[1] The respondent (Globe) is a property developer. Between 2002 and 2006 the first appellant (Mr Scott) was the manager of Globe’s Auckland office. Under his contract of employment, he was entitled to a commission on sales of apartments in Globe’s developments. He and the second appellant (Thunder Bay), in whose name he issued the invoice, applied for summary judgment to recover commission of $251,580.84 which it was agreed he had earned.
[2] Associate Judge Gendall refused the application.[1] He found that Globe had an arguable cross-claim for breach of contract which, in terms of Grant v NZMC Ltd,[2] so affected the appellants’ claim that it would be unjust to allow them to have judgment without bringing the cross-claim to account.
[3] Mr Scott and Thunder Bay appeal against the decision.

Further background

[4] In June 2002, Mr Scott and Globe agreed that Mr Scott would establish and manage Globe’s property development operations in Auckland. Mr Scott had previously worked for Globe in Wellington selling apartments in its developments on a commission only basis.
[5] The essential terms of Mr Scott’s employment in Auckland were contained in a handwritten memorandum of understanding. The memorandum provided that Mr Scott would be paid $100,000 per annum as a retainer to act as general manager of Globe’s Auckland development operations. This would be paid until either party notified the other that the arrangement was to cease. The memorandum provided that Mr Scott was to work exclusively in promoting and managing Globe’s business. In addition to the retainer, Mr Scott would receive 20 per cent of net profits generated from the development activities of Globe that he set up. The memorandum also recorded that, although marketing agents would generally be used to market the developments, Mr Scott could make some “off market” sales for which he would receive a commission of 3 per cent.
[6] While Mr Scott was employed by Globe, three developments were undertaken. One was an apartment development in Napier. Mr Scott claims to have negotiated the sale of twenty apartments in the development. He issued an invoice in the name of Thunder Bay for $337,642.50, being 3 per cent of the sale price of the contracts he claimed to have negotiated. Globe disputed four of the sales. For the purpose of the summary judgment application, the appellants reduced their claim to $251,580.84 being the commission payable on the sixteen undisputed sales.
[7] In the statement of claim, Mr Scott also claims to recover 20 per cent of the profit on the Napier development and the two other developments. These were not included in the summary judgment application.

Globe’s cross-claim

[8] Globe filed a counterclaim and/or set-off in which it claims that, in breach of the memorandum of understanding, Mr Scott failed to work exclusively in promoting and managing Globe’s business. In evidence filed in opposition to the application for summary judgment, particulars are provided of a number of property development transactions which Mr Scott is alleged to have undertaken while working for Globe. They include the purchase of several properties in Northland by Mr Scott’s companies. One is referred to in an interview published in the New Zealand Herald on 9 December 2006 in which Mr Scott acknowledged that he had bought land at Ruakaka for $21 million “a couple of years ago” and said the land alone would sell for about $150 million after development. A director of Globe, Mr Andrew Fawcett, deposed that, after initially denying involvement in other property development activities, Mr Scott told him that he had been forced to do personal deals because he had been unable to live on just $100,000 a year. He said the developments he had undertaken on his own account were successful and that he had made a profit of $1 million from one of them.
[9] The appellants did not avail themselves of the opportunity to file evidence in response to these allegations.
[10] In opposing summary judgment, Globe submitted that the alleged activities of Mr Scott involved a breach of fiduciary duty giving rise to an entitlement to an account of profits. Globe contended that it would be oppressive in the circumstances to grant the appellants summary judgment.
[11] The appellants asserted there was no arguable defence to the claim for summary judgment. They argued that Globe’s cross-claim was a generalised allegation of breach of obligations of loyalty and exclusivity which were insufficiently linked to the appellants’ claim to provide the basis for a set-off.

Associate Judge’s decision

[12] Associate Judge Gendall quoted the well-known passage from Grant v NZMC[3] as to the circumstances in which a cross-claim will be a defence to an application for summary judgment:

The principle is, we think, clear. The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.

The Judge noted that where a claim in the nature of a set-off is advanced by a defendant, the onus lies on the plaintiff to establish that the claim does not amount to a set-off.

In concluding that it would be unjust to allow the appellants to have judgment without bringing the cross-claim to account, the Associate Judge noted that Mr Scott’s obligation to work exclusively for Globe and the commission entitlement on which he was relying were “part and parcel” of the consideration provided by each party to the agreement. He saw the appellants’ claim and the respondent’s cross-claim as both alleging breaches of what appear to be essential terms of the agreement. He said it was irrelevant that the cross-claim had not been quantified as the account of profits sought would far exceed the claim for summary judgment. He rejected an argument that Globe’s failure to raise the cross-claim at an earlier stage should be taken to mean that the claims were not sufficiently inter-related to allow a defence of set-off. He noted that the entitlement to commissions did not crystallise until December 2006, long after Mr Scott’s alleged breaches of his exclusivity obligations.

[13] Associate Judge Gendall went on to address two matters which had not been argued. The first was the possible implications of Mr Scott not being a licensed real estate agent. The Judge raised this in the course of argument. It had not been pleaded or referred to in the notice of opposition to summary judgment. If Mr Scott had been acting as a real estate agent and not under his contract of employment, s 62 of the Real Estate Agents’ Act 1976 (which was in force at the time of the parties’ arrangements) would disentitle him to sue for his commission. The Associate Judge said that in the absence of argument on the matter, and given the limited information provided as to the true nature of the parties’ working arrangement, he would have been reluctant to grant summary judgment.
[14] The second matter concerned the role of Thunder Bay. Noting that Thunder Bay was not a party to the agreement, but had issued the tax invoice for the commission, the Associate Judge referred to confusion about which of the two plaintiffs was entitled to any commission which may ultimately prove to be payable in light of his decision to decline summary judgment. He suggested that it would be wise to remedy the confusion before the case proceeds to a hearing.

Grounds of appeal

[15] Mr Colthart submitted the two claims are separate and distinct and the appellants’ claim is not called into question or impeached by Globe’s cross-claim. He said the appellants’ claim is for a quantified, liquidated sum relating to a specific development arising under a discrete contractual provision. In contrast, the counterclaim is unparticularised, unquantified and based on a general and unrelated breach of the exclusivity obligation. As he had in the High Court, Mr Colthart also pointed to the timing issue; namely the fact that the sales which entitled Mr Scott to the commission were negotiated in February/March 2004, whereas the development activities allegedly undertaken by Mr Scott did not commence until October 2004.

Decision

[16] There is nothing raised on behalf of the appellants to undermine the Judge’s reasoning or his conclusion. We are satisfied that there is a sufficient linkage between the two claims to make it inequitable for the appellants to proceed to judgment on any part of their claim at this stage.
[17] The linkage is provided by the contract of employment. None of the obligations stands alone. While it is neither necessary nor decisive that both claim and counterclaim arise out of the same contract,[4] the nature of the contractual obligations in issue and their relationship to each other give rise to the requisite quality of interdependence. Each is part of a reciprocal network of obligations. As Associate Judge Gendall said, the exclusivity clause and the commission entitlement are part and parcel of the consideration provided by each party to the agreement. The remuneration package – retainer, share of profits and commission – is an integrated whole. It is artificial to treat the entitlement to commission in isolation from the reciprocal obligation of exclusivity, as Mr Colthart sought to persuade us to do. The fact that the commission payable on sales was a separate component of the contractual package and that Mr Scott had performed his obligations in that regard (possibly at a time when he was not in breach of the exclusivity obligation), does not make it equitable for him to recover without bringing to account allegations that he failed to honour an obligation which was central to his role.
[18] Nor does the fact that Mr Scott’s alleged breach of the exclusivity obligation has yet to be fully particularised or the claim quantified. The equitable right to set-off is not

limited to liquidated cross-claims but extends to unliquidated claims for damages.[5] In Grant the defence was able to raise an unliquidated claim under a separate though collateral contract in defence of a liquidated claim for rent. A set-off was permitted because it was arguable that the defendants entered into the sublease in consideration for a collateral contract to provide them with repair work. Although the claims arose out of separate contracts, they were “interdependent”. In our view, there is no material distinction between the facts in Grant and the facts of the present case. The claims are interdependent. Judgment on one cannot fairly be given without regard to the other.

[19] It is unnecessary for us to express any view on the remaining two issues raised by the Judge. As the possibility of a defence under the Real Estate Agents Act was not raised until the hearing, the evidence was not directed to the issue. If Globe wishes to pursue the defence, it will need to amend its pleadings. We agree that the status of Thunder Bay should be clarified before the case proceeds to a hearing.

Result

[20] The appeal is dismissed.
[21] The appellants must pay costs to the respondent as for a standard appeal on a band A basis together with usual disbursements.

Solicitors:
Knight Coldicutt, Wellington for Appellant
Harkness Law Ltd, Wellington for Respondent

[1] Scott v Globe Holdings Ltd HC Wellington CIV-2008-485-2110, 3 November 2009.
[2] Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).
[3] At 12 - 13.
[4] Grant at 13.
[5] Grant at 11.

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