For the purposes of subsection (1)(a)(i) and (iii), the other party or other parties must not be a party or parties who have substantially the same interest under the contract as the party seeking relief.
[123] Relief is only available for mistakes about things outside the contract, here the SPA, rather than mistakes about the interpretation of the contract33.
[124] Mistakes must be such as to seriously distort the balance of the bargain (s 24(1)(b)) and must fall within one of three categories:
(a)common mistake (both parties make the same mistake);
(b)unilateral mistake (one party made the mistake and the other knows about the mistake); or
(c)different mistakes about the same thing.
[125] Relief is not available where the contract provides that the party seeking relief was obliged to assume the risk of being mistaken.34
Common mistake
[126] Looking first to the pleaded common mistake ground in this case, the plaintiffs say there was a common mistake here:
(a)Both parties to the SPA for the Property believed that the house “did not leak and/or was a sound one with no likelihood of weathertightness problems”;
(b)That was a mistaken belief, and in particular was a mistake of fact as the house did leak and suffered from (serious) weathertightness defects and damage;
(c)Both parties were influenced in their decision to enter into the SPA at the agreed price by reason of that common mistake;
33 Contract and Commercial Law Act 2017 [CCLA], s 25.
34 Section 24(1)(c).
(d)The mistake resulted in a substantial unequal exchange of values because the actual value of the house on the Property as a leak-prone and damaged building was substantially less than the overall property purchase price indicated;
(e)Alternatively, the mistake resulted in a benefit being conferred on the Watsons as vendors (the purchase price) that was substantially disproportionate to the consideration for the benefit (a leak-prone house);
(f)As a further alternative, the mistake resulted in an obligation being imposed on the plaintiffs (the obligation to substantially repair the leaking area damage) that was substantially disproportionate to the overall price paid.
(g)The SPA did not oblige the plaintiffs to assume the risk of the mistake.
[127] Turning now to the Watsons’ response, they contend that common mistake is not applicable on the facts in this case. They say the parties were not influenced in their respective decisions to enter into the SPA by the same or any mistake. The plaintiffs assert that their mistake was that they assumed the house was sound and entirely free from significant leaks. But the Watsons say they were not influenced by any such mistake.
[128] Nor do the Watsons accept that the plaintiffs’ “mistake” was as to the essential nature of the subject-matter of the SPA contract. The plaintiffs carried out their own inspection of the property along with their building inspector Mr Huang. They proceeded based on his advice that the house was in reasonable condition and his minimal pricing of the few minor anticipated remedial matters he had identified in his capacity as a builder with professional knowledge. That points, the Watsons say, to the plaintiffs having taken a calculated risk as to the purchase price.
[129] And, as Mr Fraundorfer for the Watsons, summarised in his submissions, the plaintiffs chose to proceed on their building inspector’s limited evaluation and to limit
their inquiries or assessment, and were therefore somewhat ignorant, rather than mistaken.
[130] The legal principles relating to common mistake are well-established and are usefully repeated here:
(a)The Court may grant relief if all the parties were influenced in their respective decisions to enter into the contract by the same mistake.35
(b)The mistake or mistakes must have resulted, at the time of the contract, in a substantially unequal exchange of values, or in a benefit being conferred or an obligation imposed that was substantially disproportionate to the consideration for the overall benefit or obligation.36
(c)The mistake must be as to the essential nature of the subject matter of the contract.37
(d)Both parties must have mistakenly accepted in their minds the existence of some fact which affects, to a material degree, the worth of the consideration given by one of the parties.38
(e)A party who gives no thought to whether a particular matter exists or not is ignorant of it, rather than mistaken as to it.39
(f)A party is unlikely to seek relief unless it has been required to assume the risk of the mistake, and therefore some specificity and not merely a general assumption of risk is required.40
[131]The issues arising in this case are therefore:
35 Section 24(1)(a)(ii).
36 Section 24(1)(b).
37 Ware v Johnson, above n 13, at 539.
38 At 540.
39 Ladstone Holdings Ltd v Leonora Holdings Ltd [2006] 1 NZLR 211 (HC) at [85] – [86].
40 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 158, [2017] 1 NZLR 352 at [8].
(a)What was the mistake?
(b)Were Rocky and Veronica on the one hand, and the Watsons on the other, influenced by that mistake to enter into the SPA contract?
(c)Was the mistake as to the essential nature of the SPA contract?
(d)As a result of the mistake, has there been an inequality of exchange or disproportion of benefit between the parties?
[132] If a qualifying mistake is identified, the court has a broad discretionary power under s 28 to grant relief to achieve a just outcome. One of the mandatory considerations in deciding to grant relief is the extent to which the party seeking relief caused the mistake.41
[133] The power to grant relief “must not be exercised in a way that prejudices the general security of contractual relationships”.42 And, where carelessness on the part of one or both of the parties contributed to the mistake, that is likely to be taken into account. The relative carelessness of the parties may also affect final outcomes.
[134] In Shen v Ossyanin (No 2),43 a case bearing some similarities to the present, this Court granted the parties relief from mistake. That case involved a leaky house and statements made generally about a lack of leakiness that however were found not to be actionable/misrepresentations.44 In granting relief following the parties’ common mistake about the house, this Court found the loss ought to be split 70/30 between purchaser and vendor. The Court rejected a contended 50/50 split on the basis that the purchaser was a “sophisticated buyer of properties” who “was told the property appeared to have weathertightness problems” and the vendor had made an honest mistake about the leakiness of the house.45
41 CCLA, s 27.
42 Section 21(2)(b).
43 Shen v Ossyanin (No 2) [2019] NZHC 2430.
44 Shen v Ossyanin (No 1), above n 30.
45 At [59]-[60].
[135] Before me Mr Wollerman for the plaintiffs referred to a decision of the Court of Appeal in another leaky home case, Magee v Mason,46 and also to Professor David McLauchlan’s commentary on the case.47 There, the learned Professor observed that the unsuccessful appellants in that case could have pleaded mistake (which they had not pleaded) in addition to their sole claim of misrepresentation, a claim that did not succeed on the facts. The result of this approach was that, as there was no actionable misrepresentation, the purchasers were left to bear the entirety of the loss. As Professor McLauchlan pointed out, Magee v Mason appeared to involve the sort of mistake that although not pleaded in that case, could allow for the granting of relief under s 28 of the CCLA, so that in his words first, the purchasers would not “necessarily [have] had to bear all of the loss from their disastrous purchase” and the “serious injustice” they suffered and secondly, the burden of the “substantially unequal exchange of values” that resulted there from the parties’ mistaken assumptions, in the interests of justice and fairness could have been properly shared.
[136] The alleged mistake that I accept occurred in the present case is about the physical characteristics and water-tightness of the house, the house obviously being a major part of the subject matter of the SPA. Rocky and Veronica most certainly, and probably also the Watsons, wrongly thought the house was sound and did not leak in any significant way. In particular, Mrs Watson was aware of past leaks in the house which she thought had been fixed, and thus she assumed the house had no significant leaking issues. A common mistake occurred here, the consequences of which as I see it and will outline below ought to be shared to some degree. I say more on this shortly.
[137] On a core issue in the present case as to whether the parties were influenced by that mistake to enter into the SPA, I have no doubt this was the case. Rocky and Veronica’s own inspections of the house and their building inspector Mr Huang’s cursory report do not negate the influence on them of the mistake, a mistake as to what were very important physical characteristics of the house including its general watertightness.
46 Magee v Mason, above n 21.
47 David McLauchlan “Misrepresentation? Or was it a case for relief on the ground of common mistake?” [2018] NZLJ 13.
[138] And Mrs Watson in her evidence, when asked about the major house leaks discovered post sale, answered clearly and in a straightforward manner as follows:
I had never seen anything like that flooding in the house before….
And her overall reaction was:
I just – I thought it was awful [and] ….I just wondered how that had happened. Sorry.”
And:
I feel empathy for Rocky and Veronica….I just felt as a human being I felt what they probably had been feeling to see all that water in their house, new house.
In response also to a hypothetical question from the Court as to what the Watsons would have done if the major leaks and flooding had occurred just before they were due to sell the house rather than, as they did, just after settling the sale, Mrs Watson candidly replied:
…we probably would have looked at it again and probably thinking well we don’t want that to happen to whoever we sell the house to if we knew for sure. We could delay – take the house off the market. We did not have to sell it….because we’re retired and we could make other plans….well we’ll probably fix the leaks that are prominent or - …..then we’ll probably get someone to come and assess what needs to be [done] to make the house fit for re-sell – resale. ‘Cos in the end we had to sell again some time, yes.
I am satisfied that all this indicates that Mrs Watson, for herself and presumably for her late husband as well, was also mistaken as to the general weathertightness of the house at the time of sale and this influenced both of them in entering into the SPA at what, it seems to be accepted, was a high market value achieved at the time.
[139] In this case, as I see it there has been an inequality of exchange or a disproportion of benefit as a result of the mistake. This is a requirement of s 24(1)(b) of the CCLA. As in Shen (No 2), it is clear this requirement is satisfied here. Rocky and Veronica as purchasers paid a suitable (and perhaps a generous) purchase price for a non-leaking home, but instead they received a leaking and damaged home worth substantially less. Similarly, the Watsons received considerably more for the sale of
their property than it was worth as a home that leaked. A significantly unequal exchange of value has occurred.
[140] There does not appear to be any basis for suggesting too that a term of the SPA obliged the plaintiffs to assume the risk of the house being leaky.
[141] On this issue of common mistake, Mr Fraundorfer for the Watsons endeavours to argue that, as Mrs Watson denies being asked about leaks, therefore there is simply no evidence that she turned her mind to the issue or was operating under the same mistake as Rocky and Veronica. He maintains that, as an inexperienced vendor, Mrs Watson had no reason to turn her mind to previous leaks in the house, which she assumed had been fixed. The Watsons, he suggests, would have been aware that prospective purchasers would do their own due diligence, obtain their own building reports (as happened here) and would have satisfied themselves as to the condition of the property, a property he says which can only be described as “an old house.” Given this suggestion the Watsons did not turn their minds to any leaking issues at all, Mr Fraundorfer argues there can be no common mistake here. A complete failure to consider a matter is not a mistake, nor can it be said these matters influenced the Watsons to enter into the SPA.48 With respect, I disagree with Mr Fraundorfer’s analysis advanced here.
[142] Arguably, as I see it, Mrs Watson as an owner and occupier of the property for over 50 years was the party who largely “caused” the mistake here. She was able to provide information about the house and what history of leaks and remedial work over the years that had occurred. Interestingly, it was only shortly after significant repair works were undertaken by Brian Ross of BRC Ltd in December 2019 to prevent water ingress issues to the “dirt room” and the adjacent bedroom, that the property was placed on the market for sale and marketing began through the agents, Redcoats Ltd. Mr Ross was called to give evidence before me and in answer to the question:
When Mrs Watson rang you in late 2019 did she indicate that they were selling the property?
He responded:
48 Ladstone Holdings Ltd v Leonora Holdings Ltd, above n 39, at [76].
My best recollection is they were – that was a consideration at the time
He went on to say:
She asked me to come up and have a look at the property to discuss some water getting into the foundations in the basement room and they were concerned about damage occurring in the long term.
And:
So as I’ve said earlier on, with the bottom plate there was quite a lot of water stain marks on there and it is Rimu. Rimu can withstand a bit like tanalised timber, it can withstand, you know, an amount of water for a period of time but if it happens forever then that’s going obviously to cause decay.
[143] Mrs Watson did not disclose this December 2019 work to the plaintiffs during discussions.49 Whether intentional or simply inadvertent judgement errors, the plaintiffs contend that other concerning examples occurred too. These include, as I have mentioned above, the earlier allegations of covering leaks in the southern bedroom and placing hardboard/painting over rot on a structural deck joist. Mr Wollerman suggests these are relevant matters also contributing to the mistake here. In any case, Mrs Watson accepted, as I note above that, if she and her late husband had delayed a sale of the property and accordingly it was they who had suffered the leaks the plaintiffs had experienced very soon after settlement, the Watsons would have arranged for repair work to be done to fix the “prominent” leaks and then they would get proper advice to ensure their remediated house was ready for resale. That this did not occur was purely because of timing reasons. As a result, the burden of repairing the property shifted to the plaintiffs.
[144] In my view, this is also not a case where Rocky and Veronica as the parties seeking relief could appropriately be described as having ignored advice, been the ‘authors of their own misfortune’, ‘failed to make inquiries when they were on the alert to the potential problems’ or as being seen as having a high level of blameworthiness. Moreover, the benefit obtained here by the Watsons from their conduct (however innocent or blameworthy) was large (given the sale of their property
49 This is notwithstanding the fact that, in her evidence before me, Mrs Watson on several occasions said that Rocky, Veronica and others “bombarded me with questions” about the house on the last day they inspected it with Mr Huang.
at a “top of the range” price, notwithstanding the existence of undiscovered defects) whereas Rocky and Veronica, it is accepted, are living with a house that has extensive leaks and they must embark on significant and costly repairs.
[145] A further submission for the Watsons advanced before me was that the alleged mistake was not as to the essential nature of the Property. This submission noted first, that the plaintiffs carried out their own inspection of the Property on several occasions, the last time with their building inspector Mr Huang and secondly, that Mr Huang assessed the house and gave a broad pricing of what he said were only minor repair works required. As a result, the plaintiffs were ignorant, rather than mistaken according to Mr Fraundorfer, in accordance with the decision in Ladstone Holdings.
[146] I disagree. I accept the mistake here was as to the essential nature of the Property, and the plaintiffs did not bear responsibility for the mistake. That mistake was that the house was indeed sound and had no significant leaking issues. The SPA did not oblige Rocky and Veronica to shoulder any burden for the risk of mistake. And, in this a clear disproportionality of information in favour of the Watsons existed. They had built the house, lived there for over 50 years and had both repaired earlier leaks and also carried out other usual house renovations, right up to early 2020. This must point against a finding of fault or ignorance on the part of Rocky and Veronica in all the circumstances of this case. The plaintiffs’ evidence before me is clear – in buying the house, they did not want a renovation or “do-up” project. They would not have considered purchasing, had they known of the house’s weathertightness and damage issues. They simply wanted a reasonably sound, weathertight and “solid” home (as Mrs Watson had confirmed to them it was) for their family and their future in this country.
[147] Rocky and Veronica must also show that the mistake here resulted, at the time of the SPA, in a substantially unequal exchange of values. What amounts to a substantially unequal exchange will always depend on the context. It can be determined based on a qualitive and/or quantitive assessment. Based on authorities in the past where relief has been given for mistake, it would appear that something above
10 – 15 percent difference in value is a current rough benchmark before liability attaches from a quantitative perspective.50
[148] The mistake in this case, which I am satisfied is a common mistake, resulted in what is a substantially unequal exchange of value. Rocky and Veronica paid
$848,000 for a property with a house that all parties agree requires substantial remediation. That purchase price of $848,000 was some $70,000 above the next highest equivalent bid in the Watsons’ tender process when they sold the property. From all the evidence before me it is clear that Rocky and Veronica, with advice from the sales agents, calculated and paid that purchase price on the basis that no significant remedial works to the house were required. What is clear from Mrs Watson’s evidence is that the Watsons felt too that was a reasonable sale price for the property, given their understanding in February 2020 that the house was weathertight, all previous leaking issues (including the recent December 2019 drainage issues) having been remedied.
[149] In my judgment, both Rocky and Veronica on the one hand, and the Watsons on the other, shared this common and essential mistake that the house was sound and did not have significant leaks, when that was not the case. On all the evidence before me, both parties here made a common mistake about leaks and the general soundness of the house and this must be reflected in the result. Judgment in favour of the plaintiffs will follow.
Unilateral mistake
[150] Given my finding that this is a clear case of common mistake, I do not need to consider the issue of unilateral mistake here. I leave it to one side.
Relief and quantum
[151] Rocky and Veronica are entitled to relief for common mistake here by way of compensation under s 28 of the CCLA. That relief is discretionary, it is to take the form of any order that the Court “thinks just”, and its effect is to mitigate the arbitrary effects of the mistake.51 Conduct of the parties to some extent is relevant to relief. It
50 Todd and Barber, above n 18, at 341.
51 Shen v Ossaynin (No 2), above n 43, at [29].
is mandatory for the Court under s 27 of the Act to consider the extent to which a party seeking relief caused the mistake. Where a party has been careless and contributed to the mistake, it will be taken into account in any relief granted.52
[152] Similarly, Mr Fraundorfer suggests the circumstances of the Watsons as defendants are also relevant. He maintains that these factors, including what he says is the Watsons’ honesty and lack of intentionally misleading conduct, are relevant. He contends that in similar circumstances recently in the Shen case, this led the High Court to reduce the damages payable to the plaintiff to only 30 percent of the amount claimed. The Court there was satisfied the plaintiffs should bear a greater burden of the mistake.
[153] In the present case Mr Fraundorfer argues that Rocky and Veronica failed to get a builders inspection report until only two days before the deadline sale ended. He notes too they elected not to include a building consent condition in their offer. They were aware the house had been built around 1969 in a high wind zone and, although appearing to be well-presented at the time of sale, it still had some repairs required as Mr Huang had signalled. I accept too that, had Rocky and Veronica wanted absolute surety over the weathertightness issues they say they had questioned, they could potentially have negotiated specific written SPA warranties with the Watsons.53 But this was clearly unlikely to happen here, given the competitive tender process for the sale that existed at the time.
[154] Mr Fraundorfer also went on to note, on the other hand, that the Watsons were inexperienced vendors who he says acted honestly and relied on prospective purchasers to do their own due diligence. Mrs Watson maintains she was not aware of the extent of the issues, or the repairs now required. Sadly, Mr Watson died during the course of this proceeding, leaving Mrs Watson his widow.
[155] Turning now to the issue of damages for the plaintiffs’ present loss, although cost of cure is a usual response in building cases, Tipping J in Altimarloch noted:54
52 At [59] – [60].
53 See Willis v Castelein [1991] 3 NZLR 103 (HC).
54 Marlborough District Council v Altimarloch Joint Venture Ltd, above n 28, at [156].
[156] It is as well to remember at the outset that what damages are appropriate is a question of fact. There are absolute rules in this area, albeit the courts have established prima facie approaches in certain types of case to give general guidance and a measure of predictability. The key purpose when assessing damages is to reflect the extent of the loss actually and reasonably suffered by the plaintiff.
[156] An alternative basis of calculating the plaintiff’s loss here is the diminution in value approach. This is represented by the difference in value between the property in a notionally undamaged condition as understood in February 2020 and the diminished value of the property then with the defects.55 I have concluded that it is appropriate here to assess Rocky and Veronica’s loss largely on the basis of difference in value. As I see it, this approach has the benefit of simplicity for a 51-year-old house with many original elements and it avoids potential uncertainty that may come amongst other things with possible assessments that might be required as to betterment or post-remediation stigma.56 In the present case there is expert valuation evidence specifically identifying the difference in value of the house with and without the defects. This takes the form of evidence from Hamish Bills (Mr Bills), a registered valuer for Rocky and Veronica and from Christopher Barnsley (Mr Barnsley) a registered valuer for the Watsons.
[157] Mr Bills, adopting the $848,000 agreed purchase price as the retrospective market value of the property in February 2020 in its unflawed state, estimated the total
value of the property “as is” at that time at a rounded calculations to reach this figure were: figure of $460,000. His Sale price “without defects”
$848,000
Less Estimated costs to rectify (time adjusted)
$351,452
Less Adjustment for risk
$34,758
Estimated market value of Property (“as is”)
$461,790
Rounded, say
$460,000
55 Warren & Mahoney v Dynes CA 49/88, 26 October 1988 at [10] – [11].
56 This was the approach taken by this Court in Tadd Management Ltd v Weine [2023] NZHC 764.
[158] On the basis of these figures, a total difference of $388,000 arises being what the plaintiffs say is the substantially unequal exchange of values or disproportionate consideration paid by Rocky and Veronica for the Watsons’ property.
[159] Mr Bills’ figures of $351,452, being the estimated costs to rectify, and $34,758, being the adjustment for risk, both noted at [157] above, are based upon first, the revised work costings from the plaintiffs’ quantity surveyor expert Vince Robertson and secondly the particular adjusted scope of repair works required as assessed by the plaintiffs’ building surveyor Haydon Miller. They also included a contingency for risk.
[160] Mr Barnsley, in his valuation, adopted a different unaffected value for the property in February/March 2020 of $775,000. He said this was the true market value of the property then as reflected by the other two unsuccessful tender offers received by the Watsons at the time and the general market conditions prevailing. Mr Barnsley’s view was that Rocky and Veronica’s purchase price, at $848,000 involved a premium and this figure was well above the market value then.
[161] Mr Barnsley then went on to provide his affected market valuation of the property, subject to defects as at February/March 2020, at a figure of $671,000. This difference in value at March 2020, he confirmed, was therefore $104,000.
[162] Generally, I found Mr Bills to be a careful and credible witness and, overall, I prefer his evidence to that of Mr Barnsley here. Some issues were raised by Mr Wollerman too, as to whether Mr Barnsley was truly independent. But I make no comment on that. What is clear to me in assessing quantum issues here is the need to provide relief that is fair and just.
[163] On this, a proper remedy to spread the loss occasioned in this case by the common mistake, is required. As the learned authors of Burrows, Finn and Todd on the Law of Contract in New Zealand have noted,57 the reformers of the law of mistake contemplated:58
57 Todd and Barber, above n 18, at 10.5.2.
58 Contracts and Commercial Law Reform Committee (CCLRF) Report on the Effects of Mistakes on Contracts (1976) at [26] and [27].
…that relief [for mistake] should ensure that benefits conferred in pursuance of the contract should be returned or paid for, subject to a right to set off expenditure or other detriment which had been incurred under the contract, or to vary the consideration to reflect what the consideration might have been had the true state of affairs been known.
(emphasis added)
[164] The purchase price consideration in the SPA was $848,000. I reject Mr Barnsley’s suggestion that the starting point here should be the $775,000 figure he has used. The price paid by Rocky and Veronica, I accept, does reflect the market value of the property at the time.
[165] I accept too Mr Bills’ figures noted at [157] above for the estimated cost to rectify the damage plus a risk contingency. Until repair work begins, to some degree the true extent of what is required is not certain given possible later discoveries. Mr Barnsley’s $104,000 figure for the repair undertakings (or even an earlier figure of
$139,582 – in accordance with repair estimates of Ms van Eeden) in my view, is unrealistic.
[166] I conclude therefore that, as a starting point, a fair purchase price consideration in the SPA, if the true state of affairs with the house had been known, should have been Mr Bills’ figure of $460,000 noted at [157] above. This would give a difference of an extra $388,000 actually paid by Rocky and Veronica for the property.
[167] From this $388,000 figure, however, needs to be deducted 30 per cent, amounting to some $116,400. This is to reflect the fact that as I see it, first, Rocky and Veronica may have had some possible remedy against Mr Huang which they have not pursued, and secondly, they contributed to their own loss here, albeit to a limited extent. Although they did obtain a brief oral builder’s report from Mr Huang, they did not raise with him weathertightness and specific soundness issues on this high wind zone property.
[168] This is not a case as I see it of intentionally misleading conduct, but I am satisfied here that the Watsons should bear the burden of the unequal exchange of value to a greater extent than the plaintiffs. A 70 per cent – 30 per cent divide between the Watsons on the one hand and Rocky and Veronica on the other, of the burden of
their common mistake, in my view will appropriately mitigate here the arbitrary effects of the mistake in a fair and just manner.
[169] Accordingly, there will be judgment in this case for the plaintiffs which will follow for $271,600 representing 70 per cent of the $388,000 figure noted above. This is in addition to the plaintiffs’ successful $15,000 damages award for the specific retaining wall breach of warranty claim as I note at [60] and [72] above, which as I see the position, appropriately remains.
[170] For completeness, I need also to address here certain additional claims Rocky and Veronica have made. First, Rocky and Veronica are also claiming consequential damages as a result of their need to remediate their property. The amounts claimed are:
(a)The cost of alternative accommodation during the suggested period of repair totalling $8,760 on the basis of agreement between the valuation experts of a weekly market rental of around $730. Some dispute as to the length of the remediation project arises, however.
(b)Removal costs of $8,000 and storage costs of $1,776.
(c)Costs incurred by the plaintiffs for consultants engaged to date of
$31,712.05.
[171] In addition, they claim general damages here of $30,000. On this general damages question, the plaintiffs contend that the “tariff” of $25,000 set in the Sunset Terraces and Byron Avenue case59 should be adjusted here to $30,000 to allow for inflation and the high level of stress and anxiety the plaintiffs say they have endured.
[172] I am not minded to order these consequential and general damages as claimed here. Like Whata J in Shen v Ossyanin (No 2), I agree that the present case is one where:60
59 North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289 [Sunset Terraces and Byron Avenue].
60 Shen v Ossyanin (No 2), above n 43, at [60].
Inevitably, there will be costs incurred by both parties because of the mistake, but I do not consider that accounting for them now is necessary in terms of doing what is just between them.
Affirmative defences
[173] In addition to their denial of the plaintiffs’ claims, the Watsons advance four affirmative defences – estoppel, waiver, betterment and failure to mitigate. Estoppel and contractual waiver negate or reduce liability. Failure to mitigate and betterment affect quantum. For completeness, I will address each of these briefly here.
Contractual waiver
[174] A contractual waiver requires a clear, unequivocal representation by words or conduct that the waiving party will forgo certain rights.61 At a minimum, defendants are required to establish actual knowledge by the plaintiffs prior to purchase that the warranty had been breached for there to be an implied waiver of that warranty. I accept this has not been established by the defendants here.
[175] The Watsons allege here that a range of conduct on the part of Rocky and Veronica represented to the Watsons that Rocky and Veronica were satisfied with the condition of the property and amounted to a waiver of the contractual warranties:
(a)visiting the property;
(b)obtaining a verbal building inspection report;
(c)being provided with the LIM report;
(d)knowing the age and condition of the property which included knowledge of “the placement of rugs and furniture in the lower southern bedroom”;
(e)signing a disclosure document (which had no disclosures as to weathertightness issues); and
61 Lykov v Wei [2015] NZHC 3009.
(f)making an unconditional offer to purchase the property.
[176] In my view in this case, the undertaking of pre-purchase due diligence and making an unconditional purchase offer on the property do not establish knowledge of a breach of contractual warranties or amount to a waiver of such warranties. I note too that unconditional cash offers were not unusual at the time, given the buoyant property market.
[177] I also reject the submission that the plaintiffs’ election to sign a disclosure document waived their contractual rights. No disclosure of relevant leaks were made by the Watsons on the evidence of Mrs Watson in order for Rocky and Veronica to have knowledge of the true condition of the property.
[178] Knowledge of the age of the property here in my view and alleged knowledge of its condition also do not establish waiver. The plaintiffs, as I have found, were clearly mistaken and in fact not aware of the true condition of the property.
[179] The conduct as described by the Watsons and noted at [175] above does not establish that Rocky and Veronica had actual knowledge that the contractual warranties had been breached. There has been no clear waiver (express or implied) of the contractual (vendor) warranties by the plaintiffs.
Estoppel
[180] To establish estoppel, the defendants must show that a clear belief or expectation has been created by words or conduct of the plaintiffs and that the defendants have reasonably relied on that belief to their detriment such that it would be unconscionable for the plaintiffs to depart from that belief or expectation.62
[181] The Watsons allege here that, in undertaking due diligence prior to purchasing the property, Rocky and Veronica have represented that they were satisfied with the condition of the property and therefore were not relying on the contractual warranties or representations as to the condition of the property.
62 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].
[182] I am satisfied that undertaking ordinary due diligence prior to purchase does not create a clear belief or expectation that plaintiffs, like Rocky and Veronica here, were not relying on the contractual warranties or representation.
[183]The affirmative defence of estoppel has no application here.
Failure to mitigate loss
[184] To establish a failure to mitigate loss, defendants are required to explain what reasonable steps the plaintiffs could have taken to mitigate the loss.63
[185] In my view, Rocky and Veronica here have not failed to mitigate losses. Rather, they have undertaken temporary measures to their house to prevent leaks and the exacerbation of damage and further loss.
[186] For the Watsons, it is contended that Rocky and Veronica, with an eye to mitigating their losses, could have endeavoured to re-sell their damaged property some time after June 2020. It is noted the property market rose sharply in 2021 especially, and had the plaintiffs sold the property “as-is” in late 2021, when the market was at its peak, from evidence before the Court the Watsons say Rocky and Veronica would have recovered their full purchase price. In my view this argument, however, does not assist the Watsons. Largely this is because from their evidence Rocky and Veronica made clear that throughout they wanted to have their house repaired and to stay there as their family home. As I see the position, clearly they acted reasonably in so doing. And, in any event, the property market in the Maungaraki area soon retreated after this late 2021 peak.
[187] It is also not a reasonable or financially viable suggestion that the plaintiffs in any event should have gone ahead and carried out the remedial work recommended by the experts. These proceedings have been filed so that the plaintiffs may recover damages in order to carry out the repairs.
63 Mitchell v Murphy [2019] NZHC 3262 at [279].
[188] Short of undertaking the remedial work recommended by the experts, it is not apparent what reasonable steps the Watsons say Rocky and Veronica should have taken to mitigate loss further.
[189] I conclude too that this failure to mitigate loss defence is similarly without merit.
Betterment
[190] Given the remedy for the common mistake I have found applies here, betterment does not generally arise. Nevertheless, for completeness I do note that the Watsons will bear the onus of proving betterment and I find that they have not discharged this onus in the present case.64 The remediation recommended and relied on for quantum is generally a like for like repair of building elements. Mr Miller sought to keep his scope as close to a like for like repair as possible. Mr Robertson’s evidence was that there was nothing optional in his costing. The work was required to be done to rectify the leaks and unconsented building works.
[191] It is again for the Watsons as defendants to prove that replacement is unnecessary and that it would leave Rocky and Veronica in a better position had the contract been adequately performed. The defendants have not proven this. Other than saying the property was “old” the defendants have largely failed to make out in their evidence specific items that are “better” than existing.
[192] Absent the leaks and failed repairs, there would otherwise be no need to repair the property. The mere fact the property is an older home in my view does not warrant any discount.
[193] I conclude that none of the affirmative defences advanced by the Watsons have merit or apply here.
64 J & B Caldwell v Logan Retirement Home Ltd [1999] 2 NZLR 99 (HC) at 10.
Result
[194] For all the reasons I have outlined above, the claim by the plaintiffs, Rocky and Veronica, against the defendants, the Watsons, succeeds. The Watsons are liable to Rocky and Veronica in common mistake and to receive a just outcome here, they must pay to the plaintiffs:
(a)$271,600 being 70 per cent of the difference in value in March 2020 between the Property in its damaged state and its value if it had been in an undamaged state; and
(b)Interest on this sum pursuant to the Interest on Money Claims Act 2016 from 19 March 2020 (the date of settlement under the SPA) until such time as the judgment debt is fully paid.
[195] The plaintiffs’ breach of vendor warranty damages claim against the defendants, the Watsons, to the extent noted at [60] and [72] above also succeeds and the defendants must pay to the plaintiffs:
(a)$15,000 as damages representing the cost to make the wall compliant;65 and
(b)Interest on this sum pursuant to the Interest on Money Claims Act 2016 from 19 March 2020 (the date of settlement under the SPA) until such time as the judgment debt is fully paid.
[196]Orders to this effect outlined in [194] and [195] above are now made.66
65 In my view, this $15,000 breach of vendor warranty award relating to the retaining wall is not reflected in the overall unequal exchange of value here and needs to be compensated separately, as I have done.
66 (a)Under s 3 of the Law Reform Act 1936, the death of a party generally does not terminate a cause of action, as here, against that party. As I have noted, after these proceedings were brought against both Mr Watson and Mrs Watson, Mr Watson died. Before me, Mr Fraundorfer indicated he acted on instructions from both defendants, being now Mrs Watson and the personal representatives of the late Mr Watson’s estate, and he presented the defence here for them both. The orders made at [196] above accordingly are made against both defendants jointly and severally.
(b) Noting these matters as I have outlined at (a) above, and in so far as it may be required here, in terms of r 4.50 of the High Court Rules 2016, an order is confirmed that the personal
Costs
[197] Rocky and Veronica have largely succeeded in their claim against the Watsons. My view is that, as successful plaintiffs, they are entitled to costs and reasonable disbursements (which may include their claims for consultants’ expert evidence) here. I expect the parties should be able to agree on this based upon my findings. If they are unable to do so, memoranda on costs (maximum five pages each) may be filed sequentially and a decision on costs and disbursements will be made by a Judge/Associate Judge of this Court based on the memoranda filed and all the other material which is then before the Court.
Gendall J
Solicitors:
Dalzell Wollerman for the Plaintiffs
Holland Beckett Law for the Defendants
representative/s of the estate of the late Alan Gordon Watson is/are made a party or parties to this proceeding as the first-named defendant/s (along with Elizabeth Watson as the second-named defendant).
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