IN THE COURT OF APPEAL OF NEW ZEALAND CA110/05 BETWEEN AND PRIME COMMERCIAL LIMITED Appellant WOOL BOARD DISESTABLISHMENT COMPANY LIMITED Respondent Hearing: 25 July 2006 Court: Counsel: William Young P, Arnold and Ellen France JJ C Anastasiou and R Palu for Appellant R A Dobson QC and R M C Luxford for Respondent Judgment: 18 October 2006 at 2.30 pm REASONS OF THE COURT A B The appeal is dismissed. The appellant is to pay the respondent costs of $6,000 together with usual disbursements. PRIME COMMERCIAL LIMITED V WOOL BOARD DISESTABLISHMENT COMPANY LIMITED CA CA110/05 18 October 2006
REASONS OF THE COURT (Given by William Young P) Introduction [1] In 2000 and 2001, the New Zealand Wood Board was endeavouring to sell its headquarters in Wellington, a building known as Wool House. The appellant, Prime Commercial Limited (PCL), was a prospective purchaser and, through its principal, Mr Michael Garnham (who is not only a property investor but also an experienced conveyancing solicitor), sought to acquire the building. In the end, however, the Wool Board sold the property to another purchaser, Mr Lau. In response PCL issued proceedings against the Wool Board (now represented by the respondent, Wool Board Disestablishment Co Ltd) seeking damages. For ease of reference we will not distinguish between the Wool Board and the disestablishment company and will refer to them both as either the Wool Board or just the Board. [2] The claim as advanced by PCL raises what we regard as four broad areas of claim (albeit that six causes of action are pleaded): (a) an alleged breach of process contract; (b) misrepresentation; (c) breach of statutory duty; and (d) negligence. [3] On 19 May 2005 Wild J entered summary judgment for the Wool Board against PCL. [4] PCL now appeals to this Court. In issue is whether PCL has an arguable case under any of the areas of claim which we have identified and we will address the case on that basis. Before we do so, however, we will discuss the factual background in a little more detail.
The facts in more detail [5] Wool House is built on land which is vested in the Wellington City Council but was subject to a Glasgow lease in favour of the Wool Board. [6] The sale of Wool House was first proposed in 1999. Colliers Jardine, real estate agents, became involved in early 2000. That firm was authorised to approach three possible purchasers, one of which was PCL. After abortive negotiations with all three purchasers the Board decided on what it called a private treaty sales process and PCL has described as a tender process. While noting the debate, we are content to describe what was contemplated as involving a tender process, albeit informal. [7] PCL was again approached as a potential purchaser. Offers were sought with a 15 March 2001 close off. On that day PCL submitted an offer for the building. The Wool Board did not accept PCL s offer or any other offer. The Board did, however, inform PCL that it was the Board s preferred potential tenderer and PCL was invited to submit a further offer. PCL did so at an increased price. [8] On 29 March 2001 representatives of the Wool Board met with Mr Garnham with a view to concluding a contract. The Wool Board s representatives indicated that any contract would have to be subject to a board approval clause to the effect that the Wool Board would not be finally committed to the transaction until its board approved the contract. There was some debate about the terms of this clause and the upshot was that PCL withdrew from the process. [9] Later the same day the Wool Board received an offer from Mr Lau to purchase the property. The proposed purchase price was $7m. It did not contain a board approval clause in the terms proposed to Mr Garnham and the offer was made available to the Wool Board on the express basis that it would not negotiate with any other parties until the conclusion of the Wool Board s board meeting which was scheduled for 4 April 2001. An undertaking to this effect was given by the Wool Board.
[10] The Wool Board did nonetheless indicate to Mr Garnham that he could submit a further offer and accordingly PCL submitted a third offer, this time for the sum of $7.25m. Whether this invitation to PCL was a breach of the undertaking given to Mr Lau may be debatable. The Wool Board s position is that its representatives had made it clear to Mr Lau that although it would not negotiate with any other purchasers, any other offers received would be put to its board. [11] The two offers, that is from PCL and Mr Lau, were considered by the Wool Board s audit committee on 2 April 2001 and, two days later by the full board. The upshot was that the Wool Board continued to negotiate with Mr Lau and eventually a contract for the sale of the property was entered into with him. [12] On the basis of the conclusions which we have reached (and which are discussed later in this judgment), it is not necessary for us to form concluded views as to why the Wool Board preferred to deal with Mr Lau rather than PCL despite PCL having offered a higher price. It is sufficient to note that factors relevant to this decision appear to have been: (a) (b) (c) (d) Some concern on the part of at least some Board members as to the undertaking given to Mr Lau. The view that apportionment provisions in PCL s offer (associated with rental) would to a substantial extent negate the differential between PCL s offer and that made by Mr Lau. A requirement imposed by Mr Garnham in PCL s last offer that he be involved in the assignment exercise with the Wellington City Council. This was seen as carrying risks as Mr Garnham s relationship with the Wellington City Council was thought to be difficult. Related perhaps to the last point, a sense that Mr Garnham might be a difficult person to deal with; a consideration of some relevance as the Wool Board intended to continue to occupy a
significant amount of space in Wool House as a tenant from the eventual purchaser. [13] PCL subsequently acquired Wool House from Mr Lau for significantly more than Mr Lau had paid the Wool Board. Alleged breach of process contract [14] PCL s primary argument was that the arrangements associated with the proposed sale of Wool House involve a process contract which obliged the Wool Board to act fairly and in good faith and that the Wool Board did not do so. We note that these claims were the subject of two pleaded causes of action but we think it simplest to address them under a single heading. [15] The law as to the circumstances in which the calling for tenders gives rise to a process contract was extensively reviewed in Transit New Zealand v Pratt Contractors Ltd [2002] 2 NZLR 313 at [63] [77] (CA), aff sub nom Pratt Contractors Ltd v Transit New Zealand [2005] 2 NZLR 433 (PC). The primary rule is that a tender process involves simply an invitation to treat on the part of the party calling for tenders with no contractual obligation crystallising until an offer is accepted, see Shivas & Westmark Investments Ltd v BTR Nylex Holdings NZ Ltd & Ors [1997] 1 NZLR 318 (HC). But tender processes will sometimes create process contracts between the party calling for tenders and the tenderers, see for instance Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 (CA) and Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469 (HC). As noted by this Court in Quay Stevedoring Services Ltd v ENZA Ltd CA214/00 15 November 2001, a party alleging a process contract must establish the necessary elements of offer and acceptance and intention to enter a binding contract. Where there is a process contract, the obligations under it on the party calling for tenders will, of course, depend upon what was agreed expressly or by implication. An assertion that the tendering party is not obliged to accept the highest or any offer must be respected but is not necessarily inconsistent with that party being subject to obligations as to the process by which tenders are to be evaluated.
[16] Cases in which the Courts have concluded that there were process contracts have often involved very formal tender procedures with one or more of the following characteristics: registration of interest by tenderers; detailed specifications which tenders must comply with; a prescribed methodology (often detailed) for the evaluation of tenders; and an express or implied commitment to choose the successful tenderer based on such evaluation. We are not suggesting that process contracts can only come into effect in those circumstances. Indeed, the Blackpool & Fylde Aero Club case shows that this is not so. But the less formal the tender process, the less scope there is for implying any, or at least any onerous, obligations on the party calling for tenders. [17] In support of his argument that there was a process contract, Mr Anastasiou pointed to descriptions by the Wool Board or its representatives of the process as being by way of tender and of PCL as a tenderer, that Mr Garnham had been told that the Wool Board was committed to achieving the best price, the initial requirement that tenders/offers be submitted by a prescribed date and a similar prescribed date for the second round of offers. [18] It is clear that all of PCL s offers were considered by the Wool Board. So PCL cannot succeed on this aspect of the case, unless it can establish obligations on the part of the Wool Board as to the process and methodology by which it would assess any offers and, further, that such obligations subsisted despite Mr Garnham s withdrawal from the process on 29 March 2001. It will be recalled that Mr Lau made his offer at a time when PCL had taken itself out of play. [19] The considerations relied on by Mr Anastasiou come nowhere near establishing a process contract. On this aspect of the case we are content to adopt the approach taken by Wild J in the High Court: [43] I consider I can confidently conclude that no process contract could have been formed between the parties. That is for two reasons. The first is that the defendant cannot be said to have agreed, either explicitly or implicitly, to any process for the sale of Wool House. On the basis of Mr Garnham s evidence, the defendant s only requirement of prospective purchasers was that any offer be made by private treaty by the deadline (the two successive deadlines). No additional information was required from prospective purchasers and no formal means (ie objectively verifiable criteria) by which the defendant would make any decision was set out. I
assume, for the purposes of this application, that the defendant was obliged to present the best possible price to its Board of Directors, but this did not bind the defendant to any format for assessing which was the best price. Given this lack of certainty as to how the specific terms of any putative contract were to be determined, it cannot be said that sufficient consensus existed between the parties for a process contract to have arisen [44] The second reason is that, even if some agreement on the defendant s part to a sale process could be discerned from the evidence, the parameters of that process would be too vague to be justiciable. At most, the defendant was obliged to present valid offers to its Board. No specific machinery was established in that respect. [T]he authority of Wellington City Council v Body Corporate 51702 [(Wellington) [2002] 3 NZLR 486 (CA)] provides clear authority that such limited commitments cannot constitute a justiciable process contract i.e. one enforceable at law. The Court of Appeal said at paragraph [31]: [31]... There is thus no sufficiently certain objective criterion by means of which the Court can decide whether either party is in breach of the good faith obligation. The Court is unable in such cases to resolve the question whether a particular negotiating stance was adopted in good faith. The law regards the task of reconciling self-interest with the subjective connotation of having to act in good faith as an exercise of such inherent difficulty and uncertainty as not to be justiciable.... [20] We see this reasoning as unassailable. Misrepresentation Overview [21] We propose to discuss under this heading a variety of claims advanced by Mr Anastasiou in this Court under different legal heads, misrepresentation under the Contractual Remedies Act 1979, deceit, breach of the Fair Trading Act, and negligent misrepresentation. The pleadings [22] The arguments advanced to us by Mr Anastasiou were rather more elaborate than the pleadings. It is helpful, therefore, to start with the case as pleaded. [23] Under the heading misrepresentation PCL alleged:
47. As set out in this statement of claim in paragraphs 5 to 28 the defendant through its officers and representatives made the representations therein pleaded to the plaintiff as to how it would conduct the sale process for the sale of Wool House. The defendant s representations were false. 48. The defendant through its officers and representatives made continuing representations to the plaintiff regarding the plaintiff s offers to purchase Wool House. The defendant s representations were false. 49. The plaintiff relied on such representations and variously acted or refrained from acting in reliance on such representations and as a result has suffered loss of bargain and loss of profits which would have otherwise accrued to the plaintiff and has incurred expense in reliance thereon. In relation to this cause of action PCL sought damages of $4.5m together with unquantified special damages and interest. [24] Under the heading Breach of the Fair Trading Act 1986 the plaintiff alleged: 51. The representations and the conduct of the defendant constituted conduct in the course of trade that was either misleading or deceptive or likely to mislead or deceive the plaintiff and were thereby in breach of Section 9 of the Fair Trading Act 1986. 52. The negotiations conducted by the Defendant and its agents with the objective of obtaining a contract for the sale of Wool House were conducted in the course of trade in a way that was either misleading or deceptive or like to mislead or deceive the plaintiff and were thereby in breach of Section 9 Fair Trading Act 1986. 53. As a consequence of such misleading and deceptive conduct the plaintiff has suffered loss of bargain and loss of profits which would have otherwise accrued to the plaintiff and has incurred expense in participating in good faith in the sale process. Similar relief was sought. [25] Not much help is gained from paragraphs 5-28 (referred to in para 47). So these pleadings are cryptic and unparticularised, despite the allegations appearing in a third amended statement of claim and despite PCL having had the advantage of discovery against the Wool Board and third parties. Further, there was no pleading specifically invoking the Contractual Remedies Act 1979, the tort of deceit, or the tort of negligent misrepresentation all of which Mr Anastasiou relied on before both Wild J and us.
The misrepresentation allegations formulated in this Court [26] In the course of argument before us, Mr Anastasiou identified the representations which PCL alleged were made by the Wool Board being that: (a) PCL was an acceptable purchaser. (b) PCL s offer of $7.25m would be tabled at the meeting of the board of the Wool Board on 2 April 2001. [27] We are satisfied that there is no foundation for the claims as advanced. [28] In relation to the acceptable purchaser representation, our reasons for the conclusion just expressed are as follows: (a) We accept that the Wool Board s negotiations with PCL proceeded on the premise that the Wool Board was prepared to deal with PCL (in a sense of concluding a contract with it) providing the terms of the contract were otherwise acceptable to the Wool Board. (b) Such representation could only be false if it were untrue at the time it were made (because otherwise we would be treating the representation not as a statement of existing fact relative to the Board s intentions but rather as a promise). (c) There is no evidence that such representations as the Board may have made were untrue when made. Indeed all the evidence is the other way. Up until 29 March 2001, PCL plainly was the Wool Board s preferred tenderer. On its withdrawal and the submission by Mr Lau of his offer, the situation changed and it could not credibly be contended that PCL s third offer was made on the basis of any representation as to how it (and Mr Garnham) were viewed by the Wool Board.
[29] Our reasons for concluding that there is no arguable case as to the second alleged misrepresentation (that the third offer would be tabled at the Board meeting on 4 April 2001 ) are: (a) There is no evidence to suggest that the person who made this alleged representation did not believe it was true at the time it was made. So once again PCL is seeking to treat a claim for misrepresentation as if it were a claim to make good on a promise. (b) In any event the offer was considered at the Board meeting on 4 April 2001 and in this respect we see no sensible basis upon which we could distinguish between tabled at and considered at. PCL may complain about the way in which the offer was considered and the fairness and materiality of the factors which were regarded by board members as being relevant. But such complaints seem to us to be beside the point for the purposes of the representation relied on. Contractual Remedies Act [30] A claim under the Contractual Remedies Act 1979 is not available because there is no contractual relationship to which a claim can be attached. Deceit [31] For the avoidance of doubt we should record that we see no basis upon which there could be a claim in deceit. Negligent misrepresentation [32] We likewise we see no credible basis for contending that the Wool Board owed PCL a duty of care in relation to the alleged representations. The considerations which arise in relation to this proposed head of claim as to whether
there could be such a duty are closely related to considerations which are fundamental to the separate claim for negligence which we will address shortly. Relief [33] Because there can be no claim under the Contractual Remedies Act, PCL, if it otherwise had a claim, would be confined to reliance (or detriment) damages. But the only detriment PCL could point to would be associated with its own time and effort associated with the lodging of its offers. [34] In this context the claim for $4.5m damages plus unquantified special damages (which could only be justified on a loss of bargain basis) is fundamentally misconceived. Breach of statutory duty [35] PCL alleges that the Wool Board was exercising a statutory power of decision under the Wool Board Act 1997 and that accordingly it was under duties to act fairly and reasonably, to give effect to the legitimate expectations of PCL, not to give preference to one particular tenderer, and to act in good faith. As well it was obliged (by reason of its obligation under s 11(3)(c)(iv) to maximise current and future income) to seek the best possible price for Wool House. [36] As Wild J noted, the duties imposed on the Wool Board by the Wool Board Act were owed only to wool growers: ss 8 and 10. It follows that this head of claim must fail. Negligence [37] PCL maintains that on the sale of Wool House the Wool Board owed a duty of care to tenderers and that it breached this alleged duty in that it:
(a) Failed properly to consider the tenders made by the plaintiff on 2 and 3 April. (b) Failed to sell Wool House in accordance with its resolution authorising the sale. (c) Failed to act in accordance with its statutory duties under the Wool Board Act. (d) Deceptively and deliberately negotiated the private sale of Wool House to a third party without giving notice to the plaintiff. (e) Accepted a tender that was inferior in price and terms to that of the plaintiff. [38] The particulars of breach relied on suggest that PCL regards the obligations of the Wool Board under its duty of care as being very similar to the sort of obligations which might have been imposed by a process contract. This involves an attempt by PCL to use the tort of negligence to make up for the lack of a process contract, an attempt which we must rebuff on policy grounds, see the judgment of O Regan J in Onyx Group Ltd v Auckland City Council (2003) 11 TCLR 40 (HC). [39] When a property is put up for sale, a vendor might, conceivably, commit itself to process obligations, in which case it must conform to those obligations or take the consequences. But where such obligations have not been assumed, it is difficult to detect a principled basis upon which the vendor could be held to have a duty of care to protect the interests of prospective purchasers. The imposition of such a duty of care would simply not be consistent with current practice, see for instance Attorney-General v Body Corporate No 200200 CA30/05 1 December 2005 and R v Martel Building Ltd [2000] 2 SCR 860. [40] PCL relied on Gregory v Rangitikei District Council [1995] 2 NZLR 208 (HC) where the Court found that the defendant Council owed the plaintiff a duty of care in respect of the sale of a property by tender. As Wild J noted in the judgment
under appeal, that finding was based in part on the Council being under a statutory obligation to follow a particular process with the plaintiff being entitled to rely on that obligation being met. For reasons already explained, there is no relevant statutory obligation as to process which applied in the present case. So if Gregory was correctly decided, a point on which we do not need to form a view, it is distinguishable on this basis, cf the comments of O Regan J in Onyx at [60]. Conclusion [41] The appeal is dismissed. [42] The appellant is to pay the respondent costs of $6,000, together with usual disbursements. Solicitors: C Anastasiou for Appellant Kensington Swan, Wellington for Respondent