Harvey Realty Group Ltd v Harcourts Group Ltd HC Auckland CP 334-SD01 [2002] NZHC 40 (5 February 2002)

Last Updated: 14 November 2013

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY

[1] CP 334-SD01

BETWEEN HARVEY REALTY GROUP LTD
First Plaintiff

AND HARVEY CORPORATION LTD
Second Plaintiff

AND HARCOURTS GROUP LTD
First Defendant

AND P WRIGHT & ANOR
Second Defendants

[contd. over]

Date of hearing: 4 December 2001

Counsel: William Akel and Elizabeth Tobeck for the Plaintiffs in CP 334-SD01 and the Defendants in M 949-SD01
Peter McDonald for the First and Second Defendants in CP 334-SD01 and the Plaintiffs in M 949-SD01
Matthew Muir for the Third through Eighth Defendants in CP 334-SD01

Date of judgment: 5 February 2002

JUDGMENT OF CHAMBERS J

Lawyers:
Simpson Grierson, DX CX 10092, Auckland, for the Plaintiffs in CP 334-SD01 and the Defendants in M949-SD01
Peter McDonald, DX CP 20501, Auckland, for the First and Second Defendant in CP334-SD01 and the Plaintiffs in M949-SD01
Buddle Findlay, DX CP 24024, Auckland, for the Third through Eighth Defendants in CP 334-SD01

AND WEST AUCKLAND REALTY LTD
Third Defendant

AND D A RICHARDSON
Fourth Defendant

AND COOPER & CO. REAL ESTATE LTD
Fifth Defendant

AND M R COOPER
Sixth Defendant

AND RYCO HOLDINGS LTD
Seventh Defendant

AND D R & A R LOVE
Eighth Defendants

[2] M 949-SD01

IN THE MATTER of the Illegal Contracts Act 1970

BETWEEN COOPER & CO. REAL ESTATE LTD
First Plaintiff

AND WEST AUCKLAND REALTY LTD
Second Plaintiff

AND HARCOURTS GROUP LTD
Third Plaintiff

AND HARVEY CORPORATION LTD
First Defendant

AND R HARVEY
Second Defendant

AND HARVEY REALTY GROUP LTD
Third Defendant

Rule 418 application

[1] A turf war has developed between two major real estate groups in Auckland. On the one side is Harvey, on the other Harcourts. Harvey claims that Harcourts have persuaded some of their agents to switch camps. Whereas previously the agents were trading under the Harvey name, they are now trading as Harcourts’ agents. Harvey commenced a legal proceeding against Harcourts and the defecting agents. Harvey pleads a number of causes of action. The agents have counter-sued Harvey. They allege that Harvey is wrongly withholding commissions owed to them.

[2] An important part of the defence to Harvey’s claim and of the agents’ claim against Harvey is an assertion that the arrangements which previously existed between Harvey and the agents were illegal, being in breach of the Real Estate Agents Act 1976. Harcourts and the agents have applied under r 418 of the High Court Rules to have that question of illegality determined as a preliminary question. Harvey resists that application. This judgment is concerned with its resolution.

[3] Each of the agents was previously bound to the Harvey group under a written agreement which is termed a ‘licence agreement’. Under that agreement, Harvey Corporation Limited was agreed to be ‘the real estate agent’ and was to hold and control the real estate agent’s licence required under the Real Estate Agents Act. The defendant agents, under their respective agreements, agree that they will operate their businesses ‘as a branch office of [Harvey Corporation]’. Under the Real Estate Agents Act, a real estate agent may have branch offices.

[4] The agents now contend that, contrary to what their agreements stated, they did not operate as branch offices of Harvey Corporation. On the contrary, they say that the licence agreements ‘stipulated for them to carry on the business of real estate agents’. Since they did not hold licences under the Real Estate Agents Act, they were, they say, being required to act illegally. That is because s 16 of the Real Estate Agents Act prohibits any person from carrying on the business of a real estate agent unless he or she is the holder of a real estate agent’s licence.

The questions

[5] Mr McDonald and Mr Muir, who, between them, act for Harcourts Group Limited and the agents in question, both filed applications setting out preliminary questions which they sought to have answered prior to trial. Although the questions were not identical in form, they were in substance. Essentially, the questions were:

[a] Were the licence agreements in breach of the provisions of the Real Estate Agents Act?

[b] If ‘yes’, are they of no effect pursuant to the provisions of the Illegal Contracts Act 1970?

[6] The second question is concerned with whether, if the agreements are illegal, either party to them may be entitled to relief under s 7 of the Illegal Contracts Act and, if so, the nature of such relief.

Reasons for dismissing the applications

[7] The principles applicable under r 418 are well known and do not need repeating here. There was no dispute between counsel as to the applicable principles.

[8] I have formed the clear view that the applications must be dismissed. There are three reasons why I have formed that view. To some extent these reasons overlap.

[9] First, it is unlikely that the questions can be answered without considerable evidence, much of it in dispute. That is often regarded as a factor against the grant of a r 418 application: see Innes v Ewing (1986) 4 PRNZ 10 at 20. Eichelbaum J said it would be appropriate only ‘in rare cases’ to isolate ‘substantial questions of fact . . . to be dealt with separately pre-trial’. Eichelbaum J’s opinion was cited with approval by Barker J in Levi Strauss & Co v Kimbyr Investments Ltd (1992) 5 PRNZ 577 at 579. See too All Seasons Properties Ltd v Smith CA151/96 28 May 1997 at pp 1-2 and Lowe Walker NZ Ltd v Commerce Commission [1998] 3 NZLR 385 (CA).

[10] In particular, the second question is likely to lead to disputed evidence. Harvey, while not conceding the agreements are illegal, has given notice that, if they are, it will be seeking relief under s 7. As is well known, the court’s powers under s 7 are very broad. The court may grant ‘such relief by way of restitution, compensation, variation of the contract, validation of the contract in whole or in part or for any particular purpose, or otherwise howsoever as the Court in its discretion thinks just’. In considering whether to grant relief, the court must have regard to the conduct of the parties, the object of the enactment, and the gravity of the penalty expressly provided for any breach thereof, and such other matters as it thinks proper: see s 7(3). The court can grant relief notwithstanding that the person granted relief entered into the contract or committed an unlawful act or unlawfully omitted to do an act with knowledge of the facts or law giving rise to the illegality: see s 7(4). These analyses would need to be undertaken with respect to each of the licence agreements, because it cannot be assumed at this stage that the same relief would be granted in every case. Relevant circumstances may differ.

[11] It is immediately obvious that the court would require more evidence than is currently on file before it could answer the second question in particular. Mr Muir, recognising the difficulties he faced with respect to the second question, said that it was not essential for it to be answered. He said that, provided the first question was answered, he was confident that the parties would be able to reach a settlement. What divided them at the moment, he said, was a fundamental difference of view as to whether the licence agreements were in breach of the Real Estate Agents Act.

[12] Although the amount of disputed evidence on the first question is likely to be less than on the second, there will still be much disputed evidence for the court to consider before an answer can be given to the first question. So much is obvious from the affidavits filed to date. Mr Muir, in an attempt to overcome this difficulty, suggested that parts of his evidence which were disputed could be ignored for the purposes of the r 418 application. The difficulty with that concession is that Harvey has not yet placed all its evidence before the court. Mr Akel, for Harvey, said that, at this stage, all he had filed was evidence relating to whether leave under r 418 should be granted. If it were granted, then he would almost certainly wish to file further evidence, potentially from some people who had not yet sworn affidavits. Mr Muir, of course, was not able to make any concessions as to evidence he had not yet seen. In addition, Mr Akel submitted that he would certainly want to cross-examine the other side’s witnesses. While Mr Muir might be prepared to limit those witnesses’ evidence-in-chief, he could not limit Mr Akel’s cross-examination, provided such cross-examination was relevant to matters in issue.

[13] There is also, I think, difficulty in any concession limited to a particular application, as Mr Muir’s was. It suggests that the question of law is being determined in the abstract on facts which may turn out not to be accurate. The Court of Appeal reiterated in Alex Harvey Industries Ltd v Commissioner of Inland Revenue CA36/01 30 July 2001 at para 27 ‘the perils of trying to decide a complex question of law in advance of a hearing and a comprehensive determination of facts’. The court said that ‘the relationship of the facts to the law is more often than not impenetrably close, and it is unlikely to promote justice in the individual case or serve the broader requirements of the law to seek to determine questions of law in the abstract’. The court concluded that ‘the greatest caution, if not reluctance, is required before the Court will be prepared to enter upon such an enquiry’.

[14] The second reason why I have formed the view that the applications must be dismissed is that to grant them would almost inevitably lead to substantial delay in resolving these proceedings and substantial extra expense to the parties. The delay and expense would arise from the fact that answering the preliminary questions will not resolve these proceedings. Indeed, it will not resolve even a single cause of action. The alleged illegality of the licence agreements is not central to some of Harvey’s causes of action. Messrs Muir and McDonald expressed confidence that a settlement would be forthcoming if the questions were resolved. That may be right but there is certainly no guarantee of that. Further, as the Court of Appeal made clear in All Seasons, enlisting ‘the help of the views of the Court on matters which may somehow assist settlement negotiations . . . is not the purpose of R 418’ : op. cit at p 2. In my view, the chances are that a subsequent trial might still be necessary. It would inevitably be a much delayed trial.

[15] In addition, there is the strong probability of appeal whatever answer the court gives to the preliminary question or questions. Counsel all agreed that, if the question or questions were answered contrary to their clients’ interests, then an appeal seemed inevitable. That would inevitably lead to delay in setting down and hearing the substantive claims. In addition, it gives rise to the possibility of multiple appeals. In principle, one should try to avoid procedural solutions likely to lead to the Court of Appeal being troubled twice by the same matter. Obviously, it is also undesirable that the parties should have to bear the cost of two appeals rather than just one.

[16] Thirdly, if only the first question were to be answered and if that answer were ‘yes’, then matters would be left in a most unsatisfactory state not only for these parties but also for a number of other Harvey agents. Mr Muir submitted ‘that the licence arrangements under attack are common to numerous other Harveys’ “branches” operating throughout the country.’ If that is so, then all those ‘branches’ would be placed in an invidious position. Were their arrangements also illegal? Should they continue to trade? If they did, would they be at risk of forfeiting commissions? Neither Harvey nor those agents - nor, for that matter, the agents involved in the present proceeding - would know whether, despite such illegality, relief would be granted under the Illegal Contracts Act. Mr Muir submitted that, on the basis of the material before me, I could conclude that ‘the prospects of validation/compensation were remote’. I certainly cannot form such a view at this stage. Nor do I think it likely that a judge dealing with the first question alone could form any view on that as he or she would not have all the relevant evidence before him or her.

[17] In short, therefore, not only would this preliminary question not resolve the proceeding, but, much worse than that, it could lead to a chaotic interim position for not only the present parties but also all Harvey agents. For another case where potential chaos was seen as a ground for refusing a r 418 order, see Talyancich v Cole (1999) 14 PRNZ 195 at para 23.

Result

[18] I dismiss the applications. I direct the registrar to allocate a directions conference as soon as possible.

Costs

[19] Both proceedings are category 2. The parties represented by Mr Akel are entitled to costs on a band B basis. The hearing took half a day. Costs are to be calculated on the basis of a single application in a single proceeding. The calculation is as follows:

4.13 Preparing and filing opposition to interlocutory applications and supporting affidavits:	.6
4.14 Preparation for hearing of defended interlocutory application:	.5
4.15 Appearance at hearing of defended interlocutory application:	.5
	1.6 x $1300
	= $2080

[20] As I understand it, Harcourts is indemnifying the agents. Presumably, therefore, Harcourts will meet the costs order. If there is a dispute how the costs should be paid as amongst the parties represented by Mr McDonald and Mr Muir, that dispute can be resolved by the judicial officer presiding at the directions conference.