RODNEY BERNARD CULLINANE AND MARY CULLINANE v KEVIN BERNARD MCGUIGAN [1999] NZCA 209 (29 September 1999)

IN THE court of appeal of new zealand

ca172/99

	between	RODNEY BERNARD CULLINANE and mary cullinane
		Appellants

	and	kevin bernard mCGUIGAN
		Respondent

Hearing:	21 September 1999
Coram:	Thomas J Gallen J Doogue J
Appearances:	D.M. Lester for First Appellant and K W Clay for Second Appellant J G Matthews for Respondent
Judgment:	29 September 1999

judgment of the court delivered by GALLEN J

[1] This appeal concerns the obligations of parties arising out of an alleged sale and purchase of a substantial residential property on the Port Hills in Christchurch.The general factual background is set out in the decision in the District Court as follows:

On 25 November 1995 the plaintiff [respondent] attended an on-site auction of a property sold by the first defendants [appellants] at 161 Huntsbury Avenue, Christchurch.He was the successful bidder, the property being knocked down to him at $370,000.00 inclusive of GST.Settlement of the transaction was 31 March 1996 or earlier by agreement.The dwelling on the property was in a partly finished condition being described in pre-auction advertising as "completed to lock-up stage, as yet to be finished internally."

The property was for sale as the result of an acrimonious matrimonial property dispute between the first defendants.Little work had been done on the house since 1991.The plaintiff and his wife had attended two "open homes" at the property before coming to the auction.The plaintiff was an experienced property developer having purchased, renovated and sold between six and ten properties in the ten to fifteen years prior to this purchase.The plaintiff had made no enquiries of any regulatory authority relating to the property.

The plaintiff did not settle on due date, despite having paid a deposit in accordance with the terms and conditions of the auction, because he claimed a right to cancel the contract.He sues for the return of his deposit plus interest.

The first defendants have counterclaimed on the basis that by reason of his failure to settle, the plaintiff repudiated the contract and the first defendants are entitled to damages represented by the loss of value incurred on resale of the property plus attendant costs and interest.

[2] In the District Court, the Judge was required to deal with nine separate issues which he did in an admirably expressed and clear decision, the result of which was a finding in favour of the appellants on the claim brought by the respondents for recovery of the deposit and on the counterclaim for damages. The respondents appealed, alleging that the District Court Judge had been wrong in four respects.First it was alleged that the Judge was wrong in concluding there had been no misrepresentation.In the High Court the Judge accepted that this was a question of fact and that there were no grounds for interfering with the District Court Judge.

[3] The second ground of appeal was that the District Court Judge was wrong in finding that the respondent had affirmed the contract in a letter dated 30 January 1996.In the High Court the Judge came to the conclusion that the letter which the District Court Judge had seen as decisive, was insufficiently clear to amount to an affirmation and accordingly disagreed with the conclusion in the District Court.In consequence of this decision he proceeded to consider whether or not there was a right for the respondent to cancel as at 13 February 1996 when he purported to do so and concluded that there was.As a result of those conclusions he allowed the appeal and entered judgment in favour of the respondent for the amount of the deposit, a sum of $37,000.The appellants now appeal against that decision.

[4] The first question for determination is whether or not the respondent with full knowledge of the matters which gave him cause for concern, nevertheless elected to affirm the contract.There is no dispute that affirmation is a question of fact.This was accepted in both District and High Courts and there is ample authority to that effect.There is no requirement for any particular formality and the evidence to establish affirmation or the lack of it, will be assessed by a consideration of all the relevant circumstances.In this case the most important material relied upon is the letter of 30 January 1996which was written by the solicitors for the respondent to the solicitors for the appellant.That is in the following terms.

We refer to the above, and more particularly to general condition 7.1(1) of the Particulars and Conditions of Sale.

We enclose copy of letter from the City Council dated 20 November 1995 containing many requisitions which were not brought to the attention of Mr and Mrs McGuigan by your clients.There was a letter of 21 November 1995 from Lovell-Smith & Cusiel Limited (copy enclosed) which was circulated at the auction, but does not satisfy the matters referred to in the Council's letter of 20 November.Further, we enclose a Council Memorandum dated 27 November which rejects the letter from Lovell-Smith & Cusiel Limited.

A recent check by Mr McGuigan of the Council's records show that there is no record of previous inspections in regard to foundations or framing.Mr Cullinane has advised Mr McGuigan that inspections have taken place, but the owners copy of plans with inspections notices thereon is apparently with Mr Cullinane's builder, Mr Craig Milner, who cannot be located.

Settlement is set down for 31 March 1996, and we advise that our clients will not be prepared to settle unless all the requisitions noted in the Council's letter have been satisfied.We also require confirmation that all required inspections at foundation and framing stages have taken place to the satisfaction of the Council.

We look forward to you[sic] response.

[5] That letter was responded to by the solicitor for the appellants on 8 February 1996 in the following terms:

We refer to your letter of 30 January 1996.

Mr Brodie of Anthony Harper, solicitor for Mrs Cullinane was present at the auction.Having regard to general condition 7.1 (1) of the Particulars and Conditions of Sale (which refers to any requisition or outstanding requirement which has not been disclosed to the purchaser), Mr Brodie required the auctioneer to read out that there was a requisition in existence in the form of the letter from Christchurch City Council dated 20 November 1995 relating to the stone cladding and other matters, and that any prospective purchasers should satisfy themselves before proceeding further.Mr McGuigan was present and heard the statement read by the auctioneer before bidding commenced.

Mr Egden of this firm was also present and verifies this.

[6] In turn, that drew a response from the respondent's solicitors on 13 February 1996 in the following terms:

We refer to your letter of 8 February 1996.

Your letter fails to cover the whole situation on auction day.On arriving at the auction Mr McGuigan was handed a copy of Lovell-Smith Cusiel's letter of 21 November 1995.Then, prior to the auction commencing, the auctioneer advised that there was a letter from the Council containing matters which prospective purchasers should satisfy themselves in regard to before proceeding.The auctioneer did not read out the Council's letter.

Next, the auctioneer mentioned the letter from Lovell-Smith Cusiel which had been circulated.The two letters were spoken of in the same context and the clear implication was that whatever the matters raised in the Council's letter, they were satisfied by the Lovell-Smith Cusiel letter.

There was an element of fairness missing about the situation.How was a prospective purchaser going to satisfy himself as to the Council's letter on a Saturday, five minutes prior to the auction?Given the fact that Lovell-Smith Cusiel's letter was circulated prior to auction, the Council's letter should, at the very least, have been read out in full so that prospective purchasers were made aware of the nature of the requisitions.In fact, it too should have been circulated.

We are of the firm view that your client was under a legal duty to make disclosure of the contents of the Council's letter.Why circulate one letter and not the other?The failure to disclose constitutes misleading representation or deceptive conduct under the Fair Trading Act 1986.

The misrepresentation in this case amounts to a serious breach of the vendor's duty and therefore our clients are entitled to cancel the Agreement under the Contractual Remedies Act.We require a full refund of the deposit forthwith.

[7] The District Court Judge noted that the position taken by the appellant was that the letter of 30 January 1996 was either an offer to affirm the contract on the condition that the contract as asserted was strictly performed, or was an offer to waive the breach if the vendor would promise to rectify the defects.In the District Court, the Judge expressed his conclusion with regard to the letter in this way:

The letter of 30 January 1996 is clearly an affirmation that notwithstanding the alleged misrepresentation the plaintiff was prepared to take the property provided "all the requisitions noted in the Council's letter have been satisfied".

[8] The Judge went on to refer to the evidence and noted that the respondent had confirmed that before that letter was sent, he was aware of certain facts about the state of the property that he had not known at the time of the auction.He noted too that he had obtained the keys for further inspections on a number of occasions and in particular the Judge referred to cross-examination in the following questions and answers:

Q. Why did you decline the offers with the Cullinanes and the Council?

A. Because I couldn't trust any longer what Mr Cullinane would say.

Q. Was it not more accurate you had decided you weren't going ahead with that purchase regardless?

A. We had cancelled, but if the Cullinanes had finished the property to the required standard prior to 31 March we would have purchased it.

[9] The Judge took the view that as at 30 January 1996 the respondent was prepared to complete, but that in the intervening period, changed his mind. Reference was also made to an agreement into which the respondent had entered for the purchase of another property altogether, which agreement is dated 26 February 1996.It contained a clause reading:

This agreement is conditional upon the effect of cancellation of the contract for sale and purchase of 161 Huntsbury Avenue, Christchurch within ten working days from the date of this agreement.

[10] The Judge then went on to consider the evidence as a whole and concluded his consideration by finding on the balance of probabilities that the respondent had affirmed the contract.In summary then, the reasoning which led the Judge to that conclusion was that he saw the letter of 30 January as being capable of construction as an affirmation, subject to a condition.He considered that this view was confirmed by the evidence which the respondent gave and by what he saw as an uncertainty of the respondent as to the efficiency of his cancellation with regard to the possible purchase of other property.

[11] In the High Court, the Judge did not find the terms of the letter of 30 January amounted to a clear and unequivocal affirmation.He analysed the question for the Court as being "does a party to a contract affirm by indicating a preparedness to settle if the consequences of the breach are remedied by settlement date?"Having referred to a number of texts, he relied on the decision of the High Court of Australia in Holland v Wiltshire [1954] HCA 42; (1994) 90 CLR 409, where it was held that a settlement notice did not constitute an affirmation.In the circumstances of that case, what had occurred amounted to a demand for performance coupled with an intimation that refusal or failure to perform would result in proceedings for damages.In the present case, in the High Court, the Judge saw the letter of 30 January as amounting to an assertion of a right to cancel but with opportunity and time being given to remedy the consequences of breach.

AFFIRMATION

[12] In both the District Court and the High Court, the wording of the letter of 30 January 1996 was seen as central to resolution of the question as to whether or not the respondent had affirmed the contract.In the District Court the Judge considered that the wording clearly amounted to an affirmation and that this was confirmed in the context of the evidence which he had heard and by the subsequent conduct of the parties as indicated by the further correspondence.In the High Court, the Judge reached an opposite view, considering that the wording of the letter was by no means clear and fell in any event to be classified by reference to the question as to whether or not indicating a preparedness to settle if the consequences of the breach were remedied by settlement date, amounted to an affirmation.

[13] The contract into which the parties had entered, provided for disclosure of requisitions of relevant local authorities in cl.7 of the contract.

At the date of this agreement he has not received any notice nor has he any knowledge of any requisition or outstanding requirement imposed by any territorial or government authority in respect of the property or any notice from any tenant or any town planning notice which has not been disclosed to the purchaser.

[14] There can be no dispute on the findings in the District Court, that the respondent was not at the time of entering into the contract, aware of the requisition which had issued from the appropriate local authority with regard to correction of what was seen as building defects.The failure to disclose the existence of the requisition amounted to a breach of the contractual arrangements between the parties.It is also clear that the respondent was aware of the existence of this requisition before the letter of 30 January 1996 was written and the terms of the letter indicate that that letter was written as a consequence and in the light of that knowledge.

[15] The question then arises as to what was the intention of the respondent in writing that letter through his solicitors, that intention being ascertained from the wording of the letter in the context in which it was written, sent and received.In our view, the wording of the letter leaves open a number of possibilities.It could have been intended to indicate that in the light of his knowledge the respondent as purchaser had elected not to seek cancellation because of the non-disclosure and was happy to complete the agreement provided the requisition was complied with before the date of settlement.Such a construction might be seen as amounting to an affirmation and that is the way in which the District Court Judge saw it.

[16] It would, however, be possible also to construe the letter, in the terms in which it was written, as amounting to an indication that the respondent was aware of the breach and was reserving his right to cancel, without making a decision to that effect, the decision in the ultimate depending upon whether or not there was compliance with the requisition by the date of the settlement. Although not put in precisely those terms, that was the meaning which the Judge in the High Court saw as coming from the letter.There is a third possibility, that the respondent was suggesting a variation of the contract between the parties to take account of the additional information which had been disclosed subsequent to entering into the agreement.

[17] All these possible interpretations are open on the ambiguous wording of the letter.While attempts to define the concept of affirmation have been expressed in various ways, a number of the authorities put an emphasis on the need for that affirmation to be unequivocal.Where different possible interpretations were open in respect of the document upon which reliance was placed, it was equivocal and could not constitute an affirmation.

[18] The District Court Judge went on to consider the letter in context.In the High Court, the Judge did not see this as appropriate and it was argued before us that the letter either amounted to affirmation or it did not without reference to subsequent correspondence.While subsequent correspondence could not vary an unequivocal intention expressed in the letter, it could be relevant as part of a series of which the letter of 30 January 1996 forms part and which ought to be considered as a whole.

[19] A right of cancellation is not waived unless the advice to that effect is unequivocal.The letter of 30 January is not unequivocal.It is a shot across the bows of the vendor.The letter of 30 January 1996 was written indicating the concern of the respondent that the requisition be complied with.The response to that was a letter from the appellants which denied all liability. The response to that letter, was a purported cancellation by the respondent. There is ample authority to the effect that when a breach occurs, the party affected by that breach must have a reasonable time to come to a conclusion between the various options open to him or her and no doubt, to make enquiries or to seek advice as to which is the most appropriate option to which to adhere.When this principle is borne in mind, it seems to us that what the respondent did by the letter of 30 January 1996, was to indicate that he was aware of the position and that the response of the appellants to the requisition would have a bearing on whether or not he would ultimately settle. In other words, he was postponing a decision as to the course of action he would take following on his knowledge of the breach, until he was aware of the position which the appellants intended to take.The response to the letter was by contrast, completely unequivocal.By the letter dated 8 February 1996, the solicitors for the appellants denied that there had been any breach of the contractual conditions.In response to that letter, the respondent indicated his intention to cancel.

[20] In our view it follows that the letter of 30 January 1996 was not an unequivocal affirmation, but an indication that the respondent was contemplating what might be an appropriate subsequent course of conduct.The response of the appellants then led to a decision, which was in fact the decision to cancel.

[21] Accordingly we agree with the Judge in the High Court that in the circumstances of this case, there was no clear and unequivocal affirmation by the respondent and that conclusion is verified by the consistency of the subsequent correspondence with such a conclusion.

[22] Having arrived at that decision, the Judge in the High Court proceeded to consider whether or not in the circumstances of this case, the respondent was entitled to cancel.The third ground of appeal before him was that the respondent had validly cancelled the contract.

[23] That gave rise to two issues which were argued before us.The first, whether or not the effect of the breach was to substantially reduce the benefit of the contract to the respondent and the second, whether or not performance of the disclosure clause was essential to the respondent.Because of the conclusion at which he had arrived, it was unnecessary for the Judge in the District Court to consider the question of substantiality in terms of the ground of cancellation upon which the respondent had originally relied (and upon which he succeeded in the High Court). The question had however, also fallen to be considered by the Judge in the District Court in the context of a further argument that there was an entitlement to cancel because in any event the appellants had failed to attend to the remedial work by the time of settlement.That was of course at a different date, but we agree with the Judge in the High Court that the difference in dates would not alter the nature and character of the work to be carried out and therefore the substantiality to any significant extent.

[24] In the District Court, the Judge had come to the conclusion that having regard to the nature of the contract, the value of the property, the likely cost of outstanding remedial work and the evidence of the respondent of his initial preparedness to complete the contract if work was done, the breach could not be categorised as substantial so as to enable the plaintiff to cancel.

[25] In both Courts, the Judge relied upon the decision in Jolly v Palmer [1985] 1 NZLR 474 which noted that substantiality was not dependent entirely upon a consideration of value, but took into account a range of extraneous factors both objective and subjective.In the High Court, the Judge put an emphasis on the nature of the work which would have been required to meet the requisition and came to the conclusion that a question mark existed in relation to workmanship relevant to both external and internal work on the property concerned and that as a consequence, the benefit of the contract was substantially reduced.

[26] In this Court, Mr Lester argued that the actual cost even if assessed at the unsubstantiated figure of $14,000, was not sufficient in relation to a contract involving a purchase price of $370,000, to be categorised as substantial.An exploration of the evidence did not lead to anything very definite with regard to the figures involved.In the District Court however, the Judge who heard the matter and had the advantage of seeing the witnesses, assessed it in terms of comparative values and arrived at the conclusion that the work required could not be seen as substantial for the purpose of determining the right to cancel.

[27] We agree with the Judge in the High Court that the matter is not to be determined solely by reference to monetary comparisons.The documentary evidence makes it clear that the local authority regarded the deficient workmanship as sufficiently serious to suggest the possible need to completely remove stone work cladding and some linings of the exterior cladding.The description indicates that the house concerned was large and impressive.When it is accepted that an assessment of substantiality depends on subjective as well as objective factors, we think it was open to the Judge in the High Court to come to the conclusion that the matters in issue were sufficiently substantial to justify cancellation.

[28] Argument was also addressed to us on the question of essentiality, the Judge in the High Court having rejected an argument put forward by the respondent on this question.It is unnecessary for us to deal with this argument in view of the conclusions to which we have come and in the circumstances we think it preferable to make no further comment upon it.

[29] In view of our decision the fourth ground of appeal in the High Court which related to allowance for the remedial work need not be considered for the reasons expressed, we are of the view that the appeal must fail and it will be dismissed.

[30] The respondent is entitled to costs of $3,000 and reasonable disbursements including travel and accommodation costs for one counsel.

Solicitors for Appellants: Saunders and Company, Christchurch

Solicitors for Respondent: Weston Ward and Lascelles, Christchurch