Dyas v Diel
[2013] NZHC 2645
•10 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-2027 [2013] NZHC 2645
UNDER the District Courts Act 1947 IN THE MATTER
of an appeal against a decision of the
District Court at AucklandBETWEEN
CAROLE ANN DYAS Appellant
AND
MANISHA SAINI DIEL and JEAN- PHILIPPE DIEL as trustees of the VALENCE FAMILY TRUST Respondents
Hearing: 13 August 2013 Appearances:
DJG Cox for the Appellant
P Wright for the RespondentsJudgment:
10 October 2013
JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 10 October 2013 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Mr DJG Cox, Rennie Cox, Solicitors, Auckland
Mr P Wright, Barrister, Shortland Chambers, AucklandMr Boon Toh (respondents’ instructing solicitor), Solicitor, Auckland
DYAS v DIEL [2013] NZHC 2645 [10 October 2013]
[1] In 2004 the respondents appointed a company called Realty Excellence Limited (Realty) as agent on the sale of a residential property they owned. The appellant was a real estate agent employed by Realty and she was the agent who dealt directly with the respondents. An agreement for sale and purchase was entered at an auction and was settled a month later. The purchaser, Ms Pepper, was another real estate agent employed by Realty. In the District Court the Judge held that Ms Pepper’s status had not adequately been disclosed to the vendors by the appellant at the auction. This finding is no longer in issue.
[2] Two issues arise on the appeal. One is whether the breach of fiduciary duty by the appellant on the night of the auction was causative of loss to the respondents arising out of the sale to Ms Pepper. The second is whether the appellant was bound by a statutory obligation under s 63(3) of the Real Estate Agents Act 1976 (the Act) to repay commission to the respondents.
[3] There is a cross-appeal by the respondents. The respondents contend that the amount of the loss assessed by the Judge for breach of fiduciary duty was too low.
Sections 63 and 64 of the Act
[4] Sections 63 and 64 of the Act provide, so far as material:
63 Purchase or lease by agent voidable
…
(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
(b) Sell or lease to his or her spouse, civil union partner, de facto partner, or child any such land or business.
(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; …
(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.
The judgments entered against the appellant: how the issues arise
[5] This proceeding was commenced by the respondents against the appellant in
2010. Judgment was given in March 2013 in favour of the respondents on two claims.1
1 Saini and Diel v Dyas DC Auckland CIV-2010-004-001416, 21 March 2013.
[6] The first claim was for breach of fiduciary duty in that the appellant failed to disclose to the respondents at the auction that Ms Pepper was a real estate agent employed by Realty and failed to advise the respondents at the auction of their statutory rights under ss 63 and 64. There was judgment against the appellant for
$22,000 being the difference between the market value of the respondents’ property
at the date of the agreement and the agreed sale price.
[7] The second claim was pursuant to s 63(3) for recovery of the commission paid by the respondents to Realty. Judgment was given against the appellant for the total commission; a sum of $18,292.50.
[8] The causation issue relating to breach of fiduciary duties arises in the following circumstances. After the agreement for sale and purchase was entered into, but before settlement, the respondents were advised that the purchaser was an associated agent and that they had the right under s 63(3) of the Act to avoid the contract. Also before settlement the respondents received from Realty a valuation of the property in purported compliance with one of the obligations under s 64 of the Act. This supported sale at the price agreed with the purchaser at the auction. The Judge found that the valuation was defective. However, the respondents placed no weight on this valuation. They obtained their own valuation, before settlement, at a sum in excess of the market valuation as found by the Judge. They then consented to the sale. The appellant contends that any breach of fiduciary duty by her was not causative of any loss because the respondents proceeded to settlement armed with the range of information just described and uninfluenced by the defective valuation.
[9] The main issue that arises in relation to judgment for the commission is whether the obligation under s 63(3) to repay the commission applies to a person who was acting as a real estate agent but who was not the real estate agent appointed for the sale and was not the person to whom the commission was paid by the vendors.
Conclusion in summary
[10] I am satisfied that the appeal should be allowed and judgment on both claims against the appellant should be set aside.
[11] The principal reason for concluding that the appellant is not liable for breach of fiduciary duty is that, although there was breach of a duty of disclosure at the auction, this breach was not material to the loss claimed by the respondents. There cannot be liability for breach of fiduciary duty unless the breach is material to the loss that is claimed. The loss claimed by the respondents was a loss arising from sale at the price agreed at the auction. But before the respondents settled the sale three critical things happened. First, all of the information which the respondents contend should have been disclosed to them by the appellant at the auction was disclosed to them very soon after the auction and before the sale was settled. Second, when this information was disclosed to the respondents they also knew that they had the statutory right provided by s 63(3) to avoid the contract. Third, the respondents elected to proceed to sale at a price that they knew was materially less than the market value and which was significantly less than the market value advised to the respondents by their own valuer before they settled the sale.
[12] The essence of my reason for concluding that the appellant has no liability to repay the commission is that, as a matter of statutory interpretation, s 63(3) imposes an obligation to repay the commission only on the real estate agent appointed by the vendor as the real estate agent. Liability to repay the commission was a liability of Realty, not a liability of the appellant. If that conclusion is wrong, I am nevertheless satisfied that the appellant could only have liability to repay commission received by her, and she was not paid any commission.
The facts
[13] The auction took place on 1 July 2004. There was a good deal of evidence relating to activities before the auction, including evidence relating to the marketing campaign recommended by the appellant. The Judge did not consider it necessary to consider that evidence. I agree with him. Apart from the need to note the essential terms of the agency agreement, which was entered into on 1 June 2004, the relevant events were from the day of the auction and following. All of the dates referred to in this factual summary were in 2004, unless otherwise noted.
[14] It is appropriate to record these facts in some detail. This is for three reasons: (1) some relevant evidence was not discussed, or summarised by the Judge; (2) the reason I have reached a conclusion on the fiduciary claim contrary to that of the Judge is, in considerable measure, because of the facts; and (3) the facts substantially speak for themselves.
[15] There was a written agency agreement appointing Realty as the agent. The appellant was a salesperson contracted to Realty. She was the agent who dealt with the respondents on a day to day basis, but she was not a party to the agency agreement.
[16] The agreement provided that Realty was authorised to receive a deposit on behalf of the respondent vendors and was entitled to retain from the deposit its fees and commission.2 There is a provision that if no deposit is received the respondents were to pay fees and commission (plus GST) to Realty immediately on receipt of an invoice from Realty.
[17] The respondents agreed to sale by auction. The auction was in the evening of Thursday, 1 July, at Realty’s premises in Birkenhead. Both respondents, in their evidence, noted that their sale was the only auction for the night and that very few people attended. A reserve of $520,000 was agreed. There were only two bidders. The bidding stopped at $480,000, being Ms Pepper’s bid. After some discussion the respondents agreed to lower their reserve to $488,000 and the property was knocked down to Ms Pepper at that price.
[18] Ms Pepper, although she had been on leave of absence since the end of 2003, was accepted to be a real estate agent employed by Realty and that ss 63 and 64 of the Act therefore applied to her in respect of the sale by the respondent. It was also not in issue that the appellant knew Ms Pepper and knew that she was an employee
of Realty.
2 The terms of the agreement in fact refer not to Realty Excellence Ltd but to “Ray White”. The agreement records that Realty Excellence Ltd was “a member of Ray White Real Estate”. References to “Ray White” in the relevant provisions of the agreement are replaced with references to “Realty” as it is plain that that is what was meant.
[19] In the District Court one of the major issues was whether the appellant had told the respondents about Ms Pepper’s association with Realty and that a sale to Ms Pepper could not proceed without the vendors’ consent and compliance with the other provisions of ss 63 and 64. The Judge’s finding for the respondents on this issue was challenged in the notice of appeal, but this ground of appeal was withdrawn at the hearing. It is sufficient to record that the Judge concluded that the appellant had not adequately informed the respondents. The Judge recorded his conclusion as follows:
[21] … I am not satisfied that explicit advice concerning the status of Ms Pepper and the requirements of the Real Estate Agents Act was actually communicated to both Ms Saini and Mr Diel, who actually understood and consented. That is the important thing. The burden of proof is on the agent and it is not discharged. This was most, as the Supreme Court put it in Premium,3 fundamental intelligence which needed to be exactly conveyed and it was not, in my view.
[20] Following the auction there was no attempt by the appellant, or by Realty, in any way to disguise the fact that Ms Pepper was an employee of Realty and that the respondents had the rights specified in ss 63 and 64. One of the respondents, Ms Saini, said that on the Monday following the auction, 5 July, she and the other respondent, her partner Mr Diel, started to receive facsimile and telephone messages from Realty asking them to sign a “Consent for Partners or Employees of Real Estate Agent to Take Interest in Property” form.
[21] The quoted words come from Ms Saini’s affidavit and those words came in turn from a consent prepared by Realty for the purposes of ss 63 and 64 of the Act. The document as originally prepared by Realty is dated 2 July and it is apparent that it was prepared on that date; that is to say, on the day following the auction. This is consistent with Ms Saini’s evidence. It is also consistent with the next recorded communication, a letter of 8 July from Realty and signed by Mr Fred Russell as “Principal Officer” of Realty. The letter is to the respondents’ solicitor. It is as
follows:
3 Premium Real Estate Ltd v Stevens [2009] NZSC 15, [2009] 2 NZLR 384. There is no citation in the District Court judgment to a particular paragraph in the Supreme Court judgment in Premium, but it appears to be a reference to [72] in the judgment of Blanchard J given for himself and McGrath and Gault JJ.
Please note the date of sale is 1 July. The deposit has been paid.
I enclose a copy of Form 15, not yet signed by your client, the Vendor, although requests have been made consistently over the past week for the Directors to sign and forward it back to us.4 Time has therefore gone by and we are concerned about the delay in supplying you with a copy of this Contract for conveyancing.
The Purchaser is a Certificated Salesperson employed by this Company as a real estate salesperson. You will be aware that it is a statutory requirement under Sections 63 and 64 of the Real Estate Agents Act 1975 [sic] that this form be completed so that the purchaser (in this case our salesperson) can comply with obligations.
On the night of the auction, both Directors were informed about this bidder’s status prior to bids being called. They acknowledged this verbally and accepted the bidder’s top bid who therefore became to purchaser. I have instructed the purchaser to provide a valuation to the vendors in accordance with the provisions of Section 64.
The form 15 has been supplied herewith and I request again that it be signed
and faxed back to us. I have sent a copy letter to the Purchaser’s solicitor.
[22] The Judge concluded that the form (form 15) as drafted and eventually signed by the respondents did not comply with s 64 of the Act when related to the sequence of events. To consider this issue and, more generally, whether the respondents consented to the sale, it will assist to set the form out in full. In the following transcript the document in the form it appears to have been sent to the respondents is represented by the standard font and the bold font in capitals. The bold font in capitals includes handwritten additions to the printed standard form. The deletion of sub-paragraph (a) in the following transcript appears to have been a deletion made by Realty before sending the form to the respondents. The italicised amended date
of “30th July 2004” and the words “without prejudice to our rights” were added by
the respondents when they signed the document on or before 30 July, the date of settlement of the sale.
4 “The Directors” are the respondents. The property being sold was registered in the name of Valence Holdings Ltd, a company of which the respondents were the directors. The company was trustee of a family trust. Following the sale the company retired as trustee and Ms Saini and Mr Diel became direct trustees. Nothing turns on these facts. See also footnote 5 below.
CONSENT FOR PARTNERS OR EMPLOYEE of REAL ESTATE AGENT OR DIRECTOR OF A COMPANY THAT IS A REAL ESTATE AGENT TO TAKE INTEREST IN PROPERTY.
(Real Estate Agents Act 1976 Sections 63(2) and 64) Form 15. I/We JEAN PHILLIPE DIEL and MARISHA SAINI DIEL
of VALENCE HOLDINGS LIMITED
as principal in the contract of Agency with Realty Excellence Limited (Ray
White Real Estate Birkenhead) in respect of the sale
of property at: 6 HOLYOAKE PLACE, CHATSWOOD
hereby consent to JULIE PEPPER acquiring
(purchaser related to Agency staff member)
the following interest in the said property:
PURCHASER UNDER AN UNCONDITIONAL SALE CONTRACT
I hereby declare that I have, before signing this consent, -
(a) Been supplied with a valuation of the said property made bya registered and independent valuer at the expense of:………………………………………………………………
………………………………………………………………
(purchaser)Or
(b) Given my agreement to the above purchaser supplying, within 14 days after the date of this contract, a valuation of the said property made by a registered and independent valuer at his/her expense. The property is provisionally valued at $488,000.
30th JULY 2004
Dated at AUCKLAND this
2NDday of JULY 2004
without prejudice to our rights
[Respondents’ signatures]
………………………………………
Signature of principals
[23] On 8 July the respondents’ solicitor wrote to “The Manager, Ray White, Birkenhead”, directed to Mr Russell, confirming that the solicitor acted for the purchaser and stating:
Your office has requested from my client5 and also from me a signed consent form from my client which should have been signed prior to the agreement being signed with Ms. Pepper. This I note may be in breach of the Real Estate Agents. [sic]
I note that your office has refused to release the contract to my client or myself. I require you to immediately fax the signed unconditional agreement by return and send my client copy of the original by post.
At this juncture all my client’s rights including costs are reserved.
[24] Realty, through Mr Russell, replied the same day as follows:
Please note there has been no refusal to release any documents. Rather, we sought to complete the documentation properly before forwarding copies of the Contract to yourself and the Purchaser’s solicitor.
[25] Also on 8 July Realty sent to the respondents’ solicitor a formal notification of receipt of a deposit of $48,000 with advice that it had been banked into Realty’s trust account.
[26] On 15 July Realty, through Mr Russell, sent a valuation to the respondents’ solicitor, being a valuation in purported compliance with s 64 (the Lyons valuation). The current market value was assessed at $485,000. The accuracy of this valuation was challenged in the District Court. Deficiencies in the valuation are no longer in issue. The Judge held that it was a “non-compliant valuation” for the purposes of s
64 and that this was self-evident. Amongst other things there had been a basic error of measurement and it had been prepared for mortgage purposes rather than a valuation prepared for sale purposes. The valuer himself acknowledged that the assessment of market value was understated by at least $15,000 to $25,000. It may be noted that an addition of $25,000 to the original assessment increased the market value assessment to $510,000.
[27] The respondents did not accept the Lyons valuation. Some of their evidence in this regard is important and is recorded below. Because of their dissatisfaction with the Lyons valuation the respondents commissioned their own valuation. They
had got a valuation in December 2003 from Seagar & Partners with an assessment of
5 The singular “client” appears to have been used because the vendor was the respondents’ trustee company, as explained in footnote 4 above. In recording the subject matter of the letter the solicitor referred to Mr Diel and Ms Saini as the vendors.
the market value, excluding chattels, at $510,000. The respondents asked Seagar & Partners for an updated valuation and this was provided on 27 July, before settlement of the sale. The estimate of market value, on the basis that various renovations would shortly be completed, was $560,000 including chattels.
[28] The respondents’ solicitor wrote to Realty on 27 July. The letter itself is not in evidence but is referred to in a letter in reply of the same date from Realty. The letter from Realty, after acknowledging receipt of the solicitor’s letter, and one delivered by courier, says:
There can be no doubt that the sale was carried out in full compliance with all our responsibilities. We have no interest in making any refund of any kind.
The appellant said that the letter from the respondents’ solicitor was not discovered in the course of the proceeding. It is to be inferred that the refund sought by the respondents was a refund of the commission. This inference is supported by further evidence noted below.
[29] On 30 July the respondents’ solicitor advised Ms Pepper’s solicitors that the respondents were in a position to settle and referred to the normal formalities of settlement. Settlement proceeded on 30 July. As part of the settlement the vendors provided the signed form 15 consent in the form set out above.
[30] Also on 30 July Realty sent to the respondents’ solicitor a formal invoice and a statement recording receipt of a deposit of $48,800, debit of commission, inclusive of GST, of $18,292.50, a further debit and the balance payable to the respondents.
[31] The respondents’ solicitor on 30 July asked Realty “urgently” to deposit the balance of the deposit for the purchase price into the solicitor’s trust account. It seems that Mr Russell of Realty personally delivered to the respondents’ solicitor a cheque for the balance. This was noted in a letter from Realty to the solicitor on 6
August. The possibility of a meeting was also noted.
[32] It appears that the solicitor did not reply to Realty’s 6 August letter. There was a follow-up from Realty to the respondents’ solicitor in a letter of 13 August, which includes the following:
Please advise your clients that, unless we receive some contact from them with any valid reason why we should continue to hold our commission fees, GST thereon and advertising funds in Trust when all are due and payable we will on August 24, 2004 transfer the funds from our Trust account into our trading account as we are lawfully entitled to do.
You will recall, in our discussion at your office on the date of settlement of their sale, I voluntarily offered to hold those funds in Trust pending a meeting with you and the clients to discuss any complaint they may have had regarding these funds.
[33] The matters referred to in the preceding paragraph support the inference earlier referred to that the respondents, through their solicitor, had asked Realty to refund the deposit.
[34] There was some important evidence from the respondents in cross- examination concerning the extent of their knowledge, before they completed the sale, of their legal rights pursuant to ss 63 and 64 and of the inadequacy of the Lyons valuation. This also included evidence as to why the respondents decided to proceed to settlement notwithstanding their knowledge of Ms Pepper’s status, their rejection of the Lyons valuation, and their receipt of the second Seagar & Partners valuation at
$560,000.
[35] Ms Saini had said in her evidence-in-chief, and apparently referring to the point at which they had received the second Seagar & Partners valuation:
We thought because of the way the sale process had been run it would not now be possible to sell the property easily without taking it off the market for a year and we did not want to put tenants into it. We decided that proceeding with the sale and then seeking redress was our best option.
[36] In cross-examination Ms Saini was referred to the letter from Realty of 8
July.6 There was then the following exchange:
6 Quoted above at [23].
Q. I take it by this stage, when you’d engaged Mr Kashyap [the respondents’ solicitor] that he had told you what the implications were of a company Realty Excellence Limited, not having got you to sign a form 15 consent?
A. No. Mr Kashyap had already told us at the start of this that he wasn’t – this was outside of his expertise and he had sent us to a senior barrister in Shortland Chambers – not in Shortland Chambers, in Southern Cross Chambers, to get advice on this matter so he didn’t really tell us what the implications were or otherwise.
…
Q. Did you know that you could avoid the contract? A. Yes we knew we could avoid the contract, yes.
Q. When did you know that?
A. After getting advice on the matter.
Q. And did you know that if you did proceed with the sale you wouldn’t
have to pay commission?
A. We would or wouldn’t have to pay?
Q. Wouldn’t.
A. That we could, um, seek for the, for the commission to be returned to us, yes I think, we knew that.
[37] On the same general subject Mr Diel said in cross-examination:
Q. Did you know that because there wasn’t a form 15 signed before Julie Pepper signed the agreement to purchase, that you had the right to cancel?
A. On auction day I did not know any of that. After when we got the form 15 we were explained different possibilities and we realized their options were very few, that the best choice for us unfortunately I may say was we should sign and sue. We were stuck in a contract with Ray White and with a property they’d been marketing really badly an image that was tainted. Once again we were here to make a wise investment decision and profit and it just didn’t look like it was going to happen if we were to keep the property and remarket it again, take it off the market, rent it possibly, and we weighed all that, it just didn’t look like the right thing to do unfortunately, we were stuck.
Q. But you did have two options available to you?
A. I suppose you may say that, yes, there are always options but they’re not necessarily the right ones. We decided what we thought was the best option.
[38] Neither respondent attached any weight to the Lyons valuation. On this Ms
Saini said:
Q. What was your purpose in getting the Seagar and Partners’ valuation
on the 27th of July?
A. We didn’t believe that the Lyons and Company valuation was correct. As you’ve mentioned we had – I had a valuation also from Lyons and Company before and that was when I was purchasing the property. I remembered that we got to a price for that property and then the real estate agent said, “We can organize a valuation for you”. Because it was the first time I was purchasing a property I was concerned would the valuation be of the correct amount and they said, “Don’t worry, we know the value, we can organize that” and sure enough that valuation came to within $5000 of the price we were purchasing for so when we saw the Lyons and Company valuation, I remembered that, I thought that was exactly what was happening again, that Mr Lyons was getting a valuation to about the same price as the purchase price and so we didn’t believe the valuation and we asked Seagars to do a second one.
Q. And that second valuation came in at $560,000, so considerably more than your agreement with Julie Pepper?
A. That’s right.
Q. I think you’ve said earlier that you knew that you could cancel the agreement?
A. Yes.
Q. But even despite that Seagar’s valuation, you wanted to proceed, is
that right?
A. We decided to proceed with reluctance but yes we did.
[39] Mr Diel said in relation to the Lyons valuation:
Q. As part of the real estate agents’ procedure, Julie Pepper obtained a valuation from Lyons and Company on the 14th of July, do you recall seeing that valuation?
A. Exactly to when, I’m not sure. I didn’t think much of the valuation when we saw the valuation I thought it was, pardon my language, but “cooked up”. It really looked under, way under what we thought the property was at and then we commiss[ion]ed Seagar and Partners to do a second valuation which confirmed what we thought was right is that our property was worth 560 and beyond, if the few things that were left cosmetically to be done in there were finished.
Q. What was the purpose of getting Seagar’s valuation?
A. To confirm what we thought. We didn’t believe that the first
valuation from Lyons was legitimate.
[40] The appellant’s evidence was that she did not receive any part of the commission that had been retained by Realty. There was no finding of fact by the Judge to the contrary. However, the issue was contested and it has relevance. It is therefore appropriate to provide a summary of the evidence and my own conclusion.
[41] The appellant produced part of a computerised Realty ledger recording various payments by Realty to the appellant and other transactions such as deduction of withholding tax. For the respondents’ property there was a credit on 30 July to the appellant in a sum of $2,168.88 with a notation that it was a credit to her as listing agent. The entry was reversed on the same date. On 16 August there is another credit to the appellant in the same sum with that credit also being reversed on the same date. It is not recorded whether the August transactions relate to the respondents’ property. It appears that prior to the hearing in the District Court the respondents’ counsel, Mr Wright, challenged the admissibility of the ledger. As a result evidence was obtained from Mr Shelton-Agar, the director of the company which provided the accounting software to Realty. Mr Shelton-Agar in effect confirmed that the copy of the ledger produced by the appellant was a true copy of what was electronically recorded. Mr Wright’s point for the respondents, based on cross-examination of Mr Shelton-Agar, was that Mr Shelton-Agar could not independently verify the accounts.
[42] I am satisfied that the appellant did not receive any part of the commission. The fact that Mr Shelton-Agar could not independently verify the ledger is beside the point. The appellant says she did not receive any payment. There was no cross- examination of her justifying a contrary conclusion. The ledger supports what she said. There is no evidence to indicate that the document is a fabrication. Mr Shelton-Agar’s evidence is not independent verification in the nature of an audit, but it is supportive of the appellant’s evidence.
[43] On 12 October the respondents, through their solicitor, lodged a complaint against Realty with the Real Estate Institute of New Zealand. The complaint led to charges against Realty to which the company pleaded guilty. Particulars of the
findings in relation to Realty are not relevant to the claim against the appellant except to note that there was no order that Realty repay the commission although this had been sought in the letter of complaint.
[44] Realty was struck off the Companies Register in February 2010. The reason does not appear to have been put in evidence, but the Companies Register records that the last annual return had been filed in October 2008.
[45] This proceeding was filed on 1 July 2010, six years to the day after the auction. Apart from the complaint to the Real Estate Institute, it appears that no action was taken by the respondents against Realty. Nor is there any evidence of any claim having been made against the appellant before the proceeding was filed in Court, or of any complaint to the Real Estate Institute by the respondents against the appellant. Ms Saini said in cross-examination that she and Mr Diel decided to sue the appellant “pretty much after the Premium decision which looked very similar to ours”. This appears to have been a reference to the Supreme Court’s decision in
Premium Real Estate Ltd v Stevens which was delivered on 6 March 2009.7 It
appears that Realty had gone out of business some time before this.
The District Court judgment
[46] At the outset the Judge identified the issues as follows:8
(a) Was there a breach of fiduciary duty on the part of Ms Dyas as real estate agent of Ms Saini and Mr Diel? First, was the relevant consent of the plaintiffs given at the auction on 1 July 2004?
(b) What is the effect of the form 15 form of consent dated 30 July 2004 signed by the plaintiffs in relation to the sale, having regard to ss 63 and 64 of the Act?
(c) Is the commission paid to the real estate agent company recoverable from the defendant taking into account the provisions of s 63(3) of the Act? If there is any breach of fiduciary duty is there in any event any loss claimable by the plaintiffs as equitable damages?
7 Premium Real Estate Ltd v Stevens, above n 3.
8 Saini and Diel v Dyas, above n 1, at [3].
estate agents in Premium Real Estate Ltd v Stevens.10 The Judge set out the provisions of ss 63 and 64 of the Act and then proceeded to consider the main issues, as outlined under the following sub-headings.
Breach of fiduciary duty at the auction? Was there disclosure?
[48] As earlier recorded, the Judge found that no explicit advice was given to the respondents as to Ms Pepper’s status or as to the requirements of ss 63 and 64 of the Act. There was no discussion as to why the appellant had a fiduciary duty to explain the provisions of the Act.
Was there effective consent by the respondents in terms of ss 63(2) and 64 of the Act?
[49] The Judge addressed this issue at some relative length. He referred to the letter from Realty of 8 July, the form 15 consent that was sent with that letter, and to the Lyons valuation. He summarised submissions for the respondents and the appellant. He then recorded his conclusions, as follows, on three issues that had been identified in the submissions:
(a) The Lyons valuation was not a valuation in accordance with s 64 because of its deficiencies.
(b)The fact that the respondents had obtained their own, independent valuation from Seagar & Partners was not relevant. In this respect the Judge said:
It seems to me not relevant, at least for s 64 purposes, that another valuation had been obtained by the plaintiffs separately. The plaintiffs were entitled to the independent valuation that s 64 prescribed, in the particular circumstances here.
9 Everist v McEvedy [1996] 3 NZLR 348 (HC) at 355.
10 Premium Real Estate Ltd v Stevens, above n 3, in the judgment of Blanchard, McGrath and
Gault JJ (delivered by Blanchard J) at [68] and [72].
given or, with the agreement of the principal, a valuation provided within 14 days after consent is given. The form signed by the respondents purportedly adopted the second alternative – a valuation
14 days after the consent – but on the facts the valuation was provided on 15 July and the consent was not given until 30 July. This discrepancy between the content of the form and the actual sequence, which sequence was not in issue, was the reason for the Judge’s conclusion that it was a non-compliant consent.
Recovery of the commission: s 63(3)
[50] The Judge referred to one argument for the appellant that s 63(3) did not apply because the appellant had at the auction obtained the respondents’ fully informed consent to the sale to Ms Pepper as an associated real estate agent. This was rejected given the earlier finding of fact on the question of consent at the auction.
[51] The Judge then referred to an alternative argument for the appellant that, if she had breached her fiduciary duty, she could only be liable to repay commission if she had received commission and then only as to the amount received. The Judge addressed this argument, and the issues arising generally under s 63(3), in a single paragraph as follows:
[53] I do not think that there is anything in Barber v Cottle11 or in the Premium decision which precludes an interpretation of s 63(3) to provide that Ms Dyas should be liable for the commission notwithstanding she did not personally receive it. For a start, and as Mr Wright points out in his submissions, “real estate agent” is widely defined, to include Ms Dyas within the purview of s 63(3). Further, the reference to “any commission paid” in s 63(3) does not say to whom it is paid, but rather concerns the fact that it was paid “in respect of the contract”. Such “commission paid” is then stated to be repayable by the “real estate agent”. There is no statement in s 63 which limits recourse to those (and there could be several) who actually received anything of the commission to the extent that they did.
11 Barber v Cottle HC Palmerston North CIV-2004-454-756, 13 March 2008. The relevant part of the decision in Barber v Cottle is discussed below at [80] and [86].
Equitable damages for breach of fiduciary duty and quantification of loss
[52] The Judge referred to alternative arguments for the appellant. The first was to the essential effect that any breach by the appellant on the night of the auction was not causative of loss because the respondents elected to proceed on a fully informed basis. The alternative argument was based on what I will refer to as the affirmative defence: a fiduciary in breach may defeat a claim by showing that the loss would have occurred in any event; that is to say, even if there had been no breach by the
fiduciary.12 The Judge rejected both defences, although without any detailed
reasons. The essential reasons are recorded below.
[53] There was a fuller discussion on quantification of loss. There was a claim for the respondents in a sum of $72,000 based on the difference between the second valuation from Seagar & Partners at a figure of $560,000 (inclusive of chattels) and the sale price of $488,000. The Judge held that the respondents were “capable of sensible, commercial assessments and decisions in their own best interests”. He held that the respondents did not have to accept the figure of $488,000 and that “they could not have sold”, meaning that they had the option of avoiding the contract. The Judge was satisfied that the respondents did not consider that the $560,000 value was realistic. The cross-appeal is directed to this conclusion and the finding (noted below) that the market value was $510,000 producing the calculation of equitable damages of $22,000.
[54] There were then the following observations, directed to the appellant’s
arguments, the appellant’s liability, and the amount of that liability:
[68] Of course, with reference to Tipping J’s observations (referred to at paragraph (59) above) the defendant’s acting with “perfect propriety” would have meant timeous consent and supply of the requisite independent registered valuation. This did not happen. Here, the Lyons & Co. valuation at $485,000.00 was awry to the extent of, and based on the evidence of the valuer himself, at least $15,000.00 or up to $25,000.00.
[55] The observations of Tipping J referred to by the Judge are observations in
Everist v McEvedy directed to the affirmative defence, as follows:13
12 See Premium Real Estate Ltd v Stevens, above n 3, at [85].
13 Everist v McEvedy, above n 9, at 354-355.
If the plaintiff would have suffered the same loss even if the defendant had acted with perfect propriety (ie without any breach of fiduciary duty), it seems hard to say that the defendant has caused the loss. Using hindsight and common sense I think in such circumstances it can fairly be said that the defendant's breach of fiduciary duty did not cause the loss. It cannot be said that but for the breach the loss would not have occurred. The loss in such circumstances would have occurred anyway.
[56] The Judge then discussed alternative approaches to the normal measure of damages and the onus on the fiduciary to establish that the normal measure of loss is inappropriate. He referred to the discussion on this point in Premium Real Estate.14
His conclusion was as follows:
[72] I believe that the requisite registered independent valuation of the property required for purposes of s 64 would have disclosed a market value of the property of at least $510,000.00. The “correct” valuation figure may well be higher. But I am not prepared to hazard a greater figure for the purposes of this proceeding, taking into account the evidence I heard, including concerning the “renovation project” or the completion of improvements and the time or extent of relevant inspection, and the conflicting evidence. Sensibly it seemed to me a figure of $510,000.00 was reasonably certain.
[73] I am not satisfied that the plaintiffs would have sold at a lesser price ($488,000.00, or less than $510,000.00) notwithstanding receipt of the requisite valuation of $510,000.00.
[74] The plaintiffs suffered a loss accordingly for the purpose of this proceeding arising out of the difference between $488,000 and $510,000, namely $22,000 as a result of the defendant’s breach of fiduciary duty.
[57] There was no further analysis of the evidence or of arguments for the appellant.
Discussion: breach of fiduciary duty
[58] For the appellant, Mr Cox advanced two primary arguments, similar to those advanced in the District Court. The first was that the respondents caused their own loss; that the respondents, at a point when they were fully informed, including knowledge and understanding of their right to avoid the contract, elected to affirm it and proceeded to settlement of it. The alternative argument was the affirmative defence.
[59] For the respondents Mr Wright submitted that the Judge was correct in his rejection of both arguments for the appellant. The essence of the submissions was that the breach at the auction was not cured by what happened following the auction because of non-compliance with s 64 of the Act. That left the affirmative defence; the onus was on the appellant and the evidence fell short of discharging that onus. In the course of discussion with me Mr Wright confirmed that the essential elements of the argument for the respondents were as follows: there was an obligation on the appellant at the auction not only to disclose that Ms Pepper was an agent employed by Realty, but also an obligation to fully and adequately explain to the respondents the statutory rights under ss 63 and 64 including, but not limited to, the right to receive an independent and accurate valuation; those obligations were not met at the auction; the obligations were not cured by subsequent events because of the deficiencies in the valuation and in form 15; as a further result of these matters the appellant had failed to prove to the requisite standard that the respondents would have proceeded in any event had full disclosure and advice been provided at the auction before the contract was made.
[60] In my respectful opinion the Judge failed sufficiently to distinguish the need for the respondents, as plaintiffs, to establish causation in its primary sense (as explained below) from the onus on the appellant, as defendant, to establish the affirmative defence. I am satisfied that the Judge was also in error by effectively merging the fiduciary duties of the appellant with the statutory obligations under ss
63 and 64, and in any event being statutory obligations not of the appellant but of
Realty and of Ms Pepper.
[61] It does appear that the primary focus of legal argument in the District Court in relation to causation was on the principles relating to the affirmative defence. On this, and the onus on the fiduciary, the Judge referred to a discussion in Premium Real Estate Ltd v Stevens.15 Blanchard J, writing for himself and McGrath and Gault JJ, said:
[85] It was once the strict rule that when a fiduciary committed a breach of duty by non-disclosure of material facts which the party to whom the duty was owed was entitled to know in connection with the transaction, the
fiduciary could not be heard to maintain that the disclosure would not have altered the decision to proceed with the transaction; once the court had determined that the undisclosed facts were material, speculation as to what course the beneficiary, on disclosure, would have taken was not regarded as relevant.16 The strict rule could sometimes lead to unfair results17 and has been modified in this country by an approach which affords the fiduciary a limited opportunity of showing that all or some of the loss would have occurred even if disclosure had been made. The matter was put in the following way in Bank of New Zealand v New Zealand Guardian Trust Co Ltd18 in a passage approved by this Court in Amaltal Corporation v Maruha Corporation:19
[O]nce the plaintiff has shown a loss arising out of a transaction to which the breach was material, the plaintiff is entitled to recover unless the defendant fiduciary, upon whom is the onus, shows that the loss or damage would have occurred in any event, ie without any breach on the fiduciary’s part … Policy dictates that fiduciaries be allowed only a narrow escape route from liability based on proof that the loss or damage would have occurred even if there had been no breach.
The same general approach should be taken when the matter in issue is restricted to the quantum of the loss. The same policy applies to both. That policy is designed to deter fiduciary breaches by limiting the circumstances in which fiduciaries in breach can escape or reduce their liability for the consequences of the breach. It would be artificial, and inconsistent with that policy, to distinguish between causation and quantum issues. Where there is a normal or prima facie measure of loss, the fiduciary must positively show that it is not an appropriate measure. The normal and natural measure of loss, when a fiduciary breach has affected the price at which property is sold, is the difference between the sale price and market value. Policy dictates that the onus should be on the fiduciary to demonstrate that the plaintiff’s loss was actually less (or non-existent). If there is any doubt about that, the doubt should be resolved against the fiduciary.20
[62] The need to consider the affirmative defence, if it is raised by a defendant, will only arise if a plaintiff alleging breach of fiduciary duty has established what I have referred to as causation in its primary sense. This is a point adverted to twice in the passage quoted above, including the opening words cited from the Bank of New Zealand decision – “… [O]nce the plaintiff has shown a loss arising out of
transaction to which the breach was material …”. It is also a point expressly referred
16 Brickenden v London Loan & Savings Co [1934] 3 DLR 465 at p 469 (PC).
17 “[I]t is one thing to strip a fiduciary of profit without much inquiry: it is another to hold him accountable for all loss without inquiry into relative causes”: J D Heydon, Causal Relationships Between a Fiduciary’s default and the Principal’s loss (1994) 110 LQR 328, p 332.
18 [1999] 1 NZLR 664 at p 687 per Tipping J.
19 [2007] 3 NZLR 192 at para [30].
20 Andrew Butler in his chapter on Fiduciary Law in Equity and Trusts in New Zealand (2003), para [14.6.6] remarks that the proper approach in a case such as Kelly v Cooper is to presume against the fiduciary that the most profitable (though reasonable) use of the information would have been made and to fix the loss accordingly.
to in Everist v McEvedy when Tipping J in that case identified three essential elements for a successful claim for breach of fiduciary duty.21 Tipping J said:
In my view the position we have reached can be put in this way. To succeed in a claim for breach of fiduciary duty the plaintiff must show three things: first that the defendant owed the plaintiff a fiduciary duty; second that the defendant was in breach of that duty; and third that the plaintiff has suffered a loss arising out of a transaction or circumstance to which the breach was material.
[63] The District Court Judge had cited this passage in Everist at the beginning of his judgment. However, there was no consideration of each of these elements as they applied on the particular facts of this case. This may have occurred in part because of the way the case was argued. It was not in issue that the appellant owed a fiduciary duty to the respondents, but the full extent of the duty was not explored. There plainly was a duty to disclose that Ms Pepper was an associated real estate agent, and the existence of that duty was not in issue. But there was no consideration of the question whether that duty could be complied with after the auction. It seems to have been assumed that there was actionable breach by failure to make disclosure at the auction. I do not agree that that necessarily follows. This is not a question of law but a question of fact, with the scope of the duty and compliance with it to be assessed having regard to all of the circumstances. The facts of this case indicate that the fiduciary duties of the appellant were capable of being complied with after the auction, provided they were complied with before settlement, and that they were effectively complied with.
[64] As to the scope of the duty, the respondents contended that this included a duty on the appellant, at the auction, to explain the provisions of ss 63 and 64 of the Act. This was accepted by the Judge. However, I am not persuaded that the appellant’s fiduciary obligations included obligations to explain statutory provisions to the respondents.
[65] On the question whether the appellant breached a fiduciary duty, the Judge’s
primary focus, from a factual perspective, was on the closely contested question whether there had been disclosure at the auction before the contract was made. In
21 Everist v McEvedy, above n 9, at 355.
considerable measure the necessary enquiry into this second element of fiduciary liability stopped at the point that the Judge found that there had been no adequate disclosure at the auction. And in the Judge’s finding on this point he included failure to give advice on ss 63 and 64, but without indicating why any obligation in that regard was a fiduciary obligation.
[66] The third essential element, required to be established by a plaintiff, is that an established breach was material to the loss claimed. This was not expressly addressed by the Judge by reference to a clear definition of the fiduciary duties that the appellant had, in the circumstances of this case, and the point of time at which that duty, or those duties, were breached, if they were breached, and again by reference to the particular facts of this case. Before considering these questions, which concern causation, by reference to facts, some further reference to principles is appropriate.
[67] There is some divergence of opinion in the leading cases as to the extent to which common law concepts of remoteness and, more problematically, foreseeability, can be applied in assessing the liability of fiduciaries for breach of their fiduciary duties. The issue is discussed with reference to leading authorities, in
Equity and Trusts in New Zealand.22 An authoritive statement, espousing a position
short of adoption of the general common law principles, is that of McLachlin J in the Supreme Court of Canada in Canson Enterprises Ltd v Boughton and Co.23 Her statement was cited with approval by Elias CJ in Premium Real Estate Ltd v Stevens, in the following discussion:24
[34] … [T]he necessity of demonstrating that a loss was caused by the claimed breach of fiduciary duty follows from the compensatory justification for the remedy. And since the loss is the basis of claim, it is generally for the plaintiff to show such loss as part of his case.
[35] That is the approach taken by McLachlin J in her concurring opinion in the Supreme Court of Canada in Canson Enterprises Limited v Boughton and Co:25
22 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, 2003) at [32.5.7].
23 Canson Enterprises Ltd v Boughton and Co. [1991] 3 SCR 534.
24 Premium Real Estate v Stevens, above n 3.
25 [1991] 3 SCR 534 at p 556.
In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach; i.e., the plaintiff’s lost opportunity. The plaintiff’s actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach.
[36] McLachlin J’s views in this passage were approved by Lord Browne-Wilkinson in Target Holdings Limited v Redferns.26 I do not think that Bank of New Zealand v New Zealand Guardian Trust Co Ltd27 (which was not concerned with breach of duties of loyalty) supports departure from the view that proof of causation is an element of any claim for equitable compensation (whether based on breach of duties of care or breach of duties of loyalty), as it is for compensatory damages in law. As Mummery LJ remarked in Swindle v Harrison:28
There is no equitable by-pass of the need to establish causation.
[68] In my judgment, on the facts of this case, it cannot be said that the breach by the appellant at the auction was material to any loss that may have arisen out of the sale by the respondents. Had the respondents been legally bound to proceed to settlement once the contract had been made at the auction, or if the respondents had proceeded to settlement ignorant of a right to avoid the contract, the breach by the appellant would undoubtedly have been material. And this material breach would have arisen from breach of the admitted duty to disclose Ms Pepper’s status, quite apart from the other duties found by the Judge to have arisen out of ss 63 and 64. But these things did not happen. What happened, including the full extent of the respondents’ knowledge, both of law and of facts, is contained in the evidence recorded earlier in this judgment.
[69] As I earlier said, the facts in large measure speak for themselves. Before the respondents settled they had been fully informed that Ms Pepper was an associated real estate agent and of their right to avoid the contract. In addition, if it is assumed that the appellant’s fiduciary duties included an obligation to inform the respondents of the provisions of ss 63 and 64, the duty had effectively been met, or performance
of it by the appellant made unnecessary. This also occurred before settlement and, of
26 [1996] AC 421 at p 439.
27 [1999] 1 NZLR 664 (CA).
28 [1997] 4 All ER 705 (CA) at 733.
critical importance, it occurred in conjunction with the respondents becoming aware of, and receiving legal advice in respect of, their statutory right to avoid the contract.
[70] When the respondents got the information, with the provision of that information being coupled with the power to treat the contract as if it had not been entered into, the respondents were effectively in the position they claimed they should have been put in by the appellant at the auction. Any breach by the appellant at the auction had become irrelevant.
[71] There are further considerations in relation to causation and, more specifically, demonstrating why there was no breach of a fiduciary obligation owed by the appellant material to the loss claimed by the respondents. The loss they claimed is the loss said to arise out of sale at $488,000. They chose to proceed with that sale when they were legally entitled not to. They purported to consent to sale to Ms Pepper “without prejudice”. But that gave them no right to seek to take whatever benefit they thought they could secure from settlement of the sale and then sue the appellant as if no election had been made by them. In addition, the evidence of both respondents makes clear that, to the extent that acts or omissions by the appellant influenced the respondents’ decision to complete the sale rather than avoid the contract, they were acts and omissions unrelated to any fiduciary obligations of the appellant on which the claim was founded. The respondents’ complaint, in fact and in law, whether justified or not, was a complaint about the marketing strategy which the respondents claimed had been devised by the appellant. From the evidence in cross-examination of the respondents, earlier recorded, the respondents were saying that they felt compelled to proceed because, in effect, the property was tainted by the marketing strategy. These complaints have has nothing to do with breach of the fiduciary obligations said to have been owed by the appellant. There was no claim against the appellant based on some legal wrong related to marketing.
[72] The Judge concluded that events following the auction did not assist the appellant because of failure properly to comply with the obligations under s 64 of the Act. This is apparent from the Judge’s general approach to the fiduciary duty claim
and, in particular, from [68] and [72]-[73] of the judgment, earlier cited.29 These passages are central to the Judge’s reasons for concluding that the appellant was liable as a fiduciary. However, in my opinion this conflates consideration of the appellant’s fiduciary duties, and performance of them, with consideration of the performance of statutory obligations under s 64. Even if the appellant had some fiduciary obligation at the auction to explain the statutory provisions to the respondents, that involves questions quite separate from performance of the obligations stipulated in s 64. These are statutory obligations, not fiduciary obligations. In addition, they were not obligations of the appellant, but obligations of Ms Pepper and Realty.
[73] It might be argued that the obligations in s 64 have some relevance in determining the scope of fiduciary obligations. I do not consider that to be the case. The obligations of relevance in this case – to secure an independent and accurate valuation and to obtain a written consent in accordance with form 15, being the matters addressed by the Judge – are not of a nature that would enable the appellant’s
fiduciary duties to be expanded to include obligations in that regard.30 But if these
conclusions are wrong, there would not have been fiduciary breach by the appellant in relation to the Lyons valuation or form 15. It is also not apparent that there was statutory breach, notwithstanding the Judge’s conclusion. In respect of fiduciary obligations and statutory obligations owed to the respondents it was open to them to waive compliance, provided waiver occurred following disclosure of all material information and an independent decision by the respondents on an informed basis. Such waiver occurred in respect of the Lyons valuation. The respondents attached no weight to it. They were in fact entirely dismissive of it. They knew they had a right to a fully independent and accurate valuation. They chose not to request another valuation. They dealt with this by getting their own valuation, being the second valuation from Seagar & Partners which they accepted. It is also apparent
that the respondents were willing to sign the form 15 consent in the form it had been
29 Above at [54]-[56] of this judgment.
30 The answer could be different in other circumstances; for example, if the appellant was an undisclosed purchaser through an intermediary. But there are no such circumstances in this case.
It may also be noted that there is a degree of overlap between the appellant’s fiduciary obligation to disclose that Ms Pepper was an associated real estate agent and the provisions of ss 63 and 64. However, the fiduciary obligation of disclosure is not the same as the statutory obligations and duties. The information to be disclosed by a fiduciary real estate agent is in fact much wider than the obligation to disclose that a purchaser is in some way associated with the agent.
prepared notwithstanding that it recorded the wrong option under s 64(2). There was no evidence that the respondents were in any way misled in this regard. The critical question in relation to the recording of consent is the substance, not the form, and the substance was real consent armed with all relevant information.
[74] The discussion to this point has been directed to the matters required to be established by the respondents, as plaintiffs, with this discussion leading to the conclusion that the respondents failed to establish that there was any breach of a fiduciary duty owed by the appellant which was material to the loss that was claimed. However, if this analysis is incorrect, I am satisfied that the onus on the appellant to establish the affirmative defence was met.
[75] The affirmative defence was considered by the Judge by reference to the general discussion in Premium Real Estate. However, the facts of Premium Real Estate are markedly different from the facts of this case. There was no disclosure by the real estate agent in Premium before the plaintiff vendors settled the contract of sale. In this case, unlike Premium, not only was there disclosure before settlement, there was also the statutory right, following disclosure, to avoid the contract. The unusual combination of facts in this case, including the statutory right, produces a fairly compelling means of proving the affirmative defence. In most cases where this affirmative defence is advanced, the Court will be bound to reach a conclusion by assessing whether it would have been more probable than not that the plaintiff would have proceeded in any event. But in this case the assessment can be made by reference to what actually occurred. If the assessment is to be made by considering what would have happened at the auction, what actually occurred soon after the auction and, as I continue to emphasise, before settlement, demonstrates fairly convincingly what would have happened if the subsequent disclosures had been made at the auction. And all of this, of course, assumes that breach at the auction was incapable of being cured.
[76] For these reasons I am satisfied that the respondents’ claim for equitable damages for breach of fiduciary duty must fail. As a consequence of this conclusion it is unnecessary to consider the cross-appeal on the quantum of the loss.
Discussion: Appellant’s liability to repay the commission
[77] For the appellant Mr Cox advanced alternative arguments. The first was that the “real estate agent” required by s 63(3) to repay any commission, does not include a person in the position of the appellant. The alternative argument was that the word “repayable” used in subsection (3) makes clear that a liable agent must be one who has received commission, and the appellant did not receive any commission.
[78] For the respondents Mr Wright supported the Judge’s reasons for finding the appellant liable. He initially submitted that subsections (1) and (2) of s 63 were, in effect, to be interpreted in a way which made clear that the real estate agent referred to in those subsections included agents in the position of the appellant and that this in turn meant that the real estate agent referred to in subsection (3) included a person in the position of the appellant. Mr Wright resiled somewhat from that submission and properly so.
[79] Mr Wright submitted that there was no reason to read down the words “real estate agent” as used in subsection (3) in connection with repayment of commission. He further submitted that the appellant’s argument directed to the word “repayable” in subsection (3) effectively required the addition of words and there is no justification for adding qualifying words to the effect that the repayment was to be made by a person who had been paid in the first place.
[80] Mr Wright made another submission founded on the judgment of this Court in Barber v Cottle.31 He submitted that this case supports the primary submission for the respondents that commission can be recovered under s 63(3) from an agent who was not a recipient of the commission. I am satisfied that the discussion in Barber v Cottle relied on by Mr Wright does not support the respondents’ argument. The facts are quite different. Amongst other things the defending agent in that case received the commission in question (and the order was to repay the actual amount received).
There is no statement of principle in Barber v Cottle which has any bearing on the
issues arising in this case.
31 Barber v Cottle, above n 11, at [208]-[211].
[81] As noted in the summary at the beginning of this judgment I am satisfied that the appellant was not liable to repay the commission. I agree with Mr Cox’s primary submission and with his alternative argument if the primary submission is wrong.
[82] As the Judge observed, “real estate agent” is widely defined in s 3. It undoubtedly covered the appellant. But this is a general definition for the purposes of the Act as a whole. A provision in the Act which refers to a real estate agent will have no application to a person who is not included in the general definition in s 3. But the reverse does not necessarily apply. Particular provisions have to be construed having regard to the text of the provision and its purpose.
[83] The text of s 63 in my judgment makes clear that the real estate agent with the statutory obligation to repay the commission is the real estate agent who was commissioned by a principal to sell a property and to whom the commission was paid. Subsection (3) came into play in this case pursuant to subsection (2). Contrary to one of Mr Wright’s submissions, the parties bound by subsection (2) were, on the facts of this case, Realty and Ms Pepper, not the appellant. The prohibited purchaser was Ms Pepper. That is not in issue. Ms Pepper was subject to the prohibition (if there was no consent and compliance with the other provisions) because she was an employee of Realty. The real estate agent referred to in subsection (2) was Realty, and only Realty. The “real estate agent” referred to in subsection (2) did not include the appellant. Limitation of the words to Realty is made clear in particular by the words in subsection (2)(a) – “the real estate agent … commissioned … by any principal to sell”. The only real estate agent commissioned by the principal in this case – the respondents – was Realty. The Judge did not refer to the agency agreement and made no relevant reference to the fact that Realty was the commissioned agent. The judgment in fact commenced with a statement that the appellant “was the plaintiffs’ real estate agent on the sale” and this was not subsequently qualified.
[84] A reasonable starting point for construction of subsection (3) is that the agent identified in it is the same as the agent identified in the preceding subsection (2) (and
subsection (1)).32 Subsection (2) is the operative prohibition giving rise to the consequences of breach provided for in subsection (3). In my judgment there is nothing in subsection (3), and nothing arising from consideration of ss 63 and 64 as a whole, which justifies expanding the meaning of “real estate agent” as used in subsection (3) beyond the clear meaning in subsection (2).
[85] The conclusion to this point is supported by the word “repayable” in subsection (3); more broadly by the full phrase “any commission paid in respect of the contract shall be repayable by the real estate agent to [its] principal”. The commission was paid to Realty and was repayable by Realty. The relationship of agent and principal referred to in subsection (3), on the facts of this case, was the relationship between Realty and the respondents. It is precisely the same relationship referred to in subsection (2), and being a relationship which did not include the appellant.
[86] Given these conclusions it is not strictly necessary to consider Mr Cox’s alternative argument focusing primarily on the word “repayable”, save to record that I agree with it and to make some additional observations.
[87] This was a backstop argument which contained an implicit assumption that an agent who is not “commissioned” and appointed by the principal, but who is involved in the sale and receives at least a share of the commission, can be required to repay the commission. It is unnecessary to decide whether the implicit assumption is correct. And because it could have significant consequences for sales persons who are not the appointed agent, it is also inappropriate to reach any conclusion on the assumption. However, proceeding on the basis that the assumption is correct, on the facts of this case there would still be no liability on the appellant given the fact that the appellant did not receive any part of the commission. I would nevertheless add that it seems doubtful that it was intended by Parliament that an employed real estate sales person, who receives a portion only of the total commission received by the real estate agent appointed by the principal, should be
required to pay 100% of the commission. The result of the District Court judgment
32 Section 63(1) is a provision broadly similar to s 63(2), but with the prohibition directed to the commissioned agent.
in this case is that the appellant was required to pay 100% of the commission without any finding that she had received any part of it. On the face of it that would be an unjust result which would require very clear statutory provisions to sustain. There are no such provisions in this case. It may also be noted that this conclusion is consistent with the conclusion of Mallon J in Barber v Cottle, where the order was
that the agent repay the actual sum she received by way of commission.33
Result
[88] The appeal is allowed and the cross-appeal is dismissed.
[89] The judgments in favour of the respondents as plaintiffs in the District Court are set aside and there is judgment for the appellant dismissing all claims against her.
[90] The appellant is entitled to costs in the District Court and in this Court on the appeal. Unless there is some special circumstance of which I am unaware, this appears to be a case where costs should be assessed on a 2B basis, together with reasonable disbursements, and I anticipate that counsel should be able to agree on the amounts. However, if the parties are unable to agree on costs a memorandum for the appellant should be filed within four weeks of the date of this judgment and a
memorandum for the respondents within a further two weeks.
Woodhouse J
33 Barber v Cottle, above n 11, at [211].