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Court of Appeal of New ZealandLast Updated: 21 September 2010
IN THE COURT OF APPEAL OF NEW ZEALAND
CA762/2009[2010] NZCA 416
BETWEEN CLIFFORD HUMPHRIES AND DOREEN HUMPHRIES AS
TRUSTEES OF THE C AND D HUMPHRIES FAMILY TRUST
Appellants
AND MARTIN PHILLIP EDINBOROUGH AND SHARON MARGARET
EDINBOROUGH AS TRUSTEES OF THE EDINBOROUGH FAMILY TRUST
Respondents
Hearing: 22 June 2010
Court: William Young P, Heath and Allan JJ
Counsel: K G Davenport for Appellants
D R Tobin for Respondents
Judgment: 15 September 2010 at 11 am
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JUDGMENT OF THE COURT
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REASONS OF THE COURT
(Given by Allan J)
[1] The Nautilus is a multi-storey apartment complex situated on the beach at Orewa. Mr and Mrs Humphries (the vendors) are the owners of apartment 408.
[2] In September 2008 they entered into an agreement to sell the apartment to Mr and Mrs Edinborough (the purchasers). Settlement was due to take place on 5 February 2009.
[3] On 28 January 2009 the purchasers, via their solicitors, gave notice of cancellation on the basis of an alleged pre-contractual misrepresentation as to weathertightness made by Ms Adams, a real estate agent instructed by the vendors. The vendors did not accept the purported cancellation. They issued proceedings in the High Court and applied by way of summary judgment for a decree of specific performance. In a judgment delivered on 13 November 2009 Associate Judge Sargisson dismissed the application.[1] The vendors now appeal against that decision.
Summary judgment principles
[4] Rule 12.2 of the High Court Rules provides:
Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular cause of action.
(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.
[5] A useful synopsis of the Court’s approach to summary judgment applications, which although decided under the old High Court Rules is still applicable, appears in the judgment of this Court in Jowada Holdings Ltd v Cullen Investments Ltd:[2]
In order to obtain summary judgment under Rule 136 of the High Court Rules a plaintiff must satisfy the Court that the defendant has no defence to its claim. In essence, the Court must be persuaded that on the material before the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant. Once the plaintiff has established a prima facie case, if the defence raises questions of fact, on which the Court’s decision may turn, summary judgment will usually be inappropriate. That is particularly so if resolution of such matters depends on the assessment by the Court of credibility or reliability of witnesses. On the other hand, where despite the differences on certain factual matters the lack of a tenable defence is plain on the material before the Court, to the extent that the Court is sure on the point, summary judgment will in general be entered. That will be the case even if legal arguments must be ruled on to reach the decision. Once the Court has been satisfied there is no defence Rule 136 confers a discretion to refuse summary judgment. The general purpose of the Rules however is the just, speedy, and inexpensive determination of proceedings, and if there are no circumstances suggesting summary judgment might cause injustice, the application will invariably be granted. All these principles emerge from well known decisions of the Court including Pemberton v Chappell (1987) NZLR 1, 3-4, 5; National Bank of New Zealand Ltd v Loomes (1989) 2 PRNZ 211, 214; and Sudfeldt v UDC Finance Ltd [1987] NZCA 138; (1987) 1 PRNZ 205, 209.
[6] In some cases it will be necessary for the Court to engage in a robust examination of certain factual contentions appearing in the affidavits. The Court is not bound to accept uncritically every factual assertion, however lacking in apparent credibility it may be: see Eng Mee Yong v Letchumanan[3] and Lindale Financial Services Ltd v Colonial Mutual Life Assurance Society Ltd.[4] That consideration does not arise in the present case because counsel for the vendors accepts (as she did in the High Court) that for summary judgment purposes, the argument must proceed on the basis that the vendors’ agent, Ms Adams, did in fact make the representations alleged by the purchasers.
The issue for determination
[7] The argument for the vendors is that Ms Adams’ representations to the purchasers could not reasonably have been construed by them (as they allegedly were) as an open and unconditional guarantee of the weathertightness of the Nautilus complex. Rather, counsel for the vendors maintains, they amounted to nothing more than a statement that, to Ms Adams’ knowledge, there were no such problems with the building, and they ought to have been understood in that way by the purchasers.
[8] Mr Tobin for the purchasers contends that the alleged representations were plainly statements of fact upon which the purchasers were entitled to rely and which, if not true, entitled them to cancel.
[9] By virtue of ss 7(3)(a) and 7(4)(b) of the Contractual Remedies Act 1979, a party who has been induced to enter into a contract by a misrepresentation may exercise the right to cancel if the effect of the misrepresentation substantially reduces the benefit of the contract to the cancelling party. Assuming the alleged representations were made, were incorrect and were relevantly relied on, no issue was raised for summary judgment purposes about whether the right to cancel could be triggered.
Factual background
[10] The Nautilus apartments were completed in or about 2003. The vendors purchased their apartment from the plans. In 2008 they decided to move to Australia where they have lived since January 2009. The apartment was placed on the market. It came to the attention of the purchasers, who at the time were renting apartment 1211. They had been interested in purchasing a property in or near Orewa. They approached Ms Adams from Bayleys Real Estate in Orewa, knowing that she had been responsible for a large number of sales within the Nautilus Apartment complex, both initially from the plans and later when original owners sold their apartments. Her familiarity with the Nautilus Apartments was mentioned in her profile on Bayleys’ website. The vendors contacted Ms Adams and dealt exclusively with her thereafter. The vendors and the purchasers never met.
[11] The purchasers inspected the apartment on the afternoon of 8 September 2008. Mr Edinborough says that Ms Adams told the purchasers that she had been one of the sales agents for the developer of the Nautilus, and knew the block “inside and out”, having sold at one time or another nearly every apartment. The purchasers looked at both apartment 408 and other apartments by way of comparison.
[12] They met Ms Adams again on the evening of the following day, 9 September 2008, in apartment 1211. Their purpose at that time was to finalise an offer for the purchase of apartment 408. Mr Edinborough says that the purchasers and Ms Adams sat around the dining room table and discussed such matters as the purchase price to be offered, the need for bank finance and the possibility of a delayed settlement.
[13] The discussion turned to the weathertightness of apartment 408 in particular, and of the Nautilus complex in general. Mr Edinborough says:
We did that because I suffer from asthma and it would not suit us to have a damp or cold apartment. Further, like many people, we were alarmed by the reports that seemed to regularly appear in the media of leaky homes and the problems that they caused.
We did not want to buy into those problems.
I believe I phrased the questions so that Ms Adams had the opportunity to check with the vendors and/or the Body Corporate if required. As it was Ms Adams responded to our questions immediately.
The first question I asked was does apartment 408 have any water leaks or weathertightness problems.
Ms Adams promptly responded in the negative.
My next question was did the Nautilus building have any leaks at all or any weathertightness issues.
Again Ms Adams unequivocally answered in the negative.
She went on to state further that:
The building was built after the leaky homes era and all the problems were sorted out by the time it was built.
...
It is a concrete building and concrete buildings do not leak. It [the building] has no issues and is well constructed.
At this point my wife asked a further question, which was, is there anything in the future that will have any impact on the current Body Corporate charges?
Ms Adams again replied in the negative and went on to say:
No, the only things that are likely to cause a rise in the Body Corporate charges are, for instance, the spa pool motor blowing up, the carpark doors needing replacing, or something similar. That is the only reason I can see there being an increase of Body Corporate charges.
She went on to reiterate that it was a concrete building and that concrete buildings do not have problems.
We discussed with Ms Adams inserting a building inspection report clause. She vigorously argued against it, telling us that such a report:
... it is a waste of time, and they won’t find anything wrong, it is a concrete building and concrete buildings do not leak or rot. The building is well built, secure, and dry.
Ms Adams went on to tell us that we would also be wasting our money getting a LIM report as the building has been signed off and has all relevant code compliance certificates. She also told us that the plaintiffs had other interested purchasers and that they would not entertain an agreement with too many conditions.
[14] Mr Humphries says that on the basis of Ms Adams’ advice, the purchasers decided to go ahead. They signed an agreement for sale and purchase form which contained a solicitor’s approval clause and made provision for a LIM report. There was also a condition as to finance. Following negotiations and an amendment to the price, the vendors signed the agreement. The purchasers made the contract unconditional on 30 September 2008.
[15] Subsequently, the purchasers became apprehensive about weathertightness issues. A number of apartment owners told them that the building had substantial weathertightness problems and that there were numerous leaks. They obtained copies of minutes of meetings of the Body Corporate dated 21 April 2008 and 24 November 2008. The earlier minutes noted leaking problems in four apartments and in the third level carpark. The later minutes reported that the owners of additional units had reported water ingress into their apartments.
[16] The minutes of the November meeting referred also to the receipt of a report from Prendos, weathertightness specialists, dated 9 October 2008. It identified large scale weathertightness problems characterised as “global issues”. One recent estimate has suggested that the cost of all outstanding remedial work is likely to reach $19 million.
[17] The purchasers met with their solicitors. They had become greatly concerned at the state of the building and considered they had entered into the agreement based on “fundamental misrepresentations as to the weathertightness of the apartment and complex”. They instructed their solicitors to take steps to cancel the agreement, which the solicitors did by way of a letter dated 28 January 2009.
[18] The vendors served a settlement notice on 18 February 2009 but the purchasers declined to settle. The vendors thereafter commenced proceedings in the High Court.
[19] It subsequently emerged that apartment 408 itself has had a history of leaking problems (albeit not especially serious ones) and that indeed on 5 September 2008 (that is, four days prior to Ms Adams’ representations) Mr Humphries wrote to the building manager Mr Plummer, advising that:
We have had a leak in our apartment on and off everysince [sic] we moved in in 2004. Steve Smith did manage to fix it temporarily but it is now leaking again.
The High Court judgment
[20] Before Associate Judge Sargisson, Ms Davenport submitted for the vendors that:
- Ms Adams’ alleged statements could amount to actionable misrepresentations only where the existence of a weathertightness problem could be established as a known fact at the time the statements were made;
- no member of the Body Corporate knew that the Nautilus had serious problems (as opposed to relatively minor leaks) until Prendos had provided its report to the Body Corporate committee on 23 October 2008;
- the belief of members of the Body Corporate that any problems were minor, prior to receipt of the Prendos report, is evidenced by the decision at the AGM of the Body Corporate on 21 April 2008 to refrain from obtaining a detailed report at that time; and
- the acknowledged leak in apartment 408 was too minor to affect the outcome.
[21] The Associate Judge rejected that argument. She noted that, to be actionable, a misrepresentation must be a statement that relates to or implies some existing fact or some past event:[5] and further, that where an innocent misrepresentation is relied upon, the subjective state of mind of the representor is irrelevant. She continued:
[25] I therefore accept Mr Tobin’s submission that for the purpose of determining whether the Edinboroughs have a defence based on the misrepresentations as pleaded, it matters not what Ms Adams or the Humphries may have believed when Ms Adams is alleged to have represented that the apartment did not have a problem with leaks and the Nautilus did not have weathertightness issues. What matters is whether or not the existence of a problem with leaks or weathertightness was said not to exist and whether, if indeed said, the statements were true or untrue when they were made.
[26] Whether or not the apartment did have a problem with leaks and whether the Nautilus had weathertightness issues is a matter of fact, and whether or not that fact can be established is not a matter of the subjective belief held by individual owners or the Body Corporate committee, but a matter to be established objectively on the available evidence. No doubt if the case goes to trial there would be objective expert assessments of the condition of the Nautilus at the time the statements are said to have been made, as there was in La Grouw v Cairns (2004) 5 NZCPR 434 where damages were allowed for the cost of curing the leaks where there was a misrepresentation that a house did not leak.
[27] In the meantime it is not appropriate, given the nature of the current application, for the Court to determine the existence or otherwise of a leaking problem or weathertightness problems at the time of the representation. What is important is whether there is sufficient evidence to indicate the possibility that the Humphries Trust’s apartment and the Nautilus did in fact suffer significant leaking problems by 9 September when the statements were allegedly made. I am satisfied that the evidence is sufficient.
[22] The learned Associate Judge therefore concluded that it was clearly arguable that Ms Adams had misrepresented the position with respect to the weathertightness of the Nautilus complex. It followed, she held, given the concessions made for summary judgment purposes, that the purchasers had a tenable defence to an action for specific performance.
Discussion
[23] Before us, there was something of a change of emphasis in Ms Davenport’s argument. In the High Court the thrust of her case appears to have been that the purchasers could not show that prior to 9 September 2008 any member of the Body Corporate knew of the scale of the weathertightness problems afflicting the Nautilus. She argued in the High Court that that was fatal.
[24] In this Court, however, she argues that the key issue is whether the purchasers could reasonably construe Ms Adams’ representations as amounting to a weathertightness guarantee. She contends that, given widespread knowledge of weathertightness issues in respect of recently constructed apartment blocks, the Edinboroughs could not have expected an unconditional guarantee.
[25] Accepting for present purposes that Ms Adams had said to the purchasers what is alleged by them to have been conveyed, Ms Davenport says that no reasonable person would take the representation to mean more than that Ms Adams had no knowledge of any significant weathertightness problems in respect of the Nautilus.
[26] It is common ground that Ms Adams’ representations are to be considered in the sense in which the purchasers reasonably understood them. That accords with the usual objective approach of the law of contract: see Piggford v Tasman Orchards Co;[6] and the discussion in Burrows, Finn & Todd Law of Contract in New Zealand.[7]
[27] The issue for the Court is therefore whether the vendors have established a tenable case for the proposition that Ms Adams, when conveying her assurances about weathertightness issues in respect of the Nautilus apartments, was making an unqualified statement of fact as to the state of the Nautilus, rather than simply indicating that there were no known problems of significance.
[28] Mr Edinborough’s evidence (which is to be accepted as correct for present purposes) is of unequivocal assurances about the weathertight qualities of the Nautilus apartment complex as a matter of fact. We consider that a reasonable representee could so regard them. The various assurances must be considered together. Read in that way, it is evident that they tend to support one another. For example, the statement that “the building was built after the leaky homes era and all the problems were sorted out by the time it was built”, tends to convey as a matter of fact, that the building was constructed too recently to have been affected by the problems afflicting buildings dating from a slightly earlier time. It tends also to reinforce Ms Adams’ statement to the effect that the Nautilus is a concrete building and so does not leak or rot, coupled with her advice that it was a waste of time for the purchasers to obtain a building inspection report.
[29] We consider the purchasers were also entitled to regard Ms Adams’ assurances as representations of fact by reference to her experience in respect of the Nautilus complex. Mr Edinborough’s evidence is to the effect that Ms Adams made much of her knowledge of the building itself and of her great experience of it, gained by reason of the many sales she had made.
[30] Ms Davenport points out that Ms Adams was a real estate agent and not a building expert. She argues that the evidence does not suggest that Ms Adams held herself out as having any expertise in leaky buildings or weathertightness issues and so her expertise was not in fact greater than that of the purchasers.
[31] In our view that submission is not borne out by the evidence to which we have referred above. Whether or not Ms Adams had actual expertise is largely beside the point. If Mr Edinborough’s evidence is accepted at trial, then Ms Adams appears to have held herself out as an expert at least in respect of the Nautilus building, if not more widely.
[32] Ms Davenport further argues that Ms Adams’ assurances to the effect that the building “ ... has no issues ...” must be construed either as puffery or alternatively as a statement of opinion honestly held. As to that, it is sufficient to say that, at trial, all of Ms Adams’ alleged misrepresentations will need to be considered in context and as a whole. It is not possible in a summary judgment setting to dismiss what she is alleged to have said as mere puffery or as an honestly held opinion.
[33] The representation as to future Body Corporate fees is contended by Ms Davenport to be no more than a statement of belief in respect of future events, and so not actionable. But the representation ought properly to be seen as part and parcel of the overall assurances said to have been given by Ms Adams. It ought not to be read out of context. We consider the statement to be capable of conveying the assurance that, because there were no weathertightness problems, Body Corporate fees ought not to increase significantly.
[34] Finally, Ms Davenport argues that it was not reasonable for the purchasers to place reliance on what was said by Ms Adams. The purchasers were resident in the building at the time; they entered into an agreement subject to solicitor’s approval, yet they sought no building report of their own. On her argument, they ought to have done so. It was not reasonable for them to rely on assurances given by an agent who was in no position ever to give a guarantee as to weathertightness.
[35] The answer to that is that it was open to the parties and their agents to assume such obligations as they saw fit. On his evidence, Mr Edinborough’s intention was to secure absolute assurances as to the state of the building. It was open to Ms Adams to qualify what she said if she wished to restrict the legal implications of what she said, or indeed to decline to answer Mr Edinborough’s questions and so leave it to the purchasers to make their own inquiries before determining whether to purchase the apartment.
[36] There is something artificial about the exercise we have been required to carry out. At trial, the Judge will have to make findings of fact as to what was said by Ms Adams. It is far from inevitable that those will replicate exactly the narrative given by Mr Edinborough. In any event, the Judge will be in a position to assess the significance of what Ms Adams said within the context of the discussions as a whole and what the Judge makes of Mr Edinborough and Ms Adams as witnesses. In all of this, much may depend on nuance and emphasis. It may well be that the Judge will conclude that all Ms Adams was doing was passing on her own views, rather than making affirmative representations as to a particular state of affairs, in particular as to the building being weathertight. But given that we are required to assess the case for summary judgment purposes based simply on the narrative given by Mr Edinborough, it was never going to be easy for the vendors to persuade us that the language attributed to Ms Adams could not, arguably, justify cancellation.
[37] We are satisfied that the learned Associate Judge was correct to find that the purchasers had an arguable defence. There is at least a tenable argument that, if Ms Adams made the alleged representations, they were representations of fact, upon which the purchasers were entitled to rely. The proper forum for ultimate resolution of this dispute is at trial.
[38] For these reasons we think the Associate Judge was right to decline to enter summary judgment.
Application for leave to adduce new evidence
[39] The vendors sought, pursuant to r 45 of the Court of Appeal (Civil) Rules 2005, to adduce evidence in this Court from a Mr Plummer, who is the Body Corporate manager of the Nautilus complex. His evidence is directed at the history of the progressive discovery of weathertightness problems there, and appears to be intended to show that neither the Body Corporate nor any of its members was aware at the time of Ms Adams’ alleged representations of the scale of the weathertightness problems afflicting the building.
[40] We consider that the question of the knowledge of the Body Corporate and its owners of the extent of the problem is only tenuously connected, if at all, to the key issue in the case, namely whether there were problems in fact at the date of the representations. Given the outcome of the Prendos inspection conducted only a few weeks later, it would appear to be seriously arguable that significant problems did exist at the time of those representations.
[41] For the purposes of the issue we have been required to determine, Mr Plummer’s evidence is not therefore cogent. Neither is it fresh. There has been no sufficient explanation as to why the evidence was not filed in the High Court. In summary judgment cases finality is important. This Court will only allow further evidence on appeal in exceptional circumstances: see Lawrence v Bank of New Zealand.[8] Leave is accordingly refused.
Result
[42] For the foregoing reasons we uphold the decision of Associate Judge Sargisson and dismiss the appeal.
[43] The purchasers are entitled to costs calculated in accordance with Band A together with the usual disbursements.
Solicitors:
Sue Stodart Law office, Auckland for
Appellants
Home Transfer Centre, Auckland for Respondents
[1] Humphries v Edinborough HC Auckland CIV-2009-404-3735, 13 November 2009.
[2] Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [28].
[3] Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341.
[4] Lindale Financial Services Ltd v Colonial Mutual Life Assurance Society Ltd (1998) 12 PRNZ 320 (CA) at 324.
[5] Ware v Johnson [1984] 2 NZLR 518 (HC) at 537; Awaroa Holdings Ltd v Commercial Securities & Finance Ltd [1976] 1 NZLR 19 (SC) at 30.
[6] Piggford v Tasman Orchards Co [1924] NZLR 732 (CA) at 737.
[7] John Burrows,
Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed,
LexisNexis, Wellington, 2007) at
[11.2.4].
[8]
Lawrence v Bank of New Zealand [2001] NZCA 375; (2001) 16 PRNZ 207 (CA) at [18].
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