DTZ NEW ZEALAND LIMITED V HENRY AND ORS HC CIV 2006-409-2478

DTZ NEW ZEALAND LIMITED V HENRY AND ORS HC CIV 2006-409-2478 21 May 2007IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV 2006-409-2478BETWEEN DTZ NEW ZEALAND LIMITED Plaintiff AND SIMON HENRY First Defendant AND RAPAKI PROPERTY GROUP LIMITED Second Defendant AND CASHEL CHAMBERS LIMITED Third Defendant Hearing: 1 May 2007 Appearances: Mr B O'Callahan for plaintiff Mr O Paulsen for defendant Judgment: 21 May 2007 at 3.30 pmJUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on21.05.07 at 3.30 pm, pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar DateCounsel:Carter & Partners, P O Box 2137, Auckland –brento@carterslaw.co.nzCavell Leitch Pringle & Boyle, P O Box 799, Christchurch – owen.paulsen@clpb.co.nzBackgroundFactual background and chronology[1] The following narration of events is largely taken from the chronology which Mr Paulsen prepared. I understand that the plaintiff would accept it as being correct so far as matters of any significance are concerned. [2] In 2001, the IRD were seeking premises for a new office in Christchurch. They apparently retained a firm of real estate agents, DTZ to locate premises that might be suitable, with a view to a short list being prepared. Thereafter, IRD would negotiate with the owners of suitable properties. The first step in this process was to establish a register of "expressions of interest" from building owners who wished to have their properties in Christchurch considered. The process was managed by DTZ from its Wellington office, although I understand it was a national firm. [3] On 29 June 2001 Mr Henry, the principal of the second and third defendant's wrote to Knight Frank for attention of Mr Blakely stating:"As owner of Cashel Chambers I confirm your agency along with Knight Frank to promote Cashel Chambers as a possible site for the proposed IRD development".[4] Mr Henry says there were no discussions that Knight Frank would do more than put forward Cashel Chambers as possible site nor about fees or commissions. Mr Blakely says there was discussion about commission but no agreement and that Mr Henry would prefer to discuss this "once he knew what the deal was" and that Mr Blakely "backed off the discussion about commission". [5] Notwithstanding that there was no agreement on commission, Mr Blakely says he submitted two options to Knight Frank Wellington for IRD's requirements, namely Cashel Chambers and another property. [6] In January 2002 Mr Blakely advised Mr Henry that IRD would not be progressing any proposals from registrations of interest.[7] In mid 2002 DTZ acquired the firm of Knight Frank, the company by which Mr Blakely was employed. On 18 September 2002 a Mr Carl Raumati of DTZ wrote to Mr Blakely advising that he was taking over the management of the IRD project and sought confirmation that the premises submitted by Mr Blakely were still available. Mr Blakely advised that they were. These are noted as Cashel Chambers and another building. [8] In October 2002 Mr Blakely again contacted Mr Henry advising that he was now employed by DTZ and asking Mr Henry to send an updated version of the letter of 29 June 2001 to DTZ to reflect the fact that Mr Blakely had changed employers. On 2 October 2002 Mr Henry wrote to Mr Blakely as requested as follows:"As owner of Cashel Chambers I confirm your agency along with DTZ NZ Ltd to promote Cashel Chambers as a possible site for the proposed IRD development".[9] On 3 October 2002 Mr Blakely wrote to Mr Raumati registering interest for 3 possible sites including Cashel Chambers. [10] In April 2003 IRD's requirements apparently changed and Mr Blakely was notified of this by Mr Raumati by a letter dated 17 April 2003. Mr Blakely asked if properties earlier submitted could meet the new requirements. On 9 June 2003 Mr Raumati wrote to Mr Blakely informing him that Cashel Chambers met the initial criteria and invited the"owner of the above property to submit a leasing proposal for the IRD's further consideration".[11] In June 2003 DTZ at Wellington wrote to Mr Blakely advising that the Cashel Street property had met Inland Revenue's 'initial selection criteria' and invited a leasing proposal. The letter enclosed a 'request for proposal' with appendices. [12] On 2 July 2003 Mr Blakely wrote to Mr Henry asking for an updated letter of appointment. Mr Henry did not respond to that request and no letter of appointment was provided.[13] Then, on 14 July 2003, Mr Raumati wrote to Mr Blakely requesting further information in relation to the proposal. From October 2003 Mr Blakely and DTZ at Christchurch ceased to have any role in the negotiations with the IRD on behalf of Mr Henry. DTZ (through Mr Raumati at Wellington) thereafter acted as the representative of the IRD in negotiations. Mr Henry personally negotiated with the IRD and its agent, DTZ. Mr Blakely says he considered Mr Raumati's advice that lease negotiations would proceed as between solicitors to have acknowledged the effectiveness of "my introduction of the parties". [14] In December 2003 a conditional agreement was reached with the IRD as to the terms of the development and lease of 224 Cashel Street. This was subject to conditions and lapsed in 2004 when resource consent could not be obtained. [15] Mr Blakely says he spoke to Mr Henry on 6 December 2003 and discussed commission but that Mr Henry said he would prefer to negotiate a set fee rather than a percentage. [16] Mr Henry met with Murray Ellis (also of DTZ) and Mr Blakely on 9 December 2003. Mr Blakely says Mr Henry disagreed with payment of commission and offered a flat fee of $50,000. I understand that this proposal was not accepted. [17] On 17 December 2003 Mr Blakely wrote to Mr Henry in relation to the "future lease to IRD" suggesting commission be payable to DTZ at the rate of 12% of the gross annual rental plus GST, to be payable upon confirmation of the lease document. The letter notes that:"Although we do not have final details as yet of the deal finally negotiated, we do believe that we can make some significant progress towards agreeing on the fee".[18] On 19 December 2003 Mr Henry responded to Mr Blakely seeking details of time spent and dates of his involvement with the proposed lease to the IRD . [19] Mr Blakely then wrote to Mr Henry on 5 January 2004 seeking to meet in order to discuss the issue of commission. They met on 17 February 2004. Mr Blakely's account is that Mr Henry wanted to delay discussions about commissionuntil agreement with the IRD became unconditional in all respects, and "his theme" remained that in his view "we had not done enough to justify the fee being sought". Then, on 24 February 2004, Mr Ellis of DTZ wrote to Mr Henry recording that it was agreed that discussions as to commission would be delayed until such time as the agreement with the IRD was finalised and unconditional. [20] In 2004 the agreement reached in December 2003 lapsed when resource consent conditions were unable to be resolved in time. [21] In late 2004-August 2005 Mr Henry continued to negotiate direct with the IRD and its agent, DTZ. Mr Blakely, who was with DTZ Christchurch, of course, was not involved at all. IRD continued to be represented by Mr Raumati of DTZ who attended meetings with Mr Henry, and telephoned and corresponded with him to secure terms for IRD. [22] On 26 August 2005 a Heads of Agreement was signed between Cashel Chambers Limited and Her Majesty the Queen on behalf of the IRD in relation to the lease of 224 Cashel Street. [23] On 24 May 2006 Carter & Partners wrote to Cavell Leitch making a demand for the payment of commission at the rate of 12.5% of the annual rental to the IRD. There being no satisfactory response, the plaintiff issued the present proceedings. In paragraph 17 of the statement of claim the plaintiff alleges:The plaintiff claims against all the defendants commission in the amount of $601,755 being 12.5% of the annual rent payable by the IRD of $4,814,040.The summary judgment and strike out application[24] The defendants apply for summary judgment on the grounds that the plaintiff's cause of action cannot possibly succeed because: a) No commission can be payable to DTZ as it has no written appointment to act as Mr Henry's agent as required by s62(b) Real Estates Agents Act 1976.b) In the event that DTZ was Mr Henry's agent (which is denied) it disentitled itself to payment of commission (or other remuneration) by acting for Mr Henry and the IRD in the same transaction in breach of its fiduciary duties of fidelity, loyalty and to disclose a conflict of interest without Mr Henry's informed consent. [25] The defendant also seeks to strike out the plaintiff's claim on a number of grounds.The principles applicable to defendants' summary judgment applications[26] Just as a plaintiff seeking summary judgment must show that the defendant has no defense to the claim, so a defendant seeking summary judgment must show that none of the causes of action in the statement of claim can succeed. The following relevant principles appear from Westpac Banking Corporation v M M Kembla [2001] 2 NZLR 298: [i] Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure, because a defendant can apply to strike out the claim. Rather, the summary judgment procedure permits a defendant who has a clear answer to the plaintiff, which cannot be contradicted, to put up the evidence which constitutes the answer, so that the proceedings can be summarily dismissed. [ii] The difference between an application to strike out a claim and summary judgment is that the strike out is usually determined on the proceedings alone. On the other hand, summary judgment requires evidence. [iii] Summary judgment is a judgment between the parties on the dispute which operates as an issue estoppel, whereas if a pleading is struck out or is untenable as a matter of law the plaintiff is not precluded from bringing a properly constituted claim.[iv] The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. [v] Except in clear cases, it will not be appropriate to decide by the summary judgment procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff, to force on the plaintiff's case prematurely before completion of discovery or other interlocutory steps and, therefore, before the plaintiff's evidence can reasonably be assembled. [vi] At the end of the day, the Court must be satisfied that none of the plaintiff's claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on an interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.First issue: The requirement of a written appointment under s 62 Real Estate Agents Act 1976[27] In the first place, the defendant seeks summary judgment on the basis that the plaintiff is unable to satisfy the Court of the existence of the written contract of agency which s 62 of the Real Estate Agents Act 1976 requires. The section reads:62 Real estate agent to have written contract of agency No person shall be entitled to sue for or recover any commission, reward, or other valuable consideration in respect of any service or work performed by him [or her] as a real estate agent, unless— (a) He [or she] was the holder of a licence as a real estate agent under this Act or the holder, or the partner of a holder, of a licence as a real estate agent under the Real Estate Agents Act 1963 at the time of the performing of the service or work; and (b) His [or her] appointment to act as agent or perform that service or work is in writing signed either before or after the performance of that service or work by the person to be charged with the commission, reward, or consideration or by some person on his [or her] behalf lawfully authorised to sign the appointment.It is s 62(b) which is applicable to this case. [28] In order to succeed in its claim the plaintiff has to establish the following elements: a) That there was an agreement between it and the defendant to the effect that the defendant would pay commission to the plaintiff if the plaintiff's actions were instrumental in the IRD entering into a leasing arrangement with the defendants; b) That the commission was to be calculated at the rate of 12.5 % of the annual rental which the IRD was required to pay under the lease; c) That the contractual arrangement was in writing. It is the last element that is under scrutiny in the present case. [29] The plaintiff accepts that the only written record of the appointment is that which I have set out in paragraphs [3] – [8] above. [30] The defendant's case is that the literal wording of the memorandum set out in paragraph [8] does not contain an appointment in writing to carry out the service or work in question. [31] Mr O'Callahan for the plaintiff argued that in determining whether or not the memorandum is sufficient, one is not constrained to look only at the words in isolation but must consider them in what he called the 'factual matrix' of the situation. [32] The claim for commission, as I have said, depends upon the plaintiff having been appointed to bring about a leasing of the building. The letter of 29 June 2001 contemplated an agency for some purpose but did not specify what it was.[33] In Brunette v Simpson [1958] NZLR 292 at page 294, McGregor J summarised the requirements of written confirmation required under the then s 25 of the Land Agents Act 1953 in the following way:It is necessary to consider what are the evidentiary requirements of s. 25 of the Land Agents Act 1953. The section refers to the right to recover a commission in respect of a service or work performed by the plaintiff as a land agent and then requires that the appointment to act as agent or to perform the service or work must be in writing. The requirement is an appointment in respect of that service or work, that is the service or work in respect of which commission is claimed. In my view, written evidence having reference to a more general appointment would be insufficient. The writing must evidence an appointment as agreed for the particular service or work. Here, this particular service or work alleged to have been done, is work or services in the letting of premises in the appellant's building at Lower Hutt.[34] McGregor J then went on to note that the writing in that case (which was to be found in two letters which were exchanged between the parties) admitted that the respondent was appointed to do the work but disagreed as to how he was to be paid. The owner of the buildings said that the agent carried out the work on his behalf in return for the agents standing aside as a competitor in another property transaction in which the agent was interested. McGregor J said, at p 295:The matter brought in issue by such letter is as to the method or basis of remuneration for the service the respondent had agreed to perform. In other words, the letter disputes the respondent's right to commission and alleges that the consideration was the giving of another benefit to the respondent – the withdrawal by the appellant of a tender for another property which competed with a tender put in by the respondent. While there is a dispute as to the terms of the appointment, the letter seems to me a definite acknowledgement that an appointment was made.[35] The Judge also accepted that it was unnecessary that the whole terms of the agreement between principal and agent should be in writing and that all that was required was a written acknowledgement of the appointment. [36] The question in this case is whether the writing evidences an appointment to carry out the work of obtaining a binding lease agreement in respect of the defendants' premises. That question is to be determined by considering the words used to ascertain whether they might reasonably be read as constituting an appointment for the purpose I have just mentioned. I agree with the point that MrO'Callahan made which was the words are not to be read in isolation but must be placed in their factual context for their 'factual matrix'. [37] The approach of interpreting words in their factual matrix has been expressly adopted in a Court of Appeal case involving a dispute over a real estate agents commission (albeit in a minority judgment): Houlahan v Royal Oak Realty (1993) Ltd [1996] 3 NZLR 513, 519. [38] Mr O'Callahan said the Court is able to conclude from the evidence that the following state of affairs existed. The IRD was seeking to obtain leasehold premises in Christchurch and agents acting on its behalf had been instructed to produce a short-list of properties that might be suitable. The IRD's objective was to identify one or more of the properties being suitable for its purposes and coming to terms with the owner of one of the premises so that the IRD became the lessee of such premises. The letter when interpreted against the background of the factual matrix, constituted sufficient evidence that the defendants were retaining the plaintiff to effect a lease of their premises. [39] I consider that it is appropriate to have regard to the factual matrix in this case because words in the letters do not disclose any clear meaning. They record the writer saying "I confirm your agency along with Knight Frank to promote Cashel Chambers as a possible site for the proposed IRD development". [40] In determining the meaning and purport of the letter, I start with the observation that an appointment within the meaning of s 62 must be for a purpose. An appointment cannot exist in a vacuum. That consideration plus the wording of s 62 which requires appointment to perform 'that service or work' in writing means that there must be some identification of what work the agent is appointed to carry out. If the writing does not include an identification of the work – not in all its details but at least in summarised form – it will not comply with the Act. [41] In the plaintiff's statement of claim, the 2001 letter is set out, presumably to show compliance with s 62 of the Real Estate Agents Act. However, I understandthat the plaintiff may alternatively rely upon the letter of 2 October 2002 which I have set out in paragraph [8]. [42] It is necessary to consider what matters of factual context are relevant when determining what either of the letters meant – they being in identical terms. To do that it is necessary to say something more about the chronology.The background to the letter of 29 June 2001[43] The background to Mr Blakely's involvement with the defendants was that he had seen an advertisement in the National Business Review in the week beginning Monday 25 June 2001. The advertisement read as follows:Knight Frank is seeking registrations of interest on behalf of a major client who requires approximately 7000sqm of leased office space within the Christchurch Central Business District. Parties with premises ready for occupation in late 2003, should register their interest by sending;• Address of premises/building name (photo if available)• Confirmation that they are the owner of the premises OR• Written confirmation from the owner that they are the sole agent. Registrations are to be submitted by 4 p.m. Wednesday, 11 July, 2001, to The Property Manager, Knight Frank (NZ) Limited, P O Box 1545, Wellington, attention Anna Morris. Successful respondents will receive an information package and be invited to submit a proposal in accordance with the client's lease and building specifications. Please note that Knight Frank and the Client reserves the right, at their sole discretion, to accept or reject all or any registrations of interest.[44] The clear purport of the advertisement was to invite those who owned buildings which offered 7000 sqm of leased space in the Christchurch CBD and which would be ready by late 2003 for occupation, to register. In turn, those who were successful in getting onto the register (the 'successful respondents') would then be included in the next stage of the process which was for IRD's agents to send out an information package. No doubt that package would contain the requirements that IRD (or 'the client') had as to lease and building specification.[45] On 9 July 2001 Mr Blakely wrote to Knight Frank in Wellington describing the defendants building in the following terms:Further to our discussion by telephone on 28 June 2001 I now enclose details of three possible sites for the IRD in Christchurch 1. 224 Cashel Street, Christchurch A three to four level new development with on-site carparking. Floor plates of approximately 2,300 sqm including ground floor retail type entrance facing northerly direction. This is a high profile site on the corner of Cashel Street, Madras Street and Bedford Road. Close to all major routes.[46] A building owner who wished to lease his building to the IRD would need to successfully negotiate several preliminary stages. The time that this would take, and the specific order are not important. But what follows will give some indication of the various stages that the parties would have to pass through before a binding lease would come into existence. First, it was necessary to offer a property which came inside the broad parameters that the IRD had in mind. These probably included location and approximate size. Then the IRD would have to be satisfied that there was scope for re-developing the site in a way that was consistent with its requirements. The re-development opted for would influence the possible rental that was reasonably payable. The next stage would be to negotiate the detailed provisions of the lease including term and rent. After all of that, the way would be open for the lessor and lessee to sign a lease. [47] To resume the chronology, on 22 October 2001 the IRD's agents wrote to the plaintiff saying that IRD were putting the matter on hold and would carry out a review which was to be completed by January 2002. [48] In January the IRD's agent said they would not be progressing matters until latter in 2002. [49] In September 2002 Mr Raumati of DTZ Wellington office wrote advising the plaintiff that IRD had now finalised its brief and was seeking registrations of interest for leased premises of up to 9000 sqm (– not the 7000 sqm referred to in the advertisement of June 2000). It recorded that the Cashel Street property hadpreviously been registered and sought confirmation that that property was still available and could meet the requirements. Mr Blakely said he discussed this letter with Mr Henry who was interested and thought he could meet the requirements, and it was against that background that Mr Blakely asked Mr Henry to write the second letter, which Mr Henry did on 2 October 2002. [50] These were the matters of factual background that preceded the two letters. [51] As well as the events that had taken place, when interpreting the letters it is reasonable for the Court to consider the meaning of the letters from the perspective of the what would be apparent to persons in the relevant industry which is the commercial property market. It can safely be assumed that persons such as Mr Henry and Mr Blakely would anticipate the various phases that the transaction would have to complete before there would be a successful leasing of the property. These are the matters that I have mentioned in paragraph [46]. I regard them as being part of the factual matrix. [52] The events which happened later would not qualify as explanatory background. But I make mention of some further developments for the purpose of completing the chronology. [53] Nothing of significance occurred until the following year 22 April 2003 when Mr Raumati wrote stating that IRD now required 12000 sqm rather than 9000 sqm with 3000 of that to be secured by a first right of refusal to lease. [54] The request for proposal which DTZ sent to Mr Blakely in June 2003 and which I referred to in paragraph [11] had annexed to it a number of other documents. They were: heads of agreement to lease; copy specimen deed of lease; building performance specification; Inland Revenue timeline; and Inland Revenue tax check form. The documentation provided was voluminous and elaborate. Mr Blakely discussed matters with Mr Henry and drafted a response. Mr Henry had a number of concerns about IRD's process of negotiation – which apparently referred back to an unfortunate experience he had in attempting to deal with IRD on an earlier occasion, when he had gone to some trouble and effort only to find that it was wasted. Finallya proposal was sent off on 4 July 2003. As I have described it in paragraph [22] above, the defendants in due course entered into a lease arrangement with the IRD with the rent.Discussion[55] Viewed against the background of events that had occurred, it would seem to me unlikely that either of the letters could be read as an authority to effect a lease of the premises. The work that the agent was authorised to do was a necessary preliminary that would have to be completed if the defendants were ever to reach the stage where they might close terms with the IRD for the lease of the premises. The letter confirmed that the plaintiff was instructed in those preliminary stages but no further. [56] The mistake in the plaintiff's reasoning, in my respectful view, is to approach matters on the basis that the letter/s which were written at a preliminary stage when the IRD was collecting information about potentially suitable premises, and which was explicable on that limited basis, must be read as written authority to effect a lease. A mandate to promote the property as a possible site for a proposed development for the IRD, suggests that the agent was being asked to carry out preliminary work. It falls well short of evidencing an instruction that that the agent procure an offer to lease. The authority in my view may have been appropriate to the activities that the agent was required to undertake when IRD was at the planning stage. The authority could fairly be seen as ensuring that the Cashel Chambers site was not overlooked when the IRD was considering what was available on the local property market. But it would be stretching it to an impermissible extent to say that it could reasonably be construed as also evidencing a mandate to procure an offer to lease the property once the site had been developed. [57] In my judgment, the letter does not confirm the appointment of the agent to perform the services that it claims to be the basis of its right to commission. That being so, the letter/s do not meet the test propounded in McGregor J's judgment inBrunette which I have set out in paragraph [33] above. It does not therefore seemreasonable to interpret the letter of 29 June 2001 as an appointment to procure a binding lease agreement.Second issue: Is summary judgment appropriate?[58] The only remaining issue is whether it is satisfactory to draw the conclusions I have mentioned in the previous section on a summary judgment application. On reflection I believe that I can safely enter summary judgment. The issue is a straightforward one: is the plaintiff able to point to a written appointment to carry out the services on which its claim for commission is based? [59] In determining that matter, it is necessary to construe what the letters objectively considered convey. That has involved considering them in the context in which the letters were written. This last part of the determination does, it is true, open up a wider field of factual enquiry. Superficially at least, it might be said that the plaintiff should not be required to enter a factual contest in this area without the advantage of discovery and other interlocutory procedures which would be available to him at the post-summary judgment phase of the case. On the other hand, the essential factual background is uncontested. Further, the path that the transaction took as it developed is marked by contemporaneous documents that came into existence. The documents that throw light on the intentions of the parties are documents which were common to both parties and the existence of which are known to both of the parties. It does not seem likely that discovery might yield documents which the plaintiff is unaware of and which materially influence a judgment as to what the factual context was in which the letters were written. Given all of those considerations, I do not believe that there is a risk of injustice to the plaintiff in entering summary judgment. In my assessment the plaintiff cannot succeed. The fact that the route to that conclusion involves consideration of the factual background and application of legal principles governing the application of s 62 of the Act, should not deter the Court from making a judgment at this point if it can. [60] I therefore grant the defendant's application. Given my decision, there is no need to consider the alternative ground for summary judgment which is that theplaintiff was in breach of its fiduciary obligations in such a way and to such an extent that it became disentitled to the commission it might otherwise have earned. Nor is there any need to consider the application to strike out. [61] The parties should file succinct memoranda as to costs within ten working days. ____________ J.P. Doogue Associate Judge