RIDGWAY EMPIRE LTD v JILL GRANT [2019] NZCA 134

RIDGWAY EMPIRE LTD v JILL GRANT [2019] NZCA 134 [2 May 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA669/2018[2019] NZCA 134BETWEEN RIDGWAY EMPIRE LIMITEDAppellantAND JILL GRANTRespondentHearing: 3 April 2019Court: Gilbert, Wylie and Thomas JJCounsel: D W Grove for AppellantG P Blanchard QC and E E Hill for RespondentJudgment: 2 May 2019 at 11 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is to pay the respondent's costs for a standard appeal on aband A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Gilbert J)[1] This is an appeal from a judgment of Palmer J awarding damages tothe respondent purchaser of a residential unit for a precontractual misrepresentationby the appellant vendor about weathertightness.11 Grant v Ridgway Empire Ltd [2018] NZHC 2642 [High Court judgment].[2] Jill Grant purchased a residential unit in Auckland from Ridgway Empire Ltd(Ridgway) in 2009. Ridgway had owned the property since December 2003 and itsdirector, Aaron Ridgway, had lived in the unit until October 2007. At that time, hemoved into the adjoining unit 5 which his associated interests had purchased. Unit 4was leased to tenants before Mr Ridgway decided to sell it. Mr Ridgway marketedunit 4 himself. He showed Ms Grant through the property and spoke to her directlyabout it. Although there was a dispute in the High Court about the exact wording ofMr Ridgway's oral representation about weathertightness, the Judge considered thiswas immaterial.2 This issue is no longer live. It was common ground before us that:(a) before entering into the sale and purchase agreement, Ms Grant askedMr Ridgway whether the unit leaked and whether it was a leakybuilding;(b) Mr Ridgway replied to the effect "no, the unit does not leak and it isnot a leaky building"; and(c) although Mr Ridgway did not know it at the time, the unit was in factleaking and it was a leaky building. Because of latent defects, the unithad been leaking for some time causing extensive damage that was notdiscovered until mid-2011.[3] The Judge considered Mr Ridgway's statement was an unqualifiedrepresentation of fact which was false, though innocently made.3 The Judge foundMr Ridgway's assurance was intended to induce Ms Grant to enter into the agreementto purchase and she reasonably relied on it in doing so.4 The Judge awarded Ms Grantdamages of $474,101, being the repair costs plus $25,000 general damages for stressand anxiety.52 At [36].3 At [38].4 At [39]–[40].5 At [61]–[62].[4] We note in passing that an alternative claim for breach of warranty in relationto works carried out by Ridgway in 2004 failed.6 There is no challenge to the Judge'sfindings on this part of the claim. No claim was advanced based on mistake. Any suchclaim is now time-barred and Mr Blanchard QC, for Ms Grant, confirmed that it is notpursued.Appeal[5] Ridgway appeals contending the Judge erred in finding:(a) there was an actionable misrepresentation of fact;(b) Ridgway intended to induce Ms Grant to enter into the purchaseagreement by making the representation;(c) it was reasonable for Ms Grant to rely on the representation in enteringinto the purchase agreement; and(d) Ms Grant had proved the quantum of the damages awarded.MisrepresentationSubmissions[6] Mr Grove submits that Mr Ridgway's statement was a statement of opinion,not an actionable representation of fact. As Ms Grant would have known, Mr Ridgwaydid not build the unit or have any expertise in the building industry. He was merelyexpressing his opinion based on his experience of owning and living in the unit.Mr Grove says there was no suggestion that Mr Ridgway knew the unit leaked;Ms Grant did not discover the leaks until mid-2011, nearly two years later. Nor didMr Ridgway know that it was a leaky building due to design or construction defects.Mr Grove notes that the building was constructed in the early 1970s with the thirdfloor being added around 1983. This was before the relaxation of building controlsthat led to the leaky building crisis in New Zealand.6 At [56].[7] Mr Grove relies on the majority judgment of this Court in Magee v Mason insupport of his contention there was no actionable misrepresentation.7 In Magee,the vendor stated in answer to a question whether the property was a leaky home,"absolutely not, we have never had any issues with the property". The purchaserconfirmed in her evidence her expectation that if there was anything wrong withthe building, the vendor would have noticed it.8 The majority (Miller and Gendall JJ)considered the vendor's statement that the house was not a leaky building was capableof three meanings: (1) the house had not leaked while the vendors owned it;(2) the vendor knew of no facts establishing that it was prone to leak through designor construction; and (3) it was not prone to leak through design or construction.9The majority considered the vendor's statement conveyed meanings (1) and (2) butnot (3) because the answer was qualified by the statement "we have never had anyissues with it". Miller J reasoned:[36] Contrary to the view taken by the Judge, we think the statement thatthe Magees had never had any issue with the property is not a distinctrepresentation, additional to the statement that it was not a leaky building.It formed part of a single answer to the question whether the house was a leakybuilding; and it explained and qualified Mrs Magee's negative response.It identified her experience as owner for two years as her reason for stating,almost in the same breath, that the house was not a leaky building. [53] Mrs Mason understood that she was being told the house had notleaked while the Magees owned it.[8] Mr Grove also relies on Whata J's recent decision in Shen v Ossyanin.10 In thatcase, the purchaser entered into a conditional agreement subject to receipt of asatisfactory building inspection report to be commissioned by the purchaser from aregistered builder or qualified building inspector.11 After entering into the agreementand following receipt of the building inspection report that identified multipleweathertightness defects,12 the purchaser met with the vendor in the presence ofthe building inspector and asked whether the house was leaking or had any problems7 Magee v Mason [2017] NZCA 502, (2017) 18 NZCPR 902.8 At [34]–[35].9 At [29].10 Shen v Ossyanin [2019] NZHC 135.11 At [4].12 At [49] and [50].to which the vendor responded "no".13 The agreement was then declaredunconditional.14 Whata J found that the vendor's response, in context, meant thatthe house did not leak while the vendor owned it and the vendor knew of no factsindicating the house would leak because of defects in design or construction.15The vendor's statement "could not be elevated to a statement of categorical fact inthe face of [the building inspector's] clear expert assessment to the contrary".16The Judge also found the purchaser could not reasonably rely on the vendor'sstatement because the purchaser must have known the vendor was not an expert onweathertightness and did not hold himself out as such.17[9] Mr Blanchard supports the Judge's reasoning. He submits that the statementswere unqualified statements of fact, not opinion. Mr Ridgway's response was notexpressed as an opinion, for example, he did not say "I don't believe it leaks" or "asfar as I know it doesn't leak". Nor did Mr Ridgway qualify his statement withreference to his knowledge or experience. Mr Blanchard submits that this case can bedistinguished from Magee v Mason and Shen v Ossyanin because the unit was notmerely leak-prone at the time the statement was made, it was actually leaking.He argues Mr Ridgway's representation that the unit did not leak was a representationof fact that was objectively false at the time it was made. Mr Blanchard relies onO'Regan J's decision in La Grouw v Cairns in which the Judge rejected a submissionthat a representation that there were no leaks was a statement of opinion, not fact:18[27] Although it was not specifically raised in his points of cross-appeal,Mr Kohler argued that any representation made by Mrs Cairns was a statementof opinion, not a statement of fact, and therefore could not amount to amisrepresentation.[29] If Mrs Cairns had stated in response to a question about the presentsituation, something like "I have experienced leaks in the past, but they are allfixed and as far as I know, there is no current issue with leaks", thenMr Kohler's submission may have had some weight. But what is alleged isthat Mrs Cairns simply answered in the negative when asked if the house13 At [5], [60] and [63].14 At [6].15 At [68].16 At [70].17 At [87].18 La Grouw v Cairns (2004) 5 NZCPR 434 (HC).leaked and the purchaser is entitled to rely on such an answer inthe circumstances of this case.Our assessment[10] Section 35 of the Contract and Commercial Law Act 2017 relevantly provides:35 Damages for misrepresentation(1) If a party to a contract (A) has been induced to enter intothe contract by a misrepresentation, whether innocent orfraudulent, made to A by or on behalf of another party to thatcontract (B),—(a) A is entitled to damages from B in the same mannerand to the same extent as if the representation were aterm of the contract that has been breached;[11] Whether there has been a misrepresentation of fact is not determined merelyby considering the literal meaning of the words used without regard to the context.The enquiry is what a reasonable person would have understood from those words inall the circumstances.19 Relevant considerations will often include the nature andsubject-matter of the transaction, the respective knowledge of the parties, their relativepositions and the words used.20 Where a party with superior knowledge takes it uponitself to make a representation of fact without qualifying it by reference to the basisfor its assertion, it will generally have to accept the consequences of being wrong.21However, each case will ultimately turn on its own facts.[12] Magee is distinguishable. Unlike Mrs Magee's qualified response andMrs Mason's understanding of that qualification (that the house had not leaked whilethe Magees owned it), Mr Ridgway's answer was an unqualified statement that"the unit does not leak" and "it is not a leaky building". The facts in Shen are alsoquite different and the case provides little assistance here. Whata J referred toPalmer J's judgment in the present case and expressed no disagreement with it.22The present case is more comparable to La Grouw.19 IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm), [2007] 1 Lloyd's Rep264 at [50].20 Bisset v Wilkinson [1927] AC 177 (PC) at 183.21 Re Reese River Silver Mining Company, Smith's Case (1867) LR 2 Ch App 604 at 611.22 Shen v Ossyanin, above n 10 at [84].[13] The first question that must be determined is whether the statements made byMr Ridgway that the unit did not leak and it was not a leaky building meant just that(as Palmer J found)23 or whether they carried an implicit qualification that it did notleak and was not a leaky building to the best of Mr Ridgway's knowledge, based onhis experience of having owned and lived in the unit for some years (as Mr Grovecontends). The second question is whether the statements, properly interpreted andunderstood, were false.[14] Unit 4 was one of five connected townhouses built in the early 1970s. Unit 4has three levels, with decks on the second and third floors. The third floor was addedaround 1983.24 As noted, Ridgway purchased unit 4 in December 2003 andMr Ridgway lived there from February 2004 to October 2007. Unit 4 was then rentedout until Ridgway sold it to Ms Grant. Mr Ridgway's family trust purchased unit 5 inSeptember 2007 and Mr Ridgway lived there from October 2007.25 Ms Grant knewthat Mr Ridgway had significant involvement with the development having at thattime owned and lived in two of the five units.[15] In early 2004, Mr Ridgway carried out alterations to unit 4, including tothe kitchen on the second floor. When the gib board was removed from the walls andceiling of the lounge on this floor, it was discovered that water had been leaking fromthe third-floor deck. The wood was found to be wet but not rotten. The surface ofthe third-floor deck was replaced at this time. No building consent was obtained forthis work but a safe and sanitary report dated 2 March 2004 was obtained fromIndependent Property Inspections Ltd.26 The report identified the relevant buildingpermits issued in 1971 for the original works, and for the extensions (including asundeck) in 1983. The report relevantly states:The deck was originally open slatted, however, a waterproof membrane wassubsequently added to the surface to prevent water causing damage tothe room below which serves the adjoining unit. The water shed bythe membrane is taken to the stormwater system. The deck is displaying somewear but this is well within acceptable parameters.23 High Court judgment, above n 1, at [37].24 At [4].25 At [5].26 At [6].It is my opinion that the deck covered by [the sundeck permit] is currentlyboth safe and sanitary as defined by section 64 of the Building Act 1991.[16] Section 64(4) of the Building Act 1991 (since repealed) relevantly providedthat a building was deemed to be unsanitary in certain circumstances, including if itsprovisions against moisture penetration were so insufficient or in such a defectivecondition as to cause dampness in the building. Mr Ridgway gave a copy of thisreport to Ms Grant but he did not tell her that prior to this work being carried out waterhad been leaking from the deck into the walls and ceiling space of the lounge on thesecond floor. This is also not mentioned in the report.[17] Significantly, the leaks Ms Grant discovered in mid-2011 were also inthe ceiling of the second-floor lounge and had also originated from the deck onthe third floor.27 Moreover, the damage to the timber framing showed clear signs ofwater ingress over a long period of time, pre-dating Ms Grant's purchase.28[18] We are not persuaded that the Judge was wrong to find that Mr Ridgway'sstatement was an actionable representation of present fact in all the circumstances.Mr Ridgway marketed and sold the unit himself. He actively promoted it to Ms Grantafter he saw her looking at the "for sale" sign erected at the front of the property.His statements "the unit does not leak" and "it is not a leaky building" were expressedas statements of present fact. In their terms, these statements were not qualified in anyway or expressed as being merely his opinions. It was not put to Ms Grant incross-examination that she knew Mr Ridgway was not able to vouch forthe correctness of his statements. Mr Ridgway had superior knowledge of the state ofthe unit having owned it since 2003, carried out significant renovations to it in 2004and lived in the unit for several years. Mr Ridgway had also owned and lived in unit 5for two years and he was in the process of carrying out alterations to that unit atthe time of his discussions with Ms Grant. Backed by his superior knowledge,Mr Ridgway no doubt felt confident in making the statements he did to support hissales pitch to Ms Grant. He took it upon himself to make these unqualifiedrepresentations of present fact and must accept the consequences of them being shownto be false.27 At [13].28 At [15], [21] and [38].[19] Even if the parties should be taken to have understood that Ms Grant wasmerely enquiring about Mr Ridgway's knowledge of weathertightness issues,the problem for Mr Ridgway is that he did not disclose all material facts known tohim. He did not tell Ms Grant that the unit had suffered serious leaks in the pastleading to significant water ingress to the timber framing behind the walls and inthe ceiling in the second-floor lounge, the very area in which leaks were later foundby Ms Grant and which the experts agreed had persisted for an extended period,pre-dating her purchase. On the contrary, Mr Ridgway provided her with the safe andsanitary report, which did not refer to these leaks, to support his unqualified assurancethat the unit did not leak and it was not a leaky building. Providing this report withoutdisclosing the leaks that had prompted the need for remediation was misleading.It might have been different if Mr Ridgway had passed on to Ms Grant what he knewabout the history of leaks in the unit and stated that as far as he was aware theseproblems had been fixed. But he did not.Intention to induce[20] Although this was raised in the notice appeal, Mr Grove responsibly did nottake issue in his submissions with the Judge's finding that Mr Ridgway intended toinduce Ms Grant to enter into the agreement by making his statement. The Judge'sfinding on this issue was plainly correct.Reasonable reliance[21] Mr Grove challenges the Judge's finding that it was reasonable for Ms Grantto rely on Mr Ridgway's statement. Mr Grove makes the following points:(a) Ms Grant ought to have asked further questions such as whetherthe property had any leaking issues in the past and whether any repairwork had been undertaken;(b) Ms Grant relied on her own thorough inspections of the property whichrevealed no indication it was leaking;(c) Ms Grant ought to have obtained an expert opinion before entering intothe agreement;(d) alternatively, Ms Grant ought to have made the agreement conditionalon obtaining a property report; and(e) if Ms Grant was truly relying on Mr Ridgway's statement, this ought tohave been included as an express term of the agreement.[22] We are not persuaded by these points in the particular circumstances of thiscase. Mr Ridgway's response was clear and unequivocal. There was no need forfollow up questions to clarify it. Ms Grant's own inspection of the property was notsufficient to satisfy her that the property did not leak. This explains why she askedMr Ridgway about it. We consider she was entitled to rely on Mr Ridgway'sunqualified assurances given his superior knowledge of the unit. Ms Grant could havecommissioned an expert report. However, her failure to do so does not demonstratethat she was not relying on Mr Ridgway's assurance, if anything the opposite is true.The representations could have been included as an express term of the sale andpurchase agreement, but this cannot be determinative. Had that course been followed,the claim would be for breach of an express warranty in the agreement, not formisrepresentation inducing the agreement. Weathertightness was a matter of obviousimportance to Ms Grant and Mr Ridgway must have appreciated that. The agreementdid not purport to exclude reliance on any pre-contractual representations. We see noreason to interfere with Palmer J's conclusion that Ms Grant reasonably relied onMr Ridgway's representations about weathertightness in entering into the purchaseagreement.[23] We should emphasise the obvious point that each case will turn on its ownparticular facts. Where it is obvious the vendor is not in a position to know the absolutecorrectness of a statement made, then, even if the statement is expressed as anunqualified statement of fact, it may be proper to interpret it as no more than astatement of opinion based on facts known or reasonably expected to be known to himor her. Liability in this context should not turn on whether a layperson vendor issufficiently astute to qualify an oral statement about weathertightness by carefullylimiting it to a statement of their knowledge. The circumstances may make thatobvious. Further, it may not be reasonable for the representee to rely on such astatement, expressed orally by a layperson in answer to a question, as an unqualifiedstatement of absolute fact. However, to escape liability in such a case, the representorwould need to disclose all material facts known to them bearing on the issue.Damages[24] Mr Grove submits Ms Grant failed to prove the damages that were awarded.In support of this submission, he makes two points:(a) the works involved substantial betterment in that the building frame onthe top deck was extended and fully enclosed; and(b) Ms Grant failed to provide full specifications of the work that had beencompleted and comprehensive costings for the work yet to be done withthe result that Ridgway's expert could not respond.[25] Palmer J accepted the invoices produced for work completed and the estimatefor the proposed work evidenced the cost of repairing the damage.29The reasonableness of these costs, which were adjusted to allow for betterment, wassupported by independent expert evidence. The onus then shifted to Ridgway to provethe existence of other items of betterment not accounted for and the value of these.30Ridgway did not offer any expert evidence contradicting the quantum claimed byMs Grant. Nor did it adduce any evidence identifying and quantifying any bettermentnot accounted for in the claim. We are unable to see any flaw in Palmer J's analysisand conclusion on the quantum of damages. The Judge's findings were well-justifiedon the evidence.Result[26] The appeal is dismissed.29 At [60].30 J & B Caldwell Ltd v Logan House Retirement Home Ltd [1999] 2 NZLR 99 (HC) at 110.[27] The appellant is to pay the respondent's costs for a standard appeal on a band Abasis and usual disbursements.Solicitors:Quay Law, Auckland for AppellantBlackwells, Auckland for Respondent