Maketu Estates Ltd v Robb
[2014] NZHC 2664
•29 October 2014
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2013-470-000496 [2014] NZHC 2664
BETWEEN MAKETU ESTATES LTD
Plaintiff
AND
S J ROBB
First DefendantPGG WRIGHTSON REAL ESTATE LIMITED
Second Defendant
Hearing: 18 - 26 August 2014 Appearances:
G Brittain and A R Scott for the Plaintiff
H Smith and S Caradus for the DefendantsJudgment:
29 October 2014
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Wednesday, 29 October 2014 at 4.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Counsel:
G Brittain, Barrister, Tauranga
Solicitors:
Mackenzie Elvin, Tauranga
Duncan Cotterill, Christchurch
MAKETU ESTATES LTD v S J ROBB [2014] NZHC 2664 [29 October 2014]
Introduction
[1] On 15 November 2012, the plaintiff, Maketu Estates Ltd (Maketu), entered into a written agreement for the sale and purchase of a kiwifruit orchard to Paul Jones or his nominee. The sale price was $3.8 million. The plaintiff claims there was a third party willing to pay more, but the first defendant, Mr Stan Robb, a real estate agent engaged by PGG Wrightson Real Estate Limited (Wrightsons), the second defendant, failed to properly advise it of that third party interest. The plaintiff claims that the market value of the orchard was $4.9 million and, accordingly, it has lost $1.1 million. The defendants counter-claim for the commission on the sale, which the plaintiff has refused to pay.
Statement of claim
[2] There are three causes of action set out in the statement of claim. The first claim is against Mr Robb under the Fair Trading Act 1986 for misleading and deceptive conduct while acting in trade. The plaintiff alleges that Mr Robb failed to disclose the third party’s level of interest in purchasing the property and wrongly advised the third party that the orchard was no longer available for sale. In addition, the plaintiff alleges that Mr Robb told its directors that Mr Jones was the only buyer.
[3] The second claim is against Wrightsons under the Fair Trading Act 1986 for misleading and deceptive conduct while acting in trade. It relies upon the same particulars as the first claim.
[4] The third claim is an alternative claim against Wrightsons for breach of fiduciary duty. The plaintiff alleges that Wrightsons owed it a duty to disclose the existence of any prospective purchaser and the extent of the interest expressed by the prospective purchaser, which it breached. Again, the plaintiff relies on the same particulars as the first claim.
[5] In their joint statement of defence, both Mr Robb and Wrightsons admit that Mr Robb was the agent of the Wrightsons and that Mr Robb was acting within the scope of his actual or apparent authority so that the conduct of Mr Robb is deemed to
have been engaged in also by Wrightsons. They also both admit that they were acting in trade.
The law
[6] The parties agree on the applicable law. Section 9 of the Fair Trading Act
1986 provides:
9 Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive
or is likely to mislead or deceive.
The terms “misleading or deceptive” are to be given their ordinary meanings.1 In considering whether conduct is capable of being misleading, it is also to be examined as a whole and in its context.
[7] In Taylor Brothers Ltd v Taylor Group Ltd,2 McGechan J in the High Court adopted the following principles stated by Wilcox J in Chase Manhattan Overseas Corporation v Chase Corporation:3
(a) Conduct cannot … be categorized as misleading, or deceptive, or likely to be misleading or deceptive, unless it contains or conveys a misrepresentation: Taco Co of Australia Inc v Taco Bell Pty (1982) ATPR paragraph 40-303 at 43,751; (1982) 42 ALR 177 at 202.
(b) A statement which is literally true may nevertheless be misleading or deceptive: see Hornsby Building Information Centre Pty Limited v Sydney Building Information Centre Pty Limited (1978) ATPR paragraph 40-067 at p 17,690; (1978) 140 CLR 216 at 227…
(c) Conduct is likely to mislead or deceive if this is a ‘real or not remote chance or possibility regardless of whether it is less or more than 50 per cent’: Global Sportsman Pty Limited v Mirror Newspapers Limited (1984) ATPR paragraph 40-463 at 45,343; (1984) 55 ALR
25 at p 30.
(d) The question whether conduct is, or is likely to be, misleading or deceptive is an objective one, to be determined by the Court for itself, in relation to one or more identified sections of the public, the Court considering all who fall within an identified section of the public “including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated,
1 Taylor Brothers Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (CA) at 39 per Cooke P.
2 Taylor Brothers Ltd v Taylor Group Ltd [1988] 2 NZLR 1 (HC) at 27-28.
3 Chase Manhattan Overseas Corporation v Chase Corporation (1985) 8 ATPR 40-661 at 47,336.
men and women of various ages pursuing a variety of vocations”:
Taco Company at ATPR 43,752; ALR 202….
(e) Ordinarily, mere proof of confusion or uncertainty will not suffice to prove misleading or deceptive conduct: Parkdale Custombuilt Furniture Pty Limited v Puxu Pty Limited (1982) ATPR 40-307; (1982) 149 CLR 191. However, where confusion is proved, the Court should investigate the cause; so that it may determine whether this is because of misleading or deceptive conduct on the part of the respondent: Taco Company at ATPR 43,752; ALR 203.
[8] I note the comments of Blanchard J in Neumegen v Neumegen & Co that a misrepresentation may be express or arise from silence or from conduct. It need not be intentional and often will not be intentional.4
[9] As to remedies, s 43 of the Act provides that if a Court finds that a person (person A) has suffered, or is likely to suffer, loss or damage by conduct of another person (person B) that does or may constitute a contravention of s 9, then the Court may make an order directing person B to pay to person A the amount of the loss or damage. A causal link between the imputed conduct and the identified loss or damage is required.5
[10] A fiduciary relationship is a relationship of trust and confidence.6 At its core is the duty of loyalty:7
The principal is entitled to the single-minded loyalty of his fiduciary. This liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.
[11] The relationship between an agent and principal is categorised as fiduciary by reason of its status.8 Wrightsons accept in their statement of defence that they owe a fiduciary obligation because of that characterisation. Despite that concession it may be doubted how useful it is to rely solely on the past characterisation of a
relationship to determine whether it is fiduciary in kind. The fiduciary relationship is
4 Neumegen v Neumegen & Co [1998] 3 NZLR 310 (CA) at 317.
5 Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 398-399.
6 Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [80].
7 Mothew v Bristol & West Building Society [1998] Ch 1 (CA) at 18; cited in Stevens v Premium
Real Estate Ltd [2009] NZSC 15, [2009] 2 NZLR 384 at [67].
8 Chirnside v Fay, above n 6 at [73].
still without adequate justification and remains a “concept in search of a principle”, as Sir Anthony Mason once put it.9 There is a danger in attaching the fiduciary moniker to a relationship without due regard to what justifies it.10
[12] The fiduciary obligations of real estate agents were considered by the Supreme Court in Stevens v Premium Real Estate.11 Elias CJ expressed reservations as to the scope of their obligation.12 Blanchard J, speaking for the majority, suggested the view that their obligations are the same as those expected of other agents.13 Although it might be questioned whether real estate agents have a general obligation to inform their principal about all material information, it is clear that real estate agents are obliged to pass on reasonable offers to vendors, as that function is squarely within their contracted role.14 Similarly if a real estate agent withholds information concerning a potential sale at an increased price that would also constitute a breach.15
[13] It must be recognised, however, that a failure to pass on an offer or a possible offer will not breach the obligation of loyalty in all circumstances. Not all breaches of duty by a fiduciary are breaches of his or her fiduciary duty.16 The breach must involve an element of infidelity or disloyalty that engages the fiduciary’s conscience.17 The agent must have made a profit from the transaction, acted in a conflicted position or otherwise have acted in bad faith.
[14] The fiduciary obligation runs parallel with those obligations imposed by statute or otherwise extant in private law. It should not be confused or equated with them. If a real estate agent fails to pass on an offer or a possible offer, he or she will
typically breach their contractual duty to achieve the best purchase price reasonably
9 AF Mason “Themes and Prospects” in Paul Finn (ed) Essays in Equity (Law Book Co, Sydney,
1985) 242 at 246.
10 Arklow Investments Ltd v Maclean [2000] 2 NZLR 1 (PC) at 6.
11 Stevens v Premium Real Estate, above n 7.
12 At [26] – [27].
13 At [77].
14 At [26].
15 Jackson v Packham Real Estate Ltd (1980) 109 DLR (3d) 277 (Ont HCJ).
16 S v Attorney General [2003] 3 NZLR 450 (CA) at [77].
17 Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 (CA) at 687.
obtainable.18 The agent’s conduct may also be misleading and deceptive in the objective sense specified by s 9 of the Fair Trading Act. However it does not necessarily follow from those conclusions that the agent has been disloyal in the sense required to justify the equitable remedies that attend to a breach of fiduciary duty. As with any case where breach of fiduciary obligation is pleaded one must carefully scrutinise both the content of the duty and whether that duty has in actual fact been breached before liability in equity can be said to ensue.19
[15] Real estate agents are also subject to the duties imposed under the Real Estate Agents Act 2008 and the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012. Those rules specifically include the following:
(a) A licensee must act in good faith and deal fairly with all parties engaged in a transaction (r 6.2).
(b)A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client (r 6.4).
(c) A licensee must act in the best interests of a client and act in accordance with the client’s instructions unless to do so would be contrary to law (r 9.1).
I agree with the comment of Mallon J in Barber v Cottle that the Real Estate Agents Act is not intended to replace the scope of fiduciary duties that would otherwise apply to canvassing agents.20 That statement applies with equal force to the obligations imposed by the Conduct and Client Care Rules 2012.
Factual background
[16] Maketu owned a 66 hectare kiwifruit orchard on Maketu Road, approximately eight kilometres from Te Puke. It was the first substantial orchard
18 Peter Watts (ed) and FMB Reynolds Bowstead and Reynolds on Agency (19th ed, Sweet & Maxwell, London, 2010) at [6-037]; Keppel v Wheeler [1927] 1 KB 577 (CA) at 586, 591.
19 Re Coomber [1911] 1 Ch 723 (CA) at 728-729.
20 Barber v Cottle HC Palmerston North CIV-2004-454-756, 13 March 2008 at [163] – [165].
offered for sale in the area following the devastating impact of Pseudomonas syringae actinidiae (Psa), a virulent bacterial disease first found in kiwifruit vines in the Bay of Plenty in late 2010. The orchard had been affected by Psa and the directors of Maketu, Mr Ross Stevenson and his brother, Mr Colin Stevenson, were unsure of the orchard’s value. They say that they were prepared to test the market. Despite the presence of Psa, there were several features of the property that they thought would attract buyer interest. The orchard shares a boundary with the Te Puke Golf Course and there was potential to develop lifestyle properties along the boundary of the golf course. The orchard was also one of the largest in the area and had a substantial infrastructure. In the winter of 2012, a new gold variety of kiwifruit, G3, had been grafted onto approximately 30 hectares of the orchard. At the time, G3 was viewed by the industry as the hope for the future as early signs were that it was more resistant to Psa than the long-standing gold variety, Hort 16A. A small amount of a new green variety, G14, had also been grafted.
[17] On 5 October 2012, Mr Ross Stevenson signed an agency agreement with Wrightsons. Mr Robb was the listing agent. At the time that the agency agreement was signed, there was some discussion between Mr Robb and Mr Ross Stevenson about the likely sale price. Mr Robb thought that the bare land value was approximately $3 million. In the agency agreement, Mr Robb wrote down the appraised price as being $4 million. This was crossed out by Mr Ross Stevenson and the figure of $5 million inserted. No valuation was however obtained prior to the orchard’s sale. It was agreed that the orchard would be sold by auction on site on Friday, 16 November 2012, unless sold prior. Mr Robb requested details from Mr Ross Stevenson which were necessary for potential purchasers. These included the boundaries of the land, the plant and equipment to be included in the sale, the resource consents for the seven frost fans on the orchard, and the licences from Zespri to cover the varieties of kiwifruit grown on the orchard.
[18] From 5 October 2012 to 15 November 2012, Mr Robb marketed the orchard for sale. He produced an information memorandum and arranged for appropriate advertising. He rang the key figures in the kiwifruit industry to advise them of the sale, including the eventual purchaser, Mr Jones, who was associated with the DMS packhouse. Mr Robb took interested parties to inspect the orchard.
[19] In mid-October, an interested party from the kiwifruit industry made a verbal offer to Mr Robb of $3 million with a 10 per cent deposit and the balance to be paid after three years. Mr Robb discussed the verbal offer with Mr Ross Stevenson. It was rejected. Shortly afterwards, a local dairy farmer inspected the orchard. He later made an unconditional verbal offer of $2 million on the basis that it would cost another $1 million to rip out all the vines, pergolas and other infrastructure and re- grass the property. It too was rejected. Other players in the kiwifruit industry also expressed a certain level of interest. A third offer of $1 million was made in a telephone call from an interested party in China. It was rejected by Mr Robb without reference to Mr Ross Stevenson.
[20] The key events all happened over a two week period, between 1–15
November 2012 and, in particular, on Wednesday 14 November, the day before the written agreement for the sale and purchase of the orchard was signed. On Friday,
9 November, there was a meeting between the Stevenson brothers, Mr Robb and a surveyor to discuss how the certificates of title could be adjusted to allow the plaintiff to retain an interest in two small areas of land that comprised part of the orchard. Early on Monday, 12 November, Mr Ross Stevenson met with a Zespri representative to clarify the position with respect to the Zespri licences. Later on Monday 12 November, there was a meeting between the Stevenson brothers, Mr Robb and the plaintiff’s solicitor, at which it was agreed that the auction would be abandoned. A major factor was that there were a number of outstanding issues which made an auction four days later unsuitable. Apart from the issues with the title adjustments and the Zespri licences there was, at that stage, no list of plant and equipment to be included in the sale, nor were copies of the resource consents for the frost fans available to prospective purchasers. The Stevenson brothers then instructed the plaintiff’s solicitor to prepare a standard form agreement for sale and purchase to be given to any potential purchaser to be used as an offer document.
[21] The eventual purchaser, Mr Jones, was advised by Mr Robb when the orchard was first listed for sale. At first Mr Jones did not express an interest, but once he had given the property more thought, he discussed the matter with his business partner and another kiwifruit investor. They decided to investigate the sale further. Mr Jones says he visited the orchard in early November with Mr Robb, although
Mr Robb puts the date of initial inspection by Mr Jones at 30 October. Mr Robb says that on initial inspection, Mr Jones asked him whether the Stevenson brothers “would wear” a purchase price of $3.5 million, with $1 million vendor finance and a
10 per cent share in the purchasing company. Mr Robb says that he informed Mr Ross Stevenson of the indicative offer from Mr Jones. This is disputed by Mr Stevenson. Mr Jones does not recall making such an offer. However, the possibility of vendor finance must have been discussed because in an e-mail to his brother on 5 November, Mr Ross Stevenson says that he told Mr Robb that they may look at a $1 million two year mortgage to DMS, the packhouse with which Mr Jones was associated.
[22] In the period up to Tuesday, 13 November, Mr Jones had a number of conversations with Mr Robb about the orchard. On Tuesday, 13 November, Mr Robb delivered an information bundle on the orchard to Mr Jones, which included the draft sale and purchase agreement prepared by the plaintiff ’s solicitor following instructions the day before from the Stevenson brothers. It also included a list of plant and equipment and an e-mail from Zespri regarding licences, although an attachment to that e-mail was missing. Mr Jones thought that the information provided was still incomplete. Nonetheless, on the afternoon of 13 November, Mr Jones met with his colleagues. They agreed to form a partnership to purchase the orchard. Half the funding would come from the DMS packhouse and the other half from the private interests represented by the kiwifruit investor. Mr Jones was authorised by his partners to offer $3.6 million up to a maximum of $4 million.
[23] Despite the lack of information, which Mr Jones says he would normally require, he asked Mr Robb to arrange a meeting with the Stevenson brothers for the next day. Mr Jones had discussed his strategy for the meeting with his partners. They would tell the Stevenson brothers at the outset that they were serious buyers – there to do a deal and would sit in the room with them until a deal was hammered out. They would request further information on the outstanding issues, such as the title adjustments and the Zespri licences, but they had decided that they would assume the risk that the information provided on those issues would turn out to be incorrect in the hope and expectation that those issues would not hijack the meeting. I will return to the crucial events of 14 November later.
[24] There was, however, another potential purchaser, Mr Craig Lemon, who was associated with MPAC, a rival packhouse to DMS. On 1 November, Mr Lemon telephoned and e-mailed Mr Robb enquiring about the orchard. Mr Lemon asked Mr Robb to send him an information file on the orchard. On 2 November, Mr Robb e-mailed Mr Lemon with further information. He sent him a GPS map, Terralink reports and water use resource consents. Mr Robb said he was still waiting for confirmation of consents for the frost fans and repeated an assurance from the Stevenson brothers that they had all relevant licences for the new kiwifruit varieties (G3 and G14).
[25] On 7 November, Mr Lemon and Mr Robb exchanged e-mails to arrange inspection of the orchard by Mr Lemon on 9 November. Mr Robb was unable to be present during the inspection and accordingly arranged for the orchard manager to allow him onto the property. Mr Lemon inspected the orchard on 9 November together with his two partners. Immediately after the inspection, Mr Lemon e- mailed Mr Robb confirming they had looked around the orchard that day. Mr Lemon specifically said he was interested in pursuing it further and to that end asked Mr Robb to advise him what was actually up for sale and also what variety licences were included in the sale. He suggested this information may be available in a draft sale and purchase agreement and, if so, asked Mr Robb to forward a copy to him so that he could get his legal people to have a look at it.
[26] In addition to the e-mail contact on 9 November, Mr Lemon had a telephone conversation with Mr Robb on the same day. During that conversation, Mr Lemon made it clear to Mr Robb that he was very interested in the property and wanted further information. Mr Lemon asked Mr Robb for some guidance about vendor price expectations. Mr Lemon made a contemporaneous note of the telephone call and noted that Mr Robb told him that there had been two offers prior to auction and that “3 mill won’t work”, but “3.8 might”. Mr Lemon says he was pleased to hear that because it was less than they were prepared to pay. He did not tell Mr Robb that, but says he told Mr Robb that he was definitely interested and advised him that the price level was within his capability. Mr Robb disputes that Mr Lemon told him that the price level was within his capability, but acknowledges that he knew Mr Lemon was definitely interested in the property.
[27] The next day, Saturday, 10 November, Mr Lemon met with his partners. They agreed that they would look at making a formal offer to purchase the orchard prior to the auction. To do that, they needed to clarify exactly what was for sale.
[28] On Monday, 12 November, Mr Lemon had a further telephone conversation with Mr Robb. He again told Mr Robb that he was definitely interested, but needed the further information that he had requested. They discussed whether the auction was going to go ahead. Mr Robb told him that there was still enough time for that to happen, although it was less likely, and the process might change so that an agreement for sale and purchase would be sent to interested parties, who would then be asked to present offers. Mr Lemon asked Mr Robb to send him a draft agreement for sale and purchase. Mr Robb agreed. He said he would e-mail the agreement for sale and purchase and other information through to him by midday on Tuesday,
13 November. Mr Robb confirmed to Mr Lemon there were still a number of matters to be sorted and that he was continuing to work on them.
[29] At 3.32 p.m. on 13 November, Mr Lemon received an e-mail, sent by Wrightsons, in the name of Mr Robb. The e-mail included a pdf attachment, which included a draft agreement for sale and purchase and a covering letter from the plaintiff’s solicitors, e-mails between Mr Ross Stevenson and Zespri regarding the licences and a list of plant and equipment. On the evening of 13 November, Mr Lemon looked carefully through the documents, made notes on the draft agreement for sale and purchase and noted that an attachment referred to in one of the e-mails from Zespri was not included.
[30] I turn now to the crucial events of 14 November 2012, in respect of which I
will need to make findings of credibility.
Events of 14 November 2012
[31] Having arranged for a meeting between the Stevenson brothers and Mr Jones at 9.30 a.m. on 14 November at Wrightsons’ office, Mr Robb met with the Stevenson brothers half an hour earlier, at 9.00 a.m. On his arrival, Mr Colin Stevenson asked to use a computer terminal to access his e-mails. He wanted to print out e-mails from the Council which related to the resource consents for the frost fans. Copies of
the actual resource consents for the fans had not yet been obtained and the orchard manager, Mr Chris Harrison, was going into the Council that morning to try and sort it out. That issue was then put to one side.
[32] Mr Robb and the Stevenson brothers then reviewed the marketing campaign. Mr Robb told the Stevenson brothers that he had sent copies of the draft agreement for sale and purchase and other documents, such as the information from Zespri and the list of plant and equipment, to two prospective purchasers. Mr Robb says he told the Stevenson brothers that the two prospective purchasers were Mr Jones and Mr Lemon. The Stevenson brothers knew that Mr Jones was one of the prospective purchasers because they were to meet him at 9.30 a.m. that morning, but deny that they were told by Mr Robb that the other prospective purchaser to whom the draft agreement was sent was Mr Lemon. They say Mr Robb did not specifically mention the names of the two prospective purchasers to whom he had sent copies of the draft agreement, and they assumed that the second prospective purchaser was another interested party from the kiwifruit industry, Peter McBride. Mr McBride had earlier inspected the orchard with Mr Robb, but when rung independently by both Mr Robb and Mr Ross Stevenson around 12 November, had told them both that he was no longer interested.
[33] Both Mr Ross Stevenson and Mr Colin Stevenson acknowledge however that Mr Robb did mention Mr Lemon during the meeting, but say he “skated” over his interest. As noted above, Mr Lemon first contacted Mr Robb by telephone and e- mail on 1 November. Mr Robb says he had never met Mr Lemon and did not know of his association with the packhouse, MPAC. Mr Robb says that on the same day as the initial telephone and e-mail contact with Mr Lemon, he visited Mr Ross Stevenson at the orchard to tell him about the contact from Mr Lemon. Mr Robb says that Mr Ross Stevenson dismissed Mr Lemon immediately, saying he would not have the “horsepower” to buy the orchard. According to Mr Robb, Mr Ross Stevenson made it very clear to him that he would rather deal with Mr Jones, who he described as a “straight shooter”. Mr Robb says he recalls the discussion as he assumed he was bringing Mr Ross Stevenson good news, but Mr Ross Stevenson “waved Mr Lemon off immediately”. Mr Robb says they did not discuss who Mr Lemon was, or who he might have been representing.
[34] Mr Robb says he again mentioned Mr Lemon’s interest to the Stevenson brothers at their meeting with the plaintiff’s solicitor on 12 November 2012. Mr Robb says that as before Mr Ross Stevenson dismissed Mr Lemon, but confirmed he was interested in Mr Jones. Mr Robb says they did not discuss Mr Lemon further that day.
[35] Mr Ross Stevenson does not recall any mention of Mr Lemon by Mr Robb around 1 November. He says he did have a discussion about buyer interest with Mr Robb early in the week commencing 12 November. As best as he can recall, Mr Robb may have mentioned Mr Lemon in passing. Mr Ross Stevenson knew that Mr Lemon was associated with the MPAC packhouse, which was a substantial operation. He says that at no time during those conversations, early in the week commencing 12 November, did Mr Robb mention Mr Lemon as a potential purchaser or that he had on-going contact with Mr Lemon since 1 November. Mr Colin Stevenson does not recall any mention of Mr Lemon until 14 November.
[36] Although a specific finding is not required as to what was or was not said by Mr Robb to Mr Ross Stevenson and vice versa about Mr Lemon prior to the meeting on 14 November, it is unlikely that, if Mr Robb had told Mr Ross Stevenson about Mr Lemon’s interest, Mr Ross Stevenson would have dismissed Mr Lemon out of hand as not having the “horsepower” to buy the orchard. Mr Ross Stevenson knew that Mr Lemon was associated with MPAC and that the purchaser of the orchard was likely to be a packhouse, all of whom were competing to try and secure fruit for processing. Not only that, Mr Ross Stevenson had agreed with his brother that they would leave in a vendor mortgage of $1 million at the specific request of DMS, another packhouse. Finally, Mr Ross Stevenson was well aware that to achieve the best possible price for the orchard at least two competing bidders were required.
[37] As to the meeting on 14 November, both Mr Ross Stevenson and Mr Colin Stevenson say that Mr Robb confirmed that Mr Jones was the only buyer. Although they acknowledge that Mr Robb did mention Mr Lemon, they say he was portrayed by Mr Robb as an enquiry with no follow through or described as “flaky”, or words to that effect. On the other hand, Mr Robb says he told the Stevenson brothers that
Mr Lemon was one of two prospective purchasers to whom he had sent the draft agreement for sale and purchase.
[38] Whatever was said at the meeting on 14 November, it is likely that Mr Robb did not appreciate the significance of Mr Lemon’s interest in the orchard. He had no knowledge of Mr Lemon’s background or who he represented. He had not accompanied Mr Lemon when he inspected the orchard on 9 November. If he had done so, he would have learnt of Mr Lemon’s association with MPAC and realised the serious nature of his interest. On balance, I find that Mr Robb did tell the Stevenson brothers that Mr Jones was the only buyer.
[39] At 9.21 a.m., when he was still in the meeting with the Stevenson brothers, Mr Robb received a telephone call from Mr Lemon. He did not disclose to the Stevenson brothers that the call was from Mr Lemon and moved out of earshot to talk to him. Mr Lemon asked Mr Robb for a copy of the attachment which was missing from the e-mail from Zespri he had received the previous afternoon. Mr Robb interrupted him and said he was in a meeting with the Stevenson brothers sorting things out. Mr Robb told him that more complications were arising and that he would call him back. When Mr Robb returned to the meeting with the Stevenson brothers, he did not disclose to them that he had been talking to Mr Lemon. I find that surprising given that they were talking about buyer interest in the orchard. It is however explicable when considered together with the subsequent telephone call made by Mr Robb to Mr Lemon.
[40] At 9.30 a.m. the meeting commenced between the Stevenson brothers and Mr Jones and one of his partners, Ian Craig. Mr Robb was also in attendance, but did not play an active role except as interlocutor when the discussions turned to price. At the outset, the parties went through a number of issues such as the list of plant and equipment, the boundary adjustments, vendor finance, the timing of tasks up to possession date and responsibilities for aspects of orchard management. The information provided was not complete, but in accordance with his pre-conceived strategy, Mr Jones took the risk that the information with which he had been provided may turn out to be incorrect and agreed to all the terms requested by the Stevenson brothers.
[41] The discussion then turned to price and an agreement in principle was relatively quickly reached that the plaintiff would sell the orchard to Mr Jones or his nominee for $3.8 million on the basis that the plaintiff would pay the amount outstanding to Zespri for the Zespri licences of approximately $200,000 and the plaintiff would provide vendor finance of $1 million. At one stage, Mr Robb was asked by the Stevenson brothers to enquire of Mr Jones whether he could go higher. Mr Jones told Mr Robb that he could not go higher, notwithstanding that he had instructions from his partners that he could go to $4 million at the meeting without further recourse to them. Mr Robb then told the Stevenson brothers that Mr Jones could not go higher. Mr Colin Stevenson says he told Mr Robb it was a bad deal, but Mr Robb told them that there was no potential to squeeze any more money out of the purchaser. He also says that he specifically asked Mr Robb if there were any other buyers, to which Mr Robb responded no. Mr Robb denies saying that, however. The Stevenson brothers say they then reluctantly agreed to the price and shook hands with Mr Jones.
[42] Mr Jones recognised the need to urgently draft and execute a formal written agreement for the sale and purchase of the orchard. He accordingly instructed his lawyers to liaise with the plaintiff’s lawyers and prepare the documentation immediately.
[43] At 11.45 a.m., after the agreement in principle had been reached between the Stevenson brothers and Mr Jones and they had left the Wrightsons office, Mr Robb telephoned Mr Lemon. The call was unanswered and Mr Robb left a voice message. Mr Lemon returned Mr Robb’s call at 11.56 a.m. They spoke for seven minutes and
44 seconds. Mr Lemon made notes of the conversation at the time. The notes read:
Land between KKP & Transit in title - they want a title for that. House by Berry needs a title
Consents Missing for Wind Machine
Colin now raised Expectation to $5million
All put on hold –
Don’t want to pay Zespri licence fee
Now mightn’t sell it – Colin now looking at buying Ross out.
[44] At 12.20 p.m., Mr Lemon e-mailed his business partners, Mr Jan Benes and
Mr Andrew Darling:
Don’t hurry
Just spoke to real estate agent ..... and it has all turned to pus
Stevenson brothers no longer agree on wot is for sale
Furthermore Colin has increased his expectations to $5 million and is looking at buying Colin [Ross] out
Auction definitely cancelled and all on hold until Stevensons sort their internal issues out.
The e-mail is consistent with the contemporaneous note made by Mr Lemon
20 minutes earlier.
[45] In answers to questions from the Court, Mr Robb acknowledged telling Mr Lemon in the telephone conversation with him at 11.56 a.m. about the titles for the KPP block and the house site which the Stevenson brothers wanted to retain. He also acknowledged telling Mr Lemon about consents which were missing for the wind machines (also described as frost fans). He also acknowledged telling Mr Lemon that Mr Colin Stevenson had now raised the price expectation to
$5 million and that he was looking at buying Mr Ross Stevenson out. Mr Robb was unsure whether he told Mr Lemon that the Stevenson brothers did not want to pay the Zespri licence fee. Mr Robb was adamant, however, that he did not tell Mr Lemon that the Stevenson brothers now may not sell the orchard and that it was “all put on hold”. Mr Robb could not think of any reason why Mr Lemon had recorded that it was “all put on hold” and could not recall anything else in the conversation which might have lead Mr Lemon to put that comment in his contemporaneous note.
[46] I do not accept Mr Robb’s evidence that he did not tell Mr Lemon that the Stevenson brothers may not sell the orchard and that it was “all put on hold”. I found Mr Lemon to be an honest and reliable witness whose evidence was
corroborated in all material respects by contemporaneous notes and e-mails. I prefer Mr Lemon’s evidence to that of Mr Robb. Mr Robb did not make any significant contemporaneous notes. He later made entries in his diary when the allegations of false or misleading conduct were first made, but these entries were shown to be somewhat unreliable. In cross-examination by counsel for the plaintiff, Mr Robb also conceded that some statements in his brief of evidence were not entirely accurate. For example, when he said that Mr Ross Stevenson had “dismissed” Mr Lemon as a purchaser at their meeting on 12 November, Mr Robb conceded that Mr Ross Stevenson had not said anything about Mr Lemon – rather he had taken Mr Ross Stevenson’s lack of response to his advice of Mr Lemon’s interest as being dismissive.
[47] It is also significant, in my view, that Mr Robb accepted that he had deliberately chosen not to tell Mr Lemon about the agreement in principle when he spoke with him at 11.56 a.m. That is clear from the questions put to Mr Robb at the hearing:
THE COURT:
Q. Mr Robb can I ask you a question? A. Sir.
Q. You’ve indicated that a handshake deal was an agreement in principle to sell the orchard, correct?
A. Yeah, I believe so, yes.
Q. Why didn’t you tell Mr Lemon that there was an agreement in
principle to sell the orchard?
A. Um, yes that’s fair, fair enough. I – well right from the outset Sir the
– Ross Stevenson who I dealt with was not interested in Craig
Lemon and maybe I thought that we were just upsetting the apple cart but on hindsight I should of I guess.
Q. Yes. So did you deliberately choose not to tell Mr Lemon about the agreement in principle?
A. Probably yes, yes. You could take it that way, yes.
[48] I have no doubt that, if Mr Robb had told Mr Lemon of the agreement in principle in the telephone conversation with him at 11.56 a.m., Mr Lemon would
have immediately sought to make a competing offer to purchase the orchard. He had met with his partners four days beforehand, on Saturday, 10 November, and they had agreed at that stage to make a formal offer to purchase the orchard prior to auction. Both parties agree that the handshake deal or agreement in principle was not legally binding and there was a window of opportunity for a competing offer to be made prior to the execution of a formal written agreement for the sale and purchase of the orchard.
Events after 14 November 2012
[49] An agreement for the sale and purchase of the orchard was drafted urgently by the lawyers separately acting for the plaintiff and Mr Jones. It contained six pages of terms of sale additional to the standard form agreement for sale and purchase of real estate approved by the Real Estate Institute of New Zealand and the Auckland District Law Society. Clause 23.0 specifically stated that the agreement was not binding on the plaintiff until actually signed by the plaintiff or its duly authorised attorney. As to the plant and equipment to be included in the sale, Clause
30.0 merely stated:
The parties acknowledge the following plant and equipment are included in the sale: [to be determined as part of the due diligence process under clause
18].
[50] The agreement as drafted included a due diligence clause, which stated that the agreement was conditional upon the purchaser undertaking a due diligence investigation of the property within seven days. The due diligence clause was for the sole benefit of the purchaser.
[51] The written agreement for sale and purchase was signed by both parties at the offices of Mr Jones’ solicitors at around 4.30 p.m. on 15 November. At the time, Mr Colin Stevenson wanted to add one minor clarification to one of the terms of sale. This was handwritten in the agreement before the agreement was signed. It then became legally binding.
[52] The very next day, 16 November, which was the day originally scheduled for the auction, Mr Lemon was telephoned by one of his partners, Mr Benes, who told
him he had heard rumours about the orchard and asked him to find out what was happening. Mr Lemon then telephoned Mr Robb. The call was not answered and Mr Lemon left a message asking Mr Robb to ring him. Mr Robb telephoned him back. Again, Mr Lemon made a contemporaneous note of his telephone conversation with Mr Robb. Mr Robb told him that there were three parties that had made verbal offers prior to the cancellation of the auction. Mr Lemon recorded that he was initially told by Mr Robb that there was a chance that a party was talking to the Stevenson brothers. Mr Lemon says that when he pressed Mr Robb, Mr Robb told him that:
They are talking to a party who made an offer. In negotiations yesterday [15 November].
[53] When Mr Lemon asked who it was, Mr Robb said he could not tell him who it was. This made Mr Lemon very uneasy and he brought the call to an end. He then decided to ring the Stevenson brothers directly. Again, Mr Robb deliberately chose not to tell Mr Lemon about the agreement reached between the Stevenson brothers and Mr Jones.
[54] Mr Lemon had a number of telephone conversations with Mr Ross Stevenson and Mr Colin Stevenson that day. Again, he made contemporaneous notes of his telephone conversations. Mr Lemon has recorded that the Stevenson brothers said:21
Told only one offer and best to take it.
…
Told there was no other bidders.
…
Asked Stan is there anybody else.
Told “no” DMS are the only one left.
[55] Mr Lemon says that Mr Colin Stevenson told him that they were not aware that he was interested. He has also recorded an answer he gave to a question from Mr Colin Stevenson about what he would have paid for the orchard.
21 This note, made only two days after 14 November, supports the evidence given by the Stevenson brothers that Mr Robb told them on that day that Mr Jones was the only buyer.
I said we would have gone to 4 – 4.5 million.
[56] The upshot of the various telephone conversations was that it was agreed that Mr Lemon would present a competing offer for the orchard in case Mr Jones utilised the due diligence clause in the contract signed the day before and chose not to proceed with settlement of the sale. At some stage on 16 November, the Stevenson brothers disclosed the sale price of the orchard to Mr Lemon. The Stevenson brothers told Mr Lemon that they wanted Mr Lemon’s offer to be at least $3.8 million with the purchaser paying the outstanding licence fees to Zespri of approximately $200,000.
[57] After working over the weekend and instructing his own solicitors to prepare a draft agreement for sale and purchase, Mr Lemon forwarded an offer to purchase the orchard, which he had signed, to Mr Ross Stevenson on Monday, 19 November. The offer was for $3.8 million plus the unpaid Zespri licence fees up to a maximum of $200,000. The Stevenson brothers had also provided Mr Lemon with more information over the weekend so that, unlike the agreement signed by Mr Jones, the agreement signed by Mr Lemon contained a comprehensive list of plant and equipment, which was valued at $1,797,324.
[58] Mr Lemon was unable to proceed with his offer, which was withdrawn because Mr Jones declared his agreement unconditional, and the plaintiff was legally bound to proceed with settlement of the sale to Mr Jones. Mr Lemon subsequently made a complaint about Mr Robb to the Real Estate Agents Authority.
Discussion
[59] It is clear to me that Mr Robb misled Mr Lemon on 14 November when he chose not to tell him that Mr Jones and the Stevenson brothers had reached an agreement in principle. Mr Robb said that all was “put on hold”, and his decision to not inform Mr Lemon of the agreement gave the misleading impression that there was no need to hurry in making an offer for the orchard. Although this was conduct
directed at Mr Lemon, s 9 of the Fair Trading Act does not require the plaintiff to be the party that is misled or deceived.22
[60] I regret that I have to make this finding as Mr Robb is a man of good character, but I have reached the view that, on this occasion, he committed a regrettable lapse of judgement. He engaged in conduct that was misleading or deceptive by deliberately choosing not to tell Mr Lemon about the agreement in principle for fear of “upsetting the apple cart”. Mr Robb had reached the erroneous view that Mr Ross Stevenson was not interested in negotiating with Mr Lemon and thought that if he told Mr Lemon about the agreement in principle it might in some way cause difficulty with the deal with Mr Jones. Mr Robb may genuinely have believed that a sale to Mr Jones at $3.8 million was the best deal that could be achieved, but it was not. Mr Jones had been authorised by his partners to offer up to
$4 million at the initial meeting with the Stevenson brothers. If there was a competing offer, Mr Jones and his partners may well have offered more. Mr Lemon thought that a successful bidder at auction may have to pay up to $5 million for the orchard. He too was keen to make an offer before the auction. He was denied that opportunity by Mr Robb deliberately choosing to mislead him that the sale was all put on hold.
[61] The question could be asked what motivation did Mr Robb have for misleading Mr Lemon, as the commission payable to him would have increased if the orchard sold for a higher price. Part of the answer I think lies in a subconscious bias on the part of Mr Robb in favour of Mr Jones. He had a very good relationship with Mr Jones and had done “lots and lots of work” for him and his associates. On the other hand, he had never met Mr Lemon nor did he know of his association with MPAC. Another factor was that, over the years Mr Robb had marketed and sold hundreds of kiwifruit orchards, but Psa had had a devastating impact on the industry and sales had slumped. This was the first major sale in almost two years and Mr Robb was obviously keen to successfully complete a deal. In his own words, he did not want to upset the apple cart, but acknowledges now that he should have told
Mr Lemon of the agreement in principle. I am satisfied that if he had done so the
22 Red Eagle Corporate Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
Stevenson brothers would not have sold the orchard to Mr Jones at the agreed price and would have instead sold it at market value.
[62] Having made that finding it is not necessary to make a detailed finding on whether or not Mr Robb misled the Stevenson brothers by not disclosing to them Mr Lemon’s continued interest in the orchard. I note it is likely Mr Robb did not appreciate the significance of Mr Lemon’s interest. It is also likely that it was Mr Robb’s opinion that Mr Jones was the only buyer, and this opinion was honestly held. However, that opinion was expressed as a statement of fact by Mr Robb when he told the Stevenson brothers that Mr Jones was the only buyer at the meeting on
14 November. Ultimately it was not open to Mr Robb to mislead Mr Lemon and fail to disclose his interest in order to avoid upsetting the deal with Mr Jones. His failure to do so misled the Stevenson brothers into believing that Mr Jones was the only buyer of the orchard.
[63] It is less clear whether Mr Robb breached his fiduciary obligation as the plaintiff’s agent. There is no evidence suggesting collusion between Mr Robb and Mr Jones that would put Mr Robb in a position of conflict. Nor did Mr Robb gain a profit from his actions, and in fact would normally have made a loss by securing a smaller commission than that he would have received by achieving a better sale price for the orchard. At least at first glance Mr Robb did not breach the no-profit and no- conflict rules. The question is whether Mr Robb breached his obligation of good faith.
[64] There is little guidance on what constitutes a breach of good faith. Good faith is sometimes equated with candour, or the honesty with which one holds a belief. Although honesty is an important element, the obligation is to act in good faith – in other words, to act with the right motive.23 In the context of a contractual relationship the proper motive is to be ascertained in light of the contract and the role undertaken by the fiduciary. It will usually take the form of an obligation to act in the interests of the principal. Typically a fiduciary will act in bad faith if he or she
acts in a way he or she knows will harm the interests of the principal, if the interests
23 Lionel Smith “The Motive, Not the Deed” in Joshua Getzler (ed) Rationalizing Property, Equity and Trusts (LexisNexis UK, London, 2003) 53 at 103.
are those which he or she has undertaken to protect.24 It is possible that a fiduciary will be found to have acted in bad faith even if he or she acts unaware of the harm, if it is an action no fiduciary with an understanding of their role and the duties that attach to it could have reasonably done. In either event the duty to act in good faith is said to be but part of the wider obligation of loyalty that is assumed by those who wield power over the interests of another in a legal or practical sense.
[65] There is some doubt, however, over whether the duty to act in good faith is truly a fiduciary duty. The fiduciary obligations to not profit or not enter into a position of conflict are proscriptive, prohibiting certain types of conduct. They are not positive obligations as those found in contract or tort. As Tipping J states in Chirnside v Fay, the principal is entitled to rely on the fiduciary not to act in a way
that is contrary to the principal’s interests.25 It is, in other words, an obligation
defined negatively.
[66] In absence of full argument on the point and for the reasons that follow it is not necessary to determine whether the obligation of good faith is a true fiduciary obligation. However, I express the view that a failure to act in good faith is best conceived not as an independent obligation but as credible evidence that the no- profit or no-conflict rules have been contravened. The no-profit and no-conflict rules uniquely apply to fiduciaries, while obligations to act in the best interests of
another or to act in good faith are not.26 This limited conception makes clear the
division of labour in private law between fiduciary obligation, contract and tort. It also fits well with the prophylactic rationale of fiduciary law, being to prevent self- interested activity by those who are obliged to subrogate their own interests in favour of others. That approach also fits with the remedies that follow breach and the lack of an honest motive defence to liability for breach.27 Although a positive obligation to disclose a set of facts may arise, as Darryn Jensen points out that obligation
ultimately derives from the no-conflict rule because it will only arise if the fiduciary
24 Richard Nolan and Matthew Conaglen “Good faith: what does it mean for fiduciaries, and
what does it tell us about them?” in Elise Bant and Matthew Harding (eds) Exploring Private
Law (Cambridge University Press, Cambridge, 2010) 319 at 332-334.
25 Chirnside v Fay, above n 6 at [80].
26 Breen v Williams (1986) 186 CLR 71 (HCA) at 137-138.
27 Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 (HL) at 386.
enters a position of conflict that must be disclosed to the principal in order for the fiduciary to obtain informed consent.28
[67] Either way I am satisfied that Mr Robb breached his duty of loyalty as the plaintiff’s agent. As I have stated Mr Robb had a subconscious bias towards Mr Jones that materially affected his judgment over the significance of Mr Lemon’s interest. Mr Robb actively misled Mr Lemon for little reason. To my mind that is probative evidence that Mr Robb had an undue preference for Mr Jones that did not align with his client’s interests. Although it was not an overt conflict I consider Mr Robb’s partiality is sufficient to find that Mr Robb acted in breach of his duty of loyalty in a manner that went beyond mere carelessness on his part.
[68] In the alternative I would hesitate to find that Mr Robb did not act in good faith, if that was considered to be an independent fiduciary obligation. He misled Mr Lemon while acting in his capacity as the plaintiff’s agent. It was dishonest for Mr Robb to do so. However it is clear that Mr Robb had no intention to harm the plaintiff’s interests, and likely thought he was saving the Stevenson brothers the trouble of dealing with Mr Lemon. He acted with the right motive. It could be said that Mr Robb should have known that there was a risk his actions could harm his client’s interests, but in my mind it is wrong to construct or impute bad faith from what is best seen as a regrettable lapse of judgment.
Measure of damages
[69] Having established that Mr Robb engaged in misleading or deceptive conduct and breached his fiduciary duty to the plaintiff, the question arises as to the measure of damages. As noted above, s 43 of the Fair Trading Act enables the Court to order the defendant to pay to the plaintiff the amount of the loss or damage. Where a breach of fiduciary duty is established the Court can also order the defendant to pay damages which are necessary to make good any loss. Where a breach of fiduciary duty has affected the price at which a property is sold, the normal measure of loss is
the difference between the sale price and the market value.29
28 Darryn Jensen “Prescription and Proscription in Fiduciary Obligations” (2010) 21 KLJ 333 at
344.
29 Stevens v Premium Real Estate Ltd, above n 7 at [85].
[70] However, a fiduciary is afforded a limited opportunity of showing that all or some of the loss would have occurred in any event even if full disclosure had been made.30 In the present case, the defendants submit that the plaintiff would have sold the orchard for less than market value even if Mr Robb had disclosed the existence of the agreement in principle and Mr Lemon had submitted a competing offer to that of Mr Jones. If a competitive bidding scenario had occurred, the defendants submit that it is likely that the plaintiff would have accepted the offer from Mr Lemon at
$4 million and would not have achieved a sale at the then current market value, which the defendants acknowledge was at least $4,350,000.
[71] I accept that the plaintiff would, in any event, have sold the orchard. The plaintiff would not have reappraised the situation and decided to keep the property thereby retaining an asset worth market value. Mr Ross Stevenson gave evidence that he wanted to de-risk and diversify his interests in kiwifruit. Furthermore, he saw good opportunities elsewhere in the kiwifruit industry internationally, which he has subsequently taken up. Mr Colin Stevenson also acknowledged that they were genuine sellers and were “there for the purposes of getting it sold”.
[72] The defendants submit that although Mr Ross Stevenson entered an appraised price of $5 million on the listing agreement, the plaintiff did not obtain a valuation and was prepared to sell for significantly less that $5 million, having reached an agreement with Mr Jones at $3.8 million. The plaintiff never counter-offered above
$3.8 million despite the Stevenson brothers wanting as much as they could get for the property.
[73] The defendants submit that if a competitive bidding scenario had occurred it was likely that the plaintiff would not have achieved a sale at the current market value because of the plaintiff’s attitude, the market, the history of the sale and the objective indications of what the market was likely to produce. Mr Jones was not authorised to go beyond $4 million and would have no further interest in the orchard if it could not be secured for that sum. The offer of $4 million from Mr Lemon was
therefore the best the plaintiff could have expected to achieve. The defendants
30 Ibid.
submit that the plaintiff would have accepted that offer, which was acceptable to them and at a level which they had advised Mr Lemon they wanted.
[74] It is my view however that the defendants have not discharged the onus on them to show that all or some of the loss would have occurred in any event even if full disclosure had been made. First, it was always the strategy of the Stevenson brothers to obtain at least two competing bids for the orchard. They knew that price is a function of supply and demand. The orchard was unique in terms of its size and infrastructure and because of the 30 hectares planted in the G3 variety, which was seen as the way forward through the Psa crisis. In 2012 packhouses were facing shortages of kiwifruit and the purchase of orchards by them was one way of securing future supply. If two packhouses wanted the orchard, the price to be paid for its acquisition would be in the higher end of the possible range.
[75] Secondly, Mr Lemon confirmed that he would have been prepared to pay
$5 million for the orchard. His offer of, in effect, $4 million on 19 November was made only after he had been advised by the Stevenson brothers of the legally binding agreement entered into on 15 November to sell the orchard to Mr Jones for
$3.8 million. If the agreement with Mr Jones was not legally binding, then
Mr Lemon’s offer could be viewed as his opening offer.
[76] Thirdly, although Mr Jones says that he was only authorised to go to $4 million at the meeting with the Stevenson brothers on 14 November, he may well have sought authority from his partners to go higher if there was a competing offer. As it was, Mr Jones received more offers of investment in the partnership he formed to purchase the orchard than he needed and had to turn investors away and reduce their individual level of investment. In a newsletter to DMS clients in December
2012, Mr Jones is quoted as saying:
We are delighted to have been given the chance to buy such a high quality, large scale property. This represents a unique opportunity to explore the potential of the new Zespri varieties at an entry price that we believe represents exceptional value.
Mr Jones cannot be blamed for adopting the negotiating tactics that he did. He certainly believed that he got a bargain.
[77] The proper measure of damages is therefore the difference between the sale price less the commission paid and the market value less the commission which would have been paid had the orchard sold for market value.
Market value
[78] There are two competing valuations of the orchard as at 15 November 2012. The plaintiff called Bruce Fisher. The defendants called John Middleton. Both valuers are appropriately qualified. Mr Fisher valued the orchard at $4,945,000, over $1.1 million more than the sale price. Mr Middleton valued the orchard at
$4,350,000, over $500,000 more than the sale price.
[79] When the dispute about the sale of the orchard arose in November 2012, Mr Ross Stevenson asked the orchard manager, Mr Harrison, himself a former valuer, to arrange for Mr Middleton to complete a valuation report on the orchard. The plaintiff had previously engaged Mr Middleton to prepare a valuation report when part of the orchard was acquired by Transit New Zealand for a new road.
[80] Mr Harrison contacted Mr Middleton and asked him to come to the orchard to prepare an urgent valuation. Mr Middleton’s car was being serviced at a dealership on Hewletts Road, Mt Maunganui, so Mr Harrison agreed to pick Mr Middleton up from there and take him out to the orchard, which he did. During the drive, Mr Harrison told Mr Middleton that the orchard was being sold and that Mr Ross Stevenson was unhappy with the sale price. Mr Middleton expressed immediate concern about whether he could do the job. There was further discussion between the two men after they arrived at the orchard and went into the office with Mr Ross Stevenson. Mr Harrison recalls Mr Middleton stating at some point that he could not do the job because of Mr Robb’s involvement. Mr Middleton said words to the effect that if he undertook a valuation for the plaintiff this would compromise any future working relationship with Mr Robb. Mr Harrison knew that Mr Robb was an important source of information for rural valuers, so Mr Middleton’s position did not surprise Mr Harrison. Mr Middleton confirmed he was not prepared to do the valuation. Mr Ross Stevenson then asked Mr Harrison to suggest another valuer.
Mr Harrison contacted Mr Fisher and took him out to the orchard on the afternoon of the same day.
[81] When questioned about the refusal to accept instructions from Mr Ross Stevenson, Mr Middleton said it was important for him to maintain lines of communication with Mr Robb. He said valuers got statistics in terms of sale price, but did not get statistics in terms of production details etc through their data base so it was important to maintain an information flow from real estate agents. He gave an example of giving evidence against a real estate agent 20 years ago. He said he naively thought that it was just on a professional basis, but as a consequence that agent, even to this day, had shut him out from any information in the Katikati region. Even the real estate agent’s staff would not communicate with him so Mr Middleton said he was not prepared to go down that line.
[82] While the plaintiff’s counsel submitted that Mr Middleton was demonstrably not impartial, I am of the view that Mr Middleton’s evidence was not tainted by his initial refusal of instructions from the plaintiff. He gave evidence honestly in accordance with his professional responsibilities. However, as a professional valuer it is important that Mr Middleton recognises that he should not only be impartial, but should also be seen as impartial. In refusing instructions from the plaintiff on the basis that he did not want to get off-side with Mr Robb and later accepting instructions from the defendants, an objective bystander may question whether Mr Middleton had acted consistently with his duties of independence and
impartiality.31
[83] The issue in the present case therefore comes down to whether Mr Middleton’s methodology is more reliable in this particular instance than that of Mr Fisher. I find that in this particular instance, it is not, and that Mr Fisher’s methodology is to be preferred.
[84] Mr Fisher valued the orchard based on an analysis of:
(a) The bare land value, including shelter.
31 Real Estate Institute of New Zealand Code of Ethics, r 1.7(d).
(b) The value of the non-orchard related improvements.
(c) The value of the orchard improvements, being the value of the pergolas and vines not including the underlying land.
(d)The value of the kiwifruit improvements with the underlying productive land utilised in the orchard, including headlands and sidelands, stated as a combined value per canopy hectare.
[85] Mr Fisher considered recent sales, particularly to assess the value of orchard improvements and undertook the same analysis. The Psa environment was a difficult environment and Mr Fisher did not give weight to forced sales. Mr Fisher recognised that all the comparison sales he used were for small, less than average sized kiwifruit orchards and did not reflect the size and scope of the subject orchard, which in relation to capital expenditure had a higher risk value.
[86] Mr Middleton considered that an analysis of recent sales should take factors other than production, such as size and fruit taste, into account as these were important in the makeup of orchard gate returns. He therefore developed more of a productivity approach to the valuation, rather than what he called the “straight” analysis Mr Fisher had done.
[87] Mr Middleton valued the orchard based on an analysis of: (a) The value of the bare planted land or plantable land.
(b)The value of three certificates of title that made up the orchard and an existing consent for additional two titles, which provided flexibility to either boundary adjust or sell one or more lots rather than having to sell the whole.
(c) The value of the buildings.
(d)The value of the orchard development, which included shelter, vines, structures, irrigation, frost protection and licences.
[88] The major difference between the two valuations is in the value ascribed to the different varieties of kiwifruit grown in the orchard. This was described by Mr Fisher as the kiwifruit improvements or component and as the orchard
development by Mr Middleton. The values ascribed per canopy hectare were:
Fisher Middleton
Hayward (mature) $70,000 $58,000 G14 (2010 graft) $30,000 $24,000 G14 (2012 graft) $20,000 $7,000 G3 (2012 graft) $55,000 $22,000 Bruno rootstock $5,000 $7,000
[89] With the exception of the value ascribed to the Bruno rootstock, the values ascribed by Mr Fisher are more than those ascribed by Mr Middleton. The value of the kiwifruit component was assessed by Mr Fisher to be $2,177,000. The value of the orchard development was assessed by Mr Middleton to be $949,000.
[90] Their difference in approach can be illustrated by their analysis of a sale of a kiwifruit orchard in Black Road, Paengaroa in July 2012. It comprised 4.92 canopy hectares of Hayward and 1.07 hectares of Hort 16A, which was to be grafted with G3. The only building on the orchard was an implement shed. The average three year production from the Hayward vines was 10,819 trays per canopy hectare. The sale price was $920,000.
[91] Mr Fisher assessed the bare land value at $505,000, comprising 4.87 hectares at $45,000 per hectare and $150,000 for an undeveloped rural residential site. He then assessed the value of the implement shed at $25,000. That left $390,000 as being the value of the kiwifruit component. The mature Hayward vines were obviously more valuable than the Hort 16A vines, which had been badly affected by Psa and which were to be regrafted. Mr Fisher therefore ascribed a value of $70,000 per canopy hectare to the Hayward vines and $43,000 per canopy hectare to the rootstock to be regrafted with G3.
[92] Mr Middleton produced two different analyses of the sale of the Black Road property. In November 2012 when Mr Fisher was undertaking his valuation of the orchard, Mr Middleton supplied him with an analysis which ascribed a value of
$33,000 per canopy hectare to the rootstock to be regrafted with G3. Yet when he was doing his own valuation over 18 months later, just prior to trial, he ascribed a value of just $20,000 per canopy hectare. On the other hand, his valuation of the Hayward variety increased from $81,000 to $84,000 per canopy hectare. This appears to have occurred because of Mr Middleton’s use of different capitalisation rates (or multipliers of the orchard gate returns), which was 45 per cent in the first analysis and 60 per cent in the second analysis for the G3 variety.
[93] I prefer the straight analysis of Mr Fisher. There are, in my view, too many assumptions and little or no explanation for the difference in multipliers or discount rates in Mr Middleton’s approach. As an example, Mr Middleton noted that, according to a Zespri publication dated 31 October 2012, the orchard gate returns were predicted to be $4.18 per tray for Hayward and $10.08 per tray for G3. However, he did not accept these predictions, which he thought were too optimistic so used values of $4.00 per tray for Hayward and $8.00 per tray for G3 on the basis that as industry volumes increased, the returns per tray would decrease.
[94] There is, however, no analysis of how Mr Middleton arrived at the figure of
20 per cent as being the appropriate discount on the predicted returns for G3. Mr Middleton has discounted the G3 variety much more heavily than the Hayward variety which has impacted disproportionately on his valuation of the orchard because there were 30 hectares of G3 on the orchard compared to only three and a half hectares of Hayward.
[95] Then a small change in the capitalisation rate such as alteration of the rate from 45 per cent to 60 per cent in the two different analyses of the sale of the Black Road property can have dramatic results. Mr Middleton acknowledged that the use of the 60 per cent capitalisation rate was arbitrary because he had “really got no strong evidence” and that he had “no option but to make some sort of decision on what he believed the Golds were at the time under those conditions”.
[96] Furthermore, there is no analysis of how Mr Middleton arrived at a figure of
60 per cent as being the appropriate discount for the age of the G3 grafts on the orchard. It appears that Mr Middleton assumed that the newly grafted G3 vines would take three years to reach full production, whereas it appears that the G3 vines were double planted. A witness at trial gave evidence that double planting results in a two thirds crop in the first year and close to full production in year two.
[97] I am of the view that Mr Middleton’s approach has some merit, but its weakness is clearly its lack of rigorous analysis to support the various multipliers and discount rates used. Any small change to the various multipliers and discount rates can have dramatic results.
[98] To summarise Mr Middleton’s approach to the value of the G3 vines on the orchard, he adopted an orchard gate return of $8.00 per tray (compare Zespri’s predicted return of $10.08 per tray) and assumed production of 12,000 trays per hectare. He then adopted a capitalisation rate of 60 per cent or multiplier of 1.67 (compare 45 per cent or multiplier of 2.22, which he had earlier adopted for an analysis of the Black Road property at the time of the orchard sale) to arrive at a value of $160,000 per hectare (inclusive of land). He then adopted $150,000 per hectare, which became $95,000 to $105,000, exclusive of land. The lower figure of
$95,000 was then substantially discounted to reach a final figure of $22,000 per canopy hectare. This apparently includes a discount of 60 per cent for the age of the grafts, but the further substantial discounts are not fully explained.
[99] If Mr Middleton had adopted a value of $33,000 per canopy hectare for G3 (as he had done in his first analysis of the sale of the Black Road property) rather than $22,000, his overall valuation of the orchard would have increased by $330,000 (30 ha x $11,000) to $4,680,000 or only $265,000 below that of Mr Fisher.
[100] In all the circumstances, I prefer Mr Fisher’s valuation.
[101] Having analysed the two competing valuations, it is important to stand back and look at the broad picture to check the analysis. First, Mr Middleton valued the
orchard development at $949,000. This figure included the value of the shelter, vines, structures, irrigation, frost protection and licences.
[102] This can be compared to the total value of the plant and equipment included in the sale which was specified as $1,797,324 in the offer submitted by Mr Lemon on 19 November 2012. Three of the components specified as being included in the orchard development value by Mr Middleton were together valued at over $1 million in Mr Lemon’s offer (namely structures $376,000; irrigation (without ponds)
$406,000; and frost protection (6 wind machines) $226,000). Mr Middleton acknowledged that, after assessing the value of the vines on a per canopy hectare basis, there was “very little added value” for the orchard improvements. In fact, there was virtually none. Mr Middleton took the view that cost does not necessarily equate to value, but in my view a prospective purchaser would ascribe a considerable amount of value to the well developed infrastructure of the orchard. It was a high quality property.
[103] On the other hand, Mr Fisher separated the orchard improvements from the kiwifruit component and conservatively ascribed a total value of $360,000 to those improvements. This can be compared to the value in excess of $1 million ascribed to just the structures, irrigation and frost protection in the list of plant and equipment in Mr Lemon’s offer.
[104] Although I can understand Mr Middleton’s opinion that the value of such infrastructure is reflected in the added benefits of the infrastructure not only to production but also the reduction in risk, I do not think a prospective purchaser would view it in quite the same way. Even if Psa had wiped out all of the orchard’s vines, there must be some residual value in the well developed infrastructure and Mr Fisher’s valuation of $360,000 is certainly not excessive. The cost of replacement of that infrastructure would be considerably more. I therefore see merit in ascribing a separate value to the infrastructure, as Mr Fisher has done.
[105] Secondly, the rating valuations of the three certificates of title as at 1 July
2011 valued the bare land at $2,360,000. This accords closely with Mr Fisher’s
valuation of $2,140,000 (60.2548 ha @ $35,000 ha and 5.7 ha @ $5,000 ha) for the
bare land plus $150,000 for a rural residential site, which totals $2,290,000. On the other hand, Mr Middleton’s value of $3,100,000, which includes $350,000 for the value of the three certificates of title that make up the orchard and an existing consent for an additional two titles, seems out of kilter.
[106] Thirdly, the prospective purchasers made their own assessment of value. Mr Jones said that they were not scientific about valuing the orchard, but that they agreed that there should be a worthwhile opportunity for financial upside if they could obtain it for around bare land value, which they estimated to be around
$3.7 million. This is, however, considerably more than the value ascribed to the bare land by either valuer. Although cross-examination of Mr Jones on his valuation of the orchard was limited, it could be argued that $3.7 million represented the value of the orchard to Mr Jones without the kiwifruit component, but taking into account the value of the orchard buildings, other infrastructure and Zespri licences etc.
[107] Mr Lemon confirmed that he would have been prepared to bid up to
$5 million for the orchard. When he told the Stevenson brothers on 16 November that he would have gone to $4 million - $4.5 million, that obviously would have been an opening bid. Both Mr Young and Mr Lemon had decided to make an offer prior to auction in order to obtain the best price possible. The fact that Mr Jones thought the bare land value was around $3.7 million and Mr Lemon was prepared to bid up to $5 million, supports the higher of the two valuations.
Commission
[108] The agreed commission of $88,000 on the sale of the orchard has not been paid. Wrightsons seek an order that it should be paid. The plaintiff submits that Wrightsons is not entitled to any commission as Mr Robb engaged in conduct that was misleading or deceptive and breached his duty of loyalty to the plaintiff.
[109] In Premium Real Estate Ltd v Stevens the Supreme Court held that the commission paid in that case was forfeit because it had not been earned by good
faith performance in relation to a completed transaction.32 At [89], Blanchard J cited the following statement by Atkin LJ in Keppell v Wheeler:33
Now I am quite clear that if an agent in the course of his employment has been proved to be guilty of some breach of fiduciary duty, in practically every case he would forfeit any right to remuneration at all. That seems to me to be well established. On the other hand, there may well be breaches of duty which do not go to the whole contract, and which would not prevent the agent from recovering his remuneration; and as in this case it is found that the agents acted in good faith, and as the transaction was completed and the appellant has had the benefit of it, he must pay the commission.
[110] The following policy is said to justify the rule:34
The policy reason runs as follows. We are here concerned not with merely damages such as those for a tort or breach of contract but with what the remedy should be when the agent has betrayed the trust reposed in him – notions of equity and conscience are brought into play. Necessarily such a betrayal may not come to light. If all the agent has to pay if and when he is found out are damages the temptation to betray the trust reposed in him is all the greater. So the strict rule is there as a real deterrent to betrayal. As Scrutton LJ said in Rhodes at p.28, “The more that principle is enforced, the better for the honesty of commercial transactions.”
[111] There is some resemblance between the law’s approach to determining whether to allow a commission to an errant fiduciary and the manner in which it approaches the provision of an equitable allowance. In both cases the broad question is whether the fiduciary is entitled to remuneration for services rendered to the
principal, and whether the fiduciary acted in good or bad faith.35
[112] In this case Wrightsons submits that if a breach of fiduciary duty is found by the Court then the Court can find that Mr Robb acted in good faith and, as the sale of the orchard was completed and the plaintiff has had the benefit of it, the plaintiff ought to pay commission.
[113] Although I have not specifically found that Mr Robb acted in bad faith, I am satisfied that this is not a case where Mr Robb acted throughout in good faith as the English Court of Appeal found in Keppel v Wheeler. Mr Robb acknowledges that he
deliberately mislead a prospective purchaser by omitting to tell him that the plaintiff
32 Stevens v Premium Real Estate Ltd, above n 7 at [94].
33 Keppell v Wheeler, above n 18 at 592.
34 Imageview Management Ltd v Jack [2009] EWCA Civ 63 at [50].
35 Chirnside v Fay, above n 6 at [38], [40].
had agreed in principle to sell the orchard. Rather, he told the prospective purchaser that the sale was all on hold. This advice seriously disadvantaged the plaintiff. In those circumstances, Wrightsons is not entitled to the commission.
Result
[114] Both parties agree that if the Court finds that the correct measure of damages is the difference between the market value of the orchard and the sale price, then the appropriate comparison is the two prices, net of commission.
[115] Accordingly, there will be judgment in favour of the plaintiff against the defendants, jointly and severally, in the sum of $1,101,375.00, calculated as follows:
Market value $4,945,000 (Mr Fisher’s valuation)
Less commission $131,625
Subtotal $4,813,375
Sale price $3,800,000
Less commission $88,000
Subtotal $3,712,000
Difference $1,101,375
[116] Interest is also payable by the defendants to the plaintiff from the date of settlement of the sale of the orchard on 5 December 2012 to the date of judgment at the Judicature Act rate of 5 per cent (a daily rate of $150.94).
[117] Wrightsons are not entitled to any commission. Their counter-claim for the commission is therefore dismissed.
[118] Costs are payable by the defendants to the plaintiff on a 2B basis.
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Woolford J
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