Real Estate: Messenger v. Stanaway Real Estate

Real estate agents sharing commission on a sale do not share liability for any negligence by the selling agent.  Auckland real estate agent Stanaway Real Estate paid twenty per cent of its $148,250 commission on sale of a North Shore beach-front mansion to Realty (NZ) Ltd as referring agent then was later held solely liable to pay $2.2 million damages for its negligence on the sale. 

Litigation over the sale of a Muritai Road property at Milford in Auckland has dragged on for over ten years.  The High Court was told vendors Mr & Mrs Messenger, living in Guernsey, gave their son Gary Messenger power of attorney to sell their Milford property.  He was working as a salesperson for a LJ Hooker franchise: Realty (NZ) Ltd.  Gary owned Realty but could not act as agent on his parents sale since he didn’t then have a real estate agent’s licence.  He struck a deal with Stanaway Real Estate; he would give them sole listing and in return it would pay twenty per cent of the commission on any sale.

In late 2006, Stanaway negotiated a sale at $5.9 million to a Mr Goodman and Ms Rattray. They failed to make their initial promised part-payment and were bankrupted after the High Court ordered $2.8 million damages payable for breach of contract. 

The Messengers then turned their attention to Stanaway Real Estate alleging it failed to do a competent job as selling agent.  The Goodman/Rattray contract was to be later described in court as “a complete mess” and “poorly drafted”.  The original offer followed by multiple counter-offers resulted in a heavily amended contract  which one law firm said was capable of nine possible interpretations.  The purchasers had committed to paying only $2.75 million of the $5.9 million purchase price when getting title in December 2006, with the balance due in two years.  The High Court decided that the Messengers would have been left unsecured for the balance.  A “caveat” clause in the contract which the agent thought would protect the Messengers for the unpaid balance did no such thing.

Justice Woolford ruled that a reasonably competent agent would have inserted a standard vendor finance clause in the contract as protection.  The Messengers were held twenty per cent to blame for not getting legal advice before having their son sign off on the agreement.  Stanaway Real Estate was ordered to pay the Messengers $2.2 million in damages.  It in turn sued son Gary Messenger and his company Realty (NZ) claiming they were partly to blame.

Justice Woolford ruled that referring agents do not share any liability after introducing a property owner to the listing agent.  They have no further role, do not assume any responsibility for the listing agent’s actions and there is no foreseeable reliance by the property owner on the referring agent.  Gary Messenger was also held not liable.  He was not at that time a licensed real estate agent.  His link to the vendor was that of parent/son, not that of client/adviser.

Messenger v. Stanaway Real Estate – High Court (31.07.15)

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Sharemilkers: Gladvale Farms v. Baty

Fonterra’s capital restructuring has forced a rethink on sharemilker entitlements to value-added payouts.  In a Southland sharemilking dispute, the High Court said sharemilkers should share in the payment.

Dairy industry restructuring has resulted in a collision between big business and small business.  The big business is Fonterra: a multi-billion dollar business.  Farmers want to retain control but the business needs outside capital.  The small business is at grassroots level, many operating as joint ventures between land owner and milker.  Standard-form sharemilking agreements govern their relationship.

The High Court was told the business relationship between Gladvale Farms Ltd as owner of a dairy farm at Oreti near Invercargill and the Baty family as sharemilkers broke down completely, ending after three seasons in May 2009.  The Batys were 19.5 per cent sharemilkers.  They were entitled to 19.5 per cent of the monthly milk cheque.  As part of claim and counterclaim between Gladvale Farms and the Batys there was a dispute over entitlement to the end-of-season Fonterra value-added payouts.

Fonterra splits its income streams: milk sales (commonly in the form of dried milk powder) are accounted for separately from sales of value-added products (like yoghurt, butter and cheese).  Differentiated income streams attract different pools of investment capital.

Back on the farm, Gladvale Farms said under the standard-form sharemilking agreement in effect with the Batys for the three seasons in dispute it was entitled to keep all of Fonterra’s value-added payout.  Justice Nation ruled that where the value-added payment was based on Fonterra profits generated from the sale of milk products, sharemilkers share in the payment.  Under the Batys 19.5 per cent sharemilking agreement, they were entitled to an extra $62,988 for the three seasons in dispute.

Gladvale Farms v. Baty – High Court (28.07.15)

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Insurance: Southern Response v. Avonside Holdings

Replacement insurance which includes contingencies and professional fees on a rebuild require the same costs to be included in a notional rebuild on properties written off in Christchurch’s earthquake-damaged red zone, the Supreme Court ruled.  This ruling also benefits government rights of subrogation with increased insurance recoveries now available on the estimated $1.7 billion payable for red zone payouts.

After severe earthquake damage to Christchurch in 2010 and 2011, government decided to socialise the losses of many insured residential property owners.  Whole suburbs were red-zoned: insured owners could sell out to government receiving immediate payment at then current rating valuation or elect to receive rating value of their land only and recover privately from their insurer the insured value of their home.

The court was told Avonside Holdings Ltd elected to take payment for the rating value of its red-zoned land only, but could not agree with insurer AMI Insurance on the insured value of its building.  The AMI policy promised full replacement cost for rebuilding.  This would include reasonable costs of professional fees such as architects’ and surveyors’ fees.  The house was not in fact to be rebuilt; the land was red-zoned.  Compensation would be based on a notional rebuild as if the land were safe for construction.  Avonside Holdings pointed to the policy wording: estimated professional fees and a ten per cent loading for contingencies should be included in the figure as if there would be a rebuild.  AMI argued these sums should be ignored: they would not arise because it was a notional rebuild.

The Supreme Court ruled policy terms governing a rebuild were to apply even if it were a notional rebuild, as in this case.  Avonside was entitled to an uplift on the compensation payable to include what would have been necessary professional fees on a rebuild together with the benefit of industry practice allowing a further ten per cent on the estimated cost for any construction contract to cover contingencies.

The economic effect of this ruling is that government will be able to increase the amount recoverable from insurance companies where government has paid out the full amount for land and buildings on insured red-zoned land.  Government is subrogated to the rights of the former owner and can enforce the former owners insurance rights against their insurance company.  This right of subrogation is of no value in respect of AMI policies.  Government was forced to take over responsibility for AMI’s Christchurch earthquake policies.  The sheer weight of Christchurch property claims would have sunk AMI’s entire insurance business.      

Southern Response v. Avonside Holdings – Supreme Court (22.07.15)

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Unit Titles: Vermillion Wagener v. Body Corporate 401803

Tremont apartment owners in Auckland are not liable as guarantors for the costs of leasing an apartment for the manager and for the rentals charged on access to the building’s swimming pool, gym and tennis court, the Court of Appeal ruled.  Owners had paid $1.32 million for these costs over five years.

The Tremont complex is a 106 unit complex built in St Lukes by Vermillion Wagener Ltd.  Before any sales, and while it owned all the units, Vermillion set up three valuable agreements. 

The first was an apartment lease between Vermillion, Sage Property Management Ltd as manager of the complex and the Tremont Body Corporate as representative of all owners.  Sage received a thirty year lease of a Tremont apartment.  While expressed as a guarantee, the Body Corporate effectively became fully liable for all Sage’s obligations on the lease, with no right of recourse against Sage.  These lease costs were found to be some 50 per cent higher than market rates.  Second, a thirty year management agreement was established at an initial annual fee of $53,000.  And third, a 999 year lease was created over Tremont recreation amenities at an initial annual rental of $100,000.  It is the norm in an apartment complex to have recreational facilities owned jointly through the Body Corporate as common property.  At the Tremont complex, the swimming pool, spa and sauna, gymnasium, recreation room and tennis court were privately owned by Vermillion with a rental levied on the Body Corporate through a guaranteed access agreement to allow use by individual apartment owners.

The Court of Appeal confirmed a High Court ruling that the Body Corporate could not be forced to pay the guaranteed lease costs in respect of the manager’s apartment and the recreational facilities.  A Body Corporate is a creature of statute: the Unit Titles Act.  It can only do what the Act permits.  The Act gives a Body Corporate power to give guarantees, but said the Court, this power can only be validly used in respect of its statutory duties.  The Act creates no statutory duty on any body corporate to provide a manager’s apartment or to provide recreation facilities.  Body Corporate guarantees of these rentals were ultra vires and invalid. 

Vermillion Wagener v. Body Corporate 401803 – Court of Appeal (21.07.15)

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Fraud: Helsby-Knight v. R.

Serial fraudster Michael Helsby-Knight was sentenced to three years and one month jail by the Court of Appeal for his part in three overlapping scams in which just over 110 victims were duped of $156,790.

His conviction followed three separate frauds perpetrated over a twelve month period ending mid-2012: the Canton Trade Fair Scheme; the Mike Caughey Trading Scheme; and the Foxconn Traders Scheme.  After his arrest, Helsby-Wright was refused bail and spent eighteen months in custody before trial because of his long record of fraud-related offending stretching back to 1985.

The court was told the Canton Trade Fair Scheme involved Helsby-Knight, using the name Michael Caughey, claiming to be the authorised agent for a trade fair being held in Guangzhou and Canton in 2011-2012.  There was in fact a trade fair being held at that time.  In a mass email to Auckland businesses he offered free travel and accommodation to the trade fair as part of an official trade delegation with interested parties required to pay a $125 registration fee.  Those registering received a package, purportedly couriered from China, containing Cathay Pacific ticket vouchers and accommodation vouchers for China.  The documentation was false.  Helsby-Knight collected about $5600 with this fraud.

In the Mike Caughey Trading Scheme, Helsby-Knight claimed to act for a Hong Kong registered company importing discounted electronic goods.  Customers were required to pay a fifty per cent deposit on ordering with the balance due on delivery.  No goods were delivered.  Customers complaining were told goods had been held up at Customs.  A total of $129,000 was collected in this scam.

The Foxconn Traders Scheme got underway with Helsby-Knight changing his name by deed poll to “Foxconn Group plc”.  He then obtained a passport in this corporate name, opened a ANZ bank account as Foxconn Group plc and set up an associated website.  Glossy brochures were printed offering for sale discounted high-end electronic goods.  Either full payment or a substantial deposit was required with each order.  Goods did not arrive.  Customers of Foxconn lost some $22,000. 

Helsby-Knight v. R. – Court of Appeal (21.07.15)

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