w w w . L a w y e r S e r v i c e s . i n



Lendlease Capital Services Pty Limited v/s Arena Living Holdings Limited

    CA No. 358 of 2020

    Decided On, 16 August 2021

    At, Court of Appeal of New Zealand

    By, THE HONOURABLE MR. JUSTICE MILLER
    By, THE HONOURABLE MR. JUSTICE BREWER & THE HONOURABLE MR. JUSTICE DUNNINGHAM

    For the Appellant: J.F. Anderson QC, M. Eastwick-Field, G.A. Lamb, Advocates. For the Respondent: S.J.P. Ladd, B.J. Ward, Advocates.



Judgment Text

REASONS

Brewer and Dunningham JJ [1]

Miller J [86]

BREWER AND DUNNINGHAM JJ

(Given by Dunningham J)

[1] This appeal considers what constitutes adequate notification of a breach of warranty claim under the terms of a sale and purchase agreement (SPA) for five retirement villages (the Villages).

[2] The issue arises in the context of an application by the appellant (Lendlease) to strike out the second cause of action in proceedings brought by the respondent (Arena) for breach of warranties given in the SPA. Lendlease brought the application on the grounds Arena gave insufficient notice to Lendlease of watertightness issues caused by a lack of maintenance to the Villages before the contractual time limit expired, and so failed to engage the relevant warranty as to maintenance of the buildings in the SPA (the Maintenance Warranty). Specifically, Arena gave notice within the time limit of a breach of a watertightness warranty (the Watertightness Warranty) and “likely other Warranties”.

[3] In the High Court, Associate Judge Bell refused to strike out the second cause of action, concluding the “looseness” of the reference to breaches of other warranties was not fatal to the notices,[1] and the fact a breach of the Maintenance Warranty relied on was not expressly notified did not mean Lendlease had not been “fairly informed of the basis of the claim”.[2] The Judge acknowledged, however, that in reaching this conclusion he was departing from what he saw as “an unduly strict approach in the English cases”.[3]

[4] Lendlease appeals that decision saying the notices given only referenced the Watertightness Warranty. They neither expressly, nor by their general reference to “other Warranties”, conveyed to it an alleged breach of the Maintenance Warranty. Accordingly, the claim in respect of the Maintenance Warranty should be struck out.

[5] Arena, however, says Lendlease is adopting an unduly technical approach. It says it gave Lendlease sufficient notice of its warranty claims for water damage to buildings at three of the Villages and says it is “inconceivable” that Lendlease did not recognise Arena was making a warranty claim which encompassed maintenance failings as well as building defects as the cause of the water damage.

Principles on appeal

[6] The appeal concerns an application to strike out part of a pleading. The applicable considerations are well settled:[4]

(a) the pleaded allegations of fact are assumed to be true, unless they are entirely speculative and without foundation;

(b) the pleaded causes of action or defence must be so clearly untenable the Court can be certain they cannot succeed;

(c) the jurisdiction is to be exercised sparingly and only in a clear case;

(d) the jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument; and

(e) the Court should be slow to strike out a claim in any developing area of law.

[7] A claim can be struck out where there is a clear limitation defence. In Matai Industries Ltd v Jensen Tipping J said:[5]

(a) the onus is on the applicant to demonstrate the plaintiff’s claim is time barred;

(b) if the plaintiff can show there is a fair argument that the limitation period does not apply, then the matter must go to trial; and

(c) the Court should be slow to strike out a claim or cause of action altogether, however, a defendant should not be “vexed” by proceeding to trial where the answer is “obvious and inevitable”.

[8] In Murray v Morel & Co Ltd Tipping J said the defendant must satisfy the Court the claim is “so clearly [time]-barred” that it can “properly be regarded as frivolous, vexatious or an abuse of process”.[6]

[9] Both parties recognise the High Court’s assessment of whether to strike out a cause of action is discretionary. On appeal, therefore, Lendlease must show that the High Court acted on a wrong principle, failed to take into account some relevant matter, took account of an irrelevant matter or was plainly wrong.[7]

The factual background

[10] On 31 January 2016 Arena entered into the SPA with PLT New Zealand Pty Ltd (PLT) to purchase five retirement villages, including the Peninsula Club, Mayfair and Parklane Villages. PLT gave warranties under the SPA, including the following two warranties at sch 2 cl 14:

14.1 The plant and buildings of the Group (including the Business Premises) are appropriately maintained in all material respects having regard to their age and comply in all materials respects with the standards required by applicable Law.

14.2 No apartment building or community centre building forming part of the Business Premises has significant and systemic watertightness issues which would require remedial works which result in a Loss to the Group in excess of $7,500,000.

In this judgment we refer to the warranty at cl 14.1 as the Maintenance Warranty and the warranty at cl 14.2 as the Watertightness Warranty.

[11] The Watertightness Warranty was subject to a specific threshold before a claim could be made, although how this threshold was to apply is the subject of a separate dispute. In contrast, the Maintenance Warranty is subject to a lesser threshold specified in cl 10.6 of the SPA. Under cl 10.6, Arena was only entitled to pursue a claim for loss from breach of warranty where the amount of the claim (excluding legal costs) exceeded $240,000. There is also a threshold for aggregated claims.

[12] Under cl 10.4 of the SPA, Arena was not entitled to make or pursue a claim for breach of these warranties, unless Arena “acting in good faith, gives [PLT] written notice of the claim setting out reasonable particulars of the grounds on which it is based”. Such notice was required to be given by 11 January 2018.

[13] Arena issued two notices to PLT. The first was a letter dated 14 July 2017, and its subject line included the words “Notice of Claim”. It said Arena had become aware of significant weathertightness issues at Mayfair Village that it considered would give rise to a breach of the Watertightness Warranty and “likely other Warranties”. It concluded:

Accordingly, although [Arena] is still in the process of investigating the defects, the purpose of this letter is to put PLT on notice that Arena has a claim against PLT for breach of the Warranties.

[14] On 1 August 2017 Arena sent an update to PLT on the scope of the testing at Mayfair Village. It advised it would provide the results of air quality testing and expert reports and suggested Lendlease’s experts then visit the site. The letter also advised investigations would be conducted at the Parklane, Knightsbridge and Peninsula Club Villages.

[15] On 24 August 2017 Arena sent PLT a building inspection report and a preliminary estimate of the remedial costs for repairs at Mayfair Village. Again it invited Lendlease’s experts to inspect the property.

[16] On 13 November 2017, the executive chairman of Arena emailed the managing director of PLT. In the email he advised Arena had undertaken investigative work on the apartment and community buildings at the Parklane, Peninsula and Knightsbridge Villages, and initial works on Knightsbridge had shown watertightness failure and frame moisture levels well above 18 per cent. Arena advised it would have final works and analyses done on these buildings in mid December and would “advise of any further notification required under the SPA indemnity at that time”.

[17] On 22 December 2017 PLT received Arena’s second notice of claim. The subject line of the letter included the words “Additional Notice of Claim (Peninsula Club and Parklane Villages)”. By way of background, it referred to the SPA, and the Notice of Claim dated 14 July 2017 in respect of watertightness issues at Mayfair Village. It then stated that Arena had become aware of “significant and systemic watertightness issues” at the Peninsula Club and Parklane Villages. These included, but were not limited to, “significant issues with cladding without cavities ... elevated moisture content in the building frame and frame degradation at [specified parts of the buildings]”. It went on to say it considered the defects would give rise to a breach of the Watertightness Warranty and “likely other Warranties”. It concluded by saying:

... the purpose of this letter is to put PLT on notice that [Arena] has further claims against PLT for breach of the Warranties in respect of the issues at Peninsula Club and Parklane.

[18] There was further correspondence in 2018 between Arena and PLT’s lawyers after the deadline for notifying a warranty claim had passed. On 23 April 2018 PLT sent a letter to Arena relating to Mayfair Village in which it alleged “there are significant maintenance issues on both buildings which should have been attended to relating to the deck and roof/gutter areas in particular”.

[19] On 12 June 2018 Arena’s lawyers responded noting the assertions regarding maintenance issues and rejecting those issues were due to its own maintenance failures. Arena said, to the contrary, it had become aware of significant maintenance issues during the investigations which identified clear underinvestment by PLT prior to Arena’s ownership of the Villages.

[20] On 7 August 2018 PLT’s lawyers again wrote to Arena’s lawyers requesting they be kept informed of the ongoing investigations, and saying “[t]hat position hasn’t changed and (should there be any doubt) it includes claims (such as those now made in your 22 December 2017 letter) regarding maintenance”.

[21] On 23 October 2018, PLT was consolidated into Lendlease by order of the Federal Court of Australia and the liabilities of PLT became liabilities of Lendlease.

[22] Arena commenced proceedings against Lendlease on 17 July 2019 alleging breaches of both the Watertightness Warranty (the first cause of action) and the Maintenance Warranty (the second cause of action). The third cause of action is a rectification claim in respect of the Watertightness Warranty, to ensure the threshold before a claim can be made under that warranty, of $7,500,000, applies to the aggregate cost of remedial works on all the buildings and not on a per building basis, as maintained by Lendlease.

The Law

[23] Counsel advise there are no New Zealand authorities on the requirements for notification of claims for breach of warranty under sale and purchase contracts, in advance of contractual time bars, and we accept that is the case. However, they draw our attention to a number of English cases.

[24] In Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd, the English Court of Appeal considered the adequacy of notice given for an alleged breach of warranty under a sale and purchase agreement.[8] Under the agreement the purchaser was required to give notice “setting out such particulars of the grounds on which such claim is based as are then known to the Purchaser promptly and in any event ... within eighteen months of the completion date”.[9]

[25] The letter relied on as giving the requisite notice in writing said:[10]

It now clear that the Management Accounts were manifestly inaccurate ...

The purpose of this letter is to notify you for the purposes of clause 11.5.1 of the Agreement, ... that a substantial claim is likely to be made against STC for breach of the warranties contained in the Agreement.

We shall provide you with further details of the grounds of this claim and of the quantum in the near future.

[26] The Court of Appeal agreed with the lower Court that:[11]

The clear commercial purpose of the clause includes that the vendor should know at the earliest practicable date in sufficiently formal written terms that a particularised claim for breach of warranty is to be made so that they may take such steps as are available to them to deal with it.

The Court went on to say that:[12]

Certainty is a crucial foundation for commercial activity. Certainty is only achieved when the vendor is left in no reasonable doubt not only that a claim may be brought but of the particulars of the ground upon which the claim is to be based.

In Senate Electrical, the Court held the letter relied on was inadequate to constitute notice as required under the agreement. The reference to the provision of further particulars was prospective rather than retrospective and so did not impliedly incorporate what had been said orally in earlier meetings. In any event, oral exchanges did not meet the requirement that the grounds for the claim be set out in writing.[13] Accordingly, the claim under the relevant warranty was dismissed.

[27] In RWE Nukem Ltd v AEA Technology plc, the English High Court considered the adequacy of notice given under an agreement for sale and purchase of a nuclear engineering business.[14] The agreement required the purchaser give “written particulars” of claims for breach of warranties under the agreement within a 24-month timeframe by “giving details of the specific matter as are available to the Purchaser ... in respect of which such Claim is made”.[15]

[28] The judgment traversed earlier cases, including Senate Electrical, and said the following propositions could be distilled from those cases:[16]

(a) every notification clause turns on its own wording;

(b) where such notification clauses operate as a condition precedent to liability, the party bringing the claim must demonstrate it has complied with the notification requirement;

(c) the wording should be interpreted by reference to the parties’ commercial intent, which in this case was that the vendor should know at the earliest practical date, in sufficiently formal written terms, that a claim for breach of warranty is being made;

(d) where the clause requires particulars of the “grounds on which a claim is based” be provided, the notice should be couched in sufficiently clear and unambiguous terms as to leave no reasonable doubt about the ground of the claim and to leave no room for argument about the particulars of the claim; and

(e) in all cases it is important to consider the detailed claim being made in terms of the breach complained of, and the remedy sought, to ensure the claim was properly notified.

[29] The judgment went on to say:[17]

I do not think one can lay down too rigid a formula for ascertaining what precise particulars or details have to be notified: the answer is that it will all depend. However ... I would expect that a compliant notice would identify the particular warranty that was alleged to have been breached; I would expect that, at least in general terms, the notice would explain why it had been breached, with at least some sort of particularisation of the facts upon which such an allegation was based, and would give at least some sort of indication of what loss had been suffered ...

[30] In that case, the Court found that only one of the three sets of claims had been adequately notified. The letters relied on as notification of other claims did not disclose the nature of the claims the plaintiff now sought to bring.[18] However, in the claim which was adequately notified, the Judge held the lack of a reference to the specific contractual provisions relied on was not fatal where the nature of the claim was otherwise adequately summarised.[19]

[31] In IPSOS SA v Dentsu Aegis Network Ltd,[20] the English High Court again traversed the earlier cases, including RWE Nukem and Senate Electrical. From the cases considered, four broad propositions were derived:

(a) the commercial purpose of such clauses are to ensure that sellers know, in sufficiently formal terms, that a claim for breach of warranty is to be made, so financial provision can be made for it, and such a purpose would not be served if the notice is uninformative or unclear;[21]

(b) in construing the notice, the question is how it would be understood by a reasonable recipient with knowledge of the context in which it was sent;[22]

(c) the notice must specify that a claim is actually being made, rather than indicating the possibility of a claim;[23]

(d) where there is a requirement for certain matters to be “specified” in the notice, this suggests very strongly that it is not sufficient that those matters are left to be inferred.[24]

[32] In that case, the letter relied on did not state it was a Claim Notice, nor was there any statement that the purchaser was giving notice for breach of the relevant Seller Warranty. On the contrary, the language was tentative, referring to “circumstances that may give rise to a Seller Warranty claim”.[25] There was also no attempt to specify “the underlying facts, events or circumstances, which constituted the factual basis upon which the claim was posited”.[26] In short, there was no real attempt to identify the form and substance of the claim. Accordingly, the High Court held no effective Claim Notice was given before the relevant deadline and the claim failed.

[33] In Teoco UK Ltd v Aircom Jersey 4 Ltd, the English Court of Appeal considered an appeal from a decision striking out claims for breach of warranty for failure to give adequate notice.[27] The agreement was for the purchase of shares in two airline businesses and gave warranties as to the tax position of the airlines. Before the warranties could be sued on, the purchaser was required to give notice “setting out reasonable details of the Claim (including the grounds on which it is based and the Purchaser’s good faith estimate of the amount of the Claim ...)”.[28]

[34] The Court of Appeal held the written particulars required by the notification clause had not been satisfied by the letters relied on by the plaintiff because the legal basis for the claim had not been specified. The letters, referred generally to the “existence of Claims, being either Warranty Claims or Tax Claims”[29] and to “Claims under the Tax Warranties and the Tax Covenants of the SPA”,[30] without identifying the specific warranties or covenants under which the claims would be brought. The Court held that while it was conceivable the notice requirements could be met without mentioning a particular warranty, in general, setting out the grounds of claim required explicit reference to the relevant warranty or provision relied on. Here, there was real scope for doubt as to which provisions of the SPA were considered relevant by the purchaser, so the notification requirements of the SPA had not been met.[31]

[35] Finally, a comprehensive discussion of the relevant authorities is contained in the recent English High Court judgment in Dodika Ltd v United Luck Group Holdings Ltd.[32] In that case, the agreement required the purchaser to give “written notice to the Warrantors stating in reasonable detail the matter which gives rise to such Claim, the nature of such Claim, and (so far as reasonably practical) the amount claimed” in advance of a deadline.[33]

[36] The High Court held the relevant notification letter was inadequate as it “did not provide reasonable detail of ‘the matter which [gave] rise to such Claim’”.[34] This was because the letter did not indicate the facts, events or circumstances giving rise to the claim under the tax covenant. The reference to an investigation by the Slovene Tax Authority and the fact there was a tax investigation into “transfer pricing practices”, without more, did not serve the purpose of informing the claimants of the matter giving rise to the claim.[35]

[37] However, on appeal, it was held the letter did serve to identify the matter giving rise to the claim “albeit at a high level of generality”.[36] This is because the letter:[37]

... would reasonably have been understood by a recipient who was wholly unfamiliar with the investigation by the Tax Authority, ... as advancing a claim on the basis that [the company] would or might be held liable by the Tax Authority to pay unpaid tax, which was a liability which arose from the inappropriate application of its transfer pricing practices to transactions for goods or services between it and other companies within the group.

[38] The decision noted that because the agreement did not specify precisely what information the notice needed to contain, but simply required the claimant to state things “in reasonable detail”, the Court could take into account what was already known to the recipient in deciding whether the notice complied with that requirement.[38]

[39] In our view, sale and purchase agreements do not fall into a special category for notice purposes. Similar notice provisions are often found in other commercial contracts, as Lord Steyn pointed out in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd.[39] What such provisions have in common is that they authorise notices which are effective, though given unilaterally, without the other party’s consent. For this reason, as observed by Mannai Investment, they have been described as “technical” documents, meaning not that they must follow any particular legal form or use any particular form of words, but that they must conform to the contract’s notice requirements.[40]

[40] Equally, a strict approach may not apply where there is an obvious error in the notice. In Carradine Properties Ltd v Aslam, where the landlord was required to give 12 months’ notice in writing, a notice to terminate a lease was given in September 1974.[41] Inadvertently the notice said it intended to terminate the lease in September 1973, not September 1975. However, the notice was held to be valid. The Court said it would be obvious to a reasonable tenant reading the notice and knowing the terms of the lease, that the giving of a past date for termination of the lease was a slip and did not invalidate the notice.[42] In other words, the construction of notices must be approached objectively taking into account how a reasonable recipient, knowing the terms of the contract, would have understood it.[43]

[41] In our view, the principles which can be extracted from the cases are as follows:

(a) A notice is intended to ensure the recipient knows a timely claim is being made, or a right is being exercised, under the contract.

(b) For that reason, the notice must comply sufficiently with the contract specifications as to timing, form and particulars. If it does not — for example, if it is given out of time — the notice is ineffective.

(c) Compliance is a question of interpretation of the contract. That involves an objective approach with the aim of ascertaining the meaning which the notice would have conveyed to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time.[44]

(d) The reasonable recipient must be credited with knowledge of the notice provision, including the date by which notice must be given and the commercial context. For this reason, a notice may be effective although it contains what is clearly a clerical error.[45]

The High Court decision

[42] In the High Court the Associate Judge traversed the key English decisions discussed above, but placed particular focus on the decision in Mannai Investment as to how contractual notices should be construed.[46] As already observed, in that case Lord Steyn held there was no reason for such clauses to be in a special category, saying:[47]

Even if such notices under contractual rights reserved contain errors they may be valid if they are “sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate:” ...

[43] In the present case, the Associate Judge said there were two purposes of the notification clause.[48] The first was to set a cut-off date by which the vendor is to be notified of any claims for breach of warranty. In that regard he considered Arena’s lawyers’ letters of 14 July 2017 and 22 December 2017 contained appropriate language indicating that a claim was being made.[49] The second purpose was to inform the vendor about the claim and “to allow the vendor to consider what steps it should take to deal with the claim”.[50] The Judge considered the second purpose did not require the vendor to do anything, and that could be compared with contractual notices that require the recipient to do or refrain from doing something. In the latter case, the person receiving the notice must be under no doubt as to what is required, which was the context of the cases cited by Lord Steyn in Mannai Investment.[51]

[44] However, in the present case the Associate Judge concluded “[t]hat heightened need for clarity is not present when the notice is only required to convey information”.[52] He said:[53]

As a failure to comply with cl 10.4 means that a purchaser is denied what might otherwise be a worthy claim, some caution is required before acceding too readily to claims that the vendor has not been adequately informed, when there has been a genuine effort to inform the vendor of the basis of a claim.

[45] The Associate Judge went on to discuss the difficulty of identifying the causes of weathertightness defects in buildings, noting that when defects appear, owners may have limited knowledge of the extent of the damage, the causes, the appropriate remedial steps and the full extent of the losses.[54] That is why, under the Weathertight Homes Resolution Services Act 2006, the owner of a leaky home can apply for an assessor’s report and in doing so, stop time running for limitation purposes.[55] In short, the Associate Judge considered some leniency should be afforded to owners of leaky buildings in terms of notifying a claim because of the difficulty of knowing what has caused the problem until full investigations are done.

Submissions for Lendlease

[46] Lendlease submits there is nothing in the judgment in Mannai Investment[56] that supports the distinction made by the Associate Judge, nor is there any other authority that draws such a distinction between notice provisions which require action and those that require information. The interpretation of a particular notice provision should turn on its own wording and context.[57] Lendlease says the creation of such a distinction is contrary to the established body of English authority which emphasises the purpose of notice provisions such as cl 10.4 of the SPA is to provide certainty and clarity, and it would be undesirable to endorse such a distinction.

[47] Lendlease’s second ground of appeal is that there is no good reason to depart from the English authorities discussed in [24] to [38] above. While the Associate Judge considered they imposed an “unduly strict approach”,[58] the approach taken in Senate Electrical and subsequent cases is consistent with the judgment of Lord Steyn in Mannai Investments, which itself has been cited with approval in the New Zealand Courts.[59]

[48] Ms Anderson QC, for Lendlease, emphasises the English approach has been developed and refined over a number of cases and over several decades at both High Court and Court of Appeal level. She also says there is no compelling policy or other reason why New Zealand law should adopt a different or less strict approach to the interpretation of notices of this nature. Furthermore, in the absence of any directly relevant New Zealand authorities, commercial parties are likely to have taken guidance from the established position under English law. A departure from that approach could result in an interpretation contrary to those parties’ expectations.

[49] Lendlease’s next submission is that the High Court was wrong to find cl 10.4 was satisfied by reference to the Watertightness Warranty and to watertightness defects and did not require Arena to refer to the Maintenance Warranty or to give any information about the alleged grounds for a claim against this warranty. In Ms Anderson’s submission, the High Court’s finding that it remained open to Arena to claim under other warranties would undercut the very purpose of the notice regime under the SPA. The Court was therefore wrong to conclude it would be “unduly oppressive” for Arena to particularise its claim at the notification stage.[60] The parties had negotiated and agreed to a warranty claim regime that gave Arena 18 months after completion to identify and notify any alleged breaches. Arena should therefore be held to the commercial bargain it struck.

[50] In Ms Anderson’s submission, the High Court’s conclusion leads to an incongruous result as the notice provided does not have to identify the warranty claimed to be breached on the basis such a requirement would be unduly onerous, but the recipient of the notice is deemed to have appreciated that a claim was made under the Maintenance Warranty on the basis the notice was sufficient to fairly inform Lendlease of this claim.

[51] Finally, Lendlease submits Arena did not comply with cl 10.4 of the SPA as neither letter relied on meets the notice requirements under cl 10.4 for claims under the Maintenance Warranty.

[52] First, neither letter makes any reference to the Maintenance Warranty. In contrast, both of them expressly refer to claims for alleged breaches of the Watertightness Warranty. In addition, neither letter refers to an alleged lack of maintenance. They simply refer to weathertightness issues and significant and systemic watertightness issues. Nothing in the letters suggest those issues stem from a lack of upkeep or a failure to maintain. While there are general references in the letters to “other Warranties”, they do not indicate which of the more than 120 other warranties might be implicated. They simply say there are “likely” breaches of other warranties. In Lendlease’s submission, this is insufficient to comprise notice of a claim for breach of those other warranties, even if such warranties were adequately identified.

[53] Importantly, there are material differences between the subject matter of the two separate warranties and the implications of claims under each for Lendlease. The Watertightness Warranty contains its own monetary threshold of $7,500,000 before a claim can be made.[61] In contrast, the Maintenance Warranty is only subject to the general thresholds contained in cl 10.6 of the agreement, which provides:

10.6 Amounts of claims

The Purchaser shall not be entitled to make or pursue any claim under clause 10 for Loss arising from a breach of Warranty (other than under the Tax Indemnity) unless the amount of that claim (excluding legal costs):

(a) exceeds $240,000 and, for these purposes, a number of claims arising out of the same or similar subject matter, facts, events or circumstances may be aggregated and form a single Claim; and

(b) when aggregated with other claims under the Warranties, exceeds $1,200,000, in which case the Purchaser shall be entitled to claim the whole amount of such claims and not merely the excess.

[54] As Ms Anderson points out, the application of these different monetary thresholds has implications for Lendlease’s assessment:

(a) of whether a breach of warranty has occurred at all; and

(b) if so, the quantum of any loss it might be liable for.

[55] She points out the nature of the issues that could give rise to a breach of the respective warranties could be very different. A breach of the Watertightness Warranty is likely to arise due to defective design, manufacture or construction of the buildings, whereas a breach of the Maintenance Warranty is likely to arise due to a failure to apply appropriate maintenance processes and policies to the Villages more broadly. Claims under the different warranties require different investigations, involving different personnel and the review of different documentation.

[56] Lendlease also points out while Arena has subsequently sought to rely on additional communications to the two letters identified, these do not assist Arena. They do not indicate that maintenance of the Villages was at issue, let alone put Lendlease on notice of claims for a breach of the Maintenance Warranty. The report on Mayfair Village prepared by consultants in July 2017 does not mention issues that would put Lendlease on notice that Arena had claims for a breach of the Maintenance Warranty. Indeed, the summary of the issues allegedly identified relate to construction problems, not maintenance issues. Furthermore, Arena never indicated it intended these communications to comprise notice under cl 10.4. In addition, Arena cannot rely on communications which post-dated the expiry of the contractual limitation period, and the High Court correctly found these communications were irrelevant for the purposes of the strike out application.[62]

[57] Finally, Lendlease points out that the length of any trial is likely to be extended if Arena’s claim for breach of the Maintenance Warranty stands. To the extent the decision involves the exercise of a discretion, there are good reasons for striking out this claim if it is accepted that notice of the claim was not adequately given.

Submissions for Arena

[58] Arena’s position is that prior to the January 2018 deadline, Lendlease had the benefit of Arena’s correspondence, expert reports, repair costs estimates and a site visit by its own expert building surveyor It is therefore inconceivable that Lendlease would not reasonably have recognised Arena’s warranty claim for water damage at the three Villages would engage maintenance failings as well as watertightness defects.

[59] Arena says whether it gave sufficient notice prior to the expiry of the contractual time bar turns on the warranty provisions of the SPA and “how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene”.[63]

[60] Mr Ladd, for Arena, notes Lendlease does not say it misunderstood the notices, or that it would have behaved differently if the notices had been worded differently. Arena also says Lendlease’s lawyers appeared to acknowledge in subsequent correspondence that maintenance issues had been raised in time.[64] In the circumstances, there can have been no prejudice to Lendlease from the lack of an express reference to the Maintenance Warranty.

[61] Arena says a reasonable institutional investor, owner and operator of the Villages would have understood that maintenance was a potential contributing cause of the water damage and therefore, that the Maintenance Warranty was engaged. This was not a case, as Lendlease argues, of identifying which of 120 warranties might be implicated. In a claim for damage to buildings, it simply required recognition that maintenance of the buildings would be implicated. Arena points out that Lendlease recognised the relevance of maintenance by asserting, in its letter dated 23 April 2018, that Arena failed to carry out the necessary maintenance as purchaser of the Villages.

[62] For these reasons, the High Court was correct to decline to strike out the second cause of action and to leave the limitation defence to be decided at trial with the benefit of the factual and expert evidence.

Discussion

[63] This appeal turns on the wording of the notification provision and whether, on the available facts, it has been complied with. That is to be judged by whether a reasonable recipient, knowing the terms of the SPA, would have understood the notice to raise a claim under the Maintenance Warranty.

[64] No party suggested there was other correspondence or evidence of negotiation relevant to this issue which could only be settled at trial. However, there is a dispute between them as to how a reasonable person would have understood a notice of “weathertightness” problems. Ms Anderson submitted there is a clear difference between design and construction defects on the one hand and maintenance failures on the other. The causes differ and each calls for different investigation and evidence. Mr Ladd submitted that it is notorious that weathertightness claims usually engage both design and construction and maintenance issues, and the reasonable person must be taken to know that.

[65] The notice requirement is straightforward. Clause 10.4 provides:

[Arena] shall not be entitled to make or pursue any claim for a breach of Warranty ... unless [Arena], acting in good faith, gives [Lendlease] written notice of the claim setting out reasonable particulars of the grounds on which it is based.

[66] There are two key requirements in this clause:

(a) the notice must be given in writing;

(b) the notice must set out reasonable particulars of the grounds on which the claim is based.

[67] We accept, as was held in the English cases, the commercial purpose of the clause includes that the vendor should know within the 18 month period prescribed in the contract that a claim for breach of warranty is to be made. The clause provides certainty to the vendor, so it is left in no doubt, not only that a claim may be brought (so a contingent liability exists), but of the grounds upon which the claim is based. The contract assigns to the purchaser the risk that it will fail to identify a breach of warranty in time or be unable to give reasonable particulars of the claim.

[68] That said, the clause does not require that a notice identify any specific warranty. The parties must be taken to have considered that inessential. It requires only that reasonable particulars of the grounds of the claim be given. It is a question of substance. What is reasonable must depend on the circumstances. For completeness, we observe that we are not asked to decide whether particulars given were adequate for the purposes of the Watertightness Warranty. Arena asserts that they were, having regard to the time reasonably required to identify defects. Lendlease reserves its position.

[69] The letters of 14 July 2017 and 22 December 2017 are crucial. They are expressly headed “Notice of Claim” and “Additional Notice of Claim”. The first letter gives notice that “significant weathertightness issues” have been discovered at Mayfair Village and that they are “are serious and will give rise to a breach of the [Watertightness] Warranty in paragraph 14.2 of the SPA” and, subject to further investigations, “it is likely other Warranties will also have been breached”.

[70] The question is whether the language of that letter was sufficient to convey a reasonable recipient notice of a claim under cl 14.1 as well as cl 14.2, noting (as did the Associate Judge) that these are clearly distinct warranties, with different monetary thresholds applying before a claim can be made under each one.

[71] In our view, cl 14.2 is the only warranty which may have been notified in this letter, whether expressly or by implication. The remaining text is prospective in nature. It says: “[s]ubject to the outcome of further investigations, given the scope and nature of the defects discovered to date, [Arena] considers that it is likely other Warranties will also have been breached”. The letter then goes on to cite the requirements of cl 10.8(c) of the SPA and the requirement to notify Lendlease of any claim under the warranties as soon as practicable after Arena has become aware of the implications of the facts or circumstances giving rise to such a claim. It states Arena “is still in the process of investigating the defects”. That clearly anticipates the possibility of further warranty breaches and acknowledges if they are found there will be an obligation to notify Lendlease. The final statement that “the purpose of this letter is to put [Lendlease] on notice that Arena has a claim against [Lendlease] for breach of the Warranties”, cannot engage any other warranty when such a warranty has neither been expressly identified, nor have any grounds for claiming a breach of that warranty been identified. A reasonable recipient would not have any basis for realising the Maintenance Warranty was considered to have been breached because no reasons for asserting the maintenance was deficient are given at all.

[72] The second letter which is headed “Additional Notice of Claim (Peninsula Club and Parklane Villages)” must be read with the 14 July 2017 letter. It notifies a claim in respect of further significant and systemic watertightness issues at those two villages, in addition to the ones already identified at Mayfair Village. It says Arena “considers that the defects give rise to a breach of the [W]atertightness Warranty in paragraph 14.2 of the SPA and likely other Warranties”.

[73] This letter adds more details of the claim under what must be cl 14.2, by referring to cladding without cavities, but its essential purpose was to add to the 14 July letter by notifying weathertightness claims for the Peninsula and Park Lane Villages.

[74] Again, we consider a reference to there being “likely” breaches of other warranties is a prospective indication there may be grounds for a claim under other warranties. It is not notification of a claim. We do not consider the next sentence, which says:

... the purpose of this letter is to put [Lendlease] on notice that [Arena] has further claims against [Lendlease] for breach of the Warranties in respect of the issues at Peninsula Club and Parklane. ...

can expand the notice given beyond notification of a breach of the Watertightness Warranty in respect of the identified buildings at the Peninsula and Parklane Villages, when it provides no detail at all of why any other warranty is engaged.

[75] The next issue is whether the absence of express notification can be salvaged by:

(a) the context, where Lendlease is an experienced property owner and where other documents were sent to Lendlease before the deadline; or

(b) the fact this is a weathertightness claim where the causes can be difficult to identify.

[76] We do not accept that the context, being that this was a claim involving weathertightness issues and that the results of investigations were being forwarded to Lendlease, means that Lendlease must reasonably have recognised the claim would engage maintenance failings.

[77] While we accept notification may be achieved without express reference to the warranty relied on, that would, as the Court said in Teoco, require there to be “recitation of the relevant facts [that] unequivocally indicated a specific warranty”.[65] As already identified no maintenance failings were identified in the letters notifying a claim. While within the notification period Arena also supplied the Babbage building report to Lendlease, that did not identify maintenance failings. It referenced a lack of flashing and sealing, lack of control joints in the cladding, along with non compliance with the New Zealand Building Code in terms of ground clearance of cladding and provision for drainage. The summary of the report suggests the weathertightness issues stemmed from design and construction defects. We do not consider that it could be fairly said to notify a claim for maintenance failings, because it does not identify what those failings are.

[78] We also do not accept that latitude should be extended to the notifying party because the claim is for weathertightness issues. This is not a case where, as with the owner of a leaky home bringing a civil claim, there may be uncertainty regarding responsibility for the defects, and where some latitude should be extended to allow claims against responsible parties when they are subsequently identified. Here, the responsible party is Lendlease as warrantor. All Arena must do is notify it of a claim for breach of warranty and, in general terms, provide reasonable particulars of the grounds of the claim.

[79] Ironically, the Judge was concerned that an owner of a leaky building would want to avoid “hemming itself” in when notifying a claim,[66] and would wish to keep matters “as wide and general as possible” to cover “oversight and further developments”.[67] Here, however, Arena failed to refer to the Maintenance Warranty at all or to provide any potential grounds for claiming under it, when it could and should have done so, had it wished to keep its right to claim under that warranty open.

[80] In our view, having agreed to contractual requirements for notification of a warranty claim, including the time limit, and the need to provide reasonable details of the grounds on which it is based, to obtain the benefit of the warranties, Arena was obliged to alert Lendlease in writing that maintenance failings were in issue prior to the agreed contractual time bar. It did not do so, either in form, or in substance.

[81] Accordingly, its second cause of action must be struck out.

Result

[82] The appeal is allowed.

[83] The respondent’s second cause of action for alleged breach of the Maintenance Warranty, together with the paragraphs in the statement of claim supporting that cause of action, are struck out.

[84] The High Court’s costs order is also quashed.

[85] Costs are awarded to the appellant for a standard appeal on a Band A basis with usual disbursements. We certify for two counsel.

MILLER J

[86] Except as stated here I agree with the majority judgment. I differ in the application of the principles stated at [6]–[9] above to the facts of this case. In my view the question whether the letters of 14 July 2017 and 22 December 2017 were adequate to notify a claim under warranties other than the Watertightness Warranty should be decided at trial.

[87] It was necessary that the letters gave “reasonable particulars” of the grounds on which the claim was based. We are agreed that this is a question of substance. The SPA did not require that a claim take a prescribed form. In particular, it did not require that a claim list the specific warranty invoked. In my view it is reasonably arguable that the letters did not limit the notice given at that time to the Watertightness Warranty, reserving any other claims for a future date, but rather gave present notice that the problems identified may entail breaches of other warranties.

[88] I further consider that the question whether the letters c

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onveyed to a reasonable recipient in Lendlease’s position notice of a claim under the Maintenance Warranty may depend on evidence to be led at trial about a reasonable recipient’s understanding that water ingress commonly results from poor maintenance and not merely bad design and construction. [89] I would also dismiss the appeal on the ground that deciding this issue will not save significant time at trial and may cause difficulty there. I do not accept Ms Anderson’s submission that a strikeout will reduce the scope and extent of the trial. There is no obvious reason why that should be so, since the trial will be about the existence and causes of watertightness problems and strikeout incentivises Lendlease to attribute any problems to poor maintenance. It has already pleaded that defects were the result of Arena’s poor maintenance following handover. I accept that the present dispute is of real significance, but that is not because of its impact on the trial. It is because the threshold for claims under the Watertightness Warranty may require some allocation of loss among proved causes. ------------------------------------------------------------------------------ [1] Arena Living Holdings Ltd v Lendlease Capital Services Pty Ltd [2020] NZHC 587 [High Court judgment] at [60]. [2] At [61]. [3] At [61]. [4] Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267; and Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33]. [5] Matai Industries Ltd v Jensen [1988] NZHC 205; [1989] 1 NZLR 525 (HC) at 532. [6] Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33]. [7] Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32], citing May v May (1982) 1 NZFLR 165 (CA) at 170. [8] Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd [1999] 2 Lloyd’s Rep 423 (CA). [9] At [7]. [10] At [74]. [11] At [90] (emphasis original). [12] At [91]. [13] At [83]. [14] RWE Nukem Ltd v AEA Technology plc [2005] EWHC 78 (Comm). [15] At [2(iii)]. [16] At [10]. [17] At [11]. [18] At [16] and [25]. [19] At [30]. [20] IPSOS SA v Dentsu Aegis Network Ltd [2015] EWHC 1171 (Comm). [21] At [19]. [22] At [20]. [23] At [21]. [24] At [22]. [25] At [40]. [26] At [41]. [27] Teoco UK Ltd v Aircom Jersey 4 Ltd [2018] EWCA Civ 23, [2018] BCC. 339 at [2]–[3]. [28] At [7]. [29] At [11]. [30] At [13]. [31] At [27]. [32] Dodika Ltd v United Luck Group Holdings Ltd [2020] EWHC 2101 (Comm). [33] At [11]. [34] At [115] (emphasis original). [35] At [115]. [36] Dodika Ltd v United Luck Group Holdings Ltd [2021] EWCA Civ 638 at [43]. [37] At [42]. [38] At [35] and [45]. [39] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749 (HL) at 768. [40] At 755 and 762. [41] Carradine Properties Ltd v Aslam [1976] 1 WLR 442 (Ch). [42] At 446. [43] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, above n 39, at 768. [44] Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60], citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 (HL) at 912. [45] Carradine Properties Ltd v Aslam, above n 41. [46] High Court judgment, above n 1, at [50], referring to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, above n 39. [47] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, above n 39, at 768. [48] High Court judgment, above n 1, at [51]. [49] At [51]. [50] At [52]. [51] At [53]. [52] At [54]. [53] At [54]. [54] At [55]. [55] See Weathertight Homes Resolution Services Act 2006, ss 32 and 37. [56] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, above n 39. [57] See for example, Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd, above n 8. [58] High Court judgment, above n 1, at [61]. [59] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, above n 39, has been approved by the High Court in Corporate Flight Services Ltd v Catley [2017] NZHC1588, [2018] NZCCLR 18 at [38]. [60] High Court judgment, above n 1, at [62]. [61] And there is a dispute between the parties as to whether that threshold applies on a per building basis or to the aggregate value of the claim. [62] High Court judgment, above n 1, at [63]. [63] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, above n 39, at 767. [64] Referring to the letter of 7 August 2018 referred to in [20] above. [65] Teoco UK Ltd v Aircom Jersey 4 Ltd, above n 27, at [27]. [66] High Court judgment, above n 1, at [56]. [67] At [57].
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