Love v Auburn Apartments Limited HC Auckland CIV-2009-404-725 [2011] NZHC 160 (28 February 2011)

Last Updated: 27 May 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2009-404-725}

BETWEEN DOUGALL LOVE, PATRICIA LOVE AND TRUSTS LIMITED

Plaintiffs

AND AUBURN APARTMENTS LIMITED Defendant

Hearing: 18-21 and 29 October 2010

Appearances: E St John for the Plaintiff

S Judd for the Defendant

Judgment: 28 February 2011

_{RESERVED JUDGMENT OF ELLIS J}

This judgment was delivered by me on 28 February 2011 at 1 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors: Palmer & Associates, PO Box 74062, Auckland

Carter Atmore Law, PO Box 68656, Newton, Auckland

Counsel: E St John, PO Box 105 270, Auckland

SRG Judd, PO Box 3320, Auckland

LOVE AND TRUSTS LTD V AUBURN APARTMENTS LTD HC AK CIV-2009-404-725 28 February 2011

[1] The three plaintiffs (Dougall and Patricia Love and Trusts Ltd[1]) are the trustees of Barclay Trust, the Loves’ family trust. For convenience I will refer to the plaintiffs collectively as “the Loves”.

[2] The Loves and the defendant, the receivers of Auburn Apartments Ltd (“Auburn”) are in dispute over the sale by Auburn to the Loves of an apartment “off the plans” in 2006.

[3] In late 2008 the Loves purported to cancel the contract they had entered for the apartment. At that point, the building of the apartment had effectively been completed. The Loves now seek declarations that they were entitled to cancel because of a substantial reduction in the size and usability of apartment’s deck and the intrusion of two pillars into the master bedroom.[2] They say that these departures from plan constituted:

(a) a breach of an express and essential term of the contract, namely that the apartment would be built in accordance with the “layout and plan” that was attached to the agreement; or

(b) a breach of a pre-contractual representation that had been made to them, such representation having induced them to enter the contract.

[4] There is a further pleading of misleading and deceptive conduct on Auburn’s part in terms of the Fair Trading Act, although it was accepted by Mr St John that this largely mirrored the misrepresentation cause of action. Another cause of action, based on the alleged breach of the contract’s sunset clause, was abandoned at the

_{beginning of the hearing for reasons that are immaterial to the matters now at hand.}

[5] Because of the conclusions I reach later in this judgment it is necessary to make clear at the outset that the Loves’ amended statement of claim does not contain a pleading of, or cause of action based on, an alleged breach of any part of the contract other than clause 39. While in his closing submissions Mr St John appeared to advance in the alternative that there had been breaches of clauses 17.1 and 18.1 which also entitled the Loves to cancel, I am precluded from considering those matters.

[6] Auburn’s statement of defence to the amended claim denies:

(a) the alleged breach of contract on both factual and legal grounds;

(b) the legal and factual basis for the alleged misrepresentation and the factual basis for the alleged substantial difference between the apartment as planned and as built;

(c) any misleading and deceptive conduct.

[7] Auburn’s defence also alleges that any material decrease in the size or usability of the deck could easily have been remedied and that cancellation was not therefore justified.

[8] Auburn also counter-claims from the Loves damages in the sum of

$330,824.89 being the total losses said to be suffered when (as a result of the Loves’

refusal to settle) the apartment had to be resold.[3]

[9] The Loves’ defence to Auburn’s counterclaim largely mirrors the matters

canvassed in their statement of claim but also includes a further positive defence of common mistake.

[10] In 2004, an application for a resource consent in relation to a proposed block of apartments in Huron St, Takapuna was made to the North Shore City Council by Burns Properties Ltd. The proposed development was (and is) known as the “Maison Apartments” which included within it a number of different apartment types. For present purposes it is relevant to note that the architectural plans, submitted with the application for consent, show that the proposed dimensions of a “Type J” apartment (being the type of apartment ultimately purchased by the Loves) were stated to be:

Unit 78.9 m2

Deck 14 m2

Planter 9 m2

[11] On the basis of these dimensions the deck and the planter combined (for a

“type J” apartment) would measure 23 square metres.

[12] The resource consent for the development was granted in early 2005. On a date that is not known to me, it seems that Auburn took over the development and the original architects’ plans were revised. It was on the basis of these revised plans that Auburn began marketing the Maison development in 2006. Auburn engaged Premium Real Estate Ltd (“Premium”) to assist with this process.

[13] At this time both Mr and Mrs Love were both working for Premium as real estate agents in Takapuna. Their evidence was that they were (coincidentally) searching for an apartment which they would initially rent out but then live in when their children left home.

[14] Neither Mr nor Mrs Love was directly involved in the sale or promotion of the apartments, but they were nonetheless aware of it. It was no doubt a mixture of both their professional and private interests that initially led them to examine the promotional material in relation to Maison Developments in more detail.

[15] Mr and Mrs Love’s evidence was that they wished to buy an apartment which had a balcony for outdoor entertaining and two good sized bedrooms. They took professional advice to the effect that for a balcony to be usable in terms of outdoor living, it needed to be at least 1.8 metres wide.

[16] After examining the promotional material and receiving the above advice, the Loves eventually determined that Unit 211 in the proposed Maison Apartments appeared to meet their needs and was within their price range. As it happened, Apartment 211 was one of the “model” apartments used in the marketing material, which showed a two-bedroom apartment with a stated “Floor Area of 88 square

metres” plus a “Terrazze[4] of 23 square metres”. A “private and spacious terrazze”

was referred to as being one of the “key features” of the apartment. The plan of the apartment (contained in the materials) also showed a table with six chairs placed comfortably around it situated on the deck.

[17] The promotional documents included not only the glossy marketing brochure, but a series of scaled architectural floor plans in relation to each apartment type. As I have said, these plans had been developed and drawn after the application for the

2004 resource consent was made. It is not in dispute that these plans were intended to, and did, form the basis of Auburn’s subsequent application for a variation of the

2004 resource consent.

[18] The plans for “Apartment type E” (“type E” having formerly been “type J” and being the category into which apartment 211 now fell) stated its dimensions thus:

88 square metres

(subject to confirmation if joinery line has to match that of the Sept 2004 resource consent)

23 square metre terrace

[19] The scale to which the architects’ plans were drawn was specified in the materials (although not specifically on the plans relating to apartment E). Based on

_{that scale it could be calculated that for a “type E” apartment, as drawn, the deck was}

1.8 metres wide, excluding the planter box. On the basis of the same scale, the total size of the deck, as drawn, was 23m2 and the planter box (separately drawn and measured) was 7m2. Like the marketing brochure, the architectural plans showed a table with six chairs placed around it and situated upon the deck.

[20] As far as the interior of the apartment itself was concerned, the architects’ plans showed two dotted lines indicating the joinery line in the 2004 consent plans running along the deck-side of the apartment. The 2006 plans showed that the joinery line had been pushed out, making the interior of the apartment larger than in the 2004 plans. There was no other reference on the 2006 plans to other amendments to or departures from the 2004 plans. However based on the drawings and the included scale, the dimensions of the deck and planter as drawn on the 2006 plans was approximately 30 per cent larger than on the 2004 plans.

[21] The 2006 plans also showed a small pillar in the master bedroom, but with walking space between it and the queen-size bed (which was drawn on the plan to scale).

[22] As well as the drawings themselves, the 2006 architects’ plans contained a number of written notes. These relevantly stated:

Note:

all areas preliminary only, subject to final measurements

Method used to measure areas as follows

All areas measured from the centreline of common walls or the outside of exterior walls. Deck areas measured from outside of the deckline.

...

Dimensions may change.

...

Every attempt has been made for accuracy the information portrayed in this document is subject to resource consent, structural ... compliance to any statutory or legal requirement. Images are artists [sic] impressions only. Please refer to sale and purchase agreements for details, finishes and specifications.

The sale and purchase agreement

[23] In September 2006, Mr and Mrs Love decided to buy Apartment 211. The agreed purchase price was $745,000 with a discount of 5 per cent ($37,250) to be applied at settlement for committing to the purchase “prior to the official launch date”.

[24] The terms of the sale and purchase agreement obviously assume particular importance in these proceedings. The contract is not a particularly elegant document. It was cobbled together from three different sources. A number of the “special conditions” (which, for reasons that will become evident, are necessarily the focus of these proceedings) are poorly expressed and grammatically challenged.

[25] I begin with the agreement’s “operative clause”. This clause (although not itself a special condition) is also rather clumsily drafted. It states

It is agreed that the Vendor sells and the Purchaser purchases the Units, fixtures and fittings and chattels, upon the particulars set out above and the terms of this within sale and purchase agreement [sic], including the general conditions, the special conditions and specifications enclosed.

[26] It is, however, tolerably clear that by virtue of this clause the agreement for sale and purchase incorporated as terms of the contract:

(a) The particulars set out “above” (which relate principally to the purchase price and deposit);

(b) “general conditions”, which (as the following part of the agreement makes clear) are certain of the clauses from the 1999 (7th edition) of the ADLS standard sale and purchase agreement;

(c) “special conditions” which follow on from the general conditions and which (apart from clause 39) appear to be standard provisions that would have appeared in every contract for the Maison apartments. As I have said, these are important, and I shall return to these later; and

(d) The “specifications enclosed”.

[27] The identity of the “specifications” seems to be made clear by the definition in clause 14.1(3) of the contract (the definition clauses themselves being included as “special conditions”) which states:

“Plans and Specifications” means the plans and specifications for the Works to be lodged with the Territorial Authority for the purpose of obtaining a building consent and being substantially in accordance with the outline drawings, plans and specifications supplied to the purchaser by the vendor prior to the purchaser signing this agreement but subject to any variations or amendments made from time to time in accordance with this agreement.

[28] It can be noted at this point that this definition refers to plans that “have yet to be lodged” with the Council (rather than the 2004 plans that had already been lodged). The definition also stipulates that these (yet to be lodged) plans are to be “substantially in accordance” with those already supplied to the Loves. Both these points are confirmed by the fact that the plans that were annexed to the agreement were essentially replications of those contained in the promotional materials referred

to above.[5] Thus the “plans and specifications” included the 2006 scaled plan of

Apartment 211 (type E) that had been contained in the promotional documents, the notable features of which I have set out at [18] to [22] above.

[29] Although it is not made entirely explicit in the clause 14.1(3) definition, I accept Mr St John’s submission that the “plans and specifications” also include the unit title plan which was also annexed to the agreement. I think this is confirmed by the definition of “Unit plan” in clause 14.1(10) which refers to:

... the unit plan prepared by the vendor’s surveyors to be deposited in accordance with the agreement, a draft copy of which is attached to this agreement.

[30] The copy of the unit plan that referred to unit 211 specified that the “approx”

_{areas in relation to that apartment were 88m}2 _{(for the apartment), 23m}2 _{(for the deck)}

and 7m2 (for the planter box). These dimensions accord with those which could be

ascertained from the scaled architects’ drawings.

[31] The unit plan also, however, contained on it a note that said:

These plans are illustrative only. Areas measurement and configurations are subject to amendment on final survey.

[32] Apart from the definitions already discussed above, the critical clauses for present purposes are the “special” conditions and in particular those that dealt with the possibility of subsequent variations to or departures from the “plans and specifications”. The key provisions in this respect are clauses 17, 18 and 20, the relevant parts of which I set out below.

17.0 Construction

17.1 The vendor shall carry out complete [sic] in a proper and workmanlike manner the Works substantially in accordance with the Plans and Specifications and in conformity with all statutory, regulatory bylaws and requirements of the relevant authorities.

18.0 Variations

18.1 Variations to or departures from the Plans and Specifications (including substitutions for any materials which may not be available) may be made by the vendor in the course of constructions of the Works, provided that the substitutions, variations or departures do not make any appreciable reduction in or have any material adverse effect on the value, appearance or usefulness of the completed Works.

...

18.3 The purchaser acknowledges that the vendor may at any time alter or vary the draft Unit Plan attached hereto relating to the development (including the alteration, variation, cancellation or addition of any proposed easement shown on such plan)...”

...

18.5 No errors or misdescription of the Property or the Unit shall annul the sale and neither party shall be entitled to compensation for any error or misdescription of the Property or the Units.

...

20.0 Measurements

20.1 All measurements and areas are subject to variation, which if found to be necessary upon checking with the Relevant Authority, the vendor’s

surveyor, the District Land Registrar and Land Information New Zealand, and neither party shall be entitled (except as provided for in this clause) to seek adjustment to the purchase price except where the area of the Unit as defined in the deposited Unit Plan (“Final Area”) differs by more than 5% from the area of the Unit as specified in this agreement (“Initial Area”). If the final area differs by more than 5% from the Initial Area and the increase/reduction is accepted by the vendor or is confirmed by an independent qualified person appointed by the vendor, then the purchase price shall be adjusted up or down by the same proportionate amount of such variation as is over the 5% threshold and in such event the purchaser shall pay to the vendor on settlement the full amount required to settled without deductions, set-off or reservation on any account whatsoever.

[33] Clause 26 also assumes some importance in the factual narrative but is ultimately of no consequence to these proceedings. It relevantly provided:

26.0 Sunset clause

If the vendor is not ready, willing and able to settle this agreement on or before a period of six months from and including the Estimated Completion Date or such later date as may be required by the vendor’s primary funder, then either party may ... cancel this agreement ...

[34] The term “estimated completion date” was said to be:

... as determined at the date of the initial drawdown of funds for the Works

defined by the Quantity Surveyor for the vendor’s primary funder.

[35] Later in the agreement, there is an “entire agreement” clause which states:

34.0 Purchaser’s own judgment

34.1 The purchaser enters into this agreement entirely in reliance on the purchaser’s own judgment and not in reliance upon any statement, representation or warranty made by the vendor or the vendor’s agent. The purchaser also acknowledges that any artist’s or computer’s impression commissioned by the vendor is purely an interpretation of what the development might resemble and does not amount to a warranty or representation that the development will resemble any such impressions. The purchaser acknowledges that this agreement constitutes the entire agreement between the parties.

[36] The last “special condition” is clause 39. The undisputed evidence was that this clause was included at the Loves’ insistence and (unlike the rest of the contract) was drafted by them. It stated:

39. This agreement is conditional on Apartment 211 being built as per the attached layout and plans.

Should the joinery line be re-enstated [sic] as per September 2004 resource consent, the developer shall notify the purchaser. The purchaser shall then have the right to withdraw from this agreement or renegotiate with the developer a new pricing structure, which will reflect the difference in total area.

[37] It is the meaning and effect of this clause that is the central issue before me.

The apartment “as built”

[38] In October 2006, after the Loves had entered into the agreement, Auburn engaged new architects, Messrs Clark Brown. Clark Brown prepared construction drawings for the development. It appears it was during this stage of the process that the dimensions of the deck for apartment 211 were changed. These changes ultimately resulted in the width of the deck being reduced from 1.8 metres to between 1.2 and 1.3 metres and the planter box being increased in size. Thus the

deck “as built” was approximately 16m2 (rather than 23m2) and the planter was

approximately 11m2 (rather than 7m2).

[39] Mr Brown of Clark Brown gave evidence at the trial. In his evidence in chief he said that he considered that the deck “as built” generally conformed with (and was in fact larger than) the plans and specifications annexed to the Loves’ sale and purchase agreement. He based that statement on the fact that the plan for Apartment

211 had stated on it that the size of the deck was 23m2 and that the deck as built

(including the planter box) was 27m2. In support of this contention he said that the statement on the plan that “Deck areas measured from outside of the deckline” meant that the deck measurements were properly to be taken from the outside wall of the apartment to the external line of the deck (namely the far edge of the planter box). Thus, he said, the 23m2 measurement stipulated in the plans and specifications annexed to the contract should be interpreted to include the planter box.

[40] Under cross-examination, however, Mr Brown was frank (in this as in all things) that his conclusion as to the size of the deck on the plan had not taken into

account the scale drawings that were also included in the plans (which showed a total deck area, including the planter, of 30m2) nor the measurements recorded on the draft Unit Plan (which also recorded a total deck area of 30m2). He said:

And I think that – given that the sale and purchase agreement including a draft unit title plan that said that the deck was 23 square metres plus seven square metres of planter, that’s a reasonable assumption that the purchaser would make, that they’re getting a 30 square metres deck, including the planter. Not a 23 square metre deck, including the planter. And we all agree that mistakes have been made here.

[41] Mr Brown was also cross-examined about how the dimensions of the deck “as built” came to be different from the dimensions given on the unit plan and the scaled drawings that were attached to the agreement. His evidence was that it had nothing to do with Council requirements generally or, more specifically, with the height to boundary rules.[6] Rather, he said that during the process of preparing the construction plans it became apparent that in order to build the deck in accordance with the 2006 scaled drawings, it would have had to be cantilevered out over the apartment below. While possible as a matter of engineering, this was (Mr Brown

said) far from desirable, particularly from the perspective of the apartment underneath.

[42] Mr Brown explained that once this difficulty had been identified, someone in his office redrew the plans. Before doing so, he said, they cross checked the plans with the 2004 resource consent plans (they still being at the time the operative plans) and saw that the deck specified on those plans for the relevant apartment type had dimensions of 23m2 (including planter). It was therefore assumed that changes to the plans that resulted in a deck of similar dimensions would be acceptable. On that basis, the size of the deck was reduced so that its outside edge did not protrude over the apartment below.

[43] Mr Brown could not say whether Auburn would have been informed of these changes at the time. No changes of any significance were made to the dimensions of

_{the interior of the apartment.}

[44] At about the same time the application to vary the 2004 resource consent had been made. It was granted in May 2007. Building consents were also sought and obtained. Construction commenced and continued throughout 2007 and early 2008 on the basis of the Clark Brown construction plans.

[45] On 15 April 2008 the solicitors for Auburn wrote to the Loves’ solicitors

stating:

We refer to the contract between our ... clients, and advise that the architect for the project has confirmed that the area of the apartment has not changed as a result of the Variation to the Resource Consent which was granted by North Shore City Council. Therefore your client’s right to withdraw from the Agreement no longer exists.

[46] On 18 April the Loves’ solicitors replied, saying:

I refer you to Clause 39 of the sale and Purchase Agreement. Are you able to confirm that the joinery line is not going to be re-enstated [sic] as per September 2004 Resource Consent?

[47] On 29 April Auburn’s solicitors wrote:

It is our understanding from the architect that the joinery line is not going to be reinstated as per the September 2004 resource consent, so the apartment remains the same size as your client contracted to buy.

[48] The Loves’ first viewing of apartment 211 occurred in July 2008 when a number of Premium Real Estate agents were taken through the (as yet unfinished) complex. They gave evidence about their disappointment at what they saw. Mrs Love says she was “shocked and gutted” at the “as built” apartment.

[49] Notwithstanding the Loves’ dismay it is not disputed that they did not at this stage express their concerns to the representatives of Auburn or attempt to cancel the contract. Their evidence was that they raised the matter then with their solicitor and that Mr Love unsuccessfully attempted to gain further access to the apartments in order to appraise himself more fully of the situation and to take appropriate measurements. This was, however, disputed by Auburn, whose evidence was that access was neither sought by nor denied to Mr Love at this time.

[50] By this time the property recession was in full swing. On 9 September 2008, the director of Auburn wrote to the Loves’ lawyers advising that it was anticipated that practical completion would be achieved by mid November of that year. He also said:

Because of the difficult financial climate in which we are operating, and the need to repay our lenders without incurring very high penalty interest, we are making preparations for settlement notices to be issued by the earliest possible date.

[51] On 10 October 2008, the Loves’ solicitors wrote to Auburn’s solicitors. That letter purported to cancel the agreement on the basis of the sunset clause, namely that

The vendor was not ready willing and able to settle the agreement on or before the period six months from and including the Estimated Completion Date i.e. by 30 September 2008.

[52] It is now accepted that the assessment of the “Estimated Completion Date” upon which the 10 October letter was based was erroneous and that there was no entitlement to cancel on this basis. This was the position conveyed to the Loves’ solicitors by Auburn’s solicitors on a number of occasions in late October 2008 but it was not at that point accepted. There were further exchanges between the lawyers on the issue throughout November and December 2008 and the matter was not in fact finally resolved (in Auburn’s favour) until further documents were disclosed by Auburn immediately prior to trial.

[53] In early December 2008, Mr Love did obtain access to the apartment, made drawings of what he saw and took a range of measurements. This resulted in a letter from the Loves’ solicitors to Auburn’s solicitors dated 14 December 2008 in which (without prejudice to what then continued to be their position regarding the Estimated Completion Date) they referred to clause 39 and the ways in which the apartment had not been built in accordance with the plans and specifications. Reference was made to the reduced dimensions and (un)usability of the deck. As regards the pillars in the master bedroom the letter said (inter alia):

The as built pillars are 500 x 700 not 150 x 150 (approx) as shown on the agreed plans. As such they intrude significantly into the rooms unlike the agreed plans.

The enlarged size of the pillar in the master bedroom renders access to a queen sized bed impractical on one side and the location of a bedside cabinet impossible.

[54] On 19 December 2008, Auburn’s solicitors responded at some length, rejecting the Loves’ purported cancellation. Issue was taken with the Loves’ interpretation of clause 39 and reference was made to Mr Love’s “favoured” position as a real estate agent in terms of his knowledge and ability to protect himself in relation to purchasing an apartment “off the plans”. In terms of the width of the deck, the letter advised that it -

... was determined by reference to North Shore City’s operative district plan and in particular the height and angle to boundary rules applicable to the southern boundary of the site.

[55] The letter then stated that Mr Love should have been aware of those height to boundary rules.

[56] As will be evident from my summary of Mr Clark’s evidence above,

however, this explanation of the reasons for the changed dimensions was incorrect.

[57] In terms of the pillars, Auburn’s response was that:

The dimensions of structural pillars are another item that can only be determined when the detailed structural design is undertaken. Pillars are shown on the resource consent plans and, given that apartment 211 is at the end of the building, Mr Love should have recognised the potential for pillars to vary in size from that shown on the resource consent plans and intrude into the apartment. If this was a concern for Mr Love he should have made the agreement conditional upon acceptance of the working drawings.

[58] On 22 December 2008, Auburn’s solicitors wrote to the Loves’ solicitors stating that code compliance and practical completion certificates had been issued and that the settlement date was 9 January 2009. A settlement notice was served on the Loves on 4 February 2009. They maintained their previous position and did not comply with the notice. These proceedings were commenced by them the following month.

[59] On 26 January 2010, Auburn was placed into receivership and, on 12 March

2010, into liquidation. On 19 March 2010, the receivers (who were continuing to act

as Auburn’s agent, with the consent of the liquidators) entered into an agreement for the re-sale of apartment 211. The purchase price was $515,000 and settlement occurred on 4 June 2010. The difference between that sum and the purchase price agreed with the Loves forms the principal basis of Auburn’s damages claim. Under the ADLS standard remedies clauses (which form part of the general conditions in the agreement) such a resale has the effect of cancelling the agreement with the Loves (to the extent it had not already been validly cancelled by them).

[60] Because Auburn’s position from the outset has been that there was no meaningful departure from plan, no question of possible remediation of the apartment was ever raised by Auburn with the Loves.[7] Nonetheless evidence was given at trial by Mr Brown that the deck could have been reconfigured to ameliorate the effect of the reduction in total useable space and to enable the placement of outdoor furniture on it. Two alternative options were proffered, both involving

considerable reduction in the size of the planter. Mr Brown opined that the building cost of such remediation would be small. However there was no evidence that the suggested changes would be permitted by Council (or, if so, at what cost) or allowed under the Body Corporate Rules or the Unit Titles Act.

[61] I turn now to consider the legal issues raised by the proceedings.

Was clause 39 breached and, if so, were the Loves entitled to cancel the contract?

[62] In order to determine whether the Loves are right in their contention that clause 39 was breached by Auburn (and, if so, to determine what legal consequences follow) it is necessary first to consider the meaning and ambit of the clause. That is a task that is not without some difficulty.

[63] Before considering the wording of clause 39 in more detail, there are certain preliminary matters relevant to its interpretation that should be recorded. These are

_that:

(a) Clause 39 was drafted by the Loves. Thus, to the extent that any ambiguity as to its interpretation arises, the construction that favours Auburn is to be preferred;

(b) In interpreting clause 39, I take no account of the evidence given by the Loves as to their reasons for including the clause in the contract or the meaning they intended it to convey. There was no evidence before me that Auburn knew of those reasons or shared in the Loves’ interpretation.

[64] It seems to me that the extent to which the parties’ post-contractual conduct should inform the interpretive exercise is possibly less clear cut and I will deal with that in the context of my substantive analysis below.

[65] For convenience, I set out clause 39 again here. It says:

39. This agreement is conditional on Apartment 211 being built as per the attached layout and plans.

Should the joinery line be re-enstated [sic] as per September 2004 resource consent, the developer shall notify the purchaser. The purchaser shall then have the right to withdraw from this agreement or renegotiate with the developer a new pricing structure, which will reflect the difference in total area.

[66] As it appears in the agreement, the entire clause is typed in bold font. The number “39” is handwritten. Unlike the other special conditions that precede it, it contains no sub-clause numbers. There is a clear typographical demarcation between the first sentence and the two that follow it.

[67] Taken in isolation, the first sentence of the clause is clear enough on its face: the agreement was to be conditional on Apartment 211 being built “as per” the attached layout and plans. It also seems reasonable to assume that the term “layout and plans” can be regarded as more or less synonymous with “plans and specifications” as defined in clause 14.1(3).

[68] Notwithstanding this surface clarity, however, Mr Judd submitted that the first sentence should be read down, and its scope limited by (and to) the specific

issue dealt with in the two sentences that follow, namely the reinstatement of the

2004 joinery line.

[69] I confess that my initial response to Mr Judd’s position was not a favourable one. However with the benefit of reflection I have formed the view that he is correct, for reasons I shall now give.

[70] First, it can be noted that the first sentence states that the agreement is “conditional” on the apartment being built to plan. The consequences for failure to meet that condition are, however, specified in the next two sentences, which in their terms are limited to the possible reinstatement of the 2004 joinery line. This seems to me to give rise to an inference that the latter two sentences are intended merely to elucidate or explicate the first and that the ambit of the first is therefore limited by the latter two.

[71] The inference that the first sentence is merely intended to constitute a heading, or a broad-brush summary of the substantive content that follows it is also arguably supported by the typographical layout of the clause. In this respect it seems reasonable to assume that in this way, clause 39 was intended to mirror the drafting of the other “special conditions” which immediately precede it. As can be seen from those clauses set out in [32] to [35] above, each begins with a summary heading in bold, followed by a separate substantive paragraph or paragraphs.

[72] More significantly, however, the other clauses in the contract support a narrow interpretation of clause 39. For example, clause 18.1 deals explicitly with the extent of the vendor’s ability to depart from the attached plans and specifications. Departure is permitted provided any such departure does “not make any appreciable reduction in or have any material adverse effect on the value, appearance or usefulness of the completed Works”.

[73] On the plaintiffs’ analysis, the first sentence of clause 39 would not only restrict, but must operate to contradict clause 18.1; clause 39 (the plaintiffs say)

_{permits no departure from the attached plans at all.}[8] _{While as a matter of law it is}

possible to interpret one clause in a contract as rendering another clause otiose[9] it seems to me that care must be taken before doing so, particularly when it is possible to read the two clauses consistently with each other. In the present case, such consistency is possible if the scope of clause 39 is limited to the joinery line issue.

[74] Such a reading also accords with the circumstances with which the parties were faced in 2006. Reinstatement of the joinery line was the most obvious way in which departure from plan might occur (that possibility being expressly drawn and noted on the plans attached to the contract) and thus the most obvious possible risk to deal with specifically in the contract. Any other (less obvious or likely) departures from plan could be dealt with under clause 18.1. Interpreting clause 39 in that limited way gives clause 39 real meaning while also leaving clause 18.1 with significant contractual “work” to do.

[75] If the potential inconsistency between the plaintiffs’ interpretation of clause

39 and the remainder of the contract had been limited to clause 18.1, I would perhaps be less confident in the analysis I have just undertaken. But the reality is that a broad interpretation would sit uneasily with other clauses, too. It would, for example, be difficult to reconcile such an interpretation with clause 20.1, which (though rather unclear in its terms) appears to govern, and limit, the parties’ rights to compensation for departures from plan in terms of areas, at least where such departures are rendered necessary for regulatory reasons. Again, if the Loves’ interpretation of clause 39 were to be preferred, clause 20.1 would be devoid of content. Conversely, if clause 39 is limited to reinstatement of the joinery line, then clause 20.1 remains operative in relation to any other measurement or area variations.

[76] Accordingly, and against the background of the wider contract, Mr Judd’s position gathers force. It also lends weight to his submission that it seems highly improbable that a commercial property developer such as Auburn would have

_{entered into an agreement that required meticulous and complete compliance with}

plans and specifications when those plans were not only expressly, but necessarily (by virtue of the stage the project was at), “draft” or subject to change. While it may be that even commercial property developers on occasion enter into improvident bargains, I consider that an assessment of normal or reasonable commercial behaviour can nonetheless inform the interpretation exercise in this case.

[77] Lastly, the conclusion I have reached as to the narrow ambit of clause 39 can, if necessary, be regarded as deriving further support from the post-contractual conduct. While it may be that there remains some debate as to the place such conduct has in the interpretative exercise, it does seem that others have regarded such conduct as relevant in (at least) a reinforcing, if not determinative, sense.

[78] In the present case there are two potentially relevant post-contractual matters:

(a) the correspondence that was exchanged between the parties solicitors in April 2008 and referred to at [45] - [47] above; and

(b) the late reliance on clause 39 by the Loves, discussed at [49] - [55]

above.

[79] As to the first matter, it is plain from the exchange of correspondence in April

2008 that the only impediment to the contract becoming unconditional identified by either party’s legal advisors was the possible reinstatement of the 2004 joinery line. It might be thought, too, that the Loves’ solicitor, Mr Palmer, would have had a greater interest than usual interest in protecting the Loves’ position in relation to the transaction, given his role as director of the third plaintiff. But there was no suggestion made at that time by him or anyone else that there was any aspect of clause 39 that remained to be satisfied.

[80] As to the second matter, it seems to me that the import of the Loves’ five month delay in raising any issues with Auburn as to the perceived defects in the “as built” apartment is somewhat less clear-cut. Having viewed photographs of Apartment 211 “as built” there is, in my view, little doubt that the departures from plan did significantly diminish the appearance and usability of both the deck and

master bedroom. I therefore accept the Loves’ evidence that they were in fact dismayed by what they saw in July 2008. For that reason, it seems to me likely that it was not their absence of concern that caused the Loves not to say anything to Auburn at that time. Rather, there is an inference to be drawn that they chose to remain silent about their disappointment because they believed (possibly on the basis of legal advice) that they would shortly be able definitively to cancel the agreement due to Auburn’s breach of the sunset clause. Unfortunately (from the Loves’ perspective) that belief later proved to be incorrect.

[81] As I have said, the parties’ post-contractual conduct cannot be in any sense determinative. It is nonetheless clear enough that there is nothing in it that could be interpreted as actively supporting the Loves’ interpretation of clause 39. Rather, and on balance, it does tend somewhat to reinforce the conclusions I have reached independently on the interpretation issue, which is that the reference in clause 39 to the need to adhere to the attached layout and plan is properly to be read as limited to the joinery line issue.

[82] Once that point is reached, there is no dispute. The 2004 joinery line was not reinstated in the “as built” apartment. I am therefore unable to conclude that there has been a breach of the clause 39 condition and the plaintiffs’ cause of action based on that clause must fail.

Was Apartment 211 built “as per the attached layout and plans”?

[83] For completeness (or in case I am later found to be wrong in my interpretation of clause 39) I now go on to consider briefly whether, on the evidence, it could be said that the apartment was in fact built “as per the attached layout and plan” in the broader sense of those words contended for by the Loves.

[84] Auburn’s principal position has consistently been that Apartment 211 “as built” did not involve anything more than a de minimis departure from plan.[10] The

_{two principal bases for that position were that:}

(a) the reference on the plan of Apartment 211 annexed to the agreement to a terrace of 23m2 (see [18] above) necessarily included the planter. The total combined area of the deck and planter as built was over

_23m2_;

(b) the plans annexed to the agreement are in any event expressly stated to contain approximate measurements only.

[85] As to the first matter, I have recorded already that Mr Brown gave evidence that the statement on the plans that “Deck areas measured from outside of the deckline” meant that the 23m2 must include the planter box. However as I have also said he later accepted (in my view rightly) that the only way to read all the plans and specifications annexed to the agreement consistently is to regard the reference to the

_23m2 _{terrace as excluding the planter. In particular the draft unit plan, which forms}

part of the plans and specifications that are incorporated into the contract specifically refer to an apartment of 88m2, a deck of 23m2 and a planter box of 7m2. Extrapolation from the architectural drawings by reference to the scale used in preparing those drawings results in the same measurements.

[86] As to the second matter, it seems to me that the written qualifications on the plans are neither here nor there. Given that the contract itself deals with what is or is not permitted in terms of departure or variation from the plans, Auburn’s submission in this respect becomes somewhat circular. Moreover it is one that would render the incorporation of the plans and specifications into the contract virtually meaningless.

[87] Even aside from the question of mathematical size, however, conformance with layout and plans seems to me necessarily to import considerations of both appearance and usability. In my view the appearance and usability of both the deck and the master bedroom were more than minimally compromised in the “as built” apartment. The photos that were produced at trial show a “deck” that is no more than a balcony which is overshadowed by a large, monolithic, planter running down the outside edge. In the bedroom, access to the right hand side of the queen size bed is significantly impeded by the intrusion of the pillar. There is no “flow” around the

bed and the layout/appearance of the bedroom is disjointed by virtue of the odd- shaped space created around the pillar area cavity.

[88] For these reasons, and if it were not for my conclusion as to the narrow interpretation of clause 39, I would have held that the apartment was not built “as per the attached layout and plans” and that Auburn was accordingly in breach of that clause.[11]

[89] If that point had been reached, Mr St John submitted that the terms of clause

39 then make it quite plain that such a breach would entitle the Loves’ to cancel the contract and that the specific inclusion of clause 39 in the contract by the Loves meant that their ability to cancel was not limited by clause 18.5 (the misdescription clause), or by clause 20.1 (if it applied). He also, if necessary, relied on the rule in

Flight v Booth[12] in this regard. Those are not matters, however, that I presently need

to decide and I do not do so. The Loves were not entitled to cancel because of the view I have formed about the ambit of clause 39.

Misrepresentation

[90] As explained earlier the Loves’ misrepresentation cause of action is focused only on the size of the deck. It is alleged that Auburn represented (presumably through its marketing and promotional materials) that the deck would be built with dimensions of 23m2 (without the planter).

[91] A statement of future intent is, generally speaking, only a misrepresentation if it contains an implied statement as to a present or past fact, such as that the promisor has a present intention to make good the promise or that the promisor has the existing means to carry out the promise. In the present case the Loves would therefore need to establish that, at the time the representation was made, Auburn did not intend to build a deck of that size or configuration or that somehow the company

_{did not otherwise believe the representation to be true.}

[92] For reasons I have already given (and putting the contract to one side momentarily) I am prepared to accept that the marketing materials could fairly be regarded as making a representation as to the size of the deck of the kind contended for by Mr St John. I have also already explained why I do not accept Mr Judd’s submissions as to the significance of the qualifying statements contained on the relevant promotional documents. I consider that a fair reading of those documents as a whole would give rise to an expectation that any departure from the drawings and measurements therein would not in any substantial way affect the appearance and usability of the “spacious and private terrazze”.

[93] I am also prepared to assume that this aspect of the marketing materials did induce the Loves to enter the contract and, again for reasons I have already given, that the “as built” deck was substantially different from that represented in those materials.

[94] The difficulty, of course, is that it is not any representation as to the future size and layout contained in the materials that is relevant here. Rather, it is the representation that Auburn intended or believed (in 2006) that the deck would be built according to the 2006 plans. In this respect I consider that the evidence does not establish that, at the time the contract was entered, Auburn’s intention was anything other than to build a deck that substantially accorded with those plans.

[95] First, the plans had been drawn up for Auburn by professional architects. The plans were to form part of Auburn’s application for a variation to the existing resource consent. The plans specifically noted the possibility that the Council might require the 2004 joinery line to be reinstated. Apart from that, there is no evidence that there was any reason for Auburn to think that there would be any fundamental departure from them.

[96] Secondly, and as the evidence of Mr Brown revealed, the later change to the dimensions and layout of the deck were made at the construction stage as a result of decisions made by the (new) architects. Auburn could not (in mid 2006) have anticipated this would occur and (even at the time) had no input into or involvement in the changes. It seems that Auburn may not even have known about them.

[97] As a matter of fact, therefore, I consider the misrepresentation claim must fail.

[98] Even if that were not the case, however, the contractual terms themselves present a further, legal, impediment to the plaintiffs’ success on a misrepresentation claim. Not only does the contract specifically deal (in clauses 17, 18 and 20) with potential departures from plan of the kind that occurred here, but the “entire agreement” clause on its face operates to prevent a misrepresentation claim. No argument was presented to me based on s 4(1) of the Contractual Remedies Act

1979, which enables a Court to go behind such a clause in appropriate circumstances. In any event I doubt that such circumstances exist here.

[99] As a matter of law, therefore, I also consider the misrepresentation claim must fail.

Breach of the Fair Trading Act

[100] It follows from my factual conclusions in relation to the misrepresentation cause of action that the claim under the Fair Trading Act also cannot succeed. In the words of the learned authors of Law of Contract in New Zealand: [13]

It is important to note that s 9 of the Fair Trading Act is not available, any more than s 6 of the Contractual Remedies Act, in respect of promises or statements of future intent. The remedy there lies in contract, or not at all.

[101] In short, it cannot in my view properly be said that, on the basis of the evidence before me, Auburn engaged in any misleading or deceptive conduct in the present case.

Counterclaim: damages for breach

[102] The conclusions I have reached above necessarily mean that the Loves were not entitled to cancel the contract. Their failure to settle when called upon therefore

put them in breach of the contract, unless there is any available defence that has not already been dealt with and rejected above. One such was pleaded, in the following terms:

At the time of execution of the agreement for sale and purchase the plaintiffs and the defendants both believed the balcony was to be 23 square metres (excluding the planter boxes)

If the agreement said otherwise, or of the balcony was to be otherwise constructed, then it was a mistake common to both parties.

The effect of the mistake was such that the plaintiffs are entitled to relief including cancellation of the contract.

[103] Consistent with the factual conclusions I have reached above, I am prepared to accept that at the time of entry into the contract both parties believed that the size of the balcony would be (approximately) 23m2 (without the planter). That shared belief is consistent with and indeed reflected in the contract. But Mr St John nonetheless faces the same difficulty as before. As the Court of Appeal has said:[14]

Contracting in the expectation of a course of events does not give rise to vitiating mistake if matters do not turn out as expected.

[104] And notwithstanding my conclusion that Auburn and the Loves were suffering under the same misapprehension as to the dimensions of the deck, I do not think it can be said that the mistake influenced Auburn in its decision to enter the contract as required by s 6 of the Contractual Mistakes Act 1977. The mistake was necessarily not material to Auburn in the sense that it was to the Loves.

[105] Accordingly the defence of common mistake must also in my view fail.

[106] No issue was taken by Mr St John as to the loss calculations put forward by Mr Judd on behalf of the receivers of Auburn. I consider that the receivers are entitled to judgment in the amount sought, namely $330,824.89, together with the

_{amount of further interest accrued since 18 October 2010.}

[107] The defendants are also entitled to costs on a 2B basis. In what I trust is the unlikely event that the parties are unable to agree, memoranda are to be filed within

_{10 days of this judgment.}

Rebecca Ellis J

---

[1] _{Trusts Ltd is a company that is owned and operated by the Loves’ solicitor, Simon Palmer.}

[2] The (amended) statement of claim contained a long list of other alleged departures from plan but ultimately these were referred to as matters of merely corroborative detail; it was not submitted that these defects either individually or collectively would justify cancellation of the contract.

[3] That figure includes interest at the contractual rate calculated from the date upon which the Loves declined to settle until 18 October 2010

[4] There was some discussion before me as to the meaning of the word “terrazze”. It appears to be a made-up word; possibly a combination of “terrace” and “terrazzo” (being a type of flooring).

[5] The architect’s caveat beginning “Every attempt has been made ...” that was included in the promotional materials is missing from the plans and specifications annexed to the agreement. The drawing of the table and 6 chairs on the “terrazze” is not, however.

[6] This being the explanation for the changes subsequently given by Auburn.

[7] My understanding is that this issue was first raised by Auburn a month before the trial, in its

statement of defence to the Loves’ amended statement of claim.

[8] While it may be possible to interpret the first sentence of clause 39 consistently with clause 18.1(e.g. by holding that clause 39 permits de minimis departures from plan) to do so would only lead to the conclusion that this part of clause 39 is otiose. That, too, would militate against the interpretation contended for by the plaintiffs.

[9] See for example Totara Investments Ltd v Crismac Ltd [2010] NZSC 36 at [31].

[10] I am prepared to accept that, even on the plaintiffs’ broad interpretation of clause 39, de minimis

departures from plan would be permitted.

[11] As noted at the beginning of this judgement it may also be arguable that there was a breach of clause 18.1, but that was not a matter which was before me.

[12] Flight v Booth [1834] EngR 1087; (1934) 1 Bing (NC) 370; 131 ER 1160.

[13] Burrows Finn and Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington, 2007) at

[11.3.2].

[14] Compcorp Ltd v Force Entertainment Ltd (2003) 7 NZBLC 103,996 (CA) at [34].