Narayan v Arranmore Developments Limited [2011] NZCA 681 (21 December 2011)

Last Updated: 18 January 2012

IN THE COURT OF APPEAL OF NEW ZEALAND

CA373/2010 [2011] NZCA 681

BETWEEN SHANE ANJAY NARAYAN Appellant

AND ARRANMORE DEVELOPMENTS LIMITED Respondent

Hearing: 17 August 2011

Court: Arnold, Winkelmann and Andrews JJ

Counsel: S Grant and E A James for Appellant M J Fisher and K S Muston for Respondent

Judgment: 21 December 2011 at 2.30 p.m.

JUDGMENT OF THE COURT

A The appeal is dismissed.

2. The appellant is to pay the respondent costs for a standard appeal on a band A basis.
   

REASONS OF THE COURT

Arnold and Andrews JJ	[1]
Winkelmann J (dissenting)	[56]

ARNOLD AND ANDREWS JJ

(Given by Arnold J)

Table of Contents

	Para No
Introduction	[1]
Background	[2]
The High Court’s decision	[10]
Basis of appeal	[21]
Two recent decisions of the Supreme Court	[22]
Our evaluation	[28]
(i) Title by 1 October 2008	[30]
(ii) Seven schools completed by 2009	[37]
(iii) Construction of the town centre would commence in 2009	[43]
Decision	[55]

Introduction

[1] The appellant, Mr Narayan, appeals against a decision of Associate Judge Bell granting summary judgment in favour of the respondent, Arranmore Developments Ltd (Arranmore), and ordering him to specifically perform an agreement for the sale and purchase of a section in a new development in Flat Bush outside Auckland city.[1] Mr Narayan argued that he had validly cancelled the agreement because he had entered into it in reliance on misrepresentations made by Mr Ravi Singh, a real estate agent acting for the original vendor, Prema Developments Ltd (Prema).

Background

[2] Flat Bush is the site of a proposed new town in East Tamaki, which is ultimately intended to house around 40,000 people. Manakau City Council carried out extensive planning over a number of years to allow for residential development of the area.
[3] On 15 December 2007, Mr Narayan entered into an agreement to purchase a lot in the Point View Park subdivision at Flat Bush from Prema for $299,000 (the agreement). Various acquaintances of his entered into similar agreements around the same time. At that stage, most of the land in the area was still vacant, having previously been farmland. Development had begun, but no new houses had been built. A town centre planned for the area had not yet been started, nor had a number of schools that the Ministry of Education planned to build to accommodate the anticipated school-age population.
[4] Mr Narayan was familiar with Flat Bush as he lived in the area. He is a Fijian Indian. He had at the time of the agreement been in New Zealand for over five years and was the Group Accountant for Instant Finance NZ Ltd. He said that although he is conversant in English, his first language is Fijian Hindi and he is more comfortable conversing in that language than in English.
[5] The agreement provided that:

(a) The vendor gave no warranty as to the date when title would be available.

(b) The purchaser could cancel the agreement if the necessary engineering and resource consents were not received by 31 October 2008.

(c) The agreement was conditional on title being issued by 1 November 2009.

(d) The settlement date was to be the later of 1 October 2008 or five working days after the vendor’s solicitor advised the purchaser’s solicitor in writing that the title of the property was available for searching.

[6] On 3 June 2008, Prema sold the parent lot and assigned its rights under the sale and purchase agreements (including Mr Narayan’s agreement) to Arranmore. On 17 September 2008, Arranmore’s solicitors advised Mr Narayan and other purchasers that the necessary consents had been obtained. On 24 February 2009, they wrote to the purchasers’ lawyers advising that title was expected to issue in April/May 2009. They wrote again on 5 May 2009, advising that title would be issued within the following few weeks. Then, on 15 May 2009, they advised the purchasers that settlement would take place on 22 May 2009.
[7] Mr Narayan failed to settle. On 15 June 2009, Arranmore’s solicitors sent a settlement notice to his solicitors. The same day, Mr Narayan’s solicitors sent a letter to Arranmore’s solicitors cancelling the agreement, on the basis that Mr Narayan was induced to enter it as a result of misrepresentations made by the land agent, Mr Singh. The letter said in part:

2. We are instructed at the time of the signing of the contract, our client was induced into entering the contract by certain representations made by the land agent acting for your client.
3. One of the key representations made was that the area was zoned for new schools and that indeed a new school and shopping complex would be built on the land across from the development site. Our client agreed on the price he did and in fact signed the contract based on those representations.
4. Our client now has information from a reliable and trustworthy source that neither the school nor the shopping complex will be built, therefore, hugely diminishing the value of the section. Our client would not have signed the contract if he had not been told that a school and shopping complex were to be built.
5. Given the significance of the misrepresentations, our client does not wish to proceed any further and cancels the contract under Section 6 of the Contractual Remedies Act 1979 (“the Act”).

[8] In a letter dated 30 July 2009, Mr Narayan’s (new) solicitors described the misrepresentations as follows:

1. Construction of the Flat Bush town centre would commence in 2009. Construction of the town centre would be one of the reasons why the property would retain and most likely increase in value.
2. Several schools would be built within the Flat Bush town centre by 2009. Mr Narayan was also told that this would be another reason why his property would retain its value.
3. Title would be released by October 2008. Mr Narayan was also told that if title had not released by then he could claim his deposit back (including any interest on it). The deposit was to be held on trust [by] Gibbs and Mills solicitors.

[9] Arranmore issued separate proceedings against Mr Narayan and several other purchasers seeking specific performance. It applied for summary judgment against each purchaser.

The High Court’s decision

[10] Associate Judge Bell dealt with applications for summary judgment against four purchasers at one hearing. All the purchasers were represented by Mrs Grant.
[11] In respect of Mr Narayan, the Associate Judge identified the alleged misrepresentations as follows:

(a) Seven new schools would be completed by 2009;

(b) Construction on the town centre would commence in 2009;

(c) If title had not issued by 1 October 2008, Mr Narayan could cancel the agreement and his deposit would be refunded, with interest.

We refer to these as the misrepresentations.

[12] Associate Judge Bell then recorded that Mr Narayan argued that he was entitled to cancel the agreement for misrepresentation under s 7 of Contractual Remedies Act 1979 (the CRA), that he sought orders under s 43(2)(a) of the Fair Trading Act 1986 (FTA) declaring the agreement void on the ground that Arranmore had breached ss 9 and 14 of the FTA and that he raised an estoppel defence and lack of “clean hands” on the part of Arranmore.
[13] The Associate Judge rejected the allegation concerning title issuing by 1 October 2008. He noted that neither Mr Narayan nor any of the other purchasers who claimed that such a representation had been made gave notice of cancellation when title did not issue by 1 October 2008. The Associate Judge said that this indicated either that the representation was not made, or that it was not of such significance as to induce the purchasers to enter into the agreements.[2]
[14] The Associate Judge also rejected the alleged representation as to seven schools being completed by 2009. The Judge inferred that the purchasers had visited the site of the development at Flat Bush. (It is clear from his affidavit evidence that Mr Narayan was familiar with the area.) The Associate Judge said that the purchasers would have seen that, although the area had been prepared for development with the construction of roads and other infrastructure, little in the way of housing had been erected. Accordingly, the purchasers would have been aware that the extent of development was insufficient to require the construction of seven schools. The Associate Judge said:[3]

It defies common sense for the purchasers to believe that seven schools would have been erected by the times they allege. It is implausible that the representations about the completion of the 7 schools were made and believed. The [purchasers] do not have any defence for these alleged misrepresentations.

[15] In relation to the final alleged misrepresentation about the timing for the commencement of construction of the town centre, Associate Judge Bell expressed some scepticism, but felt unable to rule conclusively against the purchasers at the summary judgment stage. The Associate Judge accepted that there was a tenable argument that there was no reasonable basis for the representation at the time it was made.[4]
[16] The Associate Judge considered that the representation was not essential in terms of s 7(4)(a) of the CRA, so that Mr Narayan and the other purchasers did not have a right to cancel under that subsection. He also considered that there was no right to cancel on the various substantiality grounds in s 7(4)(b). The Associate Judge considered that the expert valuation evidence indicated that the value of Mr Narayan’s lot would have been about 10 per cent lower than the purchase price as a consequence of the non-fulfilment of the representation. Taking the fact that Mr Narayan had purchased on a falling market into account, the Associate Judge said that the maximum that Mr Narayan could recover as damages if he made out his case was $26,500. He held that Mr Narayan had an arguable case for an equitable set-off as a consequence of the alleged misrepresentation and held that this sum should be secured to await the outcome of the misrepresentation claim.
[17] In relation to the FTA claim, the Associate Judge noted that Arranmore had not itself or through its agents participated in any misleading conduct. In contrast to the CRA,[5] the FTA did not provide for the liability of assignees. Moreover, in this case there could not be any greater relief under s 43 of the FTA than would be available under the CRA.
[18] In the result, the Associate Judge ordered that Mr Narayan perform the agreement, subject to $26,500 being secured to await the outcome of his claim for misrepresentation about the timing of the start in construction of the town centre.
[19] Subsequently, there was a further hearing before Associate Judge Bell to settle the formal orders of the Court.[6] By this stage, Arranmore was considering cancelling the sale and purchase agreements with Mr Narayan and two other purchasers, on the ground that it had found other persons who wished to buy the relevant lots. In that event, it wanted to continue its proceedings against the purchasers as damages claims in the District Court.
[20] In relation to Mr Narayan, Associate Judge Bell made formal orders which fixed a date for settlement, the purchase price being the contract sum plus penalty interest, but provided for Arranmore to seek leave to cancel the agreement. Mr Narayan was to pay the full price for the lot against Arranmore’s undertaking that its solicitors would hold $26,500 plus the penalty interest on this sum on trust until the issue of the equitable set-off was determined. Mr Narayan was also ordered to pay costs of $18,298.29, being solely liable as to $3,312.38 and jointly and severally liable with two other purchasers as to $15,085.91.

Basis of appeal

[21] Mrs Grant submitted that Associate Judge Bell was wrong to conclude that it was not arguable that Mr Narayan had validly cancelled the agreement in terms of the CRA. She said that the Associate Judge had erred in rejecting the arguments based on two of the alleged misrepresentations on the ground that they involved essentially factual findings which could not be determined on summary judgment and should be left until trial. In relation to the third representation, Mrs Grant argued that the Associate Judge was correct to conclude that Mr Narayan had an arguable defence of misrepresentation and equitable set-off, but was wrong to find that the arguable defence did not give rise to a right to cancel the agreement. Mrs Grant submitted that Associate Judge Bell had assessed essentiality in terms of the CRA by reference to the time of cancellation rather than the time of execution of the agreement and said that the Associate Judge was wrong to fix damages for misrepresentation and equitable set-off without a full hearing. She also argued that the Associate Judge had wrongly rejected Mr Narayan’s claim for relief under s 43 of the FTA. Finally, Mrs Grant challenged the Associate Judge’s order as to costs, specifically the sum for which joint and several liability was imposed.

Two recent decisions of the Supreme Court

[22] There are two recent decisions of the Supreme Court which are relevant to the interpretation of the CRA and the FTA. Accordingly, we address them briefly before we discuss the issues.
[23] First, in Mana Properties Trustee Ltd v James Developments Ltd the Supreme Court set out the approach to be adopted to essentiality and substantiality under s 7(4).[7] The Court was considering whether the purchaser of a lot in an industrial subdivision had a right to cancel in a case where the lot was slightly smaller than the minimum size stipulated in the agreement. On the day on which settlement was due under the agreement, the area shown on the deposited plan and the title was slightly less than the minimum area, with the result that the purchaser advised the vendor that it was cancelling the agreement for non-compliance with the minimum size term. The vendor then obtained a new title which complied with the minimum size term and issued proceedings seeking specific performance of the agreement. It applied for summary judgment. The Supreme Court held that it was entitled to summary judgment.
[24] The Court said that the question of a contractual term’s essentiality will be a question of interpretation of the contract. The intention of the parties as to essentiality will be determined from the language of the term read in the context of the whole of the contract and the surrounding circumstances when the contract was made.[8] The Court said:[9]

In the end, the preferable approach is to ask whether, unless the term in question was agreed at the time of contracting to be essential, the cancelling party would more probably than not have declined to enter into the contract. That question must be answered by an objective contextual appraisal which disregards what a party may unilaterally have said about its intention in that regard.

[25] While accepting that the minimum size term was essential, the Court said that the CRA did not replace the long-established rule by which time for performance is generally not of the essence in a land sale contract. The Court noted that the agreement did not stipulate a time for the performance of the obligation to provide a title which met the minimum lot size term and said that the presence in the agreement of a clause providing for the settlement notice procedure was “in itself entirely inconsistent with any notion that time would be already essential when the appointed settlement date was reached”.[10] Accordingly, if the purchaser wished to cancel the agreement on the basis of a breach by the vendor in failing to settle on the due date, it had to issue a settlement notice, wait until its expiry and then give a cancellation notice. The vendor’s failure to settle in accordance with the notice would have been a repudiation. As this course was not adopted, the purchaser had not validly cancelled the agreement and so was obliged to perform it when the new title was available.
[26] The present case does not involve contractual terms, simply misrepresentations. But the approach set out in Mana Properties remains relevant. Further, the case shows that decisions as to essentiality can, in appropriate cases, be made in the context of applications for summary judgment.[11]
[27] Second, in Red Eagle Corporation Ltd v Ellis the Court set out the approach to be adopted to claims for misleading and deceptive conduct under s 9 of the FTA.[12] The Court said that it did not understand this Court in AMP Finance v Heaven[13] to have intended that its well-known formulation of the approach under s 9 be applied in all cases under the section, given the variability of individual circumstances.[14] The Court described the approach to be applied, at least in a relatively simple case such as that before it, as follows:[15]

[Section 9] is directed to promoting fair dealing in trade by proscribing conduct which, examined objectively, is deceptive or misleading in the particular circumstances. Naturally that will depend upon the context, including the characteristics of the person or persons said to be affected. Conduct towards a sophisticated businessman may, for instance, be less likely to be objectively regarded as capable of misleading or deceiving such a person than similar conduct directed towards a consumer or, to take an extreme case, towards an individual known by the defendant to have intellectual difficulties. ... The question to be answered in relation to s 9 in a case of this kind is accordingly whether a person in the claimant’s position – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else. If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9.

The Court then went on to deal with the question of causation:[16]

Then, with breach proved and moving to s 43, the court must look to see whether it is proved that the claimant has suffered loss or damage “by” the conduct of the defendant. The language of s 43 has been said to require a “common law practical or common-sense concept of causation”. The court must first ask itself whether the particular claimant was actually misled or deceived by the defendant’s conduct. It does not follow from the fact that a reasonable person would have been misled or deceived (the capacity of the conduct) that the particular claimant was actually misled or deceived. If the court takes the view, usually by drawing an inference from the evidence as a whole, that the claimant was indeed misled or deceived, it needs then to ask whether the defendant’s conduct in breach of s 9 was an operating cause of the claimant’s loss or damage. Put another way, was the defendant’s breach the effective cause or an effective cause? Richardson J in [Goldsboro v Walker [1993] 1 NZLR 394 at 401] spoke of the need for, or, as he put it, the sufficiency of, a “clear nexus” between the conduct and the loss or damage. The impugned conduct, in breach of s 9, does not have to be the sole cause, but it must be an effective cause, not merely something which was, in the end, immaterial to the suffering of the loss or damage. The claimant may, for instance, have been materially influenced by some other matter, such as advice from a third party.

Our evaluation

[28] We make the following preliminary observations:

(a) As has already been noted, Mr Narayan’s allegation that the real estate agent, Mr Singh, made the representations is supported by several other purchasers. The misrepresentations they allege are either identical or broadly similar to those alleged by Mr Narayan. It is significant that no admissible evidence was adduced by Arranmore denying that the representations were made. Accordingly, we must proceed on the assumption that they were made.

(b) The first two of the three representations identified in [11] above are statements about the future rather than being statements of past or present fact and are dependent for their fulfilment on the actions of others. As statements about the future they are, in themselves, not actionable as misrepresentations under the CRA[17] and probably not under the FTA either.[18] However, arguably there are two factual representations implicit in such statements about the future, namely that the person expressing the view honestly held it and that there was a reasonable basis for the view at the time it was expressed. To the extent that such representations refer to present intentions, they involve a factual assertion that the intention existed at the relevant time.[19]

(c) The last of the three representations concerns the legal effect of the agreement for sale and purchase if it was ultimately entered into. In fact, the terms of the agreements executed by the parties were inconsistent with the representation allegedly made, as we explain below.

(d) The grounds on which Mr Narayan advised that he was cancelling the agreement and the grounds on which he now says he cancelled it are rather different. The grounds on which he cancelled it were set out in his solicitor’s letter of 15 June 2009. That said that Mr Narayan had learnt that a school and the town centre, which he had been told would be built on land across from the development site, would not in fact be built. The issue now is that some of the schools and the town centre will be built later than anticipated, rather than that they will not be built at all. The existence of these different formulations is a factor which tends to suggest that the representations were not as significant to Mr Narayan as now alleged.

(e) Mr Narayan said that his first language is Fijian Hindi and that, although he is conversant with English, he is more comfortable conversing in Hindi than in English. We have no reason to doubt that. But we do not accept that Mr Narayan has language difficulties sufficient to limit his ability to understand the agreement he entered into. He is a professional person holding a responsible job with a significant lending institution.

(f) As we have noted above, questions of essentiality or substantiality under the CRA may, in appropriate cases, be resolved in the context of applications for summary judgment.[20] The same is true of the question whether a reasonable person would have been misled in terms of s 9 of the FTA.[21]

[29] Against that background, we turn to the three misrepresentations alleged. We will address them in the order adopted by the Associate Judge.

(i) Title by 1 October 2008

[30] Mr Narayan says that he was told by Mr Singh that title to his lot would be available by 1 October 2008 and that, if it was not, he could cancel the agreement and recover his deposit. In fact the agreement which he signed provided:

(a) The purchaser was not entitled to call for title until the new title was available.

(b) The vendor gave no warranty as to the date on which title would be available but the agreement was conditional on title being issued by 1 November 2009. If the purchaser cancelled the agreement for non-fulfilment of this condition, he or she could recover the deposit.

(c) The purchaser was entitled to cancel the agreement if the vendor had not received all the necessary engineering and resource consents by 31 October 2008.

(d) The possession and settlement date was the later of 1 October 2008 or five working days after the vendor’s solicitor advised the purchaser’s solicitor in writing that title was available for searching.

[31] Accordingly, the terms of the alleged representation are inconsistent with the plain terms of the agreement. While it was possible under the agreement that settlement could occur any time after 1 October 2008, the vendor gave no warranty as to when title would be available and the purchaser’s right to cancel for non-issuance of title did not arise until 1 November 2009.
[32] Furthermore, the agreement was conditional on solicitor’s approval and on the purchaser carrying out due diligence, both conditions to be satisfied within five working days of the date of the agreement. There was, then, an opportunity during that period for Mr Narayan to address any discrepancy between the agreement’s terms and a representation which he says was essential to him.
[33] As a consequence, Mr Narayan was on notice that the terms of the contract were different from the alleged representation. That is, he knew that the representation was untrue. In those circumstances, he cannot rely upon it as having induced him to enter the agreement.[22]
[34] Furthermore, during 2008 and the first half of 2009, there was considerable interaction between the vendor and the purchasers which is inconsistent with Mr Narayan’s claim that he was induced to enter the agreement by this representation. In particular:

(a) In June 2008, the purchasers were advised that Prema had sold the development to Arranmore and assigned its rights absolutely.

(b) On 25 September 2008, Arranmore wrote to the purchasers to advise that the necessary engineering and resource consents had been obtained.

(c) In February 2009, Arranmore wrote to the purchasers to advise that titles were likely to issue in April or May 2009.

(d) On 5 May 2009, Arranmore wrote to purchasers advising that certificates had been issued under s 223 and 224 of the Resource Management Act 1991.

(e) On 15 May 2009, Arranmore wrote to Mr Narayan advising that the settlement date was Friday 22 May 2009. This was followed by a settlement statement on 20 May 2009.

(f) When Mr Narayan failed to settle, Arranmore wrote to him on 12 June 2009 advising that it would be prepared to consider an extension of time for settling and on 15 June 2009 it issued a settlement notice. Mr Narayan then purported, through his solicitors, to cancel the agreement.

[35] It is notable that, throughout this period, Mr Narayan raised no issue about title not being available by 1 October 2008. As Associate Judge Bell said, if this representation was important to Mr Narayan, one would have expected him at least to have raised the matter when it became obvious that title was not available by the due date.
[36] Accordingly, we consider that the Associate Judge was right to conclude that Mr Narayan was not entitled to cancel the agreement on the basis of this misrepresentation. Accepting as we must that such a representation was made, we consider that it was overtaken by the specific terms of the agreement. Further, the course of dealing between the parties confirms that Mr Narayan did not regard it as essential so as to give rise to a right to cancel. A similar analysis applies in terms of the FTA. Given the terms of the agreement, a reasonable person in Mr Narayan’s position would not have been misled by the misrepresentation.

(ii) Seven schools completed by 2009

[37] Mr Narayan alleges that he was told by Mr Singh that seven schools would be built in the Flat Bush area by the end of 2009 and that this representation induced him to enter into the agreement. In fact, public announcements by the Minister of Education in mid 2006 and relevant Ministry of Education documents reveal that a staged building programme was proposed, which is not due to be completed until around 2015–2016.
[38] As we have said, this alleged representation relates to the future conduct of a third party, the Ministry of Education. Given that we must accept that it was made, it brings into play Mr Singh’s belief at the time and the basis for that belief. We cannot make any assessment about those matters as we have no evidence from Mr Singh. What can be said, however, is that the publicly available material indicates that the school building programme was intended to extend significantly beyond 2009, so that the representation was not an accurate statement of the Ministry’s intentions at the time it was made. To that extent at least it was a misrepresentation of fact.
[39] However, Mr Narayan’s claim faces some formidable difficulties.
[40] First, under both the CRA and the FTA, a representation will not be actionable if it was of such a kind that no reasonable person having the representee’s characteristics would have relied upon it. In this case, we think the Judge was right to find that no reasonable person would have relied on a representation that the Ministry would complete the construction of seven new schools by 2009 (assuming that to be the actionable misrepresentation). It is impossible to accept that any reasonable person in Mr Narayan’s position would have believed that the Ministry intended to build seven schools in the Flat Bush area over a two year period when the construction of the associated town centre and its amenities was not due to commence until the end of that period. When the agreement was entered into in December 2007, the area of Flat Bush to be developed for the new township was essentially vacant, having previously been farmland. Some roading and other infrastructure had been formed, but house building had yet to occur on any significant scale. Against this background it should have been obvious to a person such as Mr Narayan, a professional person holding a responsible job with a significant lending institution, that it was unlikely that the Ministry intended to build seven schools within a two year period to serve a population that had not yet been established.
[41] Second, and on the assumption we are wrong on the first point, the actionable aspect of the schools representation relates to the Ministry’s intention in late 2007. This is significant for two reasons:

(a) It was the Ministry’s failure to follow through on what he understood to be its intention that Mr Narayan claimed justified his cancellation of the agreement: see [11](a) above. That aspect of the representation was not actionable as it involved a statement as to future conduct rather than present fact. It should have been obvious to a reasonable person in Mr Narayan’s position that, even if the Ministry intended at the time of the agreement in late 2007 to build the schools by the end of 2009, there was no guarantee that it would follow through on that intention. Continued availability of funding, changed priorities and project delay were obvious factors that might have affected timing. An intention to complete the schools and actually doing so are two different things; the failure that Mr Narayan relies upon to justify cancellation goes to the second, not the first, of these.

(b) As we have noted, the agreement identified the date for possession and settlement as the later of 1 October 2008 or five working days after the vendor’s solicitor notified the purchaser’s solicitor in writing that the title was available for searching. The agreement contemplated, then, that Mr Narayan might have been called upon to settle well before the end of 2009, that is, well before he knew whether or not the Ministry would follow through on what he understood was its intention and complete the seven schools. Given that the actionable aspect of the representation about the schools relates to the Ministry’s intention in 2007, Mr Narayan must be treated as having been prepared to take the risk that the schools might not be built before the end of 2009. There was no guarantee that they would be built, and an obvious risk that they would not be for one reason or another. Yet it was the non-completion of the schools which he maintained gave him the right to cancel.

[42] As we have said, when addressing this claimed representation the Associate Judge said that it defied common sense for the purchasers to believe that seven schools would have been erected by 2009 and that it was “implausible that the representations about the completion of the 7 schools were made and believed”. Although the state of the evidence did not permit a conclusion that the representation was not made, we agree with the Associate Judge that this misrepresentation did not give rise to a right to cancel the agreement under the CRA or the FTA, for the reasons we have given.[23]

(iii) Construction of the town centre would commence in 2009

[43] Finally, Mr Narayan alleges that he was told that construction of the town centre would begin in 2009 and that did not occur. Although Associate Judge Bell expressed scepticism about this allegation, he concluded that he could not rule conclusively against Mr Narayan on this point at the summary judgment stage. He accepted that it was arguable that there was no reasonable basis for the representation when it was made.
[44] However, the Associate Judge did not consider that any such misrepresentation would entitle Mr Narayan to cancel the agreement under s 7(4) of the CRA. He concluded that:

• (a) The representation was not “essential” as stipulations as to time for performance in contracts for the sale and purchase of land are usually not of the essence in the absence of some express provision.[24]
• (b) In terms of “substantiality”, any delay in development of the town centre was not a change of burden under the contract. Further, the impact on the benefit to be acquired under the contract was not “substantial” when assessed against the impact on the lot’s value of the delayed start in construction of the town centre. The evidence indicated that the diminution in value was something in the order of $26,500.[25]

Accordingly, the Associate Judge ordered that $26,500 be held back to allow resolution of Mr Narayan’s claim based on this alleged misrepresentation.

[45] Again, this representation was a statement about the future. It was actionable only to the extent that there was no reasonable basis for it, or it was not an accurate statement of intention, at the time it was made. The Associate Judge accepted that it was arguable that the statement was made and that there was no reasonable basis for it. There was no challenge to these findings. Accordingly two questions arise: whether the essentiality or substantiality requirements of the CRA were met so as to justify cancellation and what remedy might be available under the FTA.
[46] Adopting the approach to essentiality identified by the Supreme Court in Mana,[26] we must ask whether Mr Narayan would more probably than not have declined to enter the agreement had the representation as to intention not been made. This question is to be answered by an objective appraisal which disregards what Mr Narayan may unilaterally have said. On this basis, we consider it clear that the misrepresentation was not essential. As we have already said, under the sale and purchase agreement, Arranmore was entitled to call upon Mr Narayan to settle the transaction five working days after title was available. The contract contemplated that settlement could occur at any time after 1 October 2008. Accordingly, Mr Narayan could have been called upon to settle well before the end of 2009, at a time when he would not know whether or not the construction of the town centre had commenced, that is, whether the intention as at December 2007 had been carried through. As with the schools, any reasonable person in Mr Narayan’s position would have appreciated that there might be some delay in beginning the construction work whatever the intention in 2007.
[47] We acknowledge that the breach of an essential term may become apparent only during or after performance of a contract and that the CRA caters for this by providing for the cancellation of partly or wholly performed contracts.[27] But the present case does not fall into that category. The representation concerns the existence of an intention at the time the contract was entered into. The question is whether that accuracy of the representation as to intention was essential. The difficulty for Mr Narayan is that had the representation been accurate, the intention would not necessarily have been fulfilled – indeed, some delay was foreseeable. Yet it was this delay that Mr Narayan gave as a reason for cancelling the contract.
[48] Similar reasoning applies in relation to substantiality. At most, the problem was one of timing, in the sense that the start of the town centre’s construction was delayed. This had an impact of not more than 10 per cent on the market value of the lot according to the valuation evidence.[28] We consider that the Associate Judge was entitled to regard this as not substantial. In this connection we note that under cl 10.7 of the agreement, Mr Narayan was entitled to give a notice avoiding the agreement if Arranmore exercised certain rights so as to materially and adversely affect the market value of the property. The parties agreed that a reduction in market value of 15 per cent would not be sufficiently material to entitle Mr Narayan to give notice. This provides some support for the Associate Judge’s approach.
[49] In relation to a remedy under s 43 of the FTA, we consider it unrealistic to suggest that a court would cancel the agreement in circumstances where cancellation was not available under the CRA. Rather, a court is likely to make an award of compensation. As s 9 of the FTA does not render statements binding but simply forbids the making a deceptive or misleading statements, the normal measure of loss in a case such as this will be the difference between the value of what was acquired and the price paid.[29] That is the approach that Associate Judge Bell took. He had evidence before him of the market value of the lot taking into account the delayed start in the construction of the town centre and assessed that against the price that Mr Narayan paid.
[50] Accordingly, we dismiss the appeal in relation to the misrepresentations and turn to the issue of costs.
[51] The basis of the costs appeal is first, that Associate Judge Bell should have reserved costs until the case had been finally determined and second, that he should not have made costs orders which rendered Mr Narayan jointly and severally liable with the three other purchasers who had made similar allegations.
[52] Costs are at the discretion of the Court. Accordingly, to succeed on an appeal, an appellant must show that the Judge below acted on a wrong principle, took account of an irrelevant factor or ignored a relevant one, or was plainly wrong.[30] Relevant principles are set out in the High Court Rules. One such principle is that a party who fails in an interlocutory application should pay the successful party costs.[31] However, while on most interlocutory applications costs must be fixed when they are determined unless there are special reasons to the contrary,[32] summary judgment applications are an exception.[33] The reason for this appears to be that the usual practice where an application for summary judgment is unsuccessful is that costs are reserved.[34] In the present case, the application for summary judgment was largely successful and the Associate Judge was entitled to make an award of costs. No error in his approach has been identified.
[53] As to joint and several liability, the Associate Judge identified some costs that were particular to each defendant, which were their responsibility alone, and others that were common, in respect of which he ordered joint and several liability. Mrs Grant submitted that the default position (that is, that the liability of two or more parties ordered to pay costs is joint and several)[35] did not apply as the defendants were not parties to a single proceeding; rather, separate proceedings were issued against each and they were dealt with together as a matter of convenience.
[54] We do not accept this submission. The proceedings against each defendant raised common issues, they were heard together (although they were not consolidated) and the defendants were represented by the same counsel. Rule 10.12 of the High Court Rules permits the making of various orders, including for consolidation or the hearing of claims together, if the Court is satisfied as to certain matters. These do not differ as between the different types of order. As a consequence, in some cases at least, there may be little difference between consolidating proceedings and hearing them together. As Associate Judge Bell noted, the mode of hearing adopted in the present case achieved efficiencies which benefitted the parties and were reflected in the orders for costs.[36] In these circumstances, while we acknowledge that other Judges might have taken a different approach, we consider that the approach adopted by the Associate Judge was one that was fairly open to him. Accordingly, we dismiss the appeal against the costs judgment.

Decision

[55] We dismiss the appeal. The appellant is to pay the respondent costs for a standard appeal on a band A basis plus usual disbursements.

WINKELMANN J

Table of Contents

Substantive appeal	[56]
Costs appeal	[75]

Substantive appeal

[56] I would allow the appeal on the basis that the appellant, Mr Narayan had an arguable defence to the claim. In my view it is arguable that Mr Narayan had a right to cancel the agreement for sale and purchase on the grounds of contractual misrepresentation under the Contractual Remedies Act 1979 or, alternatively that he had grounds to obtain an order under s 34 of the Fair Trading Act 1986 declaring the agreement void on the ground that the plaintiff had breached ss 9 and 14 of the Fair Trading Act.
[57] I agree with the judgment of the majority that it is appropriate to accept for the purposes of the summary judgment application, that there is evidence suggesting that the following misrepresentations raised by Mr Narayan by way of defence to the application, were made:

(a) Seven new schools would be completed by 2009;

(b) Construction on the town centre would commence in 2009;

(c) If title had not issued by 1 October 2008, Mr Narayan could cancel the agreement and his deposit would be refunded with interest.

[58] I agree also that the representation as to timing of the issue of title, was overtaken by the specific terms of the agreement, and so provided no defence to the Mr Narayan’s application for summary judgment.
[59] On the evidence available on the hearing of the application, there was an arguable case that the real estate agent Mr Singh did not believe those statements to be true, and also that there was no reasonable basis for him to believe those statements were true.
[60] In relation to these matters I also agree with the majority that it was not appropriate for the Associate Judge to make the credibility findings that he did at [64]:

It defies common sense for the purchasers to believe that seven schools would have been erected by the times they allege. It is implausible that the representations about the completion of seven schools were made and believed.

[61] It was the unchallenged affidavit evidence of several witnesses that misrepresentations were made in relation to the timing of completion of schools by Mr Singh.[37] Mr Singh did not provide an affidavit to rebut these claims and no explanation was provided as to his failure to do so. The available inference was that he had made the representations.
[62] I note that the majority say that the Judge was right to find that no reasonable person would have relied on the representation. In my view, the issue of whether a reasonable person would have relied on the representation as to seven schools is properly an issue for trial and in this respect I depart from the view of the majority. At [40] of its judgment, the majority identifies factors which they say support their conclusion that no reasonable person would have relied on the representation. The majority emphasises that when the agreement was entered into in December 2007, the area of Flat Bush to be developed for the new township was essentially vacant, having previously been farmland. Some roading and other infrastructure had been formed but house building had yet to occur on a significant scale. The majority concludes that it should have been obvious to a person such as Mr Narayan that it was unlikely that the Ministry intended to build seven schools within a two year period to serve a population that had not yet been established.
[63] There are other factors not identified by the majority which show how factually sensitive this issue is, and why it is inappropriate for disposition through summary processes. First, it has not been uncommon in recent years for new neighbourhoods to spring up in Auckland over short periods of time. General perceptions of just how short those time periods are may well be inaccurate amongst those not who are not actually involved in development and of course Mr Narayan is no expert in urban development.
[64] Moreover, although some sort of plan of the location of the proposed schools was provided, it was not clear from the affidavit evidence just what areas would be served by the seven schools, whether it was only the new subdivision, or also areas contiguous to it. To this must be added the evidence of existing demand for schools in May 2006. The New Zealand Herald reported in May 2006 that the Flat Bush area was fast growing and that new schools in the area were needed quickly. In a 2007 newspaper article it was reported that 15,000 people had moved into the new area in the previous three years, and that the Flat Bush community included an existing area to the west of the town centre and Chapel Road. A further relevant contextual point noted in the 2006 New Zealand Herald article, was that three of the planned schools were to be located on the same site.
[65] It is also to be weighed that the agent who made the representation no doubt expected it to be believed and that is important context in deciding whether reliance was reasonable.
[66] The issue of reasonable reliance raises factual issues which need to be explored further and resolved following trial. It is well established that summary judgment is not appropriate where material facts cannot be confidently concluded from the affidavits.[38]
[67] The majority says that if it was wrong in its finding about reasonable reliance, the representation as to future schools was not actionable as it involved a statement as to future conduct rather than present fact. The representation was as to what the Ministry of Education intended to do in 2009. The majority says it should have been obvious to Mr Narayan that there was no guarantee that the Ministry would follow through on that intention. In my view, the majority mischaracterises the representation. The representation was that in 2007 it was planned to build the seven schools. That is a representation as to a present fact, and indeed the evidence was that by 2007 the Ministry had acquired all of the land for those schools. The fact that circumstances may change is irrelevant. The point is that in 2007 there was no such plan.
[68] The majority also attached significance to the fact that the agreement identified the date for possession and settlement as the later of 1 October 2008 or 5 working days after the vendor’s solicitor notified the purchaser’s solicitor in writing that the title was available for searching. This meant that Mr Narayan knew he could be called upon to settle well before the end of 2009, and before he knew whether or not the Ministry would follow through on what he understood was its intention to complete the seven schools. Mr Narayan may then be treated as having been prepared to take the risk that schools might not be built before the end of 2009.
[69] The majority seem to thereby suggest that the representation was not essential to Mr Narayan. This of course is inconsistent with Mr Narayan’s evidence that the representations were critical to his decision to enter into the contract. The inference the majority draws from the timing of the settlement is in my view tenuous and unsafe. I consider that Mr Narayan had raised an arguable defence that the two representations, apart or together, gave rise to a right to cancel the contract or to obtain relief under the Fair Trading Act. Mr Narayan’s case was in broad terms, that he was being sold a section in an area that was growing at a rapid pace – while largely undeveloped now, it would soon not be. However, in reality, critical aspects of the development of the area, the construction of key amenities, would take place over a significantly longer time frame than represented to him.
[70] On the evidence, Mr Narayan had a good argument he had made out a right to cancel under s 7(4). In Progeni Systems Ltd v Hampton Studios Ltd,[39] Tipping J applied the test propounded by Jordan CJ in Tramways Advertising Pty Ltd v Lunar Park (NSW) Ltd:[40]

The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promissor.

[71] Tipping J said:

[T]he truth of a representation will be essential when the representation is of such fundamental importance to the representee in his consideration whether to enter into the proposed contractual relationship that without it he would not have contracted with the representor either at all or on those particular terms.

[72] Alternatively, counsel for Mr Narayan argued that the benefit or burden of the contract was substantially different from that represented. In Jolly v Palmer,[41] Hardie Boys J said at 662:

The statute does not define the word “substantially” and the Court should not attempt to do so either. It is enough to say that what is required is something more than trivial or minimal, but I think Mr Withnall went too far when he argued that what is required is a difference so great as to alter the subject-matter of the contract. Each case must be considered on its own facts, and an individual determination made having regard to the nature of the contract and of its subject-matter and to all the circumstances of the case.

[73] Again, I consider that Mr Narayan has raised an arguable defence that the benefit that he would obtain from the contract was, by virtue of the misrepresentations, substantially different to that which he had believed he was obtaining, and that he suffered or was about to suffer loss by reason of the misrepresentation.[42] As the Associate Judge noted, the onus was on Arranmore to show that the purchaser could not cancel under s 7(4). Arranmore did not discharge that burden. It was also on Arranmore to show that Mr Narayan was not entitled to relief under the Fair Trading Act.
[74] Both the issue of whether or not it was reasonable for Mr Narayan to rely upon the representations, and whether or not the misrepresentations in question gave rise to a right to cancel or obtain other relief were issues which should have been allowed to proceed to trial. Resolution of these issues in this case requires a nuanced assessment of the evidence. Of course it is possible to deal with the issues within the parameters of the affidavit evidence filed in support of an application for summary judgment. But that is an artificial construct which does not allow for the full exploration of the complex factual matters arising in this case, which trial would allow. It requires too robust an approach which risks injustice.[43]

Costs appeal

[75] Mr Narayan also appealed against the decision of the Associate Judge as to costs. He argued that the Judge should have reserved costs until the case had been finally determined, and that he should not have made costs orders which rendered Mr Narayan jointly and severally liable with the three other purchasers who made similar allegations against the plaintiff.
[76] I agree with the majority that it was open to the Judge to resolve the issue of costs at the time that he did (assuming that he was correct to grant judgment). However I disagree with the majority that the approach taken by the Associate Judge to the award of those costs was appropriate. The Judge identified some costs which were particular to each defendant which were their responsibility alone and others that were common, in respect of which he ordered joint and several liability. At [38] of his judgment he said:

These four proceedings were all heard at the same time for the convenience of the parties and the Court, but they have not been consolidated. If the applications for summary judgment had been heard separately, each defendant would have been ordered to pay costs for the whole proceeding alone. That is, the plaintiff could have sought an order against each defendant for the commencement of the proceeding, issuing a summary judgment application, for preparation, for the defended hearing, and so on. In this case, however, the plaintiff has proposed that the efficiencies achieved in hearing the four matters together should be reflected in the orders for costs. It prepared schedules of costs in which it proposed that where the plaintiff had taken a step common to more than one application, the costs would be payable by the defendants jointly and severally, but where the costs related to only one application, those costs would be payable by that defendant alone.

[77] The Judge accepted that basic methodology although making some small amendments to the schedule provided by the plaintiff. He noted the submission from Mrs Grant that each defendant should pay a fixed share of the costs, but to that he responded:

As each defendant would be individually liable for the costs the plaintiff seeks against him, there is no basis for reducing that defendant’s liability to a fraction of that sum. If a defendant pays more than his individual share of the common costs, he has a claim for contribution for the others, but there is no reason for the plaintiff to carry the risk that one defendant may not have the funds to meet an order for costs. A defendant’s right to contribution from another defendant arises from the common liability under the orders for costs.

[78] Rule 14.4 of the High Court Rules provides for the liability of each of two or more parties ordered to pay costs as joint and several, unless the Court otherwise directs. However the defendants in this case were not parties to the one proceeding, since no order of consolidation had been made. Although through co-operation the defendants had reduced the costs both to themselves and to the plaintiff, this is no basis to require that Mr Narayan should indemnify for the plaintiff against the risk that the other defendants would not meet their share of costs.
[79] In reaching the view that the defendants should be jointly and severally liable for the costs the Judge has confused two considerations; he confused considerations of joint and several liability which are appropriate when there are multiple defendants within one proceeding, with an adjustment to a total award of costs to reflect the truncation of four separate sets of related proceedings in the same hearing. If the proceedings had been dealt with separately, the plaintiff would have carried the risk that each defendant, in each proceeding, might not have had the funds to meet a costs order made. The fact that the parties agreed to save costs by having the applications heard together provides no good reason to depart from that situation. In my view the Judge should have identified those steps which were particular to individual defendants, and those which were shared. He should have divided the shared costs between defendants. Each defendant should then have been liable for their fixed share (the individual costs, and their share of the common costs).
[80] For these reasons, I would allow the appeal against the two judgments of the Associate Judge, granting summary judgment for specific performance against Mr Narayan and costs.

Solicitors:
Brennan & Brown-Haysom, Auckland for Appellant
Daniel Overton Goulding, Auckland for Respondent

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[1] Arranmore Developments Ltd v Zeeland Developments Ltd [2010] NZHC 854; (2011) 11 NZCPR 799 (HC).
[2] At [57].
[3] At [64].
[4] At [75].
[5] Section 11.
[6] Arranmore Developments Ltd v Narayan HC Auckland CIV-2009-404-4342, 15 June 2010.
[7] Mana Property Trustee Ltd v James Development Ltd [2010] NZSC 90, [2010] 3 NZLR 805.
[8] At [24].
[9] At [25].
[10] At [37].
[11] See also Pegasus Town Ltd v Draper [2011] NZCA 140, (2011) 13 TCLR 144 at [29]–[36].
[12] Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492.
[13] AMP Finance v Heaven (1998) 6 NZBLC 102,414 (CA).
[14] At [26].
[15] At [28]. (Footnotes omitted.)
[16] At [29]. (Footnotes omitted.)

[17] John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed LexisNexis 2007) at [11.2.1].

[18] Ibid at [11.3.2]. See the discussion in Premium Real Estate Ltd v Stevens [2008] NZCA 82, [2009] 1 NZLR 148 (CA) at [51]–[54]. This case went on appeal to the Supreme Court but this aspect was not considered: see Premium Real Estate Ltd v Stevens [2009] NZSC 15, [2009] 2 NZLR 384 (SC).
[19] Buxton v The Birches Time Share Resort [1991] 2 NZLR 641 (CA) at 646.
[20] See [26] above.
[21] See, for example, Symons v Wiltshire Investments Ltd [2011] NZCA 397.
[22] Buxton v The Birches Time Share Resort at 647.
[23] As to the possibility of a damages claim, see [49] below.
[24] At [78]–[82].
[25] At [83]–[91].
[26] See [24] above.
[27] CRA, s 8(3).

[28] This valuation evidence also took account of the failure to complete the schools: see Associate Judge Bell’s judgment at [89].
[29] See the discussion in Harvey Corporation Ltd v Barker [2002] 2 NZLR 213 (CA).
[30] Shirley v Wairarapa District Health Board [2006] 3 NZLR 523 (SC) at [15].
[31] High Court Rules, r 14.2(a).
[32] Rule 14.8(1).
[33] Rule 14.8(3).
[34] McGechan on Procedure at [12.12.08(1)] and [14.8.03].
[35] Rule 14.14.
[36] At [38].
[37] Affidavit evidence of Mr Avirappattu, and Mr Chaudhary in addition to that of Mr Narayan.
[38] Westpac Banking Corporation v M M Hembla New Zealand Ltd [2000] NZCA 319; (2000) 14 PRNZ 631 (CA).
[39] Progeni Systems Ltd v Hampton Studios Ltd HC Christchurch Cp 105/86, 11 August 1987.
[40] Tramways Advertising Pty Ltd v Lunar Park (NSW) [1938] NSWStRp 37; (1938) SR (NSW) 632 at 641.
[41] Jolly v Palmer [1985] 1 NZLR 658 (HC).
[42] Fair Trading Act 1986, s 43.
[43] Bilbie Dymock Corporation Ltd v Patel & Bajaj (1987) 1 PRNZ 84 (CA).