ENA HOLDINGS LTD v ADMIRALTY LODGE MOTEL (2016) LTD [2023] NZCA 409

ENA HOLDINGS LTD v ADMIRALTY LODGE MOTEL (2016) LTD [2023] NZCA 409 [31 August 2023]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA61/2023[2023] NZCA 409BETWEEN ENA HOLDINGS LIMITEDFirst AppellantVINOD KUMAR SHARMASecond AppellantENA CHAUDHRYThird AppellantAND ADMIRALTY LODGE MOTEL (2016)LIMITEDRespondentHearing: 17 July 2023Court: Gilbert, Lang and Woolford JJCounsel: L T Meys for AppellantsJ D Savage and N G Scrivener for RespondentJudgment: 31 August 2023 at 2 pmJUDGMENT OF THE COURTA The applications by the appellants and respondent to adduce new evidenceare declined.B The appeal is allowed.C The summary judgment entered in the High Court is set aside.D The cross-appeal is dismissed.E The respondent must pay the appellants costs on a Band A basis for astandard appeal together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Lang J)[1] This appeal and cross-appeal raise issues arising out of the sale byAdmiralty Lodge Motel (2016) Ltd (Admiralty Lodge) of management and lettingrights in relation to an accommodation complex situated in Whitianga. The firstappellant, Ena Holdings Ltd (Ena), purchased the business in March 2020 for the sumof $950,000.[2] Admiralty Lodge agreed to advance Ena the sum of $475,000 to enable it tocomplete the purchase of the complex. It entered into a term loan agreement with Enaunder which the second and third appellants, Dr Sharma and Ms Chaudhry, guaranteedEna's obligation to repay the loan.[3] Ena subsequently defaulted in making payments under the term loanagreement. Admiralty Lodge then issued proceedings in the High Court seeking torecover the amount outstanding.[4] On 15 December 2022, Associate Judge Gardiner entered summary judgmentin favour of Admiralty Lodge in the sum of $488,129.49.1 Ena and the guarantorsappeal against the Judge's decision. Admiralty Lodge cross-appeals against theamount for which the Judge entered judgment in its favour.BackgroundThe Admiralty Lodge complex[5] The owners of the 19 units in the Admiralty Lodge complex hold strata titlesunder the Unit Titles Act 2010 (UTA). As is customary in such situations, theadministration of the complex is undertaken by a body corporate registered underthe UTA.1 Admiralty Lodge Motel (2016) Ltd v Ena Holdings Ltd [2022] NZHC 3426.[6] When the body corporate was created, existing resource and land use consentsdid not permit unit owners to reside in their units on a permanent basis. The bodycorporate rules also contained this restriction. This meant the units could only be usedas travellers' accommodation or for short term stays by the owners. Notice of theserestrictions was given in a consent notice registered against the title to each unit in thecomplex.[7] The body corporate entered into a management agreement withAdmiralty Lodge under which Admiralty Lodge was to manage the complex in returnfor an annual fee to be paid by the body corporate. It also had the right to rent outunits within the complex. The management agreement was for a term of 10 yearscommencing on 20 December 2008. In 2019, Admiralty Lodge exercised its right toextend the term of the agreement for a further 10-year period commencing on12 August 2019. The management agreement prohibited the body corporate fromentering into a similar arrangement with any other person during this period.[8] Admiralty Lodge also entered into individual letting agreements with theowners of the units under which the unit owners appointed Admiralty Lodge as theiragent to rent their units out. Unit owners remained free to engage outside agencies torent their units rather than using the services of Admiralty Lodge. Such agencies couldnot, however, operate from within the complex.[9] Unit owners became frustrated at the prohibition against being able to residein their units on a permanent basis. This caused practical inconvenience and resultedin the value of units within the complex being lower than would be the case if theprohibition was removed. During 2019 the body corporate applied for and obtainedvariations of the existing resource and land use consents to enable unit owners to livein the units on a permanent basis. The variation of the Consent Notice wassubsequently registered against the titles to all units other than Unit 19 on13 September 2019.The sale of the business[10] In November 2019, Dr Sharma was assisting Ms Chaudhry to buy a business.He saw an advertisement by Bayleys Real Estate Ltd (Bayleys) for the sale of themanagement and letting rights in relation to the Admiralty Lodge complex.The purchaser would also acquire Unit 19, the manager's unit.[11] On 21 December 2019, Admiralty Lodge and Dr Sharma entered into anagreement for the sale and purchase of the business. The purchaser was recorded asDr Sharma and/or nominee. The agreement included the following essential terms:(a) a purchase price of $950,000 plus GST if any;(b) the purchase price included Unit 19, which contained the utilitycontrols and hot water cylinders for all the units in the complex;(c) the purchase price was apportioned as to property value ($570,000),chattels ($10,000) and goodwill ($370,000);(d) the agreement was conditional on approval by the purchaser's solicitorof the content and form of the agreement by 4.00 pm on 23 December2019;(e) settlement was to take place on 20 January 2020;(f) the purchaser acknowledged that the property was a functioning motelbusiness;(g) Admiralty Lodge warranted that the income statement it had given tothe purchaser, a copy of which was annexed to the agreement, was trueand correct; and(h) on settlement the purchaser would take an assignment ofAdmiralty Lodge's interest in the agreements with both individual unitowners and the body corporate.[12] On 24 December 2019, Dr Sharma informed Bayleys that the condition relatingto solicitor's approval had been satisfied. He also nominated Ena as purchaser.[13] Ena was incorporated on 6 January 2020, with Dr Sharma and Ms Chaudhryappointed as directors and shareholders. Ena began managing the complex and rentingunits out on 10 February 2020, at a time when it had not yet completed the purchaseof the business. The parties agreed that a financial adjustment relating to incomeearned between 10 February and the date of settlement would be undertaken in a"wash up" following settlement. This did not occur, and the Judge held that the sumof $60,000 should be deducted from any amount payable by the appellants by way ofa retention sum to meet any claim Ena may have to income earned between10 February 2020 and the date of settlement.2[14] On 19 February 2020, the solicitors acting for Admiralty Lodge on the saleconfirmed that the body corporate had approved the assignment of the letting rightsunder the management agreement to Ena.[15] During February 2020, Admiralty Lodge agreed to provide Ena with vendorfinance to enable it to complete the purchase of the business. On 5 March 2020,Admiralty Lodge, Ena, Dr Sharma, and Ms Chaudhry entered into the term loanagreement. The loan was to be secured by way of a registered second mortgage againstUnit 19.[16] The sale of the business was completed on 13 March 2020. On that date, Enapaid the sum of $475,000 to Admiralty Lodge. The balance of the purchase price wasfunded using vendor finance in accordance with the term loan agreement.[17] Ena made periodic payment of instalments under the loan agreement between13 March 2020 and 10 September 2021. It made no further payments after that date.[18] On 5 April 2022, Admiralty Lodge made demand on Ena in the sum of$605,510.22, being the amount then outstanding under the term loan agreement.On 5 May 2022, Admiralty Lodge made further demand for the sum of $619,121.99.Ena failed to comply with either demand. Admiralty Lodge then issued proceedingsin the High Court seeking summary judgment for the balance owing under the termloan agreement.2 At [116].Relevant principles[19] There is no dispute regarding the principles to be applied in the present context.A plaintiff may obtain summary judgment against a defendant if the plaintiff satisfiesthe court that the defendant has no defence to the plaintiff's claim.3[20] The Judge summarised the principles to be applied in an application forsummary judgment by citing the following passage from Krukziener v HanoverFinance Ltd:4[26] The principles are well settled. The question on a summary judgmentapplication is whether the defendant has no defence to the claim; that is, thatthere is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1(CA) at 3. The court must be left without any real doubt or uncertainty.The onus is on the plaintiff, but where its evidence is sufficient to show thereis no defence, the defendant will have to respond if the application is to bedefeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The court will notnormally resolve material conflicts of evidence or assess the credibility ofdeponents. But it need not accept uncritically evidence that is inherentlylacking in credibility, as, for example, where the evidence is inconsistent withundisputed contemporary documents or other statements by the samedeponent or is inherently improbable: Eng Mee Yong v Letchumanan [1980]AC 331 (PC) at 341. In the end the court's assessment of the evidence is amatter of judgment. The court may have a robust and realistic approach wherethe facts warrant it: Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ84 (CA).[21] Mr Meys accepted on the appellants' behalf that the Judge correctly identifiedthe principles to be applied in the present context. He contended, however, that sheerred in applying those principles to the facts of the case.[22] The notice of appeal contains detailed analysis of and challenges to thereasoning used by the Judge in reaching her conclusion that the appellants had noarguable defence to Admiralty Lodge's claim. The written submissions filed byMr Meys in support of the appeal take a similar approach.[23] We do not find this to be a particularly helpful way in which to address theessential issue the Court is required to determine on appeal. This is whether the3 High Court Rules 2016, r 12.2(1).4 Admiralty Lodge Motel (2016) Ltd v Ena Holdings Ltd, above n 1, at [25] citing Krukziener vHanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.appellants can establish that the Judge erred in concluding that they had no arguabledefence to Admiralty Lodge's claim for judgment.[24] The affirmative defences the appellants seek to advance are based on anassertion that Mr Brian Johnson, Admiralty Lodge's director, made falserepresentations to Dr Sharma and Ms Chaudhry before and after Dr Sharma enteredinto the agreement to buy the business. The appellants contend that Mr Johnsonmisrepresented the nature and quality of the business, including its future profitability,and this influenced their decision to enter into both the agreement for sale and purchaseand the term loan agreement. The appellants seek relief in relation to themisrepresentations under s 37 of the Contract and Commercial Law Act 2017 (CCLA).They also contend that the representations constituted misleading and deceptiveconduct in breach of s 9 of the Fair Trading Act 1986 (FTA). In addition, the appellantssay they were unsubstantiated representations in terms of s 12A of the FTA becauseMr Johnson did not have reasonable grounds for making them.[25] The essential question is therefore whether the proposed cross-claims underthe CCLA and the FTA so affect Admiralty Lodge's claim that it would be unjust toenter summary judgment against the appellants without bringing the cross-claim toaccount.5 We propose to approach the appeal from that perspective.Applications to adduce new evidence[26] Both Ena and Admiralty Lodge seek to adduce new evidence on the appeal.Each opposes the application by the other.[27] The Court may grant leave for the admission of further evidence on appeal.6The principles relating to the admission of new evidence on appeal are wellestablished. New evidence must be fresh in the sense that it could not have beenobtained with reasonable diligence before the hearing in the court below. It must alsobe credible and cogent. Where evidence is not fresh, it should not be admitted unless5 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 12-13.6 Court of Appeal (Civil) Rules 2005, r 45.the circumstances are exceptional and the grounds compelling.7 In the present contextof summary judgment proceedings, particular weight is given to the public interest inensuring finality in civil litigation.8[28] Admiralty Lodge seeks to rely on an affidavit sworn by Ms Donna Holroyd,the owner of Unit 18B in the complex. Her affidavit explains the ownership changesthat have taken place in relation to that unit, an issue we discuss briefly later in thejudgment.9 It also explains, from Ms Holroyd's perspective, the manner in which Enahas divided rental income from the complex between the unit owners. It also allegesthat Ena has embarked on a strategy of renting out units in a manner that suits its owninterests.[29] Ms Holroyd's evidence does not constitute fresh evidence because it couldhave been obtained with reasonable diligence before the hearing in the High Court.The appellants challenge aspects of Ms Holroyd's evidence but we are in no positionto make any finding on that issue. The credibility of the evidence therefore remainsuntested. However, we are satisfied the evidence is not cogent because it does notassist us to determine the issues raised by either the appeal or cross-appeal.We therefore decline Admiralty Lodge leave to adduce further evidence.[30] The appellants seek leave to rely on an affirmation by Ms Chaudhry thatresponds to issues raised by Ms Holroyd. Given our decision in relation toMs Holroyd's affidavit it is not necessary for us to consider the material contained inMs Chaudhry's affirmation. We therefore also decline to grant the appellants leave toadduce new evidence.7 Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at192–193; aff'd Paper Reclaim Ltd v Aotearoa International Ltd (Further Evidence) (No 1) [2006]NZSC 59, [2007] 2 NZLR 1 at [6].8 Erceg v Balenia Ltd [2008] NZCA 535 at [15] citing Lawrence v Bank of New Zealand (2001) 16PRNZ 207 (CA).9 At [43]–[44].The representations[31] Dr Sharma approached Bayleys after he saw the advertisement in earlyNovember 2019. On 7 November 2019, Bayleys provided him with an InformationMemorandum (IM) that contained the following appendices:(a) a letter sent on behalf of the unit owners committee confirming therenewal of the management agreement for a further 10-year period from12 August 2019;(b) a certificate of title for unit 19 showing the consent notice; and(c) a six-page pre-contract disclosure statement.[32] On 8 November 2019, Dr Sharma requested and subsequently obtained copiesof the financial statements for the business for the three previous financial years.He also received a copy of the 2018/2019 financial statements, a copy of themanagement agreement with the body corporate and an occupancy/profit statement.On 9 November 2019, Bayleys provided Dr Sharma with a sample letting agreementin the form of the agreement Admiralty Lodge had entered into with the owner ofUnit 1A. The appellants do not take issue with the accuracy of any of this material.[33] Dr Sharma and Ms Chaudhry say that Mr Johnson subsequently made severaloral representations to them about the quality and viability of the business. Dr Sharmaand Ms Chaudhry met Mr Brian Johnson and his brother, Mr Paul Johnson, at thecomplex on 21 December 2019. Mr Paul Johnson managed the business on a day-to-day basis. The agent from Bayleys was also present. Dr Sharma says that he alsospoke to Mr Brian Johnson on his own later in the day. Dr Sharma says Mr BrianJohnson made the following representations during these meetings:(a) he had unit letting agreements with every unit owner and these did notneed to be looked at or varied;(b) the business was very profitable, and he was sure it will continue to bea good business;(c) the management agreement was "the best" and would guaranteeexclusive rights for another 10 years; and(d) in response to Dr Sharma asking Mr Johnson whether there wasanything hidden in the business so that he would not have to worryabout Ms Chaudhry, Mr Johnson said he would "look after"Ms Chaudhry, that he would sign the turnover figures and financialstatements as showing the full picture and if there was anything wrong,they could cancel and walk away.[34] The appellants did not seek legal advice until 23 December 2019, the date onwhich the condition relating to solicitors' approval needed to be satisfied. On that dateDr Sharma sent an email to Bayleys requesting that two separate agreements beprepared, one relating to the sale of Unit 19 and one relating to the sale of themanagement rights and letting business. Admiralty Lodge declined this request on thebasis that one GST registration number related to both the unit and the business.[35] In the email sent on 23 December 2019, Dr Sharma also sought an undertakingfrom Admiralty Lodge that the profit and loss statement for the period ended 31 March2019 was true and correct. Bayleys responded by advising that Dr Sharma had accessto the accounts and there was no need for the undertaking he sought. It said thatAdmiralty Lodge had been "open and honest with you".[36] Dr Sharma also says he telephoned Mr Brian Johnson on 24 December 2019.During the ensuing conversation Mr Johnson allegedly advised him that:(a) the business was a great investment that will make good money for atleast 10 years;(b) Dr Sharma would have no problems if he and Ms Chaudhry kepteverything the same. This would include retaining Mr Brian Johnson'sniece to assist with the management of the business; and(c) Dr Sharma should trust him, and they could worry about the lawyer'spaperwork later.[37] Dr Sharma and Ms Chaudhry met again with Mr Brian Johnson on30 December 2019. During this meeting they say he told them that the business wasvery profitable, it was a good management agreement and the letting agreements didnot need to be updated.The claims[38] In order to be actionable under the CCLA any misrepresentation by Mr Johnsonmust have induced Dr Sharma to enter into the agreement.10 As we have already noted,the parties entered into the agreement for the sale of the business on 21 December2019. The discussions that occurred on 24 and 30 December 2019 could not give riseto any actionable misrepresentation under the CCLA because by that stage Dr Sharmahad already entered into the agreement to buy the business. However, any subsequentmisrepresentation that induced the appellants to enter into the loan agreement wouldpotentially be actionable under the CCLA[39] This is to be contrasted with the position so far as claims under the FTA areconcerned. Misleading or deceptive conduct may be actionable under the FTA evenif it did not induce the appellants to enter into any contract. In order to obtain reliefunder the FTA, however, misleading or deceptive must have caused the appellantsloss.[40] In his written submissions, Mr Meys did not deal separately with the proposedcross-claim under the FTA. It is likely that he also adopted the same approach in theHigh Court because the Judge did not give separate consideration to that issue in herjudgment. This is a case that may ultimately require careful analysis of whetherstatements made by Mr Johnson provide grounds for relief under the CCLA and/or theFTA. For present purposes, however, we propose to deal with them together becausethe appellants rely largely on the same statements made by Mr Johnson as giving riseto liability under both the CCLA and the FTA.10 Contract and Commercial Law Act 2017, s 35(1).Analysis of alleged misrepresentations[41] The statements upon which the appellants rely can be divided into six broadcategories. The first comprises broad statements of opinion such as the statement tothe effect that the management agreement was "the best". We do not propose todiscuss these further because, like the Judge, we are satisfied no reasonable purchaserin the position of Dr Sharma and Ms Chaudhry could rely upon them.11[42] The second category comprises statements that cannot give rise to liability onthe evidence as it currently stands. The third category comprises the statement madeby Mr Johnson on 21 December 2023 to the effect that the management agreementgave Admiralty Lodge the exclusive right to manage the complex for the next 10 years.[43] The fourth category comprises the alleged omission by Mr Johnson to adviseDr Sharma of issues the body corporate had raised with Mr Johnson regardingAdmiralty Lodge's performance of its obligations under the management agreement.This becomes relevant because Dr Sharma asked Mr Johnson on 21 December 2019whether there was anything hidden in the business he needed to know so thatMs Chaudhry could be protected.[44] The fifth category comprises Mr Johnson's statement that he held lettingagreements for all units. The sixth category comprises statements he made about thepast and future profitability of the business.Statements that cannot give rise to liability on the evidence as it currently stands[45] An example that falls within this category is the statement that Dr Sharmashould keep everything the same and this would include retaining Mr Brian Johnson'sniece to assist with the management of the business. The appellants have neversuggested that they subsequently discovered they needed to change the operation ofthe business or that retention of Mr Brian Johnson's niece as an employee causedissues. Another example is the suggestion that the appellants should trust him and11 Admiralty Lodge Motel (2016) Ltd v Ena Holdings Ltd, above n 1, at [64] citing Western ParkVillage Ltd v Baho [2014] NZHC 198 at [67].they could worry about the lawyer's paperwork later. The appellants have not adducedany evidence to suggest this statement caused them any problems subsequently.[46] A further example is the statement that Dr Sharma did not need to look at theletting agreements and they did not need to be varied. Bayleys had providedDr Sharma with a sample letting agreement on 9 November 2019 and he had not raisedany issue about it. The statements could therefore be taken as a representation that theremaining agreements were in the same or similar form. If this was incorrect it couldamount to an actionable misrepresentation and/or misleading and deceptive conduct.However, the appellants have never suggested that the other agreements differed inany material way from the sample Dr Sharma was given. It follows that there iscurrently no basis for a claim under either the CCLA or the FTA under this head.The management agreement gave Admiralty Lodge exclusive letting rights for10 years[47] The management agreement prohibited the body corporate from grantingletting rights to any other person for the duration of the agreement. As we have alreadynoted, Admiralty Lodge had exercised its right under the management agreement inAugust 2019 to extend the term of the agreement for a further 10-year period from12 August 2019. Admiralty Lodge also had the right to extend the agreement for afurther 10-year period thereafter. In that sense, the statement made by Mr Johnsonwas correct. The body corporate had given Admiralty Lodge the exclusive right tomanage and rent out units in the complex until August 2029 and beyond.[48] Bayleys gave Dr Sharma a copy of the management agreement on 8 November2019. He received the sample letting agreement the following day. Dr Sharmatherefore had the ability to compare any statements Mr Johnson made about the natureand duration of the management agreement against the terms that those documentscontained.[49] The management agreement expressly provided that unit owners were free touse the letting services of any other person provided such persons did not operatewithin the complex. The individual letting agreements also gave unit owners the rightto withdraw their units from the rental pool by giving Admiralty Lodge six months'notice of their intention to do so. These provisions created an obvious risk for anypurchaser of the business. Further, the management agreement gave the bodycorporate the right to terminate the agreement on the basis of non-performance by themanager.[50] Dr Sharma received a copy of the management agreement and sample lettingagreement approximately six weeks before his discussion with Mr Johnson.He therefore had ample opportunity to assess the nature and duration of bothdocuments, as well as the potential risks they posed. Dr Sharma confirms in hisaffidavit that he received the documents but does not say whether he read them.Given his previous business experience, however, we assume that he would have done.In the absence of evidence by Dr Sharma to the contrary, we proceed on the basis thathe was aware that both the management agreement and the letting agreements couldbe terminated in prescribed circumstances.[51] On the evidence as it currently stands, we are therefore satisfied that noactionable misrepresentation could arise under either the CCLA or the FTA as a resultof Mr Johnson's statements about the exclusive nature of the management agreementand its duration.Omission to advise Dr Sharma of issues the body corporate had raised aboutAdmiralty Lodge's performance of its obligations under the managementagreement[52] Mr Johnson had received an email sent on behalf of the body corporatecommittee on 15 September 2019 stating that a report from Qualmark, an agency thatprovides ratings for short-term accommodation, had returned a weighted rating of2.2 stars out of 5 for visitor experience. The email went on to request Mr BrianJohnson to remove his brother Mr Paul Johnson as manager within 60 days. It saidthat if this request was not met the body corporate would have no choice but to cancelthe agreement based on poor performance.[53] The appellants also contend that Mr Johnson failed to tell them that the unitowners had several discussions with Mr Johnson during 2018 and 2019 in which theyexpressed their dissatisfaction with the manner in which Mr Paul Johnson wasmanaging the business.[54] We accept it is arguable that Mr Johnson should have disclosed these issues toDr Sharma when Dr Sharma asked him on 21 December 2019 whether there were anyhidden issues about the business that he had not disclosed. The fact that the bodycorporate and unit owners were not happy with the current performance of the managerwas a material fact that any potential purchaser would be interested to learn. It meantthat any purchaser of the business would be required to deal with a body corporate andunit owners who were currently concerned about the manager's performance.This meant it was likely to be less tolerant in the future about shortcomings in themanager's performance.[55] However, the body corporate had acknowledged in August 2019 thatAdmiralty Lodge was entitled to extend the term of the management agreement foranother 10 years. It was therefore not sufficiently concerned at that stage aboutidentified shortcomings in Admiralty Lodge's performance to terminate themanagement agreement. Further, Ena had the ability to rectify the shortcomings thebody corporate had identified once it took over the business. We therefore do notconsider the evidence discloses that the appellants suffered any loss becauseMr Johnson failed to advise them of the performance issues the body corporate andunit owners had raised with Admiralty Lodge.The statement that Mr Johnson held letting agreements for all units in thecomplex[56] The argument in relation to this issue focusses on two units, Unit 102 andUnit 18B.Unit 102[57] The statement by Mr Johnson on 21 December 2019 that Admiralty Lodge hadletting agreements with every unit owner was a statement of fact. It was thereforecapable of giving rise to liability under both the CCLA and the FTA if shown to beincorrect. It transpired that the owner of Unit 102 had given Mr Paul Johnson noticecancelling the letting agreement for that unit on 2 November 2019. This meant theassurances Mr Johnson gave Dr Sharma on 21 December 2019 were incorrect becauseAdmiralty Lodge did not hold letting agreements with all 18 unit owners as at thatdate.[58] The Judge did not consider this misrepresentation entitled Ena to cancel theagreement. However, she gave the appellants a credit in the sum of $19,230.50 toreflect the diminution in goodwill created by the withdrawal of Unit 102 from theletting pool.12 This amounted to one eighteenth of the goodwill paid by Ena for thebusiness ($346,149).[59] The appellants dispute the approach taken by the Judge, although they havenever suggested an alternative basis or methodology for calculating how compensationshould be assessed. We consider the Judge erred in her approach to this issue becauseshe effectively quantified the damages to be awarded to the appellants for themisrepresentation, when that would ordinarily be an issue to be determined at trial.At most, we consider the Judge should have reduced the amount for which judgmentwas entered by a generous sum and directed that the quantum of damages for thismisrepresentation be assessed at trial.[60] However, this point becomes academic for reasons we shall now outline inrelation to Unit 18B.Unit 18B[61] Prior to the settlement of the purchase, there was a misunderstanding betweenthe parties regarding the status of Unit 18B. At that time all parties believed there wasno letting agreement in place for this unit because attempts to contact the personbelieved to be the current owner had been unsuccessful. However, in late February2020, Dr Sharma formally waived any right to make a claim against Admiralty Lodgefor the absence of a letting agreement in relation to Unit 18B. He did so on the basisthat Admiralty Lodge agreed to take a second ranking mortgage over Unit 19 ratherthan a first ranking mortgage as had previously been offered.12 At [90].[62] By the time of the hearing in the High Court it was common ground thatUnit 18B still remained in the letting pool as at 13 March 2020. The confusion hadbeen caused by the fact that it was now owned by an entity associated withMs Holroyd. That entity had acquired the unit in October 2019 and was registered asthe owner on 19 November 2019. It did not withdraw the unit from the rental pooluntil well after settlement had taken place.[63] When the appellants agreed to waive their right to compensation for the factthat Unit 18B was not in the letting pool they effectively fixed the level ofcompensation payable to reflect the fact that Admiralty Lodge did not hold a lettingagreement in relation to one unit in the complex. That unit now turns out to beUnit 102 rather than Unit 18B. However, the fact remains that 17 of the 18 unitsremained in the letting pool at the date of settlement and the parties had agreed to thecompensation to be paid to reflect the loss of one unit. We consider this means theappellants suffered no loss as a result of Mr Johnson's erroneous representation thatAdmiralty Lodge held letting agreements for all 18 units.The statements Mr Johnson made about the past and future profitability ofthe business[64] For present purposes we proceed on the basis that the appellants will be ableto establish that Mr Johnson made the statements upon which they rely. We note,however, that Mr Johnson acknowledges in the affidavit he filed in support of theapplication for summary judgment that he did make some statements about the futureprofitability of the business:(a) I made comments at various times that the business was profitable andthat I thought it would be a good purchase. These comments werevery general in nature and were true.[65] The appellants contend Mr Johnson made statements about the profitability ofthe business on 21 and 24 December 2019. These related both to the accuracy of thefinancial statements he had given to Dr Sharma and the future profitability of thebusiness.[66] A statement that a business is profitable may be actionable if the statement isincorrect because the profitability of a business is a matter of fact. However, as theJudge pointed out, a representation will not be actionable if the recipient tests theaccuracy of the statement and relies on their own assessment.13 In the present case,Bayleys had given Dr Sharma copies of the financial statements for the business.These related to the previous three years as well as the 2018/2019 year.[67] Dr Sharma was an experienced businessman and had been approached byMs Chaudhry for that reason. We therefore accept he had the necessary businessexperience to be able to make his own assessment of the profitability of the businessin the past from the financial statements Bayleys provided to him.[68] Ms Chaudhry also deposed that she reviewed the previous year's profit andloss statements as well as the occupancy figures. She calculated that the margin"was good but not great". The profitability of the business depended mainly on theletting fees and a high level of occupancy.[69] As the Judge noted, the appellants have never claimed that the information theywere given about the profitability of the business in the past was incorrect.14 On theevidence as it currently stands, we do not consider the appellants can advance anarguable cause of action under either the CCLA or the FTA based on any statementsMr Johnson may have made about the profitability of the business in the past.[70] The appellants go further, however, and say that in providing the financialstatements Admiralty Lodge represented that nothing had changed in the businesssince the financial statements were prepared. They also rely on Mr Johnson'sstatement on 24 December 2019 that the business was a great investment that wouldmake good money for at least 10 years. In addition, they rely upon his statement thathe would "look after" Ms Chaudhry when Dr Sharma asked on 21 December 2019whether there was anything he had not disclosed about the business.13 At [65] citing Attwood v Small [1838] 6 Cl & Fin 232 (HL).14 At [63].[71] Mr Meys' argument for the appellants on this issue was based largely on thefact that by the time Dr Sharma considered the financial statements they were out ofdate because Units 18B and 102 were no longer part of the letting pool. However, thatwas not the case with Unit 18B and, as we have found, the appellants and Mr Johnsonreached agreement as to the compensation to be paid to reflect the fact that Mr Johnsononly held letting agreements for 17 of the 18 units.[72] We nevertheless have a concern as to whether Mr Johnson ought to have toldDr Sharma about the likely implications for the business once the prohibition on unitowners being able to occupy their units permanently was removed. This obviouslyhad the potential to reduce the extent to which units in the complex would be rentedout in the future because some owners were likely to take the opportunity to reside intheir units on a permanent basis. This would diminish the income derived byAdmiralty Lodge's business.[73] Mr Johnson was clearly alive to this issue. At an annual general meeting ofthe body corporate on 10 October 2018, he told the unit owners present that he wasconcerned the proposed variation of the resource consent had the potential to adverselyaffect Admiralty Lodge's business. The minutes of the meeting record that he said hehad no wish to impede any process that would produce the best financial outcome forunit owners but considered further clarification was required. He also said he wouldseek legal advice about the issue.[74] Admiralty Lodge relies on the fact that Bayleys provided Dr Sharma with theIM on 7 November 2019. A copy of the Certificate of Title for Unit 19 was annexedto the IM. This showed the Consent Notice giving notice of the prohibition on theunits in the complex being used for any purpose other than travellers' accommodation.The IM also contained two other pieces of information that are relevant for presentpurposes. These were as follows:The Body Corporate is currently undergoing a review of its OperationalRules following the recent change to the Building Consent and variationsto the Land/Property Use.The Body Corporate has submitted and received approval from Council fora Variation to the Resource Consent. This specifically relates to the use ofthe Property to include Visitor Accommodation and/or PermanentAccommodation.[75] Admiralty Lodge points out that this information was highlighted in bold andstood out from the surrounding text. Any person reading the IM would therefore beaware that there had been a recent variation of the resource and use consents thatapplied to the complex. These related specifically to the use of the property so as toinclude not only visitor accommodation but also permanent accommodation.[76] Counsel for Admiralty Lodge contended that a lay person who read the IMwould appreciate that there had been recent changes to the use to which the units couldbe put. They also argued that Dr Sharma cannot be regarded as a lay person.Their written submissions describe him in the following terms:15Dr Sharma, the second appellant, is highly educated and an experiencedinvestor, with specific industry experience in the subject matter of this dispute.He is a director and shareholder of a substantial number of businesses thatprovide serviced accommodation. He is chairman of the board of hoteloperators VR Group and Kiwi Hospitality LLC.[77] Admiralty Lodge relies in this context on the following observations made bythe Supreme Court in Red Eagle Corporation Ltd v Ellis in relation to the principlesthat apply to a claim for an alleged breach of s 9 of the FTA:16[28] It is, to begin with, necessary to decide whether the claimant hasproved a breach of s 9. That section is directed to promoting fair dealing intrade by proscribing conduct which, examined objectively, is deceptive ormisleading in the particular circumstances. Naturally that will depend uponthe context, including the characteristics of the person or persons said to beaffected. Conduct towards a sophisticated businessman may, for instance, beless likely to be objectively regarded as capable of misleading or deceivingsuch a person than similar conduct directed towards a consumer or, to takean extreme case, towards an individual known by the defendant to haveintellectual difficulties. Richardson J in Goldsbro v Walker said that theremust be an assessment of the circumstances in which the conduct occurredand the person or persons likely to be affected by it. The question to beanswered in relation to s 9 in a case of this kind is accordingly whether areasonable person in the claimant's situation – that is, with the characteristicsknown to the defendant or of which the defendant ought to have been aware –would likely have been misled or deceived. If so, a breach of s 9 has been15 Footnotes omitted.16 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 493 (emphasis added andfootnotes omitted).established. It is not necessary under s 9 to prove that the defendant's conductactually misled or deceived the particular plaintiff or anyone else. If theconduct objectively had the capacity to mislead or deceive the hypotheticalreasonable person, there has been a breach of s 9. If it is likely to do so, it hasthe capacity to do so. Of course the fact that someone was actually misled ordeceived may well be enough to show that the requisite capacity existed.[78] Admiralty Lodge submits that Dr Sharma is a sophisticated businessman andthat he would immediately recognise the significance of the information contained inthe IM. He would appreciate that recent changes to the resource and use consentsmeant that units in the complex could now be used for permanent accommodation.It therefore says Dr Sharma had been placed on notice of this change in circumstanceswell before he spoke to Mr Johnson on 21 December 2019. This meant Mr Johnsonwas not obliged to raise the issue when Dr Sharma asked him whether there was anyother issue about the business that had not been disclosed.[79] The difficulty with this submission is that an application for summaryjudgment is not an appropriate forum in which to explore and assess the extent towhich Dr Sharma's previous business experience ought to have alerted him to thesignificance of an issue such as the change of use. He was not aware of thecircumstances that had led to the unit owners promulgating the change of use. He didnot know that unit owners had become frustrated because they could not live in theunits themselves or sell them to others as permanent accommodation. They haddecided to rectify the problem by changing the use to which their units could be put.The change of use therefore meant there was a real possibility that many of the unitswould be removed from the letting pool and this would decrease the profitability ofAdmiralty Lodge's business.[80] By December 2019, matters had also moved on significantly since the annualgeneral meeting in October 2018. The proposal to change the use to which units couldbe put was on the verge of being implemented. The variation of the resource and landuse consents had been approved and the body corporate rules were being amended toreflect the change in use. Unit owners were therefore on the cusp of being able toreside in their units on a permanent basis. Mr Johnson was fully aware of these issuesand had obviously been concerned about them since at least October 2018.[81] This meant Mr Johnson had to be very circumspect in making anyrepresentations regarding the future profitability of the business. Any statement to theeffect that the business would continue to be profitable in the future needed to betempered by the fact that he knew of the change in use that was about to occur.[82] At this stage we are reliant on the evidence given by Dr Sharma andMs Chaudhry as to what Mr Johnson told them on 21 and 24 December 2019 regardingthe future profitability of the business. However, assuming their evidence to be correctwe consider the statements arguably amounted to breaches of ss 9 and 12A of the FTA.Applying the test enunciated by the Supreme Court in the passage cited above fromRed Eagle, we cannot be sure that a reasonable person in Dr Sharma's position could(or should) have been expected to appreciate the extent to which this issue was likelyto adversely affect the future profitability of Admiralty Lodge's business. Rather, weconsider such a person could have been misled or deceived by Mr Johnson'sstatements. The same may be said about any statement Mr Johnson made about thefuture profitability of the business during the telephone conversation with Dr Sharmaon 30 December 2019.[83] The next issue is whether the appellants relied on the representations indeciding to enter into the agreement to purchase the business and the loan agreement.They say that they did, and it is not possible to decide otherwise on an application forsummary judgment. However, we observe that it would be surprising if they did notrely to some extent on Mr Johnson's assurances as to the future profitability of thebusiness given the amount they agreed to pay for it.[84] The final issue is whether the misleading or deceptive conduct arguably causedthe appellants loss. In this context the Supreme Court observed in Red Eagle:17[29] Then, with breach proved and moving to s 43, the court must look tosee whether it is proved that the claimant has suffered loss or damage "by" theconduct of the defendant. The language of s 43 has been said to require a"common law practical or common-sense concept of causation". The courtmust first ask itself whether the particular claimant was actually misled ordeceived by the defendant's conduct. It does not follow from the fact that areasonable person would have been misled or deceived (the capacity of theconduct) that the particular claimant was actually misled or deceived. If the17 Footnotes omitted.court takes the view, usually by drawing an inference from the evidence as awhole, that the claimant was indeed misled or deceived, it needs then to askwhether the defendant's conduct in breach of s 9 was an operating cause of theclaimant's loss or damage. Put another way, was the defendant's breach theeffective cause or an effective cause? Richardson J in Goldsboro spoke of theneed for, or, as he put it, the sufficiency of, a "clear nexus" between theconduct and the loss or damage. The impugned conduct, in breach of s 9, doesnot have to be the sole cause, but it must be an effective cause, not merelysomething which was, in the end, immaterial to the suffering of the loss ordamage. The claimant may, for instance, have been materially influencedexclusively by some other matter, such as advice from a third party.[85] It appears to be common ground that most of the unit owners withdrew theirunits from the letting pool after Ena purchased the business from Admiralty Lodge.This occurred gradually over a period of approximately 18 months as unit ownersbegan living in the units on a permanent basis or rented them out using another lettingagency. By November 2021, the only units that remained in the pool were the threeunits that Ena owned itself. In addition, the body corporate terminated themanagement agreement in July 2022 due to shortcomings in Ena's performance underthe agreement.[86] Any loss caused by the termination of the management agreement is obviouslyunlikely to have been caused by any statements made by Mr Johnson inDecember 2019. However, the fact that many of the unit owners began living in theirunits after Ena took over the business was precisely the consequence that Mr Johnsonappears to have foreseen in October 2018.[87] The appellants have not specified in their draft statement of defence andcounterclaim what they would have done if Mr Johnson had made them aware of thelikely effect of the change of use on the future profitability of the business.However, they say the business is now valueless and seek a declaration that themisrepresentations entitled them to cancel the agreement to buy it.[88] We consider there is sufficient connection between the representations as to thefuture profitability of the business and the likely reason for the subsequent reductionin value of the business to conclude that Mr Johnson's representations have arguablycontributed to the appellants sustaining loss. As matters currently stand, they are alsostill obliged to repay the loan from Admiralty Lodge even though the managementagreement has now been terminated. The quantum of any loss will obviously need tobe established at trial.[89] For the sake of completeness, we accept that the appellants' solicitors wereexpressly advised of the current position in relation to the change of use shortly beforesettlement. The Judge observed that the appellants could at that stage have exercisedtheir right under the agreement for sale and purchase to make Admiralty Lodge awareof their claim and requiring funds to be withheld on settlement to provide for it.She considered the appellants waived their claim when they elected to settle thepurchase without raising their claim at that stage.18 We respectfully disagree.There was nothing to prevent the appellants from completing the purchase of thebusiness and advancing their cross-claim following settlement.Waiver of interest[90] This issue arises because of events that occurred after the onset of theCOVID-19 pandemic in March 2020. Not surprisingly, the travel restrictions imposedby the New Zealand Government at that time had a significant effect for all touristaccommodation complexes. This lasted for many months.[91] The term loan agreement required Ena to pay Admiralty Lodge the sum of$1,600 on the tenth day of each month. The appellants contend that Mr Johnsonadvised them they could stop making payments under the term loan agreement untiltheir cashflow permitted them to resume doing so. They say he is now estopped fromresiling from that agreement. In effect, Ena says Admiralty Lodge waived itsentitlement to require Ena to make the payments due under the term loan agreement.[92] Ena also contends that, because there was an agreement to defer the obligationto make payments under the term loan agreement, those payments never becameoverdue. Admiralty Lodge was therefore not entitled to charge penalty interest onoutstanding amounts.18 Admiralty Lodge Motel (2016) ltd v Ena Holdings Ltd, above n 1, at [52].[93] Admiralty Lodge denies having waived its rights under the term loanagreement. Mr Johnson says he did not pursue Ena for payment between March andJune 2020 because he was aware of the financial issues it would be facing. Thereafter,however, he regularly sent text messages to Ms Chaudhry asking her to make therequired monthly payments.[94] Given that the matter will need to proceed to trial in any event we consider thisissue should be determined having regard to the evidence given at trial.The cross-appeal[95] The fact that that the judgment is to be set aside means we are not required todetermine the issue raised by the cross-appeal.Result[96] The applications by the appellants and respondent to adduce new evidence aredeclined.[97] The appeal is allowed.[98] The summary judgment entered against the appellants in the High Court is setaside.[99] The cross-appeal is dismissed.[100] The respondent must pay the appellants costs on a Band A basis for a standardappeal together with usual disbursements.Solicitors:Neilsons Lawyers, Auckland for AppellantsNorris Ward McKinnon, Hamilton for Respondent