J B Aubin Realty Ltd v Hinton [2011] NZCA 465; [2011] ANZ ConvR 11-018 (16 September 2011)

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J B Aubin Realty Limited v Hinton [2011] NZCA 465 (16 September 2011)

Last Updated: 22 September 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA491/2009 [2011] NZCA 465

BETWEEN J B AUBIN REALTY LIMITED First Appellant

AND EDWIN ALEXANDER DONNITHORNE Second Appellant

AND RODGER CLARENCE HINTON AND RAEWYN JULIE HINTON First Respondents

AND SELWYN THOMAS SMITH AND NANCY LOIS SMITH Second Respondents

CA486/2009

AND BETWEEN SELWYN THOMAS SMITH AND NANCY LOIS SMITH Appellants

AND RODGER CLARENCE HINTON AND RAEWYN JULIE HINTON First Respondents

AND J B AUBIN REALTY LIMITED Second Respondent

AND EDWIN ALEXANDER DONNITHORNE Third Respondent

Hearing: 1 June 2011

Court: Ellen France, Harrison and Wild JJ

Counsel: S R J Hamilton for First and Second Appellants in CA491/2009 and Second and Third Respondents in CA486/2009 S L Robertson for First Respondents in CA491/2009 and CA486/2009 M D Branch and K A Lomas for Second Respondents in CA491/2009 and Appellants in CA486/2009

Judgment: 16 September 2011 at 2.30 pm

JUDGMENT OF THE COURT

1. The appeals are dismissed.
2. The Hintons are entitled to costs in the High Court, to be fixed by that Court if agreement cannot be reached.

100. The appellants in CA491/2009 and CA486/2009 must pay the Hintons costs in this Court for a standard appeal on a band A basis and usual disbursements in the following proportions: the agents 65 per cent and the Smiths 35 per cent.
     

REASONS OF THE COURT
(Given by Ellen France J)

Table of Contents

Para No.

Introduction [1]
The issues [6]
Factual background [9]
The pleadings [20]
The High Court judgment [27]
Was there reliance? [35]
Reasonableness of reliance [45]
Apportionment of responsibility [55]
A full indemnity for the Smiths? [56]
The approach to the apportionment of responsibility [71]
Result [79]
Costs [80]

Introduction

[1] After his retirement as a race horse trainer in 2005, Rodger Hinton and his wife, Raewyn, (the Hintons) sold their property in Ruakaka and purchased land in Pukekohe. They began looking for an investment property. Through a neighbour, Mr Hinton became aware that two units in the Twin Peaks Motel complex in Taupo were for sale. The units were both owned by Selwyn and Nancy Smith (the Smiths). The real estate agency acting for the Smiths on the sale was J B Aubin Realty Limited (Aubin). Edwin (Eddie) Donnithorne was Aubin’s real estate agent who negotiated the eventual agreement between the Hintons and the Smiths in relation to the two units.
[2] Throughout the relevant period the units have been owned by individual investors who obtain strata titles and become members of a body corporate. A management company, MontDore, receives the gross rentals paid by guests renting the units. MontDore’s fees comprise 15 per cent of gross rental received. In addition, MontDore recovers servicing expenses like cleaning, laundry and a charge for gas and electricity. The unit owners pay rates and body corporate levies.
[3] As part of the negotiations leading up to their purchase of the units, the Hintons sought and received some information about the rate of return on the units. Mrs Smith provided a handwritten note to Mr Donnithorne about the gross income and some of the costs. That note was provided to the Hintons. A little later, Mr Donnithorne provided the Hintons with a one-page handwritten document which indicated a 9.12 per cent per annum return on one unit and 8.48 per cent per annum on the other after various costs had been deducted.
[4] Soon after the purchase was complete, the Hintons discovered that when all the deductions made by MontDore were taken into account, the returns on each unit were about two per cent per annum. The Hintons brought proceedings seeking cancellation of the agreement for sale and purchase of the two units, compensation for losses and damages for loss of value. The Smiths, and Aubin and Mr Donnithorne (the agents), cross-claimed against each other.
[5] In the High Court, Dobson J ruled that the Hintons were entitled to cancel the contract on the ground that Mrs Smith’s handwritten note materially misrepresented the rate of return on the units.[1] The Judge ordered the Smiths to repurchase the units from the Hintons. Dobson J also awarded the Hintons damages being costs incurred in purchasing and owning the units. The Judge apportioned responsibility for the Hintons’ loss at 50 per cent for the agents, 35 per cent for the Smiths and 15 per cent for the Hintons for their own contributory negligence. The agents and the Smiths appeal. They do not challenge the Judge’s primary factual finding of misrepresentation. The agents’ appeal focuses on the findings about the Hintons’ reliance on the material they received from Mr Donnithorne and on the Judge’s approach to the apportionment of responsibility for the losses. The Smiths’ appeal relates primarily to the Judge’s apportionment of responsibility for loss as between the Smiths and the agents.

The issues

[6] We can address the appeals by dealing with the issues which the parties agree are those requiring determination, namely:

(a) Did the Hintons rely on Mr Donnithorne’s calculations in entering into the agreement for sale and purchase?

(b) Was it necessary to find that such reliance was reasonable? If so, was Dobson J correct in finding that such reliance was reasonable?

(c) Was the Judge’s apportionment of responsibility for the loss at 50 per cent for the agents, 35 per cent for the Smiths and 15 per cent for the Hintons correct? In particular:

(i) Are the Smiths entitled to a full indemnity from the agents?

(ii) Did Dobson J err in apportioning responsibility in these proportions?

[7] There was a further issue as to whether, having found the Hintons were entitled to cancel the agreement, the Judge was correct in ordering a revesting of the two units in the Smiths on repayment by them of the original purchase price of $300,000 plus apportionments. At the hearing, Mr Hamilton for the agents formally abandoned the ground of appeal reflected in this issue. That abandonment acknowledges that the property was re-transferred to the Smiths and has now been onsold to a third party.[2]
[8] Before discussing the issues, we need to say a little more about the factual background, and we then summarise the pleadings and the approach taken by Dobson J.

Factual background

[9] We do not repeat the detail of the factual background which is set out in the decision under appeal.[3] Rather, we focus on the key sequence of events and documents relevant to the issues on appeal.
[10] We begin with events early in 2007. At that time, it was agreed that Mr Donnithorne would market the two units for the Smiths. Mr Donnithorne sought information from the Smiths as to income for the units. There were apparently difficulties with the production of these figures because of Mrs Smith’s ill health. In March 2007, Mr Donnithorne talked to Mrs Smith on the telephone. As a result, Mrs Smith gave Mr Donnithorne a document. She had written on both sides of the document. On the front page, there was a list of figures under the heading “Income 2006”. What followed is illustrated by the figures for January and February 2006, namely:

Jan 2006 Unit 27 2360.00

" 24 1720.00

Feb 2006 Unit 27 2135.00

" 24 2065.00

At the bottom of this first page, Mrs Smith wrote, “Total income for 12 months $40,396.00”.

[11] On the other side of the page, Mrs Smith wrote as follows:

Rates Unit 24 396.59 x 4 $1,586.36

" 27 401.17 x 4 $1,604.68

Body Corp 484.67 for 2 units every month $5,816.04

÷ 2 $2,908.02

Other cost[s] are depending on how many people have been in the unit in the month.

Changes every month.

Regard[s] Nancy.

[12] Mr Donnithorne provided this information to the Hintons. It was made clear in the accompanying facsimile from Mr Donnithorne that Mrs Smith’s page of figures reflected “gross” sales. Mr Donnithorne told the Hintons they should expect it would be a few days before he could get a copy of the rates and “the expenses” deducted from the “gross” sales provided so far.
[13] A little later, Mr Donnithorne faxed through a one page handwritten document which recorded as follows in relation to Unit 27:

Please find figures received this afternoon.

Unit 27 Gross sales INC GST $20395

- Rates 1604.68

- Body Corp 2908.02

INC GST 4512.70

16422.30

- GST 1824.70

NETT $14597.60

Price at $160000 = 9.12% Return

[14] The exercise was repeated in relation to unit 24 concluding “Price at $160,000 = 8.48% Return”.
[15] There was some debate about when the Hintons received this document (the “one page facsimile”). However, the Hintons were clear that they had it before they signed an offer to purchase the two units for $300,000 on 20 April 2007. The offer was in the form of an agreement for sale and purchase.
[16] The parties were also “at odds” about the extent to which, in the period after 20 April, Mr Hinton sought more detail about the financial operation of the units and a more formal record of these matters.[4] Meanwhile, the Hintons’ offer was sent to the Smiths’ solicitor. The solicitor re-drafted the agreement. For present purposes, we need only note that the due diligence clause which was in the agreement signed by the Hintons was removed. The Judge found that inclusion of the clause was important to the Hintons.[5] In summary, it made the agreement conditional upon the Hintons’ satisfaction that the units were “suitable commercial property investment at the agreed price” after they had been able to carry out a due and diligent investigation of a number of issues.
[17] The Smiths’ solicitor sent a letter to Aubin enclosing the counter offer signed by the Smiths. The accompanying letter advised Mr Donnithorne to make available to the Hintons the letting service agreement and the building management agreement. The letter also said that the purchasers would be required to sign the deed of covenant and that a draft deed was included in the agreement. The significance of the deed of covenant is that it was between the Smiths as owners, the Hintons as purchaser and MontDore as the manager of the motel complex. The deed committed the purchaser to paying various management fees. A study of it would at least have alerted the Hintons to the involvement of MontDore and to the fact there were other, potentially more significant, expenses associated with the property.
[18] Mr Donnithorne met with the Hintons on 27 April 2007. The revised agreement was signed and the deposit was paid. At this meeting, Mr Donnithorne gave the Hintons the impression that the agreement was materially in the same terms as the first agreement they had signed. It appears that he gave this impression without making either any detailed comparison of the two forms of agreement himself or checking with the Smiths’ solicitor as to the changes that had been made. The upshot of all of this was that the Hintons were not told of the removal of the due diligence provision or warned that they ought to check the terms of the agreement to consider any differences between it and the original one they had signed. Further, the Judge found that the Hintons’ “speedy” execution of the agreement was “facilitated” by Mr Donnithorne raising the bottom of the pages allowing signature of the next page whilst sitting opposite them.[6] Nor did Mr Donnithorne draw to the Hintons’ attention the draft deed of covenant contained in the agreement. Finally, Mr Donnithorne did not give the Hintons a copy of the letting service agreement or the building management agreement.
[19] On 4 May 2007, the Hintons’ application for mortgage finance was approved. The purchase of the units was settled on 15 May 2007. In June 2007, the Hintons received a first invoice from MontDore and learnt immediately the full extent of deductions from the gross rentals. This discovery led, ultimately, to the issue of the proceedings.

The pleadings

[20] In our description of the pleadings we adopt the relevant passages from Dobson J’s judgment.[7]
[21] The first cause of action was brought under the Contractual Remedies Act 1979. The basis of the Hintons’ claims was that the one page facsimile was a contractual representation which materially misrepresented the true rates of return on both units. The Hintons sought orders rescinding the agreement, directing that the units be vested back in the ownership of the Smiths and directing the Smiths to refund the purchase price of $300,000 to the Hintons along with interest and costs. Alternatively, the Hintons sought damages.
[22] The second cause of action alleged that the Smiths, who admit that they were “in trade”, were parties who were directly or indirectly concerned with the making of misleading and deceptive representations. The Hintons sought relief under the Fair Trading Act 1986 to have the agreement declared void and orders effecting a reversal of the transaction as sought in the first cause of action.
[23] The Hintons then pleaded separate causes of action against both Aubin and Mr Donnithorne, alleging breaches of the Fair Trading Act and negligent misstatement in relation to Mr Donnithorne’s representation to them.
[24] The Smiths denied liability. In addition, the Smiths pleaded that any damages or compensation payable to the Hintons under the Contractual Remedies or the Fair Trading Acts ought to be adjusted to take into account the Hintons’ contributory negligence.
[25] As between the Smiths and the agents, there was also a separate statement of claim in which the Smiths sought indemnification and solicitor and client costs from the agents.
[26] Finally, the agents denied liability and in addition pleaded contributory negligence, lack of causation and failure to mitigate. The agents sought indemnification from the Smiths on the basis that they were acting within their express or implied authority in any representations that were made.

The High Court judgment

[27] The Judge found that Mr Donnithorne’s one page facsimile representing net returns of around nine per cent per annum was a material misrepresentation. Dobson J also found that the misrepresentation induced the Hintons’ entry into the contract[8] and that it was not unreasonable for the Hintons to have relied on the misrepresentation. As we have foreshadowed, the Judge found that the matters argued in support of the unreasonableness of reliance were relevant to an assessment of the Hintons’ contribution.
[28] The Judge then made findings as to the parties’ respective responsibility for the consequences of the misrepresentation, Dobson J concluded:[9]

Evaluating these respective contributions to the losses that have occurred in an holistic way, I find that Mrs Smith’s conduct triggered the prospect for subsequent failings, but was relatively less important than the conduct of Mr Donnithorne. I would attribute 35% responsibility to Mrs Smith, 50% to Mr Donnithorne, and 15% to the conduct and omissions of the Hintons that I have just considered. There is no contractual nexus between the Hintons and the agents. Accordingly, I intend to anticipate a finding of respective responsibilities in these proportions as affecting the agents’ liability to contribute in tort, under [the Fair Trading Act] or on the Smiths’ cross-claim when crafting what are intended to be appropriate remedies under s 9 of the [Contractual Remedies Act]. ...

[29] The Judge found that the Hintons were entitled to cancel the contract and ordered that the two units revest in the Smiths on repayment of the original purchase price of $300,000 plus apportionments.[10] He also ordered the Smiths to repay the Hintons $38,190.28 (after a reduction to reflect their 15 per cent contribution).
[30] In terms of the Fair Trading Act, the Judge noted that the Hintons’ reliance on the subsequent causes of action under the Fair Trading Act and negligent misstatement were all alternatives. Accordingly, given the Judge’s finding under the Contractual Remedies Act, where the Hintons succeeded to the full extent they possibly could, it was unnecessary to go on and deal with the alternatives. However, the Judge considered it was appropriate to analyse these causes of action as to consistency of outcome, including the apportionment of consequences of the Hintons’ loss as between the defendants.[11]
[31] Applying the reasoning used to find a material representation, Dobson J found that the presentation of calculations by Mr Donnithorne constituted misleading and deceptive conduct under s 9 of the Fair Trading Act. In this context, the Judge found that the Smiths did not know the essentials of what Mr Donnithorne was conveying. Accordingly, the agents were liable to the Hintons for breach of the Fair Trading Act but the Smiths were not.[12]
[32] In terms of negligent misstatement, Dobson J noted that the agents admitted owing a duty of care to the Hintons but denied that there was any breach, in that the representation ought not to have been relied on as stating a certain net return. For the reasons analysed in considering Mr Donnithorne’s conduct the Judge was satisfied there was a serious breach of the duty of care not to make negligent misstatements. The Judge took the view that it would be artificial in terms of attribution of proportionate responsibility in negligence not to factor in the contribution to the misstatement caused by Mrs Smith’s partial disclosure to Mr Donnithorne. “Again”, the Judge continued: [13]

[T]hat relationship between defendants is one regulated by contract rather than tort. However, to reflect in the outcome the relative levels of responsibility for the losses arising from the negligent misstatement, it would be appropriate to attribute the same levels of 50% to the agents, 35% to the Smiths and 15% to the Hintons.

[33] Turning then to the Smiths’ cross-claim against the agents, Dobson J noted that the pleading was that if the Smiths were found to have any liability arising out of the actions of the agents, the agents would be in breach of an implied term of the agency agreement that they would not breach the provisions of the Contractual Remedies and Fair Trading Acts. Alternatively, that such liability would arise out of a breach by the agents of a fiduciary duty owed to the Smiths to exercise due skill and care in marketing and selling a property. Dobson J continued:[14]

That pleading does not contemplate the eventuality that I have found, namely that Mrs Smith’s conduct contributed to the circumstances creating a liability in favour of the Hintons. Nonetheless, I am satisfied that the position under the agency agreement readily involves an implied term that the agents would conduct themselves competently, and in particular, not in breach of the [Contractual Remedies Act] or the [Fair Trading Act]. Mr Donnithorne’s conduct breached those obligations, notwithstanding that the circumstances of breach were in part contributed to by Mrs Smith’s conduct in partial disclosure of the expenses. Given that, I find that the agents should be liable to indemnify the Smiths for 59% of the losses imposed on the Smiths as a consequence of this judgment. This is arrived at by removing the Hintons from the holistic apportionment, and allocating the same proportions to each of the defendants, without regard to the Hintons’ contribution. Accordingly, the Smiths bear 35 85ths (41%) and the agents 50 85ths (59%).

[34] Finally, in terms of the agents’ cross-claim against the Smiths, Dobson J noted that this was brought on the basis of an implied term that the principal would indemnify them for any liability incurred within their express or implied authority, and that any liability attributed to the agents would arise out of conduct that was within their express or implied authority. This cross-claim was dismissed. The Judge nonetheless remained satisfied that an apportionment as effected on the Smiths’ cross-claim produced a just outcome in considering the causes of, and contributions to, the overall losses as between all of the defendants.

Was there reliance?

[35] It is accepted that Mr Donnithorne’s one page facsimile is a misrepresentation. The argument for the agents is that the Judge was wrong to find that the Hintons relied on the misrepresentation. In developing the submissions on this aspect, Mr Hamilton said the Judge ignored the importance placed by the Hintons on the following factors:

(a) The wish by the Hintons, from as early as 10 April 2007, to obtain raw accounting data which would verify the information in Mr Donnithorne’s facsimile.

(b) The importance placed by the Hintons on having a due diligence clause in the agreement of sale and purchase.

(c) Advice to the Hintons from their accountant that they ought to get some verification of Mr Donnithorne’s facsimile.

[36] Mr Hamilton says these matters lead to a conclusion that what was important to the Hintons was getting independent verification of Mr Donnithorne’s figures and having a way out of the contract if they did not obtain that verification. Mr Hamilton emphasises that Mr Wood, the Hintons’ accountant, accepted that Mr Donnithorne’s facsimile was not reliable in and of itself for what it purported to be. Accordingly, it is submitted that the Hintons’ evidence about reliance should not have been taken at face value.
[37] As that last submission suggests, there was evidence from the Hintons that they did rely on the one page facsimile. Ms Robertson, in her submissions on behalf of the Hintons, pointed to various passages in the evidence where Mr Hinton and Mrs Hinton both make the point that it was important to obtain a net return which would make the venture viable. They both also said they relied on the figures from Mr Donnithorne as showing that the venture was a viable one. It is sufficient to refer to two examples. The first example we give is Mr Hinton’s response to the suggestion in cross-examination that the calculations in Mr Donnithorne’s one page facsimile were not reliable on their own. Mr Hinton responded: “It’s all I had and I completely relied on them”. He continued:

I would never have gone into the venture, I would have walked away [because] if anybody had known about these extra costs, the owner or charges or whatever you want to refer to them as there’s no way I would have continued into the ownership of the units.

Mr Hinton explained that because of the amount they were borrowing and the interest rates, they needed a nine per cent return.

[38] The second example comes from the evidence of Mrs Hinton. She said she relied, “on what Eddie had said and showed a net return of 9% on our purchase price”. She also stated:

I entirely relied on Eddie telling the truth about the figures. I had no reason to doubt Eddie after all he is a very experienced sales person why would I doubt him[?].

[39] There was accordingly evidence from which the Judge could conclude that the Hintons relied on Mr Donnithorne’s misrepresentation.
[40] In response to the suggestion the Judge should nonetheless have rejected this evidence, a number of points can be made. The starting point is that the Judge found there were two considerations at play. First, the Hintons wanted confirmation or verification of the figures provided by Mr Donnithorne. Secondly, they wanted to make sure that they had what they needed to satisfy the bank so they would get their mortgage. Once mortgage approval was granted, the latter consideration fell away as any sort of driving factor. As to the first consideration, the Judge found that the Hintons were “fobbed off” by Mr Donnithorne’s assurances that any further information would not tell them anything they did not already know.[15]
[41] The agents do not challenge the finding that Mr Donnithorne had fobbed the Hintons off. Any impact the accountant’s advice to get some verification may otherwise have had is affected by that finding. Further, as Ms Robertson submits, the fact that the Hintons were seeking verification of the one page facsimile supports the conclusion that they did rely on it. Otherwise, why would they be so anxious to seek verification?
[42] That leaves the argument based on the importance attached by the Hintons to the due diligence clause. However, what occurred tells against the proposition that the Judge should have given this matter the weight for which the agents contend. Significantly, the Hintons did not pursue due diligence. They did not get the raw accounting records but signed the agreement nonetheless. Mr Hamilton says that is not the end of the matter because the Hintons thought that there was a due diligence clause in the agreement. But the reality is they did not undertake any due diligence after signing the agreement and before declaring it unconditional. Further, while the due diligence clause may have been seen as an insurance policy in case something showed up, in the meantime they were fobbed off by Mr Donnithorne’s assurances.
[43] Finally, it is relevant that the misrepresentation does not have to be the sole operating factor so long as it remains an inducing factor.[16] Even if there was some reliance on the ability to cancel the agreement after due diligence, it is plain that the Hintons also relied on the misrepresentation.
[44] For these reasons, we are not satisfied the Judge erred in concluding that the Hintons relied on the misrepresentation.

Reasonableness of reliance

[45] The parties’ list of issues raised as a separate question whether it was necessary to find that reliance was reasonable. However, as the appeal was argued, there was no real challenge to the analysis adopted by Dobson J in terms of s 7 of the Contractual Remedies Act. His Honour, having addressed the issue of whether there was a misrepresentation, then discussed the issue of inducement under the heading of “reasonable reliance”. In other words, the Judge saw the question of reasonableness of reliance as an element going to inducement rather than as a separate criterion the Hintons had to prove.[17]
[46] On this aspect, the argument for the agents boils down to this: the Judge should have rejected the claim the Hintons were induced to enter into the agreement by the one page facsimile because it was unreasonable to rely on a handwritten document from a person with an interest in securing the sale. Mr Hamilton emphasises the lack of prudence shown by the Hintons in proceeding to invest $300,000 in a share in a commercial motel business when they knew that Mr Hinton was unable (through ill health) to work, there was a need to cover a substantial mortgage (about 90 per cent), and make some money out of the transaction. Mr Hamilton also makes the point that Mr Hinton had owned property for a commercial benefit before.
[47] As Ms Robertson accepted, a more prudent investor may have sought more. But, as Barker J said in New Zealand Motor Bodies Ltd v Emslie, that is not determinative:[18]

Whilst it may not affect the legal position, I feel that there was a certain eagerness on the part of Messrs Moller, King and Stringfield to consummate the merger – springing largely from Mr Moller’s desire for “rationalisation”. I should have thought that when the large loss for the preceding year was revealed at the Mangere meeting, prudence might have suggested a pause in negotiations and a reference back to the Board of Directors. However, this comment does not detract from my finding that the forecasts did influence the decision of NZMB to acquire shares in ECI.

...

In the present case, there were certainly other factors in NZMB’s purchase – particularly Mr Moller’s desire for rationalisation in the bus building industry and the desire to acquire a competitor. I have already noted my surprise that NZMB should have been prepared to buy ECI without first demanding up-to-date audited accounts. A certain degree of keenness to buy was apparent.

However, I accept the evidence of the NZMB witnesses that the rosy profit forecast received from the defendants was one of the several significant factors which influenced them in their decision to proceed.

It is no defence to an action for misrepresentation that the representee had the means of discovering that it was untrue, or that with reasonable diligence, he could have discovered it to be untrue.

[48] This issue also needs to be considered in the context of the Judge’s factual findings. Three points are relevant.
[49] First, Dobson J found that the standards applicable to the Hintons were those of “a small property investor.”[19] This was not the Hintons’ first investment property. They had owned a residential unit in Glen Eden for over 20 years. But they were certainly not experienced property investors.
[50] Secondly, the Judge’s finding that the Hintons had been “fobbed off” which we have referred to earlier is also relevant here. Dobson J accepted that the context in which the Hintons received Mr Donnithorne’s one page facsimile gave rise to the inference that any other, unspecified, costs associated with the units were insignificant. The Judge found the Hintons were aware of some other deductions but had the “clear impression” they were immaterial.[20] His Honour went on to say:[21]

Further, when Mr Hinton’s continuing attempts to get more formal verification of the calculations were unsuccessful, I accept that he was persuaded to proceed to settlement nonetheless, because of assurances from Mr Donnithorne that further or more formal details would do no more than confirm the information already conveyed. ...

[51] The final point is that, as Ms Robertson submits, the Judge did not form a particularly favourable view of the evidence of Mr Donnithorne. Dobson J put it in this way:[22]

As a witness, I found Mr Donnithorne to be a garrulous 74 year old who was cavalier in his responses on many of the topics relevant to the proceedings. I have been careful not to transpose that impression of him as a witness, into a finding as to his conduct relevant to the present claims. However, in the end I am well satisfied that he was equally cavalier in his numerous failings to competently discharge his obligations as an agent.

[52] Nothing in a review of the evidence leads us to any different findings. The high point then of the agents’ arguments is that the Hintons should not have relied on a short, handwritten, document. For the various reasons we have discussed that on its own is not determinative of the matter.
[53] In any event, as this Court put it in Vining Realty Group Ltd v Moorhouse:[23]

It does not normally sit well in the mouth of someone who has been guilty of misrepresentation to blame the other person for believing the misrepresentation.

[54] We agree with the Judge’s conclusion on this issue.

Apportionment of responsibility

[55] We turn first to the question of whether the Smiths are entitled to a full indemnity from the agents.

A full indemnity for the Smiths?

[56] Dobson J found that the agents were in breach of an implied term of their contract with the Smiths that they would use reasonable skill and care. The Smiths said that, on this basis, anything the Smiths had to pay the Hintons, the agents should have to pay the Smiths. Dobson J disagreed. He found that the agents were liable to indemnify the Smiths for 59 per cent of the losses imposed on the Smiths as a result of the judgment.[24]
[57] On behalf of the Smiths, Mr Branch submits that there was no basis for Dobson J to reduce the sum for which the Smiths were entitled to be indemnified by the agents as no contributory negligence claim (or equivalent) was pleaded or pursued at trial by the agents. The agents did not file a statement of defence to the Smiths’ cross-claim even though r 165 of the High Court Rules, which was then applicable, made it clear any affirmative defence to a cross-claim must be pleaded. Rather, the agents’ defence to the cross-claim was that there was no misrepresentation by them to the Hintons. Mr Branch relies on Royal & Sun Alliance Life & Disability (New Zealand) Ltd v Laurence[25] in which the Judge said the District Court was wrong in concluding that the insurance company was entitled to judgment against a doctor who had been negligent because there had been no cross-notices between the defendants issued in terms of the then District Court Rules 1992. Finally, Mr Branch says that because contributory negligence on the part of the Smiths was not pleaded or pursued, there was no evidence on which the Judge could base his finding.
[58] We consider the Judge was right to approach this matter in the way that he did. Section 9(2)(b) of the Contractual Remedies Act provides that an order under the section may direct any party to the proceedings to pay to any other such party such sum as the Court thinks just. This gave the Judge the power to make the orders he did.[26] That reflected the fact that although, as Mr Branch emphasises, relief against the agents was not directly pursued against them on this basis, the agents were parties in a proceeding where relief was being granted under the Contractual Remedies Act.
[59] An analysis of the steps in the Judge’s reasoning make it plain that this is the approach he took.
[60] In a passage from his judgment we have cited earlier,[27] the Judge attributed 35 per cent responsibility to the Smiths, 50 per cent to Mr Donnithorne and 15 per cent to the conduct and omissions of the Hintons. The Judge went on to state, and we repeat the relevant part of the extract, as follows:[28]

There is no contractual nexus between the Hintons and the agents. Accordingly, I intend to anticipate a finding of respective responsibilities in these proportions as affecting the agents’ liability to contribute in tort, under the [Fair Trading Act] or on the Smiths’ cross-claim when crafting what are intended to be appropriate remedies under s 9 of the [Contractual Remedies Act].

(Emphasis added.)

[61] The next step in the Judge’s reasoning was his finding that the agents were liable to the Hintons for breach of the Fair Trading Act but that the Smiths were not. The Judge said that the orders “appropriately made under the [Contractual Remedies Act] need to be supplemented” but, because of the focus of revesting the property, Dobson J did not consider it necessary to make alternative orders under the Fair Trading Act.[29] The Judge continued:[30]

The appropriate contributions to the ultimate loss can be achieved by other means, unless there was irremediable default by the Smiths on the terms of the orders I intend making.

[62] Then, in rejecting a submission made in closing on behalf of the agents that because any liability made out in tort could only be measured by the difference between what the Hintons paid and what they would have paid had they known the “true rate of return”, there was no loss recoverable from the agents, the Judge said:[31]

At most, such a constraint on the form of loss recoverable by the Hintons from the agents might prevent direct recovery. However, the just outcome would arrive at the same point by attributing the combined liability I have found to be appropriate for all defendants solely to the Smiths, and then ordering contribution to the Smiths liability of the part attributable to the agents on the Smiths[’] cross-claim against the agents.

[63] The next step is apparent from the passage which we have also already cited from[32] in which the Judge referred to the fact that the position under the agency agreement involved an implied term that the agents would conduct themselves competently. Mr Donnithorne had breached those obligations notwithstanding that Mrs Smith’s conduct partly contributed to the circumstances of breach. The Judge continued:[33]

Given that, I find that the agents should be liable to indemnify the Smiths for 59% of the losses imposed on the Smiths as a consequence of this judgment. This is arrived at by removing the Hintons from the holistic apportionment, and allocating the same proportions to each of the defendants, without regard to the Hintons’ contribution.

[64] This is the step in the reasoning that resulted in the Smiths bearing 35/85ths (41 per cent) and the agents 50/85ths (59 per cent). It is also relevant to note the Judge’s finding that:[34]

As between Mr Donnithorne and the Hintons, the potential purchasers were entitled to treat his representations as made within his ostensible authority. As between Mr Donnithorne and the Smiths, the reality is different. The misrepresentation was his own work, although full disclosure by the Smiths would have rendered it most unlikely.

(Emphasis added.)

[65] Dobson J was obviously aware of the respective positions taken by defendants. He noted that they had presented an almost united front.[35] He was nonetheless entitled to step back and reflect the reality of the situation as he had found it. As the Judge put it:[36]

... I remain satisfied that an apportionment as effected on the Smiths’ cross-claim nonetheless produces the just outcome when considering the causes of, and contributions to, the overall losses as between all the defendants.

[66] We agree. Dobson J had found the Smiths liable on the Hintons’ claim under the Contractual Remedies Act and gave primary relief between those parties. He also found the agents separately liable on the Hintons’ Fair Trading Act claim. The Smiths and the agents had cross-claimed against each other for “any sum payable” by them to the Hintons. Each was seeking an order for indemnity against the other. These cross-claims directly raised an issue about the nature and extent to which each was responsible for the misrepresentation and the Hintons’ loss. As the Judge observed, each blamed the other.[37] Their collective decision to present a united defence at trial, and forego the opportunity to make submissions on apportionment, did not disqualify the Judge from undertaking this exercise once it was raised in the pleadings. We are satisfied that Dobson J had a proper basis for determining within the Smiths’ cross notice that they were entitled to recover from the agents most but not all of the sum payable by them to the Hintons.
[67] The alternative argument for the Smiths is that they did not cause any loss. This is essentially an argument that any error on Mrs Smith’s part could have been corrected. Although Mrs Smith knew more than she provided, the real problem in a causative sense came because Mr Donnithorne did not correct the position although he had several occasions on which to do so. For example, if the agents had referred the Hintons to the deed of covenant or had provided them with copies of the building management and the letting service agreements, any confusion in the minds of the Hintons would have been cleared up. Another way of putting this is Mr Branch’s submission that the offending conduct is the calculation down to two decimal points in Mr Donnithorne’s one page facsimile.
[68] We do not see that this argument takes matters very far. It is plain Mrs Smith’s conduct has had a materially causative effect. The Judge was entitled to put that into the mix. This proposition was, broadly speaking, that Mrs Smith’s conduct was too remote because of the intervening act of Mr Donnithorne in sending the facsimile. The question is of a factual nature. It is whether Mrs Smith’s action was a material or substantial cause of the Hintons’ loss and not merely part of the history which created the opportunity for that loss.[38]
[69] The key finding in relation to Mrs Smith is put in this way by Dobson J:[39]

... Mrs Smith knew she was not giving the full picture, and was prepared to let the consequences of partial disclosure play out. Mr Smith volunteered that the units were an undesirable investment that he was keen to quit. Mrs Smith would not accept that she shared that view, even after counsel pointed out to her that reference to sale of one of the other units in her GST book was endorsed with the comment “Thank God”.

[70] The failure to give the full picture was in a context where Mrs Smith accepted that as a purchaser she would want more information. Further, Mr Smith had queried directly with her the adequacy of her disclosure. Finally, there is some merit in the submission that the failure to include the due diligence clause can be attributed to the Smiths and that this failure contributed to the situation in which the Hintons found themselves. In any event, it is clear that Mrs Smith did contribute to the loss in more than a nominal way. The fact the Smiths had paid the agents their commission does not alter the position.

The approach to the apportionment of responsibility

[71] The agents make two points. The first relates to the apportionment of 15 per cent liability to the Hintons. The second concerns the apportionment for the Smiths vis a vis the agents.
[72] As to the apportionment of 15 per cent liability to the Hintons, Mr Hamilton accepts that Dobson J considered the relevant factors on which he relies, that is, that the Hintons did not read the re-drafted agreement and that the Hintons did not have to sign the agreement in a hurry. However, he says that there should have been a bigger deduction for these two factors. The contribution should have been at least 25 per cent. That is because, essentially, the problems would not have arisen if the Hintons had read the revised agreement.
[73] In terms of the apportionment for the Smiths vis a vis the agents, Mr Hamilton’s submission is that the contribution from the Smiths should be greater (at least 60 per cent) because Mrs Smith’s actions were deliberate whereas Mr Donnithorne was careless.
[74] The parties agree that the decision as to apportionment is a matter in the Judge’s discretion. In order to succeed on appeal, it is agreed that the agents must show an error of law or principle; that irrelevant principles have been taken into account or relevant considerations ignored; or that the decision is plainly wrong.[40]
[75] We take first the apportionment of liability as between the agents and the Hintons. The Judge found the Hintons made a “modest” contribution to the cause of the losses.[41] Dobson J emphasised first their failure to make further inquiry as to the nature and scope of the “other cost[s]” referred to on the back page of Mrs Smith’s note.[42] Secondly, the Judge said that competent persons in their position would have asked their lawyer about the deed of covenant or would at least have “carefully considered its terms for themselves”.[43] The latter point picks up the second of the factors to which Mr Hamilton says greater emphasis was warranted. This factor and the other factor relied on, namely, the Hintons’ failure to read the revised agreement are also squarely addressed by Dobson J in the following excerpt:[44]

I do not consider there was, by reference to an objective standard, any want of care on the Hintons’ part in the circumstances of signature of the second agreement for sale and purchase. In the context of a relatively hurried meeting, they were entitled to rely on the impression reasonably gained from Mr Donnithorne’s conduct and what he said that it was in materially the same terms as the previous agreement, so that they cannot be relevantly criticised for failing to appreciate that the agreement contemplated that the agent would present them with a full copy of the Letting Service Agreement and the Building Management Agreement.

[76] The matters relied on by the agents were properly considered by the Judge. The agents simply posit a change in emphasis. We see no error in the Judge’s assessment of where the balance lay. Some advantage in this context also lies with the Judge who had heard all of the evidence.
[77] We turn then to the apportionment as between the agents and the Smiths. Again, we see no basis for disturbing the Judge’s assessment. Dobson J described Mrs Smith’s action as a “conscious” one so plainly was assessing her contribution on that basis.[45] On any assessment of it, however, the agents’ contribution to the losses was the greater one. The Judge referred, as we have noted, to Mr Donnithorne’s “numerous” failings to competently discharge his obligations.[46]
[78] The Judge also discussed Mr Donnithorne’s failure to recognise the significance of giving the Hintons an unqualified representation “expressed to two decimal places”.[47] Other aspects included his failure to familiarise himself with the way the motel complex operated and his evasiveness to the Hintons as to where he had sourced material relating to the letting service and building management agreements.[48] Finally, as we have discussed, the Judge noted his conduct at the critical meeting when the Hintons signed the revised agreement.[49] When these matters are all taken into account, there is no basis for interfering with the Judge’s approach.

Result

[79] For these reasons, the appeals are dismissed.

Costs

[80] The parties agree that costs in the High Court which have not been set as yet should be on a 2B basis. It is also agreed that costs should follow the event. The only issue is the extent to which the Hintons should recover the costs of their expert evidence. On this basis, the Hintons are entitled to costs in the High Court. Those costs are to be fixed by that Court if agreement cannot be reached.
[81] In this Court, costs should follow the event. The Hintons are entitled to costs for a standard appeal on a band A basis plus usual disbursements. The bulk of the argument before us was focused on the agents’ appeal. The appellants in CA491/2009 and CA486/2009 should accordingly bear the Hintons’ costs in the following proportions: the agents 65 per cent and the Smiths 35 per cent.[50]

Solicitors:
Harkness Henry, Hamilton for Appellants in CA486/2009 and Second Respondents in CA491/2009
Bay Law Office, Auckland for first-named First Respondent in CA486/2009 and CA491/2009
Davenports, West Auckland for second-named First Respondent in CA486/2009 and CA491/2009
Kennedys, Auckland for Second and Third Respondents in CA486/2009 and First and Second Appellants in CA491/2009

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[1] Hinton v Smith HC Hamilton, CIV-2007-419-1047, 16 July 2009.

[2] In a judgment delivered on 5 October 2009, Dobson J refused an application by the current appellants for a stay: Hinton v Smith HC Hamilton, CIV-2007-419-1047.
[3] At [11]–[42].
[4] At [27].
[5] At [26] and [33].
[6] At [76].
[7] At [5]–[10].
[8] At [43].
[9] At [83].
[10] At [129].
[11] At [106].
[12] At [114].
[13] At [117].
[14] At [123].
[15] At [51].

[16] Savill v NZI Finance Ltd [1990] 3 NZLR 135 (CA) at 146 per Hardie Boys J; see also Burrows, Finn & Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington 2007) at [11.2.4].

[17] See Savill v NZI Finance Ltd at 141 per Bisson J and at 145–146 per Hardie Boys J; and Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2011) 11 NZCPR 879 at [46] and [52].
[18] New Zealand Motor Bodies Ltd v Emslie [1985] 2 NZLR 569 (HC) at 592 and 595.
[19] At [79].
[20] At [46].
[21] At [60].
[22] At [71].

[23] Vining Realty Group Ltd v Moorhouse [2010] NZCA 104, (2011) 11 NZCPR 879 at [51](c) and see also [52].
[24] At [123].

[25] Royal & Sun Alliance Life & Disability (New Zealand) Ltd v Laurence (1999) 6 NZBLC 102,724.

[26] Dobson J applied the approach taken by Wild J in Altimarloch Joint Venture Ltd v Moorhouse HC Blenheim, CIV-2005-406-91, 3 July 2008 at [102]–[108].
[27] Above, at [28].
[28] At [83].
[29] At [114].
[30] Ibid.
[31] At [118].
[32] Above, at [33].
[33] At [123].
[34] At [127].
[35] At [61].
[36] At [128].
[37] At [61].

[38] Fleming v The Securities Commission [1995] 2 NZLR 514 (CA); Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 213 (HC) at 241.
[39] At [67].

[40] Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32] per Tipping J for Blanchard, Tipping and McGrath JJ.
[41] At [78].
[42] At [79]
[43] At [80].
[44] At [81].
[45] At [62].
[46] At [71].
[47] At [72].
[48] At [73] and [74].
[49] At [76].

[50] The Smiths sought an order for release of the security for costs paid on their appeal against the Hintons which was abandoned. That is a matter for the Registrar to deal with.