HERON'S FLIGHT LIMITED V NZ PROPERTIES INTERNATIONAL LIMITED CA CA473/2009

HERON'S FLIGHT LIMITED V NZ PROPERTIES INTERNATIONAL LIMITED CA CA473/2009 15 June 2010IN THE COURT OF APPEAL OF NEW ZEALAND CA473/2009 [2010] NZCA 249BETWEEN HERON'S FLIGHT LIMITED Appellant AND NZ PROPERTIES INTERNATIONAL LIMITED Respondent Hearing: 18 May 2010 Court: O'Regan, Priestley and Ronald Young JJ Counsel: J D McBride and N B Goodger for Appellant D G Collecutt for Respondent Judgment: 15 June 2010 at 10amJUDGMENT OF THE COURTA The appeal is allowed. B The High Court's judgment of 22 July 2009 dismissing the appellant's application to set aside a statutory demand is quashed. C The proceeding is remitted to the High Court for appropriate orders and directions to enable the parties' substantive dispute to be tried. D The respondent must pay the appellant's costs for a standard appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Priestley J)Introduction[1] The respondent, a real estate agent, alleges the appellant is obliged to pay it a commission as a result of an agreement for sale and purchase of the appellant's restaurant and winery business becoming unconditional. Taking the view that the $67,500 commission was a debt, it served a statutory demand on the appellant pursuant to s 289 of the Companies Act 1993. [2] The appellant, relying on s 290, sought to have the statutory demand set aside on the grounds that there was a substantial dispute whether or not the debt was owing. [3] The matter came before Associate Judge Doogue who issued a judgment in July 2009 dismissing the appellant's application to set aside the statutory demand. 1[4] The issue in this appeal was whether the Associate Judge was correct in so doing.Background[5] During 2008 the appellant was interested in selling its business and land in the Matakana area. Separate conditional agreements were negotiated for the land and the business. The respondent's statutory demand relates to the commission payable in respect of the agreement which covered the business. [6] A meeting took place in January 2009 on the appellant's premises. Ms Wallace, a principal of the respondent company, was present. So too were1 Heron's Flight Limited v NZ Properties International Limited HC Auckland CIV-2009-404-002101, 22 July 2009.Mr Hoskings and Ms Evans, directors of the appellant. Ms Wallace was the appellant's agent for the purposes of the sale. [7] Present too was the potential purchaser Mrs He. Other relevant attendees (described by the Associate Judge as "the purchaser's party") were Ms Lowndes, who was also a real estate agent, and Ms Lowndes's husband, who is admitted as a barrister in New Zealand. Mr Lowndes apparently introduced himself as the purchaser's legal representative. [8] The next month, on 3 February 2009, agreements were finalised and signed. The evidence established to the Associate Judge's satisfaction that the agreements were executed by the vendor and purchaser at a "signing ceremony" at Mr and Mrs Lowndes's home in Epsom. [9] So far as the agreement relating to the sale of the business was concerned, the expressed purchase price was $1 million with a $100,000 deposit payable upon the agreement becoming unconditional. [10] The entire agreement was conditional upon the purchaser being satisfied in all respects with a due diligence inquiry to be completed by 4 pm on 12 February 2009. A standard clause in the agreement provided that the condition would not be deemed to be fulfilled until notice had been served by one party on the other. [11] Significantly the purchaser's solicitor was noted in the agreement as the Auckland firm of Yu Lawyers. There is no reference on the face of the agreement to Mr Lowndes who, as a barrister, would not be permitted to carry out solicitor's work. [12] Remarkably, the associated agreement for the purchase of the land (at $3 million with a deposit of $1.1 million) provided the deposit was to be paid to Yu Lawyers' trust account once the agreement became unconditional. Were any deposit to have been paid there would have been no way the appellant or its solicitors could have controlled it.[13] The Associate Judge found that at 3.56 pm on 12 February 2009, Mr Lowndes sent the appellant an email purporting to satisfy the condition of the agreement and confirming the agreement for the sale and purchase of the business was now unconditional. [14] It is the respondent's case that, when declaring the agreement unconditional, Mr Lowndes was the purchaser's agent. The Associate Judge rightly identified the issue of Mr Lowndes's alleged agency as being the central issue to the application before him: 2The key issue is whether an unconditional contract between the applicant and Mrs He for the sale of the business ever came into existence. That issue, in turn, depends on whether Mr Lowndes had authority on behalf of Mrs He to confirm that the due diligence condition had been satisfied. The enquiry resolves itself into the question of whether Mr Lowndes had ostensible authority to take that step on behalf of Mrs He.[15] Subsequently Mrs He changed her solicitors from Yu Lawyers to Wong and Bong and instructed the respondent accordingly. No deposits were ever paid. Mrs He has subsequently (but not in evidence before the Associate Judge) denied that Mr Lowndes was acting for her. The appellant eventually sold the land and business at much reduced figures. Because these matters may assume some relevance in subsequent litigation we say no more about them.The Associate Judge's approach[16] The evidence before the Associate Judge did not include affidavits from Mrs He, Mr Lowndes, or his wife. The Associate Judge's approach was the respondent had to establish that Mrs He, by her conduct or otherwise, conveyed to the appellant that Mr Lowndes was her agent. He also considered if a representation had been made to the appellant that Mr Lowndes was Mrs He's legal adviser, then she had vested him with apparent authority to bind her so far as approval of the condition was concerned. 32 At [23].3 At [26].[17] In agency terms, and correctly so since the Associate Judge was bereft of direct evidence from either Mrs He or Mr Lowndes, the Associate Judge analysed the evidence to ascertain the extent of Mr Lowndes's ostensible authority: 4Just what the extent of authority that could be imputed to Mr Lowndes is not a matter that can be decided in the abstract. Rather, the fact that he is a lawyer, means inferences can be formed from the usual ambit of authority of lawyers, and such inferences as can be drawn as to the extent if any to which the purchaser authorised Mr Lowndes to act on her behalf, are all matters that the Court needs to consider.[18] Rejecting the appellant's submissions that there was a real doubt over whether Mrs He understood Mr Lowndes was attending the January meeting in the capacity of her agent (as opposed to her legal adviser), the Associate Judge made a number of factual findings (some expressed as double negatives), which, with respect, would be hard to make on the basis of the untested affidavit evidence before him.5 These findings included that Mrs He was an experienced business-woman; that he did not accept that Mrs He did not understand the substance of what was being discussed at the January meeting; that she would have made it her business to know; that it was unlikely that Mrs He was unable to follow what was being said; that a person of Mrs He's background and experience (she being from mainland China) would "not be unfamiliar with the function of lawyers"; that Mrs He knew Mr Lowndes was present in his capacity as her lawyer; that he did not accept a person of Mrs He's background would have allowed herself to "be in the dark" about Mr Lowndes's capacity; and that Mrs He understood why Mr Lowndes was participating in the discussions and what he was talking about. [19] The Associate Judge concluded that he was not faced with a situation of an agent, who had no authority, representing that he did. Rather, it was a case where the principal, Mrs He, permitted a person to be an agent, and did not contradict a statement that Mr Lowndes was her legal adviser. On that basis the Associate Judge concluded that Mrs He had clothed Mr Lowndes with ostensible authority. 64 At [27].5 At [29]-[31].6 At [32]-[33].[20] The Associate Judge went on to examine the evidence of Mr Lowndes's activities after the agreement had been signed. This included receiving an email from one of the appellant's directors; drafting a revised agreement; and sending it to the appellant's solicitors. [21] The Associate Judge saw these actions by Mr Lowndes as reinforcing his finding on the ostensible authority issue: 7Mr Lowndes could only have done what he did if he was receiving instructions from Mrs He. Her acquiscence in Mr Lowndes acting as he did gave every appearance that he was her lawyer. In fact, if the evidence is considered on its own, it goes a long way towards establishing that Mr Lowndes had actual authority. Even if he did not, Mrs He permitted him to act as though he were her lawyer. This is not a case of an agent who had no authority attempting to clothe himself with the authority of his principal but relying on his own acts and representations in order to do so. Mrs He was involved in the sequences of events that unfolded as the contract evolved to its conclusion. Her actions in so doing meant that she was clearly sanctioning the activities of Mr Lowndes when he purported to act as her legal advisor. To contend otherwise is to flout common sense.[22] The Associate Judge concluded that when Mr Lowndes declared the agreement unconditional on 12 February he did so in his capacity as Mrs He's authorised agent. He further noted that the appellant did not, at that time, dispute the validity of Mr Lowndes's authority.Discussion[23] Counsel agreed that there were three issues for this Court to determine. They were: (a) Whether the appellant was permitted to argue on appeal an issue not argued before the Associate Judge, namely that the respondent's failure to obtain a deposit disentitled it to its commission. (b) If so, whether the respondent arguably failed to procure the deposit and as a result was arguably disentitled to its commission.7 At [37].(c) Whether the Associate Judge was correct to conclude that Mr Lowndes had expressed, implied, or ostensible authority to declare the agreement unconditional. [24] We do not intend to canvass counsel's submissions on the first two linked issues. Whether or not a land agent, who fails to collect a commission, is thereby disentitled to it, is a question on which there are a number of authorities, all of which are context specific. On balance, we would not have allowed the appellant to raise these issues on appeal. But, given that there will need to be a substantive hearing, there is no bar on those issues being canvassed at that stage and being the subject of evidence and submissions. [25] On the issue of the ostensible authority of Mr Lowndes, Mr Collecutt's submissions were designed to support the Associate Judge's approach. His argument was divided into three parts. The first was that the appellant's evidence lacked credibility, or was inconsistent with other evidence. Because Mr Lowndes was demonstrably not the appellant's lawyer he must, by process of elimination, have been Mrs He's. Furthermore the appellant believed Mr Lowndes had actual authority to make the agreement unconditional, particularly because Mr Lowndes was a barrister (a species of lawyer). [26] The second head of counsel's submission was that, "as a matter of policy", a lawyer acting for a purchaser has apparent or ostensible authority to declare an agreement unconditional. The third head was, as a matter of fact, the appellant believed, in the wake of Mr Lowndes's actions, the agreement was indeed unconditional and expressed that view on four separate occasions in writing. [27] Mr Collecutt repeated the Associate Judge's factual findings, to which we have referred, and pointed out that Mrs He at all times had an interpreter and that Mr Lowndes was a member of her negotiating team, which included Mrs Lowndes, who had "obviously" been employed to represent Mrs He and understood English. [28] Mr Collecutt also relied on Bowstead and Reynolds on Agency and in particular its statement that by using the services of a professional agent and puttingthat person in a "specific position carrying with it a usual authority", such as a solicitor, the principal had represented that the agent had authority "to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the course of his principal's business has usual 'actual' authority to enter into".8[29] It would in our view be unusual, in the context of standard New Zealand conveyancing practice, for a barrister, who is not expressed in the body of an agreement for sale and purchase as the solicitor for the party, to assume professional responsibilities to Mrs He in the capacity of her agent. We consider that aspect of Mr Lowndes's authority is certainly arguable. The fact that representations were made at the January meeting that he was acting as Mrs He's "lawyer" is not conclusive on the issue of ostensible authority. The passage on which Mr Collecutt relies from Bowstead is thus not on all fours with the factual situation here. [30] Nor do we consider that the Associate Judge's factual findings (above [18]) should have been made so decisively, given the contest between the parties and various factual disputes, solely on the basis of untested affidavit evidence. The Associate Judge has made a number of assumptions which might not be borne out. A robust approach is certainly justified in situations where parties' assertions are untenable or run counter to documentary evidence. But this is not such a case. It may well be that the Associate Judge's findings are vindicated at an ensuing substantive hearing. But we fall short of accepting Mr Collecutt's submission that the appellant's assertions lack credibility. [31] Again, in the factual arena, Mrs He's insistence on changing her solicitors and the odd provision in related agreements that the deposit was to be paid to her own solicitors rather than the vendor's, could well point to the authority of Mr Lowndes, if he had any, being somewhat circumscribed. [32] In short we consider that the central issue before the Associate Judge of Mr Lowndes's ostensible authority was arguable. It must ultimately be a matter of8 F M B Reynolds Bowstead and Reynolds on Agency (18 th ed, Sweet & Maxwell, London, 2006) at [8 – 018].evidence and should not have been decided conclusively in the context of an application to set aside a s 289 statutory demand.Result[33] For these reasons the appeal is allowed and the High Court's judgment of 22 July 2009 dismissing the appellant's application to set aside a statutory demand is quashed. [34] The proceeding is remitted to the High Court for appropriate orders and directions to enable the parties' substantive dispute to be tried.Costs[35] The respondent must pay the appellant's costs for a standard appeal on a band A basis and usual disbursements.Solicitors Bell Gully, Auckland for AppellantGraeme Skeates, Auckland for Respondent