Sipka Holdings Ltd and Another v Merj Holdings Ltd

• Jurisdiction: New Zealand
• Judge: Wylie J
• Judgment Date: 20 August 2015
• Neutral Citation: [2015] NZHC 1980
• Docket Number: CIV-2015-404-000199
• Court: High Court
• Date: 20 August 2015

Between

Sipka Holdings Limited

First Appellant

and

ANG Property Investment Limited

Second Appellant

and

Merj Holdings Limited

Respondent

[2015] NZHC 1980

CIV-2015-404-000199

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

Appeal against damages awarded on a successful claim for misrepresentation and deceptive conduct in relation to the sale of a commercial property — the vendor had told the purchaser that the building had achieved an earthquake rating score of 43 per cent of the new building standard (NBS) in a structural engineering report — the vendor failed to reveal that a second report, following a detailed evaluation had found that the building was earthquake prone and that it should be strengthened to full current code strength of 67 per cent NBS — an entire agreement clause in a variation to the agreement specified that the property was sold on an “as is where is” basis and that the purchaser acknowledged that the vendor had supplied to the purchaser a copy of the (and to the purchaser's belief, the only) seismic report for the premises — purchaser had changed the use of the building which required application of s115 Building Act 2004 (BA) (Code compliance requirements: change of use) and strengthening to a higher standard — whether the failure to mention the second report when asked about earthquake stability was a misrepresentation under s6 Contractual Remedies Act 1979 (Damages for misrepresentation) or a breach of s9 Fair Trading Act 1986 (Misleading and deceptive conduct generally) — whether the vendor could rely on the entire agreement clause — whether the purchaser was entitled to damages for the cost of bringing the building up to 100 per cent of the NBS instead of 43 per cent NBS.

Appearances:

B M Stainton for Appellants

SRG Judd & S Plummer for Respondent

RESERVED JUDGMENT OF Wylie J

Introduction

1 The appellants, Sipka Holdings Limited and ANG Property Investment Limited, appeal a decision of Judge Blackie given in the District Court at Papakura on 19 December 2014. 1 The respondent, Merj Holdings Limited, cross appeals against Judge Blackie's decision.

2 Judge Blackie found that the respondent had made a misrepresentation in relation to the sale of a commercial property in Matamata, and that it had engaged in misleading and deceptive conduct. He declined the appellants' claim for damages in the sum of $156,185.17, but awarded damages in the sum of $37,000.

3 The appellants seek to overturn the Judge's finding on damages. They seek damages in the sum of $120,684.07 which they say are the losses they incurred (net of GST). They also seek additional damages of $23,000, for a claimed loss of profit.

4 The respondent seeks that the judgment should be set aside, or alternatively that the award of damages should be vacated.

Background

5 As at May 2013 the respondent owned a commercial building situated in Matamata. It had owned the building for a number of years, and it was leased to the ANZ Bank. The bank had vacated, because of concerns it had over the structural integrity of the building in the event of an earthquake. The respondent nevertheless continued to receive rental from the bank. The lease of building to the ANZ was due to expire in October 2013.

6 In June 2007 the Matamata-Piako District Council had written to the respondent. Pursuant to a new policy it had adopted, the Council was concerned that the respondent's building might be prone to damage in the event of an earthquake and it required the respondent to obtain an engineering assessment and submit the same to the Council by 30 June 2010.

7 As a result, the respondent obtained a report from structural engineers – CPG New Zealand Limited. CPG assessed the building on 15 July 2009, and sent a report to the respondent dated 12 August 2009 (the “first report”). It recorded that the assessment had been undertaken using the New Zealand Society for Earthquake Engineering's initial evaluation procedures. Those procedures allowed the strength of a building to be determined as a percentage of the then applicable new building standard. The report recorded that guidelines and legislation in place at the time provided that a score of less than 33 per cent of the new building standard meant that a building should be considered earthquake prone. The assessment carried out by CPG concluded that the respondent's building was not earthquake prone, because it had achieved a score of 43 per cent of the new building standard. The report noted that the then current legislation, and the Council's policy, did not therefore require that any strengthening be undertaken on the building. It however concluded as follows:

“However the building does not achieve 67% NBS and it would be our recommendation…that the structure should be considered for strengthening…”

8 The respondent made a copy of this report available to the Council as required.

9 Although the building was not then for sale, in late May 2013 a Mr Sipka of Sipka Holdings Limited telephoned a Mr Burns of Merj Holdings Limited. Mr Sipka expressed an interest in the property. He asked Mr Burns if the Council had required any reports into the same. Mr Burns told Mr Sipka that there was a report recording that the building had achieved 43 per cent of the new building standard, and that that report had been filed with the Council. Mr Burns also referred Mr Sipka to the respondent's real estate agent, a Mr Bell.

10 On the same day Mr Sipka sent a text to Mr Burns indicating that he was prepared to offer $650,000 for the building.

11 There was no immediate response from Mr Burns and Mr Sipka followed matters up with Mr Bell on the 6 June 2013. Mr Sipka advised Mr Bell that he was interested in purchasing the property, because he wanted to fit it out as a restaurant for an Italian restaurant chain with which he was associated.

12 On 14 June Mr Sipka sent an email to Mr Bell asking him to make available the structural report and the Council's seismic evaluation. He advised that once he had received those documents, he would make an offer.

13 It seems that this request was declined by Mr Bell.

14 On 17 June 2013, Mr Bell, after discussions with Mr Sipka, prepared a draft sale and purchase agreement between the parties. It provided for a purchase price of $650,000 plus GST (if any). It was conditional on the purchaser undertaking due diligence into, inter alia, the soundness and quality of the building, and any engineering aspects relating to the property and its potential development. The draft agreement was forwarded to Mr Sipka. Mr Sipka signed the agreement, and returned it to Mr Bell later that day. The agreement was then signed by the respondent.

15 On 20 June 2013, Mr Sipka asked Mr Bell for any documents he had on file, including any structural reports, valuations and the like. Mr Bell replied and he sent Mr Sipka a copy of the first report. Mr Bell also advised Mr Sipka that he would be sent a letter from both the respondent and the ANZ bank giving him authority to access Council files in relation to the building.

16 It seems that Mr Bell met with Mr Burns on 21 June 2013, and that Mr Bell asked Mr Burns if he had any other reports. Presumably Mr Burns replied in the negative because no further reports were provided to Mr Sipka.

17 The due diligence period expired on 4 July 2013. By this date Mr Sipka had undertaken initial due diligence. After consulting with an engineer, Mr Sipka had prepared a report and he made a copy of it available to Mr Bell. The report noted that the building was vacant and that banks and Government tenants required that leased buildings were rated at over 67 per cent of the new building standard. The report concluded that the building would be hard to lease, unless it was structurally upgraded to over 67 per cent of the new building standard and divided into several tenancies. Under the heading seismic rating, the report noted as follows:

The building was built in the 1950s with renovations ongoing. The current seismic rating is 43% NBS as per CPG report dated 12 August 2009… Council has accepted this report and the building is currently rated as non potential earthquake prone. However engineer recommendation to strengthen the building over 67% NBS.

Since 2009 there are some changes and if building have to be evaluated in details seismic rating can be decreased. We have instructed our engineer to give us some light on this issues, he visited the site last week but was still waiting for Property CD to arrive from Matamata council. After site visited his recommendation is to strengthen the building in any case. Most of the building from this era are build with concrete blocks but not properly reinforced and not filled with concrete. We have not obtained costs in relation to this work as yet.

18 On 4 July 2013:

• (a) Mr Sipka advised by email that Sipka Holdings Limited was prepared to proceed with the purchase, offering $600,000 conditional on obtaining another 10 days to complete due diligence, or alternatively offering $570,000 on an unconditional basis.

• (b) In a further email, Mr Sipka indicated he was prepared to increase the offer on an unconditional basis to $580,000.

• (c) Mr Bell advised that the respondent had decided not to accept any of the revised offers made by Mr Sipka, and that it would try and re-let the building.

19 Five days later, on 10 July 2013, Mr Sipka contacted Mr Bell again. He continued to express interest in the property, but said that it was not worth over $600,000 to him, and that he would not be interested in buying if the respondent had signed up a new tenant.

20 Mr Bell relayed this email to the respondent, and on 11 July 2013 it responded through Mr Bell, by submitting a variation...