Ipsofactoj.com: International Cases  Part 11 Case 1 [NZCA]
COURT OF APPEAL, NEW ZEALAND
Harvey Corporation Ltd
- vs -
7 MARCH 2002
(delivered the Judgment of the Court)
Mr and Mrs Daniel sold a 3.9456 hectare residential property at 18 Sinton Road, Hobsonville at auction to the respondents, Mr and Mrs Barker. The appellant, Harvey Corporation Limited (Harveys), was the real estate agent which transacted the sale for the Daniels. The price was $760,000. On the property was a large house with out-buildings and a swimming pool. The house was approached by a sweeping drive. There were ornamental gates at what appeared to be the entrance to the property. But the gates were in fact erected across a paper road and part of the driveway was on that road, which was vested in the Waitakere City Council.
The vendors were well aware of this situation and misrepresented the position to the Barkers by remaining silent on the subject. The District Court Judge found, however, that Harveys was unaware of the position.
The Barkers and the second respondents, trustees to whom the property was transferred on their behalf, brought a claim against the vendors in contract, under the Contractual Remedies Act 1979, for misrepresentation and under the Fair Trading Act 1986, for deceptive and misleading conduct. They also claimed, under the Fair Trading Act only, against the agent. The claim in both cases was for the costs involved in relocating the gates and some walls and fencing within the title boundaries, including some survey costs. The quantum of the claim was reduced during the trial and eventually fixed by the Judge at $55,000. The work has not yet been carried out and it appears that the Council has no present intention of disturbing the situation on the paper road, although the position could at some indefinite time in the future be affected by the plans of Transit New Zealand to construct a motorway in the vicinity.
This appeal is not concerned with the quantum of damages but with whether, as against Harveys, the Barkers have proved any loss at all which is properly claimable under s43 of the Fair Trading Act.
In the District Court at Waitakere, Judge Johnson found that when the appellant promoted the property it did more than merely act as a conduit purporting to pass on instructions from its principals (Goldsbro v Walker  1 NZLR 394). Harveys was misled by the Daniels and unwittingly promoted the property "in a way which was an assertion that a particular state of facts existed…[I]n the eyes of the purchasing public they presented the property in a particular and misleading way".
The Judge said that he accepted evidence that there would be no significant or material change in the value of the property as a result of the remedial works. But there was special value to the Barkers in terms of presentation, layout, size and space, and privacy. On this basis, he said, there was "an assessable quantum". He saw the decision of this Court in Cox & Coxon Ltd v Leipst  2 NZLR 15 as confirming that the assessment of damages under the Fair Trading Act is discretionary. He considered that $55,000 was a suitable award against the Daniels for misrepresentation under the Contractual Remedies Act 1979 and under the Fair Trading Act, not differentiating between those statutes. He also found Harveys liable to them under the latter Act for the same sum, but ordered that the Daniels should indemnify Harveys.
The Daniels abandoned an appeal to the High Court but have not satisfied the judgment. It appears that there is a concern on the part of Harveys that the Daniels will default in relation to their indemnification obligation.
In the High Court at Auckland, Laurenson J dismissed Harveys’ appeal. He said that the respondents had been induced by Harveys’ misrepresentation to enter into the contract and were entitled to be "put back into the position which they would have been if the misrepresentation had not occurred". He referred to an argument for Harveys that on the uncontradicted evidence of a valuer it had been established that the value of the property received by the Barkers, even with the defect in relation to the entranceway, was $765,000. Laurenson J said that on this basis there was no loss recoverable. But he saw a difference in this case between the failure of the Daniels to make good their promise (which he said could not apply to Harveys) and a liability for loss or damage resulting from Harveys’ misrepresentation. That misrepresentation had resulted in "an immediate loss" to the Barkers, who were "required to pay out to rectify a defect in the property which they had bought". According to the Barkers’ evidence, they would have paid only $700,000 if they had known about the defect. That brought the Judge to a crucial question: whether the Barkers could have obtained the property for that price? They had in fact at first offered at the auction only $700,000, later increasing their bid when it was not accepted. The Judge remarked:
What nobody knows is whether [the vendors] might have accepted $700,000 if they knew [the purchasers] were aware of the defect.
The Judge then said that the Barkers had purchased the property in the reasonable expectation that it was as portrayed in Harveys’ advertisements, with the entranceway within the legal boundaries. They had paid $760,000 on this basis not knowing that in order to remedy the defect they would be required to pay a further sum. Laurenson J considered that the Judge had therefore been correct in finding that Harveys’ misrepresentation had caused a loss compensatable under s43 of the Fair Trading Act and "that compensation was assessable on the basis of the difference between what they paid and what they got".
The Judge then faced Harveys’ submission that, even if that were the case, then on the basis of the valuer’s evidence there was no loss because the property, even with the defect, was still worth $765,000. Laurenson J said there was a clear fallacy in that argument. It might well be that the property was still worth $765,000 even with the defects, but the result of Harveys’ misrepresentation was that the Barkers were not informed that they would need further money to remedy a defect which was represented as not existing. "They were, in effect, beguiled into paying more for the property than they expected. That loss arose as a result of [Harveys’] misleading conduct". The District Court Judge had therefore been correct in finding Harveys liable under the Fair Trading Act. There had been express reference by the District Court Judge to his acceptance of the evidence that there would be no significant or material change in the value of the property. Laurenson J concluded that there had been no error of principle, nor in his view could it be said that the award was a wholly erroneous assessment. Accordingly it was not a case where the High Court should intervene.
SUBMISSIONS FOR APPELLANTS
Mr Gilbert submitted that the uncontradicted valuation evidence was that the Barkers had paid no more for the property than its market value at the time of the agreement. The valuation took into account the fact that the driveway was situated on the paper road and the uncertainties and difficulties that this might cause. There had been no pleading that the Barkers would have done something else if they knew the true position and would have been better off in so doing. In particular, Mr Barker had never said that he would not have purchased the property. The claim had been put as one for an expectation loss, contrary to this Court’s decision in Cox & Coxon. The appropriate way to approach the question of whether the Barkers had suffered any claimable loss was said to be to compare the position they would have been in if there had been no misrepresentation with the position they in fact are in following the misrepresentation. There was no pleaded claim nor any evidence to show that, if there had been no misrepresentation, the Barkers would have been able to purchase the property "with the driveway relocated at the same price".
SUBMISSIONS FOR THE RESPONDENTS
The respondents submitted that they had suffered a loss compensatable under s43. Their loss was said to have flowed from their reliance on Harveys to provide them with reliable information about the property and Harveys’ failure to do so. As a result, they had unwittingly purchased a property with defects. It was suggested by counsel that they had been deprived of the opportunity of refusing to buy the property, of negotiating to purchase it at a reduced price, which took into account the defective access, or of negotiating for the vendors to construct a new entrance and driveway within the property’s legal boundaries prior to settlement. It was said for the respondents that they were thus not seeking damages for loss of an expectation but, rather, were seeking damages to compensate them for the actual loss they had suffered in purchasing a property with defects. Ms Duffy QC emphasised the Court’s discretion under s43 and this Court’s statement in Cox & Coxon (p25) that there is no need to classify a breach of the Act giving rise to a possible monetary claim under one or other of the categories of damages available at common law in tort and in contract; that it is the statute which is the source of relief and which must be applied to the particular factual circumstances. It was submitted that the use of a cost of repairs measure to quantify the loss would not seriously depart from principle; that diminution in value was not to be the only measure available.
Unfortunately the majority decision of this Court in Cox & Coxon appears not to have dispelled misapprehension concerning what damages are and are not claimable under s43. The majority opinion, which now has the apparent endorsement of the High Court of Australia (in Henville v Walker (2001) 75 ALJR 1410 at para ), was that a representation cannot give rise to a claim for a lost benefit or a loss of expectation where the defendant is under no obligation to perform the representation. Section 43 is directed against the making of a false representation, as opposed to the failure to perform it. Gault J has pointed out in Cox & Coxon (at p22) that:
.... loss of bargain or of expected future returns flows not from the conduct that is wrongful, but from the failure to implement a promise. Where no contract exists between the person who engaged in the conduct and the person who suffered the loss there is no promise which failure to implement deprives the other party of expected benefits.
Section 9 of the act prohibits conduct, it does not render representations binding.
The agent, Harveys, of course had no obligation to perform the contract and to fulfil the bargain made by the vendors. The proper question in a claim against Harveys under s43 is whether the Barkers are worse off as a result of the making of the representation – by changing their position in reliance on it – not whether they have been unable to realise a benefit because of the failure of the vendors to convey a property without the defect complained of. The Barkers accordingly had to prove that the misrepresentation of the property had caused them to act in a way which resulted in a loss. Normal measures of such a loss are whether what has been acquired is worth less than what was paid and/or whether there has been wasted expenditure. For example, say the Barkers had expended additional money developing an area within the entrance gates, only to find that, contrary to the representation, the development was on the Council’s land. Such an expenditure, to the extent that it was wasted – that the Barkers did not get value for it - would be claimable under the Act. Another example would be proven over-expenditure in purchasing the land in reliance upon the gates and driveway being within the title. To the extent that the Barkers might by reason of the misrepresentation have paid too much for the land – and so did not get full value for their expenditure – the "lost" additional money would be recoverable under s43. But, in order to sustain such a claim, it was necessary for them to show that they paid more than the market value of the property as it actually was, i.e. with the title defect. In fact, however, the evidence was that they bought slightly below market value. Their failure to obtain title to the gates and the driveway disappointed their expectation, but it did not produce a loss of the requisite character to sustain a s43 claim.
The claim might have succeeded if the Barkers had shown that, had they known the true situation, they would not have purchased the property at all. But there was no evidence to this effect; nor was it pleaded. Furthermore, they would still have had to have shown a monetary loss – a failure to obtain a property of a market value equal to the price they actually paid - not merely a disappointed expectation of being better off than they now find themselves. On the evidence of the valuer, they could have resold the property at market value and recouped all the money they paid.
Mr Barker did say in giving evidence that, were it not for his misunderstanding induced by the Daniels and Harveys, he would not have paid more than $700,000 for the property. He did not, however, contend that he would not have proceeded with any purchase. In fact, he also said in evidence that he considered that for $760,000 "we’d pay what it would’ve cost me to build the house and buy the land at the same time because land prices were four to five hundred thousand dollars for that size block anyway". Mr Barker is by occupation a quantity surveyor and contractor.
A claimable loss might also have been shown if the Barkers had called evidence to prove, had this been the position, that because they were induced to purchase the Daniels’ property, they missed the opportunity of purchasing an alternative property. But in order to show loss, they would also have had to show that they would have obtained that other property below its market value, for otherwise their purchase of the Daniels’ property at (slightly below) market value would not have left them worse off.
A loss claimable under the Act could have been established also if the Barkers had proved that the Daniels would probably have sold to them at a lower figure if the Daniels knew they were negotiating with purchasers who were properly informed about the position of the boundary; that the Daniels would then have dropped their price or agreed to meet the costs of remedying the defect. But neither Judge Johnson nor Laurenson J made any such finding. Indeed Laurenson J’s comment that "nobody knows" (para  above) indicates his opinion that the assertion of the Barkers that they would have obtained the property for $700,000 was not proven.
Accepting that in claims under s43 the damages are measured by analogy with tort claims in all but exceptional circumstances (Cox & Coxon p.26), Ms Duffy submitted that in tort damages can sometimes include the cost of repairs, citing Warren & Mahoney v Dynes (CA49/88, 26 October 1988). That was a claim for negligence against architects and engineers in relation to the construction of a swimming pool for the plaintiffs. There was an argument about whether the appropriate measure of damages was the diminution of the property or the cost of restoring it to its former state. Either measure was plainly related to the consequences of the plaintiffs’ reliance upon the professional advice of the defendants. The pool had cracked and leaked because it was built on unstable ground. It would have to be demolished and removed and the area re-landscaped. In the High Court, in a judgment upheld in this Court, Tipping J had remarked that where there has been damage to realty, whether such damage results from contract or tort, there is no rule for the assessment of damages which must be applied in all cases; and that the Court must select the measure which is best calculated to compensate fairly the plaintiff for the harm done, while at the same time being reasonable as between plaintiff and defendant. But Tipping J was there speaking of a case in which damage has been caused to a property. It was also a case involving more than mere representations by the defendants. They had been engaged to advise the plaintiffs and to prepare plans and specifications for the physical works which failed. It was an entirely different situation from that in the present case, and it was not a s43 claim.
Ms Duffy also submitted that in tort cases the courts have sometimes been prepared to award damages for a future loss flowing from the purchase of an asset induced by a misrepresentation, referring to East v Maurer  1 WLR 461. But that case involved the purchase of a loss-making business as a consequence of a representation by the vendor. The damages award was for a capital loss plus loss of profits while running the business pending resale. The case demonstrates some flexibility in the ability of a court, in a tort claim, to respond to a particular situation. It differs significantly from the present case in two respects.
First, the claim was in deceit. Here the agent acted innocently.
Secondly, the defendant vendor had an obligation to fulfil his representation. Here the agent has no such obligation. The purchasers’ claim under s43 is limited to the consequences of the making of the representation, and does not extend to the consequences of the failure to perform it.
It has not been shown that the Barkers were, by reason of the agent’s misleading and deceptive conduct, caused to make an avoidable expenditure or denied an opportunity, which they could and would have taken, of obtaining the property at a lesser price.
The appeal is allowed and the orders of the District Court set aside. There will instead be an order dismissing the respondents’ claim against the appellant. The respondents must pay the appellant’s costs in this Court in the sum of $3,000 together with reasonable disbursements, including travel and accommodation costs of one counsel, as fixed by the Registrar. Costs in the courts below are to be fixed in those courts.
Goldsbro v Walker  1 NZLR 394; Cox & Coxon Ltd v Leipst  2 NZLR 15; Henville v Walker (2001) 75 ALJR 1410; Warren & Mahoney v Dynes (CA49/88, 26 October 1988); East v Maurer  1 WLR 461
Fair Trading Act 1986: s.43
M A Gilbert and M D Arthur for Appellant (instructed by Chapman Tripp, Auckland)
A P Duffy QC and A L Pinnock for Respondents (instructed by Cairns Slane, Auckland)
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