Johnston v Colliers International New Zealand Limited t/a Colliers International Auckland Central

[2019] NZHC 2711

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-000496

[2019] NZHC 2711

BETWEEN

HEIDI JOHNSTON and BRUCE

JOHNSTON as trustees of the SQUADRON INVESTMENT TRUST
Plaintiffs

AND

COLLIERS INTERNATIONAL NEW ZEALAND LIMITED t/a COLLIERS INTERNATIONAL AUCKLAND

CENTRAL

Defendant

Hearing:	18 September 2019
Appearances:	K J Robinson and J Kent-Johnston for Plaintiffs R C Woods and S M Paisley for Defendant
Judgment:	23 October 2019

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 23 October 2019 at 4.00 pm.

pursuant to R 11.5 of the High Court Rules Registrar / Deputy Registrar Date………………………..

JOHNSTON v COLLIERS INTERNATIONAL NZ LTD [2019] NZHC 2711 [23 October 2019]

Introduction

[1]    The plaintiffs, Heidi and Bruce Johnston, are the trustees of the Squadron Investments Trust. In 2017, they purchased two properties in Franklin Road, Ponsonby. The respective purchase prices were recorded in the agreements for sale and purchase as “$1,430,000 plus GST (if any)” and “$1,200,000 plus GST (if any)”.

[2]    When the plaintiffs settled, they incurred a liability to the vendor for GST in the sum of $394,500. They say that the first time they became aware of that liability was at the time of settlement. They did not receive any legal advice on the issue of GST prior to signing the agreements for sale and purchase.

[3]    The defendant, Colliers International New Zealand Ltd (Colliers), is a licensed real estate agency that is said to be vicariously liable for the actions of one of its real estate agents, Mr Ongley, who acted for the vendor in respect of the sale of the two Franklin Road properties.

[4]    The plaintiffs sue the defendant in negligence and for breach of s 9 of the Fair Trading Act 1986 (FTA). It is contended that the real estate agent failed to give the plaintiffs correct and adequate GST advice about the implications of the purchases and failed to advise them to seek legal advice about GST before finalising any offer. They further say that the agent’s advice to them that the price for the properties would be “plus GST, if any” constitutes misleading and deceptive conduct under s 9 of the FTA.

[5]The defendant seeks orders:

(a)Striking out the cause of action in negligence, on the basis that the defendant owed no duty of care to the plaintiffs and that the statement of claim therefore discloses no arguable cause of action; and

(b)Granting the defendant summary judgment to the plaintiffs’ claims, on the basis that none of the causes of action in the statement of claim can succeed.

[6]    At issue is whether a real estate agent, the agent for the vendor, owes a duty of care to the purchasers in a residential property transaction.

Factual background

[7]    In early 2017, Colliers was engaged by the then owner of five properties situated on Franklin Road to market the properties for sale. Mr Ongley, a salesperson employed by Colliers, was assigned to the marketing campaign.

[8]    On 27 February 2017, Ms Johnston contacted Mr Ongley expressing an interest in purchasing one of the properties. They spoke by telephone on 7 March 2017, during which Mr Ongley noted that the price would be “plus GST, if any”.

[9]    On 8 March 2017, Ms Johnston submitted offers for three of the properties, each being conditional on the other two offers not being accepted. That is, she was offering to buy only one of the properties. Her offers were submitted using template sale and purchase agreements which had been pre-prepared by the defendant in relation to each of the properties. The first page of that template had been pre- formatted to indicate that:

(a)the vendor was GST-registered; and

(b)the price would be “plus GST, if any”.

[10]   Schedule 2 of the agreements, which provides fields in which the parties are to record GST information, had not been pre-formatted with the vendor’s GST details.

[11]   Ms Johnston’s offers were initially rejected in favour of an offer over all five of the properties. However, that transaction did not proceed, and Ms Johnston re- presented her offers on 3 April 2017 over two of the properties. Following negotiations, Ms Johnston purchased:

(a)88 Franklin Road for $1,430,000 plus GST, if any; and

(b)90 Franklin Road for $1,200,000 plus GST, if any.

[12]   The plaintiffs assert that they were not aware that they would be liable to pay GST of $394,500 at the time of settlement. As purchasers, they ultimately paid to the vendor GST on both transactions.

Complaints Assessment Committee (CAC)

[13]   On 12 April 2018, following a complaint lodged by the plaintiffs, the CAC made a finding of unsatisfactory conduct, holding that Mr Ongley:1

(a)fell short of the standard that a reasonable member of the public is entitled to expect from a reasonably competent licensee;

(b)contravened provisions/rules of the Real Estate Agents Act 2008; and

(c)was incompetent or negligent.

[14]The CAC found unsatisfactory conduct on the basis that Mr Ongley:2

(a)was aware of the complexity and risk associated with the GST implications of the transaction of the purchaser family trust;

(b)did not adequately advise Ms Johnston about the GST implications of the agreements under r 5.1 of the Real Estate Agent Act (Professional Conduct and Client Care) Rules 2012;

(c)failed to complete sch 2 to the agreements, which was a significant error and a failure to exercise the proper level of skill, care and competence;

(d)should have ensured Ms Johnston initialled deletions/cross outs in the agreements, and not doing so was a failure to exercise the proper level of skill, care and competence; and

1      Complaints Assessment Committee decision C20618 (12 April 2018) at [3.1].

2      At [3.56].

(e)did not advise Ms Johnston to seek legal advice before she signed the agreements pursuant to r 9.7 of the Rules.3

The statement of claim

[15]   The plaintiffs claim that the defendant is vicariously liable to pay damages in the amount of the GST liability on the basis that:

(a)Mr Ongley owed the plaintiffs a duty of care and breached that duty by failing to:

(i)meet with the plaintiffs to discuss the agreements;

(ii)give the plaintiffs correct GST advice about the transaction;

(iii)understand the GST implications of the transaction or enquire as to the plaintiff’s GST issues;

(iv)advise the plaintiffs to seek legal, technical or other advice before finalising any offer; and

(v)ensure that the agreements were completely appropriately.

(b)Mr Ongly’s conduct was misleading or deceptive, in breach of s 9 of the FTA, in that he:

(i)failed to complete sch 2 of the agreement;

(ii)advised the plaintiffs via Ms Johnston that the price of the properties would be “plus GST, if any”; and

(iii)failed to ensure the plaintiffs initialled deletions and cross-outs in the agreements.

3      At [3.48].

Relevant legal principles

Strike-out application

[16]   The Court may strike out all or part of a pleading, if, among other things, it discloses no reasonably arguable cause of action.4

[17]   The general principles applicable to the exercise of the Court’s powers are summarised in the Court of Appeal’s decision in Attorney-General v Prince,5 as endorsed by the Supreme Court in Couch v Attorney-General.6 These include:

(a)Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.

(b)The cause of action or defence must be clearly untenable.

(c)The jurisdiction is to be exercised sparingly and only in clear cases.

(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.

(e)If a defect in the pleading can be cured by amendment, the claim should not be struck out.

[18]   Importantly, the Supreme Court noted that the courts should be slow to strike out claims in any developing area of law, such as where a duty of care is alleged in a new situation.7 A claim which raises a novel category of duty requiring assessment of public policy considerations may require expert evidence only available at trial.8

4      High Court Rules 2016, r 15.1(1)(a).

5      Attorney-General v Prince [1998] 1 NZLR 262 (CA).

6      Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].

7      At [33] per Elias CJ and Anderson J.

8      Attorney-General v Prince, above n 5.

Summary judgment

[19]Rule 12.2(2) of the High Court Rules 2016 provides:

12.2 Judgment when there is no defence or when no cause of action can succeed

…

(2)The court may give judgment against a plaintiff if the defendant  satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.

[20]   The principles relevant to defendant summary judgment were discussed by the Court of Appeal in Westpac Banking Corp v M M Kembla New Zealand Ltd:9

[61]      The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim. …

[62]      Application for summary judgment will be inappropriate where there are disputed issues of material fact or where the material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases were abbreviated procedure and affidavit evidence will sufficiently expose the facts and legal issues. … [N]ovel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.

[63]      Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff’s claim. …

[64]      … At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.

[21]   Importantly, under s 12.2(1), a plaintiff may obtain summary judgment on one of several causes of action (“no defence to a cause of action”); however, for summary judgment to be granted under sub-r (2), the defendant must show that none of the claims can succeed. If the defendant is only able to show that some of the causes of action cannot succeed, the proper course will be to apply to strike out those causes of

9      Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).

action. So, defendant summary judgment should be granted only where the defendant has a clear answer to all of the plaintiff’s claims.

Issues

[22]Against that background, the critical issues I must determine are:

(a)Does the plaintiffs’ pleading disclose a reasonably arguable cause of action in negligence?

(b)If not, is the plaintiff’s cause of action under s 9 of the FTA such that it similarly cannot succeed? That is, can none of the causes of action succeed such that this Court should grant summary judgment for the defendant (and against the plaintiffs)?

Issue one: Is there a reasonably arguable cause of action in negligence?

[23]   As a preliminary matter, I note that whilst the plaintiffs pleaded their claim in negligence, their claim is better characterised as one of negligent misstatement. Both counsel, in their submissions, rely on the negligent misstatement factors of assumption of responsibility by Mr Ongley and reasonable reliance by the plaintiffs. Thus, I will focus my analysis on the tort of negligent misstatement rather than general negligence.

The law of negligent misstatements

[24]   The Court of Appeal noted in Carter Holt Harvey Ltd v Minister of Education that “the courts have struggled to identify the precise parameters of the tort” — that remains especially true for the duty analysis for misstatements.10

[25]   The Court of Appeal majority in Invercargill City Council v Southland Indoor Leisure Centre Charitable Trust noted the following in relation to the duty analysis:11

[175] The majority in The Grange emphasised throughout that the Council’s proper claim lay in negligent misstatement, not in general negligence. In that context, Blanchard J (writing also for McGrath and William Young JJ)

10     Carter Holt Harvey Ltd v Minister of Education [2015] NZCA 321 at [112].

11     Invercargill City Council v Southland Indoor Leisure Centre Charitable Trust [2017] NZCA 68, [2017] 2 NZLR 650.

reinforced the conventional two-stage inquiry common to both species of the tort, based first upon considerations of foreseeability and proximity and then the policy question of whether it was fair, just and reasonable to impose a duty. However, a critical feature of distinction within the first stage is that the court must be satisfied in a negligent misstatement claim of the existence of a special relationship between the parties from which it can be said one party has assumed a responsibility as a matter of law to the other party for the quality of its work.

(emphasis added) (footnotes omitted)

[26]Accordingly, the Court of Appeal in Southland Indoor held that:

[85] The elements of the cause of action in negligent misstatement may be framed in this way:

(a)Proximity: the parties must be in a relationship of proximity, or a “special relationship”. This requires that the adviser knew for what purpose the advice was wanted, knew the advice would go to the plaintiff or an ascertainable class that included the plaintiff, and knew the advice would likely be acted on without independent inquiry. Knowledge may be imputed, the court having found that the adviser ought in the circumstances to have known or foreseen what would likely happen.

(b)Policy: wider policy reasons must not exclude a duty of care in the circumstances. For example, a court may exclude a duty for risk of indeterminacy, or for conflict with some other duty or the public interest.

(c)The ultimate question: whether, having regard to (a) and (b), a duty is fair just and reasonable.

(d)Specific reliance and loss: the plaintiff actually relied on the advice and suffered loss in consequence.

(emphasis added)

[27]That Court, in its earlier decision of Carter Holt Harvey, also noted that:

[113] Whether the courts will impose a duty of care in a given case requires consideration of the same two questions already discussed: proximity and policy questions. The establishment of requisite proximity required to impose a duty of care in the context of careless words is particularly important. The concern is that statements have the potential to give rise to indeterminate liability to an indeterminate number pf people.

…

[115] … The concepts of assumption of responsibility, foreseeability and reasonable reliance therefore operate as checks on the extension of liability under the enquiry of proximity. …

…

[119] In terms of whether a statement was reasonably capable of being  relied upon, the focus is on both the assumption of responsibility by the statement maker and the foreseeability of the person who might be expected to rely on the statements. … In essence, a defendant will only be found to be under a duty to take care to prevent loss occasioned by a misstatement when the defendant knows or ought to know that the words are such to engender a reasonable reliance thereon by a specific person or group of people (the class), and when the defendant accepts (or by his or her actions, can be deemed to accept) the consequences of making that misstatement.

(emphasis added) (footnotes omitted)

[28]Palmer J in Cygnet Farms Ltd v ANZ Bank New Zealand Ltd held that:12

[78]      In Carter Holt Harvey v Minister of Education the Supreme Court recently cited the summary by the majority in The Grange of the requirements that must “typically” be met before a plaintiff can say it is entitled to rely on a statement or advice:¹³

The necessary relationship between the maker of the statement and the recipient will typically arise where:

(a)the advice is required for a purpose that is made known (at least inferentially) to the adviser;

(b)the adviser knows (at least inferentially) that the advice will be communicated to the advisee specifically or as a member of an ascertainable class;

(c)the adviser knows (at least inferentially) the advice is likely to be acted on without independent inquiry; and

(d)the advisee does act on the advice to its detriment.

[79]I note three points about the elements of negligent misstatement:

(a)The nature of the relationship in all its aspects must be examined in determining whether there is a prima facie duty;

(b)Negligent misstatement cases usually proceed on the basis that the plaintiff is required to have reasonably relied on the defendant. …

(c)Chambers and McGrath JJ in the Supreme Court stated in Spencer on Byron that, if a defendant owes a duty of care in pure negligence, a negligent misstatement cause of action may add nothing but may just put an additional hurdle in the plaintiff’s way (establishing reliance, if that is an additional requirement).

12     Cygnet Farms Ltd v ANZ Bank New Zealand Ltd [2016] NZHC 2838, [2017] 2 NZLR 538.

13     Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78 at [80].

(emphasis added) (footnotes omitted)

[29]   It is clear from the above authorities that in determining whether there is a duty of care, and particularly in addressing the first step of identifying a sufficiently proximate relationship, that an assumption of responsibility by the defendant adviser and foreseeable and reasonable reliance by the plaintiff advisee, are key considerations. Similarly, a known purpose, an ascertainable plaintiff (or class) and knowledge that the advice is likely to be acted on without independent inquiry are also relevant considerations. There is, however, uncertainty as to whether those considerations are necessary requirements for, or merely relevant indicators of, a duty of care (or at least proximity). The Court of Appeal in Southland Indoor used the word “requires” whereas the Supreme Court in Carter Holt Harvey described those factors as “typically” being met in recognising a duty of care. Neither court discussed the matter further. However, for present purposes, whether those factors are necessary or merely relevant is not a matter I need to determine; the question on a strike out application is whether the pleading discloses a reasonably arguable cause of action.

Submissions

[30]   Applying those principles to the present facts, the first step to address is whether there is a sufficiently proximate relationship between the defendant and the plaintiffs, and in particular whether Colliers (or Mr Ongley) assumed responsibility for the statement “plus GST, if any”.

[31]   The plaintiffs submit there was an assumption of responsibility both in general terms, prescribed by the Real Estate Agents Act 2008 and the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012, as well as specifically through the giving of advice (“if any”).

[32]   As to the general assumption, the Act and Rules govern the relationship between real estate agents (licensees) and purchasers (customers). The Act has a consumer-protection focus. The practical reality is that real estate agents, although agents for the vendor, will have regular contact with the purchaser. So, agents assume some responsibility for information provided and steps taken. And, the plaintiffs say, the information provided by Mr Ongley was incorrect – Ms Johnston deposes in her

affidavit that Mr Ongley was “aware” that GST was payable. He was therefore negligent in failing to delete the “if any” caveat, the effect of which was that the plaintiffs were under the erroneous impression that GST might not be payable. So, the plaintiffs say, first, that assumption of responsibility by the defendant can be deemed from the nature of the relationship and reinforced by the Act and Rules, which provide context to that relationship.

[33]   Next, the plaintiffs submit that there was specific assumption of responsibility in that Mr Ongley chose to give advice to the plaintiffs. The words “if any” amounted to advice as to the GST liability. The plaintiffs say that Mr Ongley, in choosing to give advice, assumed responsibility for the correctness of that statement.

[34]   In response, the defendant submits there was no assumption of responsibility (or that such assumption cannot be deemed) for the following reasons:

(a)The defendant had no contractual or fiduciary relationship with the plaintiffs. Mr Ongley was an agent of the vendor, not the purchasers.

(b)The words “if any” are inoperative as to the plaintiffs’ GST position. The effect of those words is simply to indicate that if GST is payable, it will be payable in addition to the stated purchase price. That is, that the price is exclusive of GST, if any. It does not indicate that GST is not payable or that it is unlikely to be payable. This is supported by the fact that Mr Ongley first made the statement before Ms Johnston even made an offer to purchase the property.

Additionally, “plus GST, if any” clauses are common, and even recommended, in property transactions.14 The purpose and effect of those words are to indicate whether the purchase price is inclusive or exclusive of GST, not to indicate a purchaser’s GST liability.

14     See Roger Thompson and Maurits van den Berg A Practical Guide to Taxing Property Transactions (6th ed, CCH Ltd, New Zealand, 2016) at 407–408 and 413.

(c)There was an implied disclaimer in the standard form contract, which provided that both parties should obtain independent legal advice regarding GST liabilities. So, Mr Ongley did not assume responsibility for the correctness or otherwise of any statement as to the plaintiffs’ GST position.

[35]   Secondly, still dealing with proximity, was it foreseeable and reasonable for the plaintiffs to rely on the defendant’s statement without independent inquiry?

[36]   The plaintiffs submit that, as against the above statutory regime, reliance on the statement was foreseeable. There is inevitably overlap with the factors indicating an assumption of responsibility. If one party assumed responsibility for a statement, then it will usually be reasonable for the other party to rely on that statement. In the present case, the defendant prepared the draft versions of the sale and purchase agreement, failed to complete sch 2, facilitated the signing of the agreement and, in that context, provided, what the plaintiffs say is, specific advice to the plaintiffs regarding GST (“if any”). Mr Ongley allegedly knew the plaintiffs did not have independent legal advice. In these circumstances, it was foreseeable that the plaintiffs would rely on the defendant’s statement.

[37]   Additionally, the plaintiffs say that reliance was reasonable. They say they are the trustees of a family (rather than commercial) trust and that the GST position represented to them, related to the purchase price, a fundamental part of the sale and purchase agreement, which the defendant drafted. Furthermore, the alleged failure to advise the plaintiffs to obtain legal advice before finalising any offer, is only one aspect of the alleged negligence; the plaintiff also alleges that the defendant:

(a)failed to properly draft the agreement, providing incorrect, information, contradictory information and failing to complete some sections at all;

(b)did not attend to the signing and initialling of the agreement with reasonable skill and care; and

(c)was negligent with the manner in which GST was dealt with by providing incorrect GST advice.

[38]   Viewing those circumstances in totality, the plaintiffs say, it was reasonable for them to have relied on the advice of Mr Ongley, that is the “if any” statement.

[39]   On the other hand, the defendant submits that it was neither foreseeable nor reasonable for the plaintiffs to rely on the defendant’s statement without independent inquiry as the transaction involved two properties, each valued over $1,000,000. Moreover, the agent, Mr Ongley, was engaged by the vendor, not the plaintiff purchasers; it was not reasonable for the plaintiffs to expect Mr Ongley to gratuitously15 give advice regarding their GST position. In any event, the defendant says the fact that the standard form contract clearly provided that both parties should obtain legal advice, specifically as to GST, means that any reliance by the plaintiffs on the statement, without independent inquiry, was not reasonable.

[40]   Finally, I turn to the policy factors. The defendant raises three policy factors that it says weighs against the finding of a duty of care in this case.

(a)Competing fiduciary duty: Agents owe a fiduciary duty to the principal. That principle equally applies for real estate agents, as confirmed by the Real Estate Agents Act and Rules, which requires agents to act in their client’s best interests.16 The courts have held that, as a matter of policy, it will generally not be appropriate to impose a duty of care on a fiduciary which might conflict with their fiduciary duties.17 In this case, an obligation on the vendor’s agent to advise potential purchasers in relation to the implications of the transaction would potentially conflict with the agent’s duty to his or her client.

The plaintiffs reply that the existence of a fiduciary relationship between the defendant and vendor cannot be a factor against a duty of

15     The defendant/applicant uses “gratuitously” in two senses: (a) that the advice was not requested by the plaintiffs/respondents; and (b) that it was not paid for by the plaintiffs/respondents.

16     Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012, r 9.1.

17     See Brownie Wills v Shrimpton [1998] 2 NZLR 320 (CA).

care when that duty has been prescribed by statute. The Real Estate Agents Act and Rules impose certain obligations on agents towards non-clients. These obligations include that agents should advise prospective parties to an agreement that they should obtain legal advice before entering into the contract18 and that they are able to obtain technical advice in relation to the transaction.19 The plaintiffs say the duties owed under the Act and Rules favour the finding of a duty.20

(b)Disproportionate/indeterminate liability: If the statutory obligation to advise non-clients to seek legal and/or technical advice creates an actionable common law duty of care, there is the risk of indeterminate or disproportionate liability. Agents would potentially become guarantors in relation to matters ranging from tax or valuation to the structural integrity or boundaries of the property, all of which could be identified if appropriate technical or legal advice were sought before entering into the transaction. Such liability would potentially be disproportionate to the agent’s fault, especially given that such areas are beyond the agent’s field of expertise. This is evident in the present case where the defendant accepts that no one involved with the transactions appreciated the GST implications, including the lawyers involved (at least until close to settlement).

The plaintiffs respond that the duty is not to advise potential purchasers of their GST position, but rather to advise them to obtain legal or technical advice. That is not as onerous a duty as the defendant makes it out to be. The obligation on the agent is to provide accurate information on the draft agreements for sale and purchase. The agent does not have to become a guarantor in relation to tax matters as suggested by the defendant. An agent simply has to exercise reasonable skill and care. Here, Mr Ongley knew that GST was payable, yet failed to delete the “if any” caveat, and he was negligent in failing to do so.

18     Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012, r 9.7(a).

19     Rule 9.7(b).

20     South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd

[1992] 2 NZLR 282 (CA) at 297–298.

Additionally, the concern of indeterminate liability is quelled by the fact that the duty is owed to parties to the transaction, a limited class.

(c)Other forms of deterrence: An actionable duty of care in common law is not necessary to maintain professional standards and competence as there is an adequate deterrent in the form of statutory disciplinary processes, which Mr Ongley has already been subjected to.

In response, the plaintiffs rely on s 110(3) of the Real Estate Agents Act which preserves common law rights against an agent for misconduct.

[41]   The plaintiff, in further support of a duty of care, referred to the English case of McCullagh v Lane Fox & Partners Ltd.21 There, it was held that real estate agents may owe a duty of care to non-client purchasers (in that case, an over-estimate as to the size of the property when the agent knew the plaintiff was attracted to the site because of size and description). However, the defendant in the instant case already accepts the general proposition that a duty of care can arise in some circumstances. What the defendant disputes is, first, that real estate agents owe a duty to gratuitously give advice to the purchaser regarding their GST liabilities and, second, it contends that there was a disclaimer (implied), in any event, which was fatal to the negligence claim brought in McCullagh.

Analysis and decision

[42]   The transactions at issue, including the GST component, involved significant sums of money and the properties were purchased by the plaintiffs in their capacity as trustees. On the face of it, it is extraordinary that the plaintiffs did not obtain legal advice before signing the agreements for sale and purchase. A number of documents given to the plaintiffs by Mr Ongley, including the agreements for sale and purchase, expressly included a recommendation that they obtain legal advice and specifically with respect to GST.

21     McCullagh v Lane Fox & Partners Ltd [1996] 1 EGLR 35 (CA).

[43]   These matters provide important context for assessing whether the defendant assumed responsibility and whether the plaintiffs reasonably relied upon the representations made by Mr Ongley. Such factors are also relevant to the issues of causation and/or contributory negligence.

[44]   There is some obvious merit and force in the submissions of Ms Woods that the defendant did not, in the circumstances here, owe the plaintiffs a duty of care. However, the defendant’s applications are to be determined on the basis that the factual allegations in the statement of claim are presumed to be correct and the jurisdiction to strike out is to be exercised sparingly.

[45]   While perhaps unusual, there is authority, namely McCullagh v Lane Fox & Partners Ltd, to support the contention that a real estate agent may in particular circumstances owe a duty of care to a purchaser. In viewing all matters at issue, I do not regard this as a clear case where the plaintiffs cannot succeed.22 The strike out threshold has not been established.

[46]   As was the case in Couch v Attorney-General, whether the circumstances relied on by the plaintiff are capable of giving rise to a duty of care is the question for the court.23 If a duty of care cannot confidently be excluded, the claim must be allowed to proceed. It is only if it is clear that the claim cannot succeed as a matter of law that it can be struck out. Those findings apply equally here; it is not clear that the claim cannot succeed as a matter of law.

[47]   I further note that the Supreme Court in Couch held that particular care not to strike out is required in areas where the law is confused or developing.24 Again, the cautionary approach has application to this case.

[48]   I find that the plaintiffs have established a reasonably arguable case that the defendant owed them a duty of care. In addressing the arguable case threshold, and the twin considerations of assumption of responsibility and reliance in particular, it is important to identify and focus on the particular manner in which the plaintiff frames

22     McCullagh v Lane Fox & Partners Ltd, above n 21.

23     Couch v Attorney-General, above n 6.

24 At [33].

the duty of care. The plaintiffs allege that Mr Ongley knew that GST was payable:  he knew that the vendor was GST-registered, that the purchaser was purchasing for residential purposes, that the purchaser was not GST-registered and that the purchasers did not have independent legal advice. I also note that Mr Ongley has been criticised by the CAC for not advising Ms Johnston to seek legal advice.

[49]   Framed in this manner, the plaintiffs’ allegations are not necessarily an allegation of deceit or dishonesty of some kind by Mr Ongley. It is tenable to argue, as Mr Robinson submitted, that although Mr Ongley knew that GST was payable, he was careless rather than dishonest in his use of the words “plus GST, if any” in the agreements for sale and purchase. The point, however, about Mr Ongley’s alleged knowledge that GST was in fact payable provides some support for the contention that he assumed responsibility to ensure that the GST description was correct – and in circumstances where his role was to complete the GST provisions of the agreement (including an accurate description of the purchase price) and, where he knew that the plaintiffs did not have legal advice, it was both foreseeable and reasonable that the plaintiffs would rely on his representations.

[50]   Against that background, I reject the submission of Ms Woods that the McCullagh case can be distinguished on the basis that there was, in that case, a positive, inaccurate representation and thus a basis for concluding there had been an assumption of responsibility. In my view, it is arguable that Mr Ongley, in preparing the agreement for sale and purchase and recording “plus GST, if any”, in circumstances where he knew that the plaintiffs did not have independent legal advice, (can be deemed to have) assumed responsibility.

[51]   For similar reasons, I reject the defendant’s reliance on the Court of Appeal decision of Brownie Wills v Shrimpton, where it was held that a non-client of a solicitor, unaware that the solicitor’s client had requested that he be advised, could not expect advice without giving any indication of that to the solicitor.25 There was, the Court held, an insufficient closeness of relationship or proximity. Here, there is arguably a special relationship, one of sufficient proximity or closeness, for the

25     Brownie Wills v Shrimpton, above n 17.

purposes of a cause of action in negligent misstatement. The alleged misstatement was a representation made directly to Ms Johnston as purchaser and it, arguably, did convey an erroneous suggestion that GST may not be payable (in circumstances where the plaintiff alleges that Mr Ongley knew that GST was payable). Furthermore, and unlike Brownie Wills, this is not solely an omission case but allegations of commission considered in the context of relevant omissions.26

[52]   Ms Woods further argued that Mr Ongley was entitled to hedge his bets as to whether GST was payable or not. The words used (“plus GST, if any”) were entirely consistent with his doing so. Ms Woods contended that the allegation that Mr Ongley had a duty to ascertain the correct legal position and then to state it accurately is in substance an allegation that he had a duty to advise the plaintiffs about the GST position and that is clearly going too far, especially when he is the agent for the vendor and not for the purchaser. There can be, Ms Woods submitted, no duty on an agent to provide technical GST advice to a purchaser but simply to record whether the vendor is GST-registered. However, and despite the force of that submission, the duty of care contended for by the plaintiffs arguably does not go as far as Ms Woods claimed. It is not alleged that Mr Ongley had a duty necessarily to advise the plaintiffs about the GST position but, in circumstances where he knew that it was payable and failed in an allegedly elementary way to represent the correct position (and in circumstances where he failed to complete the relevant sch 2, failed to ensure that the plaintiffs initialled the deletions and cross-outs, particularly those pertaining to GST and where he knew they did not have legal advice), the relevant assumption of responsibility has been made out.

[53]   The points raised by Ms Woods will need to be tested against the evidence and factual findings made by the trial Judge. This might sensibly include evidence as to standard and best practice for real estate agents when dealing with GST issues.

[54]   The allegation that the agent knew that GST was payable is not in the statement of claim but is made in the affidavit of Ms Johnston of 28 June 2019. The statement of claim at 2.4(f) alleges that the agent failed to properly understand the GST

26     At 32 Tipping J noted that, traditionally, the law of torts has been cautious in recognising liability for negligence in cases involving an omission to act.

implications of the transaction. On the face of it, that allegation is inconsistent with Ms Johnston’s assertion in her affidavit as to the agent’s state of knowledge.

[55]   However, in a strike out proceeding, if a defect in a pleading can be cured by amendment, the claim should not be struck out. In determining that there is an arguable duty of care here, I proceed on the basis that the claim that Mr Ongley knew that GST was payable, can be established.

[56]   It seems likely in this case that the pleadings will need to be amended and if the plaintiff continues to place importance and reliance on the allegation that the agent knew that GST was payable, then such allegation ought properly to be the subject of a specific pleading/particular.

[57]   As to policy factors, I find that there are no clear or compelling policy factors that the defendant can rely on at this summary stage to establish that a duty of care cannot arise. The McCullagh case does of course provide support for the plaintiffs’ contention that the competing fiduciary duties owed by a real estate agent to the vendor, do not, in appropriate factual circumstances, prevent the imposition of a duty of care owed to a purchaser.

[58]   In Couch v Attorney-General, the Supreme Court held that proper and necessary limits to liability and negligence do not require blanket immunity through over-restriction of the circumstances in which a duty of care arises.27 It held that there is particular risk of such over-restriction on summary consideration on strike out where policy considerations are said to preclude a duty of care. It added that policy considerations arise and overlap at all three inquiries in a claim for negligence: duty of care, breach and remoteness of loss.

[59]   In relation to the policy limb of the duty inquiry, I accept Ms Woods’ submission that a duty of care needs to be established at common law independent of any statutory duty. However, I find that the statutory regime here might nevertheless be relevant in informing the proximity and policy arguments under the duty analysis.

27     Couch v Attorney-General, above n 6, at [34].

That will be especially the case where the statutory standard mirrors the tortious standard, that is an obligation to exercise reasonable care and skill, as in this case.

[60]I now turn briefly to address breach and causation issues.

[61]   I accept Ms Wood’s contention that the plaintiffs cannot rely on the alleged oral representation of 7 March 2017 as a cause of their loss because it was made before any formal offer had been submitted by Ms Johnston and Mr Ongley had no information about the purchaser at that time. Likewise, I accept the submission that any representation made after the agreement for sale and purchase agreements had been signed cannot be an operative cause of any loss. However, as Mr Robinson submitted, the representation in the agreements for sale and purchase is arguably actionable and a material representation. As already noted, the representations need to be considered in the context of a number of allegedly serious omissions specifically in relation to GST. These are said to have been factors which would have potentially alerted the purchasers to there being a GST issue and the need to get legal advice about it.

[62]   I accept Ms Woods’ submission that the CAC’s finding that the agent was obliged to orally advise Ms Johnston about the need to get legal advice will not necessarily provide an answer to the defendant’s contention that there was no breach of any obligation to do so (that is, no breach of the standard of care). This is because the information sent to the plaintiffs clearly spelt out the need for legal advice and the sale and purchase agreements themselves, and the particular reference to GST, made it very clear that the purchasers should get legal advice about GST issues.

[63]   However, questions of breach and causation often involve disputed questions of fact, and that is certainly the case here.28 Despite the force of Ms Woods’ submission, these matters ought to be tested at trial.

[64]   Finally, I note the evidence suggests that the vendor’s solicitors were unaware until late in the process (just before settlement) that GST was payable on the two

28   See Sew Hoy & Sons Ltd (in rec and in liq) v Coopers & Lybrand [1996] 1 NZLR 392 (CA) at 407 as cited in Sinclair v New Zealand Racing Board [2015] NZHC 2067, [2016] 2 NZLR 186 at [99].

transactions. That may  provide  some  support  to  the  plaintiffs’  contention,  as  Mr Robinson submitted, that the plaintiffs were misled and that it was reasonable in the circumstances for them to have relied upon Mr Ongley. Equally, it might be said that if the vendor’s solicitors were unaware of the GST liability, then it is not fair or reasonable to bestow an obligation on the real estate agent (who in any event is the agent of the vendor). The factual circumstances all need to be tested at trial.

[65]   For the above reasons, I decline to strike out the cause of action in negligence (or, more properly, negligent misstatement).

Issue two: Should the Court grant summary judgment for the defendant?

[66]   In light of the above finding, I deal with this issue briefly. Under r 12.2(2) of the High Court Rules, this Court will only grant defendant summary judgment where the defendant satisfies the Court that none of the plaintiffs’ causes of action can succeed. Having already found that the negligence cause of action might succeed (that is, that there is a reasonably arguable case on the pleadings), the defendant’s summary judgment application must necessarily also fail.

[67]I am therefore not required, and do not propose, to address the FTA issue.

Result

[68]   The defendant’s applications for striking out the claim in negligence and for summary judgment in its favour on both their negligence and Fair Trading Act 1986 causes of action are dismissed.

[69]   As to costs, I am of the preliminary view that the defendant should pay costs and disbursement to the plaintiffs on a 2B basis. If costs cannot be agreed, then memoranda are to be filed within 14 days.

Associate Judge P J Andrew