Leamington Holdings Limited v Commercial and Industrial Consultants Limited

[2014] NZHC 589

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2012-419-317 [2014] NZHC 589

IN THE MATTER             of the Companies Act 1993

BETWEEN  LEAMINGTON HOLDINGS LIMITED Applicant

ANDCOMMERCIAL AND INDUSTRIAL CONSULTANTS LIMITED Respondent

Hearing:                   6 March 2014

Appearances:           G Wilkin for Applicant

C Gudsell QC for Respondent

Judgment:                28 March 2014

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

28.03.14 at 10 am, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

LEAMINGTON HOLDINGS LIMITED v COMMERCIAL AND INDUSTRIAL CONSULTANTS LIMITED [2014] NZHC 589 [28 March 2014]

Background

[1]      The applicant is a property owning company that owns land at Leamington in Cambridge.  In late 2009, the applicant contacted the respondent, a real estate agent, to  assist  in  the promotion  of  a proposed  retail  shopping  centre development  at Leamington. An agreement was entered into dated 3 December 2010 (“the Commission Agreement”).  Included in the development were to be shops, a tavern and a supermarket.   The arguments which were addressed to me at the hearing indicate that the agreement is not particularly well drafted which is evidenced by the fact that disputes have arisen between the parties as to its meaning.  The agreement contained three separate operative clauses which provided for the applicant to pay commission to the respondent in certain circumstances.  The first of these clauses is not in issue in the present proceedings.  The second and third provide as follows:

2.In addition to this Commercial & Industrial Consultants Limited shall  be entitled to a commission on the basis of 4% up to $500,000;

2% thereafter plus GST for the sale of the supermarket whether or

not the supermarket is built by the vendor or by a third party on behalf of the vendor.  This fee will be payable upon the sale of the supermarket site becoming unconditional.

3.For the sake of clarity if the “land” set aside for the supermarket is sold to any third party then Commercial & Industrial Consultants Limited shall be entitled to the commission as if the land and completed building were sold as one and the commission calculation shall be the cost of the land and buildings and any associated costs.

[2]      In due course the respondent sent two invoices to the applicant dated 25

August 2011 and 14 December 2011 respectively.  Those invoices were sent to the applicant c/o Mr B M Murray and Mr R Murray.   The former is a director and shareholder in the applicant company.   The latter is a shareholder of the company and at the date of filing the affidavits in this proceeding in March 2012, he was an undischarged bankrupt. Mr R Murray was the one involved with this development project.

[3]      The invoices which were rendered provided as follows, dealing first with the one dated 25 August 2011:

RE:      LEAMINGTON SHOPPING CENTRE

Sale Price of Land situated in Leamington as per QV evidence

$1,800,000.00

TO:        Commission now due as per Agreement dated 23 March 2011

$46,000.00

GST  $  6,900.00

TOTAL AMOUNT NOW DUE  $52,900.00

[4]      The other invoice provided so far as relevant:

RE:      LEAMINGTON HOLDINGS LIMITED

TO:     Balance  of  monies  owed  as  per  commission  agreement     for construction of supermarket as per constructions agreement Eljayej Holdings Limited & Livingstone NZ Limited

....

Commission as agreed at 2%  $58,906.04

GST  $  8,835.90

Payment now due  $67,741.94

[5]      When the applicant did not make payment in response to the invoices, the respondent issued a statutory demand and an originating application was filed to set aside the statutory demand dated 5 March 2012.  In the originating application it was alleged that:

A        There is a genuine dispute as to whether the claim debt is owing;

BThe applicant  and  respondent  did  have  a  commission  agreement dated 3 December 2010 but such agreement was cancelled in June

2011;

C        The respondent has not earned the commissions claimed;

DThe event that one of the invoices rendered relates to has not actually occurred meaning that even if the commission is payable, which is denied, then the commission is not in fact due.

[6]      I note that it was disputed in the course of the hearing before me whether the Commission Agreement was signed on 3 or 31 December 2010.  I do not consider that this is a live dispute because the agreement is dated on 3 December 2010 and has not been rectified.   The applicant stated in the originating application that the Commission Agreement was signed on the 3 December but then sought to change that view in the affidavits.

[7]      The agreement which the parties entered into made reference to the fact that the respondent had also arranged mortgage finance for the owners (that is the applicant).  It is necessary to briefly mention the background to that matter.

[8]      It would appear that towards the end of 2010 the applicant was in default under its lending arrangements with the bank.   Unless that default could be cured there was a risk of a mortgagee sale.  The respondent as well as two other entities agreed to make finance available for a period of six months to give the applicant some breathing space while the project progressed.  A key aspect to the success of the project was the proposal that it would include a supermarket and the applicant had in mind that a lease should be entered into with Progressive Enterprises.  In fact a Heads of Agreement was ultimately signed by Progressive Enterprises for leasing arrangements in respect of a supermarket to be constructed on the site.

[9]      On 23 March 2011, an agreement for sale and purchase of land was entered into between the applicant and a Mr O’Leary.  The exact nature of the arrangement is not entirely clear to me.   Mr R Murray says that he entered into a “joint venture arrangement  to  complete  the  development  with”  Mr  O’Leary.     However,  I understand that the arrangement between the parties had the following principle features.   First, Mr O’Leary contracted to buy all the land that was part of the property to be sub-divided and developed.  Once necessary titles had been issued as part of the subdivision, he would transfer back to the applicant all of the property save  for  Lot  6  which  was  the  land  upon  which  the  supermarket  was  to  be constructed.   Mr O’Leary would then be in the position of being the lessor of the supermarket to Progressive Enterprises.

[10]     There were some further aspects of the dealings between the parties which will need to be discussed in due course but it is now necessary to move forward in the account to deal with the circumstances in which there was a falling out between Mr Jones, the sole director of the respondent and Mr R Murray of the applicant.

[11]     On 26 May 2011, Mr Jones emailed to Mr R Murray noting the following matters.  First his understanding that the applicant would be repaying the mortgage (and I assume this to be the mortgage which Mr Jones and the other two investors had advanced to the applicant) in the near future.  Secondly, he sought confirmation that Progressive Enterprises had approved Mr O’Leary as purchaser for the supermarket.   He then noted that he had three other parties that had a registered interest in buying the supermarket and that there was little point in pursuing them if Mr R Murray had already sold it.

[12]     Mr R Murray replied on 8 June 2011 and expressed scepticism about the three additional purchasers and made complaints about the lack of assistance that he had received from the respondent.  He further asserted that Mr Jones had:

[D]eveloped a conflict of interest in the matter.  Not only have you not been working for [the applicant] you have been actively seeking to undermine my interests in order to further yours and those of the other Mortgagors.  Your active misrepresentation leads me to conclude this activity was not the way a real estate agent should act for its client.

I will be in touch next week to negotiate the termination of your involvement with the Leamington shopping centre development. If we cannot reach agreement I will certainly refer the matter to the Real Estate Agents Authority.

[13]     On 28 June 2011 Mr Jones sent a further email to Mr R Murray in which he noted:

As I am no longer acting for you I will do anything necessary to recover the said monies.

[14]     The “said monies” was a reference to the commission which the respondent

claimed that it was owed.

[15]     Having set out some of the background to this matter I will now deal with the law and the issues which arise from the originating application to set aside the statutory demand.

Applications to set aside statutory demands

[16]     The application to set aside the statutory demand is brought pursuant to s 290 of the Companies Act 1993 which provides as follows:

290      Court may set aside statutory demand

(4)      The Court may grant an application to set aside a statutory demand if it is satisfied that-

There is a substantial dispute  whether or not the debt is

owing or is due; …

[17]     I accept that the way in which the section is to be applied was correctly stated in  Fletcher  Homes  Ltd  v Ellis,1   Master  Faire  confirmed that  an  applicant  must demonstrate there is a substantial dispute as to whether or not the debt claimed in the statutory demand is due or owing.   In that case, the principles applicable to the applications of the present kind are stated as follows:

(a)       The onus is on the applicant to establish a fairly arguable case for its claim that it is not liable for the amount claimed;

(b)       A mere assertion that a dispute exists is insufficient.  The applicant must put forward material which, although short of actual proof, nevertheless supports the claim that the amount is in dispute; and

(c)       If such material is available, the dispute should be tried elsewhere and not on application to set aside the statutory demand.

[18]     In order to succeed, the applicant must demonstrate that the dispute which it raises is genuine.  See Taxi Trucks Ltd v Nicholson where the Court stated:2

The  applicant  must  show  a  genuine  and  substantial  dispute  as  to  the existence of the debt, and that it would be unfair - as it usually would be - to allow that dispute to be resolved by the Companies Court rather than by action commenced in the usual way.

1 Fletcher Homes Ltd v Ellis HC Auckland M471im99, 23 July 1999.

2 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 299 per Hardie Boys J.

Entitlement to commission

[19]     A  key part of the notice of application was ground C which asserted that:

C. The respondent has not earned the commissions claimed;

[20]     The applicant apparently did not dispute that an agreement had been entered into which was evidenced in writing.

[21]     The reference to commission being “earned” suggest that the agent had one or more obligations to discharge before it would become entitled to commission.

[22]     The position which the respondent advances is that there was in fact nothing that the agent had to do, it became entitled to commission whether or not it was instrumental in the sale.

[23]     While the issues ought to have been more clearly exposed than the truncated ground of opposition made possible, I consider that there is a contest between the parties as to whether the agent’s contention is correct.

[24]     The circumstances in which an agent will be entitled to remuneration are to be determined by the contract that the parties have entered into.  In general terms, a real estate agent will be required to demonstrate that he or she was instrumental in a sale of the property before an entitlement to commission will accrue.   Such a requirement can, however, be dispensed with if the express words of the contract

permits such an outcome.3   For example, the parties could agree that commission is

to be paid when the agent has simply secured an offer for the vendor’s property.

[25]     Often an agent is retained to procure a transaction.  Subject to the terms in the contract, an agreement to pay remuneration on the completion of a transaction will include a requirement that the bringing about of the agreement was as a result of the

agent’s intervention that qualifies as the transaction’s effective cause:4

3 Laws of New Zealand Agency (online ed) at [93].

4 Howard Bennett Principles of the Law of Agency (Hart Publishing, United Kingdom, 2013) at [8.6] (footnotes omitted).

This proposition reflects the natural interpretation of the agency agreement: the agent should receive remuneration not simply if a particular transaction happens to ensue but if the agent has earned it by engaging the principal and third party with the transaction.   A lesser requirement, moreover, would court the risk of being satisfied in respect of any one transaction by more than one agent, rendering the principal liable to pay multiple remunerations.  Such a risk is so clearly contrary to the natural intentions of a principal and to the logical understanding of a reasonable agent that it not only sustains effective causation as a principle of presumptive interpretation, but militates strongly against any conclusion of its satisfaction on any given set of facts by more than one agent. The effective cause, accordingly, is not merely an occurrence without which the transaction will not occur (a ‘but for’ cause), but is the engagement with the third party that brings about the transaction.

[26]     The contract in the present case is clearly one with the sale of the property as its objective.  It is a case where the payment of remuneration should be linked to the agent’s intervention resulting in the contract.  The text of the contract does not state that entitlement to the commission will arise if a transaction is entered into whether or not the agent was the effective cause.  In the absence of some clearer indication that the causative link between the actions of the agent and the completion of the contract is not required, then the contract cannot be interpreted in the way that the agent says it should.  At best, in my view, the present contract is equivocal and that is insufficient.

[27]     I acknowledge that the contract contains a reference to the respondent being a “sole  agent”.    It  is  a  matter  of  common  knowledge  that  frequently  sole  agent contracts not only entitle the agent to be the exclusive agent of the principal but also entitle such a person to a commission even though a sale is introduced through another agent.   But contracts of that kind generally include an express provision governing the entitlement to commission in those circumstances.   The fact that an agent is described as a sole agent does not on its own give rise to an entitlement to commission on the sale of a property even though the  sole agent has not been instrumental in procuring the sale.

[28]     For the reasons just stated, I accept that there is a substantial dispute as to whether the respondent is entitled to commission.

Conclusion

[29]    Given the conclusions that I have reached on the issue of whether the commission was earned, there is no need to consider the other defences which the applicant advanced in response to the statutory demand.

[30]     The applicant has met the statutory test under s 290 of the Companies Act that there is a substantial dispute whether or not the debt is owing or is due.

[31]     The application is granted.  The parties should confer on the question of costs and if they are not able to agree, they are to direct memoranda to the Court within 10

working days of the date of this judgment.

J.P. Doogue

Associate Judge