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WESTERN PARK VILLAGE LIMITED v BAHO [2014] NZHC 198 [10 February 2014]
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2012-404-2727
[2014] NZHC 198
BETWEEN
WESTERN PARK VILLAGE LIMITED
Plaintiff
AND
SINAN ABED BAHO
Defendant
DARRYLL LAWRENCE HEAVEN
First Counterclaim Defendant
EVELYN HEAVEN
Second Counterclaim Defendant
TRUSTEE MANAGEMENT LIMITED
Third Counterclaim Defendant
Hearing:
29, 30, 31 July, 1, 2, 3, 19 and 20 August 2013
Counsel:
D Chesterman for Plaintiff and Counterclaim Defendants
J E M Lethbridge for Defendant/Counterclaimant
Judgment:
10 February 2014
Reasons:
18 February 2014
REASONS FOR JUDGMENT OF HEATH J
Solicitors:
Dyer Whitechurch, PO Box 5547, Wellesley Street, Auckland
Grove Darlow & Partners, PO Box 2882, Auckland
Counsel:
D Chesterman, Bankside Chambers, Level 22, 88 Shortland Street, Auckland
Contents
Outcome [1]
Background [4]
The factual matrix
(a) The rock-fall problem [8]
(b) The November 2005 Annual General Meeting and its aftermath [11]
(c) The sale of Unit D to Mr Heaven [23]
(d) The July 2007 Extraordinary General Meeting [34]
Was any misrepresentation made? [38]
Western Park’s claim
(a) Was there an outstanding requisition? – Clause 6.1(d) of [56]
the Agreement
(b) The claim under s 6 of the Contractual Remedies Act 1979 [64]
(c) Quantum [71]
Counterclaim [76]
Result [86]
Outcome
[1] In this proceeding, Western Park Village Ltd (Western Park) sought relief
against Mr Baho for alleged breaches of an agreement for sale and purchase of land
entered into in May 2007.1 Mr Baho counterclaimed to recover moneys said to be
owing under a mortgage given in his favour as part of the financing arrangements
made for Western Park to acquire the dwelling. The counterclaim is brought against
Western Park (as mortgagor) and Mr and Mrs Heaven, and Trustee Management Ltd
(as covenantors).
[2] On 10 February 2014, I made the following orders:2
(a) Judgment is entered in favour of Mr Baho on all of Western Park’s
claims against him.
(b) On Mr Baho’s counterclaim against Western Park and the three
counterclaim defendants, judgment is entered against each in the sum
of $301,698.87, together with interest at the rate of 19% per annum
from 21 December 2011 to today’s date.
1 See paras [4] and [7] below.
2 Western Park Village Ltd v Baho [2014] NZHC 102 at para [3].
(c) Leave to amend the Statement of Claim to include a claim for
possession of the property at 4/30 Augustus Terrace, Parnell,
Auckland is granted. That aspect of the claim is adjourned for a
telephone conference to be allocated by the Registrar, on the first
available date after 4 April 2014. If the judgment sum is not paid to
Mr Baho by 5pm on 21 March 2014, I shall hear from counsel at the
telephone conference on whether a possession order should be made.
(d) Costs are reserved.
[3] I indicated that my reasons for making those orders would be given in writing
as soon as practicable. My reasons follow.
Background
[4] Mr Heaven bought a residential unit from Mr Baho in May 2007. The unit,
situated at 4/30 Augustus Terrace, Parnell (Unit D), was part of a unit title complex,
known as the Augustus Apartments. Part of the purchase price was provided by Mr
Baho, who secured repayment of it by taking a second mortgage over the property.
Under the agreement for sale and purchase (the Agreement), Mr Heaven had the
option to nominate another person to take title to the property. Western Park, of
which Mr Heaven is a director, was nominated for that purpose.
[5] Mr Heaven says that, during the course of pre-contractual negotiations, he
asked Mr Baho whether “there were any problems or issues with the unit” that he
“should know about”. Mr Heaven alleges that Mr Baho told him that the only
problem involved minor leaks on one wall and that the cost of repair was to be met
by a payment from his insurer.
[6] The Augustus Apartments were built atop a hill in Parnell. At the harbour
side of the property is a cliff. It drops down to an arterial road to Auckland’s port.3
Mr Heaven complains that Mr Baho omitted to tell him that the Body Corporate of
the Augustus Apartments was being sued in nuisance for removal of rock and debris
3 See further para [9] below.
that had fallen from the cliff, onto another unit title complex development (The
Strand). The Strand contains a number of commercial units.
[7] Western Park sued Mr Baho. It sought cancellation of the agreement for sale
and purchase and consequential orders4 designed to put the parties back into the
position they would have been at the time the Agreement was signed. In particular,
Western Park alleges that Mr Baho has breached cl 6.1(d) of the Agreement5 (by
failing to tell the purchaser about outstanding requisitions) and to have made a false
pre-contractual representation, contrary to s 6 of the Contractual Remedies Act 1979.
Mr Baho counterclaimed to seek repayment of moneys that he contends are owing
under the mortgage granted in his favour.
The factual matrix
(a) The rock-fall problem
[8] On 18 November 2005, Mr Baho acquired Unit D for a purchase price of
$925,000. The purchase was settled on 9 December 2005. The common property
within the unit title complex was held by Body Corporate 192929 (the Augustus
Body Corporate). At material times, the Augustus Body Corporate’s secretary was
Strata Title Administration Ltd (Strata).
[9] There is a drop of some 10 metres between the Augustus Apartments and The
Strand. A strip of about one metre lies between the bottom of the cliff and the
boundary of The Strand. In 1997, during construction of the Augustus Apartments, a
geo-textile net was installed on the cliff face. The net was designed to collect debris
falling from the cliff face and to prevent it from escaping onto and damaging
buildings below.
[10] In 1998 there was a substantial slip. It caused debris, including large rocks,
to be pushed up against The Strand. The geo-textile net was damaged by that and
later falls. This event sounded the beginning of a long running dispute between the
Augustus and The Strand bodies corporate about their respective responsibilities for
4 The consequential orders sought, if granted, would involve discharging the second mortgage in
favour of Mr Baho. 5 Set out at para [56] below.
cleaning up the debris that had fallen and ensuring that no similar events occurred in
the future.
(b) The November 2005 Annual General Meeting and its aftermath
[11] On 8 November 2005, the Annual General Meeting of the Augustus Body
Corporate was held. This meeting was held the day before Mr Baho signed the
Agreement. No representative from Unit D was present at that meeting. Discussions
about the rock-fall problem took place. In the context of claims made by Body
Corporate 173423 (the Strand Body Corporate) the minutes record:6
10A. DISCUSSION OF CROCKERS STRATA MANAGEMENT
LTD’S (“CROCKERS”) LETTER REGARDING LIABILITY
FO THE CLIFF FACE
The chair asked Mr Lockyer, Strata’s senior property manager, to
chair the discussion on this part of the meeting as he has been
involved with the administration of this body corporate for the past
three years and has more background to this issue.
Mr Lockyer advised that the perceived problem of rocks falling from
the cliff face and causing damage to the property at the bottom of the
cliff (77 The Strand) has been an ongoing one. He referred to item 5
of the minutes of the annual general meeting held on Monday 17
November 2003, when the body corporate resolved to take no action
with respect to this issue. No professional advice has been obtaining
defining the boundaries of the body corporate’s common property (ie
the lower limits of the common property) to confirm the ownership
of the cliff face and the liability (if any) of any damage arising from
rocks falling from it. Mr Lockyer pointed out that Crockers states in
its letter of 6 October 2005 that “written reports will be copied to
[the Augustus Body Corporate]”. No report has been received.
Proprietors commented that they believe it would be prudent for the
body corporate to seek independent professional advice to determine
the ownership of the cliff face and to ascertain who would be liable
for damage caused in the event of rocks falling from the cliff and
causing damage to the property below.
After discussion, it was resolved:
6 The reference to the “informal owners’ committee” was to a committee established by the
owners to assist in the administration of the Augustus Body Corporate’s affairs, in lieu of an
owners’ committee of the type to which the Unit Titles Act 1972 referred. There are at least two
occasions when persons who were not present at the Annual General Meeting were,
nevertheless, recorded as being a member of the committee: they are the meetings in November
2005 and 2006. See also, para [20] below.
that the secretary is to obtain from Ms Vanessa Scott of
Crockers Strata Management Ltd the professional reports
referred to in her letter dated 6 October 2005;
that the secretary is to contact Keith Knartson of McKay
Knarston Ltd, the original surveyor for the body corporate,
to confirm the boundaries of the body corporate’s common
property (ie the lower limits of the common property);
that the body corporate employs Price Baker Berridge,
barristers and solicitors, to advise it on what liability (if any)
it has for any damage (to property or person) caused by
rocks falling from the land belonging to Body Corporate
192929;
that the body corporate’s consulting engineer, Dr Kelvin
Walls, is to either inspect or arrange for an inspection to be
done of the safety net and advise whether it will adequately
prevent rocks or debris from falling down the cliff face onto
the property below; and
that any invoice relating to the above work, approved for
payment in writing by the informal owners’ committee, will
be paid from the body corporate’s current fund.
[12] By the time the 2006 Annual General Meeting was held (on 7 November
2006), liability issues surrounding the rock-fall were coming to a head. The
Augustus Body Corporate had received a detailed letter, dated 6 October 2006, from
Glaister Ennor, a legal firm instructed to act for the Strand Body Corporate. Glaister
Ennor referred to the need to stabilise the cliff to prevent rock-fall reoccurring, and
the perilous position of pohutukawa trees standing on the cliff, the location of which
was likely to increase the risk of damage to The Strand. The letter records that a
copy was sent personally to Mr Baho at Unit D. While he cannot recall having seen
the letter, Mr Baho accepts that it is likely to have arrived in the ordinary course of
the post. The letter is dated (and is likely to have been received) at a time when Mr
Baho was residing in the unit.
[13] While Mr Baho owned Unit D at the time of the 2006 Annual General
Meeting, he was out of the country when this meeting was held. He was away from
29 October 2006 until 4 March 2007. Nevertheless, I am satisfied that Mr Baho
received notice of the 2006 meeting and its agenda. He appointed his brother-in-law,
Mr Asmaro, as his proxy to attend. The notice annexed a copy of Glaister Ennor’s
letter of 6 October 2006 and advice from the Augustus Body Corporate’s solicitors
(Price Baker Berridge), dated 8 September 2006. The notice made it clear that the
meeting of owners would discuss the best way in which a settlement of the dispute
could be achieved.
[14] Although conciliatory in nature, the Glaister Ennor letter expressed a firm
view that the owners within the Augustus Apartments were obliged “to take
reasonable steps to eliminate the nuisance that is emanating from their property”.
Glaister Ennor translated that obligation into a need “to prevent material falling from
the cliff face damaging [their] client’s buildings or from coming to rest on [their]
client’s property, and taking measures to eliminate the risk of damage arising from
the precarious position of the pohutukawa trees on the top of the cliff”.
[15] Despite its tone, Glaister Ennor’s the letter concluded with a warning that
legal proceedings may be issued if suitable settlement arrangements could not be
entered into. The solicitors stated:
Settlement
We write to extend one final opportunity to resolve by negotiation the issues
presented by the scree falls and the pohutukawa trees. We propose that
representatives from the respective bodies corporate attend a site meeting
together with their consulting engineers and a member of the respective
management committees. The parties can then explore solutions on a
without prejudice basis.
If such a meeting cannot be arranged before 5pm, Friday 27 October 2006,
and an agreement reached before 1 December 2006, we have instructions to
commence proceedings in the District Court against the Body Corporate
(and the individual owners) seeking:
1 An injunction requiring Body Corporate 192929 to take immediate
steps to:
(a) Repair the geotextile net on the cliff face and empty it of
detritus;
(b) Keep the geotextile net in good repair and reasonably free of
detritus;
(c) Address the danger posed by the precarious position of the
pohutukawa trees;
2 Such damages that may be required to compensate the owners of the
Strand units for the cost of addressing the nuisance posed by the
scree falls and the pohutukawa trees up to the date of judgment.
Should it prove necessary to submit this matter to the District Court our
client will seek increased costs pursuant to District Court Rule 47C, and will
bring this letter to the attention of the Court.
We look forward to hearing from you as a matter of urgency.
[16] The Augustus Body Corporate’s position on the Glaister Ennor letter of 6
October 2006 was recorded, in the minutes of the 2006 Annual General Meeting:
6A NUISANCE CLAIM
Proprietors discussed the correspondence of 8 September 2006 from
Price Baker Berridge and of 6 October 2006 from Glaister Ennor,
which was appended to the agenda, regarding the nuisance claim
from [the Strand Body Corporate], with respect to rocks falling from
the cliff face onto their property. After discussion it was resolved:
That the body corporate continues to employ Price Baker
Berridge as its solicitor in the dispute with [the Strand Body
Corporate], and authorises the secretary as agent for [the
Augustus Body Corporate], in conjunction with the informal
owners’ committee, to enter into such negotiations as may
reasonably be expected to resolve the dispute without
litigation; and
That if the secretary and the informal owners’ committee are
unable to negotiate settlement of the dispute, it is to convene
an extraordinary general meeting of the body corporate to
take further instructions from the body corporate; and
That as soon as is practicable the secretary is to arrange a
meeting with the informal owners’ committee, the body
corporate’s solicitor, its consulting engineer and the
committee of [the Strand Body Corporate]; and
That the body corporate’s consulting engineer is to arrange
for an arborist to provide a report on the stability of the
Pohutukawa trees, and that the corresponding invoice,
approved for payment in writing by the informal owners’
committee is to [be] paid from the body corporate’s sinking
fund.
(emphasis added)
[17] As it happens, on 29 September 2006 (before the 2006 Annual General
Meeting was held on 7 November 2006) Mr Baho agreed to sell Unit D to Mr and
Mrs Rose. Before settlement was completed, water ingress was discovered on the
eastern wall of the unit. Mr Baho says that he disclosed that to Mr and Mrs Rose.
As a result of a building inspector’s report they obtained, that agreement was
cancelled, on 3 October 2006.
[18] The discovery of the water ingress problem is of significance in one respect.
Mr Baho’s evidence was that his brother-in-law did not report anything of substance
to him about what happened at the 2006 Annual General Meeting and that he was
unaware of the escalating nature of the rock-fall problem. However, the Minutes of
the 2006 Annual General Meeting record a discussion about the informal owners’
committee’s need to liaise with Dr Walls “to arrange for the eastern wall window
joinery of Unit D to be repaired”. Further, a corresponding invoice, to be approved
for payment by the informal owners’ committee, was to be paid from the Augustus
Body Corporate’s sinking fund.
[19] On 29 March 2007, Mr Baho wrote to Strata, as secretary of the Augustus
Body Corporate, to notify them that he had “noticed on a few occasions, water
coming in on the west and north walls”. The terms of his letter make it clear that he
had read the Minutes of the November 2006 meeting, after his return to New
Zealand on 4 March 2007. Mr Baho said:
Due to the heavy weather that we have experienced overnight, this problem
has become more evident and in accordance to the last body corp minutes
[ie those of the 7 November 2006 Annual General Meeting] this problem
needs to be brought to the immediate attention of the body corp in order to
take action to fix it. I can confirm that I have called the insurance company
who are coming to assess the situation today being the 29th March 2007.
(emphasis added)
[20] The Minutes of the 7 November 2006 meeting also record that Mr Baho “or
representative” was to be appointed to the informal owners’ committee together with
Mr Gourley, another owner who seems to have been intimately involved in the
ongoing problems with the rock-fall. Mr Baho’s evidence was that the committee
never met. Mr Gourley did not give evidence. There is insufficient evidence for me
to form a reliable view about whether (and, if so, what) steps this committee may
have taken in relation to the rock-fall problem.
[21] Dr Walls, to whom reference was made in the Augustus Body Corporate
Minutes,7 sought an engineering opinion from Babbage Consultants Ltd (Babbage).
A report was obtained, dated 12 March 2007. Babbage’s instructions were to
undertake a geotechnical appraisal and to give advice about the rock-fall problems.
In doing so, they considered a report that the Strand Body Corporate had obtained
from another engineering company, Tonkin and Taylor Ltd, dated 7 October 2005.
[22] Babbage reported to the Augustus Body Corporate on 12 March 2007. The
author of the report, Mr Luxford, stated:
The Problem
The technical issues are correctly summarised by Tonkin and Taylor in their
letter of 7 October 2005 in as much they identify the rockfall and stability
issues. ...
In summary, the body corporate apartment development in Augustus Terrace
is cantilevered out along the full length of the road frontage from the road
frontage across a slope of about 1 in 3 to the top of the old coastal cliff edge.
The cliff edge drops from the rear of the apartment building at an average
slope of about 65º to 70º to the base of the slope some 12 m or so below.
The top of the cliff edge has a number of large Pohutukawa trees growing
along the margin of the cliff with the roots attached to the face of the cliff.
In some places this cliff face is over vertical (particularly beneath the root
balls of the trees) with undercutting up to 1.5m deep.
The base of the cliff is about 600mm to 1.5m away from the rear of the
commercial building on 77 The Strand. The variable distance occurs
because the commercial building does not parallel the alignment of the cliff
but it is stepped along the cliff base. Doors and windows are contained in
the rear face of this lower commercial building.
The face of the cliff is fretting with blocks of sandstone occasionally
dropping off the face of the cliff. These blocks are up to 1.0m long and
typically 300mm square. They have for the most part been contained to the
cliff face in their fall by a fabric netting. This netting is restrained at the top
by a light write rope which is in turn largely constrained by waratah stakes.
Access to the top of the slope is constrained by the presence of the apartment
building. Access to the base of the slope is completely constrained by the
commercial building which extends full length between the neighbouring
buildings. The tree vegetation hangs out over the roof of the lower
commercial building. Some of the fabric netting on the face of the cliff has
either been torn away by the rockfalls or was never in place originally. In
some places rock spalls have built up behind the fabric netting to such an
extent that the mass of rock is resting on the wall of the commercial
building. There is further rock material in storage that will eventually fall to
7 See para [18] above.
the base of the cliff and the root balls of the trees will also eventually
collapse.
Any branches off the trees which come loose are at risk of falling onto the
roof of the commercial complex ad could penetrate the roof.
Ball Park Costs
The technical problem can be clearly defined. Several solutions can be
proposed to address the ongoing problem, none of which would be
particularly economical on a cliff edge which is accessible. However, on
this cliff edge access to undertake such a solution is close to impossible and
thus any solution which might be achieved will be almost prohibitively
expensive. Access is among one of the most difficult we have encountered.
For indicative purposes only, it is probable that the solution proposed by
Tonkin and Taylor (and we doubt that their solution will address all of the
issues) could be in the order of $100,000 to $200,000 to implement where
access is available. In this location because of the access constrains, this
cost could easily escalate to more than $1,000,000.
Just to remove the current debris at the base of the slope could easily be
more than $10,000 and we have as yet to evaluate whether such would be
safe to undertake. ...
...
Minimum Work Required to Improve the Safety of 77 The Strand
In our opinion the minimum work required to return the building at 77 The
Strand to a reasonable level of safety is as follows:
1. Remove the debris at the base of the cliff edge.
2. Check the durability of the remaining nets.
3. Reinstate those nets which have been destroyed or lost.
4. Improve the anchorage of the nets at the top of the slope.
5. Trim the large branches of the Pohutukawa trees ideally to
ultimately leave the root ball but to maintain the trees in a
living state.
6. Implement a program to continually remove new debris.
7. Restrict people use of space behind building to maintenance
staff.
We do not see any added benefit to install a rock wall at the base of the slope
other than to contain the rocks at the base of the nets after they have fallen.
While in an ideal world such would be desirable, because of access
limitations to build such a wall would be very difficult.
We would need to get specialised contractors with abseiling expertise to
assess the cost of such work but for ball park costs believe the following
might be an approximation:
Remove debris allow $15,000
Check and replace netting allow $30,000
Improve anchorage allow $20,000
Trim trees allow $30,000
Say $95,000
(c) The sale of Unit D to Mr Heaven
[23] In or about August or September 2006, Mr Baho decided to return to Europe.
As a result, he caused Unit D to be listed for sale with Bayleys Real Estate. The
agreement to sell the property to Mr and Mrs Rose resulted from Bayleys’ marketing,
but for reasons given earlier, that sale did not proceed.8 Mr Baho deposed that he
withdrew the property from the market for sale when he learnt of the water ingress
problem. He planned to rectify the defect before returning to the market.
[24] In the meantime, Mr Baho began to offer appliances for sale through the
TradeMe website. One of those items was a Teba oven, with a cook top. The
advertisement placed on TradeMe indicated that the items were being sold because
Mr Baho intended to sell the property. Having read Mr Baho’s advertisement,
Mr Heaven made arrangements to view the oven. Mr Heaven owns a substantial
number of rental properties. For that reason, he is often in the market for the
purchase of second-hand furniture and appliances. Mr Heaven and Mr Baho agree
that there was some general discussion took place about Mr Baho’s intention to sell.
At this point their evidence diverges.
[25] Mr Heaven states that he had two substantive meetings with Mr Baho during
the early part of May 2007. On the first occasion, he says, he and Mr Baho were
alone. On the second, Mr Heaven gives evidence that he was accompanied by a
friend, Ms Banks. Ms Banks also gave evidence and confirmed her presence.
8 See para [17] above.
[26] Mr Heaven asserts that he asked Mr Baho whether there were any problems
or issues with the unit that he should know about. He says that Mr Baho told him
that the only problem involved the leaks, which would be addressed through an
insurance claim. Mr Heaven says that that representation was repeated at the second
meeting, at which Ms Banks was in attendance. In that regard, Ms Banks appeared
to corroborate Mr Heaven’s evidence.
[27] Mr Baho’s evidence is different. He says that during their first conversation
he told Mr Heaven that the house had been on the market for sale but withdrawn
while “leaking issues” were to be fixed. Nevertheless, Mr Heaven asked if he could
view the house. On this occasion nothing eventuated, as Mr Heaven had only come
to the house to uplift and pay for the oven.
[28] The next substantive meeting, according to Mr Baho, took place at his office
(in Unit D) the day after Mr Heaven had uplifted the oven. Mr Baho recalls that Mr
Heaven offered a deal whereby he would pay one-half of a purchase price and Mr
Baho would leave in the balance, as vendor finance, to be repaid “a few years later”.
[29] After some negotiations, Mr Baho says an agreement was struck whereby, in
consideration of a total payment of $1,225,000 Mr Heaven would acquire Unit D on
the following terms:
(a) A deposit of $175,000
(b) $750,000 on possession (25 May 2007)
(c) A mortgage in favour of Mr Baho in the sum of $US291,000
($NZ300,000),9 to be paid in two instalments:
(i) $US91,250 on 25 May 2008 and
(ii) $US127,750 on 25 May 2009.
9 This was based on an exchange rate of $US0.73 per $NZ1, to give certainty in respect of the
amounts to be paid.
[30] As part of this arrangement, Mr Baho was to receive a second registered
mortgage over the property. Any first mortgagee was to have priority in a sum not
exceeding $750,000, plus two years interest and costs. The mortgage was to be
guaranteed by Mr Heaven and others. No interest was to accrue on the loan unless
default was made, in which case penalty interest at the rate of 19% per annum was to
be charged.
[31] The Agreement is dated 16 May 2007. On 18 May 2007, a separate
agreement, dealing with the “leaking” issue, was also signed. That side-agreement
states:10
AGREEMENT made this 18th day of May 2007
BETWEEN: SINAN ABED BAHO (Vendor)
AND: DARRYL HEAVEN OR NOMINEE (Purchaser)
RECITAL:
A The Vendor and the Purchaser are parties to an agreement for the
sale and purchase (the Agreement) of the Vendor’s property at 4/30
Augustus Terrace, Parnell (the Property).
B The parties agree that the building of which the Property forms part
has Leaky Building issues.
C The Purchaser will purchase the Property subject to these issues.
THIS AGREEMENT WITNESSES:
1 The Purchaser is aware of the “Leaky Building” issues in relation to
the building of which the property forms part. [THE PROBLEM
EXISTING ON THE EASTERN WALL ONLY]
2 The Purchaser accepts that the Vendor has no liability to the
Purchaser in relation to such issues.
3 The Purchaser will take no action against the Vendor in relation to
such issues.
4 The Purchaser will indemnify the Vendor against any loss he may
suffer should the Purchaser, his nominee or any successor in title
cause the Vendor to suffer any loss as a result of any action in
relation to such issues including without limitation, solicitor/client
costs.
10
The words appearing in square brackets in cl 1 were added by Mr Heaven after the side-
agreement was prepared by Mr Baho’s solicitors. On Mr Heaven’s evidence this agreement was
signed before or contemporaneously with the agreement for sale and purchase of Unit D.
5 This agreement is binding on the Purchaser and his executors
administrators and assigns and the Purchaser will is requested, cause
any nominee to execute an agreement whereby the Nominee is
bound by the same provisions as set out herein.
6 The parties agree that this agreement is interdependent with the
Agreement and is conditional on the Agreement being signed and
becoming unconditional in all respects.
[32] On 25 May 2007 (which coincided with the possession date) Mr Baho went
overseas, on holiday to Thailand. He did not return to New Zealand until 26 June
2007. He departed for Europe on 16 July 2007.
[33] The purchase was settled on or about 15 June 2007, while Mr Baho was out
of the country. Western Park was nominated as the purchaser. The acquisition was
financed through a cash deposit of $175,000, a first mortgage to Public Nominees
Ltd (later transferred to TSB Bank Ltd) securing a loan of $750,000 and a second
mortgage in favour of Mr Baho, which secured a sum of $US219,000, approximately
$NZ300,000.
(d) The July 2007 Extraordinary General Meeting
[34] An Extraordinary General Meeting of the Augustus Body Corporate was held
on 31 July 2007. The undated notice alerted proprietors to an important discussion
about the rock-fall issues, enclosing, among other things, a summary of legal issues
and anticipated costs prepared by their own solicitors Price Baker Berridge, together
with an opinion from a barrister, Mr Muir.
[35] While it is unclear on what day the notice was dispatched to the unit owners,
it must have been after 2 July 2007, as Mr Muir’s opinion of that date was included
among the papers. While Mr Baho was in New Zealand at that time, Mr Heaven had
possession of the unit. As Mr Heaven attended the 31 July 2007 Extraordinary
General Meeting, as a representative of Western Park, I infer that he received the
notice of the meeting and the accompanying documents that dealt with the rock-fall
issue.
[36] Mr Heaven’s evidence at trial about his attendance at that meeting and his
ascertainment of significant issues involving the rock-fall problems contrasts starkly
with evidence given in his original witness statement, in which he said he did not
learn of significant rock-fall issues until December 2007. I return to this issue when
considering questions of credibility and reliability.11
[37] Although one of Mr Heaven’s complaints was that Mr Baho failed to tell him
that legal proceedings had been issued against the Augustus Body Corporate,12
at the
time the Agreement was signed (and, indeed, when the July 2007 Extraordinary
General Meeting was held) no proceedings had been filed or served. Proceedings
were not issued by The Strand Body Corporate until 26 October 2007. They were
brought against the Augustus Body Corporate, in the District Court at Auckland, on a
cause of action based in private nuisance. The Strand Body Corporate sought an
injunction to require the Augustus Body Corporate “to take such steps as [the District
Court] considers are reasonable to abate the nuisance, including removing debris and
putting in place an ongoing programme of maintenance sufficient to secure the cliff
face and pohutukawa trees”. No monetary compensation was sought. However,
because the District Court was chosen as the forum for the litigation, the maximum
amount of damages that could have been ordered was $200,000.
Was any misrepresentation made?
[38] As I have explained, there is a divergence in the evidence between Mr
Heaven and Ms Banks (on the one hand) and Mr Baho (on the other) as to what Mr
Heaven asked and how Mr Baho responded before the Agreement was signed.
Resolution of those conflicts requires an assessment of the credibility and reliability
of the three relevant witnesses.
[39] Mr Heaven’s version of events needs to be judged against statements made
previously, both in Western Park’s Statement of Claim and in the written statement
of his evidence that was exchanged prior to the trial. They disclose a disturbing
number of inconsistent statements on matters of fact that are central to Western
Park’s claim.
11
See paras [38]–[55] below. 12
See para [6] above.
[40] In its initial Statement of Claim, Western Park pleaded a meeting between
Mr Heaven and Mr Baho prior to the purchase of Unit D. Western Park alleged that
the misrepresentation was made at a second meeting between Mr Heaven and
Mr Baho, which took place at Unit D shortly before 16 May 2007. There was no
pleading to suggest that any other person was present at this meeting. That differs
from Mr Heaven’s trial assertion that Ms Banks was also there.
[41] In his witness statement (exchanged before trial) Mr Heaven said that he met
Mr Baho around the second week of May 2007, following an initial discussion about
purchase when he called to uplift the cooker.13
During the course of this visit,
Mr Heaven states that only he and Mr Baho were present and the visit lasted about
30 minutes. No reference is made to the presence of Ms Banks at the meeting.
[42] In his evidence in chief, Mr Heaven said that, on the morning of that visit, he
was speaking “to a friend and business acquaintance”, Ms Banks. After Mr Heaven
explained the purpose of his proposed visit, Ms Banks indicated that she had some
money to invest and might be interested in joining the purchase. Mr Heaven states
that he and Ms Banks went to the apartment and met with Mr Baho. He went on to
say that, on this occasion, he again asked Mr Baho whether there were any problems
of which he needed to know, other than the leak, and Mr Baho responded that the
leak on the upper wall was the only problem. Ms Banks, he alleged, was present
during that meeting.
[43] Mr Baho said that he had volunteered information about the leak but was not
asked a general question about whether any other problems existed. He denied that
Ms Banks was present at any of his meetings with Mr Heaven. Indeed, even after
seeing Ms Banks give evidence in Court, he did not recognise her.
[44] Ms Banks confirmed that she was “a friend and investment partner” of
Mr Heaven. She had known him for about 11 years, of which she had joined him in
investments for about eight. She deposed that Mr Heaven had told her that he had
13
Although it is clear that the appliance was a cooker, Mr Heaven referred to an advertisement on
TradeMe in which Mr Baho apparently stated that he intended to sell a washing machine and
refrigerator.
come across Mr Baho while looking at TradeMe for a washing machine. She went
with Mr Heaven to the property.
[45] Ms Banks accepted that (at some point) Mr Baho “may have volunteered
information about there being a minor leak”. After she and Mr Heaven had
completed an inspection, they met with Mr Baho in his office on the first floor of the
unit. She confirms Mr Heaven asked Mr Baho something to the effect of “is there
anything else he needed to know about the apartment, any other issues or anything
else perhaps he couldn’t see, that would affect him buying the property”. Ms Banks
says that she specifically recalls that question being asked “because I had heard him
say it before and [remembered] thinking at the time ‘good old Darryll there he is in
business mode’”. She deposed that Mr Baho confirmed that the leak was the only
thing about which Mr Heaven needed to be aware. Ms Banks says that she paid
attention to and took a lot of interest in what was said because she was considering
investing in it with Mr Heaven.
[46] Mr Heaven struck me, when giving evidence, as a successful businessman
who tended to take a direct approach to his commercial activities, in particular to the
negotiation of arrangements into which he wished to enter. Mr Heaven is not one to
worry (or care) too much about matters of detail.
[47] On Mr Heaven’s own evidence, he was prepared to commit himself to a
purchase of a property for a sum in excess of $1 million on the basis of a brief
discussion with the vendor, having carried out no due diligence. That discussion
(apparently) satisfied Mr Heaven that he did not need to make any further inquiries,
such as inspecting minutes of the Augustus Body Corporate. Mr Heaven was able to
obtain the benefit of money left in by Mr Baho for three years, without interest.
[48] Mr Heaven and companies that he effectively controls have substantial
property holdings in Auckland. He is familiar with the Auckland property market
and likely to have been aware of the risks associated in buying any property with a
cliff face near to the Auckland waterfront.
[49] On the face of it, Ms Banks appeared a credible and reliable witness.
Nevertheless, I have significant reservations about the reliability of the evidence she
gave. It is apparent, from her own evidence, that Ms Banks was not asked about
these events for more than five years after they occurred. It is surprising that she
should now recall with some precision what was said, especially when she took no
further interest in the acquisition – whether financial or otherwise.
[50] In my view, Ms Banks’ evidence is more readily explained by her comment
about Mr Heaven being in “business mode” and recalling the type of question that he
asked. I consider that it is more likely than not that Mr Heaven gave Ms Banks an
outline of what he said happened when he saw her before the trial, and that she
honestly (but incorrectly) reconstructed her memory of an event of that type, on the
basis of his cues. I find that Ms Banks is mistaken as to the occasion on which she
heard a discussion of that type. I put her evidence to one side as unreliable.
[51] Although his recollections were (in part) imperfect, Mr Baho’s description of
what occurred when he met Mr Heaven and discussed the possible sale of Unit D has
a ring of truth about it. Mr Baho’s voluntary disclosure of a problem with a “leak” to
Mr Heaven does not sit easily with the proposition that he then deliberately failed, in
answer to a specific question about a potential problem with rock-fall, not to disclose
that. The absence of any reference, in the side-agreement recording the parties’
understanding about the “leaks”,14
of any assurance that there were no “other
problems” is more consistent with Mr Baho’s version of material events.
[52] Mr Baho struck me as an honest witness, doing his best to recall events that
had occurred some six years before the hearing. Mr Baho presented as a careful
man, prepared to make concessions when necessary. It is understandable that his
recollection of the type of discussion on which Mr Heaven now relies is incomplete,
particularly as the allegation was not raised for some years after the Agreement was
entered into.
14
See para [31] above.
[53] In contrast, Mr Heaven was prepared, deliberately I find, to change his
evidence when he believed he would obtain some advantage by doing so. I provide
two illustrations of that tendency:
(a) First, in his initial claim, Mr Heaven asserted that he did not learn of
significant rock-fall issues until December 2007. In fact, Mr Heaven
was present at the Extraordinary General Meeting held on 31 July
2007 at which that topic was discussed in detail. I consider that Mr
Heaven deliberately referred to the later date in his original claim
because he was aware that an acknowledgement of presence at the 31
July 2007 meeting, and a failure to raise the issue with Mr Baho at
that time, would tell against him.
(b) In 2009, Mr Heaven obtained a valuation of Unit D for the purpose of
settlement discussions with Mr Baho.15
Mr Heaven acknowledged
when giving evidence that he sent an email to Mr Baho on 9
September 2009 to extract a more favourable settlement, on the basis
of a valuation that would make no reference to the rock-fall
problem.16
Mr Heaven accepted in evidence that his email to
Mr Baho was false and was used to “come up with a settlement
figure”; something I would describe more accurately as an attempt to
extract money from Mr Baho on an illegitimate basis.
[54] Mr Heaven’s propensity to change evidence on material issues to suit the way
in which the evidence was unfolding, and the obvious lack of any business ethics on
his behalf (as evidenced by his conduct in relation to the 9 September 2009 email),
lead me to conclude that Mr Heaven cannot be regarded as a credible witness.
Indeed, I am not prepared to rely on any oral evidence he has given on a material
point unless it was corroborated either by contemporaneous documentation or a
witness whose evidence I accept.
15
See para [73](c) and [74] below. 16
See para [74] below.
[55] It is possible that Mr Heaven asked about “other problems” in an informal
way. However, if such a conversation took place, its informality would not have led
Mr Baho to believe that he was giving a response to a question on which Mr Heaven
intended to rely for the purpose of entering into the Agreement to acquire a property
for a sum in excess of $1 million. That view of the facts is consistent with Mr
Baho’s honest disclosure of the leaks and his voluntary execution of a document that
was designed to protect Mr Heaven’s interests in relation to that.17
Western Park’s claim
(a) Was there an outstanding requisition? – Clause 6.1(d) of the Agreement
[56] It is common for agreements for sale and purchase of land to contain a
provision whereby a vendor warrants that, as at the date of the agreement, no notice
or demand has been received which directly or indirectly affects the property and has
not been disclosed in writing to the purchaser. The clause will also provide an
assurance to the purchaser that the vendor has no knowledge of any requisition or
outstanding requirement. In this case, the relevant provision is cl 6.1(d):
6.0 Vendor’s warranties and undertakings
6.1 The vendor warrants and undertakes that at the date of this
agreement the vendor has not:
(1) received any notice or demand and has no
knowledge of any requisition or outstanding
requirement
...
(d) from any other party; or
....
(Emphasis added)
[57] Mr Chesterman, for Western Park, placed reliance on Glaister Ennor’s letter
to the Secretary of the Augustus Body Corporate of 6 October 200618
to establish a
“requisition” of the type to which cl 6.1(d) was intended to apply. In particular,
reliance was placed on their statement, on behalf of the Strand Body Corporate, that
17
See para [31] above. 18
See paras [12]–[16] above.
if a meeting could not be arranged before 5pm on 27 October 2006 and an agreement
reached before 1 December 2006, the solicitors had “instructions to commence
proceedings in the District Court against [the Augustus Body Corporate] (and the
individual owners) seeking specified relief.19
[58] The legal question is whether an indication of the possible issue of
proceedings is a “notice or demand” from “any other party”, for the purposes of
cl 6.1(d) of the Agreement. Ms Lethbridge referred me to the judgment of Associate
Judge Bell, in Kaitaia Timber Co Ltd v Alternative Enterprises Ltd.20
Other relevant
authorities are mentioned in a casenote on Judge Bell’s decision by Professor D W
McMorland.21
[59] The Associate Judge discussed the nature of the disclosure obligation, saying:
[53] What has to be disclosed under 6.1 is a notice, a demand, and
knowledge of any outstanding requisition and of any requirement.
Demands, requisitions and requirements are directive – some action must be
taken or avoided. An obligation to comply with a duty imposed in a general
way by statute, regulation or by-law does not count. For this case I assume
that the obligation not to discharge stormwater or timber treatment chemicals
except in accordance with the conditions of the discharge permits is more
than an obligation to comply generally with s 15 of the Resource
Management Act. Compliance with the particular conditions of the
discharge permits was required.
...
[55] That deals with demands, requisitions and requirements, but it still
leaves notices. Potentially, “notices” could have a much wider scope. They
might not be limited to directive communications. The defendants relied on
the information set out in correspondence from the council as matters that
Kaitaia Timber Company Ltd ought to have passed on under condition 6.1.
They can only get home on that if “notice” is held to cover communications
that convey information, even if they are not directive.
[60] Judge Bell considered factors militating against the proposition that a
“notice” for cl 6.1 purposes might apply only to convey information. The most
important is the principle of caveat emptor. As the Judge said, a purchaser assumes
a risk that a property may be subject to some defect; it is not the obligation of a
19
This part of the Glaister Ennor letter of 6 October 2006 is set out in full at para [15] above. 20
Kaitaia Timber Co Ltd v Alternative Enterprises Ltd (2012) 14 NZCPR 177 (HC). 21
Professor D W McMorland “Sale of Land; Kaitaia Timber Co Ltd v Alternative Enterprises Ltd
(2013) Butterworths Conveyancing Bulletin 137.
vendor to volunteer information of that type.22
I agree with Judge Bell that, while
cl 6.1(1) warranties serve a useful purpose in requiring disclosure of directives from
third parties, “it would be anomalous to hold that the warranty requires the vendor to
disclose information about the property he has received from third parties, when
there is no obligation on the vendor to disclose information he has obtained for
himself”.23
[61] Associate Judge Bell was interpreting a clause in materially similar terms to
cl 6(1) of the Agreement. He noted that its terms were “directive”. The Judge held
that militated against an obligation to convey information known to the vendor.
[62] In my view, there are two reasons why cl 6.1(d) cannot apply on the facts of
this case:
(a) First, cl 6.1, for the reasons given by Judge Bell, is premised on the
need for a vendor to disclose specific requisitions or outstanding
requirements made by a third party against the vendor. As at the date
of the Agreement, 16 May 2007, there were no such requirements in
place. Glaister Ennor’s letter was not sufficient to amount to a
requisition.24
(b) Second, the interpretation for which Mr Chesterman contends, would
create a conflict between cl 6.1(d) and cl 7.1 of the Agreement. By
cl 7.1 of the Agreement Mr Baho warranted that there are “no
unsatisfied judgments against the Body Corporate and no proceedings
have been instituted against or by the Body Corporate”. That was
true. No such proceedings had been issued as at the date on which the
Agreement was signed. They were not issued until 26 October
2007.25
It would be strange if, by cl 6.1(d) Mr Baho were obliged to
disclose something that he was not required to disclose under the
more specific cl 7.1.
22
Kaitaia Timber Co Ltd v Alternative Enterprises Ltd (2012) 14 NZCPR 177 (HC) at para [56](a). 23
Ibid, at para [56](d). 24
See paras [13]–[15] above. 25
See para [36] above.
[63] I hold against Mr Chesterman’s argument that cl 6.1 applies. Mr Baho has no
liability to Western Park on that basis.
(b) The claim under s 6 of the Contractual Remedies Act 1979
[64] Section 6(1) of the Contractual Remedies Act 1979 states:
6 Damages for misrepresentation
(1) If a party to a contract has been induced to enter into it by a
misrepresentation, whether innocent or fraudulent, made to him by or on
behalf of another party to that contract—
(a) He shall be entitled to damages from that other party in the
same manner and to the same extent as if the representation
were a term of the contract that has been broken; and
(b) He shall not, in the case of a fraudulent misrepresentation, or
of an innocent misrepresentation made negligently, be
entitled to damages from that other party for deceit or
negligence in respect of that misrepresentation.
...
[65] The first question is whether there has been a “misrepresentation”. The Act
does not define that term. Cases decided after the Act came into force have
considered whether there has been a “misrepresentation” by reference to whether a
“representation” has been made which, whether for innocent or fraudulent reasons, is
false. The question of what constitutes a “representation” has been determined by
reference to pre-existing law.26
[66] I am not satisfied that a “representation” was in fact made. The
circumstances in which Mr Baho may have responded to any inquiry from Mr
Heaven about “other problems” were too informal to be regarded as an assurance of
the correctness of a particular state of affairs. In other words, Mr Baho did not utter
any words that could be taken objectively as warranting that a particular state of
affairs existed.
[67] Even if I were wrong on the “representation” point, I hold that any false
statement that Mr Baho may have made innocently did not “induce” Mr Heaven to
26
Burrows, Finn and Todd, Law of Contract in New Zealand (4th ed, LexisNexis, Wellington,
2012) at 374.
enter into the Agreement.27
“Inducement”, in this context, is a specie of reliance.
Generally speaking, a purchaser’s misunderstanding as to the true position “must
have been one of the reasons which induced him or her to make the contract”28
before the misrepresentation becomes actionable under s 6(1). If no reasonable
person in the position of the purchaser would have relied on a statement of the type
given, it would be a rare case in which the misrepresentation could be said to have
“induced” the purchaser to buy the property.29
[68] Mr Heaven bears the onus of proving, on a balance of probabilities, that he
was induced to enter into the agreement for sale and purchase on the basis of the
misrepresentation. In doing so, it is not necessary for him to prove that any
misrepresentation was the most important reason for entering into the agreement; it
is sufficient if it were an operating cause of his decision.
[69] I am not satisfied that Mr Heaven was induced to enter into the contract by
any “misrepresentation” of the type he alleges. I have reached that conclusion for
these reasons:
(a) First, I have found any relevant statement to have been made in an
informal context, in which Mr Baho could not have been expected to
be responding in any considered fashion.30
The open ended nature of
the question and Mr Heaven’s subsequent conduct do not suggest that
any misrepresentation could have influenced Mr Heaven’s decision to
buy the property.
(b) Second, after Mr Heaven’s discussions with Mr Baho, he required Mr
Baho’s solicitors to prepare a side-agreement which each could sign
dealing with the question of the leak. No mention is made in that
agreement of any other “representation” that Mr Baho may have
made. If the “no other problems” statement had induced Mr Heaven
27
Contractual Remedies Act 1979, s 6(1), set out at para [64] above. 28
Burrows, Finn and Todd, Law of Contract in New Zealand (4th ed, LexisNexis, Wellington,
2012) at 386. 29
See, for example, Savill v NZI Finance Ltd [1990] 3 NZLR 135 (CA) at 145 per Hardie Boys J,
with whom Casey J agreed. This point was not addressed in the separate judgment of Bisson J. 30
See para [52] above.
to buy the property it is likely that it would have been included in the
side-agreement.31
(c) Third, Mr Heaven (at the latest) discovered the nature and extent of
the rock-fall claim when he attended the Extraordinary General
Meeting of the Augustus Body Corporate on 31 July 2007.32
Nevertheless, he did not raise this topic with Mr Baho before
settlement.33
That suggests to me that he did not place any store on
the information he received on 31 July about the rock-fall problem.
(d) Fourth, in his initial brief of evidence for the hearing, Mr Heaven
referred to an Annual General Meeting on 19 December 2007 that he
had attended. In oral evidence, he corrected that statement to confirm
that he did, in fact, attend the 31 July 2007 meeting. It was not until
sometime in June 2008 that Mr Heaven advised Mr Baho’s then
solicitors that he had not been made aware of the nuisance claim.
This issue was raised in correspondence in the context of the first
instalment of moneys under the second mortgage falling due for
payment. I am satisfied that this late raising of the issue was a cynical
attempt by Mr Heaven to avoid payment of moneys owing to
Mr Baho.
[70] Having found that Mr Heaven was not induced to enter into the agreement for
sale and purchase by the false representation, Western Park’s claim under s 6(1) of
the Contractual Remedies Act must fail.
(c) Quantum
[71] Having found against Western Park’s claim on liability grounds, it is strictly
unnecessary for me to consider questions of quantum. However, should my decision
be taken further, it may assist if I were to set out briefly my views on the question of
damages.
31
The terms of the side-agreement are set out at para [31] above. 32
See paras [34]–[36] above. 33
See also sub-para (d) below.
[72] Even if I had found in favour of Western Park on the liability question, I
would not have found any loss. I reach that conclusion on the basis of valuation
evidence called at trial.
[73] My starting point are contemporary valuations of Unit D undertaken by Mr
Morley, an experienced valuer instructed by Mr Heaven. In short:
(a) On 22 May 2007, Mr Morley valued Unit D at $1,298,000, for the
purpose of seeking finance for the purpose. The mortgage
recommendation was $860,000. The 22 May 2007 valuation was
higher than the purchase price of $1,225,000.
(b) On 11 March 2008, Mr Morley, at Mr Heaven’s request, provided a
further valuation for the financier to indicate whether the property had
maintained its value since purchase. Mr Morley confirmed that the
property had a value of no less than $1,298,000 as property “in the
Parnell area has held its value through the last 10 months”. By this
date, Mr Heaven was aware of the extent of the rock-fall problems
and the issue of proceedings by the Strand Body Corporate.
(c) On 11 September 2009, Mr Morley prepared a report valuing the
property at $1,300,000, with a mortgage recommendation of
$860,600. The report is extensive but does not refer to rock-fall
problems, notwithstanding its description of the property’s
topography.
(d) On 13 April 2010, Mr Morley provided a letter to Mr Heaven’s
solicitors in response to a request for a report on the reduction in value
of Unit D as a result of information they had received about an
“unstable bank below the four apartments at 30 Augustus Terrace”.
Mr Morley wrote:
We completed a valuation for your client when he purchased
this property in May 2007. At that date we valued the
property at $1.298m and made a mortgage recommendation
of $860,000 against the property. Clearly had we had access
to the reports from Tonkin Taylor (engineers), Babbage
Consultants (geotechnical engineers) and Price Baker
Berridge (lawyers) that you have now provided us with we
would, firstly, have recommended that your client not
purchase the property and/or secondly if there had been a
desire to proceed we would have suggested that the purchase
price and the valuation would have been discounted by at
least $300,000 to take into account the work that is
potentially needed to repair the bank and the ongoing
“stigma” attached to the property due to the instability of the
bank. We understand there has been considerable work put
in place to try and stabilise this bank and trim the trees to
reduce their weight but as of today there is no guarantee that
further rock falls will not occur and that going forward there
will be a need for periodic clearance of rubble from the
bottom of the bank. Further stabilisation work and tree
trimming will also be required from time to time.
You have advised that at the time of the purchase your client
was not aware of the reports noted above that had been
prepared for Body Corporate 164995 relating to the
instability of the bank. Access to this bank is closed off by
buildings at the top and the bottom so that remedial work
will be “prohibitively expensive” (Babbage page 2). These
reports clearly show that the remedial costs to repair this
bank and to try and stabilise it would be in the vicinity of
$1,000,000 which would have been shared with the four
property owners.
We are also concerned that these four properties will
continue to be “tainted” by the fact that they are built over
an unstable bank. Knowledge and awareness of this
unstable bank must be provided to any intending purchaser.
It is our opinion that this property will be more difficult to
sell in the future because of the uncertainty relating to the
instability of the bank and this needs to be reflected in its
market value.
We are therefore of the opinion that compensation from the
previous owner of your client’s property in the order of
$300,000 would be required to fairly reflect the events that
have occurred, the previous owner’s knowledge of the
problems with the site when he sold the property in 2007 and
the ongoing costs to properly remedy and contain the
problem.
[74] The way in which the 11 September 2009 valuation was undertaken has some
significance in the context of an email sent by Mr Heaven to Mr Baho on 9
September 2009. He said:
Hi Sinan, I’ve got Morleys doing an updated valuation and the’re going to
leave out the scary bits and hopefully get me to 1.2m
There have been added costs but ignoring these my offer is $145,000 at
.73usd payable in full on the 9th November 2009 as full and final settlement
of all outstanding debt.
Naturally I think it’s a good result for both of us and in time you may agree.
If you think about it it’s a very small discount for a short settlement of
something that had the potential to have become quite nasty
(Emphasis added)
[75] Other valuation evidence, given on a reconstructed basis by Messrs Cheyne
and Taylor, tended to support the valuations provided on a contemporary basis by Mr
Morley, other than the report to Western Park’s solicitors of 13 April 2010. I am
satisfied that their valuation evidence should be accepted. That being so, no
diminution in value of Unit D can be established as having flowed from the rock-fall
issue, even if a false representation had been made.
Counterclaim
[76] Mr Baho seeks judgment on the amount outstanding on the second mortgage.
He sues Western Park (as principal debtor) and Mr Heaven and the trustees of the
First Class Trust, as guarantors. By dismissing Western Park’s claims against Mr
Baho, the defence of equitable set-off is unavailable. The only remaining issue
concerns the rate for the US dollar conversion figure.
[77] Mr Chesterman points to evidence from Mr Baho that the agreed exchange
rate under the mortgage was $US.073 to $NZ1, whereas the rate actually charged
was $US0.66 to $NZ1.00. That, he submits, inflated the interest payable and
rendered notices34
issued to enforce payment of the outstanding sum void.
[78] Mr Heaven also alleges that, when the second mortgage was entered into,
there was an agreement between himself and Mr Baho that repayments would be
borrowed against the property; in other words, that Mr Heaven would only repay
from borrowed funds. Mr Chesterman suggests that in the absence of a “clear
denial” from Mr Baho, Mr Heaven’s contemporary conduct confirms such an
agreement.
34
Under the Property Law Act 2007.
[79] I accept Ms Lethbridge’s submission that the issue falls to be determined on
the basis of the terms of the agreement for sale and purchase and the mortgage
themselves. I do not accept Mr Heaven’s evidence about any arrangements
inconsistent with those terms. For the avoidance of doubt, that finding includes one
that the priority figure has not changed because there is nothing to prove that any
alteration was agreed in writing by Mr Baho.
[80] Clauses 15 and 16 of the agreement for sale and purchase provide:
15. The balance of the purchase price is to be paid as follows:
A As to the sum of $750,000 on the Possession Date; and
B As to the balance by the Purchaser executing a mortgage in favour of
the Vendor on the following terms:
i Principal Sum: $US219,000.00, being the sum of
$NZ300,000 at an exchange rate of $US0.73 for per
$NZ1.00
i Term: 2 Years from the Possession Date
ii Interest Rate: Nil
iii Penalty Interest Rate: 19% per annum
iv Principal Repayments: $US91,250.00 on the 1st anniversary
of the Possession Date; and
$US127,750.00 on the 2nd
anniversary of the Possession Date;
and
v Security: A second registered mortgage where
the 1st Mortgagee held a priority not
exceeding $750,000.00 plus two
years interest and costs or such other
priority figure as the Vendor may
approve in writing.
vi Guarantee: Where the Purchaser nominates
another purchaser, Darryll Heaven,
the Trustees for the time being of the
First Class Trust and, where the
Nominee is a limited liability
company, the directors and/or
shareholders of the Nominee will
guarantee the performance of the
mortgagor under the mortgage.
vii Form of Mortgage: ADLS Mortgage Instrument (fixed
sum) Ref: 8002.
16 The Vendor acknowledges that notwithstanding the provisions of
Clause 3.12 hereof, penalty interest will be payable where the
Purchaser is in default hereunder only if the default continues after
15th June, 2007, provided however that nothing herein affects the
Vendor’s rights under Clause 9.
[81] The mortgage executed both on behalf of Western Park and the guarantors,
shows an agreement to repayment of a principal sum of $US219,000 on the basis
that the mortgage was to run until 15 June 2009. $US91,250 was to be paid on 15
June 2008 and $US127,750 on 15 June 2009. A “lower interest rate” was not
specified, but a “higher interest rate” of 19% was. Mr Heaven accepted in evidence
that interest was payable from 15 June 2007.
[82] Under the special conditions, Mr Baho (as mortgagee) consented to the
registration of a prior mortgage. Clause 1 of the special conditions stated:
1. The Mortgagee consents to the registration of a prior mortgage
PROVIDED HOWEVER that the Mortgagor will be in default of its
obligations under this mortgage if the prior mortgage secures an
amount exceeding $NZ750,000.00 plus two (2) years interest and
costs associated with the enforcement of the Mortgagee’s rights
under the first mortgage.
[83] The conversion rates from US dollars to NZ dollars was, I find, to be
calculated as at the date on which repayment was due. I am satisfied that the amount
demanded by notice under s 119 of the Property Law Act 2007 on 21 December
2011 was accurate, being a sum of $204,073.48 due on 25 May 2009 with interest on
that sum to 21 December 2011, $97,625.39. The amount outstanding, as at 21
December 2011 was $301,698.87. I am satisfied that the correct conversion rate was
charged.
[84] In closing submissions, Ms Lethbridge sought leave to amend the Statement
of Claim to obtain an order for possession of the property. I was not prepared to
make an order to that effect at this stage. I granted leave for the Statement of Claim
to be amended and adjourned the proceeding for a conference at a time when the
application could be pursued, if necessary.35
[85] On the counterclaim, I entered judgment against Western Park and the
counterclaim defendants in the sum of $301,698.87 together with interest thereon at
the rate of 19% per annum from 21 December 2011 to the date of judgment.
Result
[86] For those reasons, I made the orders set out in my judgment of 10 February
2014.36
[87] I thank counsel for their assistance.
___________________________
P R Heath J
35
See para [2](b) above. 36
Western Park Village Ltd v Baho [2014] NZHC 102 at para [2].
