JONES-PRICHARD REAL ESTATE LIMITED T/A NATIONAL PROPERTY CENTRE MREINZ V IL VILLAGGIO LIMITED AND ANOR HC AK CIV2006-404-4844

JONES-PRICHARD REAL ESTATE LIMITED T/A NATIONAL PROPERTY CENTRE MREINZ V IL VILLAGGIO LIMITED AND ANOR HC AK CIV2006-404-4844 3 October 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV2006-404-4844BETWEEN JONES-PRICHARD REAL ESTATE LIMITED T/A NATIONAL PROPERTY CENTRE MREINZ Plaintiff AND IL VILLAGGIO LIMITED First Defendant AND HAROLD KEREAMA Second Defendant Hearing: 13 March 2007 26 April 2007 Appearances: G Minchin and A Crabb for Plaintiff G P Blanchard and Mr Russell for First Defendant M Curran for Second Defendant Judgment: 3 October 2007 at 4.00 pmRESERVED JUDGMENT OF ASSOCIATE JUDGE H SARGISSONThis judgment was delivered by Associate Judge Sargisson on 3 October 2007 at 4.00 pm pursuant to Rule 540(4) of the High Court Rules Registrar/Deputy RegistrarDate: Solicitors: Quinn Law, PO Box 3396, Shortland Street,Auckland Kensington Swan, Private Bag 92101, Auckland G E Minchin, PO Box 78274, Grey Lynn, Auckland[1] The plaintiff, Jones-Prichard Real Estate Limited, is a real estate company. It claims summary judgment against the first and second defendants, Il Villaggio Limited and Mr Kereama. The basis of the plaintiff's claim is a written contract giving Jones-Prichard sole master agency rights to sell properties at Il Villaggio's residential development in Hamilton and an associated guarantee given by Mr Kereama, who was at all material times a director of Il Villaggio. [2] Jones-Prichard pleads that it commenced fulfilling its obligations under the master agreement but that Il Villaggio cancelled the agreement without proper cause shortly after the agreement was signed. It contends that as a result it has suffered losses in excess of $2.6m for which Il Villaggio and Mr Kereama are liable. [3] Jones-Prichard's dealings over the master agreement were with Mr Kereama. Mr Kereama signed the agreement on behalf of Il Villaggio and it was he who wrote to Jones-Prichard to cancel the agreement. According to Jones-Prichard, it endeavoured to negotiate with Mr Kereama with a view to the resumption of contractual relations but to no avail. Jones-Prichard therefore decided to commence this proceeding. It filed the proceeding on 11 August 2006 together with its application for summary judgment. [4] Jones-Prichard contends that both defendants have no defence to the claim and it has produced evidence of the master agreement and the guarantee from Craig Peapell, a director. Mr Peapell has also given evidence to support the alleged wrongful termination of the master agreement and the plaintiff's contention that it had done everything that Il Villaggio could reasonably have expected it to do for the purpose of its contractual obligations, in the limited period prior to the termination. [5] The defendants oppose summary judgment but on different grounds. [6] In broad terms, the primary issue for determination in the claim against the first defendant is whether the first defendant has provided an evidential foundation for a defence, in which event, it is common ground that the onus of showing that the defence is not tenable rests with the plaintiff. The question whether or not thesecond defendant is liable on the guarantee need only be determined if Jones- Prichard proves its claim against the first defendant. [7] For reasons I will come to, I am satisfied that Jones-Prichard's claim for summary judgment against the first defendant should be declined. The claim for summary judgment against the second defendant therefore must also fail.The Master Agreement and the Guarantee[8] In its statement of claim, Jones-Prichard alleges that it entered into the master agreement with Il Villaggio on 18 June 2005 and that it obtained the written guarantee from Mr Kereama. By contrast, the case advanced by Jones-Prichard at the hearing was that the master agreement was entered into on 18 May 2005. That was the day Mr Kereama signed the master agreement. However, Jones-Prichard's director, Mr Peapell, did not sign the master agreement at that time. He signed a few weeks later on or about 18 June 2005. Mr Kereama signed the guarantee on 22 June 2005. [9] The master agreement is six page document. The key provision is Clause 2.1. It states:2.1 This exclusive master sole agency agreement will commence on the date of this agreement and will remain in place for a period not less than 1095 working days unless otherwise agreed by both parties in writing.[10] Jones-Prichard also points to other provisions that state: a) The plaintiff is obliged to use its best endeavours to sell the property at prices acceptable to the first defendant in the shortest possible timeframe. b) The plaintiff has the right to appoint subagents, but that the first defendant may not to issue a sub-agency agreement to any other party without the plaintiff's written agreement.c) The first defendant is to pay a total commission of 6% plus GST for each sale and the plaintiff is to be responsible for any sub-agency commissions. [11] The guarantee is a brief statement in the master agreement. It is signed by Mr Kereama and contains his personal guarantee of Il Villaggio's performance of its obligations under the master agreement.The respective positions[12] It is common ground that on 27 July 2005 Mr Kereama sent a fax to the plaintiff advising that the master agreement was cancelled. It is also common ground that the plaintiff did not agree to the cancellation. [13] There is however no commonality about the basis for the cancellation and its legal consequences. The plaintiff says the first defendant's failure to obtain its agreement to cancellation places the first defendant in breach of the master agreement and shows that it refused to perform its side of the bargain. The plaintiff says the result is it has a right to the damages claimed, based on the four causes of action in its statement of claim. For the purpose of summary judgment it relies on three as follows: a) Breach of contract. b) Wrongful repudiation of contract. c) Breach of sole agency. [14] The first defendant says the absence of agreement to cancel the master agreement is immaterial and that there have been no breaches or wrongful repudiation on its part. It advances two primary reasons: a) First, the master agreement was not legally binding because it was signed by Mr Kereama:i) Without the first defendant's actual authority and contrary to the express agreement of the directors of the company; and ii) In circumstances where the plaintiff knew or ought to have known that Mr Kereama acted without authority. b) Secondly, even if the master agreement created contractual obligations between it and the plaintiff, so as to render it liable to perform obligations imposed by the agreement, it was entitled to cancel the agreement and did so because of the plaintiff's failure to perform its obligations. [15] The first defendant also raises a third argument that the master agreement was arguably void for fraud because of an alleged secret commission arrangement between the plaintiff and Mr Kereama, which it contends was part of a wider fraud by Mr Kereama. Mr McCullagh, now the sole director of Il Villaggio, has sworn an affidavit giving evidence of this alleged wider fraud.Principles[16] Rule 136 (1) states:136 Judgment where there is no defence or where no cause of action can succeed.(1) The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to the claim in the statement of claim or to a particular part of any such claim.[17] The outstanding feature of the rule is that the onus of establishing there is no defence is cast on the plaintiff. The concept of no defence is described as "the absence of any real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1, 3. [18] It is for the plaintiff to adduce sufficient evidence to prove its claim. If it does so, there is an evidential onus on the defendant to provide a foundation for any defences that are raised and in order to defeat a plaintiff's application for summary judgment, the defendant must provide sufficient particulars to show that there is anissue worthy of trial. However, once the defendant has provided an evidential foundation for the defence, the onus is on the plaintiff to show that the defence is not genuinely arguable: Pemberton v Chappell at 3. [19] The importance of the plaintiff's overall onus cannot be over emphasised. In this respect, it is worth mentioning the Privy Council's recent decision in Jones v Attorney General [2004] 1 NZLR 433 approving a passage from Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) wherein Elias CJ said:[62] An application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded by the affidavit. It may also be inappropriate where the ultimate determination depends on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated proceedings and affidavit evidence will sufficiently expose the facts and legal issues ... [63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary judgment procedure the sufficiency of the proof of the plaintiff's claim. [20] The decision makes clear how important it is that the plaintiff provides sufficient proof of its claim. [21] The onus is the normal civil standard – the balance of probabilities: Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [61].DiscussionDid Mr Kereama have authority to enter into the master agreement?[22] Putting to one side the question when the master agreement commenced, it is common ground that Mr Kereama was a director at the time he signed the master agreement.[23] I am not able to discount as untenable the possibility of Mr Kereama's not having actual authority to enter into the master agreement. Mr Kereama says he had that authority. Mr Sydney Davies, a shareholder and former director, deposes to the contrary. He says that two directors' signatures were required. [24] Irrespective of who is right, I accept that ordinarily third parties would be entitled to treat Mr Kereama's directorship as ostensible or implied authority to enter into the master agreement. [25] However that is not an end of the matter as Il Villaggio contends that the plaintiff did know, or in the particular circumstances of the case ought to have known, that Mr Kereama lacked authority. I deal with that argument next.Is it arguable that the plaintiff knew or ought to have known that Mr Kereama lacked authority?[26] I am not able to discount as a tenable possibility that the plaintiff knew or ought to have known that Mr Kereama lacked authority to enter into the master agreement. [27] The first defendant points to circumstances or factors to support that possibility. Those factors include: a) The allegedly uncommercial nature of the bargain in the master agreement which was heavily weighted in favour of the plaintiff. In this regard, Il Villaggio relies on the evidence of a Mr Richardson, an independent real estate agent. His deposition is to the effect that the agreement has a number of unusual features, which render it "entirely uncommercial and unduly harsh". b) The plaintiff's own allegation that Mr Kereama requested the plaintiff to enter into a secret commission with him and his own company. Mr Peapell gives evidence that in May or early June, before Mr Peapell signed the agreement, Mr Kereama suggested a variation giving himthe right to 83.3% of available commissions if he sold the property to people known to him personally. Arguably, If Mr Peapell's allegation is right, then the request should have alerted Jones-Prichard to the issue of Mr Kereama's good faith. c) That representatives of Jones-Prichard were not introduced to Mr Sydney Davies, Mr Kereama's co-director, or to any of Il Villaggio's small group of shareholders before the contract was signed. Il Villaggio contends that there is no evidence at all that Mr Kereama presented Il Villaggio's business cards or corresponded with Jones- Prichard on Il Villaggio's letterhead before the master agreement was signed. Il Villaggio also contends that an associate of Mr Kereama, a Mr Wickramasuriya, dealt with Jones-Prichard on behalf of Mr Kereama, but he too did not present Il Villaggio's business cards or use Il Villaggio's letterhead. Il Villaggio's position is that unbeknown to Mr Davies, Mr Wickramasuriya was being paid by Mr Kereama as an employee of Il Villaggio but Mr Wickramasuriya in fact acted at all times on behalf of Mr Kereama. d) A draft marketing proposal that Mr Peapell says was part of the pre- contractual negotiations was not addressed to Il Villaggio. It was addressed to HTK Developments Limited. Mr Kereama was the sole director of a company called HTK Projects Limited. Il Villaggio contends that it was unusual that all pre-contractual correspondence was between Jones-Prichard and Mr Kereama. [28] These factors, taken collectively and if proved, arguably would have put the plaintiff on notice that something was wrong and that enquiry of Il Villaggio's other director was required. Arguably, the plaintiff was put in a position where it should have recognised: a) The need to question and confirm whether signing the master agreement was within Mr Kereama's authority.b) That the only alternative was to turn a blind eye to the possibility that Mr Kereama was acting secretly or fraudulently and without authority. [29] Mr Kereama does not accept the various allegations made against him. However, his denials can only be examined properly at trial.Is it arguable that the plaintiff was in breach in any event?[30] Even if the above conclusions are wrong, I cannot dismiss the possibility that the plaintiff was in breach of its own obligations and that the breach was sufficient to justify the first defendant's cancellation. [31] The first defendant points to several factors as indicating that the plaintiff was not capable of performing its obligations and did not intend to perform them. It says that Jones-Prichard failed to secure a single unconditional offer and did not produce any serious buyers. Jones-Prichard contends that Il Villaggio failed to provide valuations it needed to advance negotiations. Il Villaggio also says that the steps Jones-Prichard says it took for marketing purposes lacked any real substance. For example, Jones-Prichard says it negotiated free furniture packages from Freedom Furniture for a show home. Il Villaggio says that the documentation put forward is not an agreement but merely a list of furniture. The plaintiff says in turn that as Il Villaggio did not provide a show home the negotiations with Freedom Furniture did not come to fruition. [32] The plaintiff says all of Il Villaggio's allegations about performance are spurious, and that they were not raised in July at the time of the purported cancellation. [33] It is not appropriate to try to resolve the various allegations and counter allegations on the affidavit evidence before the Court. Whether or not Jones- Prichard was capable of performing and intended to perform its obligation to use best endeavours to sell at acceptable prices within the shortest possible timeframesrequires an investigation which cannot be undertaken confidentally in the context of the summary judgment application. [34] Summary judgment is suitable for cases where abbreviated proceedings and affidavit evidence will sufficiently expose the facts and legal issues: see Kembla. The facts in this case are not sufficiently exposed by those methods. [35] Given the above conclusions, it is unnecessary to consider the third argument based on fraud.Result[36] I decline the application for summary judgment. [37] In accordance with NZI v Philpott [1990] 2 NZLR 403 (CA) costs are reserved.Next Event/Directions[38] The defendants are to file and serve their statements of defence not later than2 November 2007. [39] The Registrar is requested to allocate an initial telephone conference at the soonest convenient date after 2 November 2007. [40] Counsel are to file and serve memoranda for the purposes of the conference dealing with all relevant matters in Schedule 5 to the High Court Rules. Dated at Auckland on _____________________________ at ___________ am/pm. ______________________________ Associate Judge Sargisson