IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-2727 [2014] NZHC 198

BETWEEN	WESTERN PARK VILLAGE LIMITED Plaintiff

AND	SINAN ABED BAHO Defendant

DARRYLL LAWRENCE HEAVEN First Counterclaim Defendant

EVELYN HEAVEN
Second Counterclaim Defendant

TRUSTEE MANAGEMENT LIMITED Third Counterclaim Defendant

Hearing:	29, 30, 31 July , 1, 2, 3, 19 and 20 August 2013

Counsel:	D Chesterman for Plaintiff and Counterclaim Defendants
J E M Lethbridge for Defendant/Counterclaimant

Judgment:	10 February 2014

Reasons:	18 February 2014

REASONS FOR JUDGMENT OF HEATH J

Solicitors:
Dyer Whitechurch, PO Box 5547, Wellesley Street, Auckland
Grove Darlow & Partners, PO Box 2882, Auckland
Counsel:
D Chesterman, Bankside Chambers, Level 22, 88 Shortland Street , Auckland

WESTERN PARK VILLAGE LIMITED v BAHO [2014] NZHC 198 [18 February 2014]

Contents
Outcome                                                                                                        [1]
Background                                                                                                  [4]
The factual matrix
(a)       The rock-fall problem                                                                         [8]
(b)       The November 2005 Annual General Meeting and its aftermath      [11] (c)       The sale of Unit D to Mr Heaven                                                       [23] (d)       The July 2007 Extraordinary General Meeting                                 [34] Was any misrepresentation made?                                                             [38] Western Park’s claim
(a)       Was there an outstanding requisition? – Clause 6.1(d) of                 [56]
the Agreement
(b)       The claim under s 6 of the Contractual Remedies Act 1979              [64] (c)       Quantum                                                                                             [71] Counterclaim                                                                                                [76] Result                                                                                                             [86]

Outcome

[1]       In this proceeding, Western Park Village Ltd (Western Park) sought relief against Mr Baho for alleged breaches of an agreement for sale and purchase of land entered into in May 2007.1    Mr Baho counterclaimed to recover moneys said to be owing under a mortgage given in his favour as part of the financing arrangements made for Western Park to acquire the dwelling.  The counterclaim is brought against Western Park (as mortgagor) and Mr and Mrs Heaven, and Trustee Management Ltd (as covenantors).

[2]       On 10 February 2014, I made the following orders:2

(a)	Judgment is entered in favour of Mr Baho on all of Western Park’s

claims against him.

(b)     On Mr Baho’s counterclaim against Western Park and the three counterclaim defendants, judgment is entered against each in the sum of $301,698.87, together with interest at the rate of 19% per annum
from 21 December 2011 to today’s date.

1	See paras [4] and [7] below.
2	Western Park Village Ltd v Baho [2014] NZHC 102 at para [3].

(c)       Leave  to  amend  the  Statement  of  Claim  to  include  a  claim  for possession   of  the   property  at   4/30  Augustus  Terrace,   Parnell, Auckland is granted.   That aspect of the claim is adjourned for a telephone conference to be allocated by the Registrar, on the first available date after 4 April 2014.  If the judgment sum is not paid to Mr Baho by 5pm on 21 March 2014, I shall hear from counsel at the telephone conference on whether a possession order should be made.

(d)	Costs are reserved.

[3]       I indicated that my reasons for making those orders would be given in writing as soon as practicable.  My reasons follow.

Background

[4]       Mr Heaven bought a residential unit from Mr Baho in May 2007.  The unit, situated at 4/30 Augustus Terrace, Parnell (Unit D), was part of a unit title complex, known as the Augustus Apartments.  Part of the purchase price was provided by Mr Baho, who secured repayment of it by taking a second mortgage over the property. Under the agreement for sale and purchase (the Agreement), Mr Heaven had the option to nominate another person to take title to the property.   Western Park, of which Mr Heaven is a director, was nominated for that purpose.

[5]       Mr Heaven says that, during the course of pre-contractual negotiations, he asked Mr Baho whether “there were any problems or issues with the unit” that he “should know about”.   Mr Heaven alleges that Mr Baho told him that the only problem involved minor leaks on one wall and that the cost of repair was to be met by a payment from his insurer.

[6]       The Augustus Apartments were built atop a hill in Parnell.  At the harbour side of the property is a cliff.  It drops down to an arterial road to Auckland’s port.3
Mr Heaven complains that Mr Baho omitted to tell him that the Body Corporate of

the Augustus Apartments was being sued in nuisance for removal of rock and debris

3	See further para [9] below.

that had fallen from the cliff, onto another unit title complex development (The

Strand). The Strand contains a number of commercial units.

[7]       Western Park sued Mr Baho.  It sought cancellation of the agreement for sale and purchase and consequential orders4  designed to put the parties back into the position they would have been at the time the Agreement was signed.  In particular, Western Park alleges that Mr Baho has breached cl 6.1(d) of the Agreement5  (by failing to tell the purchaser about outstanding requisitions) and to have made a false pre-contractual representation, contrary to s 6 of the Contractual Remedies Act 1979. Mr Baho counterclaimed to seek repayment of moneys that he contends are owing under the mortgage granted in his favour.

The factual matrix

(a)       The rock-fall problem

[8]       On 18 November 2005, Mr Baho acquired Unit D for a purchase price of

$925,000.  The purchase was settled on 9 December 2005.  The common property within the unit title complex was held by Body Corporate 192929 (the Augustus Body Corporate).  At material times, the Augustus Body Corporate’s secretary was Strata Title Administration Ltd (Strata).

[9]       There is a drop of some 10 metres between the Augustus Apartments and The Strand.   A strip of about one metre lies between the bottom of the cliff and the boundary of The Strand.  In 1997, during construction of the Augustus Apartments, a geo-textile net was installed on the cliff face.  The net was designed to collect debris falling from the cliff face and to prevent it from escaping onto and damaging buildings below.

[10]     In 1998 there was a substantial slip.  It caused debris, including large rocks, to be pushed up against The Strand.  The geo-textile net was damaged by that and later falls.  This event sounded the beginning of a long running dispute between the
Augustus and The Strand bodies corporate about their respective responsibilities for

4	The consequential orders sought, if granted, would involve discharging the second mortgage in favour of Mr Baho.
5	Set out at para [56] below.

cleaning up the debris that had fallen and ensuring that no similar events occurred in the future.

(b)       The November 2005 Annual General Meeting and its aftermath

[11]     On 8 November 2005, the Annual General Meeting of the Augustus Body Corporate was held.   This meeting was held the day before Mr Baho signed the Agreement.  No representative from Unit D was present at that meeting.  Discussions about the rock-fall problem took place.   In the context of claims made by Body Corporate 173423 (the Strand Body Corporate) the minutes record:6

10A.     DISCUSSION   OF   CROCKERS   STRATA  MANAGEMENT LTD’S  (“CROCKERS”) LETTER REGARDING LIABILITY FO THE CLIFF FACE

The chair asked Mr Lockyer, Strata’s senior property manager, to chair  the  discussion  on  this  part  of  the  meeting as  he  has  been involved with the administration of this body corporate for the past three years and has more background to this issue.

Mr Lockyer advised that the perceived problem of rocks falling from the cliff face and causing damage to the property at the bottom of the cliff (77 The Strand) has been an ongoing one.  He referred to item 5 of the minutes of the annual general meeting held on Monday 17
November 2003, when the body corporate resolved to take no action with respect to this issue.  No professional advice has been obtaining defining the boundaries of the body corporate’s common property (ie the lower limits of the common property) to confirm the ownership of the cliff face and the liability (if any) of any damage arising from rocks falling from it.  Mr Lockyer pointed out that Crockers states in its letter of 6 October 2005 that “written reports will be copied to [the Augustus Body Corporate]”.  No report has been received.

Proprietors commented that they believe it would be prudent for the body corporate to seek independent professional advice to determine the ownership of the cliff face and to ascertain who would be liable for damage caused in the event of rocks falling from the cliff and causing damage to the property below.

After discussion, it was resolved:

6           The reference to the “informal owners’ committee” was to a committee established by the owners to assist in the administration of the Augustus Body Corporate’s affairs, in lieu of an owners’ committee of the type to which the Unit Titles Act 1972 referred.  There are at least two occasions  when  persons  who  were  not  present  at  the  Annual  General  Meeting  were, nevertheless, recorded as being a member of the committee: they are the meetings in November
2005 and 2006. See also, para [20] below.

   that the secretary is to obtain from Ms Vanessa Scott of Crockers  Strata Management  Ltd the  professional reports referred to in her letter dated 6 October 2005;

   that the secretary is to contact Keith Knartson of McKay Knarston Ltd, the original surveyor for the body corporate, to confirm the boundaries of the body corporate’s common property (ie the lower limits of the common property);

   that  the  body  corporate  employs  Price  Baker  Berridge, barristers and solicitors, to advise it on what liability (if any) it has for any damage (to property or person) caused by rocks falling from the land belonging to Body Corporate
192929;

   that  the  body  corporate’s  consulting  engineer,  Dr  Kelvin Walls, is to either inspect or arrange for an inspection to be done of the safety net and advise whether it will adequately prevent rocks or debris from falling down the cliff face onto the property below; and

   that any invoice relating to the above work, approved for payment in writing by the informal owners’ committee, will be paid from the body corporate’s current fund.

[12]     By the time the 2006 Annual General Meeting was held (on 7 November

2006),  liability  issues  surrounding  the  rock-fall  were  coming  to  a  head.    The Augustus Body Corporate had received a detailed letter, dated 6 October 2006, from Glaister Ennor, a legal firm instructed to act for the Strand Body Corporate.  Glaister Ennor referred to the need to stabilise the cliff to prevent rock-fall reoccurring, and the perilous position of pohutukawa trees standing on the cliff, the location of which was likely to increase the risk of damage to The Strand.  The letter records that a copy was sent personally to Mr Baho at Unit D.  While he cannot recall having seen the letter, Mr Baho accepts that it is likely to have arrived in the ordinary course of the post.  The letter is dated (and is likely to have been received) at a time when Mr Baho was residing in the unit.

[13]     While Mr Baho owned  Unit D at  the time of the 2006 Annual General

Meeting, he was out of the country when this meeting was held.  He was away from

29 October 2006 until 4 March 2007.   Nevertheless, I am satisfied that Mr Baho received notice of the 2006 meeting and its agenda.  He appointed his brother-in-law, Mr Asmaro, as his proxy to attend.  The notice annexed a copy of Glaister Ennor’s letter of 6 October 2006 and advice from the Augustus Body Corporate’s solicitors

(Price Baker Berridge), dated 8 September 2006.  The notice made it clear that the meeting of owners would discuss the best way in which a settlement of the dispute could be achieved.

[14]     Although conciliatory in nature, the Glaister Ennor letter expressed a firm view that the owners within the Augustus Apartments were obliged “to take reasonable steps to eliminate the nuisance that is emanating from their property”. Glaister Ennor translated that obligation into a need “to prevent material falling from the cliff face damaging [their] client’s buildings or from coming to rest on [their] client’s property, and taking measures to eliminate the risk of damage arising from the precarious position of the pohutukawa trees on the top of the cliff”.

[15]     Despite its tone, Glaister Ennor’s the letter concluded with a warning that legal proceedings may be issued if suitable settlement arrangements could not be entered into. The solicitors stated:

Settlement

We write to extend one final opportunity to resolve by negotiation the issues presented by the scree falls and the pohutukawa trees.   We propose that representatives from the respective bodies corporate attend a site meeting together with their consulting engineers and a member of the respective management  committees.    The  parties  can  then  explore  solutions  on  a without prejudice basis.

If such a meeting cannot be arranged before 5pm, Friday 27 October 2006, and an agreement reached before 1 December 2006, we have instructions to commence proceedings in the District Court against the Body Corporate (and the individual owners) seeking:

1          An injunction requiring Body Corporate 192929 to take immediate steps to:

(a)	Repair the geotextile net on the cliff face and empty it of detritus;

(b)	Keep the geotextile net in good repair and reasonably free of detritus;

(c)	Address the danger posed by the precarious position of the pohutukawa trees;

2          Such damages that may be required to compensate the owners of the Strand units for the cost of addressing the nuisance posed by the scree falls and the pohutukawa trees up to the date of judgment.

Should it prove necessary to submit this matter to the District Court our client will seek increased costs pursuant to District Court Rule 47C, and will bring this letter to the attention of the Court.

We look forward to hearing from you as a matter of urgency.

[16]     The Augustus Body Corporate’s position on the Glaister Ennor letter of 6

October 2006 was recorded, in the minutes of the 2006 Annual General Meeting:

6A        NUISANCE CLAIM

Proprietors discussed the correspondence of 8 September 2006 from Price Baker Berridge and of 6 October 2006 from Glaister Ennor, which was appended to the agenda, regarding the nuisance claim from [the Strand Body Corporate], with respect to rocks falling from the cliff face onto their property. After discussion it was resolved:

   That the body corporate continues to employ Price Baker Berridge as its solicitor in the dispute with [the Strand Body Corporate], and authorises the secretary as agent for [the Augustus Body Corporate], in conjunction with the informal owners’ committee, to enter into such negotiations as may reasonably be expected to resolve the dispute without litigation; and

   That if the secretary and the informal owners’ committee are unable to negotiate settlement of the dispute, it is to convene an extraordinary general meeting of the body corporate to take further instructions from the body corporate; and

   That as soon as is practicable the secretary is to arrange a meeting  with  the  informal  owners’ committee,  the  body corporate’s solicitor, its consulting engineer and the committee of [the Strand Body Corporate]; and

   That the body corporate’s consulting engineer is to arrange for an arborist to provide a report on the stability of the Pohutukawa trees, and that the corresponding invoice, approved for payment in writing by the informal owners’ committee is to [be] paid from the body corporate’s sinking fund.

(emphasis added)

[17]     As  it  happens,  on  29  September  2006  (before  the  2006 Annual  General Meeting was held on 7 November 2006) Mr Baho agreed to sell Unit D to Mr and Mrs Rose.  Before settlement was completed, water ingress was discovered on the eastern wall of the unit.  Mr Baho says that he disclosed that to Mr and Mrs Rose.

As a result of a building inspector’s report they obtained, that agreement was cancelled, on 3 October 2006.

[18]     The discovery of the water ingress problem is of significance in one respect. Mr Baho’s evidence was that his brother-in-law did not report anything of substance to him about what happened at the 2006 Annual General Meeting and that he was unaware of the escalating nature of the rock-fall problem.  However, the Minutes of the 2006 Annual General Meeting record a discussion about the informal owners’ committee’s need to liaise with Dr Walls “to arrange for the eastern wall window joinery of Unit D to be repaired”.  Further, a corresponding invoice, to be approved for payment by the informal owners’ committee, was to be paid from the Augustus Body Corporate’s sinking fund.

[19]     On 29 March 2007, Mr Baho wrote to Strata, as secretary of the Augustus Body Corporate, to notify them that he had “noticed on a few occasions, water coming in on the west and north walls”.  The terms of his letter make it clear that he had  read  the  Minutes  of  the  November  2006  meeting,  after  his  return  to  New Zealand on 4 March 2007. Mr Baho said:

Due to the heavy weather that we have experienced overnight, this problem has become more evident and in accordance to the last body corp minutes [ie those of the 7 November 2006 Annual General Meeting] this problem needs to be brought to the immediate attention of the body corp in order to take action to fix it.  I can confirm that I have called the insurance company who are coming to assess the situation today being the 29th March 2007.

(emphasis added)

[20]     The Minutes of the 7 November 2006 meeting also record that Mr Baho “or representative” was to be appointed to the informal owners’ committee together with Mr Gourley, another owner who seems to have been intimately involved in the ongoing problems with the rock-fall.  Mr Baho’s evidence was that the committee never met.  Mr Gourley did not give evidence.  There is insufficient evidence for me to form a reliable view about whether (and, if so, what) steps this committee may have taken in relation to the rock-fall problem.

[21]     Dr Walls, to whom reference was made in the Augustus Body Corporate Minutes,7  sought an engineering opinion from Babbage Consultants Ltd (Babbage). A report  was  obtained,  dated  12  March  2007.    Babbage’s  instructions  were  to undertake a geotechnical appraisal and to give advice about the rock-fall problems. In doing so, they considered a report that the Strand Body Corporate had obtained from another engineering company, Tonkin and Taylor Ltd, dated 7 October 2005.

[22]     Babbage reported to the Augustus Body Corporate on 12 March 2007.  The author of the report, Mr Luxford, stated:

The Problem

The technical issues are correctly summarised by Tonkin and Taylor in their letter of 7 October 2005 in as much they identify the rockfall and stability issues. ...

In summary, the body corporate apartment development in Augustus Terrace is cantilevered out along the full length of the road frontage from the road frontage across a slope of about 1 in 3 to the top of the old coastal cliff edge. The cliff edge drops from the rear of the apartment building at an average slope of about 65º to 70º to the base of the slope some 12 m or so below. The top of the cliff edge has a number of large Pohutukawa trees growing along the margin of the cliff with the roots attached to the face of the cliff. In some places this cliff face is over vertical (particularly beneath the root balls of the trees) with undercutting up to 1.5m deep.

The base of the cliff is about 600mm to 1.5m away from the rear of the commercial  building  on  77  The  Strand.    The  variable  distance  occurs because the commercial building does not parallel the alignment of the cliff but it is stepped along the cliff base.  Doors and windows are contained in the rear face of this lower commercial building.

The  face  of  the  cliff  is  fretting  with  blocks  of  sandstone  occasionally dropping off the face of the cliff.   These blocks are up to 1.0m long and typically 300mm square.  They have for the most part been contained to the cliff face in their fall by a fabric netting.  This netting is restrained at the top by a light write rope which is in turn largely constrained by waratah stakes.

Access to the top of the slope is constrained by the presence of the apartment building.  Access to the base of the slope is completely constrained by the commercial building which extends full length between the neighbouring buildings.   The tree vegetation hangs out over the roof of the lower commercial building.  Some of the fabric netting on the face of the cliff has either been torn away by the rockfalls or was never in place originally.  In some places rock spalls have built up behind the fabric netting to such an extent  that  the  mass  of  rock  is  resting  on  the  wall  of  the  commercial building.  There is further rock material in storage that will eventually fall to

the base of the cliff and the root balls of the trees will also eventually collapse.

Any branches off the trees which come loose are at risk of falling onto the roof of the commercial complex ad could penetrate the roof.

Ball Park Costs

The technical problem can be clearly defined.   Several solutions can be proposed to address the ongoing problem, none of which would be particularly economical on a cliff edge which is accessible.   However, on this cliff edge access to undertake such a solution is close to impossible and thus any solution  which might  be achieved  will be  almost  prohibitively expensive. Access is among one of the most difficult we have encountered.

For indicative purposes only, it is probable that the solution proposed by Tonkin and Taylor (and we doubt that their solution will address all of the issues) could be in the order of $100,000 to $200,000 to implement where access is available.   In this location because of the access constrains, this cost could easily escalate to more than $1,000,000.

Just to remove the current debris at the base of the slope could easily be more than $10,000 and we have as yet to evaluate whether such would be safe to undertake. ...

...

Minimum Work Required to Improve the Safety of 77 The Strand

In our opinion the minimum work required to return the building at 77 The
Strand to a reasonable level of safety is as follows:

1.	Remove the debris at the base of the cliff edge.

2.	Check the durability of the remaining nets.

3.	Reinstate those nets which have been destroyed or lost.

4.	Improve the anchorage of the nets at the top of the slope.

5.         Trim the large branches of the Pohutukawa trees ideally to ultimately leave the root ball but to maintain the trees in a living state.

6.	Implement a program to continually remove new debris.

7.         Restrict people use of space behind building to maintenance staff.

We do not see any added benefit to install a rock wall at the base of the slope other than to contain the rocks at the base of the nets after they have fallen. While in an ideal world such would be desirable, because of access limitations to build such a wall would be very difficult.

We would need to get specialised contractors with abseiling expertise to assess the cost of such work but for ball park costs believe the following might be an approximation:

   Remove debris	allow $15,000

   Check and replace netting	allow $30,000

   Improve anchorage	allow $20,000

   Trim trees	allow $30,000

Say	$95,000

(c)       The sale of Unit D to Mr Heaven

[23]     In or about August or September 2006, Mr Baho decided to return to Europe. As a result, he caused Unit D to be listed for sale with Bayleys Real Estate.  The agreement to sell the property to Mr and Mrs Rose resulted from Bayleys’ marketing, but for reasons given earlier, that sale did not proceed.8    Mr Baho deposed that he withdrew the property from the market for sale when he learnt of the water ingress problem.  He planned to rectify the defect before returning to the market.

[24]     In the meantime, Mr Baho began to offer appliances for sale through the TradeMe website.   One of those items was a Teba oven, with a cook top.   The advertisement placed on TradeMe indicated that the items were being sold because Mr Baho  intended to sell the property.   Having read Mr Baho’s advertisement, Mr Heaven made arrangements to view the oven.   Mr Heaven owns a substantial number of rental properties.   For that reason, he is often in the market for the purchase of second-hand furniture and appliances.  Mr Heaven and Mr Baho agree that there was some general discussion took place about Mr Baho’s intention to sell. At this point their evidence diverges.

[25]     Mr Heaven states that he had two substantive meetings with Mr Baho during the early part of May 2007.  On the first occasion, he says, he and Mr Baho were alone.   On the second, Mr Heaven gives evidence that he was accompanied by a friend, Ms Banks.  Ms Banks also gave evidence and confirmed her presence.

[26]     Mr Heaven asserts that he asked Mr Baho whether there were any problems or issues with the unit that he should know about.  He says that Mr Baho told him that the only problem involved the leaks, which would be addressed through an insurance claim.  Mr Heaven says that that representation was repeated at the second meeting, at which Ms Banks was in attendance.  In that regard, Ms Banks appeared to corroborate Mr Heaven’s evidence.

[27]     Mr Baho’s evidence is different.  He says that during their first conversation he told Mr Heaven that the house had been on the market for sale but withdrawn while “leaking issues” were to be fixed.  Nevertheless, Mr Heaven asked if he could view the house.  On this occasion nothing eventuated, as Mr Heaven had only come to the house to uplift and pay for the oven.

[28]     The next substantive meeting, according to Mr Baho, took place at his office (in Unit D) the day after Mr Heaven had uplifted the oven.  Mr Baho recalls that Mr Heaven offered a deal whereby he would pay one-half of a purchase price and Mr Baho would leave in the balance, as vendor finance, to be repaid “a few years later”.

[29]     After some negotiations, Mr Baho says an agreement was struck whereby, in consideration of a total payment of $1,225,000 Mr Heaven would acquire Unit D on the following terms:

(a)	A deposit of $175,000

(b)	$750,000 on possession (25 May 2007)

(c)	A  mortgage  in  favour  of  Mr  Baho  in  the  sum  of  $US291,000 ($NZ300,000),9 to be paid in two instalments:

(i)	$US91,250 on 25 May 2008 and

(ii)	$US127,750 on 25 May 2009.

9	This was based on an exchange rate of $US0.73 per $NZ1, to give certainty in respect of the amounts to be paid.

[30]     As part of this arrangement, Mr Baho was to receive a second registered mortgage over the property.  Any first mortgagee was to have priority in a sum not exceeding $750,000, plus two years interest and costs.   The mortgage was to be guaranteed by Mr Heaven and others.  No interest was to accrue on the loan unless default was made, in which case penalty interest at the rate of 19% per annum was to be charged.

[31]     The  Agreement  is  dated  16  May  2007.    On  18  May  2007,  a  separate agreement, dealing with the “leaking” issue, was also signed.  That side-agreement states:10

AGREEMENT made this 18th day of May 2007

BETWEEN:	SINAN ABED BAHO	(Vendor)

AND:	DARRYL HEAVEN OR NOMINEE	(Purchaser)

RECITAL:

A	The Vendor and the Purchaser are parties to an agreement for the
sale and purchase (the Agreement) of the Vendor’s property at 4/30
Augustus Terrace, Parnell (the Property).

B          The parties agree that the building of which the Property forms part has Leaky Building issues.

C	The Purchaser will purchase the Property subject to these issues.

THIS AGREEMENT WITNESSES:

1          The Purchaser is aware of the “Leaky Building” issues in relation to the building of which the property forms part.   [THE PROBLEM EXISTING ON THE EASTERN WALL ONLY]

2	The  Purchaser  accepts  that  the  Vendor  has  no  liability  to  the
Purchaser in relation to such issues.

3          The Purchaser will take no action against the Vendor in relation to such issues.

4          The Purchaser will indemnify the Vendor against any loss he may suffer should the Purchaser, his nominee or any successor in title cause the Vendor to suffer any loss as a result of any action in relation to such issues including without limitation, solicitor/client costs.

10         The words appearing in square brackets in cl 1  were added by Mr Heaven after the side- agreement was prepared by Mr Baho’s solicitors.  On Mr Heaven’s evidence this agreement was signed before or contemporaneously with the agreement for sale and purchase of Unit D.

5         This agreement is binding on the Purchaser and his executors administrators and assigns and the Purchaser will is requested, cause any  nominee  to  execute  an  agreement  whereby  the  Nominee  is bound by the same provisions as set out herein.

6         The parties agree that this agreement is interdependent with the Agreement and is conditional on the Agreement being signed and becoming unconditional in all respects.

[32]     On 25 May 2007 (which coincided with the possession date) Mr Baho went overseas, on holiday to Thailand.  He did not return to New Zealand until 26 June
2007.  He departed for Europe on 16 July 2007.

[33]     The purchase was settled on or about 15 June 2007, while Mr Baho was out of the country.  Western Park was nominated as the purchaser.  The acquisition was financed through a cash deposit of $175,000, a first mortgage to Public Nominees Ltd (later transferred to TSB Bank Ltd) securing a loan of $750,000 and a second mortgage in favour of Mr Baho, which secured a sum of $US219,000, approximately
$NZ300,000.

(d)       The July 2007 Extraordinary General Meeting

[34]     An Extraordinary General Meeting of the Augustus Body Corporate was held on 31 July 2007.  The undated notice alerted proprietors to an important discussion about the rock-fall issues, enclosing, among other things, a summary of legal issues and anticipated costs prepared by their own solicitors Price Baker Berridge, together with an opinion from a barrister, Mr Muir.

[35]     While it is unclear on what day the notice was dispatched to the unit owners, it must have been after 2 July 2007, as Mr Muir’s opinion of that date was included among the papers.  While Mr Baho was in New Zealand at that time, Mr Heaven had possession of the unit.   As Mr Heaven attended the 31 July 2007 Extraordinary General Meeting, as a representative of Western Park, I infer that he received the notice of the meeting and the accompanying documents that dealt with the rock-fall issue.

[36]     Mr Heaven’s evidence at trial about his attendance at that meeting and his ascertainment of significant issues involving the rock-fall problems contrasts starkly

with evidence given in his original witness statement, in which he said he did not learn of significant rock-fall issues until December 2007.  I return to this issue when considering questions of credibility and reliability.11

[37]     Although one of Mr Heaven’s complaints was that Mr Baho failed to tell him that legal proceedings had been issued against the Augustus Body Corporate,12 at the time the Agreement was signed (and, indeed, when the July 2007 Extraordinary General Meeting was held) no proceedings had been filed or served.   Proceedings were not issued by The Strand Body Corporate until 26 October 2007.  They were brought against the Augustus Body Corporate, in the District Court at Auckland, on a cause of action based in private nuisance.   The Strand Body Corporate sought an injunction to require the Augustus Body Corporate “to take such steps as [the District
Court] considers are reasonable to abate the nuisance, including removing debris and putting in place an ongoing programme of maintenance sufficient to secure the cliff face and pohutukawa trees”.   No monetary compensation was sought.   However, because the District Court was chosen as the forum for the litigation, the maximum amount of damages that could have been ordered was $200,000.

Was any misrepresentation made?

[38]     As  I have  explained,  there  is  a  divergence  in  the  evidence  between  Mr Heaven and Ms Banks (on the one hand) and Mr Baho (on the other) as to what Mr Heaven  asked  and  how  Mr  Baho  responded  before  the Agreement  was  signed. Resolution of those conflicts requires an assessment of the credibility and reliability of the three relevant witnesses.

[39]     Mr Heaven’s version of events needs to be judged against statements made previously, both in Western Park’s Statement of Claim and in the written statement of his evidence that was exchanged prior to the trial.   They disclose a disturbing number of inconsistent statements on matters of fact that are central to Western
Park’s claim.

11	See paras [38]–[55] below.
12	See para [6] above.

[40]     In its initial Statement of Claim, Western Park pleaded a meeting between Mr Heaven and Mr Baho prior to the purchase of Unit D.  Western Park alleged that the  misrepresentation  was  made  at  a  second  meeting  between  Mr  Heaven  and Mr Baho, which took place at Unit D shortly before 16 May 2007.  There was no pleading to suggest that any other person was present at this meeting.  That differs from Mr Heaven’s trial assertion that Ms Banks was also there.

[41]     In his witness statement (exchanged before trial) Mr Heaven said that he met Mr Baho around the second week of May 2007, following an initial discussion about purchase when he called to uplift the cooker.13     During the course of this visit, Mr Heaven states that only he and Mr Baho were present and the visit lasted about
30 minutes.  No reference is made to the presence of Ms Banks at the meeting.

[42]     In his evidence in chief, Mr Heaven said that, on the morning of that visit, he was speaking “to a friend and business acquaintance”, Ms Banks.  After Mr Heaven explained the purpose of his proposed visit, Ms Banks indicated that she had some money to invest and might be interested in joining the purchase.  Mr Heaven states that he and Ms Banks went to the apartment and met with Mr Baho.  He went on to say that, on this occasion, he again asked Mr Baho whether there were any problems of which he needed to know, other than the leak, and Mr Baho responded that the leak on the upper wall was the only problem.   Ms Banks, he alleged, was present during that meeting.

[43]     Mr Baho said that he had volunteered information about the leak but was not asked a general question about whether any other problems existed.  He denied that Ms Banks was present at any of his meetings with Mr Heaven.  Indeed, even after seeing Ms Banks give evidence in Court, he did not recognise her.

[44]     Ms  Banks  confirmed  that  she  was  “a  friend  and  investment  partner”  of
Mr Heaven.  She had known him for about 11 years, of which she had joined him in investments for about eight.  She deposed that Mr Heaven had told her that he had

13         Although it is clear that the appliance was a cooker, Mr Heaven referred to an advertisement on TradeMe in which Mr Baho apparently stated that he intended to sell a washing machine and refrigerator.

come across Mr Baho while looking at TradeMe for a washing machine.  She went with Mr Heaven to the property.

[45]     Ms Banks accepted that (at some point) Mr Baho “may have volunteered information  about  there  being  a  minor  leak”.    After  she  and  Mr  Heaven  had completed an inspection, they met with Mr Baho in his office on the first floor of the unit.  She confirms Mr Heaven asked Mr Baho something to the effect of “is there anything else he needed to know about the apartment, any other issues or anything else perhaps he couldn’t see, that would affect him buying the property”.  Ms Banks says that she specifically recalls that question being asked “because I had heard him say it before and [remembered] thinking at the time ‘good old Darryll there he is in business mode’”.  She deposed that Mr Baho confirmed that the leak was the only thing about which Mr Heaven needed to be aware.   Ms Banks says that she paid attention to and took a lot of interest in what was said because she was considering investing in it with Mr Heaven.

[46]     Mr Heaven struck me, when giving evidence, as a successful businessman who tended to take a direct approach to his commercial activities, in particular to the negotiation of arrangements into which he wished to enter.  Mr Heaven is not one to worry (or care) too much about matters of detail.

[47]     On Mr Heaven’s own evidence, he was prepared to commit himself to a purchase of a property for a sum in excess of $1 million on the basis of a brief discussion with the vendor, having carried out no due diligence.   That discussion (apparently) satisfied Mr Heaven that he did not need to make any further inquiries, such as inspecting minutes of the Augustus Body Corporate.  Mr Heaven was able to obtain the benefit of money left in by Mr Baho for three years, without interest.

[48]     Mr  Heaven  and  companies  that  he  effectively  controls  have  substantial property holdings in Auckland.  He is familiar with the Auckland property market and likely to have been aware of the risks associated in buying any property with a cliff face near to the Auckland waterfront.

[49]   On the face of it, Ms Banks appeared a credible and reliable witness. Nevertheless, I have significant reservations about the reliability of the evidence she gave.   It is apparent, from her own evidence, that Ms Banks was not asked about these events for more than five years after they occurred.   It is surprising that she should now recall with some precision what was said, especially when she took no further interest in the acquisition – whether financial or otherwise.

[50]     In my view, Ms Banks’ evidence is more readily explained by her comment about Mr Heaven being in “business mode” and recalling the type of question that he asked.  I consider that it is more likely than not that Mr Heaven gave Ms Banks an outline of what he said happened when he saw her before the trial, and that she honestly (but incorrectly) reconstructed her memory of an event of that type, on the basis of his cues.  I find that Ms Banks is mistaken as to the occasion on which she heard a discussion of that type.  I put her evidence to one side as unreliable.

[51]     Although his recollections were (in part) imperfect, Mr Baho’s description of what occurred when he met Mr Heaven and discussed the possible sale of Unit D has a ring of truth about it.  Mr Baho’s voluntary disclosure of a problem with a “leak” to Mr Heaven does not sit easily with the proposition that he then deliberately failed, in answer to a specific question about a potential problem with rock-fall, not to disclose that.   The absence of any reference, in the side-agreement recording the parties’
understanding  about  the  “leaks”,14   of  any  assurance  that  there  were  no  “other

problems” is more consistent with Mr Baho’s version of material events.

[52]     Mr Baho struck me as an honest witness, doing his best to recall events that had occurred some six years before the hearing.   Mr Baho presented as a careful man, prepared to make concessions when necessary.   It is understandable that his recollection of the type of discussion on which Mr Heaven now relies is incomplete, particularly as the allegation was not raised for some years after the Agreement was
entered into.

14	See para [31] above.

[53]     In  contrast,  Mr  Heaven  was  prepared,  deliberately  I  find,  to  change  his evidence when he believed he would obtain some advantage by doing so.  I provide two illustrations of that tendency:

(a)       First, in his initial claim, Mr Heaven asserted that he did not learn of significant rock-fall issues until December 2007.  In fact, Mr Heaven was present at the Extraordinary General Meeting held on 31 July
2007 at which that topic was discussed in detail.  I consider that Mr Heaven deliberately referred to the later date in his original claim because he was aware that an acknowledgement of presence at the 31
July 2007 meeting, and a failure to raise the issue with Mr Baho at that time, would tell against him.

(b)       In 2009, Mr Heaven obtained a valuation of Unit D for the purpose of settlement discussions with Mr Baho.15     Mr Heaven acknowledged when  giving  evidence  that  he  sent  an  email  to  Mr  Baho  on  9
September 2009 to extract a more favourable settlement, on the basis of  a  valuation  that  would  make  no  reference  to  the  rock-fall problem.16       Mr  Heaven  accepted  in  evidence  that  his  email  to Mr Baho  was  false  and  was  used  to  “come  up  with  a  settlement figure”; something I would describe more accurately as an attempt to extract money from Mr Baho on an illegitimate basis.

[54]     Mr Heaven’s propensity to change evidence on material issues to suit the way in which the evidence was unfolding, and the obvious lack of any business ethics on his behalf (as evidenced by his conduct in relation to the 9 September 2009 email), lead me to conclude that Mr Heaven cannot be regarded as a credible witness. Indeed, I am not prepared to rely on any oral evidence he has given on a material point unless it was corroborated either by contemporaneous documentation or a
witness whose evidence I accept.

15	See para [73](c) and [74] below.

[55]     It is possible that Mr Heaven asked about “other problems” in an informal way.  However, if such a conversation took place, its informality would not have led Mr Baho to believe that he was giving a response to a question on which Mr Heaven intended to rely for the purpose of entering into the Agreement to acquire a property for a sum in excess of $1 million.   That view of the facts is consistent with Mr Baho’s honest disclosure of the leaks and his voluntary execution of a document that
was designed to protect Mr Heaven’s interests in relation to that.17

Western Park’s claim

(a)       Was there an outstanding requisition? – Clause 6.1(d) of the Agreement

[56]     It is common for agreements for sale and purchase of land to contain a provision whereby a vendor warrants that, as at the date of the agreement, no notice or demand has been received which directly or indirectly affects the property and has not been disclosed in writing to the purchaser.   The clause will also provide an assurance to the purchaser that the vendor has no knowledge of any requisition or outstanding requirement.  In this case, the relevant provision is cl 6.1(d):

6.0	Vendor’s warranties and undertakings

6.1	The vendor warrants and undertakes that at the date of this agreement the vendor has not:

(1)        received   any   notice   or   demand   and   has   no knowledge of any requisition or outstanding requirement

...

(d)	from any other party; or

....

(Emphasis added)

[57]     Mr Chesterman, for Western Park, placed reliance on Glaister Ennor’s letter to the Secretary of the Augustus Body Corporate of 6 October 200618 to establish a “requisition” of the type to which cl 6.1(d) was intended to apply.   In particular,
reliance was placed on their statement, on behalf of the Strand Body Corporate, that

17	See para [31] above.

if a meeting could not be arranged before 5pm on 27 October 2006 and an agreement reached before 1 December 2006, the solicitors had “instructions to commence proceedings in the District Court against [the Augustus Body Corporate] (and the individual owners) seeking specified relief.19

[58]     The  legal  question  is  whether  an  indication  of  the  possible  issue  of proceedings is a “notice or demand” from “any other party”, for the purposes of cl 6.1(d)  of  the  Agreement.    Mr  Chesterman  referred  me  to  the  judgment  of Associate Judge Bell, in Kaitaia Timber Co Ltd v Alternative Enterprises Ltd.20
Other relevant authorities are mentioned in a casenote on Judge Bell’s decision by

Professor D W McMorland.21

[59]     The Associate Judge discussed the nature of the disclosure obligation, saying:

[53]     What has to be disclosed under 6.1 is a notice, a demand, and knowledge   of   any   outstanding   requisition   and   of   any   requirement. Demands, requisitions and requirements are directive – some action must be taken or avoided.  An obligation to comply with a duty imposed in a general way by statute, regulation or by-law does not count.   For this case I assume that the obligation not to discharge stormwater or timber treatment chemicals except in accordance with the conditions of the discharge permits is more than  an  obligation  to  comply  generally  with  s  15  of  the  Resource Management  Act.     Compliance  with  the  particular  conditions  of  the discharge permits was required.

...

[55]      That deals with demands, requisitions and requirements, but it still leaves notices.  Potentially, “notices” could have a much wider scope.  They might not be limited to directive communications.  The defendants relied on the information set out in correspondence from the council as matters that Kaitaia Timber Company Ltd ought to have passed on under condition 6.1. They can only get home on that if “notice” is held to cover communications that convey information, even if they are not directive.

[60]     Judge  Bell  considered  factors  militating  against  the  proposition  that  a “notice” for cl 6.1 purposes might apply only to convey information.   The most important is the principle of caveat emptor.  As the Judge said, a purchaser assumes
a risk that a property may be subject to some defect; it is not the obligation of a

19	This part of the Glaister Ennor letter of 6 October 2006 is set out in full at para [15] above.
20	Kaitaia Timber Co Ltd v Alternative Enterprises Ltd (2012) 14 NZCPR 177 (HC).
21	Professor D W McMorland “Sale of Land; Kaitaia Timber Co Ltd v Alternative Enterprises Ltd
(2013) Butterworths Conveyancing Bulletin 137.

vendor to volunteer information of that type.22    I agree with Judge Bell that, while cl 6.1(1) warranties serve a useful purpose in requiring disclosure of directives from third parties, “it would be anomalous to hold that the warranty requires the vendor to disclose information about the property he has received from third parties, when there is no obligation on the vendor to disclose information he has obtained for himself”.23

[61]     Associate Judge Bell was interpreting a clause in materially similar terms to cl 6(1) of the Agreement.  He noted that its terms were “directive”.  The Judge held that militated against an obligation to convey information known to the vendor.

[62]     In my view, there are two reasons why cl 6.1(d) cannot apply on the facts of this case:

(a)       First, cl 6.1, for the reasons given by Judge Bell, is premised on the need for a vendor to disclose specific requisitions or outstanding requirements made by a third party against the vendor.  As at the date of the Agreement, 16 May 2007, there were no such requirements in place.   Glaister Ennor’s letter was not sufficient to amount to a requisition.24

(b)       Second, the interpretation for which Mr Chesterman contends, would create a conflict between cl 6.1(d) and cl 7.1 of the Agreement.   By cl 7.1  of  the  Agreement  Mr  Baho  warranted  that  there  are  “no unsatisfied judgments against the Body Corporate and no proceedings have been instituted against or by the Body Corporate”.   That was true.  No such proceedings had been issued as at the date on which the Agreement  was  signed.    They  were  not  issued  until  26  October
2007.25   It would be strange if, by cl 6.1(d) Mr Baho were obliged to
disclose something that he was not required to disclose under the more specific cl 7.1.

22	Kaitaia Timber Co Ltd v Alternative Enterprises Ltd (2012) 14 NZCPR 177 (HC) at para [56](a).
23	Ibid, at para [56](d).
24	See paras [13]–[15] above.
25	See para [36] above.

[63]     I hold against Mr Chesterman’s argument that cl 6.1 applies.  Mr Baho has no liability to Western Park on that basis.

(b)       The claim under s 6 of the Contractual Remedies Act 1979

[64]     Section 6(1) of the Contractual Remedies Act 1979 states:

6   Damages for misrepresentation

(1)     If a party to a contract has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made to him by or on behalf of another party to that contract—

(a)        He shall be entitled to damages from that other party in the same manner and to the same extent as if the representation were a term of the contract that has been broken; and

(b)        He shall not, in the case of a fraudulent misrepresentation, or of  an  innocent  misrepresentation  made  negligently,  be entitled to damages from that other party for deceit or negligence in respect of that misrepresentation.

...

[65]     The first question is whether there has been a “misrepresentation”.  The Act does  not  define  that  term.    Cases  decided  after  the Act  came  into  force  have considered whether there has been a “misrepresentation” by reference to whether a “representation” has been made which, whether for innocent or fraudulent reasons, is false.  The question of what constitutes a “representation” has been determined by reference to pre-existing law.26

[66]     I  am  not  satisfied  that  a  “representation”  was  in  fact  made.     The circumstances  in  which  Mr Baho  may have responded to  any inquiry from Mr Heaven about “other problems” were too informal to be regarded as an assurance of the correctness of a particular state of affairs.  In other words, Mr Baho did not utter any words that could be taken objectively as warranting that a particular state of affairs existed.

[67]     Even if I were wrong on the “representation” point, I hold that any false statement that Mr Baho may have made innocently did not “induce” Mr Heaven to

26	Burrows, Finn and Todd, Law of Contract in New Zealand (4th  ed, LexisNexis, Wellington,
2012) at 374.

enter into the Agreement.27    “Inducement”, in this context, is a specie of reliance. Generally speaking, a purchaser’s misunderstanding as to the true position “must have been one of the reasons which induced him or her to make the contract”28 before the misrepresentation becomes actionable under s 6(1).    If no reasonable person in the position of the purchaser would have relied on a statement of the type given, it would be a rare case in which the misrepresentation could be said to have “induced” the purchaser to buy the property.29

[68]     Mr Heaven bears the onus of proving, on a balance of probabilities, that he was induced to enter into the agreement for sale and purchase on the basis of the misrepresentation.   In doing so, it is not necessary for him to prove that any misrepresentation was the most important reason for entering into the agreement; it is sufficient if it were an operating cause of his decision.

[69]     I am not satisfied that Mr Heaven was induced to enter into the contract by any “misrepresentation” of the type he alleges.  I have reached that conclusion for these reasons:

(a)       First, I have found any relevant statement to have been made in an informal context, in which Mr Baho could not have been expected to be responding in any considered fashion.30   The open ended nature of the question and Mr Heaven’s subsequent conduct do not suggest that any misrepresentation could have influenced Mr Heaven’s decision to buy the property.

(b)       Second, after Mr Heaven’s discussions with Mr Baho, he required Mr Baho’s solicitors to prepare a side-agreement which each could sign dealing with the question of the leak.   No mention is made in that agreement  of  any  other  “representation”  that  Mr  Baho  may  have
made.  If the “no other problems” statement had induced Mr Heaven

27	Contractual Remedies Act 1979, s 6(1), set out at para [64] above.
28	Burrows, Finn and Todd, Law of Contract in New Zealand (4th  ed, LexisNexis, Wellington,
2012) at 386.
29	See, for example, Savill v NZI Finance Ltd [1990] 3 NZLR 135 (CA) at 145 per Hardie Boys J, with whom Casey J agreed. This point was not addressed in the separate judgment of Bisson J.
30	See para [52] above.

to buy the property it is likely that it would have been included in the side-agreement.31

(c)       Third, Mr Heaven (at the latest) discovered the nature and extent of the rock-fall claim when he attended the Extraordinary General Meeting  of  the  Augustus  Body  Corporate  on  31  July  2007.32
Nevertheless, he did not raise this topic with Mr Baho before settlement.33    That suggests to me that he did not place any store on the information he received on 31 July about the rock-fall problem.

(d)       Fourth, in his initial brief of evidence for the hearing, Mr Heaven referred to an Annual General Meeting on 19 December 2007 that he had attended.  In oral evidence, he corrected that statement to confirm that he did, in fact, attend the 31 July 2007 meeting.  It was not until sometime in June 2008 that Mr Heaven advised Mr Baho’s then solicitors that he had not been made aware of the nuisance claim. This issue was raised in correspondence in the context of the first instalment of moneys under the second mortgage falling due for payment.  I am satisfied that this late raising of the issue was a cynical attempt  by  Mr  Heaven  to  avoid  payment  of  moneys  owing  to Mr Baho.

[70]     Having found that Mr Heaven was not induced to enter into the agreement for sale and purchase by the false representation, Western Park’s claim under s 6(1) of the Contractual Remedies Act must fail.

(c)       Quantum

[71]     Having found against Western Park’s claim on liability grounds, it is strictly unnecessary for me to consider questions of quantum.  However, should my decision be taken further, it may assist if I were to set out briefly my views on the question of
damages.

31	The terms of the side-agreement are set out at para [31] above.
32	See paras [34]–[36] above.
33	See also sub-para (d) below.

[72]     Even if I had found in favour of Western Park on the liability question, I would not have found any loss.   I reach that conclusion on the basis of valuation evidence called at trial.

[73]     My starting point are contemporary valuations of Unit D undertaken by Mr

Morley, an experienced valuer instructed by Mr Heaven.  In short:

(a)       On 22 May 2007, Mr Morley valued Unit D at $1,298,000, for the purpose of seeking finance for the purpose.    The mortgage recommendation was $860,000.   The 22 May 2007 valuation was higher than the purchase price of $1,225,000.

(b)       On 11 March 2008, Mr Morley, at Mr Heaven’s request, provided a further valuation for the financier to indicate whether the property had maintained its value since purchase.   Mr Morley confirmed that the property had a value of no less than $1,298,000 as property “in the Parnell area has held its value through the last 10 months”.  By this date, Mr Heaven was aware of the extent of the rock-fall problems and the issue of proceedings by the Strand Body Corporate.

(c)       On 11 September 2009, Mr Morley prepared a report valuing the property   at   $1,300,000,   with   a   mortgage   recommendation   of
$860,600.   The report is extensive but does not refer to rock-fall problems,  notwithstanding  its  description  of  the  property’s topography.

(d)       On  13 April  2010,  Mr  Morley  provided  a  letter  to  Mr  Heaven’s solicitors in response to a request for a report on the reduction in value of  Unit  D  as  a  result  of  information  they had  received  about  an “unstable bank below the four apartments at 30 Augustus Terrace”. Mr Morley wrote:

We completed a valuation for your client when he purchased this property in May 2007.  At that date we valued the property at $1.298m and made a mortgage recommendation of $860,000 against the property.  Clearly had we had access

to the reports from Tonkin Taylor (engineers), Babbage Consultants (geotechnical engineers) and Price Baker Berridge (lawyers) that you have now provided us with we would, firstly, have recommended that your client not purchase the property and/or secondly if there had been a desire to proceed we would have suggested that the purchase price and the valuation would have been discounted by at least  $300,000  to  take  into  account  the  work  that  is potentially needed to repair the bank and the ongoing “stigma” attached to the property due to the instability of the bank.  We understand there has been considerable work put in place to try and stabilise this bank and trim the trees to reduce their weight but as of today there is no guarantee that further rock falls will not occur and that going forward there will be a need for periodic clearance of rubble from the bottom of  the  bank.    Further  stabilisation  work  and  tree trimming will also be required from time to time.

You have advised that at the time of the purchase your client was  not  aware of the reports noted above  that had been prepared   for   Body   Corporate   164995   relating   to   the instability of the bank.  Access to this bank is closed off by buildings at the top and the bottom so that remedial work will be “prohibitively expensive” (Babbage page 2).  These reports clearly show that the remedial costs to repair this bank and to try and stabilise it would be in the vicinity of
$1,000,000 which  would have  been shared with the  four property owners.

We  are  also  concerned  that  these  four  properties  will continue to be “tainted” by the fact that they are built over an  unstable  bank.     Knowledge  and  awareness  of  this unstable bank must be provided to any intending purchaser. It is our opinion that this property will be more difficult to sell in the future because of the uncertainty relating to the instability of the bank and this needs to be reflected in its market value.

We are therefore of the opinion that compensation from the
previous  owner  of  your  client’s  property  in  the  order  of
$300,000 would be required to fairly reflect the events that
have  occurred,  the  previous  owner’s  knowledge  of  the
problems with the site when he sold the property in 2007 and the ongoing costs to properly remedy and contain the problem.

[74]	The way in which the 11 September 2009 valuation was undertaken has some significance  in  the  context  of  an  email  sent  by  Mr  Heaven  to  Mr  Baho  on  9
September 2009.  He said:

Hi Sinan, I’ve got Morleys doing an updated valuation and the’re going to
leave out the scary bits and hopefully get me to 1.2m

There have been added costs but ignoring these my offer is $145,000 at
.73usd payable in full on the 9th November 2009 as full and final settlement of all outstanding debt.

Naturally I think it’s a good result for both of us and in time you may agree. If you think about it it’s a very small discount for a short settlement of something that had the potential to have become quite nasty

(Emphasis added)

[75]     Other valuation evidence, given on a reconstructed basis by Messrs Cheyne and Taylor, tended to support the valuations provided on a contemporary basis by Mr Morley, other than the report to Western Park’s solicitors of 13 April 2010.   I am satisfied that their valuation evidence should be accepted.   That being so, no diminution in value of Unit D can be established as having flowed from the rock-fall issue, even if a false representation had been made.

Counterclaim

[76]     Mr Baho seeks judgment on the amount outstanding on the second mortgage. He sues Western Park (as principal debtor) and Mr Heaven and the trustees of the First Class Trust, as guarantors.   By dismissing Western Park’s claims against Mr Baho, the defence of equitable set-off is unavailable.   The only remaining issue concerns the rate for the US dollar conversion figure.

[77]     Mr Chesterman points to evidence from Mr Baho that the agreed exchange rate under the mortgage was $US.073 to $NZ1, whereas the rate actually charged was  $US0.66  to  $NZ1.00.    That,  he  submits,  inflated  the  interest  payable  and rendered notices34 issued to enforce payment of the outstanding sum void.

[78]     Mr Heaven also alleges that, when the second mortgage was entered into, there was an agreement between himself and Mr Baho that repayments would be borrowed against the property; in other words, that Mr Heaven would only repay from borrowed funds.   Mr Chesterman suggests that in the absence of a “clear denial”  from  Mr  Baho,  Mr  Heaven’s  contemporary  conduct  confirms  such  an
agreement.

34	Under the Property Law Act 2007.

[79]     I accept Ms Lethbridge’s submission that the issue falls to be determined on the basis of the terms of the agreement for sale and purchase and the mortgage themselves.   I do not accept Mr Heaven’s evidence about any arrangements inconsistent with those terms.  For the avoidance of doubt, that finding includes one that the priority figure has not changed because there is nothing to prove that any alteration was agreed in writing by Mr Baho.

[80]     Clauses 15 and 16 of the agreement for sale and purchase provide:

15.	The balance of the purchase price is to be paid as follows: A	As to the sum of $750,000 on the Possession Date; and
B	As to the balance by the Purchaser executing a mortgage in favour of the Vendor on the following terms:

i	Principal Sum:	$US219,000.00,  being  the  sum  of
$NZ300,000  at  an  exchange  rate  of  $US0.73  for  per
$NZ1.00

i	Term:	2 Years from the Possession Date ii	Interest Rate:	Nil
iii	Penalty Interest Rate:	19% per annum

iv         Principal Repayments:  $US91,250.00 on the 1st anniversary of the Possession Date; and

$US127,750.00 on the 2nd anniversary of the Possession Date; and

v          Security:                        A second registered mortgage where the 1st Mortgagee held a priority not exceeding $750,000.00 plus two years interest and costs or such other priority figure as the Vendor may approve in writing.

vi         Guarantee:                     Where   the   Purchaser   nominates another purchaser, Darryll Heaven, the Trustees for the time being of the First Class Trust and, where the Nominee is a limited liability company, the directors and/or shareholders of the Nominee will guarantee the performance of the mortgagor under the mortgage.

vii	Form of Mortgage:	ADLS  Mortgage  Instrument  (fixed sum) Ref: 8002.

16        The Vendor acknowledges that notwithstanding the provisions of Clause 3.12 hereof, penalty interest will be payable where the Purchaser is in default hereunder only if the default continues after
15th  June, 2007, provided however that nothing herein affects the
Vendor’s rights under Clause 9.

[81]     The mortgage executed both on behalf of Western Park and the guarantors, shows an agreement to repayment of a principal sum of $US219,000 on the basis that the mortgage was to run until 15 June 2009.  $US91,250 was to be paid on 15
June 2008 and $US127,750 on 15 June 2009.   A “lower interest rate” was not specified, but a “higher interest rate” of 19% was.  Mr Heaven accepted in evidence that interest was payable from 15 June 2007.

[82]    Under the special conditions, Mr Baho (as mortgagee) consented to the registration of a prior mortgage.  Clause 1 of the special conditions stated:

1.        The Mortgagee consents to the registration of a prior mortgage PROVIDED HOWEVER that the Mortgagor will be in default of its obligations under this mortgage if the prior mortgage secures an amount exceeding $NZ750,000.00 plus two (2) years interest and costs  associated  with  the  enforcement  of  the  Mortgagee’s  rights under the first mortgage.

[83]     The  conversion  rates  from  US  dollars  to  NZ  dollars  was,  I  find,  to  be calculated as at the date on which repayment was due.  I am satisfied that the amount demanded by notice under s 119 of the Property Law Act 2007 on 21 December
2011 was accurate, being a sum of $204,073.48 due on 25 May 2009 with interest on that sum to 21 December 2011, $97,625.39.   The amount outstanding, as at 21
December 2011 was $301,698.87.  I am satisfied that the correct conversion rate was charged.

[84]     In closing submissions, Ms Lethbridge sought leave to amend the Statement of Claim to obtain an order for possession of the property.   I was not prepared to make an order to that effect at this stage.  I granted leave for the Statement of Claim

to be amended and adjourned the proceeding for a conference at a time when the application could be pursued, if necessary.35

[85]   On the counterclaim, I entered judgment against Western Park and the counterclaim defendants in the sum of $301,698.87 together with interest thereon at the rate of 19% per annum from 21 December 2011 to the date of judgment.

Result

[86]     For those reasons, I made the orders set out in my judgment of 10 February

2014.36

[87]     I thank counsel for their assistance.

P R Heath J

35	See para [2](b) above.
36	Western Park Village Ltd v Baho [2014] NZHC 102 at para [2].