Sipka Holdings Ltd and Another v Merj Holdings Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeWylie J
Judgment Date20 August 2015
Neutral Citation[2015] NZHC 1980
Docket NumberCIV-2015-404-000199
Date20 August 2015

[2015] NZHC 1980

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2015-404-000199

Between
Sipka Holdings Limited
First Appellant

and

ANG Property Investment Limited
Second Appellant
and
Merj Holdings Limited
Respondent
Appearances:

B M Stainton for Appellants

SRG Judd & S Plummer for Respondent

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.

Held: Section 6 CRA laid down a starkly simple rule — any misrepresentation inducing entry into a contract was redressable in damages as if it were a term of the contract. It was generally accepted that a representation had to be of present or past fact, and contain no element of futurity. The expression of an opinion properly so called – that is, a statement of a belief based on grounds incapable of actual proof — was not generally considered to be a representation of fact, and in the absence of fraud, its falsity would not afford a plaintiff relief.

Mr S asked B whether the Council had required any reports in relation to the building. B told Mr S that there was a report recording that the building had achieved 43 per cent NBS, and that that report had been filed with the Council. This statement was true insofar as it went, but it was only a half truth. B knew that the second report had been obtained, that it was a more detailed and comprehensive report, that it advised that the building had been re-assessed at less than 33 per cent NBS and that it concluded that the building needed strengthening. The existence of the second report was a matter of existing fact. B, by his half truth, misrepresented the position. Silence as to the full truth rendered what was said untrue.

Both the first and second reports expressed opinions, yet they were professional opinions made by appropriately qualified structural engineers after inspecting the building. They were more than statements of opinion based on grounds incapable of actual proof. The opinions were professional assessments as to the state of the building and the extent to which it complied with the NBS.

B implicitly represented that there was only one report. He also expressly represented that the building was at 43 per cent NBS, as stated in the first report. B could not however honestly have held the opinion that that assessment remained correct, given his knowledge of the second report, and its contents. An opinion could be a misrepresentation of fact if it was not actually held, or if a reasonable person possessing the knowledge of the representor could not honestly have held it.

The second report in effect overtook the first report. The fact that Merj obtained the second report in an attempt to assuage the bank's concerns rather than to address a request from the Council was irrelevant. It should have made the second report available to both the Council and to Mr S. It misrepresented the position by leading Mr S to believe that the first report was the only relevant and recent report in its possession.

Mr S and Sipka Holdings relied on the first report in their dealings with Merj. Clause 19 in the variation agreement repeated the misrepresentation. Further, Sipka subsequently relied on the first report in their lease with its tenants. Merj misrepresented the position and s6 of CRA was engaged.

For the same reasons, Merj's conduct was misleading and deceptive pursuant to s9 FTA. People in trade had to choose their words carefully, so that wrongful impressions were not conveyed ( Gunton v Aviation Classics Ltd). In the present case, Merj, through B, did not choose its words carefully.

Merj was not entitled to rely on the “as is, where is” clause (cl 19). Section 4 CRA (Statements during negotiations for a contract) provided that the court was not precluded by such a provision from inquiring into and determining any question unless the court considered that it was fair and reasonable that the provision should be conclusive between the parties. Clause 19 was, in effect, an “entire agreement” clause. It repeated the misrepresentation by referring only to the first report, but went on to say that Merj had not given any warranties at all as to the structural condition of the building. Entire agreement clauses were not absolute or conclusive.

Section 4(1) CRA conferred a wide judicial discretion to determine whether it was fair and reasonable that such provisions should be conclusive. The discretion fell to be exercised having regard to all the circumstances of the case. The section focused particular attention on the subject matter and value of the transaction, the respective bargaining strengths of the parties and whether any party was represented or advised by a solicitor at the time of the negotiations or at any other relevant time. The section's apparent purpose was to protect one party's relative vulnerability from another party's power to impose an exemption from liability which was contrary to the factual reality or an existing legal obligation and was thus unreasonable and unfair. The section was a mechanism for striking balances, both individually between parties and conceptually between freedom of contract and unfair or unreasonable commercial conduct. It could cut across the doctrine of caveat emptor relied on by Merj.

It would not be fair or just to find that cl 19 in the variation agreement should be conclusive between the parties in this case. The subject matter of the variation agreement was land, and the price being paid was not insignificant. At the outset the respective bargaining positions of the parties were equal. By the time the variation agreement was signed, however, Sipka was constrained by the fact that the true state of affairs had been misrepresented. It was not fully informed. There was then a knowledge imbalance which affected the parties' bargaining positions. Clause 19 was no more than an attempt by Merj, which was in a dominant position, to protect itself from liability for its own dishonesty. It would be unconscionable to allow Merj to hide behind the clause.

Ssction 9 FTA was mandatory, and cl 19 in the variation agreement could not operate to exclude the provisions of the Act.

Merj's appeal against liability dismissed.

Under s6 CRA provided a successful plaintiff could recover damages according to the contractual measure. Damages were awarded to put the injured party as nearly as may be in the position he or she would have been in if the contract had been performed. The DC Judge erred in his approach to damages. Section 115 Building Act 2004 (BA) (Code compliance requirements: change of use) was not considered. It was determinative.

Section 114(1) BA provided that, in s115, the words “change of use” meant to change the use of the building in a manner described the Building (Specified systems, Change to use and Earthquake-prone Buildings) Regulations 2005. Clause 6 in those regulations referred to sch 2, which provided that every building had a use specified in the table contained in that schedule. Clause 5 provided that for the purposes of s114 and s115 of BA, a change of use, in relation to a building, meant that a change of use of all or part of a building from one use, to another use. As a result the requirements for compliance of the Building Code in relation to the new use were additional to, or more onerous than the requirements to comply with the Building Code in relation to the old use.

Sipka was seeking to change the use of the building by converting part of it into a restaurant, and leave the balance as commercial space. Sipka changed the business use to a use associated with “crowd activities” – namely a restaurant. Under s115 the building had to comply as nearly as was reasonably practicable with every provision of the Building Code that related to, inter alia, the structural performance of the building. This section applied in the present case. Sipka had to upgrade the building to 100 per cent of the Building Code requirements, because they elected to change its use.

This meant that Sipka's appeal could not succeed. The actual costs they incurred in strengthening the building would have been incurred regardless, and they were not attributable to Merj's misrepresentation. Similarly the time taken would have been the same, and no loss of profit claim for lost rental is attributable to the misrepresentation. Sipka’ appeal failed.

Merj...

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