Harcourts Group Ltd v Harvey Realty Group Ltd
[2002] NZCA 130
•10 June 2002
| IN THE COURT OF APPEAL OF NEW ZEALAND | CA 37/02 |
| BETWEEN | HARCOURTS GROUP LIMITED & OTHERS |
| Appellants | |
| AND | HARVEY REALTY GROUP LIMITED & OTHERS |
| Respondents |
| Hearing: | 28 May 2002 |
| Coram: | Keith J Blanchard J Anderson J |
| Appearances: | P J McDonald for First and Second Appellants M A Muir for Third, Fourth, Fifth, Sixth, Seventh and Eighth Appellants W Akel for Respondents |
| Judgment: | 10 June 2002 |
| JUDGMENT OF THE COURT DELIVERED BY ANDERSON J |
Nature of the appeal
This is an appeal against a decision of the High Court declining applications for orders pursuant to r418 of the High Court Rules for decisions on questions separately from any other questions before trial. The appellants are defendants in proceedings brought against them by the respondents on seven causes of action concerned, in varying degrees, with agreements pursuant to which the first respondent has licensed the third, fifth and seventh appellants to carry on certain activity in connection with the business of real estate agents. The third, fifth and seventh appellants are plaintiffs in related proceedings for the recovery of commission monies and a deposit said to be owed to them by the respondents and by Mr R Harvey.
In about August 2000 the first appellant expressed an interest in buying the business of the respondents and accordingly undertook due diligence. The respondents say that in the course of the due diligence they provided the first appellant with confidential and sensitive information. They allege that the first appellant decided not to purchase the business, but that it and its directors, the second appellants, and their servants or agents have used that information in breach of confidence to suborn and take over as branch offices or franchisees of their own the third, fifth and seventh appellants. For this alleged conduct the respondents seek injunctions and damages for prospective loss of income. Several claims are made, in different ways, but all are founded on largely the same factual assertions. The respondents also claim damages against the first two appellants for alleged unlawful interference with the licence agreements entered into with various other appellants who are themselves sued by the respondents for alleged breaches of those agreements. The fourth, sixth and eighth appellants are sued by the respondents as guarantors of the licence agreements. All appellants are sued by the respondents for unlawful interference with the contractual relations between the respondents and clients who had listed properties with them for sale or management.
Harvey Corporation Limited (the “Corporation”) is licensed as a real estate agent pursuant to the Real Estate Agents Act 1976. Harvey Realty Group Limited (the “Group”) alleges that it carries on business as a licensor and that it has established a system of operating a real estate agency business under the trade name “Harveys” using trade and service marks known as “Harvey Marks” and according to a developed licence system known as the “Harvey System”.
The Harvey System contemplates the grant by the Group to a third party, as a licensee, of a licence to use the System in business as a branch office of the Corporation. The terms of a licence entitle a licensee to all revenues earned, less licence fees calculated in accordance with a formula, and stipulate that the licensee shall be liable for all expenses incurred in its business. Other provisions relied on by the appellants will be referred to later in this judgment.
The appellants contend that the arrangement envisages and purports to authorise the conduct of business by a licensee in contravention of s16 of the Real Estate Agents Act because typically the licensee is not itself the holder of a real estate agent’s licence and although purporting to mandate the operation of a branch office of the Corporation, the licence agreement in fact merely establishes a mechanism for facilitating the conduct of a discrete business by the licensee under cover of the Harvey name. They say that if they are correct in this the respondents cannot succeed in their claim dependent upon the legality of the licence arrangements and relief would not be granted under the Illegal Contracts Act 1970 to validate the illegality. On the other hand relief might be granted under that Act to the third, fifth and seventh respondents in their claim for commission.
The third to eighth appellants posited the following question for separate determination in the proceedings brought by the Harvey interests:
(a)Whether the licence agreements referred to in the statement of claim (“the licence agreements”) are in breach of the provisions of the Real Estate Agents Act 1976;
(b)If the answer to question 1(a) above is yes, whether the licence agreements are of no effect pursuant to the provisions of the Illegal Contracts Act 1970.
In the related proceedings for commission a question was proposed by the plaintiffs. It was materially the same but conflated in expression.
Chambers J declined the appellants’ applications in the High Court on three principal grounds. First, he considered it unlikely that the questions could be answered without considerable evidence, much of it in dispute. Second, he formed the view that to grant the applications would almost inevitably lead to substantial delay in resolving the proceedings and substantial extra expense to the parties because in his view the answers to the preliminary questions would not resolve the proceedings of even a single cause of action. He found that the alleged illegality of the licence agreements is not central to some of the causes of action and he was unpersuaded by the arguments on behalf of the appellants that the answers to the questions, presumed by the appellants to be potentially favourable to them, would facilitate settlement. Third, the Judge held that the answer to one of the questions, if it were favourable to the appellants, could have very unsettling consequences for others who are not involved in the proceedings but who are parties to the same types of agreement. For these reasons, exercising the discretion accorded by r418, the Judge declined the application.
Statutory provisions
Rule 418 of the High Court Rules provides:
418. Orders for decision—
The Court may, whether or not the decision will dispose of the proceeding, make orders for–
(a) The decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and
(b) The formulation of the question for decision and, if thought necessary, the statement of a case.
It is unlawful to carry on business as a real estate agent without being licensed as such under the Real Estate Agents Act, s16 of which provides:
16 Real estate agents to be licensed
(1) Subject to section 34 of this Act, no person shall carry on the business of a real estate agent unless he or she is the holder of a licence issued in accordance with this Part of this Act.
(2) Every person, not being the holder of a licence, commits an offence and is liable to a fine not exceeding $2,000 who describes himself or herself in writing as or holds himself or herself out to be a real estate agent, or carries on business as a real estate agent, and, in addition to any fine that may be imposed, shall be liable to forfeit to Her Majesty the Queen all money received by him or her by way of commission, profit, or remuneration for any services or work performed by him or her as an unlicensed real estate agent.
(3) All money forfeited to Her Majesty under subsection (2) of this section shall be recoverable at the suit of Her Majesty in any Court of competent jurisdiction, or may be assessed by the Court by which the defendant is convicted, and be recoverable in like manner as a fine.
(4) In any proceedings in respect of an offence under this section a certificate, signed by the Registrar, to the effect that the defendant or any other named person was not at the time of the alleged offence the holder of a licence shall, in the absence of proof to the contrary, be sufficient evidence of that fact.
The appellants invoke various provisions of the Real Estate Agents Act relating to the operation of “branch offices”, a term not specifically defined in that Act but having statutory connotations by dint of the following legislative provisions:
24 Evidence required by Board
At any hearing or consideration of an application for a licence the Board shall require evidence of the following matters:
…
(d) In any case where the applicant proposes to carry on business from any branch office, that the person, under whose control each such branch office will be, is entitled to hold a certificate of approval as a branch manager, and that that person will be in effective control of that branch office.
26 Effect of licence
A licence shall authorise the licensee to carry on the business of a real estate agent in any part of New Zealand at any place of business that is from time to time endorsed on the licence.
27 Carrying on business at place not specified in licence
(1) No licensee shall carry on business as such at any branch office not specified in his or her licence unless he or she has first obtained the approval of the Board.
29 Renewal of licence
…
(4) Any person other than the Institute may, before the 15th day of March preceding the date of the expiry of the licence, give to the Registrar notice of that person's desire to object to the renewal of the licence on any of the following grounds:
…
(b) That the applicant has not properly been in effective control of his or her business as a real estate agent at his or her registered office and each of his or her branch offices, either personally or through a branch manager as required by section 54 of this Act; or
…
(d) That the applicant has not shown that each branch office from which he [or she] carries on business was under the effective control of a [branch manager] as required by section 54 of this Act; or
54 Supervision of business
…
(3) A licensee may at any time, by notice in writing given to the Registrar, change the address of his or her principal place of business to that of any of his or her branch offices, and shall forward a copy of any such notice to the Institute within 7 days after the notice is given to the Registrar.
54E On transfer of branch manager, licensee to notify Registrar and Institute
Where a licensee transfers a branch manager from one branch office to another, the licensee shall give notice in writing to the Registrar of the transfer, and shall forward a copy of the notice to the Institute within 7 days after the notice is given to the Registrar.
Appellants’ arguments
The appellants acknowledge the constraints of an appeal from a discretion but submit that Chambers J was plainly wrong. They say, in particular, that the Judge erred in the following respects:
(1)He did not address the issue of legality sufficiently to see that it admitted of effectively one answer.
(2)He did not appreciate that the scope for evidence on the issue of legality is very limited.
(3)He misunderstood the impact of the second question posed, thinking that it envisaged consideration of relief under s7 of the Illegal Contracts Act.
They say further that in so erring the Judge over-emphasised any delays implicit in the answering of the questions separately and, conversely, failed to weigh the costs and delays of the alternative.
Critical to the appellants’ argument is the assumption, expressed confidently by counsel, that the licensing arrangements envisaged and constituted an unlawful carrying on of the business of a real estate agent. In addition to the provisions relating to the entitlement to all revenue, subject to licence fees, and the liability for expenses, counsel pointed to the licence provisions concerning the management of moneys received from purchasers as demonstrating that commissions charged to vendors are paid to licensees. Counsel also noted terms requiring the licensee to engage staff in its own name. As to other provisions which require the licensee to conduct its business as a Harvey Branch displaying Harvey marks and prohibiting it from representing itself to be a real estate agent with a licence, the appellants say that the reality of the operation rather than its façade is that of an unlicensed real estate agent’s business; and is so notwithstanding that the office of the licensee must at all times be under the control, as required by the Act, of a person who holds a Certificate of Approval as a branch manager in terms of the Act. Nor, in the appellants’ view, does a requirement that no person may be employed by the licensee as a branch manager or sales person with the statutory Certificates of Approval affect that alleged reality.
In the submission of counsel for the appellants the determination of the question might take but a day or two whereas a trial of the cases as a whole could take 6 to 8 weeks.
Argument for respondents
The respondents sought leave to adduce additional evidence on the appeal but when the Court expressed diffidence about how it might be assisted by the proposed evidence counsel did not press the application. It is deemed to have been abandoned.
Counsel submitted however that Chambers J was right to dismiss the r418 application, largely because the issue of legality or otherwise was not to be answered as readily as the appellants insist, nor without reference to considerable evidence as to how the arrangements operate in fact. Of particular relevance was the extent both in terms of the licences and in actual operation of supervision of the licensed businesses. In short, the answer did not lie solely in the form of the licence but in the actual operation of the several businesses pursuant to the agreements. Nor could the issue of possible illegality be conveniently severed from the issue of relief if illegality were found.
Counsel submitted that the necessity for evidence, the relationship between possible illegality and possible relief, and the prospect of multiple appeals arising from multiple decisions would not facilitate the resolution of the dispute by the parties nor substantially shorten the length of the litigation. In addition there were other parties, these being licensees not involved in this litigation, whose position would be consequentially disadvantaged by an adverse ruling on the licence agreements, with the question of possible relief for them under the Illegal Contracts Act being unresolved while any interim appeals and then the residue of the substantive proceedings were pursued.
Discussion
We think it plain that the appellants are driven by confidence that the questions sought to be asked separately would be answered in their favour, thereby giving them irresistible strength in the negotiation of a favourable outcome. Such confidence seems founded on the view that the terms of the licence agreements are exclusively definitive of the lawfulness or otherwise of the respective businesses carried on pursuant to the licences. This is no doubt why the questions have been framed in terms of the relationship of the licence agreements to the Real Estate Agents Act. But s16(1) of that Act does not proscribe agreements; it proscribes the unlicensed carrying on of a real estate business. Whether in the case of each of the third, fifth and seventh appellants there were an unlicensed carrying on of a real estate agent’s business is a mixed question of law and fact requiring consideration of evidence more extensive than the exhibited standard form licence agreement. The forms of the questions inappropriately circumscribe the necessary inquiry.
Also, in our view, the question of illegality cannot sensibly or fairly be severed from the issue of relief. Again the appellants’ confidence that relief would not be granted makes assumptions about the answers to the proposed questions for the purpose of persuading the Court to ask those questions. We think there is insufficient information before the Court for any confident assumption to be made at this stage.
The appellants’ approach is effectively in the nature of an application to strike out the respondents’ statement of claim on the grounds that by reason of a legal bar to success there is no reasonable cause of action. It does not actually take the form of a strike out application but by dint of its confident assumptions it presents in a similar way. If it were framed as such a strike out application it would fail for conventional reasons.
This application must be examined on the basis that the answers may not be as favourable to the appellants as they suppose because we are not prepared to hazard an answer to the proposed questions in order to decide whether they should be asked. That approach requires an examination of the reasonably possible consequences in terms of the conduct of the litigation. One is multiple appeals with consequential expense and delay. Another is the impact not only on the parties but on other relevant non parties of an uncertain final outcome pending the disposal of the proceedings.
We are not prepared to accept at this stage that the duration of a trial would be six to eight weeks. This case has not been advanced in a closely case managed way. Counsel informed us that there had not so far been an application to the Executive Judge at Auckland for this litigation to be put on track as an Assigned Case. The extent to which trial time would be occupied with damages, for example, would be subject to the effectiveness of limitations on the presentation of expert evidence and the prior exchange of expert’s reports. In short, the estimate of trial time is at present entirely speculative and may well prove greatly overstated at even six weeks.
Decision
We are unpersuaded that the judgment of Chambers J was erroneous. On the contrary, we consider the Judge’s reasons to be sound and certainly supporting the exercise of his discretion.
It follows that the appeal must be dismissed, and it is, with costs payable by the appellants, jointly, to the respondents, jointly, in the sum of $3,500 together with disbursements, including the travelling and accommodation costs of respondents’ counsel.
Solicitors
Peter McDonald, Auckland for Appellants 1-2
Buddle Findlay, Auckland for Appellants 3-8
Simpson Grierson, Auckland for Respondents
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