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Overton Holdings Limited v APN New Zealand Limited [2015] NZCA 526 (12 November 2015)

Last Updated: 19 November 2015

IN THE COURT OF APPEAL OF NEW ZEALAND
BETWEEN
 Appellant
AND
 Respondent
Hearing:
7 October 2015
Court:
Harrison, Stevens and Winkelmann JJ
Counsel:
G J Harley for Appellant K M Quinn and S M Thompson for Respondent
Judgment:


JUDGMENT OF THE COURT

  1. The appeal is dismissed.
  2. The appellant must pay the costs of the respondent for a standard appeal on a Band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Stevens J)

Table of Contents

Para No
Introduction [1]
Factual Background [4]

The sale and lease back [5]

The 2011 earthquake assessment [11]
Issues for determination [17]
Was there an implied representation? [18]
Did the representation extend to structure [28]

Relevance of the intervening reports? [32]

Conclusion on misrepresentation [37]
Inducement [38]
Effect of cl 18.1 [40]
Fair Trading Act [45]
Did APN breach cl 49.1 of the Lease? [49]
Relief in contract [51]
Result [57]

Introduction

[1] In 2007 APN New Zealand Ltd (APN) decided to sell the Hastings premises it had occupied for many years. APN engaged Bayleys Real Estate Ltd (Bayleys) to assist with the sale, which it determined would be subject to a lease back to APN to enhance the sale value. The property was sold to the appellant, Overton Holdings Ltd (Overton). The sale agreement included a clause stating Overton relied only upon its own judgment in purchasing the property. The transaction was completed and the lease proceeded satisfactorily until mid-2011 when it was discovered that some buildings on the property were earthquake-prone. Following extended correspondence between the solicitors, APN progressively vacated the premises between mid-2012 and early 2014. It continued to pay the rent and outgoings under the lease until the term expired on 14 October 2015.
[2] Overton sought to cancel both the sale and the lease, alleging APN misrepresented that the premises were fit for its business use. Overton also claimed a breach of s 14 of the Fair Trading Act 1986. It also sought damages for APN’s alleged breach of a clause of the lease in failing to remediate the premises. All claims were dismissed by Brown J in the High Court.[1] Given his findings on liability, the Judge saw no need to engage with issues of damages.[2]
[3] Overton now appeals. It contends the Judge erred in his findings on liability. It seeks to establish that liability was proven on each of the three claimed causes of action. On the question of remedy, Overton claims, even if cancellation of the sale and lease is not granted, it should be awarded damages of $1.6 million based on the cost of remediation of the premises.

Factual background

[4] The essential facts, including the key parts of documentation of the transactions, are not in dispute. The following summary draws on Brown J’s findings.[3]

The sale and lease back

[5] Prior to 2007 APN (and its predecessor, Wilson & Horton) owned and occupied commercial premises at 113 Karamu Road North, Hastings. The property comprised seven buildings, occupied solely for the purpose of APN’s newspaper publishing business. In 2007, APN decided to divest a number of properties throughout New Zealand, including the property at Karamu Road.
[6] Bayleys was instructed to facilitate the sale and prepared an information memorandum (IM) giving notice of sale by international tender, closing Monday 25 June 2007. The IM stated the property would be sold subject to a lease back to APN. The form of the lease was attached to the IM and was for a term of five years with one right of renewal of five years at a net annual rental of $340,000. The IM contained a “General Policies Disclaimer” that included the following:
  1. No structural survey has been made and no undertaking is given about such matters.

...

  1. Building Act 1991, Health and Safety Act 1992, Evacuation Buildings Regulations 1992 and Disabled Persons Community Welfare Act 1975.

No undertaking is made that the property complies with this legislation.

[7] On 26 July 2007 APN and a third party signed an agreement for sale and purchase providing for a due diligence process for a period of 15 working days. While that agreement was still on foot APN and Overton entered into a “back up” agreement for sale and purchase (the Agreement). Overton was the corporate vehicle through which the commercial property investment activities of a Mr Rockefeller were carried out. When the third party notified APN it was unable to satisfy the due diligence conditions in the first contract, the Agreement with Overton became unconditional on 27 August 2007.
[8] The Agreement provided that the Karamu Road property was sold subject to the grant of a lease to APN on the terms attached.[4] The only material difference from the draft lease attached to the IM was the period of the initial term, which was extended to eight years. The Further Terms of Sale in the Agreement included:

18. Purchaser’s Judgment

18.1 Notwithstanding any other provision of this agreement, the vendor does not warrant the accuracy of any matter or fact in this agreement or in any particulars of sale or in any advertisement or other marketing material or of any statement made by or on behalf of the vendor, and the purchaser must verify all matters to its own satisfaction and the purchaser enters into this agreement and purchases the property in reliance solely upon its own investigations and judgment and not in reliance upon any statement or representation made by or on behalf of the vendor.

[9] A Deed of Lease was duly executed between Overton as landlord and APN as tenant, dated 2 November 2007 (the Lease). Clause 16.1 provided that the tenant would not, without the prior consent of the landlord, use or permit the whole or any part of the premises to be used for any use other than the business use. The business use was defined in the First Schedule as:

Commercial offices (including newspaper and media administration) and any other uses necessary to carry on the Tenant’s business, and any uses permitted under the relevant District Plan and ordinances.

[10] Additional clauses in the Second Schedule of the Lease included cl 49.1, which relevantly provided:

Health and Safety in Employment Act 1992

49.1 The Tenant will comply with the Health and Safety in Employment Act 1992 (“the HSEA”) in respect of the premises and its fit-out, fixtures and fittings, equipment and any alterations made by the Tenant in or to the premises and their use in the premises as part of a place of work including without limitation:

(a) Ensuring that all significant hazards in respect of the same are identified and eliminated where practical, or isolated where elimination is impractical, or minimised where elimination or isolation is impractical.

...

(c) Identifying possible hazards for its employees or other persons attending or in the vicinity of the premises.

(d) Taking all practicable steps to eliminate, isolate or minimise hazards and ensure that people working in the vicinity of the premises are not harmed.

...

The 2011 earthquake assessment

[11] The Building Act 2004 requires all Councils to assess public buildings for earthquake resistance. Hawke’s Bay is well-known for its earthquakes and, in light of the Christchurch earthquakes, the Hastings District Council (the Council) made earthquake assessments a priority.
[12] The tenancy had proceeded without incident until 2011 when the Council wrote to Overton concerning the status of the buildings at Karamu Road. The Council informed Overton the buildings had been identified as requiring an earthquake assessment because they were constructed prior to 1976. Strata Group Consulting Engineers Ltd (Strata Group) were instructed to carry out the assessment and prepare a report on the earthquake resistance of the buildings. On 11 May 2011 the Council advised that the buildings had been classified as “Potentially EarthquakeProne”, an automatic categorisation for buildings constructed prior to 1976, as the structural design codes had changed significantly after that time.
[13] Strata Group carried out an Initial Evaluation Procedure of the Karamu Road buildings. On 11 August 2011 the Council advised Overton of the results of that initial evaluation as follows:

Unfortunately the buildings listed below did not pass the threshold of 33% of new building standards (%NBS) and therefore your buildings is (sic) deemed Earthquake-prone and will be listed on Council’s Earthquake-prone Buildings Register on the website. These buildings will require further investigation to be carried out.

The other buildings on the site have passed the 33%NBS threshold.

[14] On 27 September 2011 APN’s solicitors wrote to Overton enclosing a copy of an evaluation that APN had commissioned. That report assessed the buildings’ seismic performance at 8 per cent of NBS (defined above) and having the lowest seismic grade “E”. APN requested Overton take what it described as appropriate actions to address the risks the buildings posed to persons and property, including:
[15] The letter also referred to Overton’s alleged legal liability under the Lease, the Building Act 2004 and the Health and Safety in Employment Act 1992. This resulted in an exchange of correspondence between the solicitors for both parties throughout 2012. Each party took the position that it was the obligation of the other to remediate the earthquake-prone buildings. APN advised that if Overton did not remediate, it would have no choice but to vacate the premises. Overton asserted that APN had misrepresented the property as fit for APN’s use when it was sold in 2007.
[16] APN vacated the property in two stages. The publishing division moved out on 31 August 2012 and the print division vacated the property on 14 February 2014. APN continued to pay in full the rental and outgoings under the Lease until its expiry on 14 October 2015.

Issues for determination

[17] The following issues arise for our determination on appeal:

Was there an implied representation?

[18] The starting point is caveat emptor/lessee: in the case of the sale or lease of a property, there is no implied term or representation that the property sold or leased is fit for the use intended by the purchaser or lessee.[5] Therefore, to succeed on the implied representation claim, Mr Harley accepts Overton must establish that the present case is an exception to this general rule. He argues an exception arises for two reasons: first, the parties shared a common assumption that the property was suitable for APN’s business use and second, because the transaction involved a sale and lease back, as opposed to a sale alone or a lease alone.
[19] There are few exceptions to the starting point as set out above and the courts generally have been unwilling to create more or widen those that presently exist.[6] This Court has recognised an exception in a situation where a building is sold while under construction and the vendor is the builder. A term may be implied that the premises will be fit for occupation, on the basis that the purchaser could not inspect the premises and be satisfied as to their fitness.[7] Overton does not suggest this exception applies.
[20] Rather, Mr Harley for Overton submits that in Gabolinscy v Hamilton City Corporation an exception to the general rule was applied and the same should occur here.[8] He submits the case establishes that where an agreement for sale and purchase contemplates a specific use to which property is required to be put by the purchaser, the vendor is impliedly representing that the property is fit for that use. We disagree.
[21] Gabolinscy concerned the sale of land by the Council to purchasers in circumstances requiring the purchasers to use it for housing purposes and accordingly to build a house on it of certain value within a specified period of time. After the house was built, fractures became apparent, caused by settlement of the land beneath. The Judge found primarily for the plaintiffs in tort, establishing the Council had been negligent in its prior filling of the land.[9] Moller J also considered the claim in contract in the alternative. The plaintiffs alleged they had been given an implied warranty. The Judge accepted that, in general, although warranties as to the quality of any land that is the subject of a contract of sale or lease are not to be implied, “the totality of the circumstances of any particular case may lead the Court to a decision that such a warranty should be implied”.[10] The Judge held a warranty as to the suitability of the property for housing purposes required by the sale agreement was to be implied. The totality of the circumstances in this case pointed to the fact the defect, involving lack of suitability of the ground soil used by the Council for housing purposes, could not reasonably have been discovered by prior examination by the purchasers.
[22] The observations of the Judge as to the implied warranty are strictly obiter. We do not agree they widen the available exceptions to the general rule, nor create an alternative exception. The highest Gabolinscy may be put is that in the context of a vendor/lessor uniquely placed to know and appreciate the risks, and having undertaken the work in question, where the resulting lease requires a lessee to take certain positive steps, there may be an implied warranty (not a representation) that the land is fit for undertaking those steps.
[23] That is not the case here. Overton’s obligation was to lease the property to APN. It was able to do so and the Lease was fulfilled. APN, correspondingly, was obliged only to enter into the Lease. It did so. APN has complied with all of its obligations under the Lease and continued to do so until the expiry of the term. We do not consider Gabolinscy takes the position further.
[24] Mr Harley also seeks to rely on the principle in Ware v Johnson as establishing a basis for departing from the usual operation of caveat emptor/lessee.[11] Ware v Johnson concerned the purchase of a property that had been developed by the vendors into a kiwifruit orchard ready to come into production within two to three years. At the time of purchase around 1600 kiwifruit plants had been planted. Following the sale, the vines failed to grow and there was a total loss of the plants. The plaintiffs claimed against the vendors in breach of contract, relying on an implied term that the vendors would sell the orchard with live plants. It transpired the vendors had caused the loss of the plants by spraying the orchard with an unsuitable herbicide.
[25] Prichard J held it was implicit in the contract between the parties that the plants were capable of developing normally and bearing fruit of commercial quantity and quality. The vendors were in breach of the implied term that the kiwifruit plants were in a satisfactory condition. The Judge found such a term was not a term as to quality or fitness, stating:[12]

... it is a term as to the fundamental character of the thing being sold, and so outside the prohibition against the implication of terms as to quality and fitness in agreements for sale and purchase of land. In short, if the term is not implied, the plaintiffs are compelled to accept something which is fundamentally different from what they contracted to buy – not just something of different quality or not fit for its intended purpose.

[26] Overton seeks to bring itself within the ambit of this principle in Ware v Johnson, contending it was similarly the “fundamental character” of the thing being sold that the premises in question be structurally sound. However, Overton’s case is advanced, not on the basis that the property is fundamentally different from that contracted for, but rather that what was received was something of a different quality or not fit for its intended purpose. Moreover, Ware v Johnson is, at root, authority for the implication of a term into a contract — it does not advance the issue of the nature of representations APN can be reasonably expected to have or did indeed make. Further, the Judge in Ware v Johnson did not accept the term implied was one as to fitness or quality, but rather the nature of the business purchased. It does not provide authority for an exception to the general rule against representations as to fitness or quality for purchases or leases of land. As such, Overton’s submission falls foul of the very prohibition identified by the Judge.
[27] The fact is that in 2007 Overton acquired the property under the Agreement. APN as vendor entered into the Lease as it contracted to do. APN met all its obligations under the Lease. As at the end of the term, Overton retained the very property it had earlier acquired. The pre-contractual document (the IM) contained a disclaimer about the structural integrity of the building and stated that “no undertaking is given about such matters”. We see no proper basis in such circumstances to create a new exception to the caveat emptor rule to permit Overton to rely on an implied representation. Accordingly, we do not accept there is any exception to the caveat emptor rule Overton can call in aid. We agree with Brown J that none of the cases relied upon by Overton assists in establishing an exception to the general rule.[13] Moreover, whatever common assumption the parties may have shared about the state of the premises, Overton has failed to prove the existence of a misrepresentation by APN of the type alleged.

Did the representation extend to structure?

[28] Even if we had been minded to accept the implied representation contended for by Overton had been made and it fell within an exception to the general rule, we nonetheless agree with Brown J that the claim suffers from a further fatal problem. The pleaded representation is that the property sold was suitable for APN’s business use as tenant. In oral argument Mr Harley explained that the actual representation relied upon by Overton was in fact somewhat wider than just “business use”: it extended to a representation that APN employees would be able to continue to work, safely, on the premises. This arose from the context, being the commercial purpose of the composite sale and lease back transaction, and the stated use of the lessee in the Lease, and (presumably) the fact APN had previously safely worked in the premises. Overton submits this representation was breached because the buildings are earthquake-prone. As Brown J’s reasoning makes clear, there is no other pleaded basis upon which the representation as to fitness for use can be said to be untrue. Accordingly, for Overton to succeed it must establish that APN represented that the buildings were structurally sound.
[29] We agree with Mr Quinn’s submission for APN that a representation that premises are fit for a particular business use logically entails multiple “subrepresentations”, only one of which concerns structural soundness. For example, as Mr Harley accepts, the representation as to requisite safety might relate to zoning, size, geotechnic aspects, structure, fire safety and being free from asbestos. The problem for Overton in seeking to imply the representation of this nature is that any actionable representation must be clear and unambiguous. Given the range of factors potentially covered by a suitability for business use representation, it follows that Overton cannot point to any clear, well-defined representation upon which it can show it relied.
[30] In any event, a representation may only be implied to the extent it is consistent with express representations. Clause 3 of the IM, noted earlier, states “[n]o structural survey has been made and no undertaking has been given about such matters”. Any general representation as to fitness for use or suitability for business purposes cannot be treated as impliedly extending to structural soundness; the express representations of APN and its agents preclude that outcome.
[31] For completeness, we also deal with Overton’s submission that the representation as to suitability for business use would apply even after the expiry of the term of the Lease. We see no basis for that conclusion. The contractual structure of the combined transaction precludes it. Under the lease APN was obliged to meet its obligations until the expiry of the term. It did so. It was not legally obliged to renew. Accordingly, any representation as to business use could not be taken as extending past the end of the term of the Lease.

Relevance of the intervening reports?

[32] In this context we also briefly address the role of reports prepared by Vero, APN’s insurer, in 2004 and 2007. Overton had, at trial, contended that APN, when entering into the Agreement, had corporate knowledge that the buildings were earthquake-prone. Such knowledge was said to arise from the 2004 Vero report. The Judge found this was an insurer’s report, the purposes of which appears to have been to identify hazards at Karamu Road, make risk assessments and recommend risk improvements.[14] The report does refer to the topic of earthquake under “risk assessments”, stating:

Earthquake

The site is located within in (sic) Cresta Zone 8, which is regarded by seismologists as having a mean average return period of 480 years for earthquakes of intensity MM9 and 2000 years for MM10 (modified Mercalli scale) intensity.

Hastings suffered a major earthquake in 1931. We understand that Karamu Road corner first floor collapsed and there was a staff fatality.

Earthquake Risk Assessment: Probability (high) – Consequence (High)

[33] The Judge found the report made no recommendation specific to earthquakes in the recommended risk improvements and concluded:[15]

I agree with APN’s submission that the 2004 Vero Report, which was prepared by an insurance assessor and not an engineer, makes no relevant statement about the structure of the buildings at Karamu Road which would lead anyone to believe or even suspect that they were earthquake-prone. As Mr Quinn noted, APN continued to use the premises and Vero continued to insure them.

Consequently I do not accept that as a consequence of the 2004 Vero Report APN had corporate knowledge that parts of the premises were earthquakeprone.

[34] The Judge also discussed the later 2007 Report, concluding:

... [it] does not advance the matter for Overton because its date was 30 August 2007, which was six days after the Agreement was executed and three days after the Agreement became unconditional. In any event the 2007 Report did not add significantly to the 2004 Report, stating under the heading “Perils”:

Earthquake

Hastings is located in one of New Zealand’s highest risk areas for earthquake. In 1931, New Zealand’s deadliest earthquake, magnitude 7.8, devastated the cities of Napier and Hastings. The (sic) resulted in the death of over 250 people in the region and caused substantial property losses.

The modern parts of the building have steel frames and would prove more resilient. However there is still likelihood of damage or misalignment to the press. Older sections of the building could be more susceptible to damage. Peril regarded as moderate-high.

(footnotes omitted)

[35] We agree with the reasons given by Brown J. Mr Harley was unable to refer us to any evidential or other basis to demonstrate the Judge was in error. We only add the following. The evidence established that one of the buildings was damaged in the 1931 earthquake and that older sections of the building could be susceptible to further damage. However, the reports do not comment on the seismic strength of the buildings. In any event, both reports are insurance reports, not engineering reports, and do not provide the level of detail required to fix APN with corporate knowledge that the buildings were earthquake-prone.
[36] Even if APN had known generally the buildings were earthquake-prone that would not mean APN misrepresented them as seismically sound. Silence is not to be treated as misrepresentation unless there is a duty to disclose. A duty would only arise when (a) the vendor has created a misconception by conduct; or (b) the vendor made a representation that is true at the time but subsequently becomes false; or (c) the vendor told a half-truth.[16] A vendor is under no duty to disclose defects of which it has knowledge unless one of those three categories applies.[17]

Conclusion on misrepresentation

[37] We are satisfied no misrepresentation can be made out. None of the accepted exceptions to the general caveat emptor rule in the case of sales of land or leases applies in this case. Nor would any established representation extend to the structure of the buildings. Overton’s submission that APN’s knowledge of the Vero reports made the disclaimer in the IM a half-truth also cannot be sustained. The disclaimer in the IM, that “[n]o structural survey has been made” is decisive and both Vero reports were plainly not structural surveys. Accordingly, we uphold Brown J’s findings and this ground of appeal is dismissed.

Inducement

[38] There is no dispute Overton must prove that Mr Rockefeller was induced to enter into the Agreement by the claimed misrepresentation. Brown J found Mr Rockefeller received a copy of the IM. Clause 3 of the IM made it clear APN gave no undertaking as to the structural sufficiency of the buildings. Brown J held:[18]

In view of that disclaimer, the term of the draft lease relating to APN’s business use could not reasonably have been understood by Mr Rockefeller as a representation that the buildings were structurally sound or at least not earthquake-prone. Consequently, the alleged misrepresentation cannot have induced Mr Rockefeller to purchase Karamu Road.

[39] We see no error in that conclusion.[19] We agree with Mr Quinn that it is a basic requirement of inducement that the inducee must be aware of the representation.[20] There is no direct evidence showing Mr Rockefeller turned his mind to whether the premises were structurally sound. No inquiries on this issue were made and no property inspection was arranged. The evidence suggests Mr Rockefeller’s approach was desultory. Mr Harley was accordingly unable to point to any evidence that Mr Rockefeller was aware of any representation as to fitness of use or structure. Absent inducement, actionable misrepresentation cannot be made out.

Effect of cl 18.1[21]

[40] APN relies on cl 18.1 of the Agreement to contend that, even if there were a representation as to the business use of the premises (extending to structure) which amounted to an inducement to Overton to enter into the Agreement, Overton was precluded from relying upon that representation. In considering APN’s argument it was necessary for the High Court to consider s 4(1) of the Contractual Remedies Act 1979. That provision governs when exclusionary provisions in a contract can fairly and reasonably operate to prevent a court from investigating statements made in the course of negotiating a contract. APN argued cl 18 was properly characterised as a non-reliance clause rather than an exclusion clause, preventing Overton from relying on specific statements, rather than limiting or excluding resulting liability for misrepresentation. Non-reliance clauses go to the question, as here, of whether there was a misrepresentation in the first place.[22]
[41] The Judge considered the factors in s 4(1) of the Contractual Remedies Act as to whether the clause was conclusive. Here the Agreement concerned the purchase of a commercial property for $4 million. There was no inequality in the respective bargaining strength of Overton and APN. Mr Rockefeller was a well-known, experienced investor in commercial property and while Overton was not represented by an external lawyer at the time of entering into the Agreement, Mr Rockefeller was legally qualified. Accordingly the Judge concluded:[23]

I accept the submission that clause 18 is fairly characterised as a nonreliance clause. Consequently I do not adopt the analysis advanced by Mr Harley that clause 18 cannot be used to permit APN to convey what Overton did not agree to buy. I also agree with APN’s analysis of the s 4(1) factors ... . The circumstances of this case are such that in my view it is fair and reasonable that clause 18 should be able to be deployed by APN to defeat a claim that it made an implied misrepresentation.

[42] We agree with the Judge’s reasoning. Reliance (or inducement) is an element of an actionable misrepresentation. We agree and accept that cl 18.1 is a “nonreliance clause”. The clause was not in standard form. It was contained in the Further Terms of Sale and was readily visible. It was set out following the clause establishing the obligation for the lease back. Moreover, the misrepresentation (if accepted) was innocent and not fraudulent. We accordingly accept it was fair and reasonable under s 4(1) of the Contractual Remedies Act for APN to rely upon the clause.
[43] Mr Harley was unable to demonstrate any error in the Judge’s conclusion on this issue. We accept that, even if there had been an implied representation, cl 18.1 would operate to preclude liability.
[44] It follows we are satisfied that APN did not represent that it was contracting to convey a property that was fit for its business use or structurally sound. When entering into the Agreement it undertook to convey the property at Karamu Road and thereafter enter into a lease on the terms annexed to the Agreement. It performed both of these obligations.

Fair Trading Act

[45] Overton claimed in the High Court that APN breached s 14(1) of the Fair Trading Act. This section prohibits a person from making a false or misleading representation concerning the characteristics of land or the use to which it is capable of being put. The test is whether a reasonable person in the plaintiff’s situation with the characteristic known to the defendant would likely have been misled.[24]
[46] Brown J held that there was no breach of s 14 for essentially the same reasons that applied in relation to the contract cause of action.[25] The Judge made a factual finding that there was no implicit representation either in the terms pleaded or generally having the tenor that Karamu Road was structurally sound. In reaching this finding Brown J took into account the case of Des Forges v Wright.[26] There, in the absence of an express warranty or representation, Elias J declined to find a misrepresentation either by implication or by the innocent failure to disclose a decision to shut down a factory. The Judge held:[27]

Some caution is perhaps proper in cases of commercial dealings between parties at arm’s length. Section 9 is not to be turned into a general warranty by the vendor of the expectations of the purchaser ... The Fair Trading Act is not designed to provide a guarantee to purchasers who fail to look after their own interests in a manner which is reasonable in the circumstances.

[47] Despite Mr Harley’s careful submissions we see no error in Brown J’s conclusion or reasoning. In selling the property and taking a lease back, APN could not reasonably be taken as representing that the buildings were fit for APN’s business use or structurally sound, particularly in the light of the express disclaimer in the IM. We agree that courts should be generally reluctant to imply representations from conduct or silence in Fair Trading Act claims involving commercial parties.
[48] Even if APN had been found to breach s 14, s 43 of the Fair Trading Act applies to the question of loss. The Court has a discretion to order relief if Overton has suffered loss. That requires first that Overton must have actually been misled by the relevant representation and second that the breach must have been an effective cause of Overton’s loss. We are satisfied that neither of these requirements has been established for the reasons we have already given, including the discussion about cl 18 of the Agreement. In any event, for the reasons we set out later, we consider Overton suffered no loss.

Did APN breach cl 49.1 of the Lease?

[49] Clause 49 of the Lease requires APN to comply with the Health and Safety in Employment Act 1992 (HSEA) in respect of the premises and its fit-out, including by eliminating, isolating or minimising hazards. APN relies on the findings of Brown J that cl 49 does not require APN to remediate structural deficiencies in the building on the basis that:
[50] We agree with the conclusion of Brown J and the reasons he gave. We add one further point. As Brown J observed, the HSEA sets out general principles. It does not prescribe the practices one must adopt to comply with those principles.[35] We agree with APN that the HSEA is neutral as to whether (in this case) employee safety is achieved by strengthening the buildings or removing the employees. To read the HSEA as compelling seismic strengthening would be inconsistent with the Building Act (which gives owners a choice whether to strengthen or demolish).

Relief in contract

[51] In the High Court Overton sought in the alternative:
[52] Before us Mr Harley put the damages claim at $1.6 million being the estimated cost to remediate the buildings to 67 per cent of NBS.[36] We have already noted that the Judge, having found against Overton on all issues of liability, preferred not to deal with “potentially complex” damages issues on a contingent basis.[37] Although we have dismissed all grounds of appeal, we heard argument on damages and briefly record our views.
[53] Mr Quinn submits there is no basis for refunding the purchase price. He relies on the principle that the purpose of damages is to put a party in the position in which it would have been had the representation been true. Assuming APN did misrepresent that the buildings were structurally sound, Overton’s loss could only be the difference between what it would have received upon settlement in October 2007 if the representation had been true, and what it actually received. Mr Quinn submits the difference is zero.
[54] Mr Quinn also submits Overton received a property under the Agreement that would inevitably need to be redeveloped at the end of the eight year term if APN did not renew. The evidence was that redevelopment would require demolition of the buildings. Redevelopment would likely occur then because Overton could never have been certain about the prospects of APN renewing the lease at the end of the eight year term. Once APN did not renew, the buildings were unlikely to appeal to another tenant and would be treated as functionally obsolete (due to the particular needs and fittings required for APN’s business).
[55] We consider that there is merit in Mr Quinn’s submission. Overton acquired the property in 2007. It obtained the Lease from APN, the terms of which APN complied with in full. When it transpired that the buildings were earthquake-prone, APN made the decision to move out in the interests of the safety of its staff. But it continued to pay Overton rent under the Lease until the end of the term. Overton suffered no loss in rental income.
[56] Moreover, when the Lease expired, Overton had then what it contracted to receive, namely a property that was likely to need to be redeveloped. Overton would be faced with the prospect of finding another tenant. As it is unlikely that the premises would suit any other tenant, Overton would be required to redevelop the property. In those circumstances the fact that the buildings were earthquake-prone would be immaterial. We are therefore satisfied that Overton obtained exactly what it contracted to receive. It has suffered no loss.

Result

[57] The appeal is dismissed.
[58] The appellant must pay the costs of the respondent for a standard appeal on a Band A basis and usual disbursements.
[59] APN sought certification of second counsel. We see no basis for such an award in a case of this nature.







Solicitors:
Gilbert Walker, Auckland for Appellant
Rutherford Law, Auckland for Respondent

[1] Overton Holdings Ltd v APN New Zealand Ltd [2014] NZHC 1966 [High Court judgment].

[2] At [117].

[3] High Court judgment, above n 1, at [5]–[22].

[4] The lease agreement was annexed to that Agreement.

[5] D W McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at [8.16(1)] and [2.02]. See also G W Hinde, N R Campbell and P Twist Principles of Real Property Law (2nd ed, LexisNexis, Wellington, 2013) at [11.063]; McKey v Rorison [1953] NZLR 498 (CA) at 514; and William Sindall Plc v Cambridgeshire County Council [1993] EWCA Civ 14; [1994] 1 WLR 1016 (EWCA).

[6] See for example, Watkin v Wilson [1985] 1 NZLR 666 (HC) at 669–671; Balcairn Guest House Limited v Weir [1963] NZLR 301 (SC) at 301–303; and Hill v Harris [1965] 2 QB 601 (EWCA) as to the strict nature of the operation of the rule and the limited circumstances in which an exception will be entertained.

[7] McKey v Rorison, above n 5, at 506; Morton v Douglas Homes Limited [1984] 2 NZLR 548 (HC) at 582–583.

[8] Gabolinscy v Hamilton City Corporation [1975] 1 NZLR 150 (SC).

[9] The Council converted the property from a gravel pit to an area subdivided for residential housing.

[10] At 163.

[11] Ware v Johnson [1983] NZHC 155; [1984] 2 NZLR 518 (HC).

[12] At 535.

[13] High court judgment, above n 1, at [57]–[58].

[14] At [71].

[15] At [72]–[74].

[16] John Burrows, Jeremy Finn and Stephen Todd The Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at 380–383.

[17] Watkin v Wilson, above n 6, is an example of that principle in action.

[18] At [70].

[19] In the context of our previous findings, this issue is moot — there is no representation upon which Overton could be said to have relied or by which it was induced.

[20] D W McMorland, above n 5, at [2.03(e)]: “the requirement that it must have induced the plaintiff means that the representation cannot be relied upon if the plaintiff was unaware of the existence of the representation”.

[21] Set out above at [8].

[22] Reliance was placed on William Sindall Plc v Cambridgeshire County Council, above n 5, at 1024 per Hoffmann LJ and PAE (New Zealand) Limited v Brosnahan [2009] NZCA 611, (2010) 9 NZBLC 102, 862 at [46].

[23] At [83].

[24] Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].

[25] At [87].

[26] Des Forges v Wright [1996] 2 NZLR 758 (HC).

[27] At 764–765.

[28] High Court judgment, above n 1, at [107].

[29] At [109].

[30] At [110].

[31] At [111].

[32] At [113].

[33] At [112].

[34] See Building (Earthquake-prone Building) Amendment Bill 182-2 and Select Committee Report of the Local Government and Environment Committee, 2 September 2015 of the same.

[35] At [104].

[36] This is the level of compliance with NBS Mr Haley submitted Overton was required to achieve, according to its expert advisers.

[37] At [117].

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