RAEWYN MARIE SCOTT v LINDY JANE ELLISON COA CA660/2010

RAEWYN MARIE SCOTT v LINDY JANE ELLISON COA CA660/2010 4 July 2011IN THE COURT OF APPEAL OF NEW ZEALANDCA660/2010[2011] NZCA 302BETWEEN RAEWYN MARIE SCOTTAppellantAND LINDY JANE ELLISONRespondentHearing: 17 May 2011Court: Ellen France, Gendall and Allan JJCounsel: G Brittain for AppellantJ S McHerron and G F Kelly for RespondentJudgment: 4 July 2011JUDGMENT OF THE COURTA The appeal against the refusal to grant summary judgment is dismissed.B The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.REASONS OF THE COURT(Given by Ellen France J)Introduction[1] In early 1988 Raewyn Scott, the appellant, and her then partner, Allan Irvine, purchased a residential property at 2 Maruia Place, Tauranga. They carried out building work on the property. The two converted a single storey house on poles, which had been relocated to the property, into a two storey home by enclosing anddeveloping the ground floor area. This work was undertaken in the late 1980s/early 1990s. It appears that the requisite building permit for the building work was not obtained and neither was a code compliance certificate issued.[2] In August 1997, ownership of 2 Maruia Place was transferred by Ms Scott and Mr Irvine to Ms Scott as the sole owner. Ms Scott subsequently formed a trust. The trustees of this trust were Ms Scott and JSB Trustees Ltd. JSB Trustees is aprofessional trustee company operated by Ms Scott's solicitor. On 29 March 2001 the property was transferred from Ms Scott to the two trustees.[3] Lindy Ellison, the respondent, agreed to buy the property in July 2004, with settlement occurring in mid-September 2004. Ms Ellison subsequently discovered defects in the construction of the lower storey and the absence of a permit for the work. Ms Ellison issued proceedings against Ms Scott to recover the cost of repairs, estimated at $170,604.32.[4] Ms Scott obtained summary judgment in the District Court but, on appeal, summary judgment was set aside.1 Ms Scott now appeals from the refusal to grant summary judgment. The appeal turns on the meaning of the vendor's warranty in theagreement for sale and purchase that works done by the vendor were permitted and code compliant.The agreement for sale and purchase[5] The agreement for sale and purchase dated 26 July 2004 was in a standard form agreement.2 The vendor was described as "RM Scott Family Trust (Raewyn Marie Scott & JSB Trustees Ltd as Trustees)". The purchaser was Lindy Jane Ellison and/or nominee. Ms Scott and Ms Ellison signed the agreement as vendor and purchaser respectively. The purchase price was $441,000.1 Ellison v Scott [2010] DCR 404; and Ellison v Scott HC Tauranga CIV-2009-470-1153,19 August 2010.2 REINZ/ADLS standard form agreement for sale and purchase of real estate (7th ed (2),July 1999).[6] We need to refer to two of the general terms in the agreement. The first of these, cl 1.3(1) provides:If there is more than one purchaser or vendor, the liability of the purchasers or of the vendors, as the case may be, is joint and several.[7] Clause 6 covers vendor's warranties and undertakings. Clause 6.2(5)provides:6.2 The vendor warrants and undertakes that at the giving and taking of possession:...(5) Where the vendor has done or caused or permitted to be done on the property any works for which a permit or building consent was required by law:(a) The required permit or consent was obtained; and(b) The works were completed in compliance with that permit or consent; and(c) Where appropriate, a code compliance certificate was issued for those works; and(d) All obligations imposed under the Building Act 1991 were fully complied with.[8] The claim brought against Ms Scott is that she breached the warranty in cl 6.2(5) resulting in the losses claimed by reason of Ms Scott's alleged failure to obtain and comply with a permit for the building works.Judgments in the District Court and High Court[9] In the District Court Judge Ingram granted Ms Scott's application forsummary judgment. The Judge took the view that by limiting the warranty to work"done or caused or permitted to be done" by the vendor, the drafter intended to exclude predecessors in title. The objective of the clause was to "impose liability forwork done under the control of the vendor, with the concomitant limitation of liability for work not done under the control of the vendor".3 As the building works in issue all pre-dated the creation of the trust and appointment of the trustees, there3 At [23].was no work done or permitted by the trustees in terms of cl 6.2(5) and so Ms Scott could not be liable under the agreement.[10] In allowing the appeal from the decision of the District Court, Potter J considered that the status of Ms Scott as legal owner did not change when the property was transferred to herself and JSB Trustees as legal owners. Rather, Ms Scott remained personally liable for her contractual obligations. The Judge said that it was incorrect to conclude that Ms Ellison could only have intended to contract with the named trust because there was no separate legal entity which could be identified as such. Either Ms Ellison intended to contract with the trustees personally, or there was no agreement. Potter J continued:4The vendors under the agreement are Raewyn Marie Scott and JSB Trustees Ltd. They are jointly and severally liable in respect of the contractual obligations of the vendor under the agreement because as trustees they are joint tenants and because clause 3.1 of the agreement so provides. If they had intended that there be any limit on their contractual liability then they had to provide for it, but they did not. The agreement provides no limitation on the personal liability of the trustees as vendor. (I note that JSB Trustees Ltd resigned as a trustee in November 2003 but it remained as a registered proprietor on the certificate of title and entered into the agreement. Nothing turns on this).[11] Potter J then went on to consider the effect of cl 1.3(1) of the agreement which deals with joint and several liability. On this Potter J said:5I am not persuaded by [Ms Scott's] contention that clause 1.3(1) means only that either one of the trustees can be held severally liable for breach of their joint obligations, but does not make them jointly and severally liable on their contractual promises.[12] Finally, Potter J considered Judge Ingram's concern about the assumption of"retrospective contractual liability attaching to contracting trustees in respect of acts preceding the trustee's assumption of office".6 Her Honour observed that:7The warranties and undertakings given in clause 6.2(5) were undertaken by the trustees upon the signing of the agreement. Their liability arisesprospectively "at the giving and taking of possession". If either of thetrustees had concerns about liability under clause 6.2(5), or for that matter4 At [45].5 At [46].6 Ellison v Scott [2010] DCR 404 at [26].7 At [48] and [49].any other vendor warranty in the agreement, it was open to either or both of them to limit the extent of warranty in question, ... . And as Mr McHerron pointed out, there is an express warning printed on the cover sheet of theagreement under the heading "Before Signing the Agreement", that thevendor should ensure the warranties and undertakings in clauses 6 and 7 are able to be complied with, and if not, the applicable warranty is deleted from the agreement and any appropriate disclosure is made to the purchaser. By law trustees carry personal liability. It is for a trustee, if he or she thinks fit, to limit or exclude personal liability in any particular case.... Nor does the interpretation of the agreement, and in particular clause6.2(5), which I consider is the correct interpretation, offend the "draftsman's design objective" (as the Judge described it) that clause 6.2(5) should impose liability for work done under the control of the vendor, with the concomitant limitation of liability for work not done under the control of the vendor. Ms Scott is jointly and severally liable as vendor, and the building work was ostensibly carried out under her control.The submissions[13] The issue raised by the parties' respective contentions is whether the warranty in cl 6.2(5) is limited to work done or caused to be done by the two trustees jointly, that is, as a unity, or whether it is sufficient that the warranty applies in relation to building works for which either vendor is responsible.[14] The written submissions for the respondent illustrate the competing views inthis way. On the appellant's approach, cl 6.2(5) is to be read as follows:(5) Where the vendor has done or caused or permitted to be done on the property [at a time when the vendor was registered proprietor of the property or, where there is more than one vendor, when both or all of them were registered proprietors] any works for which a permit or building consent was required by law:(a) The required permit or consent was obtained; and(b) The works were completed in compliance with that permit or consent; ...[15] By contrast, Mr McHerron for the respondent says that on his client'sapproach, cl 6.2(5) is to be read in this way:(5) Where the vendor has [or, where there is more than one vendor, any one or more of them have] done or caused or permitted to be done on the property any works for which a permit or building consent was required by law:(a) The required permit or consent was obtained; and(b) The works were completed in compliance with that permit or consent; ...[16] In developing the submissions for the appellant, Mr Brittain relies on the fact that in terms of the agreement the vendor is described as the RM Scott Family Trust. Further, he advances the following propositions:(a) Clause 1.3(1) of the agreement confirms the warranty is a joint promise by joint tenants who are vendors;(b) The subject matter of the promise must be the same for each of the promisors especially where the warranty is action-based; and(c) The warranty is not one based on the vendor's knowledge, but rather on actions, which must be the actions of the joint tenants.[17] Mr Brittain says that the effect of the High Court judgment is to create different obligations for each trustee. In essence, Ms Scott's vendor liability is assessed in isolation, based on her acts when she held a legal interest earlier in time. JSB Trustees Ltd cannot be held liable on this interpretation, as it was not an owner at the time the works were carried out. This is problematic because of the joint andseveral nature of the vendors' liability.[18] Mr McHerron on behalf of the respondent says the interpretation adopted in the High Court best meets the purpose of the warranty, namely, purchaser protection.The submission is also made that the respondent's approach is more consistent withother provisions in the agreement for sale and purchase.Discussion[19] It is clear from the authorities that the act or omission on which Ms Ellison sues is the breach of the warranty in cl 6.2(5), rather than the carrying out of thefaulty work.8 It is also apparent from the language used that the warranty is confined to works done or permitted to be done by the vendor.9 The issue is, who is the"vendor" for these purposes?[20] The approach to cl 6.2(5) is described in commentary in the following terms:10The clause covers only works done by or for the vendor or with the permission of the vendor. Thus it does not cover work done by a predecessor in title nor alterations by a tenant or licensee of the vendorwithout the vendor's knowledge or approval. In the latter case it would seemthat work is not done by a tenant with permission merely because the vendor discovers it after the event, does not cause the tenant to reinstate and adopts the alteration as his own after the tenancy ends. On the other hand, if the vendor has knowledge of the alteration being undertaken by a tenant he may by his silence be deemed to have permitted the works within the meaning of clause 6.1(10).[21] Accordingly, on this approach, if the appellant sought to sue Mr Irvine, the other owner of the property at the time the works were carried out, there would be no liability under the warranty. Mr Irvine was not a party to the contract, so cannot be held to the warranty; as already noted, liability arises from the warranty rather than the faulty work itself. However, we consider that the position in Ms Scott's case isdifferent because Ms Scott, who did permit the works to be done, has remained a legal owner throughout. Although not advanced on this basis, the appellant'sargument necessitates finding that her legal status as owner has changed. We agree with Potter J that it did not.11[22] Mr Brittain points out that the third bullet point on the back of the standard form agreement provides a warning to purchasers that the vendor's warranties maynot extend to works done by former owners. The warning reads as follows:8 Gedye v South [2010] NZSC 97, [2010] NZLR 3 NZLR 271; and see Gedye v South [2010]NZCA 207, [2010] 3 NZLR 271.9 See the discussion in Property Ventures Investment Ltd v Regalwood Holdings Ltd [2010]NZSC 47, [2010] 3 NZLR 231 at [58] and [59].10 P Blanchard, A Handbook on agreements for sale and purchase of land (4th ed, Handbook Press,Auckland, 1988) at [718]; and to the same effect, see D W McMorland; Sale of Land (2nd ed,Cathcart Trust, Auckland, 2000) at [8.19] and Auckland District Law Society "Property DisputesSub-Committee's Rulings Manual" (1992 ed) at [4.14].11 As authority for the proposition that her legal status had not changed in this respect Potter Jreferred to O'Hagan v Body Corporate 189855 [Byron Avenue] [2010] NZCA 65,[2010] 3 NZLR 455 at [52] per Baragwanath J and Lee v North Shore City Council & RundstromHC Auckland CIV-2009-404-2091, 12 April 2010.The purchaser should investigate whether necessary permits and certificates have been obtained from the Council where building works have been carried out by an earlier owner. This investigation can be assisted byobtaining a LIM from the Council. The vendor's warranties under theagreement may not extend to such works.[23] That is of course the correct position. But, as we have noted, we see Ms Scott is in a different position from the former owner who now has no ownership interest in the property. There is no reason to construe the clause so that she is not liable for the promise. Indeed, she is arguably in the best position to know what work had been done and whether it was code compliant.12[24] The interpretation of the clause adopted by Potter J does not entail the imposition of different promises on the two vendors. The promise is the same, namely, that the works were permitted and code compliant. However, we accept that on our approach, JSB Trustees Limited is potentially liable for work for which it is not responsible. The proper response, however, is not to read down the clause. Rather, as Potter J says, it is up to the trustees to make inquiries and to acquaint themselves with the trust property. If necessary, the trustees can limit their liability. As one of the other warnings on the back of the standard form agreement states:The vendor should ensure the warranties and undertakings in clauses 6 and 7:Are able to be complied with; and if notThe applicable warranty is deleted from the agreement and any appropriate disclosure is made to the purchaser.[25] The new standard form agreement does in fact limit the liability of trustees in a similar position. Clause 15(2) of the most recent version of the ADLS standard agreement provides as follows:15.0 Limitation of Liability(2) If [a person who enters into the agreement as trustee of a trust] has noright to or interest in any assets of the trust except in that person's capacity as a trustee of the trust, that person's liability under this agreement will notbe personal and unlimited but will be limited to the actual amount12 See Gedye v South [2010] NZCA 207, [2010] 3 NZLR 271 at [27], where the Court noted thepurchaser's submission that: "As the owners of the property the [vendors] were in a position toknow what work had been undertaken, by whom and when; so that the implications of giving thewarranty were apparent to them."recoverable from the assets of the trust from time to time ("the limited amount"). If the right of that person to be indemnified from the trust assets has been lost, that person's liability will become personal but limited to theextent of that part of the limited amount which cannot be recovered from any other person.[26] Accordingly, Potter J was correct that summary judgment was not appropriate in this case.Disposition[27] For these reasons, the appeal against refusal of summary judgment is dismissed. The respondent, having succeeded, is entitled to costs for a standard appeal on a band A basis and usual disbursements. We order accordingly.Solicitors:Chris Rejthar & Associates, Tauranga for AppellantBurley Attwood Law, Tauranga for Respondent