Cooper & Co Real Estate v Volcanic Investments Limited HC Auckland CIV-2004-404-4050

[2005] NZHC 1725

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2004-404-4050

BETWEEN  COOPER & CO REAL ESTATE

Plaintiff

AND  VOLCANIC INVESTMENTS LIMITED

Defendant

Hearing:         7 April 2005 Appearances: W McCartney for Plaintiff

M Locke for Defendant Judgment:  21 April 2005

RESERVED JUDGMENT OF COURTNEY J

Solicitors:Chamberlains, P O Box 5678, Wellesley St, Auckland Fax: [phone]

Counsel:W McCartney, P O Box 1052, Shortland St, Auckland Fax: [phone] – email: [email protected]

M Locke, P O Box 90915, Auckland
Fax: [phone] – email: [email protected]

COOPER & CO REAL ESTATE V VOLCANIC INVESTMENTS LTD HC AK CIV-2004-404-4050 [21 April 2005]

Introduction

[1]    Last year the plaintiff (Cooper) applied to wind up the defendant (Volcanic). Volcanic applied for orders restraining advertising and staying the proceeding. Associate Judge Sargisson declined the application and Volcanic applied for an order reviewing that decision. I refused that application. Volcanic now applies for leave pursuant to s 26P Judicature Act 1908 to appeal against my decision.

[2]Rule 26P(1A) provides that:

The determination of the High Court on a review under sub-section (1) is final, unless the High Court gives leave (or the High Court refuses leave but the Court of Appeal gives special leave) to appeal from it to the Court of Appeal.

[3]    It is recognised that the right to a second appeal should only be granted in limited circumstances. Those circumstances were reiterated by the Court of Appeal in Smee v Smee (1999) 13 PRNZ 609 at 612, referring to its earlier decision  in Waller v Hider [1998] 1 NZLR 412 at 413 in which the Court said:

The appeal must raise some question of law or fact capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of further appeal; Rutherford v Weight [1923] GLR 34; plus Cuff v Broadlands Finance Ltd [1987] 2 NZLR 343 at 346-347. In the latter case the Court also remarked that in the end the guiding principle must be the requirements of justice…..

Upon a second appeal this Court is not engaged in the general correction of error. Its primary function is then to clarify the law and to  determine whether it has been properly construed and applied by the Court below. It is not every alleged error of law that it is such importance, either  generally or to the parties, as to justify further pursuit of litigation, which has already been twice considered and ruled upon by a court.

When the disputed matter is entirely or largely a question of fact the task of the applicant under s 67 is harder. An issue of fact in a matter falling within the jurisdiction of an inferior Court will seldom be of public importance. It is better that we make no attempt to define the circumstances in which a factual contest can be taken to have private importance but obviously it may do so if the amount at stake is very substantial or the decision reflects seriously on the character or conduct of the would-be appellant or, as in Cuff, the judgment below has special consequences (for example, bankruptcy) for the losing party. Even then, however, leave cannot be anticipated if the applicant is seeking to disturb concurrent finding of fact in the lower Courts.

[4]    In this case Cooper strongly asserts that it would be inappropriate to allow a second appeal given that Volcanic is effectively attempting to disturb concurrent findings of fact in the High Court. It says that there was no error of law in my earlier decision and that there is no interest, either public or private, of sufficient importance to warrant a second appeal. I embark on the consideration of this application very much cognisant of the limitations on granting leave discussed above.

Facts

[5]    Cooper is a licensed real estate agent but NZFIL is not. In February 2004 Cooper, Volcanic and a third party, New Finance and Investments Limited (NZFIL) entered into an agency agreement. Under it Volcanic appointed Cooper its agent for the sale of units that it was developing in Grafton Rd, Auckland.

[6]    There was already an existing listing agreement between Coopers and Volcanic, which provided for the payment of commission on the usual sliding scale based on the purchase price. Half the commission was payable when work on the apartment block began and the balance on settlement of the sale.

[7]    The agency agreement ran parallel with the listing agreement. This was because it provided for a different commission arrangement for sales achieved through a marketing method known as “target prospect marketing”. The target prospect marketing programme was to be managed by NZFIL. The agreement was  to apply to sales effected through this alternative marketing method while conventional sales would still be subject to the listing agreement.

[8]    The agency agreement required NZFIL to undertake target prospect marketing in order to identify suitable investors. This would be done through telemarketing and seminars. Those investors deemed suitable (presumably through their ability to finance the purchase of an investment property) would then be directed to Cooper, which introduced them to 160 Grafton Road.

[9]    Under the agency agreement each unit sold through target prospect marketing attracted a flat commission of $22,000 plus GST. Commission was payable on 31

March 2004 for all sales which were unconditional and for which deposit had been paid by that date. For all other sales which complied with specified conditions, commission was payable in full within seven days of an invoice  being  received. This was much more onerous than the listing agreement because it meant that substantial commission would fall due well before any of the units actually settled.

[10]   The agreement did not specify who would be entitled to render the invoices nor to whom the commission would be paid. Initially, invoices for sales were rendered by NZFIL. They were later replaced by invoices from Cooper.

[11]   Cooper and NZFIL both sued Volcanic as a result of the latter’s failure to meet demands for commission payments of $242,250 under the agency agreement. NZFIL was struck out of the proceeding by consent, recognising that, as it was unlicensed, it was precluded by s 62 Real Estate Agents Act 1976 from suing for commission.

[12]   Volcanic now resists the demand for commission on the ground that in entering into the agreement NZFIL had either acted or held itself out as ready to act as a real estate agent and thereby rendered the entire agreement illegal.

[13]   At this point I review the way the illegality issue has developed. In its original application before Associate Judge Sargisson Volcanic raised several arguments and the issue of illegality appears (judging from Associate Judge Sargisson’s decision) to have been limited to NZFIL’s right to sue, rather than as a general attack on the validity of the agreement.

[14]   When the application for review came before me Volcanic did argue that the illegality had rendered the agreement void. However, this was certainly  not advanced as a main argument. It did not appear in the written submissions of either party but was raised orally during argument and counsel did not refer me to any authorities.

[15]   In this application for leave to appeal Volcanic relies solely on the illegality issue. It maintains that had the Court been referred to the relevant authorities, the result would have been different.

Illegality

[16]   Volcanic asserts that in entering into the agency agreement NZFIL either acted or held itself out as ready to act as a real estate agent within the meaning of s 3 Real Estate Agents Act 1976 and in doing so breached s 62(1)(a) of this Act. It says that as, a matter of law, the breach of s 62(1)(a) rendered the entire contract illegal and void under s 3 Illegal Contracts Act 1970.

Was NZFIL a Real Estate Agent Within the Meaning of s 3 Real Estate Agents Act 1976?

[17]   Volcanic says that the obligations assumed by NZFIL under the agency agreement made it clear that it was holding itself out as a real estate agent. Section 3(1) provides that:

3     Meaning of “real estate agent”

(1)For  the purposes of this Act,  every person shall be deemed  to be a   real estate agent who acts, or who holds himself [or herself] out to the public as ready to act, for reward as an agent in respect of the  sale or other disposal of land or of businesses (either with or without any interest in land) or the purchase or other acquisition of land or of businesses (either with or without any interest in land), or in respect of the leasing or letting of land, whether or not that person carries on any other business.

[18]Volcanic relies on the decision of the Court of Appeal in Previews Incorporated v UEB Industries Ltd [1985] 1 NZLR 468. As I have noted, I was not referred to this or any other authority on this issue during the earlier application. Previews involved a contract between a US real estate agency and a New Zealand company for the promotion of the New Zealand vendor’s properties. The real estate agent was not licensed in New  Zealand.  There was no New Zealand licensed agent involved. The agent did not become involved in the negotiation of sales nor handle money. Having identified a

potential purchaser it introduced that person to the vendor, who then negotiated directly.

[19]   The Court of Appeal held that the agent had held itself out as a real estate agent under s 3 Real Estate Agents Act 1976. At 476 Cooke J (as he then was) observed that:

An agent who specialises in finding suitable properties for purchaser clients is prima facie within the Act, although he may well not negotiate contracts  or handle money…..

Nor can I find anything in the words, purposes or history of the legislation clear enough to bring me to the view that Parliament intended that, ordinarily or generally, an agent is not within the Act unless prepared to attend to the completion of the contract personally or by arranging for someone else to do so.

If the suggested limitation to agents willing to undertake all duties is discarded, as I am driven with respect to think that it must be, it remains true that the question is one of degree. All judges who have had to share the point share that view. But this only means, in my opinion, that a person is not within the Act unless in substance he can fairly be said to be so. That is to say, in substance he must carry on the business of acting for reward as agent in respect of the sale or other disposal of the land or the purchase or other acquisition of land or businesses; or the leasing or letting of land.

[20]   The defendant points to the following factors as indicating that NZFIL was either acting or holding itself out as ready to act as a real estate agent:

a)The agreement was one “...to appoint agents” which indicates that there were two agents being appointed. I do not place any weight on this factor. It is true that two agents were appointed under this  contract but that does not mean to say that both had responsibilities as real estate agents or that both were holding themselves out as such.

b)The agreement required Volcanic to authorise its solicitors to disclose information to NZFIL relevant to the status of any sale transaction achieved. I regard this factor as neutral. It may be interpreted, as Volcanic contends, as a mechanism for NZFIL to obtain the information it needs to charge commission. On the other hand,  as there is no specific provision for payment of the commission to NZFIL under the agreement it is reasonable to infer that Cooper will

be responsible for paying NZFIL and that the provision might simply provide transparency for NZFIL’s comfort so that it can be sure Cooper is paying the full amount required of it.

c)Under the agreement NZFIL’s obligation was to “source investors interested in making a property purchase and refer them to Coopers”. On the basis of Mr Cooper’s evidence about target prospect marketing Volcanic says that NZFIL’s true role was to actively tout for prospective purchasers and that in doing so it acted and/or held itself out as ready to act as an agent in respect of the sale of land.

d)The contract is silent about to whom commission payments are to be made and by whom invoices will be rendered.

[21]   The latter factors (c) and (d) I do regard as favouring Volcanic’s position. I have reviewed the evidence and carefully considered NZFIL’s role in light of Previews. The question is whether NZFIL was, in substance, carrying on the  business of acting or holding itself out as ready to act as agent for reward in respect of the sale of land. As the Court of Appeal recognised in Previews, the issue is one  of fact.

[22]   NZFIL was apparently introduced by Cooper to Volcanic as a marketer. Its obligations under the agreement are those of a marketing consultant. The evidence suggests that its seminars do not identify any particular property for sale nor give any details, which might identify the vendor. Details of the property await the period after the prospective purchaser is referred to Cooper. So it does not have any direct contact with the vendor or the property.

[23]   However, although NZFIL does not directly bring together the prospective purchaser and the vendor the effect of the agreement is that its marketing service forms the first step in the process of bringing a prospective purchaser to the vendor. Nor is it an insignificant step; Mr Cooper says in his affidavit that although target prospect marketing is a more expensive method of marketing it can also be very

effective and is particularly useful to developers who need to get a certain percentage of sale and purchase agreements in place before they can draw down funds.

[24]   The overall tenor of the evidence is that NZFIL is more than an arms length marketing consultant. It was intimately involved in sourcing purchasers for this complex and its contribution was essential in achieving this ultimate goal. Cooper clearly regards NZFIL as the more effective way to secure purchasers for this type of complex. I find that NZFIL’s conduct  was so closely connected with task entrusted to Cooper as the licensed real estate agent that NZFIL’s obligation encompassed some of the obligations one would usually associate with a licensed real estate agent.

[25]   There is no direct evidence as to how NZFIL was to be paid. I regard it as significant that the contract is silent on the issue of payment of commission and invoicing for commission. The agreement purports to appoint both Cooper and NZFIL as Volcanic’s agents, yet NZFIL has no right to payment under the agreement. If Cooper were liable to pay NZFIL then there is little point in Volcanic contracting directly with it. Similarly, where there is silence as to the recipient of the commission it seems unusual for there to be silence as to which of the two agents is entitled to invoice the principal.

[26]   Looking at the evidence generally it is difficult to avoid the inference that NZFIL’s remuneration (probably by Cooper) would depend on payment by Volcanic of a commission. Under the agreement that commission would only be paid once an unconditional sale had been effected, as is usually the case in real estate agency agreements.

[27]   Volcanic’s counsel submitted that the post contract conduct of the parties should be taken into account in considering what NZFIL’s obligations under it were, relying on Valentines Properties Ltd v Huntco Corporation Ltd [2000] 3 NZLR 16, 27 and 31 (later reversed by the Privy Council on other points).

[28]   There were two aspects of conduct said to be relevant. First, Mr Keith of NZFIL is named as the agent on two of the thirteen agreements exhibited to Mr Kelly’s affidavit. Second, the commission invoices were initially rendered by

NZFIL rather than Cooper and later replaced by Cooper’s invoices, with no satisfactory explanation for the replacement.

[29]   In my earlier decision I left open the possibility that NZFIL had acted as a real estate agent subsequent to the agreement being entered into but did not consider that it was relevant to the construction of the contract. I am still of that view.  I am not inclined to give weight to the subsequent conduct of the parties because the implications of that conduct are unclear. The issuing of invoices and being named in some contracts could well be an indicator that NZFIL was acting as a real estate agent. But the subsequent re-issuing of invoices by Cooper and the fact that NZFIL was not named in most of the contracts equally suggests that the parties recognised  an error and sought to rectify it.

[30]   Applying Previews, I am drawn to the conclusion that NZFIL was acting as a real estate agent when it signed the agreement. There are some issues on which I cannot form a final view because I am limited to affidavit evidence which does not cover them (particularly how NZFIL was to be remunerated). It would be preferable if those issues could have been resolved at this stage but the fact they cannot does  not affect my conclusion.

Effect of NZFIL Acting as Real Estate Agent

[31]   The effect of a unlicensed party acting or holding itself out as a licensed real estate agent was considered by Thomas J in Howick Parklands Building Co Ltd v Howick Parklands Ltd [1993] 1 NZLR 749. The learned Judge, having referred to a handbook on agreements for sale and purchase of land (4ed 1998) by Peter Blanchard (as he then was) and Withey v Croggon (High Court, Auckland CP1125/86, 4 November 1988, Tompkins J) held that:

Applying this approach I am satisfied that s 62(1) is to be interpreted in such a way as to confer different legal consequences for non-compliance with paras (a) and (b); failure to comply with para (a), requiring the agent to hold a licence, renders the contract illegal and void; failure to comply with para (b), requiring the contract of agency to be recorded in writing, merely renders the contract unenforceable.

[32]   It follows from my conclusion above that there has been a breach of s 62(1)(a) which renders the contract itself illegal and void.

[33]   This case is, however, unusual in that the party suing under the contract was a licensed real estate agent; the illegality has arisen as a result of the conduct of a separate party. This fact does not alter the effect of NZFIL’s breach as considered above. But it might well have given rise to a claim for relief by Coopers under s 7 Illegal Contracts Act 1970. Cooper has not sought relief in  its statement  of claim and did not raise the possibility of relief at all either before Associate Judge Sargisson nor before me on the application for review.

[34]   Cooper’s counsel raised the possibility of relief in this application, but not in any substance and without an application to amend the statement of claim. Volcanic’s counsel did invite me to consider the issue and to find that there would be no apparent justification for exercising the discretion under s 7 Illegal Contracts Act 1970. However, the pleadings do not permit consideration of the issue at all. I also observe that for this issue to be properly considered I would have expected the parties to give full discovery of the arrangements between Cooper and NZFIL. If anything this issue reinforces my view that this is a proper case for a second appeal.

Conclusion

[35]   It must be the position that my earlier decision contains an error of law as a result of not dealing with the question of illegality in light of the Previews and Howick Parklands decisions. I do not consider that it matters that this situation came about through counsels’ failure to properly recognise the significance of this issue and refer the Court to these decisions, with the result that this issue was accorded very limited importance at the earlier hearings.

[36]   I also consider that there are grounds on a public importance basis for allowing a further appeal. I suspect (and indeed counsel for Cooper acknowledged) that with the proliferation of apartment complexes marketing services such as those offered by NZFIL are likely to be far more prevalent than in the past. I am also now aware of Laurenson J’s decision in OPM Financial Services v Cornerstone Group

(High Court Auckland, CIV-2003-404-3444, 8 December 2004) in which a marketing arrangement strikingly similar to that described in the present case was the subject of an argument over illegality on precisely the same grounds as I have considered here. Given the public policy reasons behind s 62(1) Real Estate Agents Act 1976 as discussed in Previews, I consider that it is important that this type of agreement be properly considered.

[37]   Given that the issue of relief under the Illegal Contracts Act 1970 was not raised and quite obviously should have been I consider that this is matter would be better tried substantively. However, the most I can do at present is to grant leave to Volcanic to appeal against my earlier decision, which I do.

[38]   Although the defendant has been successful on this application I reserve costs.

P Courtney J