Coast to Coast Limited v Smyth
[2015] NZHC 687
•14 April 2015
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2014-454-122 [2015] NZHC 687
BETWEEN COAST TO COAST LIMITED
Plaintiff
AND
PATRICK MURRAY SMYTH, EILEEN SMYTH and CHRISTOPHER SCHURR as trustees of the PKS TRUST Defendants
Hearing: 26 March 2015 (via AVL) Counsel:
A N Isac for plaintiff
S W Hughes QC for defendantsJudgment:
14 April 2015
RESERVED JUDGMENT OF DOBSON J
[1] The plaintiff in this proceeding is a real estate agency operating in the
Manawatu. It carries on business as Bayleys and I will refer to it as such.
[2] Bayleys has sued the defendants in their capacity as trustees of a trust that was the vendor of a dairy farm in Kimbolton in late 2013 or early 2014. Bayleys claim that the terms of an agency agreement between it and the trustees entitle it to a commission on the sale. This judgment determines Bayleys’ application for summary judgment on that cause of action.
Factual background
[3] On 28 January 2013, Bayleys and the trustees completed an agency agreement appointing Bayleys the sole agents to sell the Kimbolton property. The
standard terms of that agreement included the following:
COAST TO COAST LTD v SMYTH [2015] NZHC 687 [14 April 2015]
5.If the property or any part of it is sold and/or leased and/or an exchange or trade of the property is effected, directly or indirectly;
…
(c) to anyone introduced to the property by Bayleys;
….
the owner must pay Bayleys the fees and any other payment specified herein.
[4] Mr Dean File was the agent the trustees dealt with at Bayleys. Among potential purchasers Mr File introduced to the property was a Mr Keen who inspected it in July 2013. Mr File has deposed that, on Mr Keen’s instructions, he prepared an offer for Mr Keen to purchase the property for $7 million, and presented it to the trustees on two occasions. It is common ground that the trustees were not interested in a sale at that price. Some time after Mr Keen’s $7 million offer was first put to the vendors on 1 August 2013, he requested that the offer be presented again and apparently understood that it had been.
[5] In an affidavit sworn on behalf of the trustees, Mr Smyth deposed that they made it clear to Mr File that they would not entertain offers below a range between
$8 million and $9 million. Mr Smyth is adamant that no offers on behalf of Mr Keen at $7 million were presented by Mr File in the middle of 2013. Mr Smyth deposed that he first learned of offers on those terms when he read Mr File’s affidavit.
[6] In an affidavit in reply, Mr File is equally adamant that he did prepare and present offers on behalf of Mr Keen to purchase the property at $7 million.
[7] Mr Smyth deposed that the trustees became disenchanted with the lack of progress achieved by Mr File in procuring a sale on acceptable terms, and that they accepted recommendations from others to engage an alternative agent, a Mr Anderson at Ruraland Lifestyle Sales Limited (Ruraland). The trustees gave seven days’ notice of the cancellation of Bayleys’ agency on 23 August 2013. On receipt of that notice, Mr File wrote to Mr Anderson, pointing out that Bayleys’ agency agreement with the trustees had a provision requiring 21 days’ notice of its cancellation. Subsequently, after the 21 day notice period had expired, Mr File wrote to the trustees, acknowledging the cancellation of the agency agreement and advising
the names of each customer in respect of whom Bayleys would claim a commission, if the trustees subsequently concluded a transaction with any of them. That list included Mr Keen’s name.
[8] In January 2014, Bayleys became aware that the trustees had sold the property for $8.53 million. It subsequently transpired that the buyer was a company controlled by Mr Keen. In reliance on the terms of cl 5 of their agency agreement, Bayleys claimed for commission on that sale of $106,625 plus GST. They also sought information on the value of other assets that had been the subject of the sale, and on which Bayleys sought to charge commission.
[9] Mr Smyth deposed that he was alert to the risk that changing agents might expose the trustees to two claims for commission on the same sale. At the time the trustees were contemplating cancelling the agency agreement with Bayleys, the trustees sought confirmation from Mr Anderson that that would not occur. They accepted his assurance that there was a “Protocol” in place among real estate agents in the Manawatu that a “seven day rule” applied, so that a first agent would not claim commission for a later sale unless a purchaser introduced by that first agency made a successful offer within seven days of the first agency agreement being terminated. The trustees were also assured by Mr Anderson that Bayleys were bound by the protocol, so that the trustees would not be vulnerable to two separate claims for commission. Mr Smyth deposed that they relied on that advice in retaining Mr Anderson’s agency and subsequently paying commission to them.
The test to be applied on summary judgment
[10] The principles are well settled. I approach the issue consistently with the
Court of Appeal’s summation in Krukziener v Hanover Finance Ltd:1
… The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). …
1 Krukziener v Hanover Finance Ltd (2008) 19 PRNZ 162 (CA).
[11] Because of the permissive terms of r 12.2 of the High Court Rules, it is generally recognised that the Court retains a discretion as to whether to give summary judgment, after it has been satisfied by a plaintiff that the defendant has no defence.2 There is scope for debate as to the breadth of that discretion.
Arguable defences
[12] The trustees accept that if the provision in the agency agreement that Bayleys rely on is applied on its terms, then they would be liable for the commission claimed. However, two grounds are raised as constituting arguable defences. The first one is that the purchaser of their property, Mr Keen’s company, was not among those persons introduced to the property by Bayleys. That would depend on there being a tenable basis for distinguishing Mr Keen from his company. I would not be inclined to recognise that as a tenable defence. On the evidence thus far, the clear inference is that the eventual purchaser was operated by Mr Keen as its alter ego. It would frustrate the evident purpose of the provision relied on by Bayleys if the Court entertained the distinction as sufficient to exclude what would otherwise be a valid claim to commission.
[13] The second arguable defence raised was that the trustees were entitled to rely on the protocol in some way. Bayleys have not disputed that the trustees relied on the understanding of its application given to them by Mr Anderson. That reliance occurred both in cancelling the agency agreement with Bayleys and completing an agency agreement with Ruraland, and subsequently in paying the commission charged on the sale by Ruraland.3
[14] The trustees wish to join Ruraland as a third party to the proceedings so that the extent of their liability to pay a commission or commissions is determined with all relevant parties involved. Mr Smyth believes that they ought only to be liable for one commission on the single sale that occurred. Ms Hughes QC repeatedly
described the dispute as one that had to be resolved between the two agents.
2 See generally McGechan on Procedure (online looseleaf ed, Brookers) at [HR12.2.11].
3 It was assumed during argument that Ruraland had deducted the commission charged from a deposit paid by the purchaser. The trustees permitted that, inferentially on the basis that they would only be liable for one commission.
[15] The written submissions for Bayleys sought to meet such arguments by a narrow contractual analysis, denying that the protocol could operate as a matter of contract to amend the obligation assumed by the trustees under cl 5 to pay commission in the range of circumstances that clause contemplated.
[16] The existence of the protocol is not disputed. The trustees have filed an affidavit from Mr Andrew Stewart, a real estate agent in Palmerston North who is the industry-elected district forum leader for the Real Estate Institute of New Zealand. Mr Stewart describes the “local seven day protocol” as having been accepted practice for many years, and that the real estate industry in Manawatu periodically discusses and reconfirms its existence. His understanding is that Bayleys has confirmed its compliance with it.
[17] However, Bayleys disputes the authority of its agents who made the 2013 representations on which Mr Stewart relies. Alternatively, to the extent any commitment was made or reconfirmed, Bayleys will argue that its participation in the protocol excluded rural sales. Mr File’s affidavit annexed a copy of minutes of a meeting of Manawatu real estate company principals and managers that was held on
22 March 2013. Bayleys were not represented at the meeting but apologies were recorded for two of their agents. Those minutes refer to a local protocol having been re-affirmed by all companies at a previous meeting on 23 May 2010. The minutes also record that a re-statement of the protocol, which was being circulated for signature on behalf of local agencies, was to be signed by the two named agents from Bayleys, indicating Bayleys’ acceptance of it.
[18] Mr File also annexed a May 2013 email from a Mr Ian Barnes, described as the manager in the Wanganui-Ohakune area. That email arguably qualified the extent of commitment that at least the Bayleys franchise for which Mr Barnes was responsible would be prepared to make to the local seven day protocol in respect of rural sales.
[19] Mr Isac submitted that no consideration had flowed from the trustees so that, as a matter of law, they could not claim status as a party entitled to enforce the benefit of the protocol against Bayleys.
[20] A tenable defence does not necessarily depend on the trustees being able to assert a variation to the contractual terms that is sourced in the protocol. On the evidence thus far, it is tenable for the trustees to claim that their course of conduct in cancelling the agency agreement with Bayleys, and thereafter engaging and subsequently paying the commission to Ruraland, all depended on a reasonable belief that they were free of any obligation to pay a commission to Bayleys in the circumstances that arose.
[21] An estoppel in some form arising against Bayleys, to prevent them denying the application of the protocol to this contract, will depend on factual findings as to the conduct and representations made in Bayleys’ name.
[22] For instance, if conduct by Bayleys’ representatives reasonably entitled Mr Anderson to make the representations he did to the trustees that assured them they would not be liable for more than one commission on a sale of the property, then there may well be some form of estoppel constraining Bayleys’ entitlement to enforce the contract on its original terms. An issue may arise as to whether Mr Anderson might reasonably have expected Mr File’s letter to him to explicitly reject the application of the protocol, when advising that Bayleys’ cancellation period was 21, not seven, days.
[23] Conversely, if Mr Anderson overstated the effect of the protocol, or the understanding he ought reasonably to have had about its application to rural sales by Bayleys, then grounds may arise for questioning the entitlement of Ruraland to retain the commission, given the reliance placed by the trustees on those representations. There are numerous uncertainties as to the application and legal effect of the protocol. However, its influence on the conduct of the parties is sufficiently material to recognise the prospect of tenable defences.
[24] One suggested means of varying the terms of the trustees’ obligation under cl 5 of the agency agreement is to treat the protocol as an implied custom that operated to vary the effect of the express terms of the contract. Mr Isac disputed that the protocol relied on by the trustees could have standing as a term to be implied by custom. To have such status, Mr Isac submitted that the term must be notorious,
certain, reasonable, not inconsistent with explicit terms and be proven by clear and convincing evidence.4 Arguably, the protocol could not qualify on those tests because it was inconsistent with the express terms of cl 5(c) of the agency agreement, was not certain in its terms or sufficiently widely applied to be notorious, and further there was no clear and convincing proof that its terms applied.
[25] Mr Isac’s points on the status of the protocol may ultimately prevail. However, Bayleys cannot achieve the standard of having these criteria dismissed as untenable to discharge the onus on Bayleys at the summary judgment stage.
[26] In response to a question whether there were precedents for an agent being granted summary judgment in circumstances where it would result in the vendor being liable to pay two agents a commission on one sale, Mr Isac cited Heron Family Trust Ltd v Barfoot & Thompson Ltd.5 That case involved a vendor that claimed to have cancelled an agency agreement before a representative of the agent had introduced the eventual purchaser of the property to it. The vendor denied liability
to pay any commission. On appeal, the High Court upheld District Court findings that the original introduction of the purchaser occurred prior to cancellation of the agency agreement taking effect, and that there was no break in causation between that introduction and the subsequent purchase of the property by the relevant purchaser.
[27] An issue raised in that appeal was the existence of a separate proceeding in which another real estate agent was claiming entitlement to a commission on the same sale. The vendor argued that the summary judgment granted against it ought to be reversed on appeal because of the prospect of inconsistent findings of fact in the two proceedings.
[28] I agree with Ms Hughes that the competing claims for a commission by two agents in that case are distinguishable from the present case. Here, the trustees have
accepted liability to pay a commission to the agent that they treat as having procured
4 Citing HG Beale (ed) Chitty on Contracts (30th ed, Sweet & Maxwell, London, 2004) at
[13-010] and [13-019]; Westpac NZ Ltd v Patel [2013] NZHC 1011.
5 Heron Family Trust Ltd v Barfoot & Thompson Ltd HC Auckland CIV-2008-404-002263,
14 August 2008.
the sale, some months after they had cancelled the agency agreement with Bayleys. They claim to have changed agents in reliance on the belief they could do so without any on-going liability to pay a commission to Bayleys. The present factual context makes it important for the issues as between the vendor and both agents to be resolved in the context of one case, in respects that did not arise in Heron Family Trust.
[29] Mr Isac argued that it would not be inequitable or unfair for Bayleys to obtain and enforce a judgment against the trustees for a second commission, leaving the trustees to commence separate proceedings against Ruraland for a partial or total refund of the commission already paid to the agent that secured the sale, in the absence of Bayleys as a party to those proceedings. Such an outcome is highly unattractive. I am satisfied that Bayleys cannot establish the absence of a tenable defence.
[30] Even if I had been persuaded that there was no tenable defence on a contract cause of action, I would have stayed the effect of any judgment pending resolution of the circumstances in which the trustees relied on the understanding they were given as to the effect of the protocol, in charting the course that they did. Given the strong case there would be for a stay on such terms, it may well be that it would be appropriate for the Court to exercise its discretion under r 12.2 not to enter judgment. I do not have to analyse whether the discretion is of sufficient breadth to allow that to occur.
[31] I accordingly dismiss the application for summary judgment. I direct that the defendants are to file a statement of defence and their anticipated third party notice within 10 working days of the delivery of this judgment.
[32] The defendants are entitled to costs and reasonable disbursements on a 2B
basis.
Solicitors:
Fitzherbert Rowe, Palmerston North for plaintiff
Till Henderson, Stratford for defendants
Dobson J
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