Mitchell v Murphy as trustee of the Victor Sydney Trust

• Jurisdiction: New Zealand
• Judge: Gordon J
• Judgment Date: 11 December 2019
• Neutral Citation: [2019] NZHC 3262
• Docket Number: CIV-2018-404-965
• Court: High Court

Between

Howard Brent Mitchell and Lynne Mary Mitchell

Plaintiffs

and

Clare Diana Murphy as trustee of the Victor Sydney Trust

First Defendant

Ian Bruce Kemp

Second Defendant

Barfoot & Thompson Limited

Third Defendant

[2019] NZHC 3262

Gordon J

CIV-2018-404-965

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Leaky Buildings, Tort — damages for misrepresentation — inducement — reasonable reliance on representations — misleading and deceptive conduct — accessory liability of vendor for statements made by real estate agent — general damages for stress — Contract and Commercial Law Act 2017 — Fair Trading Act 1986

Appearances:

S Wroe and M Ibram for the Plaintiffs

D Collecutt for the First Defendant

No appearance by or on behalf of the Second and Third Defendants

JUDGMENT OF Gordon J

This judgment was delivered by me

on 11 December 2019 at 4.00 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

TABLE OF CONTENTS

Introduction	[1]
A preliminary matter	[12]
Background	[20]
Construction of the townhouses	[20]
Ownership and occupation of units 6 and 7	[23]
Leaks in units 1 to 6	[27]
Unit 7 — leaks prior to sale to the Mitchells	[66]
Work in unit 7 prior to sale	[89]
Sale to the Mitchells	[94]
First cause of action — s 35 CCLA	[117]
What representations were made to Mr Mitchell?	[124]
Were the representations actionable?	[131]
Discussion	[136]
Were the representations false	[153]
Is unit 7 a leaky home?	[153]
The alleged defects	[166]
Alleged defect 1(a) — metal pipes buried within the top plaster surface of the balustrade	[167]
Alleged defect 1(b) — metal parapet cap buried within the top parapet surface of the balustrade to the ensuite balcony	[174]
Alleged defect 1(c) — apron flashings inserted into the Duraplast cladding with limited/no turnouts	[177]
Alleged defect 1(d) — failing membrane on the surfaces of the decks combined with defective drain outlet installation	[182]
Alleged defect 1(f) — poorly conceived/detailed pipe penetration and pipe through the balustrade of the ensuite balcony	[187]
Alleged defect 1(g) — generic failure of the flashing system on doors and windows	[188]
Alleged defect 1(h) — defective membrane/cladding detailing at balcony doors	[194]
Alleged defect 1(i) — inadequate and failing waterproofing in the shower in the ensuite bathroom.	[195]
Was unit 7 built with extra care?	[201]
Inducement	[202]
Did Mrs Murphy intend that Mr Mitchell would be induced by the misrepresentation to enter into the SPA?	[202]
Did Mrs Murphy use language that would induce a reasonable person in the same circumstances to enter the contract?	[206]
Did the Mitchells rely on the misrepresentations?	[207]
Was it reasonable for Mr Mitchell to rely on the representations?	[224]
Is it fair and reasonable that cl 22 be conclusive between the parties?	[225]
Section 50 of the CCLA	[239]
Discussion	[224]
Second cause of action — Fair Trading Act 1986	[257]
Is Mrs Murphy guilty of misleading and deceptive conduct?	[269]
Did the misleading conduct cause the Mitchells' loss or damage?	[272]
“Failure to maintain”	[276]
Accessory liability — s 43(1)	[284]
Loss	[292]
Scope of work	[295]
Items of disagreement between the quantity surveyors	[318]
Timber propping and samplings	[319]
Provision of temporary support to existing roof structure during remedia works	[321]
Protection of adjoining property	[323]
Length of project	[326]
Mr Hanlon's comparison and benchmark	[331]
Conclusion on loss/cost of repair	[332]
Consequential costs	[333]
General damages	[334]
Interest	[339]
Should damages be reduced on the basis of an increase in value?	[343]
Claim against second defendant	[346]
Liability of an employee	[348]
Do the exclusion of liability clauses operate to protect Mr Kemp?	[350]
Alleged breaches by Mr Kemp	[352]
Did Mr Kemp's report mislead the Mitchells?	[357]
Measure of loss under the FTA — Mr Kemp	[362]
Apportionment between first and second defendants	[367]
Result	[369]
Orders	[372]
Costs	[374]

Introduction

1 Howard Mitchell entered into an agreement (SPA) to purchase a town house at 7/103 Remuera Road (unit 7) from the first defendant, Clare Murphy, in her capacity as a trustee of the Victor Sydney Trust (the trust). On settlement, both Mr Mitchell and his wife, Lynne Mitchell, became the registered proprietors of unit 7.

2 The real estate agent acting for Mrs Murphy on the sale was Jocelyn (or Joss) Goodall of Barfoot & Thompson Ltd (Barfoots). Mr Mitchell says that Ms Goodall said to him and his wife that the owner says unit 7 is not a leaky home. Ms Goodall further said that the unit had been built with extra care and included some superior features as compared to the other units in the property.

3 Mr Mitchell also says that Ms Goodall told him and his wife that Mrs Murphy and her husband were the original developers for the block of seven townhouses and that unit 7 had been built for Mrs Murphy and her husband and they had lived in it.

4 The Mitchells say that the representations in [2] above were untrue; that the representations induced them to enter into the SPA; and that they have suffered loss as a consequence. The Mitchells bring a claim against Mrs Murphy under s 35 of the Contract and Commercial Law Act 2017 (CCLA).

5 Mrs Murphy primarily relies on the “as is, where is” clause in the SPA which she says precludes any reliance by the Mitchells on pre-contractual representations. She says that under s 50 of the CCLA it is fair and reasonable that that clause is conclusive between the parties. But in any event, Mrs Murphy denies any misrepresentation and says that whatever Ms Goodall said was only an opinion and not a representation of fact.

6 The Mitchells' second cause of action against Mrs Murphy is under the Fair Trading Act 1986 ( FTA) alleging misleading and deceptive conduct (s 9). They say that Mrs Murphy was in trade when she sold unit 7 to them — it had been rented out for a large part of the time that Mrs Murphy had owned it as a trustee. An alternative claim under the FTA is that Mrs Murphy is liable under s 43(1)(d) for being knowingly concerned in contravention of the FTA by Ms Goodall.

7 In response, Mrs Murphy pleads that she was not in trade. Mrs Murphy also says that the Mitchells cannot prove that unit 7 is as defective as they claim, and they have failed to mitigate, and instead have exacerbated, their losses.

8 The Mitchells also brought a claim under the FTA against Barfoots alleging misleading and deceptive conduct. They settled with Barfoots prior to the hearing.1 As a consequence, the claim against Barfoots has been discontinued, as has Barfoots' cross-claim against Mrs Murphy.

9 The Mitchells also bring a claim under s 9 of the FTA against the second defendant, Ian Kemp, who inspected the property and provided a report after the SPA was signed but prior to the Mitchells declaring the purchase unconditional. Mr Kemp has taken no steps in the proceeding and the Mitchells seek judgment against him by way of formal proof.

10 The claim, excluding interest and costs, is $552,833.00, being:

(a) Repair costs	$449,091.00
(b) Consequential costs	$ 68,742.00
(c) General damages	$ 35,000.00

11 Interest of $32,53 1 is also claimed, bringing the total claim to $585,364. 2

A preliminary matter

12 Mr Collecutt, for Mrs Murphy, belatedly raised the issue of Mrs Mitchell's standing, on the basis that it was Mr Mitchell who signed the SPA. It is therefore necessary to address this issue at the outset.

13 The SPA records the purchaser as “Howard Brent Mitchell and/or nominee”.

14 In Laidlaw v Parsonage, the appellants agreed to sell a house to a purchaser “and/or nominee”. 3 The respondents, trustees of a family trust, became the nominee under the agreement and the property was transferred to them. The house leaked, and the respondents sought summary judgment for breach of warranty, in the agreement for sale, that the house had been completed in accordance with building consent and relevant obligations under the Building Act 1991. The claim was upheld: the promise relied upon by the respondents was made to the purchaser and the purchaser included the nominee.

15 However, in the present case, the representations were not in a deed or contract. 4 Under s 35 of the CCLA, a representation inducing a contract between a representor and representee is treated as if it were a term of the contract, but it does not actually become a term. Therefore, as stated in Burrows, Finn and Todd on the Law of Contract in New Zealand, on its face, a pre-contractual representation is not a “promise contained in a deed or contract” for the purposes of s 12. 5

16 There are conflicting authorities on the issue. On the one hand, in Pragma Holdings Ltd v Great South 507 Ltd, Associate Judge Faire (as he then was) refused to strike out a claim by a third party alleging an inducing misrepresentation by one of the contracting parties. 6 However, in Closurepac NZ Ltd v WS 2014 Ltd, Thomas J held that the predecessor to s 12 did not include an inducing misrepresentation. 7

17 The learned authors of Burrows, Finn and Todd suggest that Thomas J's view is arguably the better one. 8 I respectfully tend to that view also. However, it is not necessary, for the purposes of this judgment, to reach a concluded position as I consider the issue can be resolved on the basis of...