Premium Real Estate released on Friday, points to a continued expansive approach to fiduciary duties in New Zealand, and perhaps more surprisingly to a return to some fundamentals about proving causation in cases for equitable damages/compensation that might have been in danger of being lost after Chirnside. Indeed The case is interesting because the Court of Appeal decision could have been read as suggesting that Chirnside implied a much more flexible approach to the way equitable compensation ought to be dealt with. The Facts In Premium Real Estate the owners, the Stevens, of a valuable property on Auckland’s North Shore alleged that they had been misled by the agent’s failure to tell them that Mr Larsen was not buying, through his Mahoenui Valley Trust, their property for domestic use, but rather was purchasing for speculation. There was evidence that originally the Stevens had hoped to sell at a $3 million. At the time that the Stevens accepted the offer from Mahoenui the property had been on the market for over a month. Thee Stevens had previously rejected one offer from another buyer for $2.2 million but had counter offered unsuccessfully with $2.8 million, and were in the process of running a tender for the property. At that time they had also made an offer to purchase another house conditional on the sale of the property. Larsen had originally made an offer of $2.525 million, but had offered $2.575 million in response to a counter offer from the Stevens who although wanting more had said that they would accept $2.575 million after being told that was all Larsen would bid. The allegation was that had they known that there was speculative value in the property they would have held on for the market price, which Larsen then proved was much higher. A valuation report obtained by Larsen for financing valued the property at $3.57 million. The agent responsible, Ms Riley, had had extensive dealings with Larsen. In June, Larsen contracted Riley to sell the property, and the property ultimately sold in November, after “an international marketing campaign”, for $3.555 million to buyers in Hong Kong. The Measure of Damages in the Courts Below In the High Court Courtney J had awarded compensation for either breach of the Fair Trading Act or the breach of fiduciary duty as essentially the difference between the true market value in April 2004 of $3.25 million and the amount, $2.575 million, that they had been paid. Rather than starting from what was an objective market price, the Court of Appeal considered the appropriate approach was to consider the price at which the Stevens might have been prepared to sell the property had Larsen’s speculative intentions been disclosed to them. Rather, therefore, than calculating the losses starting from $3.25 million, the Court of Appeal preferred to begin its calculations from $2.8 million which it held that the plaintiffs would have been prepared to have accepted. The Split on the Court The Supreme Court held 5-0 that there had been a breach of fiduciary duty. Interesting the Chief Justice who in Chirnside had perhaps given the most expansive judgment on the finding of a fiduciary relationship restricted her own finding in this case to the misleading nature of the representations made in this case, and she saw the general imposition of the rigours of fiduciary duties on real estates agents some what problematic

[27] It seems to me arguable that there is no general rule that real estate agents who introduce purchasers to deal directly with a vendor breach fiduciary obligations imposed within the scope of their contract if they fail to communicate information about the purchaser which might be material. It depends on the context. Real estate agents are obliged to pass on offers to vendors, because such obligation is squarely within the scope of what they are engaged to do. affects advice given by the agent (such as advice as to price or terms), nondisclosure may well breach the obligation of loyalty. There will be breach of the obligation of loyalty if non-disclosure amounts to the preference of the interests of the agent or another party33 (as may be the case, for example, if a risk associated with the purchaser material to the sale is not disclosed in order to complete a sale and obtain commission). I have reservations however whether a more general duty to provide material information, such as it is appropriate to impose upon agents who have power to bind their principals, applies in all cases. It may set the standard to be required of a canvassing agent too high.

In contrast Blanchard J held essentially that agents were agents ….

[77] If Kelly v Cooper were to be followed in a like case in New Zealand, a matter which it is unnecessary to resolve in the present case, it would require of real estate agents in this country a lesser standard than is required of other agents. As the editors of Bowstead & Reynolds on Agency say, the implication of a term excluding fiduciary duties, or particular duties, is not easy to justify. It seems to us that in circumstances of this kind an agent should decline to continue to act for the vendor of the second property as regards to the particular purchaser unless released by the vendor of the first property from the obligation of confidentiality as to the fact of the first sale to that person, or unless an adequate disclosure of the existence of a conflict of interest relating to the purchaser has been made and the vendor of the second property has confirmed that he or she nevertheless wishes to receive the offer. The difficulty that a stricter requirement may occasionally produce for agents would not seem to be a sufficient reason for dispensing in their case with the obligation of total loyalty or, as it is sometimes putin this context, the utmost good faith

In terms of damages, the Majority in the Supreme Court restored the High Court decision. The defendant had not displaced the burden created by Brickenden to show that the plaintiffs would have behaved as they in fact did, if they had been properly informed. The Chief Justice, in contrast, preferred the Court of Appeal’s holding that it had been likely that the plaintiff would still have settled for the lesser amount if they had been told of the purchasers’ intention. The Fate of the Real Estate Commission All required Premium to return their Commission. This was not a case where the plaintiff ought to have been required to elect between the obligation to account, and the ability to seek compensation. Rather the Court considered that Premium had so failed in its role that it could keep the commission that it had charged. Fighting words at the end Tipping J’s concurrence tried to put the decision in wider context and had a number of interesting things to say on the role of damages generally. He makes some generally comments about the restorative nature of damages including what might be considered by others to be restitutionary. He draws on Edleman’s Gain-Based Damages: Contract, Tort, Equity and Intellectual Property (2002). Just how convincing his wider view is, time with tell. He ends his judgment with what some, especially in New South Wales, might consider fighting words

[111] I close by saying that I have throughout these reasons used the single unqualified word “damages” without reference to the historical source of the cause of action upon which they are based. I do not regard it as necessary or appropriate to speak any more of common law damages, equitable damages or, indeed, equitable compensation. An understanding of the historical source of the cause of action will often be helpful for substantive purposes but, when monetary relief is being referred

Geoff McLay Reader