Thompson v Vincent CA282/00 [2001] NZCA 458; [2001] 3 NZLR 355; (2001) 7 NZBLC 103,389 (21 June 2001)

Last Updated: 11 June 2023

IN THE COURT OF APPEAL OF NEW ZEALAND CA282/00

BETWEEN GARY RAYMOND THOMPSON and YVONNE ELSIE THOMPSON

Appellants

AND RAYMOND THOMAS VINCENT and GILLIAN SANDRA VINCENT

Respondents

Hearing: 16 May 2001

Coram: McGrath J Ellis J McGechan J

Appearances: J R Neild for Appellant

C R Pidgeon QC for Respondents

Judgment: 21 June 2001

JUDGMENT OF THE COURT DELIVERED BY McGECHAN J

The Appeal

[1] This is an appeal by vendors of a motel business against dismissal of their claims against purchasers for balance of purchase price and ongoing interest liabilities and against judgment for the purchasers on the latters’ counterclaim for return of money paid.

[2] It raises various questions as to misrepresentation, cancellation, and remedies under the Contractual Remedies Act 1979, including a particular question as to the

implications of discovery of a misrepresentation after repudiation upon other grounds.

[3] For convenience we will call the Appellants “the Thompsons”, and the Respondents “the Vincents” unless one alone is to be named.

Factual Background

[4] The Thompsons owned a block of motels nearing completion. Town Planning consent had been obtained for 12 motel units. The block had been constructed, with the building inspector’s approval, in a manner which in practice allowed operation as 24 units. Provision of owners’ accommodation plus a bar and restaurant were envisaged.

[5] The Thompsons placed the potential motel business with a 20 year lease on the market. It was described as 22-24 units. The difference in two units allowed for the possibility of owners’ accommodation taking up two units. The advertised price was $495,000.

[6] The Vincents became interested. They had previous experience in motel management. They were shown various documents which referred to 24 units. They were not told, and did not know, that planning consent was restricted to 12 units. A 12 unit operation would not have been economic.

[7] In June 1988 the parties agreed to a sale and purchase at $500,000 with a 20 year lease. The Thompsons provided at least a significant proportion of the chattels. The $500,000 price was satisfied by the Vincents transferring property to the tune of $200,000 plus an instrument by way of security over chattels securing the remaining $300,000. The Thompsons were to complete the restaurant and bar areas and other work, and to obtain a Tourist House Licence.

[8] Things did not go well. The Thompsons were slow in meeting their obligations. The Vincents withheld rent. There was a re-entry followed by a restraining injunction. Differences ultimately were resolved (or so it then appeared)

by signature of a Memorandum of Terms of Settlement (the “Settlement Memorandum”) on 28 November 1989. It was intended to allow for a fresh start.

[9] Put very briefly, the Settlement Memorandum stipulated for a 20 year lease from 1 December 1989 at fair market rental to be determined by valuation and if necessary arbitration; that the Thompsons would carry out specified work on the bar and restaurant and diligently pursue a Tourist House Licence; and that the Thompsons would convert units to management accommodation and would carry out landscaping. The Vincents were to pay the Thompsons $250,000 by 1 February 1990 in discharge of the existing instrument by way of security, in default of which an instrument by way of security for $300,000 was to be executed.

[10] Again things did not go well. The rental valuation obtained by the Thompsons was not agreed. Little of the work stipulated in the Settlement Memorandum was carried out. The Judge found it was “difficult to determine” who was to blame for that fact. The Tourist House Licence was not obtained. The Judge noted the Thompsons were short of funds, were fed up with the Vincents, and observed they would “stop at nothing” to get them out. There were physical and verbal disputes between the parties. The Judge describes these as “unbecoming on both sides”, observing further that some of Mr Thompson’s conduct was “simply unjustified”. Mr Vincent’s evidence as to what was said was preferred to that of Mr Thompson.

[11] The Judge found the Vincents were, likewise, fed up with the Thompsons, and were dissatisfied with the terms of the Settlement Memorandum which was felt not to protect them from the Thompsons’ inactivity. The Judge found that by late March 1990 the Vincents were determined to secure, if possible, variation of the terms of the Memorandum, and felt in a strong position to do so given the Thompsons’ financial problems.

[12] On 4 April 1990 the Vincents vacated the premises without notice. They took chattels with them. They removed drapes and light fittings, disconnected the telephone, and took the keys. There was a degree of damage to the premises in the process. As so vacated, the premises were not immediately useable as a motel.

[13] The Judge found that the Thompsons’ threats were the “final straw” which led to the Vincents’ leaving the motel premises.

[14] The Thompsons were aware, by observation, that the Vincents were vacating. The Thompsons took legal advice. They took no steps to intervene.

[15] On 9 April 1990 the Thompsons returned to the motel. The Thompsons’ solicitor wrote alleging breach of the Settlement Memorandum by the Vincents in various particulars, including vacating and ceasing business. The letter gave notice “cancelling the Settlement Memorandum,” and notifying that money remaining due under the agreement and instrument by way of security would be called up. The Vincents’ response, by solicitor’s letter, was that the Vincents were prepared to return “when problems were resolved” and that the Thompsons’ actions were unlawful.

[16] The Thompsons did incur some costs brought about by Vincents’ actions before they left the motel.

[17] Shortly after their departure the Vincents learned for the first time that planning consent to the motels did not extend to 24 units.

[18] The Thompsons did not attempt to obtain planning consent (by specified departure) to allow 22-24 units. They altered the units to residential flats. The Thompsons traced the chattels taken by the Vincents, seized or purported to seize those chattels under the instrument by way of security, and sold the chattels at auction. The Vincents allege excessive seizure and sale at undervalue. There was a substantial deficit.

[19] The Thompsons ran the block as residential flats until sale of the freehold and business on 27 January 1993.

The claims and counterclaims

[20] The Thompsons plead breach by the Vincents of payment obligations under the Settlement Memorandum; repudiation by abandonment of the motel; acceptance

by the Thompsons of repudiation, and cancellation by the Thompsons on 9 April 1990; a net indebtedness under the instrument by way of security after allowance for auction proceeds; and losses by the Thompsons in running the block as an “accommodation facility” from April 1990 to 27 January 1993. Thompsons originally claimed damages “following cancellation of the Memorandum” (a) of

$274,520.54 rent which would have been received 9^th April 1990 to 27^th January 1993 at $100,000 per annum (b) of $236,886.19 net indebtedness under the instrument by way of security after crediting sale proceeds of chattels less expenses and (c) of $75,945.20 penalty interest under the instrument by way of security from 9 April 1990 to 15 July 1991. (The claims were reformulated in this Court, see para

[59] infra.)

[21] The Thompsons’ claim appears to be for breach of contract. There is a precautionary alternative claim under the Settlement Memorandum for the sum due under the instrument by way of security if the instrument by way of security is not legally enforceable.

[22] The Vincents raise a brace of affirmative defences based on misrepresentation by the Thompsons of lawful authority to run 24 motel units. As well as a misrepresentation defence in its own right, the misrepresentation is advanced as a basis for defences of unilateral mistake by the Vincents known to the Thompsons, and of breach of an implied term.

[23] The Vincents also counterclaim on bases put forward as “breach or breaches of contract and/or said misrepresentations”. As well as the preceding events the Vincents plead the Settlement Memorandum of 29 November 1989; a failure by the Thompsons to carry out work due; a resulting inability on the Vincents’ part to raise the $250,000 to pay out the instrument by way of security; tender by the Thompsons on 4 April 1990 of an instrument by way of security for execution which carried additional non-agreed items; threats by Mr Thompson against Mr Vincent; that because of such threats the Vincents vacated and relocated the chattels; unlawful seizure of chattels and unlawful entry into possession by the Thompsons; unlawful auctions of the chattels at undervalue; and losses as particularised.

[24] The Vincents’ counterclaim also pleads misrepresentation as to lawful authority to erect 24 motel units and to complete the relevant motel, restaurant, reception, and bar areas; and that such misrepresentation induced entry into the Settlement Memorandum. There is the customary associated plea of substantial reduction in benefit or increase in burden. Vincents plead (following amendment) that the contract was cancelled by the Thompsons on 9 April 1990 under s7 of the Contractual Remedies Act 1979. There are also additional pleas alleging implied term and unilateral mistake consistent with the affirmative defences mentioned.

[25] The Vincents’ counterclaims seek declarations (or an order under the Contractual Mistakes Act 1977) that the Settlement Memorandum is cancelled; restitution or compensation under the Contractual Remedies Act 1979 ss6 and/or 9 or under the Contractual Mistakes Act 1977; plus a range of damages based on facilities not provided and upon estimates of lost earnings. As ultimately reformulated, the Vincents’ case effectively confined itself to restitution of sums paid by the Vincents to the Thompsons [see para 97 infra].

[26] The Thompsons’ defence to the Vincents’ counterclaim denies all substantive allegations. Thompsons plead that Vincents wrongfully repudiated the Settlement Memorandum. The Thompsons plead as affirmative defences an accord and satisfaction on a basis that the misrepresentation was an issue which could have been raised prior to the Settlement Memorandum; and that no loss was sustained as the motel could in fact accommodate the same number of guests.

The High Court judgment

[27] The Judge traversed the history as outlined, albeit in somewhat more detail, and then moved to matters of law and to his conclusions.

[28] At the threshold the Judge, applying an objective approach to repudiation, found that the Vincents’ attitude that they were prepared to carry on provided they could alter the terms of the Settlement Memorandum to terms which suited them, plus their walking out, amounted to a clear and unequivocal repudiation of the Settlement Memorandum.

[29] The Judge then turned to questions of misrepresentation and inducement.

[30] The Thompsons, it was found, represented to the Vincents that the motel could be legally operated as 24 units and did not merely represent there were 24 units physically on the ground. The Judge regarded the case as “very similar” to Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83 (FCA) in which a representation that a restaurant was licensed and had 128 seats was held to imply it was licensed to serve 128 people (in fact approval was for 84). The Judge left open questions of duty of disclosure, but expressed himself satisfied there was a pre-contract misrepresentation that the motel was able to operate as a 24 unit complex. The Judge added (although there was no allegation of fraud):

“I am satisfied he deliberately did not tell the Vincents the true position vis a vis town planning because he well knew he didn’t have such necessary town planning approval and further, he well knew he had passed on or indicated the true position to the Vincents, they would have immediately lost all interest in purchasing/leasing the motel.”

[31] The Judge found the Vincents’ belief in their ability to operate 24 units was the “compelling reason” they entered into not only the first contract but also the Settlement Memorandum. If the Vincents had been aware of the true position, they would not have done so.

[32] The Judge noted it was no defence to the misrepresentation to say that the solicitors for the Vincents would have ascertained the zoning situation if proper inquiry had been made, citing Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd supra.

[33] The Judge also observed:

“A settlement entered into, while acting under a misrepresentation, is not binding and can be set aside; Chitty on Contract 27^th Edition para 22-018; and Gilbert v Endean [1878] UKLawRpCh 219; (1978) 9 ChD 259 CA.”

(We note this is an invocation of the common law, not the Contractual Remedies Act 1979, a topic to which we will return).

[34] The Judge then turned to cancellation under s7, and its consequences particularly under s9. The reasoning is succinct. To avoid any accidental misinterpretation it will be quoted largely verbatim.

“[48] ...[Counsel for Thompsons] has accepted any existing contract was terminated on 9 April 1990. Cancellation was in accord with s.7 of the Contractual Remedies Act. The contract having been cancelled, I am entitled to exercise the powers given to me by s 9 of that Act. Section 6 of the Act preserves the Vincents’ right to claim damages for the misrepresentation.

[49] Section 9 of the Act requires me to specifically consider the matters set out in s 9(4). In my judgment, the misrepresentation I have found would have entitled the Vincents to terminate the initial contract and/or the contract evidenced by the memorandum of settlement.

[50] Alternatively, if they had realised the position sooner than before they vacated they could have obtained damages on the basis of a true value of the motel as a 12-unit complex plus loss of profits etc. This course is no longer open to them.

[51] Section 9 gives the Court broad powers. Its intention is to ensure the Court does what is just and proper having regard to the nature of the dealings between the parties. Dawson and McLauchlan on The Contractual Remedies Act 1979 (supra) state at p 147:

‘The major aim of s 9 is to permit relief to be given in respect of valuable benefits that have been transferred pursuant to a contract that has been cancelled. Under s 9(2)(a) the court may, on the cancellation of the contract, make an order vesting in any party to the proceedings, or directing the transfer or delivery of, the whole or part of any real or personal property that was the subject of the contract or was the whole or part of the consideration for it.’

[52] See also Newmans Tours Ltd v. Ranier Investments Ltd [1992] 2 NZLR 69.

[53] I have earlier outlined the dispute over who failed to carry out their respective obligations under the original contract and/or the settlement. I find little assistance to be gained by considering such matters. The single fact remains the Vincents would not have spent a cent on this motel but for the misrepresentation. Because of the misrepresentation they have spent a lot of time trying to make a go of what everybody agrees, on the basis of 12 units, was a non-viable proposition.”

[35] The Judge then noted a submission by counsel for the Thompsons that the Court should take into account a number of matters. Summarised, these were assertions that Vincents’ actions ruined a motel business which had value; that the Thompsons, if given the opportunity, could have made a specified departure

application which could well have been successful; that the Thompsons should be put in the same position as if the contract had never gone ahead; the fact of legal representation on both sides during negotiation; the Vincents’ failure to check the position relating to planning consent; the Vincents’ departure from the motel leaving it in an inoperable state; Vincents’ retention of chattels after cancellation impeding re-establishment of the business; the non-communication to the Thompsons of the town planning issue, depriving them of an opportunity of trying to rectify the problem; and authority (Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd supra) for refusal of restitution because of inactivity on the claimant’s part.

[36] In that light the Judge continued as follows:

“[55] I say immediately there is little merit in the submission the Vincents’ ruined this motel. I accept their actions did require some work to be done by the Thompsons but the decision to turn the premises into residential accommodation was made by Mr Thompson to meet his then financial position and had regard to the fact he could not operate the motel as a viable unit under the then existing Town Planning Regulations. Had there existed a real prospect of Town Planning permission being obtained to operate as a 22-24 unit complex I am sure Mr Thompson would have done just that immediately upon his re-entry or within a short time thereof. Likewise, I see no merit in attempting to put the plaintiffs in the same position as they would have been had the representation not been made. They brought about the situation. Likewise I can see no merit in the submissions the Vincents should in some way be blamed for managing the motel for 5 months without checking the Town Planning position or relying upon the valuations and other materials supplied. Further, it was Mr Thompson’s decision ultimately to sell the property on the terms he did.

[56] Any delay in the prosecution of these proceedings must lie with the Thompsons. The proceedings were not issued by them until 1996, I understand from counsel, shortly before the limitation period expired. This action brought forth the counterclaims.

[57] The only basis upon which I can see for granting any relief to the Thompsons is on the ground of the actions taken by the Vincents in vacating the premises. I am satisfied these actions did result in the Thompsons being unable to operate the premises adequately as a motel or otherwise for a short time. I have some difficulty in assessing on the material before me what loss they suffered. In this regard there is a conflict of evidence between Mr Thompson and his accountant which I could not resolve notwithstanding granting leave for Mr Thompson to be recalled at a very late stage of the proceedings.

[58] I asked Mr Vincent how much he put into this undertaking as far as capital sums were concerned. He told me $200,000 plus $69,500 plus

$30,000 which he got from his father and $16,000 from life insurance policies. He also told me he had put in bits and pieces from working capital

from the motel because “they would buy things as they went along”. He had the further expenses of substantial legal costs.

[59] Mr Thompson it seems to be accepted spent about approximately

$5,000 in putting right matters arising out of the condition of the motel as he found it when the Vincents left.

[60] In Lenart & Anor. v. Murray & Stuck Holdings Ltd (HC, Wellington, CP 308/87, 16 December 1987), Jeffries J concluded a defendant had failed to disclose material facts to the plaintiffs. The material facts were known to the defendant and his agent and the relationship as disclosed by the circumstances imposed on the defendant and his agent a duty to disclose these known facts. He found there was concealment or suppression of material facts in circumstances in which the defendant had a duty to disclose them to the plaintiffs. In his judgment he stated:

‘The defendant cannot offer in a materially deficient form what it bargained to sell, and then claim to make time the essence of the contract, or cancel the contract pursuant to s 7 of the Contractual Remedies Act. Those are actions taken by a party to a contract who is innocent of any wrongdoing within the contractual relationship. That is simply not so in this particular case.’

[61] The facts of the present case are materially different from the matter before Jeffries J but in essence, the Thompsons are submitting I should grant them substantial relief under the provisions of the Contracts Enforcement Act 1956 (sic) from making restitution to the Vincents notwithstanding a totally misleading representation and the critical factor in causing the Vincents to enter into the transaction and incur the payment of moneys. Any actions by the Vincents pale into insignificance when measured against the nature of the misrepresentation made and its effects.

[62] The contracts between the parties are therefore set aside. There will be judgment for the Vincents against the Thompsons in the sum of $320,500 representing the sums expended by the Vincents to which I have referred together with the amount of $10,000 towards their legal fees incurred in the transactions, less the sum of $5,000 being costs incurred by Mr Thompson arising out of the Vincents’ own actions. In addition, Mr Thompson must pay interest at 7½% on the $320,500.00 from 9 April 1990 to the date of this judgment.”

Appellants’ submissions

[37] Appellants’ submissions attack the Judge’s finding of misrepresentation, and the Judge’s approach to remedies. We will note these separately.

[38] Appellants submit there was no misrepresentation as pleaded. Representations were confined to the number of units, and did not extend to planning consents.

[39] The Vincents’ pleading is interpreted as an allegation of representation by silence. There was no such representation. Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd supra was a case under the Australian equivalent of s9 of the Fair Trading Act 1986 involving questions of misleading or deceptive conduct which are wider than misrepresentation. Counsel for the Vincents indicated that because of the limitation period in s43 of the Fair Trading Act 1986 they were unable to plead there was misleading and deceptive conduct under that Act.

[40] For there to be a misrepresentation by silence, there must be a duty to speak. The Judge did not determine whether such a duty exists. Submissions accept that a duty to speak can arise where silence materially distorts something said, but here there was no distortion of any positive representation.

[41] Submissions rely upon the analyses in Deverick v Hedley (2000) 9 TCLR 326 Williams J; and in McMorland, Sale of Land 2^nd Edition (2000) pp245-246.

[42] The representors’ state of mind is irrelevant in light of s6(1); and there is no evidence that the Thompsons knew of the planning restrictions concerned.

[43] On the facts, there was no duty to speak. The motels were operating as 22-24 units; the layout had been approved by the building inspector and by inference the town planning division; the planning consent for 12 units was publicly available (that going to any duty to disclose); in practice it was normal for purchasers to check the planning position; the agreement for sale and purchase of the business allowed damages only in relation to misdescription; the proposed lease cast the duty on the lessee; and the Thompsons did not know of breach of planning requirements.

[44] Further, if (which was denied) there was misrepresentation, there was no loss arising. The Vincents received no less during occupation. The Council knew of the matter but did not take enforcement action. There is no credible evidence as to reduction in value on account of the misrepresentation. There being no damage, there was no entitlement to have the agreement set aside with monies repaid. There was, further, no proper basis for finding there could not be a specified departure from planning requirements

[45] As to a position involving wrongful repudiation, with misrepresentation discovered after repudiation, it was submitted remedy for the misrepresentation was not available in the light of Mercurius Ventures Limited v Waitakere City Council [1996] 2 NZLR 495. Contrary views expressed by Dugdale “Justifying Cancellation by Unadvanced Reasons” (1996) 2 NZBLQ 147 and in Donnelly v Westpac Banking Corporation Limited (1999) 6 NZBLC 102,781 Baragwanath J did not dictate otherwise.

[46] Further, the Judge erred in setting aside the agreement. The Judge’s actions in doing so was seen as partially based on Henjo’s case supra, which turned on Fair Trading legislation including a power to avoid ab initio, but even then only when restitutio in integrum was possible. It was inappropriate to apply that Fair Trading Act approach to a Contractual Remedies Act situation. Equally, it was wrong to consider the common law on setting aside instead of the Contractual Remedies Act 1979. Counsel complained orally, and at the forefront of her submissions, that the Judge “didn’t use the Contractual Remedies Act, he used the common law”.

[47] We turn to the attack on remedies.

[48] It was submitted the Judge considered any misrepresentation would “taint the whole matter” so that damages would be payable only to the Vincents. Counsel drew upon an exchange during the course of evidence by Mr Vincent, to that effect, said to have been carried through into paragraphs 49, 50 and 53 of the judgment. That approach was wrong. Damages for both must be assessed whether or not there was a misrepresentation. The Judge had not done so.

[49] The Judge had wrongly relied upon Lenart v Murray & Stuck Holdings Ltd supra which was distinguishable on its facts and did not establish authority to set aside.

[50] The submission then identified a “starting point” for damages under s10 for both parties. For the Vincents, the starting point was put as damages arising from the misrepresentation. The Vincents had not estimated a figure. For the Thompsons, the starting point was either an expectation loss by way of lost rentals as claimed

(less rents received after Thompsons went back in), or a reliance loss identified as interest on the Thompsons ongoing mortgage for 3 years put at $43,913. (The theory underlying the latter was that non receipt of $250,000 plus rentals due from the Vincents led to that ongoing indebtedness). In addition, the Thompsons were entitled to the $5,000 for damage done to the units as found. (The lost rentals component transmogrified into a balance purchase price component in final submission; see para [59] infra).

[51] From that starting point, the submission moved on to consider s9.

[52] “Setting aside” is put as not available under s9. Further, the parties, particularly the Thompsons, had altered their position as a result of the repudiation and it was not possible to set the contract aside—s9(6). Further, the order setting aside meant the Thompsons could not succeed in damages in relation to the Vincents’ breach of contract, the Vincents’ obligations having been cancelled. This was put as contrary to s9(3).

[53] The submission then turned in detail to s9(4) criteria. The Judge had referred to s9, but did not consider s9(4) other than in a “broad brush” way, and had not taken into account s9(4)(a)(b)(c) and (e) or other relevant matters.

[54] As to s9(4)(a) (terms of contract) the Judge had not taken into account that the agreement for sale and purchase of the business placed the risk of misdescription and planning matters on the Vincents. (The Settlement Memorandum had been silent regarding risk).

[55] As to s9(4)(b) (extent of ability to perform) the Vincents had repudiated, removed the chattels, and disabled continued business. The Vincents could not pay the $250,000 due. The Thompsons, in contrast, were willing to do work required but needed the Vincents’ money to do so.

[56] As to s9(4)(c) (expenditure incurred) the Vincents had paid over $210,000. The Thompsons, having already completed the motel units, completed the restaurant and kitchen.

[57] As to s9(4)(e) (advantages obtained by one because of the other) the Vincents had received revenue but had not paid rent due under the Memorandum of Settlement. The business was valued by Vincents’ own accountant in December 1989 as worth $550,000, but the Vincents were paying only $400,000.

[58] Other matters which should have been taken into account by the Judge in relation to s9(4) included (i) non payment by the Vincents of rent causing financial difficulties to the Thompsons (ii) as the Judge found, the Vincents did not intend to perform the contract at the time they vacated (iii) the Vincents deliberately damaged the motel, knowingly leaving it inoperable, and reduced the value of the motel and chattels. On the other hand, acrimony and bad behaviour, which the Judge may have taken into account, were irrelevant unless such caused loss.

[59] Counsel for the Thompsons reformulated the Thompsons’ own damages claim as follows:

$ $

Balance contract price: 450,000

Less received 200,000

Balance chattels 71,757.55 271,757.55

178,242.45

Interest payments on the Thompsons’ mortgage

to 31 March 1991 30,360.00

to 31 March 1992 13,553.00 43,913.00

Damage to premises as found 5,000.00 227,155.45

plus interest and costs.

Respondent Vincents’ submissions

[60] There is no cross-appeal, but counsel for the Vincents made a point of placing on record (for what it may be worth) that the Vincents did not, and do not, accept that they repudiated the contract. Their preferred version is they left out of fear due to Mr Thompson’s threats.

[61] As to misrepresentation, the Vincents support the Judge’s findings. On the facts, it was represented as a 22-24 unit motel. That is to be taken, it is said, as a representation 22-24 units lawfully could be let. The Judge’s decision is put as one of fact turning on credibility which should not be disturbed. The representations were at best only half-truths. While the Judge refrained from any finding on the point, the representations as made did impose a duty of disclosure. Henjo’s case supra is put as applicable. As conceded for the Thompsons, there is a duty to disclose where silence materially distorts a positive representation. Deverick v Hedley supra relates to the sale of land and is irrelevant.

[62] There is no room, it is submitted, for distinction between the effects of silence or of a half-truth as between cases under the Fair Trading Act involving misleading or deceptive conduct, and under the Contractual Remedies Act involving misrepresentation. Counsel cited extensively in support. It suffices to note Unilever NZ Limited v Cerebos Gregg’s Ltd (1994) 6 TCLR 187 at 192; Jennings v Zilahi- Kiss [1972] 2 SASR 493 at 508; Demogogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 110 ALR 608 at 618; Burrows Update on Contract NZLS Seminar October-November 1999, 42; State Bank of NSW v Fanny’s Properties Pty Ltd (unreported decision of the Supreme Court of New South Wales in 014198/91, 6 October 1999, 1999 NSW Lexis 682); and Lenart & Anor. v. Murray & Stuck Holdings Ltd supra.

[63] There is no room, it was submitted, for assertion that there was planning approval for the sale of 24 units. Mr Thompson admitted the contrary in cross- examination.

[64] Turning to the ability of the Vincents to claim a remedy for misrepresentations not known at the time of repudiation, counsel set against Mercurius Ventures Limited v Waitakere City Council supra the reasoning of Dugdale op. cit. supra, the views of Dawson and McLauchlan op. cit. 85 that the contrary common law position continues; and most importantly Donnelly v Westpac Banking Corporation Limited (1999) 6 NZBLC 102,781 at 102,793-4. Mercurius Ventures, moreover, is put as distinguishable because it was not the Vincents who cancelled, but the Thompsons, even though the latter were at the time unable to

perform the contract. Mercurius Ventures also recognised, it was said, that a remedy in damages could be available for a subsequently discovered misrepresentation.

[65] Submissions added that the Thompsons were never in a position to be able to complete settlement. Work remained undone. How, it was asked, could the Thompsons seek to enforce a contract on which they were in default, quite apart from misrepresentation matters?

[66] On the topic of damages for the Thompsons, submissions for the Vincents accepted the $5,000 finding. Other relief sought was put as not sustainable in view of findings made as to misrepresentation, and the inability of the Thompsons to complete their contract. There is no justification for the Thompsons being awarded the balance of the contract sum: the contract was to sell a 22-24 unit business which could not be delivered. It would disregard the effect of the misrepresentation. It would hold the Vincents to a deal to which they had not agreed. It also failed to take into account the cost of the work the Thompsons would have been obliged to carry out to comply.

[67] As to the Vincents’ remedies under s9, ss9 and 10 were put as giving the Court a wide discretion. The Judge, it was submitted, did apply the sections and did take into account all relevant matters. The Court has power under s9 to make just and practicable orders in favour of one party even though it is the other party who cancelled. The approach taken was in accordance with authority and produced a fair and just result. In essence, the judgment left the parties substantially in the position in which they would have been if the misrepresentation had not been made. The Thompsons had the motels intact, or, at date of hearing, the sale proceeds. The Vincents had lost all. They would not have purchased but for the misrepresentation. They did not get what they bargained for. There was no real dispute at hearing that the money they expended, as found, was the money they lost. The Judge had not departed from principles laid down in Newman Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68.

Misrepresentation

[68] The Judge’s finding of misrepresentation plainly is correct.

[69] Pre-contract representations, as pleaded, stated in unqualified terms there were 22-24 units, or simply 24 units. Included within those representations was a mortgage valuation, shown to the Vincents before they signed, which said “Town planning personnel employed by the Franklin County Council indicated that the subject development was subject to successful Past Conditional Use application”. These, in the context of a sale of a motel business, carried a clear implication not just of the actual numbers of units, but that such numbers lawfully could be used. It hardly would be read as stating “there are 24 units, but not all can be used lawfully”. The assertion of a numbers-only representation is unreal.

[70] We leave open the question whether, in absolute terms, this was a situation of duty to speak. If the vendors had said nothing whatsoever as to unit numbers, caveat emptor principles might apply. The present was not a case of complete silence. Nor was it a contract uberrima vides. It was, quite simply, a situation of half-truth, silence as to the other half rendering what was said deceptive. It was a half-truth to say the complex had 22-24 units without going on to say there was planning consent for only 12 of that number. There was, as the point sometimes is put, a “material distortion”. A half-truth is an untruth. What was said was wrong.

[71] The case is not on all fours with Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd supra. Henjo’s case turned upon characterisation of conduct as misleading or deceptive in trade within the Australian Fair Trading legislation. The category of misleading or deceptive conduct in trade arguably is wider than contractual misrepresentation. However, there remains a close analogy. In Henjo’s case it was held to be misleading or deceptive conduct to state that a restaurant could seat 128 persons when, although such physically was possible, the lawful entitlement was to seat no more than 84. That misleading or deceptive character ascribed to that statement fits easily with characterisation of the numbers given in the present case as

a misrepresentation. The Australian approach is a common sense one. It is common sense which can find equal application here.

[72] Appellants are correct that the Thompsons’ state of mind in relation to the representation—fraudulent, negligent, or otherwise—is not relevant in light of s6. The Judge’s finding that Mr Thompson “well knew” what he said was wrong is not relevant to the existence or absence of misrepresentation (although not entirely irrelevant to other discretionary matters such as interest and costs). However, the superfluous nature of that particular finding does not in any way undercut the overall finding of misrepresentation.

[73] The Thompsons are not relieved from their misrepresentation by the public availability (through the local Authority) of information that the planning permission extended to no more than 12 units. When the Thompsons stated from a position of apparent knowledge that there were 22-24 units, and by implication 22-24 lawful units, the Vincents as purchasers were entitled if they chose to rely upon that representation. While such may not have been entirely wise, they were not obligated at law to treat it as unreliable and to make further inquiry. Moreover, it was a continuing representation, in force and on the Judge’s findings highly influential at the point in time of the crucial Settlement Memorandum. The latter contained no terms requiring further inquiry or limiting liability. The Thompsons were fixed with the untruths which had been stated to assist procuring sale.

[74] It is not relevant to the existence or otherwise of a misrepresentation whether any loss was occasioned. Even if the Vincents received, pro temps, the same turnover as would have been received from 24 lawful units while they were in occupation, there were not 24 lawful units, and the loss claimed is not loss of income. It is compensation for capital expenditure on a complex which, in the absence of the misrepresentation, would not have been purchased, and which now has been lost.

[75] As stated, we are satisfied there was a misrepresentation as pleaded. The Judge found such induced the contract and the Settlement Memorandum. Given the advantages possessed by a trial Judge in the area of inducement, we are not disposed

to differ. We are even less so disposed given the finding that a 12 unit complex would have been uneconomic.

The Thompsons’ claim

[76] As the Judge found, the Vincents repudiated. On an objective approach, their actions such as leaving the motel, disconnecting telephones, removing fittings and chattels, causing damage of a type which prevented immediate motel use, plus non payment of rent, point clearly in that direction. The only contrary indication appears to have been the retention (or at least non delivery) of the keys, and a statement in their solicitor’s letter they would be prepared to return “when problems were resolved”. The Judge construed the latter as implying they would not return unless arrangements were varied to suit their own purposes. That, in turn, was regarded as a refusal to continue under the existing contractual arrangements. Objectively, those interpretations were open. Subjective reservations, if held at all, do not assist the Vincents. There was, at law, a repudiation of the Settlement Memorandum and associated arrangements.

[77] While the concept of “repudiation” derives from the common law, the consequences which follow are to be determined within the framework of the Contractual Remedies Act 1979. The contract remained alive, notwithstanding repudiation, until cancelled by a party entitled to do so.

[78] There is no doubt for the purposes of this case that the Thompsons cancelled. The Thompsons’ solicitor’s letter dated 9 April is clear in its terms. The pleadings leave something to be desired. The Thompsons plead that they, the Thompsons, cancelled. The Vincents’ general defence denies the Thompsons cancelled; but the Vincents’ affirmative defences of misrepresentation and implied term positively allege the Thompsons cancelled. With this case, turning as it has upon the misrepresentation element, cancellation by the Thompsons must be taken as accepted. There is no room for an allegation of implied cancellation by the Vincents themselves. Ignoring the theoretical possibility of contemporaneity, there cannot be more than one cancellation.

[79] From that point, the contract was discharged as to further performance, without affecting previous divestments, or obligations accrued but not discharged, or rights to damages.

[80] Prima facie, the Thompsons were entitled to damages in respect of the Vincents’ breach by repudiation. In the light of the ultimate formulation of the Thompsons’ claim it is not necessary to go into questions of antecedent breaches. The Thompsons’ prayer for relief does not include any application for relief under s9. Submissions for the Thompsons took damages under s10 as the “starting point”, and referred only indirectly to possibilities under s9.

[81] There is, however, the somewhat unusual complication of the misrepresentation by the Thompsons, unknown to the Vincents at the time of repudiation by the Vincents, but becoming known to the Vincents shortly afterwards and well before trial. Does that complication affect the Thompsons’ prima facie ability to recover damages for the Vincents’ breach through repudiation?

[82] It would have been a barrier to the Thompsons at common law: Pearce v Stevens [1904] NZGazLawRp 147; (1904) 24 NZLR 357 CA, and Universal Cargo Carriers Corp v Citati (1957) 2 QB 401, 447. A rescission for inadequate reasons could be justified at common law by the subsequent discovery and invocation, at least before trial, of adequate reasons.

[83] The position under the Contractual Remedies Act 1979 is more controversial. There is a division in the High Court between Mercurius Ventures Limited v Waitakere City Council [1996] 2 NZLR 495 and Donnelly v Westpac Banking Corporation Limited (1999) 6 NZBLC 99-470; 102,781.

[84] In the Mercurius case, the Court noted differences between the common law and the statute insofar as under the statute an order could be made pursuant to s9(2)(c) that a representee perform contractual obligations; and that under the statute cancellation operates from the time of communication and not ab initio. For those reasons, and because the statute “is intended to sweep away the historical jurisprudence”, a subsequently discovered misrepresentation was not regarded as

excusing repudiation. Remedy for the subsequently discovered misrepresentation was regarded as lying only in damages. Mercurius appears to have been followed in the High Court in DSG (Pte) Limited v TPF Restaurants Limited (unreported, HC Auckland, 3 December 1997 CP198/96 Giles J). Subsequently in Donnelly’s case a different Court gave less weight to the implications of s9(2)(c), regarding s9 as ancillary to s7 and not as controlling s7. The Court also viewed as erroneous the implication in Mercurius that a cancelling party must provide justified grounds to achieve an effective cancellation. Adopting views expressed by Mr D F Dugdale “Justifying Cancellation by Unadvanced Reasons” (1996) 2 NZBLQ 147, 149, such was thought not to be the case. The requirements of s7 were viewed as objective, not requiring any reasons, let alone accurate reasons, as a condition of efficacy. The Court was not prepared to introduce limitations which Parliament had not seen fit to impose, particularly when the common law had operated satisfactorily for many years and the effect of the change would be to introduce unfairness.

[85] For completeness we note academic comment in Dawson and McLauchlan on “The Contractual Remedies Act 1979” (1981) 81-85, and in Burrows Finn & Todd “Law of Contract in New Zealand” (1997), but both are dated.

[86] We prefer the later analysis and outcome in Donnelly. It is true there are differences between the positions prevailing at common law and under the Act as noted in Mercurius, but those differences do not obviously dictate an overriding of the previous common law. It is only partly true that the Act “sweeps away” the previous common law. In significant areas it builds upon it, as can be seen by the continued use of common law concepts such as “misrepresentation” “repudiation” and “inducement”. We think it is unlikely Parliament saw a need to “sweep away” a rule entrenched in this country as long ago as 1904 when (in distinction to some other developments) that rule had worked satisfactorily.

[87] The same view can indeed be reached more simply on a basis of fairness and probable Parliamentary intentions. Why should a party which, by the time of trial, can demonstrate it was entitled to cancel, nevertheless be held to have acted wrongfully in doing so because it was unaware of that position at the earlier time? That question can be asked with particular force given that there is no requirement to

state, at the time of cancellation, the reasons for doing so. Revelation is not required before pleadings in proceedings issued, and some might say before the trial itself. It is not a situation where reasons must be given at outset with reliance likely to follow. Parliament is not likely to have intended such a curiosity.

[88] The judgment in Mercurius is overruled on this point.

[89] It follows that in answer to the Thompsons’ claim for damages arising out of the Vincents’ repudiation the Vincents are entitled to justify their repudiation on the basis of the Thompsons’ previous misrepresentation. As discussed, that misrepresentation induced both the original contract and (more relevantly) the Settlement Memorandum.

[90] There is no doubt the Vincents, if necessary, could have established essentiality within s7(4)(a) and established each of the factors in s7(4)(b) so as to permit an effective cancellation. The Thompsons cancelled, ending future performance obligations. The absence of cancellation by the Vincents is not a logically relevant factor.

[91] We have some doubts as to the Judge’s invocation of Lenart & Anor v Murray & Stuck Holdings Ltd supra. Lenart’s case, as the Judge indeed recognised, is on very different facts. It involved a plaintiff purchaser who discovered a misrepresentation prior to settlement. The purchaser did not cancel. He demanded corrective measures before settlement. The vendor wrongly declined to take those measures, and indeed made time of the essence and then purported to cancel. The purchaser did not accept that purported cancellation, and brought proceedings for specific performance. Jeffries J upheld the purchaser, ruling in the terms quoted by the Judge. It was a case seeking specific performance of a contract which had not been validly cancelled. The present is a case seeking damages on a contract accepted as validly cancelled. Beyond its general recognition that a party should not take advantage of that party’s own wrong, it does not much assist.

[92] Apart from the damage done to premises (assessed at an uncontested $5,000), distinguishable as damage done to property rights, the Thompsons’ claim as

ultimately formulated is for damages based on the Vincents’ repudiation. The Vincents were entitled to repudiate. The Thompsons’ monetary claim (except for the uncontested $5,000) cannot succeed. We come later to the relatively less important matter of the Judge’s order “setting aside” the agreements.

The Vincents’ counterclaim

[93] As a preliminary matter, we put to one side the Judge’s reference to the common law rule that a settlement entered into under a misrepresentation is not binding and can be “set aside”. That is correct as far as it goes, but the present case in its termination aspects is to be considered under the Contractual Remedies Act, and not under common law. The only value in the point is that it confirms there is no reason to treat settlement agreements as different from other contracts.

[94] As noted, the Thompsons misrepresented; in consequence the Vincents were entitled to repudiate on that ground, although not then aware of that right; the Vincents did repudiate in any event; and the Thompsons cancelled on account of that repudiation.

[95] The Vincents’ counterclaim as pleaded sought both damages and relief under s9, but as ultimately formulated sought only the latter. As so formulated, it sought payment under s9 of a sum equivalent to the Vincents’ capital inputs into the business.

[96] It is not significant that it was the Thompsons who cancelled. Section 9 empowers a Court to grant relief to both sides of a transaction, not merely to the side which exercised rights to cancel.

[97] The Judge noted that but for the misrepresentation the Vincents would not have spent a cent on the motel, and noted indeed that because of the misrepresentation the Vincents had “spent a lot of time” trying to “make a go” of a non viable proposition. In that light, the Judge resolved s9 relief for the Vincents by inquiring how much they had put into the venture “as far as capital sums were concerned”. The answer which the Judge accepted was $315,500, plus another

estimated $10,000 expended in legal fees on the transactions concerned. That, described also as “the sum expended by the Vincents”, was the sum awarded under s9.

[98] Relief under s9 is of course discretionary. The criteria for grant of relief are whether it would be “just and practicable”. In reaching its view on those criteria the Court is to have regard to matters listed in s9(4), plus where relevant s9(5) and (6) controls. The decision being a discretionary one, this Court will not differ on appeal unless satisfied the Court below has operated on a wrong principle, or its decision is plainly wrong.

[99] The Judge, unsurprisingly, referred to s9, and indeed to s9(4); but did so without express analysis of factors listed for consideration in the latter. It has been submitted the Judge applied a simple “broad brush” approach without paying the required regard to s9(4) considerations, and that such considerations point to a different outcome. We do not think the latter is so.

[100] As an opening point, there can be no dispute as to practicability. The orders envisaged can be made and implemented without difficulty, or without any more difficulty than is inherent in money judgments. (Solvency is a different consideration).

[101] The question reduces to one as to justice; a question which commonly involves a weighing of considerations on both sides.

[102] In the area of overall justice, the Thompsons’ misrepresentations led the Vincents into outlaying a considerable capital sum which they would not have outlaid if they had not been so misled. The Vincents ultimately handed the business back to the Thompsons without material change (beyond Thompson-funded improvement) and a $5,000 adjustment for damage which the Vincents accept. That totality is a strong start towards an order for recoupment of the Vincents’ capital expenditure.

[103] As to s9(4)(a), the crucial Settlement Memorandum says nothing as to risk. There was no contractual waiver by the Vincents. As to s9(4)(b), assertions the Thompsons could not complete works required because the Vincents did not pay has a certain pot and kettle quality: the Vincents assert they could not pay the $250,000 under the instrument by way of security because the Thompsons did not carry out the work required. As the Judge found, on the relevant question attribution of fault is difficult. As to s9(4)(c), it is correct each side made certain expenditures. The Thompsons, after cancellation, still have the benefit of the expenditures they made. As to s9(4)(e), it is correct the Vincents received revenues but did not pay rent. The Judge found also, however, that the Vincents put a “lot of time” into attempting to establish and run a business which was not as represented and had no future. As to the asserted “other matters”, we are not persuaded damage caused when vacating was deliberately designed to render the motel inoperable, as opposed to being a consequence which followed from steps taken. This is not a vandalism case. We are satisfied acrimony, with neither side innocent, was not a matter taken into account by the Judge.

[104] There is some strength in Appellant’s submission that the Judge’s approach was “broad-brush”. Certainly, the Judge did not descend to detail. However, even after further analysis there is no reason to view the Judge’s approach and ultimate conclusion as involving error in principle or as plainly wrong.

[105] We see no ground for applying s9(5) relating to non parties, or s9(6) relating to alteration of position. The Judge evidently thought not, and there is nothing in the findings made which would warrant restrictive approaches along those lines.

[106] It follows the Judge’s decision on monetary relief under s9 in favour of the Vincents should not be disturbed.

The “setting aside”

[107] Immediately prior to pronouncing a net money judgment in favour of the Vincents, the Judge stated “the contracts between the parties are therefore set aside”. We do not know where this “setting aside” came from. No relief in those terms was

sought in the pleadings. It is a form of relief available at common law, as the Judge had previously noted, generally involving rescission ab initio. The Judge may have been influenced by that historical ability, or possibly Jeffries J’s actions in setting aside settlement and cancellation notices (as opposed to the underlying contract there in issue, which indeed was upheld), or by the exercise of that power conferred within a different statute in Henjo’s case. Possibly, the Judge was intending to give effect to the Vincents’ counterclaim prayer for a declaration the Settlement Agreement was cancelled, and a slip of the tongue occurred. Whatever the underlying reason, it was a power beyond the Judge. The Contractual Remedies Act, with its specific and careful provisions relating to cancellation, overtakes the previous common law power to “set aside”.

[108] But for a yet further complication, it would be necessary to allow the appeal to that limited extent. Allowance to that degree would not have significant repercussions. There is no doubt the contract was cancelled as from 9 April 1970. The Judge was not relying on setting aside with ab initio operation in ruling the Thompsons were without remedy.

[109] The complication is that the judgment as sealed on 8 May 2000 by solicitors for the Respondents is merely a money judgment, with no reference to the “setting aside”. (That judgment as sealed was erroneously omitted from the casebooks filed). That may be an error in itself. However, that sealed judgment is the judgment from which the appeal is brought, and constitutes the ultimate orders which have effect and which can be reviewed in this Court.

[110] In that light, while noting that the direction to “set aside” was erroneous, we make no further order on appeal in that respect.

Outcome : Orders

[111] (1) The appeal is dismissed.

(2) Respondents will have costs in this Court of $5000 together with disbursements including the reasonable travel and accommodation expenses of counsel as agreed or otherwise as fixed by the Registrar.

Solicitors

Rae Nield, Auckland, for Appellant Jensen Waymouth, Taupo, for Respondent