Chong Hung Mok and Shui Ha Ho v Alan Richard Bolderson

JurisdictionNew Zealand
CourtHigh Court
JudgeWhata J
Judgment Date20 April 2011
Docket NumberCIV-2010-404-007292

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-007292

BETWEEN
Chong Hung Mok and Shui Ha Ho
Appellants
and
Alan Richard Bolderson
First Respondent

And

Blake William Boyd
Second Respondent
Counsel:

F R McLaren for Appellants

S R J Hamilton for First Respondent

No Appearance for Second Respondent

Appeal against a decision of the Weathertight Homes Tribunal declining relief against respondent who prepared pre-purchase report — failed to detect defects — whether misrepresentation under s9 Fair Trading Act 1986 (misleading and deceptive conduct) and negligent misstatement — whether Tribunal erred in applying industry standards as threshold test for non-compliance with s9 — whether Tribunal erred by incorporating a negligence threshold into test for misleading and deceptive conduct under s9 — availability of relevant material at the time — “last man standing” apportionment of liability.

The issues on appeal were: whether the Tribunal had erred by incorporating a negligence threshold into the test for misleading and deceptive conduct under s9 Fair Trading Act 1986 (“FTA”) (misleading and deceptive conduct); whether the conduct was misleading; whether the Tribunal had applied the correct standard of care that ought to have been expected from a reasonably prudent pre-purchase inspector in 1999.

Held: The negligence test adopted by the Tribunal had not set a high enough standard for the purpose of s9 FTA. Nothing in s9 FTA required an industry standard of acceptability. The report had been produced for a specific purpose, namely to advise the purchasers about the condition of the property so they could rely on it. A “not negligent” standard was not necessarily commensurate with that purpose. It was not enough however for the appellant to simply show that the report was wrong, as it had specified limitations as to its scope and did not guarantee the views expressed. The policy of the FTA and the balance envisaged by the Court of Appeal in Premium Real Estate v Stevens, was achieved by assessing whether the report was reasonably based on information available to an expert at the time. A supposed industry standard of the time was rejected for that purpose and instead, an objective assessment of whether the statement was reasonably based on information available to the expert at the time, was preferred.

The Tribunal had erred in using a negligence framework for assessment under s9 FTA and in relying on an industry standard.

A holistic approach to the report was to be applied in determining whether the statements were misleading (Premium Real Estate). The statements that the house had been in a good condition were wrong or had omitted to identify their full implications. Rather than inquiring whether or not the report had been reasonably based on available information, the Tribunal had focused on whether the report was of a commensurate standard to other reports of the time.

B had had sufficient information available to have made very different observations on the general condition of the house. The report had contained wrong statements and omissions, and had breached s9 FTA. M had been misled and had reasonably relied on the report, and it had been a material reason for the acquisition.

The issue for negligent misstatement was whether B's conduct met the standard of care expected from a competent pre-purchase inspector carrying out an inspection in 1999. Industry practice was not determinative but was part of the factual matrix against which to assess objectively whether policy considerations negated or confirmed the prima facie duty established by proximity. This issue was finally balanced. B should have kept abreast of industry developments, such as the Good Practice Guide, and had not exercised reasonable care. However there had to be a clear causal nexus between the subject matter of the erroneous statements and the damage to the house. That was not clear from the evidence before the Court and therefore the matter would have to be referred back to the Tribunal for determination of liability for negligent misstatement.

The Court was not attracted to the “last man standing” apportionment of liability approach under the FTA. There were several other players who had been at fault. B was not the primary cause of the loss and pre-purchase inspectors were in reality at the end of the chain of accountability. Therefore B was liable for 25% of the loss suffered under the FTA.

The matter was referred back to the Tribunal for consideration of the issue of negligent misstatement.

RESERVED JUDGMENT OF Whata J

Table of Contents

Para No

Introduction

[1]

Background

Construction of house

[2]

Compliance assessment

[3]

Sale and purchase agreement: condition 20

[4]

Building report: scope and statements

[5]

Leaks

[10]

WHT assessment

[11]

Remediation

[12]

Claim lodged

[13

Evidence: Medricky, Dibley, Duffy, Bolderson

[14]

Tribunal decision

[21]

Grounds of appeal

[28]

Issues

[30]

Jurisdiction on appeal

[32]

Fair Trading Act 1986: Section 9 (Ground 1)

Issue 1: misleading and deceptive conduct — the threshold test

[44]

Discussion

[58]

Issue 2: the proper framework: misleading?

[66]

Step 1: was the conduct capable of being misleading?

Preliminary Issue

[68]

Appellants' core argument

[73]

First Respondent's core argument

[76]

Discussion

[81]

The “Misleading” Statements

[82]

The causes of the damage

[83]

Available information?

[85]

Observable Defects

[91]

Knowledge of leaky homes

[97]

Summary on available information

[111]

Correct statements of fact, omission or simply opinion

[115]

Steps 2 and 3: Reliance?

[125]

Conclusion on s9

[128]

Negligent Misstatement

Issues 3 and 4: standard of care

[129]

General damages (Issue 5)

[151]

Relief

Liability under FTA

[161]

Discussion

[171]

Benefit

[178]

Role

[179]

Nexus

[181]

Relationship

[183]

Liability for negligent misstatement

[186]

Directions

[189]

Costs

[192]

Introduction
1

The appellants, Chong Hung Mok and Shui Ha Ho, appeal the decision of the Weathertight Homes Tribunal declining to grant them any relief against the first respondent. They say the first respondent's report on a home they purchased in 1999 was misleading and negligent. The Tribunal said that the report complied with industry standards for the time and so was neither misleading nor negligent. The appellants contend that the Tribunal erred in applying industry standards as the benchmark for misleading conduct or negligence.

Background
Construction of house
2

The appellants, Mr Mok and Mrs Ho, purchased the leaky home in question in this appeal from the second respondent, Blake William Boyd, and Mrs Boyd in 1999. The property is situated at 2/55 Clovelly Road, Bucklands Beach. The Boyds had purchased the section on 5 September 1996, and applied for a building consent to the Manukau City Council. The house plans attached to this application had been prepared by architects Cook, Hitchcock and Sargisson Limited and approved by Approved Building Certifiers Limited (ABC). Upon the consent being granted, construction of the house occurred between October 1997 and May 1998.

Compliance assessment
3

ABC carried out ten building inspections during construction, all of which were approved. The Code Compliance Certificate was issued on 8 May 1998.

Sale and purchase agreement: condition 20
4

The appellants entered an agreement for sale and purchase for the property from the Boyds on 8 July 1999. This was conditional upon their being satisfied with the contents of a LIM report and a building report, in accordance with clauses 19 and 20. The building report is central to the present appeal, so clause 20 is set out in full as follows:

20.0: Conditional on Specialist's Report

This agreement is conditional on the Purchaser being satisfied with a report on House construction to be obtained from Builder. Should the Purchaser in good faith be dissatisfied with any matter contained in the report the Purchaser may terminate this agreement by notice in writing to the Vendor or the Vendor's Solicitor, such notice to be received by 4pm on 16th July 99. If notice is not received within time the Purchaser shall be deemed to have waived the Purchaser's rights under this condition, time being of the essence.

Building report: scope and statements
5

Mr Bolderson on behalf of his company, House Inspections Limited, prepared the pre-purchase inspection report for the appellants. Mr Bolderson is a qualified building surveyor who, at the time, had 30 years worth of building experience, had specialised in pre-purchase inspections for around 12 years and was a member of the Master Builder's Association. He visited the property on 13 July 1999 and carried out a visual inspection. He prepared his handwritten report onsite at the property and gave this to Mr Mok after explaining its contents. At the hearing, Mr Bolderson stated that when performing inspections he was generally onsite for 3 1/4 to 3 1/2 hours. Of this around 2 hours were spent inspecting the building, 1/2 to 3/4 of an hour was spent writing up the report, and a further 1/2 to 3/4 of an hour was spent with the client. For this he was paid $200 plus GST.

6

A statement of policies adopted by House Inspections Limited is attached to the report prepared by Mr Bolderson. It records that the report follows a “visual inspection only”, it is “not a structural survey”, and it makes “no representation that...

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