Westerman Realty Ltd v McKinstry HC Auckland CIV 2007-463-000075

[2007] NZHC 1883

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2007-463-000075

BETWEEN  WESTERMAN REALTY LTD Appellant

AND  DOUGLAS MCKINSTRY AND GILL MCKINSTRY

Respondents

Hearing:         1 June 2007

Appearances: P Napier for Appellant

S Opai for Respondents

Judgment:      20 June 2007

JUDGMENT OF FOGARTY J

[1]      The appellant real estate agent was employed by the respondents as vendors of a farm property.   The property was sold by auction.   Prior to the auction the appellant and the respondent agreed that the appellant would sell the property “plus GST”.  By that it was understood that the bids would be exclusive of GST, the latter sum then being calculated and added to the consideration in the ensuing contract for sale and purchase.

[2]      The particulars and conditions of the auction  made available to  potential bidders contained these clauses:

1.4     All bids shall be inclusive of GST.

1.5     All bids shall be plus GST (if any) unless otherwise stated.

[3]      Read together, cl 1.4 can be seen as trumping cl 1.5.  The highest bid at the auction was $1.1  million.    At  the conclusion of the auction a  memorandum of

WESTERMAN REALTY LTD  V MCKINSTRY HC ROT CIV 2007-463-000075  20 June 2007

contract was prepared and signed by the appellant on behalf of the respondents.  That document stated:

Purchase Price:        $1,100,000        Plus GST (if any)

[4]      It is common ground that the amount of GST is $87,500.   The purchaser settled the contract without prejudice to the GST issue.  The respondent vendors and the purchaser then placed the issue as to the binding terms of contract in proceedings commenced and decided in the District Court.   In a judgment by Judge McGuire dated 2 June 2005 the Court found that there was no oral representation by the auctioneer to GST, leaving the particulars and conditions of sale of the auction to determine the relevant term of the contract.  So that when cl 1.4 and cl 1.5 are read together then plainly the sale is inclusive of GST.  The judgment went on to examine whether or not the respondent vendors were entitled to relief under the Contractual Mistakes Act 1977.  As part of that analysis the Judge examined whether or not the plaintiffs could show on the probabilities that:

(a)      The mistake influenced their decision to enter the contract and;

(b)      The mistake resulted at the time of the contract in a substantial and unequal exchange of values.

[5]      Having  analysed the financial implications of a sale inclusive or exclusive of

GST the Judge concluded that the price had been a fair one on the day and at about

1.15% short of what the vendors wanted so that on the probabilities they would have entered the contract had the state of affairs been known.  He then went on to say that there was no substantial unequal exchange of values as for the purpose of that test the difference was 7.67 - 7.95% and so below the rough benchmark of 10 - 15% difference in value.

[6]      On 1 June 2006 the respondent vendors brought these proceedings against the appellant real estate agent seeking a judgment of $87,500 being the GST component that they had been unable to recover from the purchaser.  Prior to the proceedings the appellant had paid to the respondents the sum of $39,937.50 being a refund of the commission charged on the sale as a “goodwill gesture”, without any admission of liability.   The respondents,  as plaintiffs,  applied  for  summary  judgment.   Judge Cooper awarded summary judgment on the basis that the defendant was in breach of

contract to conduct the auction and sell the plaintiffs’ property plus GST causing a loss of $87,500 being the GST the vendors had to pay.    The Judge deducted from that sum the goodwill gesture payment already received giving judgment in the sum of $49,063.50 plus interest and costs.

[7]      The real estate agent appeals against that judgment.  There is a cross appeal by the vendors against  a finding  in the summary judgment that the bid of $1.1 million GST inclusive was the most that the McKinstrys were going to get at a public auction that  day.    This  is because  in the  course of the  reasoning  in  the litigation between respondent vendors and the purchaser Judge McGuire had made that finding of fact.   In the summary judgment decision the Judge found an issue estoppel arose, notwithstanding that the appellant  was not  a party to  the earlier proceedings.

The relevant reasoning of the judgment under appeal

[8]      The relevant reasoning of the judgment of Judge Cooper is reasonably short and can be set out in full:

DISCUSSION AND CONCLUSIONS

[19]      I accept that the Sintons bid of $1.1 million inclusive of GST was the most that the plaintiffs were going to get “at a public auction that day” (my emphasis).  This is an issue which was fully explored in evidence and the subject of a ruling against the plaintiffs in the proceedings McKintry v Sinton. An issue estoppel does arise in respect of this particular issue. It is also a reasonable inference for me to draw on the evidence in the present proceedings.

[20]      However, that is not the end of the matter. I respectfully differ in part from the approach taken by Judge Thomas in Bjerring  and  Anor  v Neighbour Realties Ltd.

[21]      The defendant in the present case is clearly in breach of contract by conducting and concluding the auction on a “GST inclusive” basis.

[22]      Relying on the fact that the defendants were performing the contract as they were supposed to, the plaintiffs agreed to accept the bid of $1.1 million which they assumed, and were entitled to assume, was “plus GST”.

[23]     Even after the auction, the plaintiffs were led to believe that the property had successfully sold for $1.1 million plus GST. Indeed, following the   auction,   the   defendant   forwarded   to   the   plaintiffs’   solicitors   a

memorandum of contract signed by the Sintons and the defendants (as agents for the plaintiffs) stating that the purchase price of $1.1 million was “plus GST” when this was contrary to what in fact happened.

[24]     The plaintiffs sought redress in their action against the Sintons for contractual mistake but were unsuccessful.

[25]     Therefore, as a result of the defendants’ actions, the plaintiffs were locked into a deal that was not in terms of their instructions to the defendants and was not what they understood had in fact happened at the auction.

[26]      On the day of the auction, an offer of $1.1 million inclusive of GST would not in fact have given the plaintiffs $1 million in the hand, taking into account GST and agents commission. However, the plaintiffs, by the defendants’ actions, were not placed in a position where they could reject an offer in those terms.

[27]      The defendants’ actions meant that the plaintiffs were deprived of the ability to consider withdrawing the property from sale on the day of auction. The defendants’ actions meant that the plaintiffs were locked into a deal with the Sintons which was not what they intended, and which deprived them of the ability to test the market at a later date – the Sintons now being the owners of the property.

[28]     The plaintiffs have incurred a GST liability which they would not have incurred but for their reliance on the fact that the defendants were performing the contract to sell the property “plus GST”.

[29]      Looked at in this light, it does not matter that the bid of $1.1 million inclusive of GST was the most the plaintiffs were going to get at public auction on that day. In my view, the true measure of the plaintiffs’ loss is the amount of GST which they had to pay. This is the only way in which the plaintiffs could be restored to the position they would have occupied but for the defendant’s breach.

[30]      I am satisfied therefore that:

a)        The  defendant  has  no  arguable  defence  to  the  plaintiffs’

claim.

b)The defendant is in breach of the contract to conduct the auction and sell the plaintiffs’ property plus GST.

c)        The defendant’s breach of contract has occasioned a loss to the plaintiffs of $87,000, being the GST they had to pay.

d)        However, it is clear that from that sum should be deducted the payment already made by the defendant of $39,937.50. Although  that  was  described  as  a  “goodwill  gesture”,  it would  be  unconscionable  for  that  not  to  be  taken  into account. It was never intended that this not be bought into account.

(Emphasis in original)

Analysis

[9]      The  principal  part  of  Judge  Cooper’s  reasoning  was  that  due  to  the assumptions that the vendors had made they were ultimately locked into a deal. They were deprived of the ability to consider withdrawing the property from sale on the day of the auction in order to try for a better deal.

[10]     There was no challenge to either of those propositions.  The challenge was to the consequence the Judge drew from that.   The Judge essentially found that as a result of being locked into the deal, in breach of contract, the vendors incurred a cost, namely a GST liability, in the sum of $87,500, which was the measure of their loss.

[11]     To the contrary, the appellant submitted that for the respondents to obtain an award of damages against the appellant real estate agent they needed to prove that the appellant’s error caused them to obtain less for the property than they otherwise would have.

[12]     Mr Napier relied on the issue estoppel.   Alternatively he argued that the respondents had to prove loss on the basis of a loss of a chance to obtain more for the property net than may otherwise have been able to achieve.

[13]     Counsel  for  the  respondent  vendors  argue  that  the  price  in  the  contract entered into after the auction between the respondent vendors and the purchaser of

$1.1 million plus GST, if any, was evidence of a better offer than the GST inclusive price that the respondents ultimately had to accept.  Counsel submitted that this was the way the Judge had reasoned in the decision under appeal.   I do not think the Judge did reason that way.  Rather, he reasoned that the GST liability was raised as a consequence of the breach and was therefore  damage.    That  was  also  the  way counsel for the plaintiffs put it in their loss of an opportunity or chance analysis.

[14]     Counsel for the appellant argues that inasmuch as the Judge’s decision is analysed as a  loss of a chance  he has assessed the chance as being 100%  and awarded damages accordingly but there was no evidence from which that assessment could reasonably be taken, at least certainly not in a summary judgment context.

[15]     In my view there is a flaw in the Judge’s reasoning.  It is that he overlooks that a GST liability was always going to be raised against the vendors, consequent upon a sale.  It did not depend on the terms between the contracting parties.  But that was why they wanted the terms of sale to be plus GST.

[16]     The respondents as vendors engaged the appellant  as real estate agent to obtain the best terms of contract for the purchaser.  In this context the task of the real estate agent was to work to obtain as high a consideration as possible in dollar terms. The measure of loss is the difference between the total sum actually paid by the purchaser whether expressed as including GST or not, from the total sum likely to have been paid but for the breach.

[17]     It is in this context that the respondent seeks to hold on to the finding of issue estoppel. Mr Napier argued that the cross appeal on issue estoppel could not be argued on the materials before the Court in the absence of the pleadings.   Having studied the judgment I do not agree.

[18]     The reason that Judge McGuire found that $1.1 million inclusive was the most the McKinstrys were going to get at public auction that day is because the Judge found as a fact that that was the most the Sintons, the highest bidders that day, were prepared to pay:

[75]      When  the  break  in  the  auction  occurred,  Mr  McKinstry  told Mr Abbott that they wanted $1 million in the hand.  At the time that that was said, the bidding had stalled at $950,000 with the Sintons being the highest bidder.  That bid was increased to $1.1 million inclusive which was the most that the Sintons were prepared to pay.  The auction resumed and it was open to anyone in the room to beat that bid.  This was a public auction and that was the highest bid. If the earlier bids had been exclusive of GST, the $1.1 million GST inclusive bid was still a significant increase ($81,250) on a bid of $950,000 exclusive of GST (see calculations below).  It was the most that the McKinstrys were going to get at a public auction that day.  It compares with the $850,000 (presumably exclusive of GST) that Bayleys appraised the property as being worth, when the property was listed.

That finding of fact in turn depended upon an earlier finding of fact:

[52]      The other aspect about the evidence of Mr and Mrs Sinton that has a ring of authenticity is their explanation about how they would bid depending on whether the property was inclusive of GST or plus GST.  The proposition that they had a  total of $1.1 million to spend on this  property was  not

challenged and I accept it.   What occurred during the break in the auction has all the hallmarks of the Sintons giving the purchase of this property “their best shot” in terms of what their budget allowed.

[19]     Essentially, the finding of fact in the trial before Judge McGuire was that the no-one was going to bid higher than the Sintons and they were not going to bid more than $1.1 million.   So $1.1 million was the most that was going to be bid at that auction on that day.   The Judge made that finding as part of his consideration of whether the vendors would have entered into the contract had the true state of affairs been known.  This enquiry was part of an exploration of whether mistake influenced the vendors’ decision to enter into the contract.

[20]     Before the District Court the defendant, and now the appellant, argues that the finding of Judge McGuire gives rise to an issue estoppel so that the plaintiffs and now respondents are stopped from asserting that any of the parties at the auction of their  property  would  have  paid  more  than  $950,000  exclusive  of  GST  for  the property.    The Judge agreed.   He did not analyse in any particularity the law on issue estoppel.

[21]     In these proceedings Mr Napier relied particularly on New Zealand Social Credit Political League Inc v O’Brien [1984] 1 NZLR 84. This decision is not cited in Spencer Turner and Handley, Res  Judicata  3rd   ed  as  an  authority  for  issue estoppel.   It is discussed in Chapter 6 on the Extended Doctrine of Res Judicata, understood as falling outside issue estoppel, being a case where issue estoppel is not strictly available.  See paragraph 443.

[22]     The law is correctly stated in the Laws of New Zealand, paragraph 20:

20.     Issue estoppel.

… Under issue estoppel, a party is precluded from contending the contrary of any precise point which, having once been distinctly put in issue, has been determined against that party even if the objects of the first and second actions are different. The matter must, however, have been directly at issue in the first action rather than collaterally or incidentally in issue.

[23]     The classic text of Spencer Bower Turner and Handley cites Diplock LJ in

Thoday v Thoday [1964] P 181 CA, as saying inter alia:

There may be cases  where the fulfilment  of  an  identical  condition  is  a requirement  to  two  common  or  more  different  causes  of  action.    If  in litigation upon one such cause of action any of such separate issues as to whether a particular condition has been fulfilled is determined by a court of competent jurisdiction, either on evidence or on admission by a party to the litigation, neither party can, in subsequent litigation between one another upon any cause of action which depends upon fulfilment of the identical condition, assert that the condition was fulfilled if the court has in the first litigation determined that it was not, or deny that it was fulfilled if the court in the first litigation determined that it was. 1

[24]     Thoday v Thoday is the very first decision cited by the Laws of New Zealand when it discusses issue estoppel in paragraph 20.   That decision was cited by the New Zealand Court of Appeal in Craddock’s Transport Limited v Stuart [1970] NZLR 499, and contains dicta to the same effect, North P, at 514, and see Turner J at

520.

[25]     What the Sintons “would have” bid was not an issue in the cause of action as to the terms of contract.  Nor was it directly an issue in the cause of action based on mistake.

[26]     The issue as to how far the Sintons would bid was made relevant by the Judge when analysing whether the mistake resulted at the time of the contract in a substantial and unequal exchange of values.  That issue did not turn on how much someone was prepared to bid on the day.  Indeed, as already noted in paragraph [52] counsel for the McKinstrys did not challenge the evidence of Mr Sinton as to how much they would bid.

[27]     In this case the respondents point out that in contra-distinction to the finding by Judge McGuire in his judgment, that the purchasers would not bid any more than they did, they signed a contract which exposed them to paying more should a Court find that they were obliged to pay GST.

1 At 198

[28]     As a matter of fact, it is virtually impossible to prove the precise upper limit as to what a person will bid at an auction.   It is notorious that persons will bid beyond their planned limit, beyond indeed the limit imposed on them by their bank manager.   The matter was not directly an issue in the proceedings before Judge McGuire, and I do not need access to the pleadings to be satisfied about that.  The cross appeal by the respondents on the issue estoppel succeeds.

Relief

[29]     Accordingly, the appeal and cross appeal are both allowed.  The judgment is set  aside.    The  proceedings  will  have  to  proceed to  a trial,  if  not  resolved  by alternative dispute resolution or otherwise settled.

[30]     On the subject of costs Mr Napier for the appellant relies on a letter written to

Ms Opai, counsel for the respondents, without prejudice except as to costs, dated 23

March 2007.   I have read that letter.   It is written on the basis that the appellants appear to be completely successful on appeal.  In fact, both parties have succeeded on the appeal and cross appeal.  I also note it was written before the cross appeal. The letter has no application to the final circumstances of the parties and the result of the hearing.  Both parties being successful, costs will lie as they fall.

Solicitors:

Keegan Alexander, Auckland, for Appellant (Counsel:  P Napier) East Brewster, Rotorua, for Respondents (Counsel:  S Opai)