Hooker v Stewart CA33/89 [1989] NZCA 407; [1989] 3 NZLR 543; (1988) 2 NZBLC 103,636 (30 June 1989)

Last Updated: 21 May 2021

IN THE COURT OF APPEAL OF NEW ZEALAND C.A. 33/89

BETWEEN ROBERT JOHN HOOKER

Appellant

AND ALAN JAMES STEWART

and

MOLLY ELIZABETH STEWART Respondents
Coram: Richardson J (presiding)

Casey J
Bisson J

Hearing: 30 June 1989
Counsel: T E Sissons for Appellant

S R Maling and G D Jones for Respondents

Judgment: 30 June 1989
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JUDGMENT OF THE COURT DELIVERED BY CASEY J

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Mr Hooker, a real estate salesman of Christchurch, appeals against a judgment of Tipping J in favour of the respondents, Mr & Mrs Stewart, for $77,912.15 plus interest and costs under their claims against him for his breach of professional duty as their agent on the sale of their two home ownership units. These had been on the market in 1985 at $84,950 and $87,950 respectively and the Stewarts were prepared to leave in $40,000 on each on first mortgage at 10% for one year.

On 5 December of that year Mr Hooker brought a Mr Owen round to inspect the properties. The former was employed by a real estate firm but the Stewarts had had no dealings with him previously nor had they met Mr Owen. Later that evening Mr Hooker returned with two offers from Mr Owen on his real estate employer's form, and on the evidence accepted by the Judge the price was satisfactory but the vendors queried the proposal that their mortgage was to be a second mortgage for a year and interest free. Mr Stewart asked Mr Hooker about this and he replied that Mr Owen wanted it that way because he was able to obtain first mortgage money at a cheaper interest rate.

The offer for one unit was made by Mr Owen on behalf of Madras Developments, and the other on his own behalf or that of his nominee. There were provisions for guarantees from him and his companies for the second mortgage. This type of arrangement was new to the Stewarts and Mrs Stewart told the appellant they would like to consult their solicitor before they signed. The appellant replied that such an agreement had never been queried by any solicitor and the Judge found that without this assurance the vendors would have seen their solicitor before signing. The Judge was also satisfied that Mr Hooker told the Stewarts that Mr Owen was a millionaire and he owned hundreds of properties around Christchurch. He concluded that as a result of these assurances the Stewarts were led to believe that the buyer was a man of substance and that they were given to allay any concern they might have had about the proposal that their money should be left in on second mortgage. He also found that they were relied on by the vendors and as a result they entered into two contracts on 5 and 6 December respectively, selling one unit for $80,000 and the other for $79,000, settlement to be within 14 days.

The agreements went to their solicitor on 6 December and on the following Monday (9 December) he rang to express his concern about the second mortgage proposals and in particular about the fact that there was no limit to the amount or terms of the first mortgage. The vendors had assumed that the purchaser would have been left with some reasonable equity in the properties after the mortgages. Their solicitor's attempts to protect them were unsuccessful and in the light of their understanding that the agreements were probably binding, the Stewarts decided to complete the contracts, assisted in this resolution by Mr Hooker's further assurances (as found by the Judge) of Mr Owen's financial position and that there was nothing to worry about.

The latter borrowed $56,000 on one unit and $59,500 on the other at 27% interest. Some six months after the transactions he defaulted; the units were sold by the first mortgagee and there was a surplus of about $1,200 on one unit and $1,800 on the other which went to the Stewarts, leaving a balance outstanding on the second mortgages of $38,784 and $38,120 respectively which, with legal fees, added up to a total loss of $77,912.15.

The Stewarts sued Mr Hooker, the guaranteeing companies and Mr Owen. The latter has disappeared overseas while it is accepted that none of the other guarantors is of any substance. The claim effectively proceeded against Mr Hooker only. The Judge rejected allegations of fraud, but had no difficulty in finding that he was in breach of the duty of care he owed to his vendor clients as an estate salesman, both in respect of the assurances of Mr Owen's financial position and in dissuading them from taking legal advice before signing the contracts. He was satisfied the statements were incorrect and made carelessly, and were relied on by the vendors and caused their loss. Further, he found Mr Hooker at fault in not putting a limit on the first mortgage, or at least in failing to warn the Stewarts of the risks in accepting an offer in that form. The nature of their loss was clearly foreseeable, but the defendant pleaded that his negligence did not cause it; alternatively, that the Stewarts failed to mitigate or were guilty of contributory negligence. The Judge rejected those propositions.

The appellant does not challenge the finding of breach of duty. In this Court Mr Sissons focussed on the issues of mitigation and contributory negligence, and submitted that the matters relied on under those headings could also be seen as the real cause of the Stewarts' loss, eclipsing the effects of the appellant's breach of duty. It is clear that from the moment he read the contracts the Stewarts' solicitor was concerned with the finance provisions and informed them promptly. When he took it up with the solicitors for the purchaser he was told their client would sue if the vendors did not complete. He discussed the matter with the Stewarts, who were left with the impression that they could face litigation if they did not go ahead with the sales and they made up their minds to settle them under the contracts.

Their solicitor had attempted to persuade the other side that the terms of the contract called for a limit on the first mortgage, but this view was firmly rejected. He said he did not think to enquire about whether the deposits had been duly paid. Mr Sissons submitted that in his position, faced with contracts which could involve his clients in a substantial loss, he should have explored this question. Each agreement required a deposit of $3,500 to be paid immediately on acceptance. A statement of account from the agents to the vendors' solicitor, forwarding the cheques for the balance of the deposit paid less commission, and dated 18 December, was produced in evidence. It referred to the deposits as having been paid on the previous day, 17 December. However, our attention was drawn to a letter dated 16 December from the purchaser's solicitor which said (inter alia) : "We would also advise that our client has paid the deposit and we are informed that in fact your client has authorised the disbursement of that sum on an unconditional contract." The letter went on to say that they would be ready to settle in full in terms of the contracts on 20 December.

This statement was clearly at odds with the advice in the agent's statement that the deposit had been paid after the date of that letter, namely on 17 December, and reinforces the Judge's concern over the lack of any satisfactory evidence about when the deposits were in fact paid. In his evidence Mr Hooker did not throw any light on the question - he simply could not remember when he had received them. The solicitor's letter leaves open the conclusion that what should have taken place under the contract in regard to the deposits may very well have occurred, in spite of the entry in the statement of account. That was a handwritten document emanating from the real estate office, and there may have been a simple error over the payment date. It may also reflect the possibility that the purchaser's cheques were not banked until then, after the expiry of the requisite period during which a deposit must be held by the agent.

Apparently the question of the deposit was not raised by the appellant in the action until the beginning of the hearing in the High Court, which may account for the lack of evidence and the uncertainty of his recollection. As Mr Maling said, it hardly lay in Mr Hooker's mouth to raise this point since he, as vendors' agent, was expected to obtain the deposits and advise his clients if they were not duly paid. Assuming the vendors' solicitor should reasonably have made enquiries into this aspect when he received the contracts and realised their deficiencies, the state of the evidence is such that it cannot now be said with any confidence there were grounds to cancel them immediately without any risk of litigation. We note that the Judge expressed the view, but with considerable reservations, that the deposit was probably not paid until 17 December, by reference to the dates in the statements. However, he did not mention the extract we have quoted from the letter of 16 December, but even without its aid he said :
"It is impossible for me to say on the state of the evidence as to whether or not the Stewarts had good grounds to cancel for late payment of the deposit."

We think this conclusion was clearly justified; on this point the evidence can now be seen as quite equivocal. Accordingly it was not established that the contracts could have been cancelled for late payment. The question of whether or not the vendors' solicitor acted reasonably in not making appropriate enquiries becomes irrelevant to any enquiry about mitigation or contributory negligence, even assuming they are bound by his actions.

Mr Maling submitted that in any event there may well have been doubts about the right of cancellation, having regard to the very strict time frame of the contract and the purchaser's insistence that the contracts were to proceed after the vendors had acknowledged payment of the deposits. He suggested that there was a risk that any attempted cancellation would have led to litigation, and referred to the recognition of exceptional circumstances in such cases as Boote v R.S.Shiels & Co.Ltd. {1978 1 NZLR 445. We make no comment on that submission. However, it brings us to the other matters raised by Mr Sissons, in all of which it looked very likely to the Stewarts that litigation would have been involved.

It is common ground that in considering the question of mitigation and that of contributory negligence, the test is one of reasonableness and the position with regard to the former is succinctly stated in 12 Halsbury (4th edn) para 1194 : "Standard of conduct required of the plaintiff" The plaintiff is only required to act reasonably, and whether he has done so is a question of fact in the circumstances of each particular case, and not a question of law. He must act not only in his own interests but also in the interests of the defendant and keep down the damages, so far as it is reasonable and proper, by acting reasonably in the matter. One test of reasonableness is whether a prudent man would have acted in the same way if the original wrongful act had arisen through his own default. In cases of breach of contract the plaintiff is under no obligation to do anything other than in the ordinary course of business, and where he has been placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the defendant whose breach of contract has occasioned the difficulty. Similar principles apply in tort." Much of this also accords with the obligation imposed on a party against whom contributory negligence is alleged, to take reasonable care to safeguard his own interests.

Reasonableness must be judged in the circumstances as they appeared to the Stewarts at the time. Throughout this period they had sought and received advice from their solicitor, who had tried to persuade the purchaser's solicitor that the reference in the contracts to the second mortgage advances "being secured on the property" meant that if their client raised two-thirds of the value on first mortgage, the second mortgage would only be partially secured, not secured on the property. This view was rejected out of hand in their reply of 16 December to which we have already referred. They pointed out that in addition to the mortgage itself there were the personal and company guarantees to support the advance. The letter continued with a threat of prompt legal action if the vendors defaulted.

Mr Sissons advanced that interpretation in the High Court, but in this Court he submitted that there was an implied term in the contracts that the total of the mortgages and the deposit would not exceed the price paid. He relied on the decision of Anderson J in Broadley v McAlpine (Auckland Registry CP 870/87; 19/5/88). There is, however, a very different situation here from the commercial business loan forming the subject of the contract at issue in that case. We see this arrangement as essentially a concession to a buyer in allowing the balance of the purchase price to stay in for one year without interest. It had the obvious advantage of enabling the vendors to achieve a better price overall, and a quicker sale of their properties. It does not follow that a limit on the first mortgage was needed to give the contracts business efficacy. But the important point is the one made by the purchaser's solicitors namely, that the principal was to be secured not only over the property but by the guarantees as well. We mention these matters to show that the legal position may not have been at all as clear to the Stewarts and their solicitor as Mr Sissons now suggests; nor can it be said that the solicitor's view of the meaning of the contracts was any less contentious.

Mr Sisson's next point was that the vendors, instead of settling on the due date of 20 December, should simply have sat back and awaited developments. This would have involved calling Mr Owen's bluff and inviting him to carry out his threat to sue. The Stewarts were criticised for failing to take this course because of other commitments they had entered into; and it was also submitted they had formed the view that the estate agency would be liable for any loss. With that assurance they were led to reach their decision to resign themselves to their situation and proceed with the deal, in spite of their solicitor's advice that they had (as the Judge put it) an arguable case in any litigation that might ensue if they elected not to proceed.

We are not impressed by the suggestion that a possible claim against the real estate agents influenced their decision to proceed with the sale, even though their solicitor had written holding that agency liable at the time. Mr Stewart said in evidence he thought that letter amounted to no more than a justified complaint. Nor does there seem to be any real basis for thinking they had other commitments which prompted their decision to go ahead and take their chances with the sale. Although their solicitor referred to such commitments when advising the other side that the transactions would proceed under protest, in his evidence he was clearly unsure of his reasons for saying this. Mr Maling referred us to evidence from the Stewarts showing that in the purchase of a business for $17,500 they had already arranged finance. A decision to purchase a house was not made until the day after their decision to settle these particular sales.

Their decision to settle was made in the light of a realistic appraisal of their position. They were faced with what could have been costly litigation with a buyer who appeared to be a wealthy property owner ready to go to Court to enforce his contracts. It was also made in the light of the further assurances which the Judge found Mr Hooker had given them after their solicitor had initially explained his doubts about the contract. Mr Stewart said at p.22 in his evidence : "Later on in the afternoon of Monday Mr Hooker came around with agreements for us. I told him at that stage of our solicitor's concerns and I asked him if he knew how much Mr Owen was going to be raising as a first mortgage. He said that he didn't know how much he was raising but again put our minds at rest by restating that Mr Owen was a millionaire, he had been in business in Christchurch for 15 to 20 years, he owned hundreds of properties and that he has never had any problems at all. Again he also said that he had acted in the way of buying a number of properties for Mr Owen."

It was hardly surprising that against this background the Stewarts made their decision to accept the situation and settle. They had on the one hand the threat of litigation from a seemingly wealthy man who was determined to go ahead and sue, and on the other the assurances from the appellant that they had nothing to worry about. We agree with the Judge that in all the circumstances they acted reasonably, and that the submissions based on contributory negligence and failure to mitigate their loss must fail. It follows that we also agree there is no merit in the points raised about causation. Neither the respondents nor their solicitor can be said to have acted in a way which can relieve the appellant of liability for the full loss sustained. As we are generally in agreement with the Judge's conclusions, the appeal must be dismissed. The appellant is legally aided. We make an order in favour of the respondents for costs and disbursements, including travelling and accommodation expenses for one counsel, up to a figure not exceeding the amount of the appellant's contribution. We certify under s 6 of the Legal Aid Act that if he had not been legally aided we would have made an order against him for costs of $2,000 together with costs and disbursements, travelling and accommodation expenses to be fixed by the Registrar.