401L Limited v Chhin HC Auckland CIV-2011-404-0046
[2011] NZHC 452
•5 May 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-0046
BETWEEN 401L LIMITED Applicant
ANDYIN CHHIN AND MENG LY Respondents
Hearing: 3 May 2011
Appearances: S Carey for the Applicant
R Parmenter for the Defendant
Judgment: 5 May 2011
RESERVED JUDGMENT OF ELLIS J
This judgment was delivered by me on 5 May 2011 at 4.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Counsel : S R Carey, PO Box PO Box 848, Auckland 1140
R O Parmenter, PO Box 1052, Auckland 1140
401L LTD V CHHIN AND LY HC AK CIV-2011-404-0046 5 May 2011
[1] The applicant, 401L Limited (401L) seeks summary judgment against the respondents (Mr Chhin and Mr Ly) in relation to their failure to complete the sale and purchase of a unit at 405-407 Manukau Road, Epsom. 401L subsequently resold the unit to a third party and suffered loss on resale in the amount of $146,500. Associated costs and interest are also claimed. The full amount sought is a little over
$200,000.
[2] The facts pleaded by 401L in its statement of claim are admitted by the respondents. But the application is opposed on the basis of a counterclaim that the respondents were misled by representations allegedly made by the agent of 401L, Ironfish New Zealand ltd (Ironfish), in the course of its marketing and sale of the property, in contravention of s 9 of the Fair Trading Act 1986 (FTA). The respondents say that by virtue of the agent’s misleading conduct, the sale and purchase agreement should be declared void ab initio pursuant to FTA s 43(2)(a).
[3] Mr Carey for 401L accepted that if the FTA claim is tenable as a matter of law and on the facts, the summary judgment application could not be sustained. However he submitted that:
(a) even on the respondents’ version of the facts, they do not have an arguable claim under s 9 and for relief under s 43(2)(a), because any misrepresentations made by Ironfish were necessarily outside the scope of its authority and cannot be sheeted home to 401L; and
(b)in any event, the respondents’ version of the facts relating to the misrepresentation is too far-fetched to pass what he termed the “credibility threshold” applicable in summary judgment cases.[1]
[1] This threshold effectively being based on the admonition in Bilbie Dymock Corp Ltd v Patel (1987)
[4] The central issues before me, then, involve the correctness of those two submissions. Because the facts (both disputed and otherwise) are relevant to both, I
propose to consider the second, “credibility threshold”, submission first.
The facts: is the credibility threshold met?
[5] It is not in dispute that the respondents entered into the sale and purchase agreement after attending property investment seminars run by Ironfish. Ironfish had, however, also been engaged by the 401L Trust (the Corporate Trustee of which was the applicant) to market and sell its Manukau Road development Ironfish representatives promoted units in the development to the respondents when (subsequent to the seminars) they sought further property investment advice.
[6] Mr Liang, the Managing Director of Ironfish New Zealand, described the
nature of Ironfish’s business in this way:
The business of Ironfish is to assist clients looking to invest property. We approach, or are approached by, developers and/or vendors who have properties to sell. We market those properties, and attempt to procure purchasers.
We also hold free seminars and exhibitions, designed to provide information to potential investors about property investment. The seminars cover property investment in a general sense rather than focusing on trying to sell a particular property. If clients convey and interest in investing, we are then able to show them our listed properties.
[7] Mr Liang goes on to say that a marketing and sales agreement was entered into between Ironfish and 401L in March 2008. That agreement states on its first page that 401L Trust is the developer and I.F. Property Pty Limited (trading as Ironfish) is the “agent” and by way of “background” that:
This agreement sets out the terms of appointment of the Agent as a sales and marketing agent for the Developer in respect to the Property in Stage 2, 405
Manukau Reasonable doubt, Epsom (Development).
[8] The agreement then relevently provides:
2.1 Appointment
...
(b) The Agent will promote the Property to:
(a) The existing client database of the Agent;
(b) Potential clients or purchasers arising from marketing activities undertaken by the Agent for the Property – for
example, VIP evenings, seminars and exhibitions to be carried out by the Agent, and various other marketing activities.
...
2.3 Obligations
The Agent must: (a) ...
(8) not describe itself as agent or representative of the Developer except as expressly authorised by this agreement.
(b) not make any representations and further ensure that its sub-agents shall not make any representations to purchasers or any other party or give any warranties in respect to the Development other than those contained in the Sales Contract or through other materials provided by the vendor;
...
(e) provide senior sales staff at promotional events and exhibitions as agreed between the Developer and the Agent;
(f) liaise with potential purchasers directly up to the signing of an unconditional contract for the sale of land in respect to the Property as required by the Developer and assist the Developer where necessary in any negotiations with potential purchasers in the lead up to settlement;
(g) liaise with the Developer’s legal representatives as agreed between the Agent and the Developer to ensure efficient processing and return of contracts of sale by purchasers that the Agent has sold to;
(h) where necessary, or where requested by the Developer, liaise with other agents, mortgage brokers, potential purchasers and the Developer in order to assist in the financial arrangements of potential purchasers;
(i) use its best endeavours to ensure potential purchasers properly sign all necessary documentation in respect to the purchase and return of all documents to the Developer’s legal representatives in a timely manner and as directed by the Developer from time to time;
...
4 Processing of Sales Contracts
(a) On the Agent procuring a purchaser pursuant to this agreement, the
Agent must:
(1) collect a holding deposit and send the relevant Sales Advice to the Developer;
(2) arrange for execution of the Sales Contract by the Developer and Purchaser;
(3) collect the applicable Deposit from the Purchaser and forward to the Developer for safe-keeping in the Developer’s Solicitors Trust Account.
...
(c) Subject to clause 4(d), a Purchaser is deemed to be procured by the Agent if the Purchaser is introduced to the Development of the Developer for the purposes of conducting a sale, by the Agent directly or by a sub-agent appointed by the Agent.
5. Fees
(a) Subject to clauses 5(c) and 5(d), where the Agent procures the execution of a Sales Contract, the Developer will pay the fee to the Agent set out in item 1 of the Schedule (Introduction Fee) in accordance with the terms of this clause 5.
(b) The Developer will pay the Introduction Fee to the Agent as follows: (1) 50% of the Introduction Fee plus GST is payable within 14
days of a Sales Contracts becoming unconditional; and
(2) the balance of the Introduction Fee plus GST is payable within
14 days of settlement of the Sales Contract.
(c) The fees in clauses 5(b)(1) and 5(b)(2) shall not be payable if a sale contract does not settle as a direct result of any fraudulent or dishonest actions of representatives of the Agent. Any fees paid by the Developer to the Agent must be refunded to the Developer within
30 days of a written request to do so.
(d) In the event that a purchaser introduced by the Agent does not settle his or her Sales Contract for any other reason, and if the Developer recovers the full 10% deposit on the Sales Contract, then the Agent is entitled to retain the fee paid under clause 5(b)(1) but is not entitled to receive the balance of the Introduction Fee payable under clause 5(b)(2). However, if the Developer does not recover the full
10% deposit on a cancelled Sales Contract, then the parties agree that the Developer is entitled to a refund of the fee paid under clause
5(b)(1) within 30 days of a written request to do so and no further
fee is due on that Sales Contract.
[9] Perhaps somewhat mystifyingly, clause 7 states (inter alia) that the agreement does not “... constitute the relationship between the Developer and the Agent as that of ... principal and agent”.
[10] Insofar as the respondents’ involvement with Ironfish, Mr Liang begins by saying that:
The defendants attended seminars at Ironfish in or around April of 2008, along with other people interested in property investment. The seminars attended by the defendants were conducted in Mandarin. As stated, the purpose of the seminars was to provide a general introduction to, and overview of, property investment.
[11] Mr Liang did not take issue with Mr Ly’s more colourful account of the tenor
of these seminars. Mr Ly said (in translation):
Just over two years ago, Ironfish Group (Ironfish, where smart investors go) advertised on a Chinese language newspaper about the holding of a “business investment” seminar. I attended twice. Later, a workshop about “successfully acquiring wealth” was also held for two days, which I also attended. The contents the persons in charge of Ironfish Group talked about at the meeting were basically: 1. One should have dreams and have ideals and since one had dreams, one should have actions and plans; 2. Ironfish Group being a cross-national group, they had adequate methods and abilities to bring us to the path of successfully acquiring wealth and we could lead a carefree life in our remaining years. During the meeting, the persons in charge of Ironfish Group told the stories of many people having made fortunes and acquired wealth with the help of Ironfish Group. There were also successful people who attended the meeting to explain with their own experiences, giving us, the people present at the meeting, deep and unshaken faith in Ironfish Group.
[12] In terms of what happened next, Mr Ly said:
Over a week after the workshop, Manager Andy Liang and Staff Member Allan Meng of Ironfish Group booked us for an appointment at the company. They did a detailed study of our financial income, family assets, bank loan and family conditions in various aspects. I said: “We don’t even have the money for the deposit. Can we do investment?” They said: “Don’t worry. We will have ways to solve all difficulties for you. We have good relationships with various banks and can help obtain one hundred percent loans.” For example, as we had never known some company called Home Bond Company, they could help complete a form in less than half an hour. In less than two days’ time, Home Bond Company would agree to help us solve the difficult problem of deposit. Ironfish Group could help resolve the property rental matter and find a lawyer, etc. They even worked out the fact that the deficit in maintaining the property was not too big. Therefore we believed them and made the decision to invest in properties.
...
Regarding the issue of property rental after property purchase. The manager and the staff member of Ironfish Group promised that the best tenants would be found after the settlement of the property and there would be good rental income. In particular, 401L Company said that it was guaranteed that there would be rental income for a year, without a week’s vacancy.
[13] Understandably, Mr Liang’s account is rather more anodyne:
The defendants expressed an interest in purchasing a property or properties as an investment, and we arranged for them to come back to our offices at a later date to discuss the possibilities in more detail. The defendants did so, and initially met with Allan Meng, a property consultant for Ironfish, who held a real estate license [sic] and who was also fluent in Mandarin. The defendants subsequently wanted to meet me, and I attended further meetings with the defendants and Allan Meng.
At the meetings with the defendants, we discussed potential investment opportunities from our property listings, including but not limited to the units at Manukau Rd owned by 401L.
[14] Mr Liang then goes on categorically to deny that any representations were made by Ironfish as to the availability of a bond or of finance more generally or that a tenant would be found for the property. He says Ironfish strongly recommended that the respondents obtain independent legal advice. It is not in dispute that the respondents did ultimately engage the lawyer recommended by Ironfish although the extent of his involvement at the time the contract was executed is in issue. In that respect Mr Ly deposed that:
The “contract” document was brought over by Ironfish Group. It was only when the property was about to be settled that the lawyer had letter of notice for us.
[15] The sale and purchase agreement ultimately signed by the respondents was fairly orthodox. It provided that:
(a) the purchase price for the Unit was $635,000; (b) a deposit of $63,500 was to be paid; and
(c) interest on late settlement was to be paid at a rate of 14 per cent per annum from the due date for payment until the date of payment.
[16] The agreement effectively recorded that there was no purchaser’s finance condition but was made expressly conditional on “deposit bond approval by Homebond within 10 working days of acceptance of this agreement”. There was a considerable quantity of other detailed terms and conditions (most of which related
to the fact that the apartment was being purchased “off the plans”) but these are not
relevant to the issues before me.
[17] As well, there was a separate agreement signed by the respondents on the same date which stated:
In consideration of the Purchaser entering a Sale and Purchase Agreement for Apartment Number 4 ... yet to be built at 405-407 Manukau Rd, Epsom prior to [left blank] 2008, and settling the purchase on the due date, the vendor agrees to provide a rebate of $85,000 (inclusive of GST).
[18] Mr Ly sought to explain the absence of any conditions as to finance in the following way:
The second misleading thing was that when the contract was signed, the staff members of Ironfish Group said that “these are the terms in a general property sale and purchase contract” and so long as we signed there would be no problems. They did not explain to us that this was a contract without whatever conditions and if unsuccessful, we would have to take the consequences for all losses. If we had known about the situation, how could we have signed the “contract”?
[19] Ms Chhin’s evidence is to the same effect.
[20] The upshot, in terms of the respondents’ position in these proceedings, is that they say that Ironfish representatives made a number of representations to them which were capable of misleading and did in fact reasonably mislead them into signing the sale and purchase agreement. Essentially (and in summary) those alleged misrepresentations were that:
(a) 100 per cent of the required mortgage finance could be found for the respondents;
(b)a 12 month tenant would be found for the property (such a tenancy being the principal means by which the mortgage repayments would be funded by the respondents); and
(c) a bond could be found in respect of the deposit.
[21] As regards the last of these a bond was in fact quickly obtained from New Zealand Home Bonds. To that end I accept Mr Carey’s submission that, to the extent such a representation was made (which he nonetheless denies), it was borne out in reality. I also accept Mr Carey’s submission that even on the respondents’ own evidence, the representations as to the finding of a tenant and the consequent funding of the mortgage pertained only to what would occur following settlement. Because settlement has not, of course, taken place it is difficult to see how it can be said that any representations in these respects were misleading. History does not relate.
[22] That said, however, I think that in this case at least caution is required in making nice distinctions between the representations alleged to have been made. I am inclined to read the respondents’ evidence as disclosing a “package” of alleged conduct, the net effect of which is that Ironfish led them to understand that they would be able to purchase the Manukau Road property and meet the mortgage repayments with no (or minimal) financial input of their own. They say that this understanding was fundamental because they in fact had no available capital and insufficient incomes to meet a new mortgage. In this respect Mr Ly said:
Why did we want to buy a property, since we did not have any money? That was because the manager and the staff member of Iron Fish Group said: “Don’t worry. We will help out. We will arrange everything and solve all problems for you. We won’t allow any risks to happen on you.” The “deposit” would be provided on behalf by “Home Bond”. They would help contact various banks and there would be loans covering 100 per cent.
[23] The fact that the respondents actually had no money of their own to invest is borne out by the fact that Ironfish’s accredited mortgage broker subsequently declined to provide finance, as did the two banks then approached by the respondents themselves.
[24] I do not consider it can be said that the facts as deposed by the respondents are completely “in” or “un” credible. In my view what their evidence tenably discloses is that the nature of their association and discussions with Ironfish may have given rise to a misunderstanding on their part as to the basis upon which they were committing to purchase the unit.
[25] First, there may have been a degree of conflation in their minds between what was likely to have been a certain amount of “hype” at the Ironfish investment seminars and the more specific subsequent discussions between Ironfish and the respondents. The possibility of such conflation occurring is in my view inherent in the potentially conflicting roles played by Ironfish as a property investment advisor on the one hand and as an agent of vendors/developers on the other.
[26] Secondly, I do not find it implausible that Ironfish made reassuring noises to the respondents as to the financial viability of the proposed investment; Ironfish had a direct and immediate financial interest in obtaining an unconditional contract. Any such reassurance may well have been consolidated in the respondents’ minds as a result of the ease with which the bond was obtained.
[27] Lastly, and notwithstanding the involvement of a lawyer (the extent of which is presently unclear), it seems reasonable to assume that the condition upon which the 13% ($85,000) rebate on the purchase price was made available to the respondents may well have caused them to feel under some pressure to sign the agreement quickly.
[28] So while I accept Mr Carey’s submissions that it is highly unlikely (even not credible) that Ironfish made any categorical representation that 100% finance would be available to the respondents or that a tenant would be found for the property, that is, I think, beside the point. Without of course expressing a concluded view, it seems to me that it may suffice for s 9 purposes that, looked at overall and in context (which context includes the investment seminars), Ironfish’s statements and conduct (mis)led the respondents reasonably to believe that they could safely invest in the Manukau Road unit, notwithstanding their lack of both capital and sufficient income to meet the mortgage repayments.
[29] In this respect, I also accept that Mr Parmenter’s characterisation of the respondents as “somewhat naive consumers in the pressure cooker environment of a well orchestrated sales pitch” may be fair and, if so, is relevant in the context of the
s 9 inquiry. As the Supreme Court has recently said in Red Eagle Corporation Ltd v
Ellis [2010]:[2]
[2] Red Eagle Corporation Ltd v Ellis [2010] 2 NZLR 492 (SC) at [28].
... [section 9] is directed to promoting fair dealing in trade by proscribing conduct which, examined objectively, is deceptive or misleading in the particular circumstances. Naturally that will depend upon the context, including the characteristics of the person or persons said to be affected. Conduct towards a sophisticated businessman may, for instance, be less likely to be objectively regarded as capable of misleading or deceiving such a person than similar conduct directed towards a consumer or, to take an extreme case, towards an individual known by the defendant to have intellectual difficulties. Richardson J in Goldsboro v Walker said that there must be an assessment of the circumstances in which the conduct occurred and the person or persons likely to be affected by it. The question to be answered in relation to s 9 in a case of this kind is accordingly whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware
– would likely have been misled or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else. If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so. Of course the fact that someone was actually misled or deceived may well be enough to show that the requisite capacity existed.
(footnotes omitted)
[30] For all the above reasons, I am not prepared to disregard or discount the respondents’ account of the facts for summary judgment purposes. Moreover, I consider that if their account were to be borne out at trial, it could form a tenable foundation for a defence or counterclaim of the sort they have pleaded, subject of course to my conclusions on the agency question below. It is to that, question I now turn.
The agency issue
[31] As I have indicated above, Mr Carey submitted that even if a court were to hold that Ironfish had engaged in misleading conduct of the sort alleged here, that conduct could not be sheeted home to 401L because such conduct necessarily would
have been outside the scope of the agency relationship between 401L and Ironfish.
He submitted, and I accept, that if he is correct about that then summary judgment can be entered notwithstanding any factual dispute.
[32] Mr Carey relied in particular on the decision of Henry J in McAlpine Snowline Ltd v Wethey.[3] Although that was a case under the Contractual Remedies Act 1978 (CRA), it bears some marked similarities to the present. It, too, concerned a defendant who had failed to complete the purchase of a property but sought to defend the plaintiff’s claim by relying on two misrepresentations made by the vendor’s agent, namely that:
[3] McAlpine Snowline Ltd v Wethey (1986) 2 NZCPR 388 (HC).
(a) finance for the property could be obtained easily; and
(b)there would be no difficulty in obtaining suitable tenants for the property.
[33] In rejecting the defence, Henry J held firstly that the representations made were statements of opinion rather than fact and that on the evidence heard by him at the trial, he was not satisfied that the opinion was not genuinely held. Mr Carey did not seek to argue that the distinction between statements of fact and opinion that arises in the context of the CRA would be likely to be determinative in the context of the FTA.
[34] Henry J also held that there could be no right to cancel the contract because the essentiality of the representations to the defendant could not properly be implied. Again, that is a CRA matter that may or may not be relevant under the FTA and it was not relied on by Mr Carey. Mr Carey did, however, rely on what Henry J said
next:[4]
[4] At 390.
Thirdly, I do not think either statement could be said to have been made by Mr Prier within the scope of his ostensible authority. The statement as to availability of finance was quite unrelated to the property and clearly was made by Mr Prier in his personal capacity. The statement as to finding a tenant in its context is also concerned with Mr Prier's own belief as to the future situation and the assistance he would render Mr Wethey after the purchase Mr McVeigh relied on Mullens v Miller (1882) 22 Ch.D. 194, which concerned representations made by a surveyor employed by a vendor
as to the readiness of a third party to buy or to rent the property in question.
Sir James Bacon. V-C., said at p.199 :
"Now a great deal of time has been occupied, and a great many cases have been referred to on the question of the authority of an agent. A man employs an agent to let a house for him; that authority, in my opinion, contains also an authority to describe the property truly, to represent its actual situation, and, if he thinks fit, to represent its value. That is within the scope of the agent's authority; and when the authority is changed, and instead of being an authority to let it becomes an authority to find a purchaser, I think the authority is just the same. I think the principal does thereby authorize his agent to describe, and binds him to describe truly, the property which is to be the subject disposed of; he authorizes the agent to state any fact or circumstance which may relate to the value of the property."
Accepting the principle there enunciated, I am of the view the present facts are not within it. Neither statement really related to the property in the sense referred to and there is nothing in the evidence to suggest that any quality or defects in it unknown to Mr Wethey, contributed to either problem which later eventuated.
[35] Thus, Mr Carey submitted, to the extent Ironfish made representations as to the availability of finance and of a tenant, it could not be said that the company was acting within its “ostensible authority” and 401L could not therefore be held legally responsible.
[36] Mr Parmenter, however, sought to distinguish the McAlpine decision on the grounds that it was not a FTA case. He relied on the decisions of Priestley J in Armourguard Security Ltd v General Security Group Ltd[5]and Asher J in Commerce
[5] Armourguard Security Ltd v General Security Group Ltd HC Auckland CIV-2004-404-5184, 21 October 2004.
Commission v Vero Insurance New Zealand Ltd[6]for the proposition that the ordinary
[6] Commerce Commission v Vero Insurance New Zealand Ltd (2006) 11 TCLR 779 (HC).
rules of agency do not apply in the context of that Act. He referred in particular to
[56] – [58] of the later decision in which Asher J said:
[56] It is correct that some wider statements were made in the course of the judgment of Goddard J that do appear to apply the concept of agency as it is used in contract law. In contract a person can only be an agent if that person has the authority or capacity to create legal relations between the person occupying the position of principal and third parties. In my respectful view the concept of agency should not be so limited in relation to prosecutions under the FTA. The focus of the FTA is not on the creation of contracts and contractual liability. Rather, it is on the protection of the public from false or misleading conduct. It is necessary to apply a purposive
approach. Either actual or apparent authority will suffice. It would seem anomalous if a principal who clothed another with the authority to make representations and was aware of the representations that were being made, escaped liability because the person who made the representations did not have the power to contractually bind that principal.
[57] The FTA contains no definition of “agent” in the interpretation
section. However, s 45 deals with conduct by servants or agents. Subsections
45(1) and (3) relate to the Civil Proceedings part of the Act, and subsections
45(2) and (4) relate to the whole Act. Section 45(2) states that any conduct engaged in or on behalf of a body corporate by an agent of the body
corporate acting within the scope of that person’s actual or apparent
authority, or any other person at the direction or with the consent or agreement of a director or servant or agent of the body corporate:
“… given within the scope of the actual or apparent authority of the director, servant or agent –
shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.”
(emphasis added)
[58] The whole focus of s 45(2) and the other parts of s 45 is actual or apparent authority, rather than the ability to contractually bind the principal. There would have been no point to s 45 if the traditional contract concept of agency applied. Section 45 is consistent with the purpose of the Act which is to protect the public from false or misleading conduct.
[37] In this respect, however, I accept Mr Carey’s submission that (as is made clear in the passages just quoted above) Asher J was prepared to depart from the ordinary law of agency only to the extent that agency requires the existence of authority to bind the principal. That aspect is not in issue here. Rather (and as was in fact the case in Vero and in Armourguard) the issue before me is whether, in terms of s 45(2) of the FTA, it can be said that the misleading conduct that is alleged of Ironfish is of such a kind that it can categorically be said that it was outside the scope of Ironfish’s “actual or apparent authority”.
[38] The concepts of actual and apparent authority are well established in agency law. To the extent that Mr Parmenter was asking me to depart from those concepts, I decline to do so. Neither the Vero nor the Armourguard decisions is authority for doing so. And as the conclusions I reach below indicate, an orthodox application of those concepts does not, in any event, undermine the purpose of the FTA.
Would the alleged misleading conduct fall outside the scope of Ironfish’s actual or
apparent authority?
[39] At the outset, I record that it may be that the reference by Henry J in McAlpine to “ostensible” authority (a term usually regarded as synonymous with “apparent” authority) diverted the focus of some of the submissions before me away from the question of the scope of Ironfish’s actual authority. But it is that scope which, in my view, will be the real issue here; the concept of apparent authority is not engaged on the facts in the present case. That is because an agency relationship is accepted to have existed between Ironfish and 401L; the issue is rather as to whether the alleged conduct fell within the ambit of that relationship. Similarly (and nomenclature notwithstanding) it was the scope of an admitted (actual) authority that was considered by Henry J in McAlpine.
[40] I accept that on its face, the decision in McAlpine supports the application for summary judgment. There is other authority for the proposition that the (actual) authority of a real estate is generally limited to matters of property description value and situation. It follows that any representations as to obtaining finance or finding a tenant will fall outside that authority.
[41] But on the evidence before me, it seems to me that Ironfish was no ordinary real estate agent. For example, in entering into an agency relationship with Ironfish,
401L knew and was surely influenced by the facts that part of its business involved:
(a) actively generating interest in property investments (no doubt with a particular focus on investing in apartments bought off the plans);
(b)directing would-be investors towards properties that Ironfish already had on its books; and
(c) assisting would-be investors to obtain both deposits (through Home
Bonds) and finance (through its accredited mortgage broker).
[42] In my view such matters of “milieu” or context necessarily go to the scope of
Ironfish’s actual agency, particularly when they are not only consistent with, but
reflected in, the terms of the agency (marketing and management) agreement: see in particular clauses 2.1(b), 2.3(e) and (h).
[43] If that is correct, then it becomes disingenuous to say that Ironfish was “just” a real estate agent. Accordingly, I do not consider that Henry J’s dicta in McAlpine can be applied in this case.
[44] While I accept that 401L is most unlikely to have authorised Ironfish expressly or implicitly to convey to the respondents that they would require neither capital nor income of their own to finance the purchase of the Manukau Road unit that is not the issue. Rather the question is whether, this (alleged) misleading conduct was sufficiently closely connected with the tasks for which Ironfish had been engaged by 401L. If it engaged in that conduct, could it be said to have abused its authority or would such conduct be necessarily regarded as Ironfish’s own, being wholly in want of authority?
[45] As the Supreme Court said in Nathan v Dollars & Sense Ltd:[7]
[7] Nathan v Dollars & Sense Ltd [2008] NZSC 20, [2008] 2 NZLR 557 at [39] and [40].
It is worth remarking, also, that although the question of whether the principal was liable for an agent’s conduct is often addressed by asking whether that conduct fell within the scope or course of the agent’s authority, this methodology has the capacity to suggest that the conduct of the agent for which a third party seeks to make the principal liable must have been authorised in some way by the principal. That, as we have seen, is not the case, but the concept of authority can unconsciously influence the inquiry in an unhelpful way. The more precise formulation is whether the conduct of the agent fell within the scope of the task which the agent was engaged to perform.
In order to determine that question, the Court must concentrate on the nature of the tasks to be performed on behalf of the principal and on how the use of the agent for that purpose has created risk for the third party. Without a sufficiently close connection between the task for which an agent was engaged and the unlawful action of that agent, so that the wrong can be seen as a materialisation of the risk inherent in the task, it will be neither fair nor proper to impose vicarious (strict) liability on a principal who has not necessarily been guilty of any personal negligence and so would not be directly liable to the claimant. Strict liability of this kind is exceptional and is not to be imposed unless fully justified by these considerations. Certainly, just the opportunity to commit the wrongful act or the existence of some merely incidental connection will not suffice.
[46] As the Nathan decision itself makes clear, even a forged signature may fall within the scope of an agent’s authority (or within the agency) if it can be said that the signing of the relevant documents was central to the agency. The forgery was thus merely an unauthorised way of performing what was the very thing that the agent was authorised to do.
[47] Viewed in that way, it cannot at this stage be said that what Ironfish is alleged to have done would be unequivocally outside its actual authority. It seems arguable (for example) that its actual authority encompassed the arranging of deposits and finance for prospective purchasers of 401L’s properties; the marketing and sale agreement refers to these matters expressly: clause 2.3(h). If that is so, then it is at least arguable that statements or conduct by Ironfish that are connected with those matters (even if in breach of the FTA) were also within that authority. More facts (and further submissions) would be required in order for the Court fairly to determine those issues.
[48] For all the reasons I have given above I am of the view that 401L’s summary
judgment application must be dismissed. The respondents are entitled to costs on a
2B basis, which I trust can be agreed between the parties.
Rebecca Ellis J
1 PRNZ 84 (CA) at 85-86 that a “robust and realistic judicial attitude” to the alleged facts is required
in summary judgment cases.
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