Lendlease Capital Services Pty Ltd v Arena Living Holdings Ltd

• Jurisdiction: New Zealand
• Judge: Dunningham J,Brewer,Dunningham JJ,Miller J
• Judgment Date: 16 August 2021
• Neutral Citation: [2021] NZCA 386
• Docket Number: CA358/2020
• Year: 2021
• Court: Court of Appeal

Between

Lendlease Capital Services Pty Limited

Appellant

and

Arena Living Holdings Limited

Respondent

[2021] NZCA 386

Court:

Miller, Brewer and Dunningham JJ

CA358/2020

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Civil Procedure, Contract, Property — appeal against a High court decision which refused to strike out a claim brought by the respondent for breach of warranties given in a Sale and Purchase Agreement for five retirement villages — requirements for notification of claims for breach of warranty under sale and purchase contracts, in advance of contractual time bars — consideration of English authorities

Counsel:

J F Anderson QC, M Eastwick-Field and G A Lamb for Appellant

SJP Ladd and B J Ward for Respondent

• A The appeal is allowed.

• B The respondent's second cause of action for alleged breach of the Maintenance Warranty together with the paragraphs in the statement of claim supporting that cause of action are struck out.

• C The High Court's costs order is quashed.

• D The respondent must pay the appellant's costs for a standard appeal on a Band A basis and usual disbursements. We certify for second counsel.

JUDGMENT OF THE COURT

REASONS

Brewer and Dunningham JJ	[1]
Miller J	[86]

Brewer and Dunningham JJ

(Given by Dunningham J)

1 This appeal considers what constitutes adequate notification of a breach of warranty claim under the terms of a sale and purchase agreement (SPA) for five retirement villages (the Villages).

2 The issue arises in the context of an application by the appellant (Lendlease) to strike out the second cause of action in proceedings brought by the respondent (Arena) for breach of warranties given in the SPA. Lendlease brought the application on the grounds Arena gave insufficient notice to Lendlease of watertightness issues caused by a lack of maintenance to the Villages before the contractual time limit expired, and so failed to engage the relevant warranty as to maintenance of the buildings in the SPA (the Maintenance Warranty). Specifically, Arena gave notice within the time limit of a breach of a watertightness warranty (the Watertightness Warranty) and “likely other Warranties”.

3 In the High Court, Associate Judge Bell refused to strike out the second cause of action, concluding the “looseness” of the reference to breaches of other warranties was not fatal to the notices, 1 and the fact a breach of the Maintenance Warranty relied on was not expressly notified did not mean Lendlease had not been “fairly informed of the basis of the claim”. 2 The Judge acknowledged, however, that in reaching this conclusion he was departing from what he saw as “an unduly strict approach in the English cases”. 3

4 Lendlease appeals that decision saying the notices given only referenced the Watertightness Warranty. They neither expressly, nor by their general reference to “other Warranties”, conveyed to it an alleged breach of the Maintenance Warranty. Accordingly, the claim in respect of the Maintenance Warranty should be struck out.

5 Arena, however, says Lendlease is adopting an unduly technical approach. It says it gave Lendlease sufficient notice of its warranty claims for water damage to buildings at three of the Villages and says it is “inconceivable” that Lendlease did not recognise Arena was making a warranty claim which encompassed maintenance failings as well as building defects as the cause of the water damage.

Principles on appeal

6 The appeal concerns an application to strike out part of a pleading. The applicable considerations are well settled: 4

• (a) the pleaded allegations of fact are assumed to be true, unless they are entirely speculative and without foundation;

• (b) the pleaded causes of action or defence must be so clearly untenable the Court can be certain they cannot succeed;

• (c) the jurisdiction is to be exercised sparingly and only in a clear case;

• (d) the jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument; and

• (e) the Court should be slow to strike out a claim in any developing area of law.

7 A claim can be struck out where there is a clear limitation defence. In Matai Industries Ltd v Jensen Tipping J said: 5

• (a) the onus is on the applicant to demonstrate the plaintiff's claim is time barred;

• (b) if the plaintiff can show there is a fair argument that the limitation period does not apply, then the matter must go to trial; and

• (c) the Court should be slow to strike out a claim or cause of action altogether, however, a defendant should not be “vexed” by proceeding to trial where the answer is “obvious and inevitable”.

8 In Murray v Morel & Co Ltd Tipping J said the defendant must satisfy the Court the claim is “so clearly [time]-barred” that it can “properly be regarded as frivolous, vexatious or an abuse of process”. 6

9 Both parties recognise the High Court's assessment of whether to strike out a cause of action is discretionary. On appeal, therefore, Lendlease must show that the High Court acted on a wrong principle, failed to take into account some relevant matter, took account of an irrelevant matter or was plainly wrong. 7

The factual background

10 On 31 January 2016 Arena entered into the SPA with PLT New Zealand Pty Ltd (PLT) to purchase five retirement villages, including the Peninsula Club, Mayfair and Parklane Villages. PLT gave warranties under the SPA, including the following two warranties at sch 2 cl 14:

14.1 The plant and buildings of the Group (including the Business Premises) are appropriately maintained in all material respects having regard to their age and comply in all materials respects with the standards required by applicable Law.

14.2 No apartment building or community centre building forming part of the Business Premises has significant and systemic watertightness issues which would require remedial works which result in a Loss to the Group in excess of $7,500,000.

In this judgment we refer to the warranty at cl 14.1 as the Maintenance Warranty and the warranty at cl 14.2 as the Watertightness Warranty.

11 The Watertightness Warranty was subject to a specific threshold before a claim could be made, although how this threshold was to apply is the subject of a separate dispute. In contrast, the Maintenance Warranty is subject to a lesser threshold specified in cl 10.6 of the SPA. Under cl 10.6, Arena was only entitled to pursue a claim for loss from breach of warranty where the amount of the claim (excluding legal costs) exceeded $240,000. There is also a threshold for aggregated claims.

12 Under cl 10.4 of the SPA, Arena was not entitled to make or pursue a claim for breach of these warranties, unless Arena “acting in good faith, gives [PLT] written notice of the claim setting out reasonable particulars of the grounds on which it is based”. Such notice was required to be given by 11 January 2018.

13 Arena issued two notices to PLT. The first was a letter dated 14 July 2017, and its subject line included the words “Notice of Claim”. It said Arena had become aware of significant weathertightness issues at Mayfair Village that it considered would give rise to a breach of the Watertightness Warranty and “likely other Warranties”. It concluded:

Accordingly, although [Arena] is still in the process of investigating the defects, the purpose of this letter is to put PLT on notice that Arena has a claim against PLT for breach of the Warranties.

14 On 1 August 2017 Arena sent an update to PLT on the scope of the testing at Mayfair Village. It advised it would provide the results of air quality testing and expert reports and suggested Lendlease's experts then visit the site. The letter also advised investigations would be conducted at the Parklane, Knightsbridge and Peninsula Club Villages.

15 On 24 August 2017 Arena sent PLT a building inspection report and a preliminary estimate of the remedial costs for repairs at Mayfair Village. Again it invited Lendlease's experts to inspect the property.

16 On 13 November 2017, the executive chairman of Arena emailed the managing director of PLT. In the email he advised Arena had undertaken investigative work on the apartment and community buildings at the Parklane, Peninsula and Knightsbridge Villages, and initial works on Knightsbridge had shown watertightness failure and frame moisture levels well above 18 per cent. Arena advised it would have final works and analyses done on these buildings in mid December and would “advise of any further notification required under the SPA indemnity at that time”.

17 On 22 December 2017 PLT received Arena's second notice of claim. The subject line of the letter included the words “Additional Notice of Claim (Peninsula Club and Parklane Villages)”. By way of background, it referred to the SPA, and the Notice of Claim dated 14 July 2017 in respect of watertightness issues at Mayfair Village. It then stated that Arena had become aware of “significant and systemic watertightness issues” at the Peninsula Club and Parklane Villages. These included, but were not limited to, “significant issues with cladding without cavities … elevated moisture content in the building frame and frame degradation at [specified parts of the buildings]”. It went on to say it considered the defects would give rise to a breach of the Watertightness Warranty and “likely other Warranties”. It concluded by saying:

… the purpose of this letter is to put PLT on notice that [Arena] has further claims against PLT for breach of the Warranties in respect of the issues at Peninsula Club and Parklane.

18 There was further correspondence in 2018 between Arena and PLT's lawyers after the deadline for notifying a warranty claim had passed. On 23 April 2018 PLT sent a letter to Arena relating to Mayfair Village in which it alleged “there are significant maintenance issues on both buildings which should...