Coumat Limited v Zest for Realty Limited [2016] NZCA 491 (10 October 2016)

Last Updated: 21 October 2016

IN THE COURT OF APPEAL OF NEW ZEALAND
CA14/2016 [2016] NZCA 491
BETWEEN	COUMAT LIMITED Appellant
AND	ZEST FOR REALTY LIMITED Respondent

Hearing:	29 September 2016
Court:	Winkelmann, Brewer and Toogood JJ
Counsel:	S H Barter and L M Herbke for Appellant R M Dillon for Respondent
Judgment:	10 October 2016 at 11 am

JUDGMENT OF THE COURT

1. The appeal is allowed.
2. The judgment in favour of Zest for Realty Limited for the sum of $446,775 together with interest is set aside. So too is the costs award of the same date.

100. Costs in the High Court are to be dealt with in that Court.

4. The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Winkelmann J)

[1] Zest for Realty Ltd, the respondent, obtained summary judgment against the appellant, Coumat Ltd, for unpaid commission on the sale of property at Whitford (the Whitford land).^[1] Coumat was not, at least on the face of it, party to the agency agreement pursuant to which the commission was payable. Associate Judge Christiansen was nevertheless satisfied that Coumat had no arguable defence to a claim it was bound by the terms of the agency agreement because, he said, Coumat had acknowledged and adopted the agreement and the obligation under it to pay commission.^[2] He entered judgment in favour of Zest in the sum of $446,775 together with interest. Coumat now appeals that decision.
[2] There is little if any dispute as to the factual background to this proceeding. The Whitford land was sold through a tender process by the mortgagee, ANZ Bank. Mr Wayne Allen was the successful tenderer. Around 18 June 2014 Mr Allen executed a deed of nomination in favour of Whitford Property Developments Ltd (WPDL) to complete the tender agreement and take title to the property. Mr Gregory Hayhow was the sole shareholder and director of WPDL but, in an affidavit sworn in opposition to the summary-judgment application, Mr Hayhow said he held half the shares in WPDL on trust for Mr Allen pursuant to a joint venture agreement between them. He said that WPDL was a company created solely to carry out the joint venture in respect of the Whitford land.
[3] On 23 May 2014, before WPDL’s nomination by Mr Allen and before settlement of the tender, Zest and WPDL entered into an agency agreement whereby it was agreed that Zest would onsell the Whitford land on behalf of WPDL. WPDL was named in the agreement as the client and both Mr Hayhow and Mr Allen signed on behalf of WPDL.
[4] The agency agreement provided that Zest would market the land for sale. Commission of 1.85 per cent of the sale price would be payable by the client (WPDL) to Zest immediately upon the contract for sale of the land becoming unconditional. As to the scope of the obligation to pay commission, the client agreed:

If the property or part of it is sold by or through the instrumentality of the Agent or to anyone introduced through the agency of the Agent, the Client agrees to pay a commission ...

[5] Clause 6.1 of the agency agreement contained the following confirmation:

The person signing this form on behalf of the Client confirms that if they are not the sole owner of the Property, he or she has the authority of all owners to sign this agreement on their behalf.

[6] Zest introduced Whitford Village Holdings Ltd (VH) to WPDL and, on 11 June 2014, VH and WPDL entered into a conditional contract for the sale and purchase of the land. The agreement for sale and purchase (the June VH agreement) listed Zest as the real-estate agent on the front of the agreement. Clause 12 of the June VH agreement provided:

If the name of a licensed real estate agent is recorded on this agreement it is acknowledged that the sale evidenced by this agreement has been made through that agent whom the vendor appoints as the vendor’s agent to effect the sale. The vendor shall pay the agent’s charges including GST for effecting such sale.

[7] Also relevant is cl 25 which provided:

The Purchaser and the Vendor agree and the stakeholder is hereby instructed to pay the agents [Zest] their commission owing out of the deposit funds held by the stakeholder prior to disbursal of the deposit funds to the vendors or any other party.

[8] For reasons it is not necessary to explore, the joint venture between Mr Allen and Mr Hayhow fell apart with the result that WPDL could not complete the purchase of the land. The tender contract was cancelled by ANZ for nonperformance on 23 July 2014 and the deposit of $1.25 million that had been paid was forfeited.
[9] It is at this point that Coumat, the respondent, enters the narrative. Mr Hayhow was Coumat’s sole director and shareholder. Around 4 August 2014 Coumat entered into an agreement to purchase the Whitford land. On this occasion the agreement was not with ANZ as, in the intervening period between the first tender by WPDL and Coumat’s agreement to purchase the land, a Mr Bruce had acquired the mortgage, exercising his right to do so as a guarantor of it. Accordingly, the new agreement was between Mr Bruce and Coumat.
[10] Around 12 August 2014, Coumat entered into a deed of novation with WPDL and VH, in respect of the June VH agreement, whereby the rights and obligations passed from WPDL as vendor to Coumat as vendor. Coumat thereby obtained the benefit of the June VH agreement, enabling it to onsell the Whitford land to VH on the terms WPDL had agreed with VH. The deed of novation contains the following clause which is relied upon by Zest:

ACCEPTANCE

4.1 In consideration of [WDPL’s] novation in clause 3 and the Continuing Party’s [VH] consent, release and confirmation in clause 5, Coumat accepts the Novation with the effect that:

a. Coumat is substituted for [WPDL] under the Agreement as if it had originally executed the Agreement in place of Whitford;

b. all references in the Agreement to [WPDL] are to be read and construed as if they were references to Coumat;

c. Coumat may exercise all [WPDL’s] rights under the Agreement;

d. Coumat will perform all of [WPDL’s] obligations under the Agreement; and

e. Coumat accepts liability for any breach of the Agreement by [WPDL] which occurs prior to the Effective Date.

[11] The deed of novation is signed for WPDL and for Coumat by Mr Hayhow.
[12] However, the June VH agreement came to an end on 5 September 2014 when VH and Coumat entered into a separate sale and purchase agreement in respect of the land (the September VH agreement). Although the purchase price remained the same, there was a different amount payable for the deposit and some of the conditions were different. Although the deposit was for a smaller amount, the deposit paid by VH under the June VH agreement was simply transferred to the credit of VH under the September VH agreement. The September VH agreement became unconditional on 4 February 2015. The sale was due to settle on 1 April 2015 but did not do so and the agreement was subsequently terminated. Mr Stephens, the director of VH, provided an affidavit in support of the application for summary judgment in which he said he was later told that the reduction in the deposit in the September VH agreement was a mistake.

High Court proceedings

The parties’ rival contentions

[13] In the High Court, Coumat opposed the application for summary judgment on a number of grounds but principally upon the ground that Coumat was not a party to the agency agreement and was therefore not contractually obliged to Zest to pay the commission.
[14] Mr Barter for Coumat argued not only was there no contractual relationship between Coumat and Zest, there was no compliance with s 126 of the Real Estate Agents Act 2008 which requires, as a precondition to an entitlement to commission, that a written agency contract exist between the agent and the party against whom a commission claim is made. Section 126 provides as follows:

126. No entitlement to commission or expenses without agency agreement

(1) An agent is not entitled to any commission or expenses from a client for or in connection with any real estate agency work carried out by the agent for the client unless—

(a) the work is performed under a written agency agreement signed by or on behalf of—

(i) the client; and

(ii) the agent; and

(b) the agency agreement complies with any applicable requirements of any regulations made under section 156; and

(c) a copy of the agency agreement signed by or on behalf of the agent was given by or on behalf of the agent to the client within 48 hours after the agreement was signed by or on behalf of the client.

(2) A court before which proceedings are taken by an agent for the recovery of any commission or expenses from a client may order that the commission or expenses concerned are wholly or partly recoverable despite a failure by the agent to give a copy of the relevant agency agreement to the client within 48 hours after it was signed by or on behalf of the client.

(3) A court may not make an order described in subsection (2) unless satisfied that—

(a) the failure to give a copy of the agreement within the required time was occasioned by inadvertence or other cause beyond the control of the agent; and

(b) the commission or expenses that will be recoverable if the order is made are fair and reasonable in all the circumstances; and

(c) failure to make the order would be unjust.

(4) This section overrides the Illegal Contracts Act 1970.

[15] These are the same arguments now advanced on appeal. Mr Barter says that the Associate Judge was wrong to reject them.
[16] Zest’s arguments in the High Court are also repeated in this Court. Zest does not contend that the various transactions were structured by WPDL and Coumat to avoid paying the commission. But Zest maintains that, notwithstanding the complicated contractual terrain created by these transactions in which Coumat, not a named party to the agency agreement, made its own arrangements to purchase the land and then entered into its own agreement with VH (the September VH agreement), Coumat is nevertheless obliged to pay Zest commission.
[17] Counsel for Zest, Mr Dillon, acknowledges Zest’s right to receive commission lies in the agency agreement. However, he argues that Zest can link Coumat to the agency agreement through three agreements, which he characterises as three links in a chain. Zest’s “links in a chain” argument begins with cl 6.1 of the agency agreement in which “[t]he person signing on behalf of the Client” acknowledged that, if not the sole owner of the property, “he or she” had the authority of all owners to sign the agreement on their behalf. Zest says that, in circumstances where WPDL did not yet own the property, cl 6.1 must be read as an assertion by WPDL of authority to enter into the agreement on behalf of future owners, whichever entity, connected to WPDL, ultimately took title to the property.
[18] Zest then refers to cls 12 and 25 of the June VH agreement as the second link in the chain. Zest accepts that it cannot rely upon these clauses on their own as creating an obligation for Coumat to pay the commission or as compliance with the requirements of s 126 of the Real Estate Agents Act. But it says they do evidence an acknowledgment by WPDL of the obligation to pay commission to Zest in respect of the sale.
[19] The third link is cl 4 of the deed of novation. Coumat agreed with VH and WPDL it would perform WPDL’s obligations under the June VH agreement including the obligation to pay commission. Mr Hayhow signed that agreement for WPDL and for Coumat. As the sole director of Coumat, Mr Dillon argues, Mr Hayhow’s knowledge of the agency agreement and the obligation to pay commission is the knowledge of Coumat. Coumat’s confirmation of an intent to perform WPDL’s obligation to pay commission under that agreement, with full knowledge of the source and nature of that obligation (through Mr Hayhow) is evidence that Coumat thereby ratified the obligation to pay a commission under the agency agreement. Taken together, cl 4 of the deed of novation and cls 12 and 25 of the June VH agreement amount to a ratification of the agency agreement by Coumat. This has the effect of substituting or at least adding Coumat to WPDL as the client in the agency agreement.^[3]
[20] Through these three links in the chain Zest says that Coumat ratified the original agency agreement and, since the original agency agreement was in compliance with s 126, it may be enforced.
[21] We record that in written and oral argument before us Zest expressly eschewed reliance upon any argument that the deed of novation effected a novation of the agency agreement, replacing WPDL with Coumat. Mr Dillon also confirmed that Zest does not rely upon an argument under the Contracts (Privity) Act 1982 that cls 12 and 25 were enforceable by Zest, so obligations to Zest were assumed by Coumat under the deed of novation. It acknowledges the obligations under the June VH agreement were not directly enforceable by Zest.

High Court judgment

[22] The Associate Judge correctly directed himself that to succeed on a summaryjudgment application Zest had to show that Coumat had no arguable defence to Zest’s claim for commission.^[4] He was satisfied that Zest had met that threshold. He accepted Mr Dillon’s argument that Mr Hayhow was the directing mind and will of both WPDL and Coumat. He said that, in the agency agreement, Mr Hayhow acknowledged acting on behalf of the owner.^[5] Since WPDL never became the owner of the land, “Mr Hayhow’s acknowledgment of acting on behalf of the actual owner must have been made on behalf of [Coumat] for the agency contract contains his acknowledgment of having signed that he has the authority of the owners”.^[6] That this was so was confirmed by the terms of the deed of novation.^[7] The obligation to pay commission was expressly stated in the June VH agreement and the deed of novation confirmed the agency of WPDL for Coumat, when signing the agency agreement with Zest and agreeing to pay commission.^[8]
[23] The Associate Judge also saw significance in the treatment of the deposit paid under the June VH agreement. When the September VH agreement was entered into, the deposit was simply applied against that agreement even though the deposit required was less than that required under the June VH agreement.^[9] The Associate Judge accepted counsel for Zest’s submission that the treatment of the deposit was clear evidence the agency agreement was signed by WPDL on behalf of Coumat.^[10]
[24] The Associate Judge said that the situation was not changed by Coumat’s entry into the September VH agreement.^[11] VH was introduced to Coumat by Zest, although through the intermediary of WPDL. Coumat entered into an agreement to sell the property to VH. That agreement became unconditional. Therefore, the Associate Judge reasoned, Coumat was obliged to pay the commission under the agency agreement it had ratified.

Discussion

[25] It is not a controversial proposition that where A (agent), without authority, purports to contract with X for and on behalf of P (principal) and P subsequently ratifies and adopts the contract, the relationship of principal and agent arises between P and A, and the contract becomes enforceable between X and P.^[12] That is, in substance, Mr Dillon’s case for Zest.
[26] But we consider it is by no means a straightforward proposition that:

• (a) WPDL contracted with Zest as an agent acting on behalf of owners other than itself;
• (b) Coumat was an owner on whose behalf WPDL purported to act;
• (c) Coumat was sufficiently identified at the time of the agency agreement to enable it later to adopt and ratify the agreement; and
• (d) Coumat did ratify the agency agreement.

(a) Did WPDL contract with Zest on behalf of owners other than itself?

[27] We begin with the first link in the chain identified by Mr Dillon: cl 6.1 of the agency agreement. Zest argues cl 6.1 distinguishes between client and owners and, in that clause, the client represents itself as having the authority of all owners to bind them to the obligations contained in the agency agreement. The meaning of cl 6.1 is not clear cut. The first point to be made about its interpretation is that it is a clause designed to operate in a variety of circumstances and is not tailored to Zest’s dealings with WPDL. As a clause of general application it can be read as operating in circumstances where the “Client” is several individuals or a partnership, or is represented by several people (such as would be the case with a trust) but where the agreement is not signed by all of the clients (all of the individuals, partners, trustees). On this interpretation, cl 6.1 is not a representation by the client that it has the authority of all owners (future owners in this case) to commit them to the various obligations under that agreement but rather a representation that the person signing the form has authority to bind the client named in the agreement.
[28] We consider that this interpretation is strongly supported by the fact that the representation is stated to be that of the person signing and not of the client. It is also supported by the fact that the agreement refers throughout to the obligations being those of the client. It does not, for example, say “the client (and other owners)” will pay commission. And it is also supported by the description next to the place for signature for the client: “Signature(s) of Client or authorised person.” We note that the interpretation of the clause we set out is fatal to the “links in the chain” basis upon which Zest brings its claims and is also not an interpretation which was addressed by the Associate Judge.
[29] But even accepting Zest’s argument as to the meaning and effect of cl 6.1, there is no evidence that WPDL intended to contract as agent for another entity at the point in time it entered into the agency agreement. The context in which the agency agreement was signed suggests that WPDL was signing on its own behalf and not acting as agent for another, as WPDL was the intended vehicle for the joint venture. Clause 6.1 is included simply because this is a standard form document. It is not a representation by WPDL that it is acting as agent for any other.

(b) Was Coumat an owner on whose behalf WPDL purported to act?

[30] Next, even if we accept for the sake of argument Zest’s claim that in cl 6.1 WPDL represented it had the authority of future owners to enter into the agency agreement, the question becomes whether WPDL was purporting to contract on behalf of Coumat as a potential future owner. Zest recognised that it had to find some natural limit upon the class of future owners WPDL was purporting to represent because of the unattractive prospect that its argument could have WPDL purporting to bind all future owners of the land. Zest says therefore that there must be a sufficient link between client and owner and, on the present facts, Mr Hayhow and the deed of novation provide that link.
[31] There is no evidence Coumat was on the horizon as a potential owner at the date of the agency agreement. It is hard to see how, as a matter of contractual interpretation, the meaning of “owners” could extend to “owners not within WPDL’s contemplation as future owners” at the time WPDL entered into the agency agreement. And to extend WPDL’s representation of authority to Coumat would extend it to an owner that did not even acquire its interest in the land through WPDL’s successful tender, which seems a difficult proposition to sustain.
[32] These arguments in relation to issues (a) and (b) relating to the proper interpretation of cl 6.1 are arguments that Coumat can make in its defence. We consider they are best assessed within the overall factual matrix. We also consider they provide arguable defences for Coumat which make Zest’s claim inappropriate for summary judgment.

(c) Was Coumat sufficiently identified at the time of the agency agreement to enable it later to adopt and ratify the agreement?

[33] The issues we have identified to date are all closely linked to this issue. It is well established that for a principal to ratify and adopt a contract made without its authority, it must be sufficiently identified in the contract as the principal. Unidentified principals cannot adopt and ratify a contract.^[13] Although Zest might try to argue that Coumat is sufficiently identified as the principal by the term “owners”, we have already noted that, as a matter of contractual interpretation, it is difficult to argue Coumat is within the term “owners” (even were we to accept Zest’s submission that cl 6.1 is a representation by WPDL of authority to contract on behalf of future owners).
[34] It is also well established that where the (alleged) agent does not even have the principal (or the entity claiming to be the principal) in mind at the time of entering into the contract, there can be no ratification by that principal.^[14] The evidence suggests that WPDL was contracting on its own behalf and not as agent for any other entity, let alone Coumat.

(d) Did Coumat ratify the agency agreement?

[35] Even if these problems could be surmounted, it is a question of fact whether there has been a ratification of an agent’s entering into a contract on behalf of a principal. The deed of novation is relied upon as that act of ratification. It seems to us as arguable that it is no such thing but, rather, an assumption by Coumat of WPDL’s obligations to VH. Although WPDL could sue Coumat for performance of the obligation to pay commission (if the June VH agreement had become unconditional and the obligation had thereby accrued), there is nothing in the deed of novation which suggests Coumat intended to create rights exercisable against it by Zest.
[36] The evidence in relation to the application of the deposit from the June VH agreement to the credit of the September VH agreement does not affect this view. We do not see its relevance to the issues between Coumat and Zest.

Conclusion

[37] It follows that, on the basis of the evidence filed in the context of the summaryjudgment application, there are significant difficulties for Zest in arguing that Coumat ratified and was bound by the agency agreement. We are satisfied that Coumat does have arguable defences to Zest’s claim for payment of commission and that the Associate Judge erred in entering summary judgment in Zest’s favour.
[38] Mr Barter advanced other arguments in support of Coumat’s appeal in relation to non-compliance with s 126 of the Real Estate Agents Act. Given the view we have taken on the primary contractual issue, we do not need to consider those further arguments.
[39] We note that Mr Dillon submitted that were this appeal to be successful, the floodgates might open clearing the way for vendors to avoid the obligation to pay commission by entering into deeds of novation in agreements for sale and purchase, substituting some other entity as vendor. This argument does not deter us from allowing the appeal. The first point to be made is that the vendor would not thereby be relieved of its contractual obligations under the agency agreement. The second point is that our decision is at this point limited to a finding that Coumat has arguable defences to the claim for commission so that summary judgment should not have been entered.

Result

[40] The appeal is allowed.
[41] The judgment in favour of Zest for the sum of $446,775 together with interest from 4 February 2015 at the rate described pursuant to the Judicature Act 1908 is set aside. So too is the costs award of the same date.
[42] Costs in the High Court are to be dealt with in that Court.
[43] The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Barter Law, Auckland for Appellant
Queen City Law, Auckland for Respondent

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^[1] Zest for Realty Ltd v Coumat Ltd [2015] NZHC 3130 at [85].

^[2] At [80].

^[3] Mr Dillon was not clear in submissions as to whether Coumat replaced or was simply added to WPDL as a client.

^[4] Zest for Realty Ltd v Coumat Ltd, above n 1, at [21].

^[5] At [72].

^[6] At [72].

^[7] At [73].

^[8] At [80].

^[9] At [64].

^[10] At [79].

^[11] At [77].

^[12] Bird v Brown [1850] EngR 173; (1850) 4 Exch 786 at 798[1850] EngR 173; , (1850) 154 ER 1433 at 1439.

^[13] Keighley, Maxted & Co v Durant [1901] AC 240 (HL) at 244. We clarify that this rule applies where the agent did not have authority at the time the agreement was entered into. If the agent did have authority, the issue of ratification does not arise. The undisclosed principal is bound by the contract and can also enforce it. See Peter Watts and FMB Reynolds Bowstead and Reynolds on Agency (20th ed, Sweet & Maxwell, London, 2014) at [2–061].

^[14] Watson v Swann [1862] EngR 367; (1862) 11 CB (NS) 756 at 771[1862] EngR 367; , (1862) 142 ER 993 at 999 (Comm Pleas).