Broughton v Samco Developments (Kingsland) Limited HC Auckland CIV 2006-404-7836
[2007] NZHC 1910
•25 June 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006-404-7836
BETWEEN PETER BROUGHTON AND ANTONY ARNERICH
Plaintiffs
ANDSAMCO DEVELOPMENTS (KINGSLAND) LIMITED First Defendant
ANDJOHN CALLAGHAN AND CRAIG ALEXANDER
Second Defendants
Hearing: 18 June 2007
Appearances: T Walker for plaintiffs
P McDonald for defendants
Judgment: 25 June 2007 at 4 p.m.
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
25.06.07 at 4 p.m, pursuant to
Rule 540(4) of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Counsel:
Brian Henry, ( T Walker) P O Box 4070, AucklandP J McDonald, Solicitor P O Box 1495, Auckland
BROUGHTON & ANOR V SAMCO DEVELOPMENTS (KINGSLAND) LTD AND ANOR HC AK CIV
2006-404-7836 25 June 2007
[1] The plaintiff seeks judgment in the sum of $200,000, having applied for summary judgment.
[2] The application is a curious one because the plaintiffs seek in their application for summary judgment the sum of $200,000 when by their amended statement of claim, under the relevant cause of action of contract, they seek a declaration as to what is the true profit of the development which was the subject matter of the claim and thereafter judgment for such sum as is due once that issue has been determined. Nonetheless, the defendants have not taken this point.
[3] Essentially the question comes down to determining the correct interpretation of the parties’ contract means.
[4] The plaintiffs were retained as real estate agents to effect sales of properties that were to be constructed by the defendants. The properties were “sold off the plans” in 2003. Settlement of the contracts, I was told, occurred in 2006 when titles were issued. The parties entered into a contract 12 March 2003. It is necessary to set out in full the basis upon which the plaintiffs claim entitlement to payment. There were two parts to the contract. Firstly, the plaintiffs became entitled to commission on the properties that they were instrumental in selling. Further, they were entitled to what was described in the contract as an ‘equity introduction incentive payment’.
[5] The provisions were as follows:
Commission Arrangments [sic]
1. On reaching the sales threshold to be set by the company,
$100,000.00 plus GST of commission due will be paid.
2. On the sales threshold being reached, a marketing services fee of
$150,000.00 plus GST will be credited, but will not be payable until the settlement of the units of the development. In return for this, an incentive payment of an additional $150,000.00 will be payable to you jointly. This payment will be from profit of the project (should a profit be achieved), and in terms of order of payment will rank after the payment of the equity providers interest payment. The payment of this fee is subject achieving not less than a gross profit of
$3,500,000.00 for the development.
3.The balance of the commission on sales will be paid at the time of settlement of the units, utilising sale proceeds.
Equity Introduction Incentive Payment.
1.Subject to the completion of all required documentation with the equity provider, One Investments Limited, and also subject to that company providing the equity committed to, a fee will be payable by the company as follows:
If the project achieves a gross profit of less than $4,500,000.00, the fee will be $200,000.00.
If the project achieves a gross profit equalling or exceeding
$4,500,000.00, the fee will be $300,000.00.
2.The fee will be payable from profit (should a profit be achieved) at the time of settlement of the units out of sale proceeds, and again will rank following the interest payable to the equity provider.
[6] It is on the second part of these contractual provisions that attention was focused at the hearing before me.
[7] The defendants in their notice of opposition said:
2.When the Memorandum between the First Defendant and the Second Defendants dated 12 March 2003 refers to gross profit, this is intended to mean and does mean profit before equity funding costs and tax.
3.The equity incentive payment was in any event only payable out of profit if a profit is achieved. As no profit was achieved, the payment is not due.
[8] The defendants have provided to the plaintiffs ‘consolidated statement of financial performance’ for the years ended 31 March 2003, 2004, 2005, 2006 and
2007.
[9] This consolidated statement of financial performance (“the financial statement”) set out the “gross profit” from trading as being $3,814,301. Further down in the statement, there appears an item “operating loss before taxation”. The amount of the loss is $792,448.
[10] The defendant says that because there never was a “profit” within the meaning of clause 2 of the “equity introduction incentive payment” provision, no obligation to pay the incentive payment ever arose.
[11] The argument before me for the plaintiffs was that wherever the word “profit” was used, the parties intended to refer to “gross profit”. As I understand it, the plaintiffs say that the reference in both paragraphs 1 and 2 is to “gross profit”.
[12] This was said to be the proceeds of sale less the cost of constructing the properties that were the subject of the development. The plaintiffs pointed to the account as showing that there was in fact a gross profit achieved and therefore there was no issue but that they were entitled to their fee.
[13] The agreement itself contains no definition of what is meant by “profit” or what the term “gross profit” means. Ms Walker told me that the “gross profit” does not mean profit before equity funding costs and tax, as the defendants submitted. She said that the meaning that the defendants attributed to the expression is:
“the converse of what gross profit means. Once the costs of the equity funding and taxation are deducted it is then what it is called “net profit”.
[14] Counsel did not support her submissions by showing that the expression “gross profit” that she contended for was supported by any of the factors normally relied upon when the Court is searching for the meaning of an expression. There was, for example, no definition of the term in the parties’ contract. It was not suggested that it was a term of art which has an established meaning.
[15] I intend to start by considering the expression in the context of the agreement. This involves ascertaining its meaning from an objective standpoint or, as Lord Hoffman put it in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at pp 114 – 115:
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the
[16] This approach has been adopted in New Zealand: Boat Park Ltd v
Hutchinson [1999] 2 NZLR 74, 81.
[17] The first thing to be observed is that if the meaning that Ms Walker contended for is the correct meaning, the draughtsman must have used two different expressions to refer to the same thing. It was not explained to me why he/she did so.
[18] Next, that interpretation means that clause 2 is redundant. That would be because if a gross profit was achieved, say of $4,000,000 – which would entitle the plaintiffs to $200,000 – the very matters that clause 2 requires to have occurred, must logically have already occurred. Clause 2 would be otiose. There would be no need to insert it into the contract. If the plaintiffs could not claim their commission unless a gross profit had been earned in the first place, why would the contract go on to say, in effect, “the commission will be paid out of the gross profit.” Further, the way that the clause has been drafted leaves open the possibility that while a gross profit may have been earned, a profit may not. This suggests that different concepts are referred to in different parts of the clause.
[19] Next, one can understand why the draughtsperson would use separate concepts of gross profit and profit as has been done. That is to say, while the first part of the clause is concerned with the accruing of the plaintiffs’ entitlement to commission, the second part is concerned with the making of payment in satisfaction of their claim. Gross profit, whatever it may mean in the present context, would seem to refer to a gain that is calculated before some, but not all, of the expenses that the developer has incurred, have been brought to account. The ability of the developer to pay the commission will not necessarily be known at the stage where gross profit is calculated. It will be known once all the expenses, deductions, off- sets and other relevant subtractions have been brought to account.
[20] Admittedly, an interpretation of this kind suggests that the plaintiffs might be at risk of receiving no commission at all. That is, if the developer does not get paid, nor do the real estate agents. But, it may be that the arrangements were overall so advantageous to the agents that they were prepared to run the risk of that happening.
[21] For all of these reasons, I do not accept that the plaintiffs are able to persuade me that the defendants do not have a defence to their claims.
[22] For those reasons alone this is not an appropriate case in which to grant summary judgment to the plaintiffs.
[23] That being my conclusion there is no need to consider the additional grounds which include pleading that the agreement to pay commission for the “equity introduction …” came within the provisions of section 62 of the Real Estate Agents Act 1976.
[24] The application for summary judgment is dismissed. The Registrar is to allocate a further case management conference at which directions for the further progressing of the proceeding can be made.
[25] Costs on the application for summary judgment are reserved.
J.P. Doogue
Associate Judge
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