CBRE (Agency) Limited v Martelli McKadam Solicitors Nominee Company Limited [2014] NZHC 805 (16 April 2014)

Last Updated: 14 May 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-000112 [2014] NZHC 805

BETWEEN	CBRE (AGENCY) LIMITED Plaintiff
AND	MARTELLI MCKADAM SOLICITORS NOMINEE COMPANY LIMITED Defendant

Hearing:	4 April 2014
Appearances:	Mr R B Stewart QC for Plaintiff Mr A J Steele for Defendant
Judgment:	16 April 2014

_{JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

This judgment was delivered by me on

16.04.14 at 4 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

CBRE (AGENCY) LIMITED v MARTELLI MCKADAM SOLICITORS NOMINEE COMPANY LIMITED [2014] NZHC 805 [16 April 2014]

[1] The plaintiff seeks summary judgment in the sum of $35,024.06 for real estate agent’s commission which it claims to have earned on the sale of a property pursuant to an agreement for sale and purchase entered into 7 April 2011.

[2] The plaintiff was engaged to market and sell the property owned by Eden Holdings Limited (“Eden”) a company which is now in liquidation. Eden had given a first mortgage over the property to the defendant. In January 2011 the defendant as mortgagee served a default notice pursuant to s 122 of the Property Law Act 2007 on Eden. It was apparently those events which had caused Eden to take steps itself to sell the property. However, the defendant took a close interest in and engaged in discussions with Eden and its director, Mr Gilbertson about the proposed sale of the property.

[3] Apparently Eden had obtained the advice of a registered valuer prior to making arrangements for the sale of the property which indicated that the likely price could be $900,000 or thereabouts.

[4] On 8 February 2011, the plaintiff and Eden entered into the contract of retainer. The parties agreed the basis upon which commission would be calculated on the sale.

[5] Eden and the plaintiff agreed that the property should be sold by auction. In February 2011 Mr Johnson, a partner in the firm of Martelli McKegg Wills and Cormack (“Martelli McKegg”) which was acting for the defendant, sought information from Eden and CBRE concerning the latter’s marketing proposal and sought copies of the weekly marketing report.

[6] On 28 February 2011 the plaintiff meet with Martelli McKegg to discuss its proposed sale process and marketing. That was followed up by Martelli McKegg seeking particulars of the plaintiff’s commission calculation for the purpose of calculating the reserve sale price. The plaintiff supplied this information to Martelli McKegg.

[7] On Tuesday 1 March 2011, Martelli McKegg sent an email to the plaintiff which is a pivotal document in these proceedings. The email was addressed to Mr Gilbertson and read as follows:

We meet (sic) with Collin Stewart of CBRE yesterday. He is one of the agents you have appointed to conduct the marketing and sale of the property.

In relation to the proposed sale we need to confirm with you a number of matters.

1. The reserve should be $720,000 plus GST if any. This is the figure referred to in the Seagars valuation.

2. The auction is set for 22 March 2011.

3. The deposit needs to be paid to CBRE who after deduction of its commission will pay the proceeds into our trust account. (emphasis added)

4. Settlement is to be set one month after the auction.

5. We understand the only basis that caveators will release their caveats is if the settlement sums (after deduction of your reasonable legal costs on the sale, together with rates, etc) will be paid into our trust account. We will hold the funds until either agreement of the charge holders and caveators or Court order.

6. We will need to review the terms of the proposed sale and purchase agreement under auction before it is circulated.

....

If the above is not acceptable you will need to move to sell the property by way of mortgagee sale. As you are aware the PLA notice expires on 4 March 2011. We look forward to hearing from you as a matter of urgency.

[8] In the event, the auction sale went ahead on 29 March rather than the

22 March that Martelli McKegg had proposed.

[9] On 15 March at the request of Martelli McKegg, Mr Stewart of the plaintiff forwarded to Ms Keam who was a director of the defendant and a member of Martelli McKegg, a copy of the draft conditions of sale. They were also sent to Mr Gilbertson on the same date. On 15 March Ms Keam stated in an email to Mr Stewart “we had requested for the deposit to be paid here”, that is, to Martelli McKegg. On 17 March Ms Keam, this time in an email to Mr Gilbertson said:

Please confirm by return that it is agreed that the deposit is to be paid here. This is very important to us.

[10] Eden confirmed that it was acceptable and the conditions of sale were changed to provide for a deposit of 10 per cent to be paid to Martelli McKegg. Mr Stewart who was the employee of the plaintiff who was dealing with the matter, confirmed on 28 March 2011 acceptance of the requirement that the deposit be paid to Martelli McKegg. He also amended the conditions of sale for the auction to reflect that fact.

[11] On 29 March the sale took place but the property was passed in. Subsequently following the auction there were negotiations and a price of $832,000 was agreed with the purchaser.

[12] The deposit under the agreement was paid to Martelli McKegg on 12 April

2011 and the balance of the purchase price was eventually paid to Martelli McKegg as well.

[13] In due course the plaintiff requested Martelli McKegg to pay its commission out of the funds held. They declined to do so. The plaintiff alleges that the defendant is therefore in breach of an agreement which the parties entered into, that agreement reflecting the terms of the email of 1 March 2011 and in particular paragraph 3 of that email which provided:

3. The deposit needs to be paid to CBRE who after deduction of its commission will pay the proceeds into our trust account.

[14] The defendant took the position that there was no agreement that Martelli McKegg or the defendant would pay the plaintiff its commission from the deposit monies or represented by words or conduct that the defendant would pay the plaintiff its commission from the deposit monies it received.

Significance of the changes to the sale conditions

[15] Obviously, given the change of circumstance that the deposit was not to be paid to the plaintiff, the plaintiff itself would not be able to deduct its commission before passing the balance of the funds onto Martelli McKegg. Therefore the

position of the plaintiff must be that when agreement was reached that the deposit would be paid into the trust account of Martelli McKegg then the mechanism by which commission was to be paid to the plaintiff was to be viewed as varied mutatis mutandis to a requirement that the commission would be deducted from the funds which was held by Martelli McKegg.

[16] It would appear that Martelli McKegg’s purpose in enquiring about the details of the proposed sale by Eden arose from a concern to protect the position of the first mortgagee, the defendant. Because of defaults under the mortgage agreement it seemed likely as at 1 March 2011 or at some point in the near future, the defendant itself would have the option of conducting its own sale by way of mortgagee sale. The alternative was for it to refrain from doing so in which case; the transaction under which Eden was the vendor would proceed.

[17] The stance that Martelli McKegg as solicitors for the defendant took was that if insufficient funds were going to come to the first mortgagee from the sale, (or, if there were aspects of the Eden sale other than price with which Martelli McKegg did not agree in its capacity as solicitor for the first mortgagee) then the defendant would initiate its own mortgagee sale. The defendant in fact told Eden that conducting a mortgagee sale was a possibility.

[18] Having received back a report which contained the detail of how the Eden transaction would proceed, Martelli McKegg indicated its broad approval. That is to say, it did not dissent from any part of the process proposed including the payment of the commission account from CBRE out of the proceeds of sale.

[19] It was a significant aspect of the Eden transaction that initially the deposit was to be paid to CBRE. One effect of this alteration to the arrangements was to significantly affect the position of the plaintiff. If CBRE did not have any contractual entitlement to compel the defendant to pay the commission out of the funds which were paid to it under the contract with the purchaser, CBRE would either have to recover it from its principal, Eden, or hope that it could persuade the defendant to pay the commission.

Was there a contract?

[20] The defendant’s position is that it never came to any agreement with the plaintiff under which it was responsible for the commission. Before coming to a conclusion on that issue it is necessary to give further consideration to the email exchange dated 1 March 2011.

[21] The defendant says that it dealt only with Eden. It says that any contract that the plaintiff had was with Eden and not with the defendant.

[22] It is the case that the plaintiff had reached an apparently binding agreement with Eden to market and sell the property in return for which it would receive commission from Eden.

[23] The intervention of the defendant did not alter that fact. The defendant was presumably concerned to ensure that the property was offered for auction on realistic terms so that a sale would eventuate from the auction. This explains the discussions Martelli McKegg had with Eden about the reserve price. The price received would be the key factor which influenced whether or not there is any risk of a deficiency so far as the defendant was concerned.

[24] More importantly the defendant wanted to ensure that none of the net funds from the sale went to Eden as the vendor but went straight to the defendant. The defendant would then have to deal with the subsequent mortgagee, the Malkev’s and the caveator Trustees Executors Limited (“TEL”) as to their participation in the remaining balance after the defendant had been repaid what it was owed under the first mortgage.

[25] The influential issue, though, from the perspective of the plaintiff was the question of who would receive the deposit. Whatever else was changed in the train of the 1 March email, the deposit would still be paid to the plaintiff.

[26] Subsequent to 1 March a further change took place which plainly affected the interests of the plaintiff. This came about when the defendant was able to obtain the agreement of Eden and the plaintiff to the deposit now being paid directly by the

purchaser into the trust account of Martelli McKegg. Obviously, this change introduced a potential uncertainty in that the plaintiff would no longer be receiving the deposit into its hands from which it could deduct its commission.

[27] It is true that this change to the way that the deposit was to be dealt with required the consent of Eden. This is relevant to the submission that Mr Steele made for the defendant that the only contract that the plaintiff entered into was with Eden and that therefore to change the arrangements about the deposit only required agreement with Eden.

[28] However, for obvious reasons, the change which Ms Keam sought in order to have the deposit paid to Martelli McKegg and not the agent, had an impact upon the interests of the plaintiff. Of course it would have been possible for the defendant to apply pressure to Eden requiring it to vary its agreement with the plaintiff so that the terms of the retainer departed from the existing arrangement in terms of which the agent was entitled to collect the deposit. The other way in which the defendant could achieve its purpose was to come to an agreement directly with not just Eden, but also the agent, the plaintiff. That is exactly what the defendant did. Whether that arrangement had the force of a contractual agreement will be dealt with shortly.

[29] The changed arrangement benefited the defendant because the funds would be remitted direct to it rather than to Eden. In that way the funds would be put beyond the control of Eden. That was to the advantage of the defendant because it wanted to have control of the funds not just to ensure payment of the first mortgage, which would have had to happen anyway if the sale by Eden was to proceed to settlement, but also to enable it to settle, or by means of undertakings, the dispute that the defendant was engaged in that involved the Malkev interests and TEL. TEL had actually placed a caveat on the title which threatened to upset the sale by Eden. The defendant was not in the position of a mortgagee conducting a mortgagee sale. It was for these reasons that it was desirable for it to have all of the proceeds of sale on its hands.

[30] Ultimately it may have been possible for the defendant to avoid coming to an agreement with the plaintiff. To do this it would have had to force the position by

putting pressure on Eden to amend its arrangements with the plaintiff in regard to where the deposit was to be paid. It may have required Eden to agree with the agent that the deposit be paid directly to Martelli McKegg. There can only be speculation what response that would have produced from the plaintiff and whether it would have been prepared to continue acting as the agent on the sale in such circumstances. Further, if the agent had balked at such a change, there would have been delays to the Eden sale. So while there may have been other possible routes that the defendant could have taken to obtain the result that it wished, it chose to do so by way of consensus reached between itself and Eden, on the one hand, and the plaintiff on the other.

A contractual arrangement to pay commission?

[31] I have concluded that there was an agreement between the plaintiff and the defendant about changing the arrangements concerning where the deposit was to be paid. The next question is whether this agreement had the status of an enforceable contractual arrangement that included a term that Martelli McKegg would deduct the plaintiff’s commission from the deposit, once received, and remit payment to the plaintiff.

[32] The plaintiff’s claim is formulated in the following way in the amended statement of claim:

12. Accordingly, on one March 2011, the defendant, by its solicitors, had agreed that CBRE’s commission would be a cost of sale which would be paid from the deposit in priority to the defendant’s mortgage debt.

[33] The inclusion in contracts of retainer of real estate agents of terms which entitle them to receive the deposit and to deduct the commission has been a long- standing practice in this country. The entitlement to deduct the commission arises at the point where the contract becomes unconditional: Latter v Parsons.¹

[34] The practice of authorising the deduction of realtors’ commission from deposits is one that is well known to those who work in the field of transactions for

¹ Latter v Parsons (1906) 26 NZLR 645 (CA).

the sale of land. The desirability of the arrangement from the point of view of the realtor would include considerations of prompt payment of their commission but also some protection in cases where, as here, the vendor client is of doubtful solvency.

[35] The question of whether agreements have contractual force is discussed in

Burrows, Finn and Todd, Law of Contract in New Zealand where the authors state:²

In commercial agreements it has traditionally been presumed that the parties intended to create legal relations and make a contract, although that presumption may be rebutted. It is suggested that in general the same result would be reached by undertaking the fact-based investigation applied in Fleming v Beevers since the fact of making a commercial agreement is likely to suggest contractual intention existed. On either approach it is particularly likely that a court would find that an agreement which has been fully or partly performed was intended to have legal effect.

[36] A brief additional consideration of the facts in this case therefore needs to be undertaken.

[37] It would have been obvious to the defendant that if the agent was agreeing to change its conditions so that there was a departure from the usual practice resulting in the deposit not being held by the agent. This, it was clear represented a substantial watering-down of the agent’s position.

[38] It would also have been obvious there was no replacement advantages that it was going to receive that would compensate it for so agreeing. Nor was the plaintiff beholden to the defendant as a result of previous dealings between them. These factors combined points to a conclusion that the further changes to the arrangement which the defendant asked the plaintiff to agree to, represented a substantial and detrimental change from the arrangements that would have otherwise applied. Under the previous arrangements the plaintiff did not need the authority of the defendant to deduct its commission from the deposit. That was because it had the explicit contractual rights to charge commission to Eden, to receive the deposit payable under Eden’s contract for sale and to deduct its commission charges

_therefrom.

² John burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis

[39] There was no reason why the plaintiff should incur a detriment and for the defendant to be correspondingly advantaged in the way that the defendant claims. There is no reason why the parties should have intended that in addition to obtaining the advantage inherent in holding the deposit monies, the defendant should receive the additional advantage that it was entitled to hold the deposit free of any claim on the part of the plaintiff.

[40] I apprehend that the position of the defendant is that it did not require the consent of the plaintiff to these arrangements. However, it is the case that at the very least the plaintiff was being asked to relinquish contractual rights that it had against Eden. It might have been the case, had there been an explicit discussion of the effect on the plaintiff by changing the deposit payment arrangements, that the defendant might have explicitly told the plaintiff that it was not concerned with the plaintiff’s views on the matter and that all it needed, which it had, was the consent of Eden to the changes concerning where the deposit was to be paid. However, the defendant never made such a plain assertion of its rights in the matter. What it did was to make a request that the plaintiff cooperate in the changed arrangements. The plaintiff clearly believed that the change would not prejudice its position. The defendant must have understood that the plaintiff was proceeding on that basis.

[41] In any case, the change to the auction conditions did not just affect Eden and the defendant. The auction conditions also established the contractual rights of the auctioneer that the deposit should be paid to it and for deduction of commission.

[42] The circumstances objectively considered further mean that it was unlikely that the plaintiff was expected to put the deposit beyond its reach in circumstances where it would have no legal redress should Eden or the defendant renege on what was plainly the intention of the parties, that being the intention that the agent would be able to receive its commission out of the deposit regardless of who it was that held the deposit.

[43] It is correct that the defendant could have proceeded in a different way by making it overt that the change in the deposit payment arrangements would also be accompanied by another change that the plaintiff would not be able to obtain

payment of its commission out of the deposit. The defendant chose not to do so and presented matters on the basis that it was requesting the plaintiff to make changes to the auction conditions and for the plaintiff to continue with the auction in circumstances where there was no substantial prejudice to it.

[44] Given the context in which the defendant sought the cooperation of the plaintiff, I consider that there is little doubt that the plaintiff and the defendant entered into an agreement and that the parties’ intention objectively considered was that the agreement would have legal effect. That is, the agreement was to enter into a contract.

Content of contract

[45] The next question concerns the content of the contract and whether it included an obligation on the part of the defendant to make the deposit available as a fund from which the agent’s commission charges would be payable if and when they arose.

[46] The plaintiff is unable to point to any explicit exchanges between itself and the defendant or its solicitors about whether notwithstanding that the commission was no longer to be channelled through its accounts, it would nonetheless be protected for its commission by Martelli McKegg or the defendant retaining part of the funds for that purpose.

[47] Any obligation on the part of the defendant to retain the commission for the purposes which the plaintiff contends would have to be an implied one.

[48] The question is whether it is implicit in the changed circumstances that arose from the agreement of the agents to the commission being paid directly to Martelli McKegg that Martelli McKegg in return impliedly accepted an obligation to ensure that the commission would be paid from the deposit despite the changed circumstances.

[49] Just as the interpretation of a written contract will be viewed in the light of what is a “commercially sensible conclusion” about what the parties intended,³ the same approach can be taken to imply into the contract an additional provision to the effect that it must have been intended that while the deposit was payable to Martelli McKegg, there was no intention of depriving the plaintiff of its right to recover its commission from the amount of the deposit. Putting the matter another way, the

Court is required to consider what practical consequences follow from one

_{interpretation or another and reach a view whether a different construction would}

_{frustrate the apparent business purpose of the parties.}⁴

_{It should make no difference}

whether the contract which the Court is attempting to construe is a simple informal contract of the kind here which was entered into by a request by email which the plaintiff consented to or the construction of an elaborate instrument of the kind that

_{was under consideration in Attorney General of Belize.}

[50] The Court is engaged in considering whether the proposed implication spells out what the contract would reasonably be understood to mean. That approach does

_{not, however, extend to:}

... barren arguments over how the actual parties would have reacted to the proposed amendment [which] is irrelevant.⁵

Result

[51] The conclusion that I have come to is that the parties did enter into a contract which included an arrangement in substance which was to the effect that the defendant would keep the deposit available for the payment of the commission until that purpose had been achieved.

[52] For that reason there is no requirement to consider the other causes of action which the plaintiff put forward. There will therefore be judgment for the plaintiff in the sum of $35,024.06 together with interest on the judgment sum in terms of the

_{Judicature Act 1908.}

³ Vector Gas v Bay of Plenty Energy Limited Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [9] per

_{Blanchard J.}

⁴ _{Attorney General of Belize v Belize Telecom Limited [2009] 1 WLR 1988.}

⁵ Attorney General of Belize v Belize Telecom Limited at 1995.

[53] The parties should confer on the matter of costs and if they are unable to agree, they are to file memoranda not exceeding five pages on each side within 10

_{working days of the date of this judgment.}

J.P. Doogue

Associate Judge