IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-3631

BETWEEN	MARGOT ANNE LEIGH AND PAUL RICHARD LEIGH
First Plaintiffs

AND	DINAH ELIZABETH MALYON AND HARBOUR TRUSTEE SERVICES NO.2 LTD AS TRUSTEES OF THE TAUHARA TRUST Second Plaintiffs

AND	THE MACENNOVY TRUST LTD First Defendant

AND	DEPOSIT BOND (NZ) LTD Second Defendant

AND	VERO INSURANCE LTD Third Defendant

AND	NEW ZEALAND HOME BONDS LTD Fourth Defendant

AND	WESTPAC NEW ZEALAND LTD Fifth Defendant

Hearing:	16, 17 and 18 February 2010

Appearances:	Paul Dale for Plaintiffs
Gary Judd QC and David Beard for First Defendant

Judgment:	31 March 2010

JUDGMENT OF HARRISON J

In accordance with R11.5 I direct that the Registrar endorse this judgment with the delivery time of
4.00 p.m. on 31 March 2010

SOLICITORS
Websterlaw (Auckland) for Plaintiffs
Philip Wright (Auckland) for First Defendant
Minter Ellison Rudd Watts (Auckland) for Fifth Defendant

COUNSEL
PJ Dale; GJ Judd QC

LEIGH AND ANOR V THE MACENNOVY TRUST LTD AND ORS HC AK CIV 2009-404-3631  31 March
2010

TABLE OF CONTENTS

	(1)	Misleading or Deceptive Conduct	[36] - [41]	
	(2)	Causation	[42] - [54]	
	(3)	Remedy	[55] - [80]	

Result			
[81] - [83]	

Introduction                                                                                                 [1] - [3] Facts                                                                                                             [4] -[15] Claims                                                                                                       [16] - [21] Contractual Remedies Act: Entire Agreement Clause                        [22] - [35] Fair Trading Act

Introduction

[1]       Ms Dinah Malyon and Mrs Margot and Mr Paul Leigh agreed separately to buy adjoining apartments off the plans in a proposed residential development in Remuera.  Both purchasers paid deposits.  Shortly before the due date of practical completion they discovered that the size of each apartment was about 20% less than they say was represented by the vendor, The MacEnnovy Trust Ltd, and its agent and both purchasers cancelled their contracts and now seek declarations that their notices of cancellation were valid together with judgment for deposit payments.  Both rely on the orthodox grounds of breaches of contract and of the Fair Trading Act 1986 (FTA).  The trust denies liability and counterclaims.

[2]       The purchasers have sued four additional parties.   They have settled with three.  But a separate claim against Westpac has been adjourned because the bank's liability is contingent upon the result of the primary claims between the purchasers and MacEnnovy.

[3]       The  essential  facts  are  not  in  dispute.    The  question  is  more  one  of construction of certain events within the appropriate legal framework.  I shall later identify the issues for determination, after traversing the relevant facts.

Facts

[4]       Cam   and   Yvonne   Hadlow,   MacEnnovy's   principal   shareholders,   are experienced and professional developers of good quality properties.   The trust acquired a large residential property at 14 Ventnor Road, Remuera and removed an old house on the site.  MacEnnovy's intention was to construct and develop five new apartments.  They were to be marketed off detailed plans and specifications prepared by an architect.  The trust engaged Barfoot & Thompson Ltd as its agent for sale.

[5]       The  floor  areas  of  each  apartment  are  of  particular  importance  to  this litigation.   They were not noted on the plans and specifications prepared for MacEnnovy and used in some of its promotional material.  However, the parties are agreed on the relevant physical dimensions.  First, Apartment 4, which Ms Malyon agreed to buy, comprised an indoor living area of 247 square metres and an outdoor or deck area, described as a loggia, of an extra 63 square metres, a total of 310 square  metres.    Second,  Apartment  5,  which  the  Leighs  agreed  to  purchase, comprises indoor living and deck areas of 221 square metres and 68 square metres respectively, a total of 289 square metres.   MacEnnovy decided to market the apartments as comprising floor areas of 310 and 289 square metres respectively without reciting that each was inclusive of deck space.   Findings on whether the trust's promotional statements to that effect were misrepresentations or in the nature of misleading or deceptive conduct will be central to the fate of the purchasers' claims.

[6]       Ms Malyon was the first to learn about the apartments.  She was a neighbour of Mr Paul Barnao.   He is an experienced and well respected agent employed by Barfoots who is particularly familiar with the higher end residential property market in Remuera.   Ms Malyon and Mr Barnao were and remain on good terms.   In the course of a discussion in early 2007 he advised her of the proposed development.  He said the apartments were going to be bigger than 300 square metres, describing them as  having  'large  living  areas  and  good  sized  bedrooms'.    Mr Barnao  provided Ms Malyon with promotional material or an information package.  That document, which was comprehensive and included a draft agreement for sale and purchase and plans and specifications, did not specify the physical size of the apartments..

[7]       The  trust's  asking  price  for  Apartment  4  was  $2.7m.     In  May  2007

Ms Malyon made an offer through Mr Barnao to buy for $2.5m.   On 4 May 2007

Ms Malyon and a fellow trustee in their capacity as trustees of the Tauhara Trust entered into an unconditional agreement to purchase the property for $2.6m.   A deposit of $162,000 was subsequently paid.

[8]       Ms  Malyon  is  a  client  of  Mrs  Leigh's  chartered  accounting  practice. Mrs Leigh learned from Ms Malyon of the existence of the apartments at about the

time the latter made her first offer to purchase.  Ms Malyon gave her the information package.   The Leighs then visited the property and saw a sign which MacEnnovy had entered advertising Apartment 5, also known as the penthouse, for sale with a floor area of 289 square metres.  The loggia or deck area was specified as 68 square metres.  There was nothing on the sign to suggest that the former area included the latter.  I accept Mrs Leigh's evidence that she understood the reference to a floor area of 289 square metres as being to the living area of Apartment 5.   The sign also described the apartment as "big".

[9]       Mrs Leigh later contacted Mr Barnao and expressed an interest.  She and her husband met Mr Barnao at their residence at St Heliers the next evening.   Both Leighs used separate bedrooms in the house for their offices.  Both wanted to use Apartment 5, if they purchased, for the same purpose.

[10]     Mrs Leigh and Mr Barnao undertook a comparative assessment of the living areas  of  both  dwellings.    The  living  area  of  her  St Heliers  home  was  about
277 square metres.  I accept Mrs Leigh's evidence, which Mr Barnao did not deny, that  he  referred  to  the  living  area  for  Apartment  5  being  289  square  metres. Mr Barnao advised that MacEnnovy's asking price for Apartment 5 was $2.8m.  The Leighs offered $2.7m.   On 25 July 2007 the parties entered into an unconditional agreement  for  sale  and  purchase  at  that  price.    The  Leighs  paid  a  deposit  of
$162,000.

[11]     Matters progressed uneventfully over the next 18 months or so while the apartments were substantially constructed.   Ms Malyon visited the property on a number of occasions.  She is by occupation described as a "home stager" (one who prepares the interior of residential properties for sale) and was contractually entitled to change some of the specifications.   The changes she directed were reasonably substantial.   Ms Malyon says that following a visit in September 2008, when the apartments were nearing completion, she became increasingly concerned about the size  of  Apartment  4.    But  she  says  that  she  reassured  herself  that  it  must  be
310 square metres.

[12]     Ms Malyon attended the site one day in late November 2008 with a valuer, Mr Jonathan  Edwards.    He  was  engaged  to  provide  a  report  in  support  of  her application for finance.  Ms Malyon anticipated that she would be required to settle in early March 2009.   For this purpose she would also have to sell her residential property in Auckland and a holiday home.

[13]     During the visit Mr Edwards inquired into Ms Malyon's understanding of the size of Apartment 4.  He expressed doubt at her advice of 310 square metres.  He later returned to measure up the property.  He concluded that its practical floor area was 240 square metres.

[14]     Ms Malyon immediately advised Mrs Leigh of this development.   In the preceding months Ms Malyon had assisted Mrs Leigh in changing the specifications and fit-out for her apartment.  The Leighs also engaged Mr Edwards to calculate the practical floor area of Apartment 5.  He concluded that it was 210 square metres.

[15]     Ms Malyon and the Leighs instructed their solicitors.  Both issued notices of cancellation, which MacEnnovy treated as repudiation and in turn cancelled the contracts.    Both Ms Malyon  and the  Leighs  applied for summary judgment but withdrew those applications.  The case proceeded to trial accordingly.

Claims

[16]     It is unnecessary to subject the pleadings to detailed scrutiny.   But some features, both of the originating statement of claim and MacEnnovy's counterclaim, require emphasis.

[17]     Both the Leighs and Ms Malyon rely in the alternative on their contractual rights and under the FTA.   All causes of action are based upon the premise that MacEnnovy through Mr Barnao misrepresented the size of the actual or practical living area of each apartment in its promotional statements by including without attribution or identification the outdoor or deck areas.   The purchasers assert that they are each entitled to cancel the contracts because the effects of the misrepresentation  were  either,  first,  to  substantially  reduce  the  benefit  of  the

contract;  or,  second,  to  make  the  benefit  substantially different  from  what  was represented or contracted for by MacEnnovy: s 7 Contractual Remedies Act 1979 (CRA).  As a consequence they seek declarations that they have validly cancelled the agreements  together  with  judgment  for  the  amounts  of  the  deposit  payments  -
$156,000 by Ms Malyon and $162,000 by the Leighs.

[18]     Alternatively, the purchasers seek relief on the ground that MacEnnovy was guilty of misleading and deceptive conduct in misrepresenting the size of the floor or living areas of the apartments: ss 9 and 43 FTA.

[19]     MacEnnovy's   statement   of   defence   admits   that   its   sign   advertising Apartment 5, which the Leighs saw when they visited the property, was capable of misleading because it advertised the property as having a floor area of 289 square metres [see [8] above].  Mr Judd QC acknowledges that it was objectively capable of misleading for the purposes of s 9 FTA.   However, he limits the admission to the Leighs, pointing out that Ms Malyon does not allege reliance on such a sign.

[20]     MacEnnovy has counterclaimed against the Leighs, but not Ms Malyon, as a consequence of its contractual arrangements with a deposit bond company.  The trust cancelled the Leighs' agreement on 16 April 2009 in reliance on their notice of cancellation as amounting to a repudiation.   It invoked the cancellation provisions available under the CRA, and not those provided by the contract itself, because if it had used the contractual settlement notice procedure it would have been unable to recover from the deposit bond company the Leighs' deposit of $162,000 which it earlier paid.  However, MacEnnovy has not been able to re-sell the property and it seeks judgment for losses calculated on a market differential at $903,000.

[21]     MacEnnovy did not have the same contractual arrangement with a deposit bond company relating to payment of Ms Malyon's deposit and so does not raise the same counterclaim against her.  Instead the trust followed the contractual settlement notice procedure and alleges that Ms Malyon is in default by virtue of her notice of cancellation.  MacEnnovy has not cancelled as it has been unable to effect a resale. Thus Mr Judd accepts that Ms Malyon will be entitled to a favourable declaration if she was entitled to cancel; if not, she will be bound to settle or pay damages.

Contractual Remedies Act:  Entire Agreement Clause

[22]     A threshold jurisdictional question has arisen.  The answer will determine the relief available to the purchasers but not liability.

[23]     Both agreements for sale and purchase were silent on the actual floor area of each apartment.   Plans and specifications were annexed but they did not quantify physical sizes.  Both contracts included what is known as an entire agreement clause in these terms:

25.4     The parties acknowledge that this Agreement, and the schedules and attachments to this Agreement, together with any approvals and consents in writing provided for in this Agreement and given prior to the execution of this Agreement, contain the entire Agreement between the parties, notwithstanding any negotiations or discussions prior  to  the  execution  of  the  Agreement,  and  notwithstanding anything contained in any brochure, report or other document.  The Purchaser acknowledges that it has not been induced to execute this Agreement by any representation, verbal or otherwise, made by or on behalf of the Vendor, which is not set out in this Agreement.

[Emphasis added]

[24]     On its face, this provision unequivocally bars the Leighs or Ms Malyon from pursuing contractual claims for the floor area misrepresentations allegedly made previously by MacEnnovy or its agent but not included in the agreements.  Mr Dale does not argue otherwise but submits that it would not be fair and reasonable to uphold its validity: s 4(1) CRA.  However, if clause 25.4 is valid then the purchasers will be restricted to their rights under the FTA.  The provision may also be material in that respect as well.

[25]     Section 4(1) CRA materially provides:

If a contract, or any other document, contains a provision purporting to preclude a Court from inquiring into or determining the question—

(a)        Whether a statement, promise, or undertaking was made or given, either in words or by conduct, in connection with or in the course of negotiations leading to the making of the contract; or

(b)        Whether, if it was so made or given, it constituted a representation or a term of the contract; or

(c)        Whether, if it was a representation, it was relied on—

the  Court  shall  not,  in  any  proceedings  in  relation  to  the  contract,  be precluded by that provision from inquiring into and determining any such question unless the Court considers that it is fair and reasonable that the provision should be conclusive between the parties, having regard to all the circumstances of the case, including the subject-matter and value of the transaction,  the  respective  bargaining  strengths  of  the  parties,  and  the question whether any party was represented or advised by a solicitor at the time of the negotiations or at any other relevant time.

[26]     Section 4(1) applies where a contractual provision excludes the scope for a factual inquiry into any one of the three qualifying elements of liability for misrepresentation – i.e. (1) whether a statement was made during the negotiation period, (2) whether if made it constituted a representation or term, and (3) whether it was relied upon.   Clause 25.4 concerned the last element, namely the purchasers' acknowledgement that they had not been induced to execute the agreements by any representations made by or on behalf of MacEnnovy which were not included within them.

[27]     The purpose of an entire agreement clause was recently discussed by the
Court of Appeal in these terms:

An entire agreement clause, however, is not absolute or conclusive. Section
4(1) recognises a wide judicial discretion to determine whether it is “fair and reasonable that the provision should be conclusive”. While the issue is to be
determined  “having  regard  to  all  the  circumstances  of  the  case”,  the specified criteria focus the inquiry on an assessment of the relative positions
of the parties and their access to independent legal  advice.  Its  apparent purpose is to protect one party’s relative vulnerability from another party’s power to impose an exemption from liability which is contrary to the factual
reality or an existing legal obligation and is thus unreasonable and unfair. Section 4(1) is a mechanism for striking balances, both individually between
parties and conceptually between freedom of contract and unfair or unreasonable commercial conduct. (See also Dawson and McLauchlan The Contractual Remedies Act 1979 (1981) at 36-40.)

[28]     The Court of Appeal had earlier affirmed the policy grounds for a judicial reluctance to go behind entire agreement clauses in commercial transactions without a finding of fraud, namely that (1) commercial people acting in good faith when entering into substantial transactions should be able to achieve certainty by agreeing to exclude liability for prior statements; and (2) it is desirable that written contracts

should be drawn to state all the terms of the intended bargain, thereby avoiding the uncertainties which arise from allegations of verbal misrepresentations.

[29]     Mr  Dale  relies  on  this  statement  from  Burrows  Finn  &  Todd:  Law  of

Contract in New Zealand, 3rd Ed. at p217:

Cases setting aside clauses subject to section 4 tend to be those where there has  been  a  deliberate  or  negligent  misrepresentation,  or  one  party  is peculiarly in possession of relevant facts, or there is a disparity of bargaining power.

[30]     Mr Dale raises two grounds in support of his argument that it would not be fair and reasonable to treat clause 25.4 as conclusive.  On analysis, they are two sides of  the  same  coin.    One  is  that  the  alleged  misrepresentation  may  have  been deliberate.  He refers to emails from Mrs Hadlow which show a deliberate decision by MacEnnovy to market the apartments by reference to their gross floor area, rather than by limitation to the indoor area.  Mr Hadlow, who was an impressive witness, freely acknowledged that fact.   But I am not satisfied that either of the Hadlows intended to misrepresent the floor areas or to actively mislead or deceive potential purchasers.  This ground is neutral.

[31]     Mr Dale's other ground is that the misrepresentations as to the size of living area made by Mr Barnao and MacEnnovy's sign were specific, and were not of a kind which the buyers of this type of property would reasonably expect to have been wrong.  To the contrary, he says, they would expect the vendor of new, expensive apartments, who had engaged architects, quantity surveyors and the like, to provide detailed and accurate information on which representations were based.  As a result MacEnnovy would have been well aware of the accuracy or otherwise of the statements made on its behalf.

[32]     This factor falls within the omnibus "circumstances of the case" provided by the s 4(1) test.   I agree that the purchasers would not have expected a deliberate representation relating to the size of living area to be wrong.   But that factor is a variation of the first ground and is not decisive.  What is more important, within the overall "circumstances of the case", is the purchaser's specific acknowledgement in

clause  25.4  that  the  written  agreement  contained  all  the  relevant  terms  and conditions, notwithstanding what Mr Barnao had said previously or what was in a brochure or sign.  That acknowledgement was not inconsistent with the facts.

[33]     What was inconsistent with the facts, because on their evidence it was untrue, was the purchasers' succeeding acknowledgement in clause 25.4 that they were not induced by representations, such as those relating to the size of floor areas, to enter into the agreements.  However, that concession must be construed in its contractual context.  I infer that the purchasers' agreement to waive a contractual right was an element of the bargain which they were prepared to accept in exchange for other benefits.  As Mr Judd points out, the purchasers do not suggest that the prices they agreed to pay were directly influenced by the floor area representations.   And the subject matter and value of the transaction justified contractual certainty.

[34]     There was no disparity in the parties' respective bargaining strengths.   The purchasers  were  not  in  positions  of  vulnerability to  MacEnnovy such  that  they required  the Court's protection against the consequences of their own  voluntary concessions.  Each party sought and received legal advice before entering into the contracts.  In fact, Ms Malyon's co-trustee was a solicitor.  Finally, all parties were financially aware; both purchasers were relatively sophisticated.

[35]     I  am  satisfied  that  it  is  fair  and  reasonable  that  clause  25.4  should  be conclusive between the parties and, as a result, (1) the purchasers' contractual claims based  upon  MacEnnovy's  alleged  misrepresentations  about  the  apartments'  floor sizes must fail and (2) neither Ms Malyon nor the Leighs were entitled to exercise their contractual rights of cancellation in reliance upon them.

Fair Trading Act

(1)       Misleading or Deceptive Conduct

[36]     The  question  then  is  whether  MacEnnovy's  floor  area  representations amounted to misleading or deceptive conduct: s 9 FTA.  The test is objective.  As

noted, the trust concedes that the statements on the sign which it erected outside the apartments were capable of being misleading.   The inquiry is then focused on the status of Mr Barnao's statements to both purchasers.

[37]     Ms Malyon said that Mr Barnao told her at least twice that Apartment 4 would be over 300 square metres in size and include large living areas and good sized bedrooms.  Mr Barnao does not recall mentioning a size but says that "it could well have happened; if Dinah says it, she is a very honest lady".   Mr Barnao's concession was appropriate.  He was marketing the apartments in accordance with MacEnnovy's instructions that the living area of an apartment was its gross size on the premise that this description included both the indoor and outdoor areas.  It was a deliberate but not dishonest strategy.

[38]     The Leighs' circumstances are slightly different.   As noted, Mrs Leigh was introduced through her client, Ms Malyon, who showed her a promotional brochure provided by Mr Barnao.  Mrs Leigh saw the sign when she visited the property.  She phoned Mr Barnao and they met at the Leighs' property in St Heliers the next day. She referred to her understanding that Apartment 5, the penthouse, was 289 square metres.  Mr Barnao did not say anything about this area including the loggia.

[39]     While  Mr Barnao  does  not  remember  the  particulars,  he  recalls  advising Mrs Leigh that the size of Apartment 5 would be roughly equivalent to what she advised was the living area of her present property of 277 square metres.  He said his impression was that "the overall dimension of [the Leighs'] home was around about what I expected the apartment to be".

[40]     I am satisfied that the statements made by Mr Barnao to Ms Malyon and Mrs Leigh were misleading and deceptive.  A representation that an apartment will be of or over a particular size would be reasonably understood, as it was by both Ms Malyon and Mrs Leigh, as limited to the indoor living area.  When objectively considered, it does not suggest that the physical dimensions of an apartment include an outdoor deck or, as it was perhaps pretentiously described, a loggia.   While Mr Barnao may use the term "living area" in a global sense, as referring to both outdoor and indoor areas, I am satisfied that that is not the commonly understood

approach.   The valuers who gave evidence, Mr Edwards and Mr Matthew Taylor, provided a practical perspective to the distinction; each confirmed that the actual or discrete value of an indoor living area is significantly higher than an outdoor area.

[41]     In my judgment a statement that the living or floor area of an apartment is of a certain size objectively means that it is descriptive of and limited to the interior or covered space.  Mr Barnao's statements were misleading or deceptive because they included  the  decking  area.    So  was  MacEnnovy's  sign  which  Mrs Leigh  saw. Accordingly both Ms Malyon and the Leighs have established the first element of MacEnnovy's actionable conduct in breach of s 9 FTA.

(2)       Causation

[42]     The approach to causation in the FTA context has recently been settled by the Supreme Court.    The common sense (which can mean different things to different Judges) or common law practical concept of causation applies.  The first question is whether or not a party was actually misled or deceived; if so, the next question is whether the defendant's conduct was either the or an effective or operating cause of loss.  A clear nexus between conduct and damage is necessary.  The question of a claimant's failure to take reasonable care to look after her own interests also comes into play, possibly in reducing the amount of an award.  The ultimate objective of an
order for payment under s 43 is to do justice between the parties in terms of the particular case and the statutory policy.

[43]     Mr Judd submits that there was no causal relationship or nexus between MacEnnovy's representations about floor size and the decisions made by Ms Malyon and the Leighs to buy the properties.  He says that neither party was actually misled. He says a commonsensical and reasonable approach must be adopted.

[44]     On the first question, I am satisfied that both purchasers were actually misled by Mr Barnao's statements.  They were plainly made for a particular purpose - as one among a small number of material inducements intended to persuade prospective

purchasers to enter into a contract.  I reject Mr Judd's portrayal of the representations as "puffery".  They were deliberate and I find that Ms Malyon placed reliance upon them  in  making her  decision  to  buy,  as  Mr Barnao  intended.    Mr Judd  did  not challenge  Ms Malyon's  evidence  that  because  of  her  occupation  she  was  "very conscious of the issue of size, and … knew from [her] experience visually what a
300 square metre apartment would be like", or her later statement that she was interested  in  proceeding  with  the  purchase  because  "the  apartment  was  over
300 square metres".

[45]     Mr Judd  acknowledges  that  Mrs Leigh's  case  is  that  she  relied  both  on Mr Barnao's  statements  and  the  sign.    Her  claim  is  if  anything  stronger  than Ms Malyon's as a result.   Mr Judd submits that the statements in the sign did not induce Mrs Leigh to enter into the agreement even if it was objectively incorrect. However, he did not develop that point and it must fail on the evidence.

[46]     Mrs Leigh and her husband were impressed with the picture of the apartment shown on the sign.  She noted that the five apartments were described as being of different sizes.   The sign's contents confirmed Ms Malyon's earlier advice, based upon  what  she  had  been  told  by  Mr Barnao,  that  the  apartments  were  large. Moreover, Mrs Leigh's evidence that she raised with Mr Barnao when they met the next day her interest in the penthouse, which she specified as being 289 square metres in size, was not challenged in cross-examination.   I am satisfied that Mrs Leigh was misled by the sign itself, irrespective of Mr Barnao's later advice.

[47]     However, if that conclusion is wrong, I shall consider the statements made by Mr Barnao to Mrs Leigh when they met at her property in St Heliers the following day.     Mr Judd  submits  that  Mr Barnao's  statements  cannot  be  construed  as representations of fact.  At best he gave an opinion of similarity when comparing the size of the Leighs' home with Apartment 5.

[48]     I do not accept this submission.   Mr Barnao did not dispute Mrs Leigh's evidence that he did not comment upon or correct her statement of understanding that Apartment 5 was 289 square metres in size.   He did not point out that this dimension included the deck area.   He did not correct her misunderstanding.   His

subsequent participation in a discussion about the comparative size of the two properties,  after  Mrs Leigh  had  expressed  her  understanding  that  her  St Heliers residence was about 300 square metres in size, only served to compound the effect of the earlier misstatement.  I am in no doubt that Mrs Leigh was actually misled by Mr Barnao's statements.

[49]     On  the  second  question,  Mr Judd  submits  that  Ms Malyon   failed   to investigate  or  inquire  further  into  the  composition  of  Mr Barnao's  gross  figure because the actual size was not material to her; she did not "care about the niceties of how many square metres there were".   Instead, Mr Judd says, Ms Malyon cared about the calibre of the property, the spaciousness of the living area compared to other apartments in Remuera, the extremely large living areas, the opportunity the apartment offered to use her interior design skills, and most particularly that the price she was paying was in line with the value of what she was acquiring.

[50]     I accept that Ms Malyon was concerned about all the factors identified by Mr Judd and that they played various parts in her decision to purchase.  But that is not the point.  The question is whether Mr Barnao's statements about Apartment 4's size were an effective or operating cause of loss, not necessarily the effective or operating cause.

[51]     While Mr Judd does not suggest that it was unreasonable for Ms Malyon to rely on Mr Barnao's statements, he does cite earlier authority in this Court for the proposition that the FTA is not "designed to provide a guarantee to purchasers who fail to look after their own interests in a manner which is reasonable in the circumstances".     However, Mr Judd did not develop this point other than asking rhetorically whether Ms Malyon was entitled to assume that the living area excluded the decks.  I find that Ms Malyon did act reasonably; there would be an irony in a conclusion  of  unreasonableness  against  the  recipient  of  a  representation  who
accepted and acted upon its truth without question as intended.  Ms Malyon was not guilty of any want of reasonable care in protecting her own interests.

[52]     Mr Judd also submits that Mrs Leigh "has shown a careless disregard for her own interests throughout the whole exercise; no diligence whatsoever has been demonstrated".   I do not accept this submission, for the same reasons given when rejecting a similar submission relating to Ms Malyon.  I am satisfied that Mrs Leigh acted reasonably in relying on MacEnnovy's statements and was not guilty of any failure to exercise care in protecting her own interests.

[53]     The answer to the first question on causation dictates an affirmative answer to  the  second  question.     Both  purchasers,  I  find,  were  actually  misled  by MacEnnovy's incorrect statements about floor area.  Both purchasers, I find, relied on the accuracy of the statements in agreeing to buy.  It follows, in the circumstances of these transactions, that the statements were an effective or operating cause of the purchasers' loss.  The casual nexus between MacEnnovy's breach of its statutory duty and the damages suffered by the purchasers could not be closer.

[54]     I add that Mr Judd did not attempt to raise clause 25.4 as a bar to or limitation on both purchasers claims under the FTA.  Presumably he accepts that the policy of consumer protection inherent in the FTA would be defeated by upholding a contractual  acknowledgement  by  a  purchaser  that  she  had  not  been  induced  to execute a contract by a misleading or deceptive statement which was not set out in the agreement, when the contrary was true, would be defeated.     The purchasers admissions did not operate to break the chain of causation.

(3)       Remedy

[55]     The final, and perhaps most problematic, issue is relief.  Courts have a broad discretion in this area for the purpose of doing justice between the parties in the circumstances of the particular case and in terms of the FTA's policy.

[56]     Both Ms Malyon and the Leighs have satisfied the jurisdictional requirement for relief as follows: s 43 FTA:

(1)        Where, in any proceedings under this Part of this Act, or on the application of any person, the Court finds that a person, whether or not that person is a party to the proceedings, has suffered, or is likely to suffer, loss or damage by conduct of any other person that constitutes or would constitute—

(a)        A contravention of any of the provisions of Parts 1 to 4 of this Act; …

[57]	The wide range of relief available as a consequence is expressed as follows:

s 43 FTA:

(2)        For the purposes of subsection (1) of this section, the Court may make the following orders—

(a)        An order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct referred to in subsection (1) of this section or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date, before the date on which the order is made, as is specified in the order:

(b)        An order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date, before the date on which the order is made, as is so specified:

(c)        An order directing the person who engaged in the conduct, referred to in subsection (1) of this section to refund money or return property to the person who suffered the loss or damage:

(d)        An order directing the person who engaged in the conduct, referred to in subsection (1) of this section to pay to the person who suffered the loss or damage the amount of the loss or damage:

(e)        An order directing the person who engaged in the conduct, referred to in subsection (1) of this section at that person's own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage:

(f)        An order directing the person who engaged in the conduct, referred to in subsection (1) of this section at that person's own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage.

[58]     As noted earlier, both purchasers seek the primary relief of cancellation and repayment of their deposits under the CRA.  Their alternative claims under the FTA are  pleaded  with  the  widest  degree  of  generality possible.    In  closing  Mr Dale focused his FTA submission upon achieving for the purchasers the same remedy of a declaration of cancellation and return of the deposits sought under the CRA, apparently in reliance on s 43(2)(a).  He says that a finding adverse to the purchasers on the entire agreement clause, leading to a rejection of the right to cancel, does not fetter or limit the broad discretion available under the FTA.

[59]     I  do  not  accept  Mr Dale's  submission.    The  entire  agreement  clause  is apposite in this context.  The FTA's policy is not, I think, directed towards providing a relatively informed and sophisticated purchaser with a backdoor mechanism for achieving the  same remedy of cancellation  which  she  has  effectively agreed  to forego under the carefully structured terms of a contract for sale and purchase.   Nor is cancellation necessary to do justice between the parties.  Both Ms Malyon and the Leighs agreed to buy these apartments because they wanted what was correctly represented by the plans and specifications.  While the size of the living area was an
important feature in their decisions, they agreed that representations made on that subject outside the contract were not to have the status of enforceability.   By implication, the purchasers were prepared to rely instead upon the discretionary- based remedies available under the FTA.

[60]     Mr Dale says that it would be "difficult to arrive at a reduction in value which fairly compensates the [purchasers]".   He did not address submissions towards quantifying  the  appropriate  level  of  loss,  which  was  surprising.    Mr Dale  also submits that a financial adjustment in the purchase price would not compensate either  Ms Malyon  or  the  Leighs  because  they  would  not  have  purchased  the apartments  if  they had  known  of  the  true sizes.    The  latter  submission  has  no evidential foundation; neither Ms Malyon nor the Leighs gave evidence to this effect and, even if they had, it would have been contrary to the weight of all the other evidence.     And  Mr Dale's  argument  runs  perilously  close  to  overplaying  the purchasers' hand and justifying Mr Judd's broad criticism of opportunism.

[61]     It  follows  that  the  most  appropriate means  of  doing  justice between  the parties  under  s 43(2)  is  to  order  variations  of  the  agreements  by  reducing  the purchase prices in amounts sufficient to compensate the purchasers for the losses suffered as a result of MacEnnovy's actionable conduct.  It is unnecessary to identify its conceptual nature - it will be based, as closely as possible, on an assessment of the difference between the actual price which a purchaser agreed to pay for an apartment and its value if MacEnnovy's representations about physical size had been correct. The assessment is to be made at the dates the contracts were entered into, on 4 May
2007 and 24 July 2007 respectively (there was no material change in market conditions between those two dates).  This approach is subject to one qualification relating to the Leighs' contract, which I shall discuss later.

[62]     The task of making an appropriate compensatory adjustment under s 43(2)(b) is complicated by the property market deterioration since mid 2007.   A broad approach is necessary.  One thing, however, is certain.  Mr Barnao confirmed that the physical size of a residence is an important factor in assessing market value.  In his experience a difference of 20%, say, between the actual and represented square meterage of a dwelling would make a real difference to that value.

[63]     I must examine the primary and expert evidence.  Ms Malyon agreed to pay

$2.6m  for  an  apartment  which  she  understood  comprised  310 square  metres  of indoor living space when in fact it was 247 square metres.   She relied in part on Mr Barnao's advice that MacEnnovy had obtained a valuation of the property from Gribble  Churton  Taylor  Ltd,  a  registered  valuer,  at  $2.7m  in  February  2007. Similarly the Leighs agreed to pay $2.7m for an apartment which they understood to comprise 289 square metres when in fact it was 221 square metres.

[64]     Gribble Churton Taylor's contemporaneous valuation reports provide a useful but not exclusive evidential foundation for this inquiry.  Mr Taylor's first report was to MacEnnovy's financier on 7 June 2006.   It was for the purpose of mortgage security purposes.   He provided a current market value of the proposed five apartments, assuming completion and the issuing of freehold unit strata titles.

[65]     Mr Taylor's report was comprehensive.  He described the net living areas of Apartments 4 and 5 as 247 square metres and 221 square metres respectively, with a range of square meterage values between $9,960 to $10,460 for Apartment 4 and
$11,357 to $11,857 for Apartment 5.   His adopted midpoint value for each was

$10,211 and $11,606 respectively per square metre.  His adopted midpoint values for the  properties  themselves  were  $2.522m  for  Apartment  4  and  $2.565m  for Apartment 5.

[66]     Mr Taylor's next report was provided to the same financier and on the same basis on 22 February 2007.  His valuations of both apartments had increased.  His adopted midpoint square metre values for Apartments 4 and 5 were $11,223 and
$12,738  respectively,  and  his  midpoint  value  range  for  each  was  $2.772m  and

$2.815m.  In describing the properties, Mr Taylor drew a distinction between what he called the "generous floor size areas" of the two apartments, 247 and 221 square metres respectively, and the accompanying large deck space of 68 and 54 square metres.

[67]     Mr  Taylor's  third  valuation  report  was  prepared  for  another  financier, Westpac, on 24 March 2009 but on the same basis as previously.  By this stage he had reduced the midpoint square meterage rates for Apartments 4 and 5 to $8,987 and $10,018 respectively, and decreased the adopted midpoint values to $2.22m and
$2.25m.

[68]     Mr Taylor's three reports valued four of the apartments largely according to square meterage.   Apartment 5, the penthouse, was the exception because of its superior position.  So, for example, in February 2007 Mr Taylor valued Apartments
1 and 2, both with net living areas of 222 square metres, at around $2.5m, compared with Apartments 3 and 4, both comprising 247 square metres, at $2.7m.  The square meterage value rate remained the same at around $11,000.  On this basis a difference of 25 square metres in the living areas was a relevant factor influencing a difference in value in the range of about $200,000.  However, it seems that Mr Taylor assessed all values by the relatively simple method of multiplying the square metre rate of the living space by its size, without taking apparent account of the outdoor living areas. The rates used are not an appropriate guide to actual indoor square metre values.

[69]     Mr Edwards valued Apartment 4 at $2.1m on 8 December 2008 on the basis that its practical floor area comprised 240 square metres plus decks of 83 square metres.  He agreed with Mr Judd that the market had deteriorated substantially from
2007 levels.  In a later report dated 5 May 2009 Mr Edwards said this:

You have now asked us to assess the difference of value applicable if the floor area was some 310 square metres plus the same terrace, courtyard and carparking etc.

Therefore this letter concerns the difference in value of some 70 square metres of actual living space.

For the point of comparison the date of this assessment is the same of our original report dated 5 December 2008.  We point out the marketplace has changed in value again more recently however for comparison purposes it is appropriate to use the same date of assessment.

An analysis of the market value on the property can be broken down into an allowance of $250,000 for the carparks, terrace and courtyard.   We have previously noted an allowance of $50,000 for the chattels.   The apartment land and buildings content therefore was some $1,800,000 which with a floor area measured at 240 square metres equates to some $7,500 per square metre.

Applying a rate of $7,500 per square metre over the differential in the floor area from 240 to 310 square metres (being some 70 square metres) equates to $525,000.

Checking this calculation, if we were to take the apartment at 310 square metres, adopting the $7,500 per square metre adding on for the terrace, courtyard and carparks as before together with the chattels, this would show a market value for the larger apartment at some $2,640,000.  Based on sales up until the end of 2008 this end value would not have been unrealistic.

Therefore on balance our assessment of the added value of 70 square metres of floor area would be at a figure of $525,000.

[70]     Mr Edwards valued Apartment 5 on 7 May 2009 at $2m on the basis that its practical floor area comprised 210 square metres with an additional 77 square metres for decks.   He valued land at $450,000 and improvements at $1.5m.   He did not identify a square metre rate but I assume that it was around $7,500 as applied for Apartment 4 in December 2008.   He agreed with Mr Judd that the market had deteriorated further since December 2008.

[71]     Finally,  to  complete  the  valuation  narrative,  Mr Taylor  differed  from

Mr Edwards' approach.  He thought that simply by providing a value rate of $7,704

per square metre to the additional hypothetical floor area shortfall of 63 square metres was simplistic and flawed.   In his opinion, diminishing marginal returns would apply, with the larger floor area resulting in a reduced average floor area value rate to reflect the market's satisfaction with the level of accommodation provided, with a smaller payment for additional excess floor area.

[72]     Mr Taylor fixed a comparable value of $2.467m for Apartment 4 at 310 square metres, applying a square metre rate of just over $7,000.   The difference between the two valuers was $247,000.  Similarly, applying the same methodology to Apartment 5, he calculated a market value of $2.59m, with a differential in value for the shortfall in floor space at $340,000.

[73]     Mr Judd submits that the valuation evidence demonstrates that the price paid by the purchasers reflected the true value of the apartments when the agreements were entered into.  Based on Mr Taylor's evidence, he says that if the net floor area of Apartment 4 had been 310 square metres and for Apartment 5 289 square metres, the values would have been 11.13% and 15.11% higher respectively - that is, $3.08m instead of $2.772m for Apartment 4, and $3.24m instead of $2.815m for Apartment
5.  Thus, if the net areas had been as represented, the purchasers would have been getting a windfall and, at the current market prices, both got value for their money.

[74]     I do not accept that submission.  While it can be said that the market sets a property's value, I find that the prices which Ms Malyon and the Leighs actually agreed to pay for the apartments were above true market value.  MacEnnovy pursued an intensive but largely unsuccessful sales campaign from sometime in late 2006. These were the only two concluded sales which it was able to conclude until very recently.    Mr Barnao  conceded  that  MacEnnovy's  asking  prices  were  probably excessive.   The market for high value apartments in the Remuera area had eased "dramatically", Mr Barnao said, in 2007.  Mr Barnao's evidence, which I accept, and MacEnnovy's inability to conclude additional sales, demonstrates that Mr Taylor's contemporaneous valuations were optimistically high.

[75]     What, then, am I to make of this evidence?  A slavish concentration on actual square meterage values is not appropriate.  I agree with Mr Taylor's criticism that it

provides a simplistic measure and that a process of diminishing marginal returns applies to the valuation exercise.  Also I must take into account market factors (there is a difference of seven square metres between the valuers on Apartment 4; to the extent that it is necessary to make a finding on this point, I prefer Mr Taylor's evidence but ultimately nothing will turn on it).

[76]     Mr Edwards assessed differentials of $525,000 and $700,000 for Apartments

4 and 5 in December 2008 and May 2009 set the outer boundaries for an award. Both were fixed at different points along the sliding scale of falling prices following the significant change in property market conditions in late 2007, and discounts must be  made  accordingly.    There  is  no  basis  for  differentiating  between  the  two apartments - a difference in purchase price of $100,000 ($2.6m and $2.7m) is immaterial.

[77]     In my judgment, the appropriate differential between the prices which the purchasers agreed to pay in mid 2007 and the actual values if the representations had been correct is $400,000 for each apartment.   This figure is discounted against Mr Edwards'  assessments  to  take  account  of  the  progressive  stages  of  market deterioration to December 2008 and May 2009.   It reflects the amount of compensation for the purchasers necessary to do justice between the parties.

[78]     It is appropriate at this stage to address a submission made by Mr Judd.  He says that the Court's jurisdiction to vary a contract under s 43(2)(b) FTA is only applicable to an existing contract.   By way of repetition, s 43(2)(b) provides the Court with jurisdiction to make:

…

An order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date, before the date on which the order is made, as is so specified:

[79]     Mr Judd submits that the Court cannot apply this statutory power to the Leighs'  contract  which  MacEnnovy  has  validly  cancelled  under  the  CRA.    He submits  that  such  a  step  would  frustrate  the  statutory  embargo  on  further

performance of a contract following cancellation.  He relies on s 8(3)(a) CRA which materially states:

… So far as the contract remains unperformed at the time of the cancellation, no party shall be obliged or entitled to perform it further…

[80]   It is unnecessary for me to venture into a discourse about the parallel jurisdictions  of  the  CRA  and  FTA  and  any  consequential  conflicts.    Mr Judd's submission can be answered without disturbing the state of harmony between the two statutes.  In my judgment s 43(2)(b) FTA is applicable without contradicting the clear meaning of s 8(3)(a) CRA.   The former provision specifically empowers the Court to vary a contract so that it is "varied on and after [a] date …".  In this case the variation necessary to accommodate the reduced purchase price will take effect as and from 24 July 2007, the date of the contract.   That date is well prior to MacEnnovy's cancellation of the Leigh contract in 2009.  Accordingly, MacEnnovy's cancellation would only be effective if it was of the contract as varied.  MacEnnovy was not entitled to cancel a different contract  on the ground of the purchasers' repudiation or refusal to settle at a price which was later reduced by an order of this Court to take effect from an earlier date, where the variation was necessary to compensate for its own misconduct.

Result

[81]     I make orders varying the separate agreements for sale and purchase between MacEnnovy and Ms Malyon and the Leighs, declaring that each has effect and is to be varied on and after the date it was entered into (on 4 May 2007 and 25 July 2007 respectively) by (1) reducing the purchase price payable under each contract by
$400,000 (subject to any other adjustments made in accordance with its terms); (2) directing each purchaser to settle their obligations under the contracts on 1 July 2010 (to  allow  three  months to  arrange  the  necessary finance);  and  (3)  deferring the purchasers' liability to pay interest on the outstanding balance of the purchase price until 1 July 2010.

[82]     The purchasers have succeeded.  Costs should follow the event in the normal course according to category 2B.  However, there may be other factors relevant to an

award of costs.  If so, leave is reserved to the applicant party to file submissions in support  (of  no  more  than  five  pages  in  length)  by  26 April  2010  and  for  the respondent to reply, in the same way, by 10 May 2010.  If necessary, I will convene a hearing afterwards to hear brief submissions.  However, I trust that common and commercial sense prevails, and that the parties are able to settle costs between them.

[83]     I am conscious that a live issue may remain between Ms Malyon and the Leighs, on the one hand, and Westpac, on the other.   Other issues may also arise between these parties relating to settlement.  Leave is reserved to any party to apply
on seven days notice for further orders.

Rhys Harrison J