Du v Gu HC Auckland CIV 2009-404-5577
[2010] NZHC 2196
•7 December 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-5577
BETWEEN XING UA (DAVID) DU Plaintiff
ANDMING GU Defendant
Hearing: 9-11 August 2010
Appearances: C T Patterson for the Plaintiff
G Blanchard for the Defendant
Judgment: 7 December 2010
RESERVED JUDGMENT OF ELLIS J
This judgment was delivered by me on 7 December 2010 at 11 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: Butelaw, PO Box 35563, Auckland 0753
Ross Holmes Lawyers, PO Box 33009, Auckland 0740
Counsel: C T Patterson, PO Box 2886, Auckland 1140
G Blanchard, PO Box 1235, Auckland 1140
DU V GU HC AK CIV-2009-404-5577 7 December 2010
[1] The plaintiff and the defendant are in dispute over the ownership of a property situated at 7 Lakeridge Close, Albany, Auckland. The plaintiff (Mr Du) is a real estate agent with the firm Ray White Insight Limited and is also a property investor. The defendant (Ming Gu) is presently the registered proprietor of the Lakeridge Close property although she presently lives in China and did not give evidence at the hearing before me.
[2] A contract was entered between Mr Du and Ming Gu (through her daughter Nancy Luo as her agent) on 25 February 2009. The contract has commonly been referred to as a joint venture agreement, as it recorded, amongst other things, that the plaintiff and the defendant would jointly develop the Lakeridge Close property. The proposed development essentially involved the construction of a new house on the property, the cost of which was to be shared equally between Mr Du and Mrs Gu.
[3] Another aspect of the agreement, however, was that a 50 per cent share in the property would be transferred to Mr Du in the event that he asked for such a transfer to be effected. The agreement also recorded that the plaintiff and defendant would “each have 50% of the ownership of the land” and “50% of all the benefits and related risks that the development of the land brings”.
[4] There is no dispute that a house was built on the property and that Mr Du contributed to the costs of building it. The amount of his contribution is, however, far from agreed. Nor is it in dispute Ming Gu did not transfer a 50 per cent share in the property to Mr Du when he asked her to do so. Ms Luo and her husband now live in the house.
Pleadings and procedural history
[5] Because of the particular evidentiary difficulties that have been thrown up by this case (a matter to which I shall later return) it is helpful at the outset to be as precise as possible about what has been pleaded, the remedies sought and the procedural history of the proceeding.
[6] The statement of claim as originally filed in August 2009 focused on the alleged breach of the Joint Venture Agreement by Ms Luo. That breach was said to be her refusal to transfer to the plaintiff a 50 per cent interest in the title to the property in accordance with the Joint Venture Agreement. There were ancillary breaches alleged in relation to steps that had been taken by Ms Luo to prevent the plaintiff from entering the property and the residence by the defendant’s daughter in the house that had been built. The house was said to have diminished in value as a result of her residence there.
[7] The following relief was claimed:
A. Orders by way of specific performance requiring:
(i)the defendant to place the property on the market for sale at a price either agreed between the parties, or determined by a valuation performed by a valuer recommended by the Chairman of the Property Institute of New Zealand;
(ii) that the defendant, until such time as the Property sells, meet
50% of expenses legitimately incurred in relation to the marketing of the property, maintenance of the property, payments due under the mortgage, and/or any outstanding invoices due in relation to the construction of the House;
(iii) the defendant to allow the plaintiff access to the property, until such time as the Property is sold, to the extent such access is reasonably necessary in order for the plaintiff to inspect the condition of the Property and/or meet with valuers, real estate agents and workmen as needed in order to facilitate the maintenance and sale of the Property;
(iv) the defendant to cause the proceeds of sale be paid into, and held in, a solicitors trust account;
(v) that the net proceeds of sale (i.e. the proceeds following repayment of the Mortgage and any outstanding costs in relation to the construction of the House and/or marketing of the Property for sale) be disbursed as soon as reasonably possible from the solicitors’ trust account 50% as to the plaintiff and 50% as to the defendant subject to any adjustments necessary in relation to non payment by either party of the payments required per order A(ii) above and paragraphs 6(a) and (b) above.
Or
B.Judgment for a sum, yet to be quantified, comprising 50% of the current market value of the Property less estimated costs of sale of the Property;
and
C.Judgment for a sum, yet to be quantified, in respect of contributions towards the construction costs due from the defendant under the Joint Venture Agreement, but not paid by the defendant and instead paid by the plaintiff;
And
D. Costs.
E. Such other relief as the Court deems necessary.
[8] The statement of defence filed in October 2009 denied that Ms Luo was the registered proprietor of the property and took issue with certain of the factual allegations in the statement of claim. However it accepted that a contract had been entered (between Mr Du and Ming Gu) on 25 February 2009. It alleged that Mr Du had failed to meet 50 per cent of the costs of building the property and had obstructed the building work. It then said that Ming Gu was entitled to cancel the agreement on the grounds that Mr Du had induced her to enter into the agreement by saying that the Property was worth no more than $252,800.00 (the approximate amount of Ming Gu’s mortgage) when in fact it was worth approximately
$330,000.00. Breach of fiduciary duty and negligence were also alleged. In both cases the allegations were based on the fact that at the time the representation as to price was made Mr Du had been a real estate agent who had been commissioned by Ming Gu to sell the property.
[9] At the first case management conference the Associate Judge noted that the registered proprietor of the property was Ms Luo’s mother and that Ms Luo’s solicitors had instructions to represent Ming Gu who would need to be joined. Subsequently, in March 2010, Associate Judge Christiansen directed by consent that Ms Luo be struck out as a defendant and that Ming Gu be joined. At that time an amended statement of claim was directed to be filed and a half day judicial settlement conference was scheduled for the end of May 2010.
[10] The amended statement of claim was duly filed on 23 March 2010. Aside from the substitution of the present defendant for Ms Luo the statement of claim was materially the same as before.
[11] A statement of defence to the amended statement of claim was not filed until
26 July 2010. In the meantime a settlement conference had taken place at which the presiding Associate Judge had raised the possible application of ss 63 and 64 of the Real Estate Agents Act. For that reason the second statement of defence contained the further positive defence that the defendant was entitled to cancel the agreement pursuant to s 63 because:
(i)On 4 February 2009 the defendant engaged Ray White as real estate agent to sell the Property.
(ii) Consequently it was in breach of s 63 for the plaintiff to obtain any legal or beneficial interest in the Property without the defendant having given her consent in the prescribed form and having been provided with a valuation of the Property in accordance with s 64 of the Act.
(iii) The defendant did not provide her consent in the prescribed form and was not provided with a valuation in accordance with s 64.
(iv) Accordingly the defendant was entitled to cancel the Agreement pursuant to s 63.
[12] Misrepresentation and the right to cancel under s 7 of the Contractual Remedies Act were pleaded in the alternative on the same basis as before. The defences based on breach of fiduciary duty and negligence were dropped.
[13] On 2 August 2010 (a week before the scheduled hearing) an application was filed by the plaintiff to rejoin Nancy Luo as a second defendant. That application was filed with an affidavit from Mr Du but that affidavit was not sworn. The application was opposed by Ming Gu and following the convening of a telephone conference the application was declined by me for the reasons given in my judgment of 6 August.
[14] On 6 August the plaintiff also filed a reply to the defendant’s statement of defence which stated:
(a)The defendant was not entitled to cancel the JV Agreement under s63 of the Real Estate Agents Act 1976 as the agency agreement was formally withdrawn and had come to an end on 13 February 2009 before the plaintiff and the defendant entered into the joint venture; and
(b)The plaintiff denies paragraph 15(b) of the defendant says that he did not induce the defendant into entering the agreement by a misrepresentation that the property was worth $252,800.00; and
(c)Any inducement on the part of the plaintiff, which is denied, was not a material term of the JV Agreement and therefore the defendant was not entitled to cancel the JV Agreement under the s7 Contractual Remedies Act 1979; and
(d)The defendant is required under s7(6) of the Contractual Remedies Act 1979 to seek leave of the Court to cancel the JV Agreement and the defendant has failed to do so.
[15] On 9 August 2010, the day the trial commenced, leave to file a further amended statement of claim was sought. The proposed amended claim sought both specific performance of the Joint Venture Agreement in the terms set out in the previous statements of claim but included a second, quantum meruit, cause of action in relation to project management services alleged to have been performed by the plaintiff in relation to the building of the house on the property. Ten per cent of the alleged total construction cost of $320,000.00 was sought in that respect. The application to amend was opposed. I did not determine the matter on that day but later signalled to counsel that it was declined.
[16] As regards the dispute as to the precise contribution made by Mr Du under the agreement to the mortgage and to the cost of building the dwelling on the Lakeridge property, both counsel indicated prior to the commencement of the hearing that they were agreed that I should deal with that on a “global” basis. It is probably fair to say that in acquiescing to that proposal I had little, if any, idea of precisely what an evidentiary chaos existed in that respect. I hasten to add that the word “chaos” is not intended to imply any particular criticism of counsel. Rather the disarray appears to be the result from an extraordinarily haphazard method of record keeping adopted by both the plaintiff and the defendant (or more correctly her daughter and son-in-law).
[17] At this point I simply note that none of the witnesses could agree as to the basis on which crucial records were made or kept. That basis was certainly not apparent on the face of the relevant documents themselves. I have no doubt that a number of the relevant records were not even before the Court. Although some of the invoices that were in evidence had been signed by both parties they could not
agree about what that meant. I was presented with handwritten lists of payments (in Mandarin) on scraps of paper. Even after the hearing had finished Mr Du sought to introduce more evidence in that regard. And notwithstanding the calling of a qualified accountant by the defendant to try and make sense of all this, all of the assumptions upon which his analysis was based were disputed or questionable simply by virtue of the fact that the records were, as I have said, in such an inchoate and incoherent state.
Issues
[18] As will be evident from the review of the pleadings above it is not disputed that the joint venture agreement was breached by the defendant when she refused or failed to transfer 50 per cent of the Lakeview property to Mr Du. Accordingly the principal issues in the proceeding relate to the positive defences advanced by Ming Gu, namely whether she was entitled to cancel the contract
a) by reason of Mr Du’s alleged failure to comply with ss 63 and 64 of the Real Estate Agents Act 1976;
b)pursuant to s 7 of the Contractual Remedies Act 1979, on the basis that there was:
i)a material misrepresentation by Mr Du about the value of the property at the time the agreement was entered into; and
ii) other breaches of the agreement by him.
[19] If cancellation is permitted, Ming Gu does not dispute that Mr Du should be compensated for his contributions to the mortgage and to the construction of the house. Issues then arise, however, as to the quantification of those contributions.
[20] If cancellation is not permitted then issues of appropriate relief arise.
Facts and evidence
[21] The plaintiff (Mr Du) moved to New Zealand in late October 2006. Shortly afterwards he met Ms Luo and her husband Mr Bian. They became friends. Mr Bian and Mr Du set up a company named “Fast Savings Limited” together on
14 December 2007. As I have said Mr Du also worked as a real estate agent for the
Ray White Albany branch.
[22] The 7 Lakeridge Close property was purchased by Mrs Gu in November
2006 as vacant land. She subsequently attempted to sell it. The property was listed for sale on 27 March 2008 with her daughter Nancy Luo who was and is a real estate agent working for Barfoot & Thompson at their Albany branch. Ms Luo had a power of attorney for her mother, who speaks little English and, in fact, at the time this matter was heard, was living in China.
[23] The property had originally been purchased by the defendant for $315,000. When it was listed for sale with Barfoot & Thompson in March 2008, the recommended asking price was $399,000. That price was dropped to $389,000 the following month. No offers were received in relation to the property throughout
2008. During that time the Government valuation for the land was $415,000.
[24] Mr Du says, but Ms Luo and Mr Bian deny, that at various times between October 2008 and February 2009 there were discussions between them about entering into a joint venture in relation to developing the Lakeridge property. Mr Du said that the idea was that a house would be constructed on it (plans having already been drawn up and a building consent obtained) and the property would then be sold for a profit.
[25] There is no dispute that throughout 2008 the property market had been in a very depressed state, particularly so in relation to bare sections. That is in any event evidenced by the difficulties experienced by the defendant in selling the section to which I have already referred.
[26] In early January 2009 Ming Gu and Ms Luo travelled to China for family and other personal reasons. Mr Bian stayed in New Zealand. While the women were away, a decision was taken to list the Lakeridge Close property with Mr Du’s company, Ray White. The listing would therefore be jointly held between Ray White and Barfoot & Thompson (with whom it was already listed).
[27] The Ray White records show that the listing price was $299,000 and that a building consent was available. The listing agreement, which is dated 4 February
2010, was signed by Mr Du for Ray White. Mr Bian wrote Ming Gu’s name on the form in the space provided for the vendor’s signature. The agreement provided that the agency was to commence immediately upon signing and could be cancelled by Ming Gu “by notice in writing to the agent, which notice may become effective not earlier than midnight on the 14th day after delivery of the notice”.
[28] Mr Du’s evidence was that having signed the listing, he became concerned that (unlike Ms Luo) Mr Bian did not have a power of attorney to sign the agreement on behalf of Ming Gu. He said that he discussed that matter with Mr Bian and was told that the matter could be attended to on Ms Luo’s return to New Zealand. He says that he regarded the listing as invalid. Ms Han (also from Ray White) gave evidence that Mr Du had discussed his concern about Mr Bian’s authority to sign the listing with her. A Ray White computer print-out shows that the listing was in fact removed on 13 February 2009.
[29] Mr Bian, however, said that he was never told by Mr Du that he did not regard the listing as valid or that it had been removed from the Ray White system. He also said that while his wife was in China he had been given authority by Ming Gu to sign on her behalf.
[30] Mr Du’s evidence was that about the time of the listing with Ray White the discussions between him and Mr Bian about the possible joint development of the property became more serious. Mr Du said that Mr Bian initiated these discussions, but Mr Bian said it was Mr Du.
[31] In any event it is clear that discussions did take place, and they culminated in a draft agreement dated 14 February 2009 (i.e. the day after the removal of the listing from the Ray White computer) that was signed by both Mr Du and Mr Bian. This agreement, which was written in Mandarin by Mr Du, was entitled “Co-operation Agreement” and was stated to be between Party A, being Mr Bian or “Attorney Lei Luo” (Ms Luo) and Party B, being Xinghua Lee Du (Mr Du). The original of the draft agreement (which was not made available until during the hearing) indicates, by virtue of the different coloured inks used, that the price to be attributed the Lakeview property (namely the amount of the outstanding mortgage) and the amount of the interest owed to the bank had initially been left blank by Mr Du. The evidence suggests that these figures were to be provided by Mr Bian.
[32] Subject to slight alterations to some of the figures, and the inclusion of a non- transfer clause, the 14 February agreement was materially identical to the final agreement that was signed by Mr Du and Ms Luo (on behalf of Ming Gu) on
25 February 2009. Ms Luo was at that time still in China and returned an executed copy to Mr Du by email. She signed a further copy of the agreement upon her return to New Zealand on 10 March. I set out the translated text of the final agreement in full below:
Agreement 25/02/09
Party A: Gu Ming or its agent: Luo Lei
Party B: Du Xinghua
After friendly discussions on an equal basis, the two parties have reached the following agreement on jointly operating and developing 7 Lakeridge Close, Albany:
1. The land is considered to be worth 252,800 New Zealand dollars. After this agreement takes effect, the two parties will have equal liabilities to the bank loan. Each party will be responsible for half of the bank interest.
2. Each party will be responsible for half of the loan interest for the three months owed to the bank (approximately 8900 New Zealand dollars) before the agreement takes effect.
3. Each party will be responsible for half of the 16,000 New Zealand dollars of contribution that have not been paid to the government.
4. All fees, charges and expenses incurred before this agreement shall not be a liability of Party B. Party B shall not be liable to any fees, charges and expenses that Party A shall pay before the agreement but have not
paid.
5. The 261,700 New Zealand dollars has already included all the fees, charges and expenses for the house design (such as Building Consent). Party B shall not be liable to the bank loan interest that Party A has already paid.
6. After this agreement takes effect, Party A and Party B will each have
50% ownership of the land. Each will have 50% of all the benefits and related risks that the development of the land brings. If Party B asks
that the 50% of ownership be transferred under its own name, or if
Party B asks to have other legal documents, Party A shall do so immediately and unconditionally. Party B shall pay relevant fees.
Unless approved by the other party, neither party can transfer its rights
to a third party.
7. The parties shall resolve, in consultation with each other and on an equal basis, the matters that are detailed in this agreement.
Party A: Luo Lei [Signed] Party B: Du Xinghua [Signed]
[33] Effectively this agreement provided that Mr Du was entitled to become the co-owner of the Lakeview Property and to the benefit of the existing resource consent in return for the payment of $12,450 (being half the $8,900 mortgage arrears[1] and half of the $16,000 “contribution”) together with the assumption by him of half of all ongoing mortgage and development costs. It seems that the reference to the “development of the land” meant the proposed building of a house upon it. Thus
although the agreement does not expressly state this it seems that it was intended that Mr Du would contribute half the costs of building that house, which is in fact what initially occurred. The risks of the property subsequently declining in value or of not recovering the costs of building in any subsequent sale would necessarily be borne by both parties.
[1] Mr Du’s evidence was that the mortgage arrears (and his contribution to them) were in fact slightly higher than this.
[34] It appears that building work on the property began very shortly after the execution of the agreement and that at least until the end of June 2009 the costs of the building were shared between the parties, albeit pursuant to a system that appears now impossible to unravel. At least initially, Mr Du also contributed to the mortgage payments as set out in the agreement.
[35] In July 2009 matters began to deteriorate. Again the precise nature and cause of the deterioration is a matter for dispute. Mr Du requested that his 50 per cent interest in the property be the subject of a formal transfer. That did not occur. Ms Luo says that Mr Du became uncontactable and subsequently began interfering with the contractors who were working on the building site. She also said that he ceased contributing his 50 per cent share of the costs of the building and the mortgage. At one point a trespass notice was taken out by Ms Luo and Mr Bian in relation to Mr Du.
[36] The dispute culminated in the purported cancellation of the contract by Ming Gu in October 2009. At that time, the grounds for cancellation were simply the alleged misrepresentation as to price made by Mr Du.
[37] These proceedings were filed by Mr Du the same month.
[38] I turn now to address the issues identified in [18]–[20] above.
Was the joint venture agreement voidable by virtue of ss 63 and 64 of the Real
Estate Agents Act?
[39] As will be evident from the preceding narrative, Mr Du was, and is, a licensed real estate agent and in that capacity had in early 2009 obtained a listing for the Lakeridge property. This gives rise to an issue about whether his entry into the joint venture agreement with Ming Gu in late February 2009 was in breach of ss 63 and 64 of the Real Estate Agents Act 1976 (being the Act applicable at the time in question) which relevantly provide as follows:
63 Purchase or lease by agent voidable
(1)No real estate agent shall, without the consent on the prescribed form of his or her principal, directly or indirectly and whether by himself or herself or by any partner or sub-agent,-
(a) Purchase or take on lease, or be in any way concerned or interested, legally or beneficially, in the purchase or taking on lease of any land or business which he or she is commissioned (at the instigation of the principal or otherwise) by any principal to sell or lease; or
...
(2)No partner or employee of a real estate agent and no officer of a company that is a real estate agent shall, without the consent on the prescribed form of the principal of the real estate agent, directly or indirectly,—
(a) Purchase or take on lease, or be in any way concerned or interested, legally or beneficially, in the purchase or taking on lease of any land or business which the real estate agent of whom he or she is a partner or by whom he or she is employed, or of which he or she is an officer, is commissioned (at the instigation of the principal or otherwise) by any principal to sell or lease; or
...
(3) Any contract made in contravention of this section shall be voidable at the option of the principal. No commission shall be payable in respect of any such contract, whether the principal has avoided it or not; and any commission paid in respect of the contract shall be repayable by the real estate agent to his or her principal and shall be recoverable by the principal as a debt.
64 Real estate agent to provide valuation
(1)This section shall apply to every real estate agent, partner or employee of a real estate agent, or officer of a company that is a real estate agent; but, in relation to any real estate agent (whether a company or not) that carries on other business in addition to its business as a real estate agent, shall not apply to any employee of that real estate agent whose work primarily and predominantly relates to that other business.
(2) Every person to whom this section applies shall either—
(a) Before seeking the consent of a principal for the purposes of section 63 of this Act ; or
(b) With the agreement of the principal, within 14 days after obtaining that consent—
supply, at his or her own expense to that principal, a valuation made by an independent registered valuer of the land or business in question.
(3)Every consent given under section 63 of this Act without the valuation being supplied to the principal in accordance with subsection (2) of this section shall be deemed not to have been given.
(4) Where—
(a) A principal gives his or her consent under section 63 of this Act before a valuation is supplied to the principal in accordance with subsection (2) of this section ; and
(b) The valuation, when supplied, is greater than the valuation specified in the prescribed form of consent as the provisional valuation,—
any contract to which the principal is a party and to which the consent relates shall be voidable at the option of the principal.
[40] There is no dispute that, to the extent these sections apply, they were not complied with. There was no consent in the prescribed form and no independent registered valuation provided. Rather, the issue is one of timing: was Mr Du commissioned to sell the property at the time he entered into the joint venture agreement? It does not seem to be in dispute that 25 February 2009 is the critical date in this respect.
[41] As I have said, there was conflicting evidence from Mr Du on the one hand and Ms Luo and Mr Bian on the other in relation to this issue. Objective or external indicators of the credibility of any of the key players are few and far between. And because both Mr Du’s and Mr Bian’s evidence was given through an interpreter; credibility in any subjective sense was almost impossible to assess. I do not regard the fact that Mr Bian and Ms Luo agreed with each other’s evidence as helpful in determining their respective truthfulness.
[42] Mr Blanchard made forceful submissions about Mr Du’s lack of credibility as a witness. In particular he said that Mr Du’s truthfulness was to be doubted because he refused to accept that a passage in his brief of evidence in which he summarised an email he had received from Ms Luo and Mr Bian was inaccurate.
[43] While I agree that Mr Du’s summary went further than a straightforward reading of the English translation of that email would permit, my strong sense is that Mr Du’s interpretation of the email was genuinely different. Without presuming to express an expert view or to make gross generalisations as to matters of cultural difference, it appeared to me (having heard all the evidence in this trial) that the Chinese mode of written expression, in particular, tends to be somewhat more circumspect and elliptical than the English. Thus matters that a New Zealander might expect to see directly or clearly recorded or stated appear to be left as a matter of implication by the Chinese. The joint venture agreement itself is perhaps a further
example of that. In my view Mr Du’s interpretation of the email merely involved the drawing of (not unreasonable) implications from the words that were actually written. For these reasons I do not consider that I should draw any conclusion adverse to Mr Du from the exchange relied upon by Mr Blanchard.
[44] On the basis of the evidence I have heard I am prepared to accept that Mr Du had doubts about Mr Bian’s authority to sign the listing. His evidence in this regard was supported somewhat by the evidence of Ms Han (who also worked for Ray White) but, more significantly, was also consistent with Mr Du’s subsequent and undisputed insistence that Ms Luo (whom he knew had formal power of attorney for her mother) sign the final version of the joint venture agreement. While the removal of the listing from the Ray White computer on 13 February is also consistent with Mr Du’s position, it might equally be explained as Mr Du taking steps to avoid the operation of s 63.
[45] I am nonetheless also prepared to accept Mr Bian’s evidence that he did in fact have Ming Gu’s authority to sign the listing. This means that at the time of signing by Mr Bian the listing was, notwithstanding Mr Du’s concerns, valid in law and the agency relationship created by it would therefore endure until the agency was terminated.
[46] Mr Blanchard submitted that the agency agreement could only be revoked by Ming Gu (by giving the notice required in the listing document) or by agreement between the parties. I do not agree with that submission. It cannot be correct that (where the relevant agreement is silent on the point) an agent can only terminate a listing if the principal agrees. As is stated at [49] of Luxford’s Real Estate Agency:[2]
[2] Luxford’s Real Estate Agency (Butterworths, Wellington, 1979)
[49] Duration of the agency
...Where no time limit has been fixed or where it is not specified that the agency is to continue until revoked in a manner which has been prescribed, it will be taken that the agency will continue in force for a reasonable time after its commencement or after the last occasion on which the principal, by words or conduct, recognises that it was still in force. The question of what is reasonable time is one of fact and must be determined in the light of all the surrounding circumstances. ...
The general rule is that an agent’s actual authority comes to an end .... (v) by notice of revocation given by the principal to the agent or by the agent to the principal, it being immaterial whether it amounts to a breach of contract.
[47] And similarly see Fridman The Law of Agency:[3]
Since the relationship of principal and agent has been created by agreement between them, it follows that the relationship may be determined by both parties agreeing to the discharge of that relationship. It will also be determined if either party withdraws from his original agreement. This will occur where the principal gives the agent notice of revocation of the agency or the agent gives the principal notice of renunciation. Any such notice may be given in any form: a deed or document in writing is unnecessary, even if the original authority was contained in a deed...
[3] The Law of Agency (7th ed, Butterworths, London, 1996) at 389.
[48] The question therefore becomes whether the agency was renounced by Mr Du, either by words or by conduct, a reasonable time prior to the execution of the final joint venture agreement on 25 February 2009.
[49] I have already indicated my acceptance that Mr Du did genuinely have concerns about Mr Bian’s authority to sign the listing agreement. Notwithstanding Mr Bian’s denial of this I consider it likely that Mr Du raised the issue with Mr Bian at some point just before or on 14 February.
[50] Perhaps more importantly, Mr Bian did not deny that discussions occurred between them at that time about the joint venture proposal. The joint venture proposal was in itself inconsistent with the continued listing of the property with Ray White. The reality is that neither party ever acted as if the listing was in force. The property was never advertised by Ray White; no query was raised about this by Ming Gu or her daughter or son-in-law. There is no evidence to suggest that either Mr Bian or Mr Du considered the possibility of Mr Du receiving a real estate agent’s commission in relation to the proposed joint venture. And once the building of the house had commenced the listing with Barfoot and Thompson was also withdrawn by Ms Luo.
[51] For these reasons I consider that it can on balance be concluded that by his words and/or conduct Mr Du impliedly gave notice of his intention to terminate the listing on or before 14 February. While I acknowledge that care must be taken in inferring revocation by conduct, Mr Du’s conduct here was unambiguous. Not only is there evidence that the steps he took (together with Mr Bian) were inconsistent with the continuation of the listing, but there is also no evidence that he took any steps whatsoever that were consistent with the continuation of the listing.
[52] Bearing in mind that under the listing agreement Ming Gu was required to give 14 days notice of termination I consider that the 11 days between 14 and 25
February was an adequate period of notice in the particular circumstances of this case.
[53] Lastly, and to the extent that it might be thought that the facts of the matter remain less than clear-cut, it is relevant to note that the contention that ss 63 and 64 apply arises in the context of an affirmative defence advanced by Ming Gu.[4] The onus of proof is thus on her to show on the balance of probabilities that those sections apply or, more specifically, that at the time of entry by her into the joint venture agreement Mr Du remained commissioned by her to sell the Lakeridge
property. In my view she has not discharged that onus.
[4] The calling in aid of operation of those sections is predicated on an acceptance by Ming Gu that the joint venture agreement was valid. The question is rather whether those sections enable them to avoid it.
[54] Mr Blanchard also submitted, however, that even if the listing had been terminated just prior to the parties’ entry into the joint venture, s 63 should still apply if it could be said that the potential operation of s 63 was the reason for the revocation. He said it would be too easy for real estate agents to defeat or circumvent the purpose and operation of s 63 (and s 64) if that were not the case.
[55] Sections 63 and 64 exist because of the potential conflict that exists between a land agent’s duty to get the best possible price on behalf of his principal and his self-interest in (a) securing a sale at a lower price where he or some person connected with him is the purchaser and (b) receiving the commission on the sale. I
accept that the remedial purpose of those sections require them to be strictly adhered to and construed.
[56] In the event that an agent wishes to avoid their operation by cancelling the relevant listing he is required, as I have said, either to agree that with his principal or to give adequate notice of termination. Once that occurs the agent necessarily foregoes any entitlement to commission on the subsequent sale, thereby obviating part of the mischief at which the sections are aimed. And it seems to me that the very fact that he is required to agree with or tell his principal that the agency is at an end should alert the principal that his interest and the agent’s interest are no longer legally aligned.
[57] While the reality may be that the (former) principal would still place considerable stock in any advice received from his (former) agent as to value, I do not think that further protection should be afforded by extending the temporal operation of ss 63 and 64 which, on their face, do not invite that.[5] Rather it seems to me that appropriate protection is to be found in the general law pertaining to misrepresentation. It is accordingly to that issue I now turn.
[5] I note that Heath J in McNeill v Real Estate Institute of New Zealand Incorporated HC Dunedin CIV
2008-412-000294 25 June 2008 at [52] expressed a similar view.
Misrepresentation
What was it that was represented by Mr Du?
[58] It did not really appear to be in dispute that Mr Du told Mr Bian at the time of entry into the joint venture agreement that in his view the value of the Lakeridge Close property was effectively no more than the amount for which it was then mortgaged. In my judgment Mr Du would have had a fair idea of what that figure was although, as I have said, it is also my view that it was not until Mr Bian told Mr Du the amount of the mortgage at the meeting between them on 14 February that the amount of $252,800 was recorded as the “agreed” value of the property in the draft joint venture contract.
[59] On my analysis of the evidence therefore it would be going too far to say that there was a specific representation by Mr Du that the value of the property was precisely $252,800. That does not follow simply from the fact that the contract itself recorded that that was the “agreed” value. Rather, I think what was probably represented by him was more general in nature, namely that the property was worth no more than the existing debts owed in relation to it, which was principally the mortgage, but which included the outstanding arrears and the $16,000 “contribution”. Putting to one side Mr Du’s contention that the mortgage arrears turned out to be somewhat more than the $8,900 recorded in the agreement that effectively means that Mr Du was representing that the property (including the resource consent) was worth no more than $277,700. It seems to me that this is the assumption that underlies the key terms of the joint venture agreement and this is the basis on which I now proceed.
[60] I accept that the statement as to value made by Mr Du as described above did
(inter alia) cause Ming Gu to enter into the joint venture on the terms set out in the
25 February 2009 agreement. The question therefore is whether that statement constitutes an actionable misrepresentation.
[61] Although it is accepted that a mere statement of opinion cannot ordinarily constitute a misrepresentation the defendant says that Mr Du’s statement of opinion as to the value of the property nonetheless qualifies because:
a) The Property was in fact worth approximately $330,000.00;
b) The representation was not made in good faith;
c) There was no reasonable foundation for the representation as to value. [62] It is therefore to those issues that I now turn.
Was there an actionable misrepresentation?
[63] It is not in dispute that at the end of 2008 and in early 2009 the property market had hit “rock bottom”.
[64] The defendant called evidence from a registered valuer, Mr Brunsdon, who completed a retrospective valuation of the property in October 2009. His conclusion was that the value of the property (in late February 2009) was $330,000. This value included $20,000 for the resource consent.
[65] In the course of his valuation Mr Brunsdon said:
Demand for vacant residential building sites in the first three months of 2009 was very light as a result of a particularly poor housing market throughout
2008. Builders and developers were reluctant to commit to land holdings in
this market. The prices being achieved for new homes have diminished over the last 12-18 months, while building costs remain high detrimentally impacting on the value of vacant land. The latter months of 2008 and into early 2009 had seen a paucity of potential purchasers of vacant land, with ample supply having created very keen competition amongst vendors and accordingly land prices diminished significantly. While the first three months of 2009 had seen some improvement in sales volume for improved property, this was yet to pass through to the land market as at effective date of this valuation.
[66] The date of the first sale referred to in Mr Brunsdon’s survey of comparable sales of vacant land in the area began was February 2009. The survey showed that throughout 2009 such blocks of land on average sold for approximately 75 per cent of their rating valuation. Applying that reduction to the then rating valuation of Ming Gu’s property gives a value of $311,000 (not including the resource consent).
[67] Mr Du in the course of his evidence also produced a retrospective market valuation that had been prepared on his instructions in November 2009. This valuation attributed a value to the Lakeview land as at 25 February 2009 of
$260,000. It contains no discussion of the pre-existing resource consent and no additional value is ascribed to the consent. The survey of comparable sales contained in the valuation ended with, rather than began at, the sale in February 2009 which had marked the beginning of Mr Brunsdon’s survey. It seems to me that such
an approach more accurately reflects what such a survey would have included had a valuation actually been undertaken in February 2009.
[68] While the author of Mr Du’s valuation was not called as a witness and could not be cross-examined it is fair to say that Mr Brunsdon did not profoundly disagree with any aspect of its analysis when it was put to him. If the value ascribed by Mr Brunsdon to the resource consent is added into Mr Du’s valuation (resulting in a valuation of $280,000) the divergence between the respective valuations is 15 per cent. While not entirely de minimis, the difference seems to me to be small enough that it does not permit the conclusion that one or other of the valuations was necessarily “wrong” in any objective sense.
[69] On the basis of the evidence I consider that Ming Gu’s property (plus the resource consent) may have been worth somewhat more than $277,700 at the end of February 2009. However if (as I have concluded above) it cannot be said that a valuation of $280,000 was plainly wrong, then it is equally difficult to conclude that an expression of opinion by Mr Du (who was not a valuer) that the land was worth
$277,700 could not have been honestly held. More specifically, and in terms of the pleadings (again bearing in mind the onus on the defendant) I am unable to conclude on the evidence on the balance of probabilities that:
a) the value of the land and resource consent was $330,000;
b)Mr Du’s representation as to the value of the land and resource consent being $277,700 was made without reasonable foundation; or
c) Mr Du’s representation was made in bad faith.
[70] It seems relevant to note at this point that Mr Du accepted in evidence that at the time he entered into the joint venture agreement he considered that the property market “was potentially going to become buoyant again”. The statement of defence does not, however, allege that Mr Du made any representation as to the future value of the property, or as to the state of the property market generally. Nonetheless
Mr Blanchard submitted that Mr Du should have disclosed his thoughts to the defendant.
[71] Even if the defendant had pleaded that Mr Du’s failure to disclose his thinking as to an increase in property prices in the short to medium term was itself a misrepresentation I do not consider that would have availed her. In my view it is implicit in Mr Du’s willingness to enter the joint venture that he held such an opinion. It would be naive to think that he entered the agreement merely out of friendship for Ms Luo and Mr Bian with no thought of benefit to himself; I have no doubt that it was well understood by all that his purpose was to make a profit. Presumably that was the defendant’s object as well, and the joint venture was perceived as the means most likely to achieve that in all the circumstances, with the added advantage of sharing the risk of not doing so.
Other breaches alleged by the defendant
[72] The defendant also pleaded breaches of the agreement by Mr Du in relation to his ongoing obligation to pay half the costs of the mortgage and the development of the property and his interference with contractors on site. Mr Blanchard quite rightly, however, did not seek to argue that those breaches by themselves would constitute grounds for cancellation.
[73] At this point it is probably necessary only to record that I am in no doubt that Mr Du did stop contributing his agreed share and that he did attempt to interfere with the contractors. However given the breakdown of relations between him and the defendant at that time, that is not surprising. It seems to me that he was effectively shut out of the project from late July 2009 onwards. There is no evidence that he was, after that time, provided with invoices or asked to make contributions. The actions of the defendant made it impossible for him to comply with his contractual obligations.
[74] Obviously, however, the resulting deficit in Mr Du’s contributions will have to be rectified. I deal with that issue in my discussion of remedies, below.
Remedies
[75] Absent any right to cancel for breach of the Real Estate Agents Act or for misrepresentation, it is not disputed by Ming Gu that the joint venture agreement is valid. Nor is it disputed that no transfer of half the property was made to Mr Du when he requested it, nor that the refusal to transfer constituted a breach of the contract. The question therefore becomes one of what remedies are now available to Mr Du. As I have noted earlier the principal relief he seeks is by way of specific performance.
[76] Specific performance is of course a discretionary remedy. As a general rule damages will not be regarded as an adequate remedy where the subject matter of the relevant contract is unique (as in a contract involving land). However in light of other factors discussed as relevant to the exercise of the Court’s discretion in
Attorney General for England and Wales v R[6] and Co-operative Insurance v Argyll
[6] Attorney General for England and Wales v R [2002] 2 NZLR 91 at 121 (CA).
Stores Ltd[7] I do not consider that an order of specific performance is apt here. [77] In particular I consider that:
[7] Co-operative Insurance v Argyll Stores Ltd [1998] AC 1 at 12- 17 (HL).
a) The specific performance sought in the statement of claim could not be ordered. There is nothing in the contract that obligates the defendant to place the property on the market. Any remedy involving the sale of the property would likely need to be separately sought under the Property Law Act;
b)Notwithstanding my conclusion that there was no actionable misrepresentation made by Mr Du it is difficult not to conclude that there was an element of sharp practice by him. I have little doubt, for example, that he knew that $277,700 was at the bottom of any objectively justifiable price for the property (and the resource consent). The fact that he chose to broker the deal while both
Ming Gu and (more importantly) Nancy Luo were in China also assumes significance in this respect;
c) Rightly or wrongly, Ms Luo and Mr Bian are now living in the house on the Lakeridge property, and have been for over a year. If an order were made that an interest in half of the property be transferred to Mr Du this would inevitably create a difficult and potentially conflict- ridden situation;
d)Because the joint venture contract itself lacks specificity in a number of important respects there are matters of detail that would need to be resolved before any order for specific performance could be made or given effect;
e) There are also complex outstanding issues (discussed further below) about the money that has been paid and is still owing by Mr Du to the defendant under the agreement. If a half interest in the property were to be transferred to Mr Du prior to the resolution of those issues his motivation to cooperate in addressing them would be considerably reduced.
[78] In my view the question therefore becomes one of the quantum of damages that are properly payable to Mr Du by Ming Gu for the (admitted) breach of contract. There is no evidence before me in relation to the present value of the property and without the benefit of argument on the point it is not something I can address further in this judgment. I record, however, that any such quantification exercise would necessarily have to take account of any amounts still owing by Mr Du to Ming Gu under the contract. In order for that to occur some order will need to be bought to the forensic chaos with which I was presented in relation to that issue. Other ancillary issues may also arise.
[79] Accordingly Mr Du has succeeded in establishing liability on the part of Ming Gu for breach of the joint venture contract but not the amount of damage he has sustained as a result of the breach. Regrettably, however, it seems to me that a
further inquiry as to damages will be required, unless the parties are able now to resolve the matter between themselves. The proceeding will therefore need to be called in the Duty Judge list early in the new year to timetable the further steps now required.
[80] Mr Du is entitled to costs thus far on a 2B basis.
Rebecca Ellis J
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