Tompkins v Wensley Developments The Marina Limited (in liquidation) [2012] NZHC 1863 (30 July 2012)

Last Updated: 23 August 2012

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2009-425-101 [2012] NZHC 1863

BETWEEN PHILIP JOHN TOMPKINS AND JULIE ANNE TOMPKINS

Plaintiffs

AND WENSLEY DEVELOPMENTS THE MARINA LIMITED (IN LIQUIDATION) First Defendant

AND 875 FRANKTON ROAD LIMITED Second Defendant

Hearing: 21-23 May 2012 and 2-3 July 2012

Counsel: O Paulsen and S Dwight for plaintiffs

S M Hunter and S N McKenzie for defendants

Judgment: 30 July 2012

_{JUDGMENT OF LANG J}

This judgment was delivered by me on 30 July 2012 at 1.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

PHILIP JOHN TOMPKINS AND JULIE ANNE TOMPKINS V WENSLEY DEVELOPMENTS THE MARINA LIMITED (IN LIQUIDATION) HC INV CIV-2009-425-101 [30 July 2012]

INDEX

Introduction [1] Misrepresentation [11] What is a misrepresentation? [12] Inducement [17] Section 7(4) of the Act [19] The “two key” option [25] Noise and ventilation issues [44] The size of the apartment [61] The new marina [77] Uninterrupted lake views [109] The money set aside by the Council for beautification works [118] The on-site manager [136] Breach of contractual terms [149]

Was Wensley entitled to call upon the Tompkins to complete the

_{purchase of the apartment?}

[153]

The claim under the Fair Trading Act 1986 [168] “In trade” [169] “Misleading or deceptive” conduct [171] “Likely to” [174] Conduct amounting to a breach of s 9 in the present case [182] Do the breaches justify relief under s 43?

The statement regarding the Council’s commitment to spend $700,000

_{on beautification works}

[190]

The size of the apartment [192] Noise and ventilation issues [195] Result [199] Why did the Tompkins decide to cancel the agreement? [201] The counterclaim [219] The legal basis for the counterclaim [220] Failure to mitigate loss [228] Orders [235] Costs [237]

Introduction

[1] This proceeding concerns a recently developed apartment complex known as The Marina Baches. The complex was built by Wensley Developments The Marina Limited (“Wensley”), and is situated on the shores of Lake Wakatipu near the Frankton Marina in Queenstown.

[2] Wensley is part of the Wensley group of companies. Those companies specialised in the development of apartment complexes in the Queenstown area. The companies are controlled by Mr Ross Wensley, his daughter, Julie Jack, and his son, Greg Wensley.

[3] In December 2007 the plaintiffs, Mr and Mrs Tompkins, were living in Queenstown. Mr Tompkins had moved there from Christchurch in 2003 to work for his employer, a construction company operating in the fields of both residential and commercial construction in Christchurch and Queenstown. Mrs Tompkins shifted to Queenstown in 2005. Initially the Tompkins rented a house in Queenstown, but after Mrs Tompkins arrived they decided to buy a property there, and to sell their house in Christchurch.

[4] The Tompkins became interested in buying an apartment in The Marina Baches development after speaking on three or four occasions with Wensley’s salesperson, Mr Derek Bulman. They discussed the concept of The Marina Baches development with Mr Bulman, and he gave them written material about it. This included a flyer, a large glossy brochure and a price list.

[5] On 3 December 2007, the Tompkins entered into an agreement to purchase Apartment 403 and two carparks in the complex. Construction of the 27 apartments in the complex had begun approximately two months earlier, in October 2007.

[6] The agreement provided that the Tompkins would purchase the apartment and carparks for the sum of $1,231,875 inclusive of GST. Settlement was to occur seven

days after the certificate of title became available, or after practical completion had

been certified by Wensley’s designer, whichever was the later.

[7] Wensley’s designer issued a certificate of practical completion in respect of Apartment 403 approximately a year later, on 12 December 2008. In accordance with the terms of the agreement, Wensley called for settlement to take place on 23

December 2008. Wensley subsequently extended the deadline for settlement to 29

January, and then to 4 February 2009. By letter dated 10 February 2009, however, the Tompkins’ solicitors purported to cancel the agreement on the basis of pre- contractual misrepresentations made by both Wensley and Mr Bulman.

[8] Wensley did not accept the cancellation was valid, but by 26 July 2010 the Tompkins had still not settled the purchase of the apartment. On that date, Wensley cancelled the agreement. Three months later, on 27 October 2010, Wensley sold the apartment to another Wensley company, 875 Frankton Road Limited (“875 Frankton Road”). The sale price was $535,000 excluding GST. On the same date, Wensley assigned its rights under the agreement for sale and purchase with the Tompkins to that company.

[9] In this proceeding the Tompkins seek a declaration that they validly cancelled the agreement for sale and purchase on 10 February 2009. They rely upon pre- contractual misrepresentations by Wensley and Mr Bulman, and breach by Wensley of express and implied terms in the agreement. In the alternative, they contend that Mr Bulman and Wensley made the misrepresentations in the course of trade, and that the representations amounted to misleading and/or deceptive conduct in terms of s 9 of the Fair Trading Act 1986 (“FTA”). They therefore seek relief under the FTA.

[10] 875 Frankton Road counterclaims in respect of the loss Wensley incurred when it resold the apartment in October 2010. It also seeks interest and costs.

Misrepresentation

[11] The Tompkins rely on ss 7(3)(a) and (4) of the Contractual Remedies Act

1979 (“the Act”) as providing justification for their decision to cancel the agreement.

Those subsections relevantly provide:

7 Cancellation of contract

...

(3) Subject to this Act, but without prejudice to subsection (2) of this section, a party to a contract may cancel it if—

(a) he has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to that contract; or

...

(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,—

(a) the parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the term is essential to him; or

(b) the effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—

(i) substantially to reduce the benefit of the contract to the cancelling party; or

(ii) substantially to increase the burden of the cancelling party under the contract; or

(iii) in relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.

...

What is a misrepresentation?

[12] The term “misrepresentation” is not defined in the Act, so the common law

definitions continue to apply.1 The term is to be understood in its established sense of a false or erroneous statement of fact.2

[13] An actionable misrepresentation relates to some existing fact or some past event, and contains no element of futurity. For that reason it is to be distinguished from a statement as to future intention.3 However, the distinction between an untrue representation of fact and a statement of future intention may be difficult to discern.

[14] If a person makes a statement as to his or her intention, this implies the alleged intention exists. If it does not, there is a misrepresentation of fact. It is a misrepresentation because the state of mind of the person who makes the statement is not what it is represented to be.4 In addition, a statement that is ostensibly about the future may contain an implied statement about a present fact. If that fact is not correct, the statement may be a misrepresentation.5

[15] A statement of a belief or opinion based on grounds that are incapable of actual proof is not a representation of fact. In the absence of fraud, its falsity does not afford an entitlement to relief.6 However, an expression of opinion may amount to a misrepresentation of fact if it can be shown that the speaker did not hold the opinion, or that a reasonable person possessing the speaker’s knowledge could not honestly have held it.7

[16] A representation of law is not actionable purely because it is wrong. A

statement of law is essentially the representor’s opinion as to the law. It follows that,

_{if the representor does not actually hold this opinion, there will be a}

1 Ware v Johnson [1984] 2 NZLR 518 (HC) at 537 and 538; Manderson v Violich (1992) 5 TCLR 124 (HC) at 130 and 131.

2 _{Savill v NZI Finance Ltd [1990] 3 NZLR 135 (CA) at 145.}

3 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at 374.

4 See Edgington v Fitzmaurice (1885) 29 Ch D 459, applied in Burmeister v O’Brien [2010] 2 NZLR

_{395 (HC) at [58]. See also Buxton v Birches Time Share Resort Ltd [1991] 2 NZLR 641 (CA) at 646.}

5 _{See Ware v Johnson, above n 1; New Zealand Motor Bodies Ltd v Emslie [1985] 2 NZLR 569 (HC).}

6 See Bisset v Wilkinson [1927] AC 177 (PC); McAlpine Snowline Ltd v Wethey (1986) 2 NZCPR 388 (HC); Taylor v Smith (1987) 1 NZBLC 102,798 (HC).

7 See John Burrows, Jeremy Finn and Stephen Todd, above n 3 at 377; Smith v Land and House

Property Corpn (1884) 28 Ch D 7.

misrepresentation as to his or her state of mind.8 Moreover, as with other statements of opinion, there will be cases where the maker of a statement implicitly represents that he or she has reasonable grounds for stating a belief. However, it will be difficult to distinguish between representations of fact and law.9

Inducement

[17] In order to be actionable under s 7(3)(a), the alleged misrepresentation must have “induced” the person or persons to whom it was addressed, in this case the Tompkins, to enter into the contract. In Savill v NZI Finance Ltd, Hardie Boys J emphasised that there is no inducement to enter into a contract unless the representor either intended such a result, or wilfully used language that would induce a reasonable person to enter into the contract: In this context he said:10

At general law, inducement involves purpose as well as result. Not only must the representation have caused the representee to enter into the contract but also the representor must, either in fact or in contemplation of law have intended to cause him to do so ... In Ware v Johnson [1984] 2 NZLR 518,

538, Pritchard J, referring to fraudulent misrepresentation, expressed the view that the [Contractual Remedies] Act has done away with this

requirement; whilst in Shotover Mining Ltd v Brownlie (Invercargill, CP

96/86, 30 September 1987) McGechan J left the point open. I cannot think that the legislature intended such a change, which would make the test of

inducement a purely subjective one, judged from the point of view of the

representee. Not only is there no spelling out of an intention of that kind; but

the familiar verb “induce”, which has always had two aspects, has been retained. Therefore I consider that it remains the law that it is not enough for a party to say that a representation caused him to act in a particular way. He must also show either that the representor intended him to do so, or that he “wilfully used language calculated, or of a nature to induce a normal person in the circumstances of the case to act as the representee did” ... To view the Act in this way is to be consistent with the objective approach generally taken in regard to the law of contracts.

[18] The misrepresentation does not have to be the sole inducement to enter into the contract, but it must be a significant factor that actually influenced the plaintiff in

_{his or her decision.}11

8 _{Ibid at 379.}

9 Ibid. See Souster v Craig (1986) 2 NZCPR 404 (HC); Bartley v Beale (1997) 3 NZ ConvC 192,601 (HC).

10 _{Savill v NZI Finance Ltd, above n 2, at 145-146.}

11 New Zealand Motor Bodies Ltd v Emslie, above n 5, at 595.

Section 7(4) of the Act

[19] Section 7(4) provides for the right to cancel the contract on the grounds of misrepresentation.

[20] Under s 7(4)(a), the Tompkins need to show that the truth of the representations was “essential” to them. Section 7(4)(a) therefore imposes a requirement regarding the importance of the representation.12

[21] The test of essentiality was discussed by Jordan CJ in Tramways Advertising

Pty Ltd v Luna Park (NSW) Ltd:13

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

[22] The alternative grounds under s 7(4)(b) permit a promisee to cancel the contract where the misrepresentation “substantially” impacts on the benefit, burden or nature of the contract for the promisee.14 In MacIndoe v Mainzeal Group Ltd,

Richardson J described this concept in the following terms:15

Substantiality in [the] statutory context is a matter of fact, degree and impression. It has the same flavour as “significantly” and “considerably”. It is equally incapable of any kind of arithmetical analysis. One must stand back and, assessing the matter objectively, determine whether the effect of the breach will be, to take the most obvious provisions subparas (i) and (ii), substantially to reduce the benefit of the contract to [the cancelling party] or substantially to increase the burden [on the cancelling party] under the contract.

[23] In Westpac Merchant Finance Ltd v Winstone Industries Ltd, Anderson J said that the issue of substantiality requires a consideration of the case on its own facts,

_{and a determination that takes into account the nature of the contract, its subject}

12 _{Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90 at [22].}

13 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 (NSWSC) at 634 followed by Tipping J in Progeni Systems Ltd v Hampton Studios Ltd HC Christchurch CP105/86, 11

_{August 1987.}

14 _{MacIndoe v Mainzeal Group Ltd [1991] 3 NZLR 273 (CA) at 284.}

15 At 284 – 285.

matter and all the circumstances of the case.16 In Jolly v Palmer, Hardie Boys J held

that “substantially” requires something more than trivial or minimal.17

[24] Against that framework I now turn to consider the individual claims that the

Tompkins advance in misrepresentation.

The “two key” option

[25] In common with other apartments in the complex, Apartment 403 contained three bedrooms. The apartments were designed so that one of the rear bedrooms could be used as a self-contained studio unit. The unit could be shut off from the rest of the apartment, and it had its own external access. It also included an ensuite bathroom and limited kitchen facilities.

[26] Wensley marketed the apartments on the basis that they could be used either as a residence for the exclusive use of the owner, or as units that could be placed in a rental pool and rented out on a short or long term basis. The ability to use each apartment as either a single three bedroom unit or two separate units gave owners a degree of flexibility, and meant they could potentially earn more by renting out two units rather than a single unit.

[27] Wensley struck problems with the two key concept in April 2009, when the Queenstown Lakes District Council (“the Council”) issued an abatement notice18 requiring Wensley to cease using the two key arrangement. The Council took the view that Wensley’s resource consent did not permit the units to be used in accordance with that arrangement.

[28] Wensley did not accept the validity of the Council’s argument, but it did not take steps to formally challenge the abatement notice in the Environment Court. Instead, it negotiated an interim settlement with the Council under which Wensley agreed not to continue with the concept until it had regularised its position. The

_{Council for its part agreed to withdraw the abatement notice.}

16 _{Westpac Merchant Finance Ltd v Winstone Industries Ltd [1993] 2 NZLR 247 (HC) at 255.}

17 _{Jolly v Palmer [1985] 1 NZLR 658 (CA) at 662.}

18 Under s 324 of the Resource Management Act 1991.

[29] Wensley then set about obtaining a resource consent permitting it to operate the two key option. It eventually obtained that consent in July 2010, shortly before it cancelled the agreement in respect of Apartment 403.

[30] Mr Tompkins says he and his wife discussed the so-called two key option with Mr Bulmer when they met with him before signing the agreement. Mr Tompkins describes their attitude to renting the unit out as follows:

38. We also discussed with Mr Bulman us renting out our apartment.

Although we intended to live in the apartment ourselves there was a possibility we might rent it out in the future. We saw this could arise

under at least two possible scenarios.

39. First, if we moved back to Christchurch then we might wish to keep the apartment rather than sell it and rent it out. Julie was not as keen on living in Queenstown as I was. She had resisted for almost two years before moving to Queenstown. She thought that the apartment would not be our home forever and that it was possible we might want to move back to Christchurch. Having the option of renting out the apartment meant we had flexibility if we moved.

40. Secondly, Mr Bulman said that even if we lived in the apartment we could rent out the front room as a studio unit and make some extra money. He said we could rent out short term or long term to, say, an overseas student who could live in a one bedroom studio apartment quite comfortably on a longer term basis. I had looked at the floor plans of the apartments and was familiar with this two key concept.

[31] The problems Wensley encountered with the two key option did not arise until well after the Tompkins had purported to cancel the agreement for sale and purchase. Notwithstanding that fact, they contend they were induced to enter into the agreement by Mr Bulman’s assurances that it was an option that they could take advantage of if they wished to do so. They say his assurances amounted to misrepresentations, because Wensley’s original resource consent did not permit it to operate the two key concept. I agree with that assertion, because this Court has held that the resource consent did not extend to the implementation of the two key

concept.19

[32] Assuming for present purposes that Mr Bulman gave the Tompkins the assurances, it is therefore necessary to assess the significance the Tompkins attached

19 Wensley Developments The Marina Limited v Lawlor HC Invercargill CIV 2009-425-542, 23

September 2010.

to them when they entered into the agreement to purchase the apartment in December 2007. At that time they were not seeking an apartment they could rent out. Rather, they were seeking a comfortable residence for themselves. It is also clear that they had no immediate plans to place the apartment in the rental pool. Instead, I am satisfied they made it known to Mr Bulman that they would not be taking advantage of that option. This produced several consequences.

[33] First, Wensley gave them a complimentary $20,000 appliance upgrade. I accept Mr Tompkins’ evidence that Wensley did not advise him of the reason for the upgrade. Nevertheless, I accept the evidence for Wensley that it had provided those purchasers who placed their apartments in the rental pool with a guaranteed minimum rental return for the first two years. The upgrade reflected the fact that, because the Tompkins’ apartment was not being placed in the rental pool, Wensley was not obliged to provide them with that guarantee.

[34] The appliance upgrade meant that the appliances fitted in Apartment 403 were different to those in the remaining apartments. It was important for apartments in the rental pool to have standard appliances. Uniformity of appliances meant that management staff were familiar with the appliances installed in each apartment. This enabled them to deal readily with any issues that arose in relation to the appliances whilst the apartments were being rented out.

[35] Secondly, Wensley permitted the Tompkins to alter the interior of their apartment. Wensley specified, however, that the alterations were to be carried out at the Tompkins’ expense by Naylor & Love Limited, the construction firm building the units.

[36] Having obtained approval from Wensley to carry out alterations to the unit, Mr Tompkins kept a close eye on the alterations as they were carried out. The cost of these amounted to $20,700 plus GST. The Tompkins do not dispute the fact that the alterations cost this amount, but they have never paid for them despite repeated requests by Wensley for payment. The Tompkins obviously view their liability to pay for the alterations as having been extinguished by the cancellation of the agreement.

[37] Thirdly, Wensley permitted the Tompkins to install a light coloured carpet of their own choice. The remaining units had standard dark blue carpets that were designed to hide soiling in heavy use areas.

[38] Importantly, too, the Tompkins removed the kitchen facilities from the rear bedroom that would be used as a separate studio unit in the two key operation. This meant that the unit was not capable of being rented out in the same way as comparable bedrooms in the remaining apartments.

[39] In addition, Mr Tompkins objected to Wensley’s application for a new resource consent permitting it to operate the two key arrangement. He did so even though his solicitors had advised Wensley that the agreement was at an end 14 months earlier. In his objection dated 12 April 2010, Mr Tompkins stated that the original resource consent was for 27 three bedroom units because that was what the community wanted. He also said that the units should not be split into “essential bedsits” that had no cooking facilities. This does not support his current contention that he and his wife wanted to retain the option of operating their apartment under the two key concept.

[40] Finally, the statement of claim that the Tompkins originally filed in this proceeding20 contained an assertion21 that both before and at the time they entered into the agreement the Tompkins told Mr Bulman “that they wished to purchase [Apartment] 403 as their personal residence and did not wish to make it available for short term accommodation rental”.

[41] All of these matters demonstrate that, although the Tompkins may have given some thought to the option of returning the apartment to the two key arrangement at some indeterminate stage in the future, that factor did not play a material part in their decision to purchase the apartment.

[42] As a consequence, the Tompkins have not established that they were induced to enter into the agreement by representations relating to the two key option. It also

20 _{On 9 March 2009.}

21 At paragraph 9.

means they cannot satisfy the requirements under s 7(4) of the Act. They cannot establish that the truth of the representations was essential to them. Nor can they show that the effect of the misrepresentations was to substantially reduce the benefit of the agreement to them, or that the benefit of the agreement was substantially different from that which was represented.

[43] The Tompkins have therefore failed to establish their claim to the extent it relies upon misrepresentations relating to the two key option.

Noise and ventilation issues

[44] The Tompkins allege that Mr Bulman advised them during discussions before they signed the agreement that apartments in the complex would be designed and built to the highest standards so that there would be no issues for occupants in relation to road noise. They also rely upon the fact that they were given a brochure containing a statement to the effect that all apartments would be constructed with quietness as a paramount requirement, and that the apartments would exceed the building code requirements.

[45] They say these representations were false, because Apartment 403 did not comply with conditions contained in Wensley’s resource consent in relation to noise and thermal comfort standards. In addition, Wensley’s building consent prohibited building work from being undertaken in breach of any Act. This meant that Wensley was required to construct the units in conformity with the provisions of the Building Act 2004. Section 17 of that Act requires all building work to comply with the building code. The Tompkins contend that the ventilation system in the apartment did not meet the standards imposed by the building code.

[46] The Tompkins did not rely on this ground when they purported to cancel the agreement for sale and purchase on 10 February 2009. They say that, although they always harboured a concern that the rear bedrooms in the apartment were noisy, they only learned that those bedrooms did not comply with conditions contained in the resource consent when Mr Tompkins spoke to the Council in April 2009.

[47] The issue arises because Wensley’s resource consent contained the following

conditions:

a. Ensure that the following criterion is met in relation to noise from traffic on the road allowing for increases in noise arising from increased traffic growth during a period up to the year 2014 (Noise Performance Criterion);

i. Noise from traffic on the road shall not exceed 35 dBA Leq (24 hr) in any bedroom and 40 dBA Leq (24 hr) in other Habitable Rooms (AS/NZ 2107:2000) within any Building.

...

c. Provide mechanical ventilation to satisfy requirements for fresh air and for occupants’ thermal comfort if windows must remain closed to achieve and maintain the Noise Performance Criterion;

[48] Wensley now accepts that one of the rear bedrooms in Apartment 403 did not initially comply with the noise limits imposed by condition 14(a). On 7 September

2010, the Council issued an abatement notice requiring Wensley to take steps to rectify the situation. It did so after receiving a complaint from Mr Tompkins, who had arranged for an acoustics expert to visit the unit and prepare a report. This confirmed that the level of road noise permeating the larger rear bedroom exceeded the limits imposed by condition 14(a).

[49] Wensley appealed to the Environment Court against the abatement notice, and also initially sought a stay of the notice. Subsequently, however, it arranged for double glazing to be installed in the rear bedrooms of all apartments backing onto Frankton Road, the main road leading into Queenstown. The new windows were glazed using glass of a higher grade than that which was originally installed. This remedial work resulted in the Council withdrawing the abatement notice on 27 July

2010.

[50] That is not the end of the matter, however, because the windows in the rear bedrooms must now remain closed in order to keep road noise within the limits prescribed by condition 14(a). As a result, an issue arises as to whether the rear bedrooms comply with the thermal comfort requirements imposed by condition

14(c).

[51] Mr Hill, the ventilation expert who designed the ventilation systems in the apartment complex for Wensley, interpreted condition 14(c) as requiring sufficient mechanical ventilation to introduce fresh air to interior living spaces that has the same temperature as the air outside the apartment. Mr Mannes, the ventilation expert engaged for the Tompkins, rejected this approach. He was of the view that the condition imposed a requirement to provide whatever mechanical ventilation was required in order to provide thermal comfort to occupants of the apartment. He suggested that this would probably require the bedrooms to have an internal temperature of not less than 21 degrees Celsius in winter, and 24 degrees Celsius in summer. He based his opinion on research undertaken by the American Society of Heating Refrigeration and Air Conditioning Engineers (“ASHRAE”). He says ASHRAE is generally regarded as the leading authority on heating, ventilation and air conditioning principles. ASHRAE defines thermal comfort as being achieved where 80 per cent of the occupants would find the conditions acceptable.

[52] I prefer the approach suggested by Mr Mannes in relation to this issue. The resource consent does not define the term “thermal comfort”. I take condition 14(c) to impose a more stringent requirement, however, than a requirement merely to provide an internal air supply that matches the outside air temperature. In summer, the introduction of very warm air from outside is likely to produce significant thermal discomfort for the occupants of the apartment.

[53] At present, the rear bedrooms are ventilated largely by means of passive ventilation systems that draw in air from outside the apartment. The fact that the windows in the rear bedrooms cannot now be opened means that, in order to achieve the required level of thermal comfort in those rooms in summer, they will require more than passive ventilation systems. Taking a conservative view, it is likely that they will require air conditioning units to be installed.

[54] The issue of noise was clearly a matter of considerable importance to the Tompkins. I consider, however, that the comments made in the brochure and by Mr Bulman regarding that issue were statements about Wensley’s future intentions. The statements amounted to representations that Wensley would build the units in a

manner that ensured they would be very quiet, and that they would also meet all relevant compliance standards.

[55] I accept that Wensley genuinely intended to build the apartment to meet those standards. There is nothing in the evidence to suggest otherwise. Nor is there anything in the evidence to suggest that Wensley had any reason to believe in November and December 2007 that the units when built would not meet the relevant compliance standards. For that reason I do not consider the statements amount to actionable misrepresentations.

[56] Even if the statements could properly be categorised as misrepresentations, the Tompkins cannot show they are of sufficient gravity to warrant cancellation of the entire agreement. The total cost of installing double glazing in 16 windows in the three apartment blocks backing onto Frankton Road22 was approximately $9,500. It is therefore safe to assume that the cost of replacing the windows in Apartment

403 amounted to less than $3,000. Assuming that three air conditioning units need to be installed to achieve the required level of thermal comfort in the bedrooms of the apartment, the total cost would be approximately $10,000. The problems with noise and ventilation issues could therefore be rectified by spending a total of approximately $13,000.

[57] I accept that the Tompkins would also have been required to spend time and effort to investigate and rectify these issues. In particular, they would have been required to engage an expert to provide them with appropriate advice. Even allowing for these factors, however, the cost and effort required to address the noise and ventilation issues can properly be described as insubstantial having regard to the price the Tompkins had agreed to pay for the apartment.

[58] I therefore do not accept that the effect of any misrepresentations regarding noise and/or ventilation issues comes close to satisfying the requirements of s 7(4)(b) of the Act. It does not substantially reduce the benefit of the agreement to the

_{Tompkins, it does not substantially increase the burden they were required to assume}

22 Containing six apartments.

under the agreement and it does not make the benefit or burden of the agreement substantially different from that which Wensley represented.

[59] I reach the same conclusions later in this judgment23 in relation to the other respects in which the construction of the apartment did not comply with the building code.

[60] For that reason the claim based on misrepresentation under this head fails.

The size of the apartment

[61] The Tompkins say, and there is no dispute, that in one of their earliest meetings with Mr Bulman he gave them a list setting out the prices Wensley was seeking in respect of each of the apartments in the complex. This recorded that Apartment 403 was 168 square metres in size. Wensley explains that the area stated in the price list comprised the floor area of the apartment (128 square metres), together with the area of the two car parks that the Tompkins acquired as Accessory Unit 403A (40 square metres).

[62] I consider that the statement in the price list amounted to a representation that the apartment itself was to have a floor area of 168 square metres. The price list does not contain any hint that the measurement also includes the area of the car parks. Any reasonable person reading the price list would naturally assume Wensley was offering to sell a 168 square metre apartment for the sum of $1.2 million. Given that Wensley was never intending the apartment to have that floor area, the statement amounted to a misrepresentation.

[63] The agreement for sale and purchase did not contain any reference to area. It recorded only that the purchasers were acquiring Apartment 403 and Accessory Unit

403A. By 10 February 2009, however, the Tompkins were clearly aware that the floor area of the apartment was only 128 square metres in size. In the letter their

_{solicitors sent to Wensley on that date purporting to cancel the agreement, they}

23 At [161] to [166].

included the issue relating to the size of the apartment as one of the grounds justifying cancellation.

[64] Mr Tompkins says he was not aware that he and his wife were acquiring the car parks under the agreement. He believed the car parks were situated on common property, and that they were merely acquiring the right to use two of them.

[65] Wensley contends that Mr Tompkins’ explanation is implausible, and that the Tompkins must have been aware of the true state of affairs. Wensley points to the fact that Mr Tompkins drew a diagram of the apartment when he was negotiating with Wensley regarding the alterations he wanted to make to the apartment. He did so using measurements taken from plans of the complex he had uplifted from the site. The diagram was drawn to scale, and recorded that one wall of the apartment was 16 metres in length whilst the other was eight metres in length. Wensley submits that the measurements Mr Tompkins recorded on his diagram demonstrate that he knew exactly how large the apartment was.

[66] I acknowledge that Mr Tompkins clearly became aware of the correct dimensions of the apartment in May 2008 when he drew his scale diagram. He is also employed in the construction industry by a firm that builds apartments. One would therefore expect Mr Tompkins to have appreciated immediately that a 16 square metre by eight square metre apartment was 128 square metres in size, and not

168 square metres as the price list had stated. He should also have realised that the apartment was considerably smaller than he says he had been led to believe.

[67] Surprisingly, however, Mr Tompkins’ evidence was that he did not turn his mind to the size of the apartment when he drew the diagram. Nor did he appreciate, even after he had drawn it, that the apartment was much smaller than the price list had stated. He says he did not become aware of that fact until January 2009, when he obtained a valuation of the apartment for the purpose of obtaining bridging finance to enable him to settle the purchase of the apartment.

[68] Although this explanation strains credulity, Mr Tompkins appeared to be genuine in his assertion and I have no reason to disbelieve it. I am therefore

prepared to give Mr Tompkins the benefit of the doubt on this point. For that reason I proceed on the basis that he did not appreciate that the floor area of the apartment was only 128 square metres even after he drew the scale diagram. I also bear in mind the fact that the critical point at which the state of the Tompkins’ knowledge must be assessed is the point at which they entered into the agreement. Mr Tompkins drew his diagram well after he and his wife entered into the agreement.

[69] The next issue is whether the representation as to the size of the apartment induced the Tompkins to enter into the agreement to purchase the apartment. Allied to this is the issue of whether, in terms of s 7(4)(a) of the Act, the truth of that representation was a matter that was essential to the Tompkins.

[70] There is nothing, however, in either Mr Tompkins’ brief of evidence or his oral evidence at trial to suggest that he and his wife viewed the representation regarding the size of the apartment as being essential, or even of particular importance, to them.

[71] In this context Mr Tompkins’ actions during the period leading up to 10

February 2009 become relevant. Whilst the apartments were being built, Mr Tompkins visited the site regularly. He passed the site daily on his way to work, so it was easy for him to call in and check on progress. During this period he never raised any issue regarding the size of Apartment 403.

[72] Mr Tompkins also visited the apartment twice in December 2008 after Wensley’s designer had issued the certificate of practical completion. He was aware that Wensley had called for settlement to take place on 23 December 2008, and he was surprised that construction of the apartment had been completed so quickly. For that reason Mr Tompkins inspected it carefully. He also took a series of photographs during one of his visits. He instructed his solicitors to send these to Wensley’s solicitors in support of his contention that the apartment was not in fact practically complete at that time. By this stage the apartment was very close to being complete. If Mr Tompkins considered the apartment to be much smaller than he had been led to believe one would expect him to have raised that issue in December 2008 at the very

latest. Neither Mr Tompkins nor his solicitors raised any issue at this time regarding the size of the apartment.

[73] The fact that the Tompkins did not raise any issue regarding the size of the apartment prior to January 2009 leads me to conclude that they did not regard it as being an issue until that point. I consider the true position to be that the Tompkins did not really turn their mind to the precise dimensions of the apartment before they entered into the agreement to buy it. This was probably because they were satisfied with the general configuration of the apartment from the material Mr Bulman had given them.

[74] I therefore conclude that the representation in the price list did not induce the Tompkins to enter into the agreement for sale and purchase. For the same reason, I do not consider the truth of the representation regarding the size of the apartment to have been essential to Mr Tompkins and his wife.

[75] This conclusion also means that the Tompkins cannot satisfy the requirements of s 7(4)(b) of the Act. They cannot show that the effect of the misrepresentation was to substantially reduce the benefit of the agreement to them, or that it made the benefit of the agreement substantially different from that which Wensley had represented.

[76] The claim based on the misrepresentation as to the size of Apartment 403 therefore fails.

The new marina

[77] Wensley marketed the apartment complex on the basis that a new 240 berth marina was to be developed in the area surrounding the existing but dilapidated Frankton Marina. This is a short distance to the west of the apartment complex. The Tompkins say that the development of the new marina was at the heart of what Wensley was selling, and what they agreed to buy. To date, however, development of the new marina has not begun. There must now be real doubt as to whether it will ever begin.

[78] Any representations that Wensley and Mr Bulman made about the marina development related for the most part to predictions about future activity to be undertaken by a third party rather than an existing state of affairs. The Tompkins will therefore only be able to establish they amounted to misrepresentations if they can show that the representations were based on implied incorrect statements of fact, or that Wensley did not genuinely hold its views regarding the future development of the marina. The Tompkins contend the representations were false because of the impression they were designed to, and did, create in circumstances where Wensley did not genuinely hold the views it expressed.

[79] The Tompkins rely in this context on the fact that many of the statements about the marina in Wensley’s brochure contained the modal verb “will”. The brochure stated, for example, that “the complex will enjoy direct access to the proposed new 240 berth marina development at the existing boat park”. It also said that “the result of all this activity will be one of the most beautiful marinas in the world and The Marina Baches are located to take full advantage of the positive impact on this area”. The Tompkins contend that the use of the word “will” created the firm impression that the marina development would definitely proceed. It created that impression notwithstanding the fact that Wensley knew there was no certainty that the development would in fact proceed.

[80] Wensley clearly promoted the proposed marina development as one of the principal attractions for those interested in purchasing an apartment in The Marina Baches complex. It is important, however, to consider the brochure as a whole in assessing the impression it is likely to have created for potential purchasers such as the Tompkins. The state of Wensley’s knowledge and belief must be assessed against what it was actually telling potential purchasers.

[81] The flyer and brochure that Mr Bulman gave the Tompkins contained several statements about the project. One of the statements in the flyer was that “with the proposed 240 berth marina, The Marina Baches will have the very best in boating facilities quite literally on their doorstep”.

[82] The brochure is a 35 page document detailing a wide range of issues. I accept that it was obviously designed by marketing professionals, and seeks to portray The Marina Baches development in an extremely positive light. The proposed marina development is referred to at three separate points in the brochure.

[83] The principal and most detailed statements Wensley made about the marina were contained on pages 2 and 15 of the brochure. On page 2, which is the introductory page, the brochure stated:

The Marina Baches are also situated right next door to the existing boat park and its current boating amenities. But we are extremely excited about the Queenstown Lakes District Council’s proposal for a new 240 berth marina on this site. This new Queenstown development will provide a stunning array of boating facilities including a re-developed slipway, fixed and floating wharves and pedestrian plazas ensuring you as Marina Bach owners will have access to the very best in boating facilities literally on your doorstep.

[84] Page 15 was dedicated to a description of the proposed marina development. It read as follows:

_{Lake, Luxury, Lifestyle}

THE MARINA BACHES

The Marina Baches boasts one of the best locations on the Wakatipu lakefront – as well as being situated just a 4 minute drive from the centre of Queenstown, the complex will enjoy direct access to the proposed new 240 berth marina development at the existing boat park.

The proposal for the new marina has already been through the first stages and exploratory work has been conducted. The Queenstown Lakes District Council has signed a memorandum of understanding with Queenstown Marina Developments Ltd, which is independent of Wensley Development Group, to develop the marina. The resource consent is being applied for in early 2007 and construction is expected to begin in 2008.

According to the plans distributed for public consultation, the marina will consist of 200 private berths measuring 15 metres and 40 public berths measuring 8 metres. There will be 200 underground carparks and 120 above ground carparks along with associated buildings required for the running of the marina.

Further to the marina the Queenstown Lakes District Council is committed to spending $700,000 beautifying the reserve surrounding The Marina Baches.

The result of all this activity will be one of the most beautiful marinas in the world and The Marina Baches are located perfectly to take full advantage of the positive impact on this area.

[85] On page 7 of the brochure, under the heading “Local Attractions”, the

brochure said that The Marina Baches were:

Located adjacent to the existing boat park and its boating amenities including slipway

Located adjacent to the proposed new 240 berth marina due to be completed by 2009

[86] Mr Bulman also discussed the proposal with the Tompkins, but it appears that he did little more than emphasise that it meant that the new marina development would attract shops and cafes to the area. For that reason the statements made in the flyer and brochure form the core of the Tompkins’ claim under this head.

[87] The statements in the flyer and on page 2 of the brochure relate specifically to a “proposed” development, and I do not consider that any reasonable person reading those statements would take them to mean that the proposal would definitely proceed.

[88] By far the most detailed discussion of the proposal is to be found on page 15 of the brochure. I consider it likely that potential purchasers would have relied principally on the statements made on that page when assessing the weight to be given to the marina development. It is therefore appropriate to consider that page as a whole in order to determine what potential purchasers, including the Tompkins, could reasonably take from it.

[89] The first paragraph refers to “the proposed new 240 berth marina development at the existing boat park”. This makes it clear that the development remains in the form of a proposal rather than a certainty. The first sentence of the next paragraph continues and expands upon this theme. It states that the proposal has only been through “the first stages”, and that “exploratory work has been conducted”. These statements make it clear, in my view, that the proposal was still in comparative infancy at the time the brochure was prepared.

[90] The statements later in the same paragraph make it clear that the developer had not yet applied for resource consent, but that this would occur in early 2007. Construction of the marina was “expected to begin” in 2008. These statements are clearly about activities that were to take place in the future.

[91] Similarly, the brochure acknowledged in the next paragraph that information about the facilities the new marina was expected to offer had been taken from plans distributed for public consultation. The final paragraph was obviously a statement of opinion about the end result.

[92] The Tompkins received the brochure in November 2007. The state of Wensley’s knowledge must therefore be assessed as at that date. The statements Wensley made in the brochure could only amount to misrepresentations if the Tompkins can show that, on the information available to Wensley in November

2007, it did not or could not genuinely subscribe to the statements it made. They could do that if, for example, they could show that in November 2007 Wensley knew that the developer had not applied for resource consent earlier that year, or that Wensley knew in November 2007 that the development might not proceed for some other reason.

[93] The entity selected by the Council to develop the marina was a company called Queenstown Marina Developments Ltd (“QMDL”). The evidence confirms that QMDL applied for resource consent in April 2007. In November 2007 Wensley knew that QMDL’s application was to be heard by independent Commissioners in February 2008. Wensley had filed a submission about the proposed development, and was scheduled to appear in support of its submission when the application was heard. For that reason Wensley knew in November 2007 that the developer was still planning to proceed with the project.

[94] The Tompkins contend, however, that contrary to the statements Wensley was making to prospective purchasers, it did not actually support the marina development. They argue that Wensley’s submission to the Commissioners was designed, in fact, to thwart it.

[95] The Commissioners’ decision paints a different picture. It describes

Wensley’s submission as follows:

9.5 Mr Greg Wensley showed the Commission a scale model of the Marina Bach development. Ms Julie Jack, the Managing Director of [Wensley Developments The Marina Limited], then addressed the Commission on behalf of Wensley Developments. She stated that the Marina apartments had been designed to afford occupants an uninterrupted view of Lake Wakatipu. This outlook would be obstructed by the car parks. Ms Jack considered that occupants of the apartments will be disturbed by noise associated with all-hours use of the car park, and by glare from headlights and security lighting, and suggested that the plans be amended so that the land immediately adjoining the residential zone is not used for car parking but for lawn and low level landscaping. Wensley Developments would also like to be consulted over replacement vegetation for the willow trees currently lining the foreshore, as they would like the Bach development to have unobstructed views.

[96] There is no reason to believe that the Commisssioners misdescribed Wensley’s submission in the above passage. It shows, in my view, that Wensley generally supported the marina development project. It wanted certain aspects of the proposal varied, however, for the benefit of owners in The Marina Baches complex.

[97] A resource consent was ultimately issued in respect of the proposed marina development on 24 June 2008. Wensley appealed to the Environment Court against that decision. Mr Ross Wensley explained that Wensley filed the appeal as a tactic to force QMDL to come to an acceptable arrangement with it regarding the issue of car parking in the vicinity of The Marina Baches.

[98] This tactic appears to have worked, because QMDL agreed to locate the carparks below the line of sight of apartments in The Marina Baches complex. Wensley also reached agreement with the Council and QMDL at this time regarding the terms upon which Wensley could remove some of the trees on the foreshore in front of the apartment complex. As a result, Wensley withdrew its appeal.

[99] Taken as a whole, the evidence supports Wensley’s argument that it always supported the proposed marina development, and that it believed in November 2007 that it remained on track. Mr Wensley was adamant during cross-examination that he maintained close contact with QMDL’s principal, Mr Buzz March. He said he

also he believed that QMDL had spent over a million dollars on the proposed development.

[100] Furthermore, counsel for the Tompkins did not put to Mr Wensley in cross- examination that he was aware of information in November 2007 casting doubt on any of the statements it had made about the marina development in the flyer and brochure.

[101] Looking at the evidence overall, I am satisfied that as at November 2007 there was nothing to suggest to Wensley that the marina development would not proceed, or that the predictions it had made in the brochure were unlikely to be fulfilled. Wensley knew that QMDL’s application for resource consent had been filed and was to be heard in three months’ time. If resource consent was granted in mid-2008, as proved to be the case, there is nothing in the evidence to suggest that work could not have begun during 2008.

[102] The evidence is silent on the issue of whether, if work on the marina began in

2008, it could be completed by 2009. Counsel for the Tompkins did not suggest to any of Wensley’s witnesses, however, that they knew or had any reason to believe in November 2007 that the marina development would not or could not be completed by then. Nor did he suggest that Wensley was privy to information suggesting that the marina development was unlikely to proceed at all.

[103] For these reasons the Tompkins have not persuaded me that the statements that Wensley made to the Tompkins about the marina development amounted to actionable misrepresentations.

[104] There is, in any event, an issue as to the level of importance that the Tompkins ascribed to the proposed marina development. They were buying their apartment as a permanent residence, and not to use as holiday accommodation. For that reason the proximity of The Marina Baches development to central Queenstown is likely to have been of greater importance to them than proximity to the new marina. There is nothing in the evidence to suggest they owned a boat, or that the proposed development was particularly important to them for any other reason. If

they were induced to enter into the agreement by the representations, the inducement must have been at a very general level.

[105] There is also nothing in the evidence to suggest that the Tompkins ever raised with Wensley the lack of progress with the new marina prior to the point at which they purported to cancel the agreement in February 2009. Mr Tompkins visited the site regularly during the latter part of 2008, and it must have been obvious to him by the end of 2008 that there was no apparent progress with the marina development. If the truth of the representations regarding the development was essential to the Tompkins, one might have expected Mr Tompkins to make some enquiry regarding progress during this period.

[106] Counsel for the Tompkins points out that the brochure said the new marina would be completed “by 2009”. For that reason he submits it was not unreasonable for Mr Tompkins to have refrained from raising any issue about it during 2008. This submission only goes part of the way, in my view, towards explaining Mr Tompkins’ failure to say anything during 2008. If the development of the new marina was truly important to the Tompkins, I have no doubt they would have raised it with Wensley at some stage prior to February 2009.

[107] Finally, there is nothing in the evidence to suggest that the value of apartments in The Marina Baches complex would have been materially different in February 2009 (or later for that matter) if the marina development had been on track for completion at some stage later in 2009. For that reason the Tompkins cannot establish that the effect of the misrepresentations was to substantially reduce the benefit of the agreement for them, or that it made the benefit of the agreement substantially different from that which had been represented.

[108] I have therefore concluded that the claim based on alleged misrepresentations in relation to the proposed marina development cannot be sustained.

Uninterrupted lake views

[109] The Tompkins say that Mr Bulman told them on several occasions before they entered into the agreement that significant landscaping and public works were to be carried out around the site to ensure “uninterrupted views” of Lake Wakatipu and the Remarkables. They say these statements were false because a stand of unsightly willow trees remained on the shoreline in front of the units, and this obscured the view of the lake from Apartment 403.

[110] Neither the brochure nor the flyer contained these statements, so the Tompkins’ claim under this head relies upon the oral statements Mr Bulman is said to have made to them. Mr Bulman denies he would have told the Tompkins that Apartment 403 would have unrestricted views. He points out that Apartment 403 was not located in the apartment blocks situated closest to the lake. It was on the third level of one of the blocks backing onto Frankton Road. For that reason it obtained views of the lake through a gap between two of the lakefront apartment blocks.

[111] In November and December 2007, the site for The Marina Baches complex was bare land. Thick stands of willow trees grew along the edge of the lake. Wensley was subsequently able to remove and thin some of these after it reached an agreement with QMDL regarding the appeal Wensley had lodged in respect of QMDL’s resource consent.

[112] In order to demonstrate the location of the units in the proposed development, Wensley included within the brochure24 a full page aerial photograph of the proposed construction site with the apartment blocks digitally superimposed upon it. This showed that Apartment 403 was in one of the rear blocks of the complex, and that it obtained a view of the lake through a gap between two of the lakefront apartment blocks. More importantly, the photograph also showed that significant stands of

willow trees were to remain on the lakeshore between the apartment blocks and the

_{lake. Any reasonable person looking at the brochure would therefore have}

24 At page 5.

understood that this was to be the case, and that Wensley was not representing that the view of the lake would be completely unobscured or uninterrupted.

[113] Any representations Mr Bulman may have made regarding the views to be enjoyed from Apartment 403 need, in my view, to be considered in conjunction with the other material he provided to the Tompkins. Had Mr and Mrs Tompkins taken the time to study the brochure, as Mr Tompkins confirms they did, they would have appreciated that this page of the brochure was important. It gave them the best indication of the location of their apartment within the complex, and the likely views that it would enjoy. It would also have alerted the Tompkins to the fact that Mr Bulman’s comments needed to be qualified by the fact that willow trees were to remain on the lakeshore.

[114] For that reason I do not consider the Tompkins were induced to enter into the agreement by representations to the effect that the apartment enjoyed “uninterrupted views” of the lake and mountains.

[115] In this context it is worth bearing in mind that Apartment 403 has an elevated aspect, and it still enjoys extensive views of the lake and surrounding mountains notwithstanding the continued presence of the willow trees. It also seems likely that Mr Tompkins was satisfied with the views from the apartment during his visits to it, because he never raised any issue about the views during the period leading up to February 2009. Nor did his solicitors rely upon it in their letter dated 10 February

2009 as one of the grounds justifying cancellation of the agreement.

[116] For this reason I do not consider that the effect of any representations that may have been made about the views was to substantially reduce the benefit of the agreement for the Tompkins, or that it made the benefit of the agreement substantially different from that which had been represented.

[117] These factors persuade me that the claim based on misrepresentations regarding the views to be enjoyed from the apartment has not been made out.

The money set aside by the Council for beautification works

[118] The statement of claim avers that Wensley represented that the Council “had committed” the sum of $700,000 on beautification works to be carried out on the reserve surrounding the proposed apartment complex. The Tompkins say the representation was false, because as at November 2007 the Council had not committed that sum to beautification works on the reserve surrounding The Marina Baches complex. As a result, they say the complex is “surrounded by undeveloped/unlandscaped land, [and] unkempt trees obscuring views from the apartments”.

[119] This pleading is based on the following statement in the brochure:

Further to the marina the Queenstown Lakes District Council is committed to spending $700,000 beautifying the reserve surrounding The Marina Baches.

[120] In his brief of evidence, Mr Tompkins also said Mr Bulman told him that the Council “was spending” $700,000 on beautification works around the reserve. Mr Bulman says he would not have told the Tompkins more about this issue than was already in the brochure that he had given them.

[121] The Council’s Management Accountant, Mr Angus Welsh, said that the Council had made provision in its 2001/2002 Annual Plan for $700,000 to be spent on upgrading the marina. This was carried through to the Annual Plan in respect of the 2002/2003 year. The funds to carry out this work were to come from the sale of land owned by the Council adjacent to the marina. The expenditure was restricted to work on the marina itself, however, and not on the reserve surrounding it.

[122] The 2003/2004 Annual Plan did not contain provision for this item, although

$500,000 of the original sum committed to the project remained unspent. Thereafter, the Council began to concentrate on encouraging private interests to develop the marina.

[123] In the 2005/2006 year, QMDL indicated to the Council that it was interested in carrying out a major upgrade of the marina. This included the construction of a

floating marina that was to be moored to the lakebed, the provision of underground parking and some marine-related commercial activity. On the basis that QMDL was to carry out this work, the Council offered to contribute the sum of $1 million to tidy up the area surrounding the marina.

[124] Having made that offer, the Council included the proposed contribution in its Ten Year Plan for 2004-2014 and its Annual Plan in respect of the 2005/2006 year. Thereafter, however, the Council did not refer to the contribution in any subsequent annual or ten year plans. This reflected the fact that QMDL had by that stage assumed responsibility for beautifying the area surrounding the marina. As a result, the Council was no longer required to make provision for that work.

[125] Mr Welsh confirms that funds were never actually set aside to meet the Council’s contribution, because the offer to contribute never amounted to more than a proposal. The Council would not have begun to source funding to enable it to make its contribution until it was sure the project was going ahead. Had matters reached that stage, the Council would have used the balance of the funds it had earlier committed to the upgrade of the marina. It would then have borrowed the balance that it needed to make its contribution.

[126] Mr Welsh confirms, however, that the Council has spent a total sum of just under $790,000 in relation to the reserve and marina area since 2002. Of this, the only expenditure clearly referable to the reserve surrounding the marina is the sum of

$51,245 spent on carparking and landscaping. Of that sum, the Council spent just

$3,309 after December 2012.

[127] Viewing the evidence in totality, I do not consider Wensley was justified in stating that the Council was committed to spending $700,000 on beautification works in respect of the reserve surrounding the apartment complex. Nor was Mr Bulman justified in telling the Tompkins that the Council was spending that sum. Such funds as the Council may have had available at that time were committed to the marina upgrade, and not the beautification of the surrounding reserve. I therefore accept that these statements amounted to misrepresentations of fact.

[128] Mr Tompkins says in his brief of evidence that the benefits of the marina and the beautification works were very important to him and his wife, and that the works were to provide “the promised unsurpassed lakefront lifestyle”. Counsel for Wensley did not cross-examine Mr Tompkins on this point, so his evidence on it is effectively unchallenged. For that reason I am satisfied that, at least in part, the Tompkins were induced to enter into the agreement to purchase their unit based on their belief that beautification work would be carried out on the reserve surrounding the complex. That is very different, however, to a claim that the Council’s commitment to spend $700,000 on such work was an essential element of their decision to purchase the apartment.

[129] The claim also needs to be measured against Mr Tompkins’ actions leading

up to the purported cancellation in February 2009.

[130] There is no evidence to suggest that Mr Tompkins ever made enquiries at any stage prior to 10 February 2009 regarding the monies that the Council had supposedly committed to the beautification of the reserve. Had this been an issue of any importance, one would expect him to have raised it at some stage prior to the point at which he sought to cancel the agreement.

[131] For that reason I do not accept that the alleged commitment of the Council to spend the sum of $700,000 on beautifying the reserve was a factor the Tompkins regarded as essential, or even important, to them. If anything was essential in this context, it was that beautification work was to be carried out before The Marina Baches complex was finally completed.

[132] The brochure, and in particular the digitally altered aerial photograph referred to above,25 indicated that the grounds of the complex were to be attractively landscaped. The path on the reserve was also to be refurbished, although stands of willow trees were to remain on the foreshore. The brochure undoubtedly suggested that Wensley intended to carry out beautification work as part of the overall development, although it did not say when that work would be completed. This

_{probably explains, in my view, why Mr Tompkins did not raise any issue about the}

25 At [112].

lack of beautification works prior to the point at which he instructed his solicitors to cancel the agreement.

[133] As it turns out, both Wensley and the Council carried out landscaping and beautification work after the Tompkins had cancelled the agreement. That fact has no direct relevance, however, for present purposes.

[134] There is also no evidence to confirm that the effect of the misrepresentation was that the benefit of the agreement was substantially reduced for the Tompkins, or that it made the benefit of the agreement substantially different to that which had been represented.

[135] For those reasons I reject the claim advanced under this head.

The on-site manager

[136] The brochure advised prospective purchasers26 that “a high performance management company will ensure your property is properly marketed and promoted”. In addition, Mr Tompkins says Mr Bulman confirmed to him that there would be a full time manager with a proven track record. Mr Tompkins also recalls that Mr Bulman told him the management company would be an international company, so that they could rest assured there would be no problems.

[137] Mr Tompkins says this confirmation was important to him for two reasons. First, he needed to know that somebody responsible would be on-site on a full time basis to deal with any issues arising out of the fact that some of the apartments were being rented out to visitors. Secondly, he did not discount the possibility that he and his wife might want to place their apartment in the rental pool at some stage in the future.

[138] Mr Bulman says that, because the Tompkins had made it clear that they wanted to live in the apartment and did not want it to go into the rental pool, he did

_{not go into any great detail with them regarding the management of the complex. He}

26 At page 19.

says he did, however, tell them there would be a permanent manager who would reside in the complex.

[139] The representations in the brochure and by Mr Bulman were not about existing matters of fact. Instead, they were statements regarding Wensley’s intentions in relation to the management of the complex once it had been completed. They will therefore only amount to actionable misrepresentations if the Tompkins can show Wensley did not genuinely subscribe to the views it expressed in the brochure and through Mr Bulman.

[140] As a matter of common sense, it would be highly surprising if Wensley did not intend to appoint a full time manager who was to live on site. That would be necessary for both of the reasons Mr Tompkins identified.

[141] Ms Jack dealt with this issue on Wensley’s behalf. She said that Wensley always aims to appoint a permanent site manager with appropriate experience in the field of hospitality management and marketing. In the early stages of a development, however, she said it may be necessary to appoint another company within the Wensley group to manage and supervise an apartment complex.

[142] Ms Jack accepts the Wensley companies are primarily involved in the development of apartment complexes. They have been involved in this field for more than 15 years. During that time they have also been involved in the management of two large apartment developments in the Queenstown area. This required them to manage those complexes for periods of up to 18 months before handing the responsibility over to a specialist management and marketing company. Ms Jack therefore rejects any suggestion that the Wensley companies were not appropriately qualified to operate as the manager of an apartment complex.

[143] Ms Jack says Wensley intended The Marina Baches complex to be managed by a specialist management and marketing company in the long term. Marina Baches Management Limited, a company associated with Wensley, has managed the complex since late 2008. That company hired a manager with 25 years’ experience

in hospitality management, and an assistant manager with 12 years’ experience in hospitality.

[144] Ms Jack says the manager took up the position on 1 November 2008, and began living on-site in the second week of December 2008. The assistant manager began working at the complex on 1 December 2008. The first paying guests arrived in late December 2008.

[145] Ms Jack also says The Marina Baches received a Qualmark 5 star award in late 2009 for self-contained and serviced facilities, and that it has been ranked 64th best in the world by the online travel company Expedia. Expedia included just two other accommodation providers in New Zealand within the top 100 providers. Since early 2010, the complex has been managed in conjunction with the company that trades internationally under the Mantra brand name.

[146] I am satisfied, for reasons I have already given, that the Tompkins had no interest in placing their apartment in the rental pool in the short to medium term. For that reason they cannot have been induced to enter into the agreement by Mr Bulman’s assurance that the manager was to be an international company with relevant marketing and management experience. That might be important to an owner who intended to place an apartment within the rental pool, but it would have little or no significance for an owner who intended to use the apartment as a permanent residence.

[147] I accept that the Tompkins were rightly concerned to ensure that the complex would be managed by a full time manager who lived on-site, but Wensley was capable of offering that type of service through an associated company staffed by personnel having appropriate experience in the hospitality industry. I am satisfied that in November 2007 Wensley intended to ensure that the complex was to be managed in that way.

[148] I therefore do not consider that the statements made in the brochure and by Mr Bulman regarding the manner in which the complex was to be managed amounted to misrepresentations.

Breach of contractual terms

[149] The Tompkins say they were also entitled to cancel the agreement because Wensley breached express and implied terms of the agreement for sale and purchase. They rely upon ss 7(3)(b) and (4) of the Act, which relevantly provide:

7 Cancellation of contract

...

(3) Subject to this Act, but without prejudice to subsection (2) of this section, a party to a contract may cancel it if—

...

(b) a term in the contract is broken by another party to that contract; or

...

(4) Where subsection (3) ... of this section applies, a party may exercise the right to cancel if, and only if,—

(a) the parties have expressly or impliedly agreed that ... the performance of the term is essential to him; or

(b) the effect of the ... breach is, or, in the case of an anticipated breach, will be,—

(i) substantially to reduce the benefit of the contract to the cancelling party; or

(ii) substantially to increase the burden of the cancelling party under the contract; or

(iii) in relation to the cancelling party, to make the benefit or burden of the contract substantially different from that ... contracted for.

[150] Section 7(4)(a) provides for cancellation following breach of an essential term. The essentiality test is discussed above.27 The subsection contemplates the parties either expressly agreeing that a term is essential, or impliedly so agreeing.28

In Mana Property Trustee Ltd v James Developments Ltd, the Supreme Court said

_{the “preferable approach” is to ask whether, unless the term in question was agreed}

27 _{At [20] and [21].}

28 Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 90; [2010] 3 NZLR 805 at

[24].

at the time of contracting to be essential, the cancelling party would more probably than not have declined to enter into the contract. That question must be answered by “an objective contextual appraisal” which disregards what a party may unilaterally have said about its intention in that regard.29

[151] In Wilson v Hines, Penlington J thought the question of whether a term was essential was whether the stipulation “went to the heart of the contract”.30 Dawson and McLaughlin deal with the issue as follows:31

One useful indicator of whether a term has been agreed by implication to be essential is to ask whether the term is of such importance that it may reasonably be supposed that without such term the party not in default might never have entered into the contract at all.

[152] Section 7(4)(b) provides for the right to cancel following a breach of a term which “substantially” impacts on the benefit or burden of the cancelling party under the contract. The meaning of “substantially” is discussed above at [22] and [23].

Was Wensley entitled to call upon the Tompkins to complete the purchase of the apartment?

[153] The Tompkins say that Wensley breached express warranties in the agreement, and that it also breached an implied term requiring Wensley to build the apartment in accordance with the resource consent it had obtained in respect of The Marina Baches development. They also say that, because Wensley was in breach of these terms when it called upon them to settle the purchase of the apartment, it was not entitled to require them to complete the purchase.

[154] The agreement for sale and purchase in the present case was in the form contained in the seventh edition (July 1999) of the standard terms for sale and purchase of real estate approved by the Real Estate Institute of New Zealand and the Auckland District Law Society. Clause 6.2(5) of the agreement contained a warranty

_{by Wensley that it had built the apartment in compliance with its building consent,}

29 _{At [25].}

30 Wilson v Hines (1994) 6 TCLR 163 (HC). See also Broadbank Corp Ltd v Martin [1988] 1 NZLR

_{446 (HC) at 450.}

31 F Dawson and D McLauchlan The Contractual Remedies Act 1979 (Sweet & Maxwell, Auckland,

1981) at 110. See also Burrows Finn and Todd, above n 3, at 711 to 716.

and that it had met all of its obligations under the Building Act 1991 and the Building Act 2004. Both of these Acts require building work to be carried out in accordance with the building code.

[155] This argument needs to be considered having regard to cl 6.5 of the agreement for sale and purchase, which provided as follows:

6.5 Breach of any warranty or undertaking contained in this clause does not defer the obligation to settle. Settlement shall be without prejudice to any rights or remedies available to the parties at law or in equity, including but not limited to the right to cancel this agreement under the Contractual Remedies Act 1979.

[156] In Property Ventures Investments Ltd v Regalwood Holdings Ltd,32 the Supreme Court examined the effect of cl 6.5 in circumstances where a purchaser becomes aware prior to settlement of the fact that the vendor is in breach of a term or warranty contained in an agreement for sale and purchase.

[157] The Chief Justice said that cl 6.5 is a type of “compensation clause”. Citing the principle in Flight v Booth,33 she said compensation clauses are not effective to compel settlement against an unwilling purchaser if the effect of the breach or error in description is such that it may reasonably be inferred that the purchaser would not have entered into the agreement had it been known.34 The Chief Justice took the view that, provided the breach by the vendor is material, the purchaser is not obliged to complete the purchase.35

[158] The majority36 held that, where an agreement for sale and purchase contains a clause in the form of cl 6.5, a purchaser who acquires knowledge of a breach of warranty by the vendor cannot “sit on its hands refusing to proceed to settlement until the breach is remedied”.37 Instead, the purchaser must either cancel the agreement or proceed to settlement. The purchaser may, however, advance a claim

_{for breach of warranty prior to settlement. If it can particularise and quantify its}

32 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47; [2010] 3 NZLR

_231.

33 _{Flight v Booth [1834] EngR 1087; (1834) 1 Bing NC 370, 131 ER 1160 (CP).}

34 _{At [10].}

35 _{At [17]. See also at [9].}

36 _{Comprising Blanchard, McGrath and Wilson JJ, with reasons given by Blanchard J.}

37 At [72].

claim, the purchaser will be entitled to claim an abatement of the purchase price. If it cannot, the vendor may require settlement in full.38

[159] In the present case, the Tompkins were not aware of any of these alleged breaches by Wensley when Wensley called for settlement to occur in December

2008. They only became aware of the breaches after they had already cancelled the agreement in February 2009. In the absence of the Tompkins advancing a claim for abatement prior to settlement, Wensley was therefore entitled to require the Tompkins to settle the purchase in full. The Tompkins’ argument on this point therefore fails.

[160] Even if the Tompkins had been aware of the alleged defects prior to settlement, they would not have been entitled to cancel the agreement because of them. As I have already found, the breach of the noise and thermal comfort conditions could have been resolved through the installation of new glazing and three air conditioning units costing approximately $13,000 in total. The remaining defects could likewise have been remedied at a modest cost.

[161] These include the use of fire cuffs instead of fire dampers in ventilation ducts, an issue that could have been remedied for approximately $800. The outflow grilles of two bathroom extractor fans were also located 100 and 200 millimetres respectively, too close to windows that opened. That problem could be resolved by fastening the top sashes of the windows in question, or by moving the grilles the required distance to make them compliant with the building code.

[162] Similarly, an access panel ought to have been provided in the laundry ceiling to provide access to the ventilation duct located in the ceiling. This was necessary so that access could be gained to the duct to clear it of lint, which could become a fire hazard. That could have been provided at a cost of approximately $1,000, together with the cost of installing access panels to the duct itself.

[163] In addition, water from the air conditioning unit in the lounge discharged directly to the garden outside. The evidence was inconclusive as to whether this was

38 At [79].

permissible, but it is hardly a matter of great moment. It could have been corrected by installing a tundish leading to a trap.

[164] Finally, the Tompkins’ ventilation expert criticised the extractor system in the apartment because it is operated manually and is not energy efficient. He confirmed, however, that it could be rectified by adding an extra contact on the light switch so that the fan would switch off automatically ten minutes after the light was switched off.

[165] Had they been aware of these issues prior to settlement, the Tompkins may have been justified in claiming an abatement of the purchase price until such time as the problems were resolved. In all probability, however, they would not have been entitled to seek an abatement of more than $40,000 in respect of all the issues they have now identified. That sum would have been ample, in my view, to meet the cost of both undertaking the necessary investigations and then carrying out remedial work.

[166] The Tompkins would not have been justified, however, in asserting that the defects substantially reduced the benefit of the agreement for them, or that they made the benefit of the agreement substantially different for them. Whether taken individually or collectively, these issues would not have justified the Tompkins cancelling the agreement.

[167] As a consequence, the claim based on breach of contract also fails.

The claim under the Fair Trading Act 1986

[168] The Tompkins claim that the misrepresentations referred to earlier also constitute misleading and deceptive conduct under s 9 of the Fair Trading Act 1986 (“the FTA”). Section 9 provides as follows:

9 Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

This section encompasses any conduct which could be classified as a misrepresentation for the purposes of the Contractual Remedies Act.39

“In trade”

[169] Section 9 only applies to misleading or deceptive conduct “in trade”. Section

2(1) of the FTA broadly defines “trade”:

Trade means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.

[170] There is no dispute in the present case that Wensley and Mr Bulman were engaged in trade when they dealt with the Tompkins in November and December

2007.

“Misleading or deceptive” conduct

[171] The terms “misleading” and “deceptive” are not defined in the FTA. In Taylor

Bros Ltd v Taylors Group Ltd, Cooke P said:40

As to when conduct is to be characterised as misleading or deceptive, judicial exegesis probably can do little at a general level to expand upon the ordinary words of the section; and obviously it cannot be allowed to supersede them.

[172] The Australian legislation is similar, although not identical.41 In Weitmann v

Katies, Franki J said:42

The most appropriate meaning for the word “deceive” in the Oxford Dictionary is: “To cause to believe what is false; to mislead as to a matter of fact, to lead into error, to impose upon, delude, take in ...”

The most appropriate definition in that dictionary for the word “mislead” is: “To lead astray in action or conduct; to lead into error, to cause to err.”

39 _{Burrows Finn and Todd, above n 3, at 400.}

40 Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (CA) at 39. See also Mills v United Building

_{Society [1988] 2 NZLR 392 (CA) at 413.}

41 See s 52 of the Trade Practices Act 1974, renamed the Competition and Consumer Act 2010 on 1

_{January 2011.}

42 Weitmann v Katies (1977) 29 FLR 336 at 343.

[173] Whether conduct is misleading or deceptive is a matter of fact. The question needs to be determined objectively having regard to the section of the public to which the representations or conduct have been directed.43

“Likely to”

[174] Apart from actually being misleading or deceptive, it is enough that conduct is “likely” to mislead or deceive. In Bonz Group (Pty) Ltd v Cooke, the Court of Appeal upheld Tipping J’s analysis in the High Court44 of the degree of likelihood required:45

He [Tipping J] expressed the view that the words “likely to mislead or deceive” import a degree of likelihood less than more probable than not but more than a mere possibility. He adopted a degree of likelihood that involves a real risk in the sense that the result could well happen. That is a familiar approach to construction of the word “likely” both in civil and criminal contexts ...

[175] Gault J said the question is whether the conduct gives rise to a real, and not a remote, chance that it will mislead or deceive “when encountered by reasonable members of a significant section of the public”.46 In AMP Finance New Zealand Ltd

v Heaven, Tipping J propounded a three-step test:47

The first step, which focuses on the conduct in question, is to ask whether that conduct is capable of being misleading. The second step is to consider whether [the plaintiffs] were in fact misled by the relevant conduct. This step focuses on the effect of the relevant conduct on [the plaintiffs’] minds. The third step requires consideration of whether it was, in all the circumstances, reasonable for [the plaintiffs] to be misled. This is where, as with the first step, the objective dimension comes in. It is not enough for [the plaintiffs] to show they were misled if reasonable people in their shoes would not have been misled.

[176] In Red Eagle Corp v Ellis, the Supreme Court advanced an alternative two- stage test.48 The Supreme Court did not consider the Court of Appeal intended its

_{formulation in Heaven to apply in every case in which ss 9 and 43 might be}

43 _{Savill v NZI Finance, above n 2, at 146.}

44 _{Bonz Group (Pty) Ltd v Cooke [1994] 3 NZLR 216 (HC) at 229.}

45 _{Bonz Group Pty Ltd v Cooke (1996) 5 NZBLC 104,188 (CA) at 104,194.}

46 _Ibid.

47 _{AMP Finance New Zealand Ltd v Heaven (1997) 8 TCLR 144 (CA) at 152.}

48 Red Eagle Corp Ltd v Ellis [2010] NZSC 20; [2010] 2 NZLR 492.

engaged.49 The Court held that it was not desirable to attempt to formulate a methodology to be applied prescriptively by a Court whenever the application of those sections is in issue, because the circumstances are too variable. The approach to be taken in each case will depend on the type of situation under scrutiny.50 The Court thought that the two-stage test “commends itself” to simple cases, for example where there is no doubt about what was said or about its meaning, and all the loss arose from the same event.51

[177] The first question to be asked is whether a reasonable person in the plaintiff’s position (that is, with the characteristics known to the defendant or which the defendant ought to have known) would be likely to be misled or deceived. If so, there will be a breach of s 9.52

[178] Once a breach of s 9 has been established, the next step is to consider s 43.53

Section 43 of the FTA provides the Court with the ability to make a wide range of orders if it finds that the conduct giving rise to the breach has caused, or is likely to cause, a person to suffer loss or damage.54

[179] Section 43(2) provides:

(2) For the purposes of subsection (1) of this section, the Court may make the following orders—

(a) an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct referred to in subsection (1) of this section or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date, before the date on which the order is made, as is specified in the order:

(b) an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date, before the date on which the order is made, as is so specified:

49 _{At [26].}

50 _Ibid.

51 _{At [27].}

52 _{At [28].}

53 _{At [26].}

54 Section 43(1).

(c) an order directing the person who engaged in the conduct, referred to in subsection (1) of this section to refund money or return property to the person who suffered the loss or damage:

(d) an order directing the person who engaged in the conduct, referred to in subsection (1) of this section to pay to the person who suffered the loss or damage the amount of the loss or damage:

(e) an order directing the person who engaged in the conduct, referred to in subsection (1) of this section at that person's own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage:

(f) an order directing the person who engaged in the conduct, referred to in subsection (1) of this section at that person's own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage.

[180] In Red Eagle, the Supreme Court said there are two questions a Court must ask when considering whether to make an order under s 43. First, was the plaintiff actually misled or deceived by the defendant’s conduct? If so, was the defendant’s conduct in breach of s 9 an operating cause of the plaintiff’s loss or damage?55 In both Savill56 and Goldsbro v Walker,57 the Court of Appeal had earlier said there

must be a nexus or connection between the misleading or deceptive conduct and the loss or damage suffered.

[181] It is therefore not sufficient for the Tompkins to merely establish a breach of s

9 in order to be entitled to relief under s 43. In addition, they must show that they suffered, or were likely to suffer, loss as a result of the conduct giving rise to the breach.

Conduct amounting to a breach of s 9 in the present case

[182] I have held that two statements by Wensley amounted to misrepresentations. The first of these was the statement in Wensley’s brochure that the Council had committed to spending the sum of $700,000 on beautification work in the area of the reserve surrounding the marina. The second was the statement in the price list that

_{the apartment was 168 square metres in size.}

55 _{At [29].}

56 _{Savill, above n 2 at 143.}

57 Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 401.

[183] I consider that, essentially for the same reasons I have found those statements to be misrepresentations, the statements also amount to misleading and/or deceptive conduct for the purposes of s 9 of the Fair Trading Act 1986.

[184] I add to that a third, comprising statements made by Mr Bulman to the effect that apartments in the complex would be designed and built to the highest standards so that there would be no issues for occupants in terms of road noise. The brochure also contained statements to the effect that all apartments would be constructed with quietness as a paramount requirement, and that the apartments would exceed the building code requirements.

[185] I have held58 those statements do not amount to misrepresentations, because they related to Wensley’s intentions and Wensley genuinely held those intentions when it made the statements. The statements conveyed the notion, however, that the apartment would be constructed in a manner that complied with the conditions imposed in Wensley’s resource consent. The true position, unknown to Wensley at the time it made the statements, was that the glazing and ventilation systems to be installed in the apartment would not enable it to comply with those conditions.

[186] The representations that Wensley and Mr Bulman made about the two key option were also misleading, because Wensley’s resource consent did not permit unit owners to avail themselves of that option.

[187] I do not consider, however, that any statements Wensley and Mr Bulman may have made regarding the development of the marina could be described as misleading or deceptive. They were factually accurate to the extent that they related to the status of the marina project at the time Wensley made the statements. To the extent that they related to future events, the statements amounted to an expression of opinion based on facts that Wensley had reasonable grounds to believe were

_accurate.

58 At [55].

[188] Similarly, I do not consider that any statements Wensley made regarding the views to be enjoyed from the apartment amounted to misleading or deceptive conduct. Those statements needed to be taken in context, and in light of the aerial depiction of the completed project discussed earlier in this judgment.59

[189] The next issue is whether the breaches I have identified justify relief being granted under s 43 of the FTA. This requires me to consider whether the Tompkins were actually, or were likely to be, misled or deceived by the conduct giving rise to the breaches. If they were, I need to determine whether the conduct was an operative cause of any loss they would have suffered.

Do the breaches justify relief under s 43?

The statement regarding the Council’s commitment to spend $700,000 on

beautification works

[190] I have already found60 that, although it is likely that Mr Tompkins expected beautification work to be carried out around the complex, there is no evidence to confirm that he and his wife placed any particular importance on the fact that the Council had committed to spending the sum of $700,000 beautifying the reserve surrounding the apartment complex. For that reason I do not consider they have established that they were actually misled or deceived by Wensley’s statement to that effect.

[191] There is also no evidence to establish that this statement has caused, or was likely to cause, the Tompkins loss. There is no evidence, for example, to show that apartments in The Marina Baches complex would have been worth more if the Council had spent, or committed to spending, the sum of $700,000 on beautifying the reserve surrounding the complex. For that reason the Tompkins cannot obtain

_{relief under this head.}

59 _{At [112].}

60 At [131].

The size of the apartment

[192] I have already held61 that the Tompkins did not turn their minds to the precise size of the apartment before they entered into the agreement to purchase it. As a consequence, they cannot establish that they were actually misled or deceived by the statement in the price list that the apartment was 168 square metres in size.

[193] Furthermore, any loss that the Tompkins stood to suffer when they were called on to complete the purchase of the apartment appears to have been caused by the fact that the value of their apartment had fallen significantly between December

2007 and January 2009. There is nothing in the evidence to suggest that the fact that the apartment is 128 square metres in size rather than 168 square metres as stated in the price list was causative in any way of that loss.

[194] For those reasons the Tompkins cannot obtain relief under this head.

Noise and ventilation issues

[195] I have already concluded62 that the issue of noise was very important to the Tompkins. For that reason I accept that they were actually misled by Wensley’s representations regarding that issue.

[196] Had the Tompkins elected to complete the purchase of the apartment, they would have been required to deal with this issue by arranging for an expert to investigate it, and then by remedying the issues that the investigation would have revealed. This would have required the Tompkins to meet the cost of double glazing the windows of the rear bedrooms in order to deal with noise issues and, at worst, to have installed three air conditioning units to meet the thermal comfort requirements of Wensley’s resource consent. As noted earlier, this would have cost approximately

$13,000. In addition, they would have needed to meet the cost of investigating the

_{noise and ventilation issues.}

61 _{At [73].}

62 At [54].

[197] Both forms of expenditure can properly be characterised as losses having as an operating cause the conduct giving rise to the breaches of s 9. Although I have no direct evidence regarding the likely cost of investigating the problems, I would make an allowance of $10,000 to reflect that item.

[198] The Tompkins did not ultimately suffer those losses, because they elected to terminate the agreement rather than proceed to settlement. The losses that the Tompkins suffered as a result of Wensley’s misleading or deceptive conduct are not sufficient to justify the Court making an order under s 43(2)(a) of the FTA declaring the agreement void. Instead, I consider it appropriate to grant relief to the Tompkins by making an order for compensation under this head pursuant to s 43(2)(d) of the FTA. I make directions regarding the manner in which the order is to be

implemented later in this judgment.63

Result

[199] None of the grounds advanced by the Tompkins justify the Court making a declaration that they validly cancelled the agreement on 10 February 2009. For that reason their claim must be dismissed.

[200] Before determining Wensley’s counterclaim, however, I propose to set out the reasons why I consider the Tompkins decided to cancel the agreement. I do so because the answer to that question is not readily apparent from the issues I have considered thus far.

Why did the Tompkins decide to cancel the agreement?

[201] Mr Tompkins visited the apartment on 15 December 2008, after Wensley had called for settlement to occur on 23 December 2008. As noted earlier,64 he was concerned that the apartment was not practically complete as Wensley’s designer had certified. Mr Tompkins was concerned to find that some reasonably significant

_{building work needed to be completed at that time.}

63 _{At [236].}

64 At [72].

[202] Mr Tompkins returned to the apartment on 18 December 2008. On this occasion he took several photographs to support his argument, expressed to Wensley by his solicitors on several occasions, that significant work was yet to be completed.

[203] On 23 December 2008, Ms Julie Jack wrote to the Tompkins to advise them they were in default of their obligations under the agreement. She also enclosed a settlement notice requiring settlement to proceed on 6 January 2009.

[204] Mr Tompkins agreed in cross-examination that he and his wife fully intended to complete the purchase at this time, even though they felt “very uneasy” about several issues. These included the obstructed views from the apartment, and the obvious lack of progress in relation to the development of the marina and the beautification works to the reserve. Mrs Tompkins had also identified the level of road noise as being a potential issue.

[205] Mr Tompkins says that their home in Christchurch had not yet been sold. For that reason it was necessary to obtain bridging finance in order to enable them to complete the purchase of the apartment. They sought the assistance of a mortgage broker, who obtained an offer of finance from Sovereign Insurance. The offer was conditional upon the sale of their Christchurch property, and also upon a satisfactory valuation being obtained in respect of the apartment.

[206] In the meantime, Wensley was taking a very firm line. Ms Jack wrote to the Tompkins on 14 January 2009 advising them that, if they did not complete the purchase by 22 January 2009, Wensley would cancel the agreement. It would then recover the deposit they had paid from the bond company through whom it had been provided. She also said that Wensley had arranged an auction of the apartment on 11

February 2009, and that Court proceedings were also likely to follow any default in completing the purchase.

[207] Mr Tompkins arranged for the apartment to be valued by Lakes Property Services, a firm of valuers and property consultants in Queenstown. The valuer inspected the apartment on 22 January 2009, the day on which Wensley had required settlement to take place. Mr Tompkins kept Ms Jack advised of developments, and

she arranged for settlement to be postponed first until 29 January 2009, and then to 4

February 2009.

[208] Lakes Property Services valued the apartment at $840,000 inclusive of GST. This came as a huge shock to the Tompkins given the fact they had agreed to pay more than $1.23 million for it.

[209] The valuation also meant that the Tompkins were certain to face very real problems in completing the purchase. They expected to sell their house in Christchurch for approximately $760,000. After repayment of their mortgage, they anticipated receiving approximately $382,000 from the sale. The value now ascribed to the apartment meant that they would not be able to borrow sufficient funds to complete the purchase.

[210] Mr Tompkins immediately contacted Mr Bulman, and told him the bad news. He suggested that the Tompkins should obtain another valuation from a firm of valuers Wensley had used in the past. Mr Tompkins took that advice, but when he received the second valuation the news went from bad to worse. The second valuation valued the apartment at just $700,000.

[211] At Mr Bulman’s suggestion, the Tompkins attended a meeting at Wensley’s offices in Invercargill on 2 February 2009. Wensley was represented at the meeting by Mr Ross Wensley, Mr Greg Wensley and Ms Julie Jack. There is a sharp divergence in the accounts of the meeting given by Mr Tompkins on one hand, and the Wensley representatives on the other.

[212] Mr Ross Wensley and Ms Jack maintain the Tompkins were embarrassed and apologetic about their predicament. They contend the Tompkins were still committed to proceeding with the purchase at this stage. They say the meeting was effectively a “brainstorming session”, in which they provided the Tompkins with suggestions designed to help them formulate a strategy to complete the purchase of the apartment.

[213] Mr Tompkins says that he presented the second valuation to the Wensley representatives, and expressed his disappointment with it. He says they “scoffed” at the valuation, but took it away and copied it. Mr Tompkins maintains he also told the Wensleys that the valuation was not his only area of concern. He says, however, that the Wensleys (and in particular Ms Jack) took control of the meeting, and only wanted to discuss how the Tompkins were going to settle the purchase of the apartment. He says the Wensleys made it clear that they expected the Tompkins to settle the purchase of the apartment in full.

[214] Both parties agree, however, that a considerable portion of the meeting was spent in discussing various options that might enable the Tompkins to complete the purchase. One option was for the Tompkins to place their apartment in the rental pool. This would enable them to recover the GST component of the purchase price. At this stage the Tompkins still wanted to live in the apartment, however, and I am satisfied that they indicated that this proposal was not acceptable to them.

[215] It is not necessary for present purposes to determine which version of events is correct. Nevertheless, my impression is that the answer lies somewhere in the middle of the two accounts. Mr Tompkins confirmed in cross-examination that he and his wife still intended to go ahead with the purchase of the apartment at this point, even though they held obvious concerns regarding its current value as disclosed by the two valuations. They may also have raised other concerns during the course of the meeting.

[216] I have no doubt, however, that the Tompkins gave the Wensley representatives the impression during the meeting that they were concerned and embarrassed about their predicament. This was natural given their commitment to proceeding with the purchase at that stage, and their knowledge that they were likely to face very real difficulties in doing so.

[217] Equally, I have no doubt that the Wensley representatives adopted a very firm, if not aggressive, stance during the meeting. They also continued to apply considerable pressure on the Tompkins in the following days, weeks and months. This is not surprising. The Tompkins were not the only purchasers to voice doubts

about their investment in The Marina Baches complex. By this stage many other purchasers had indicated an unwillingness or inability to settle the purchase of apartments in the complex. As a result, Wensley was under increasing pressure from its funders to take a very firm line with defaulting purchasers. It could not afford to have those parties believe they could walk away from their contractual obligations. I therefore have little doubt that the Wensley representatives would have been dismissive of any concerns the Tompkins may have sought to raise during the meeting.

[218] The Tompkins decided to cancel the agreement at some stage over the eight days following the meeting on 2 February 2009. I am satisfied that their decision to cancel the agreement was driven primarily by the fact that an apartment for which they had agreed to pay more than $1.23 million in December 2007 was apparently worth just $700,000 a little over a year later. I do not consider their decision was underpinned to any material extent by the issues they now rely upon as justifying cancellation.

The counterclaim

[219] It is now necessary to consider the counterclaim. This seeks judgment against the Tompkins in the sum of $542,057.66, together with interest on that sum from 23 December 2008. The sum of $542,057 represents the difference between the purchase price payable under the agreement ($1,231,875 inclusive of GST), less the following sums:

(a) The deposit paid ($123,187); and

(b) The on-sale price ($535,000); and

(c) The average income earned for level 400 apartments in 2009 ($10,957.66) and 2010 ($20,672.68).

The legal basis for the counterclaim

[220] During closing submissions, I asked counsel for 875 Frankton Road to clarify the legal basis upon which Wensley advanced its counterclaim. I did so because the counterclaim does not expressly rely upon repudiation by the Tompkins as the ground upon which Wensley cancelled the agreement in July 2010. Rather, it alleges that “as [the Tompkins] had failed to settle, by letter dated 26 July 2010 Wensley cancelled the agreement”.

[221] Counsel for Wensley submitted that, although the counterclaim might not expressly refer to repudiation by the Tompkins, it is nevertheless clear that Wensley relies upon that ground. He submitted that, when the Tompkins purported to cancel the agreement on 10 February 2009, they made it clear they did not intend to perform their obligations under the agreement any further. This entitled Wensley to cancel the agreement under s 7(2) of the Act, which provides:

7 Cancellation of contract

...

(2) Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.

...

[222] Counsel for the Tompkins submitted that his clients would now be prejudiced if the Court proceeded to decide the case on the basis of repudiation given the manner in which Wensley has chosen to plead its counterclaim.

[223] This submission needs to be considered in the light of the undisputed facts. First, there is no dispute that the Tompkins purported to cancel the agreement on 10

February 2009. Thereafter, they did not take any steps consistent with a belief on their part that the agreement remained on foot. In particular, they never did or said anything to suggest they had any further interest in completing the purchase of the apartment.

[224] Once the Tompkins purported to cancel the agreement, Wensley had several options open to it. First, it could accept the validity of the cancellation and seek to resell the apartment immediately. In that event it would have no claim against the Tompkins in respect of any shortfall arising on the resale. Wensley elected not to take that step.

[225] Secondly, Wensley could have rejected the validity of the cancellation, and taken steps to enforce performance of the agreement by the Tompkins. It initially took this step.

[226] Thirdly, whilst not accepting the validity of the cancellation, Wensley could have taken the Tompkins’ ongoing refusal to complete the purchase as a clear signal that they did not intend to perform their obligations under the agreement any further. At that point s 7(2) of the Act entitled Wensley to cancel the agreement and resell the apartment. It would then be entitled to recover any shortfall in the sale price from the Tompkins. That is the path that it ultimately elected to take between July and October 2010.

[227] Regardless of whether Wensley has pleaded its case completely correctly, the Tompkins have always known the counterclaim is based on Wensley’s claim that it was forced to cancel the agreement and resell Apartment 403 at a loss. That occurred after Wensley says they wrongfully refused to complete the purchase in February 2009. For that reason, I do not consider the Tompkins are prejudiced in any way by the manner in which Wensley has pleaded its counterclaim.

Failure to mitigate loss

[228] The Tompkins defend the counterclaim on the basis that Wensley has failed to mitigate its loss by taking reasonable steps to obtain the best available price for the apartment. As counsel for Wensley points out, a party in Wensley’s position is not under an obligation to mitigate its loss in that way. It is not in the same position as a mortgagee exercising the power of sale under a mortgage. Rather, it has an obligation to take reasonable steps to mitigate its loss. The Tompkins bear the onus of establishing that it has not done so.

[229] In Walop No 3 Ltd v Para Franchising Ltd the Court of Appeal said:65

The situation remains, however, that in an action for damages for breach of contract the innocent party is under no obligation to prove that all reasonable steps to mitigate were taken by it. Rather, the onus is on the defaulting party to satisfy the Court that damages should be reduced because the plaintiff has failed to take reasonable steps to mitigate loss consequent on a defendant’s wrong and should not be permitted damages in respect of any part of the loss due to the plaintiff’s neglect to take such steps.

[230] In order to mitigate its loss, Wensley was not required to test the market, or to take similar steps to obtain the best price available at the time. I take the view that it could take reasonable steps to mitigate its loss by selling the apartment to a related entity provided it did so at a realistic price. It was entitled to establish that price by obtaining advice from an appropriately qualified valuer.

[231] Wensley sold the apartment to 875 Frankton Road Limited as part of a transaction involving the transfer of several apartments in The Marina Baches complex to that company. The price that 875 Frankton Road paid for the apartment reflected a summary valuation Wensley obtained from a valuer, Mr John Scobie, in August 2010. Mr Scobie valued the apartment at $535,000 exclusive of GST as at that date.

[232] Mr Scobie’s valuation related to 21 apartments in the complex. The value Mr Scobie ascribed to each apartment varied from $575,000 to $500,000. In assessing the value of each apartment, Mr Scobie took into account several factors. These included the fact that there had recently been a growing number of forced sales of apartments in Queenstown. For that reason and others, purchasers were expecting to purchase at prices below previous market levels. He also considered the quantity of other competing apartments for sale, together with recent negative publicity surrounding managed apartments, to be inhibiting factors. Further, he considered The Marina Baches complex to be in a secondary location compared to those of other competing products. Uncertainty with the global economy compounded these

_problems.

65 Walop No 3 Ltd v Para Franchising Ltd CA20/03, 23 February 2004 at [7].

[233] The Tompkins have not adduced any evidence to contradict Mr Scobie’s valuation, or to say that he erred in some way in preparing it. Furthermore, counsel for the Tompkins did not elicit any concessions from Mr Scobie during cross- examination that might cast doubt upon the reliability of his valuation. I therefore conclude that the valuation reflects a fair estimate of the market value of the apartment at the time Wensley sold it to 875 Frankton Road.

[234] For that reason I am satisfied that Wensley took reasonable steps to mitigate its loss after it cancelled the agreement on 26 July 2010.

Orders

[235] I enter judgment in favour of 875 Frankton Road on the Tompkins’

application for declaratory relief.

[236] I enter judgment in favour of 875 Frankton Road on the counterclaim in respect of the following sums:

(a) The principal sum of $542,057.66; less

(b) The sum of $23,000, being a sum I order Wensley to pay the Tompkins by way of compensation under s 43(2)(d) of the Fair Trading Act 1986; together with

(c) Interest on the sum of $1,054,057.60 at the penalty rate of 16 per cent per annum for the period between 23 December 2008 and 26 July

2010 (580 days @ $462.05 per day) – $267,989.00; and

(d) Interest from 27 July 2010 to 27 October 2010 on the sum of

$1,054,057.60 at the rate of 8.4 per cent per annum (92 days @

$242.58 per day) - $22,317.36; and

(e) Interest from 28 October 2010 to 30 June 2011 on the sum of

$519,057.66 at the rate of 8.4 per cent per annum (245 days @

$119.45 per day) - $29,265.25; and

(f) Interest from 1 July 2011 to 21 May 2012 on the sum of $519,057.66 at the rate of 5 per cent per annum (324 days @ $71.10 per day) -

_$23,037.63.

Costs

[237] 875 Frankton Road has succeeded in this proceeding, and is entitled to an award of costs and disbursements in its favour. My preliminary view is that costs should be calculated on a category 2B basis.

[238] If counsel are unable to reach agreement regarding the quantum of costs, they have leave to file brief (i.e. less than seven pages) memoranda addressing that issue.

Lang J

Solicitors:

Cavell Leitch Pringle & Boyle, Christchurch

Preston Russell Law, Invercargill

Counsel:

S M Hunter, Auckland