WEST AS TRUSTEE OF THE WEST FAMILY TRUST V QUAYSIDE TRUSTEE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) COA CA62/2012

WEST AS TRUSTEE OF THE WEST FAMILY TRUST v QUAYSIDE TRUSTEE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) COA CA62/2012 [7 June 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA62/2012[2012] NZCA 232BETWEEN IAN TREVOR WEST AS TRUSTEE OFTHE WEST FAMILY TRUSTAppellantAND QUAYSIDE TRUSTEE LIMITED (INRECEIVERSHIP AND INLIQUIDATION)RespondentHearing: 24 May 2012Court: Wild, White and Miller JJCounsel: D M O'Neill for AppellantM V Robinson and L M L Lim for RespondentJudgment: 7 June 2012 at 2.00pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is ordered to pay the costs of the respondent for a standard appeal on a band A basis together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by White J)Table of ContentsPara NoIntroduction [1]Factual background [9]Legal principles [29]High Court decision [31]Mr West's appeal [32]Discussion [42]Result [50]Introduction[1] The appellant, Mr West, as trustee of his family trust, purchased off the plans from the respondent, Quayside Trustee Ltd (Quayside), a luxury apartment in the Quayside complex in Whakatane for $885,000.00 including GST. Mr West was induced to purchase the apartment on the basis of a representation contained in a letter from Quayside that his company, Ceilings Unlimited (CUL), would be"preferred sub-contractor for all suspended ceiling and steel stud partitions for the"Quayside" development".[2] After inviting tenders for the work, Quayside's head contractor gave it to another subcontractor, Forman Commercial Interiors (Forman).[3] Mr West claimed that he had been induced to purchase the apartment on the basis of a misrepresentation and purported to cancel his contract with Quayside.[4] Quayside initially sought specific performance of the contract and then, having resold the apartment at a considerable loss, itself cancelled the contract and claimed damages from Mr West of $324,360.30 plus interest and costs.[5] Mr West's defence was that Quayside's misrepresentation, which had induced him to enter into the contract, entitled him to cancel the contract under s 7(4)(b) of the Contractual Remedies Act 1979.[6] Mr West's defence was rejected by Allan J in the High Court on the groundthat he had failed to establish that at the date of the letter, which expressedQuayside's future intentions, Quayside had no genuine intention of carrying its promise into effect or alternatively that there was no factual basis upon which the representations could properly have been made.1 Judgment was entered against Mr West for the total sum of $536,596.31.[7] Mr West has appealed to this Court claiming that the High Court Judge misinterpreted the terms of the representations in the letter of 18 May 2006.[8] As the factual background is largely undisputed and the parties were in agreement as to the relevant legal principles, we are able to summarise these matters briefly before addressing the critical issues relating to the interpretation of the letter containing the representations.Factual background[9] There is no dispute that Mr West, an experienced subcontractor, was induced to purchase the apartment on the basis of the representations in the letter from Quayside which was dated 18 May 2006 and which read as follows:Congratulations on the purchase of Apartment 308, "Quayside", Whakatane.In kind, we confirm that we will instruct MTD Ltd (Architects) to nominate your company, Ceilings Unlimited Ltd, as preferred sub-contractor for allsuspended ceilings and steel stud partitions for the "Quayside" development.This position will be set out in all tender/contract documents.To ensure a competitive price for these items, we reserve the right to obtain comparative pricing for this work but with the ultimate opportunity reserved for Ceilings Unlimited to match or negotiate a final figure.1 Quayside Trustee Limited (in rec and in liq) v West HC Tauranga CIV-2010-470-190,15 December 2011.The opportunity also exists for you to also price the fixing of plasterboard wall linings and stopping if desired.[10] There is also no dispute that in December 2006 Quayside's architect,John Tatton, prepared the tender documents for the construction of the complex and sent them out to potential head contractors, including Hawkins Construction Ltd(Hawkins). Mr West's company, CUL, was listed as Quayside's preferredsubcontractor for suspended ceilings and steel stud partitions. Head contractors were given until 31 January 2006 to provide their tenders.[11] On 17 January 2007 Hawkins sent out an "invitation to tender" letter toselected subcontractors including CUL and Forman. Both CUL and Forman submitted tenders in February 2007. CUL's tender was accompanied by an email to Hawkins from Mr West offering to provide further detail and to discuss quantities at a later stage.[12] Significantly, Mr West did not at that stage suggest to Quayside or Hawkins that a tender process was inappropriate because in terms of the letter of 18 May 2006CUL was already "preferred subcontractor" for the work. Unbeknown to Mr West, Hawkins had not been given a copy of the letter.[13] After discussions between Hawkins and Quayside, Mr Tatton sent an email to Karl Kingi of Hawkins dated 13 March 2007 confirming that Quayside:are ... anxious that Ceilings Unlimited/Ian West, as an apartment purchaser be given every chance to match, or better, best price for this section of work. Can you please check and reply.[14] Mr West met Mr Kingi and Hawkins in April 2007. Mr West told Mr Kingi that he was the contractor dealing with the suspended ceilings and internal steel studs. Mr Kingi was surprised because he was unaware of the letter of 18 May 2006.Mr Kingi's evidence was that he told Mr West that his pricing was not competitiveand, without disclosing Forman's price, told him where he needed to sharpen up hispricing to get the job. Mr West accepted in evidence that Mr Kingi had told him he needed to improve his pricing to be competitive and that he had agreed to go away and revisit his pricing and come back with an amended price. Mr Kingi also wanteda price for insulation and stopping as well as for the work for which Mr West had already tendered to be submitted as a single price.[15] Mr West considered that he was entitled to know his competitor's price inorder to be able to match it, but he did not ask Mr Kingi for the price and in fact never put in a revised price.[16] In May 2007, following a further approach from Mr Tatton of Quayside, Mr Kingi confirmed that Mr West had been given "the opportunity to reprice to match Forman's pricing, but to date has not responded".[17] On 18 July 2007 Mr West emailed Mr Kingi asking him "to send me whatinsulation you require on this project. Walls and ceilings". Although Mr Kingi replied promptly, Mr West still did nothing about submitting an overall tender.[18] On 20 July 2007 Quayside accepted Hawkins's tender as head contractor. Mr Kingi passed over his responsibilities to Bryan Mongston, a quantity surveyor, who commenced the process of signing up individual subcontractors.[19] On 7 September 2007 Mr West sent Mr Mongston an email which referred to his discussions with Mr Kingi and said:I was trying to confirm my price & was trying to clarify the level 5 finish & what method of application would be deemed acceptable, as well as confirming I was comfortable with the number.This was due to a[n] understanding I have with John McColl & MTD Limited as I have purchased one of the apartments. I was contacted by Karl [Kingi] in March & visited him in [h]is Ak office as a result of this understanding. He was in the final process of nailing down the price so you could st[a]rt on site.[20] There was no mention in Mr West's email of his entitlement to "match" theForman price.[21] Mr Mongston replied by email dated 19 September 2007 stating:I have now got up to speed with the pricing and scope of works on this job.Your price submitted to date is incomplete and appears not to include fire gib (supply, fix and stop) and all gib stopping. I understand that Karl had been waiting for these figures for some time.At this stage I think it fair that I run with Forman Commercial as they have priced everything that is required.Trusting you understand the position I am in, I'm sure that there will beother opportunities in the future.[22] Although Mr West said that he was completely thrown by this email because he had been waiting for figures from Hawkins for some time so that he could either match the final price or do better, he did not take any steps to raise his concerns with Quayside at that stage.[23] Mr Tatton said in evidence that:I am surprised that if Mr West did not think he had been given a proper opportunity to negotiate a final contract price he did not raise his complaint at that stage or contact me directly to intervene. If he had, (and if we agreed he had not already been given a proper chance to negotiate) we might have been able to do something about it. If there were any problems at all, Mr West should have raised it with us at the time. That is what negotiations are all about.[24] Mr Mongston awarded the subcontract for the suspended ceilings, steel stud partitions and plaster board to Forman on 10 October 2007.[25] Finally, Mr West's solicitors raised the matter with Quayside's solicitors forthe first time on 26 February 2008. Following correspondence between thesolicitors, Mr West's solicitors cancelled the contract for the purchase of theapartment in reliance on the alleged misrepresentation in the letter of 18 May 2006.[26] Quayside did not accept the cancellation of the contract by Mr West. Its solicitors served a settlement notice requiring him to complete the contract. When he failed to do so, the present proceeding was issued by Quayside.[27] Mr West's defence to Quayside's claim was formulated as follows:19. The plaintiff made the following representations in a letter to the Defendant on or about 18 May 2006 –(a) In consideration of the Defendant agreeing to purchase the apartment from the Plaintiff, theDefendant's company CUL would be a preferred sub-contractor in respect of ceilings and steel stud partitions and would further have an opportunity to tender for wallboard linings and gib stopping.(b) The Plaintiff would obtain a comparative price in respect of the work CUL was to undertake.(c) CUL would have a final opportunity to either match the comparative price or alternatively, negotiate a final figure.The representations as set out above were misrepresentations.20. Particulars –(a) The Plaintiff failed to obtain a comparative price in respect of the ceilings and steel stud partitions.(b) CUL did not get the opportunity to match the comparative price in respect of the ceilings and steel stud partitions nor did CUL have the opportunity to negotiate a final figure in respect of ceilings and steel stud partitions.(c) The contract in respect of ceilings and steel stud partitions and wallboard linings and gib stopping was let as one contract and not two.(d) In addition, the Plaintiff did not advise the head contractor of the representations it had made to the Defendant.[28] Mr West did not allege that the letter of 18 May 2006 constituted further terms or conditions of his contract to purchase the apartment. He did not claim that the letter was effectively a process contract for the awarding of the subcontract to him.2 His defence was based solely on the allegation that the letter contained misrepresentations by Quayside which induced him to enter into the contract for the purchase of the apartment.2 Compare Pratt Contractors v Palmerston North City Council [1995] 1 NZLR 469 (HC) andTransit New Zealand v Pratt Contractors [2002] 2 NZLR 313 (CA); aff'd [2003] UKPC 83,[2005] 2 NZLR 433.Legal principles[29] Mr West relies on s 7(3)(a) of the Contractual Remedies Act, which provides that a party to a contract may cancel it if he or she has been induced to enter into itby "a misrepresentation whether innocent or fraudulent, made by or on behalf of another party to that contract".[30] The parties agreed that the relevant legal principles relating to the interpretation and application of s 7(3)(a) were correctly summarised in the judgment of Allan J in the High Court:[30] The term "misrepresentation" is not defined, but it is wellestablished that the representation must relate to an existing fact or a past event. The state of mind of the person making a representation is an existing fact.3 A mere statement of intention will become actionable only if it can be established that the person making the representation did not at the time genuinely have that intention, or alternatively, that he or she had no reasonable expectation of being able to fulfil the representation.4[31] The non-fulfilment of a promise when the time for performance arrives, does not of itself establish that the promisor did not intend toperform it when it was made, or that the promisor's intention lacked any, orany adequate, foundation.5[32] If there has been a representation of a type that is actionable, the court must determine whether the representation was a misrepresentation by examining its meaning. The meaning relied upon by the representee must be reasonable in all the circumstances.6[33] As was said by Chambers J in Gunton v Aviation Classics Ltd:7People in trade should choose their words carefully so that wrongful impressions are not conveyed. If they fail to act carefully, they can scarcely complain when others, quite reasonably, are misled to their detriment.[34] The necessary inquiry is as to the meaning actually conveyed by the representation.8 The meaning intended by the representor is irrelevant.3 Ware v Johnson [1984] 2 NZLR 518 (HC) at 537 and Featherstone Park Developments Ltd vRobertson Homes Ltd (2009) 10 NZCPR 373 (HC) at [64].4 Albany Timber Distributors v Tan HC Auckland CIV-2006-404-1336, 11 May 2007; KinlochGolf Resort Ltd v Knight HC Napier CIV-2008-441-670, 3 July 2009.5 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 (FCAFC) and McKenzieInstitute International v Accident Rehabilitation & Compensation Insurance Corporation (1997)8 TCLR 329 (CA) at 331.6 Lawton v Norcross (2009) 9 TCLR 338 (HC).7 Gunton v Aviation Classics Ltd [2004] 3 NZLR 836 (HC) at [244].8 Bisset v Willkinson [1927] AC 177 (PC) at 183.High Court decision[31] After carefully considering the meaning of the letter of 18 May 2006 and the submissions for the parties, Allan J concluded:[63] In my opinion the 18 May letter, properly construed, represented to Mr West that he would be the preferred contractor in respect of the relevant subcontract, but that he would need to take part in a competitive tendering process, with the additional right to match any competing price, or negotiate a fresh price. I do not accept that the representation entitled Mr West to be advised of the precise dollar amount of any competing tender.[64] In my opinion the plaintiff kept its promise. The defendant did not succeed in obtaining the subcontract, largely by reason of his inactivitywhich may well have stemmed from his view of the plaintiff's obligations tohim. Importantly for present purposes, I consider that the plaintiff intended, both at the time of the making of the representation and later, to comply with the terms of its obligations under the 18 May letter.[65] The defendant has failed to establish that the plaintiff is in breach of a representation as to an existing fact, namely, its state of mind at the time ofthe giving of the 18 May letter. Accordingly, his defence to the plaintiff'sclaim fails.Mr West's appeal[32] Mr O'Neill accepted that the issue on appeal was whether Allan J had erredin deciding that at the time of the letter of 18 May 2006 Quayside had intended tocomply with its representations. Mr O'Neill accepted that the case was all about themeaning of the letter, which was concerned with Quayside's future intentions, when assessed objectively as at 18 May 2006. Mr O'Neill accepted that it was appropriate to take into account the subsequent course of events.[33] Turning to the letter itself, Mr O'Neill accepted that Quayside had intendedto:instruct MTD Ltd (Architects) to nominate your company, Ceilings Unlimited Ltd, as preferred sub-contractor for all suspended ceilings andsteel stud partitions for the "Quayside" development.[34] Mr O'Neill accepted that the obligation on Quayside to instruct its architects to "nominate" CUL as "preferred sub-contractor" was not intended to require CUL tobe the sole nominated subcontractor. The distinction between a subcontractor who isthe sole nominated subcontractor and one who is not is well-established.9 When an employer decides that a particular subcontractor should be the nominated subcontractor, the head contractor is obliged to enter into a contract with the nominated subcontractor and has to accept the terms agreed between the employer and the nominated subcontractor. The position is different, however, when there is no nominated subcontractor. The head contractor will then not be under an obligation to enter into a contract with any specific subcontractor. The head contractor will be free to conduct a tender process and choose the particular subcontractor. If an employer names a "preferred subcontractor", as distinct from a sole nominated subcontractor; then, subject to the terms of the head contract, the head contractor will still be free to select the particular subcontractor after a tender process. How the employer's expressed preference is taken into account in the course of that process will depend on any relevant terms in the head contract.[35] Mr O'Neill accepted that Mr Tatton's invitation to head contractors to tender, which listed or nominated nine "preferred (but not exclusive) subcontractors" for thetender, including CUL as the "preferred sub-contractor" for "Steel Framing and Suspended Ceilings", recognised this distinction and complied with Quayside'srepresentation in the letter.[36] Next Mr O'Neill accepted that Quayside had intended to ensure that the"position" relating to the nomination of CUL as "preferred sub-contractor" was to be "set out in all tender/contract documents" and that this had in fact occurred.[37] But Mr O'Neill did not accept that on 18 May 2006 Quayside had intended tocomply with the representation in the letter that it would:To ensure a competitive price for these items, ... reserve the right to obtain comparative pricing for this work but with the ultimate opportunity reserved for Ceiling Unlimited to match or negotiate a final figure.[38] Mr O'Neill submitted that in terms of this part of the letter Quayside reservedto itself the right to obtain a comparative pricing for the work and was not under an9 Atkin Chambers Hudson's Building and Engineering Contracts (12th ed, Sweet & Maxwell,London, 2010) at [3-163]–[3-164] and [9-057]–[9-058]; and Tomas Kennedy-Grant, Kennedy-Grant on Construction Law (2nd ed, LexisNexis, Wellington, 2012) at [21.05].obligation to do so. In reserving the right to obtain a comparative pricing, a tender process was specifically excluded because Mr Tatton, the author of the letter, had 25 years' experience as an architect and project manager, and:(a) thought about and drafted the letter carefully;(b) knew what a tender meant – confidential blind bidding;(c) knew that in order to match or negotiate a final price one needed to step outside the tender process; and(d) agreed, as did Quayside's expert, that in order to match something,one needed to know the figure they were matching.[39] Mr O'Neill submitted that the argument that the tender process was not part of the comparative pricing was supported by the fact that looking at other prices was not part of the tender process. Expert evidence at trial established that to do so within the tender process would have been unethical.[40] On this basis, Mr O'Neill submitted that Quayside had never intended tocarry out its comparative pricing obligations in the letter because it never intended to get comparative pricing and give Mr West the right to match the comparative pricing or negotiate a final figure. He said this was confirmed by Quayside delegating its responsibility to Hawkins while failing to tell Hawkins the specific terms of the deal with Mr West and by Quayside's failure to ensure that the figure obtained from Forman was disclosed to Mr West to enable him to match it or negotiate a final figure.[41] Mr O'Neill submitted that the absence of any intention on the part of Quayside to obtain comparative pricing was established by the evidence of Mr Tatton in the following exchange during his cross-examination:Q. But you never intended – or when I say "you" I mean "Quayside"never intended to go out and obtain a comparative pricing and put it up against what Mr West had tendered, did you?A. No, I never intended to do the pricing, no.Discussion[42] There are in our view a number of difficulties with the submissions for Mr West as to the meaning of the letter of 18 May 2006.[43] First, there is no doubt that Quayside intended to obtain tenders for the construction of the apartment complex and that "all tender/contract documents" would contain reference to CUL as "preferred sub-contractor" for all suspendedceilings and steel stud partitions for the development. A tender process was clearly contemplated.[44] Second, the references in the letter to ensuring "a competitive price" for those items and to reserving the right to obtain "comparative pricing" need to be read in the context of the contemplated tender process and not in isolation.10 When that is done, it is apparent that it was recognised that the "competitive price" might or mightnot come from the tender process. If the tender process did not produce a"competitive price" between CUL and another subcontractor tendering for thoseitems, Quayside reserved the right to obtain "comparative pricing" for the work.When this part of the letter is interpreted in this way, it is clear that, contrary to the submissions for Mr West, a tender was intended as part of the process envisaged by Quayside for ensuing that it obtained "a competitive price" for the specific work.This conclusion is also reinforced by the fact that Mr West participated in the tender process for subcontractors and did not suggest until much later that such a process was not contemplated.[45] Third, the right reserved by Quayside to obtain "comparative pricing" did nottherefore preclude the contemplated tender process. It was intended to be a right for Quayside to exercise if it wished to do so, that is the right was reserved. The fact that Mr Tatton acknowledged in cross-examination that he did not intend to do the comparative pricing does not detract from our conclusion on this point. There was no obligation on Quayside to obtain comparative pricing. We have considered Mr Tatton's statement in the context of the cross-examination. We are satisfied that10 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444 at [4]–[6], [19]–[23], [57]–[59], [119] and [151].he was merely saying that once Hawkins' tender had been accepted, Quayside had nointention of being involved further in the pricing of the subcontract work.[46] Fourth, "the ultimate opportunity" reserved for CUL "to match or negotiate a final figure" was intended to give CUL that opportunity either in the context of thecontemplated subcontractor tender process or following the obtaining of"comparative pricing". There was no evidence to suggest that Quayside did not have this intention on 18 May 2006. On the contrary, Quayside's subsequent conduct served to confirm that it genuinely intended to give CUL the opportunity to "match or negotiate" a final figure. Mr Tatton asked Mr Kingi of Hawkins to ensure that Mr West had been given that opportunity. The non-disclosure to Hawkins of the letter itself does not alter the fact that Quayside took the requisite steps to comply with its obligation.[47] Similarly, the fact that Mr Kingi did not disclose Forman's actual tender price to Mr West did not mean that Quayside had no intention of complying with its obligation. Mr West was told that his tender was not competitive and that he would need to sharpen up his price. He could have sought further information at that stage, but he did not do so. Indeed, not only did he not seek any further information aboutForman's price but he also took no steps to submit a further price to "match" Forman's or to negotiate a final figure with Hawkins. His failure to take advantage of the opportunity to do so cannot be relied on to establish an absence of intention on the part of Quayside to comply with its obligation to give him that opportunity.11[48] For these reasons we are satisfied that the representations in the letter of 18 May 2006 represented Quayside's genuine intentions at that time and that Mr West's defence based on s 7(3)(a) of the Contractual Remedies Act musttherefore fail. Mr West has not persuaded us otherwise or that Allan J erred in reaching his decision.[49] In view of our decision on this issue it is unnecessary for us to address the other issues raised on appeal relating to the separate opportunity to price for the11 Compare New Zealand Shipping Company v Société des Ateliers et Chantiers de France [1919]AC 1 (HL) at 6 and Butcher v Port [1985] 1 NZLR 491 (CA) at 496.fixing of plasterboard wall linings and stopping referred to in the final paragraph of the letter of 18 May 2006, the cancellation of the contract by Mr West and the application of s 7(4)(b) of the Contractual Remedies Act.Result[50] The appeal is dismissed.[51] The appellant is ordered to pay the costs of the respondent for a standard appeal on a band A basis together with usual disbursements.Solicitors:Clark & Gay, Waihi for AppellantSimpson Grierson, Auckland for Respondent