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Supreme Court rejects Premium’s late attempt to return to original valuation issue

Published 8 April 2009

The Supreme Court has rejected an application by Premium Real Estate Ltd to have a question relating to the market value of a property referred back to the Court of Appeal – the last chance to overturn a decision on a sale dispute dating back to 2004.

 

In March, the Supreme Court ruled in favour of the sellers of a North Shore house and against Premium, on the basis of a preferred valuation although there was minimal market interest in the property, and because of a failure to tell the vendors the purchaser was a speculator.

 

The Supreme Court ruling reinstated the decision of Auckland High Court judge Patricia Courtney as to the valuation & margin used for assessing damages.

 

In a new judgment issued on 3 April, the Supreme Court said Premium hadn’t pursued the particular valuation issue at previous hearings, even though courts had raised the opportunity for it to do so.

 

The Supreme Court said the market value wasn’t a matter Premium sought to raise in connection with its opposition to the appellants’ leave application: “No notice of intention to support the judgment of the Court of Appeal on this ground was given by the respondent, nor did it seek to challenge the market value figure adopted by the Court of Appeal in its own application for leave.

 

“Very significantly, notwithstanding that one of the approved grounds on which the Stevens (the sellers of the house) were granted leave was ‘whether the Court of Appeal adopted the correct approach to the assessment of damages and correctly fixed the quantum of damages’, the respondent did not seek to have the valuers’ evidence included in the case on appeal despite having the omission of that material from the draft case expressly drawn to the attention of its counsel & solicitors by the solicitors for the

Stevens.

 

“Furthermore, at the hearing, when it was pointed out from the bench that this court was at a disadvantage concerning the assessment of market value because the valuation reports were not before it, no attempt was made, even at that late hour, to have the court receive them.

 

“The respondent chose not to have this court examine the basis on which the trial judge made her assessment of market value, except on the limited argument which is mentioned in paragraph 87 of the reasons and without reference to valuation reports. Having proceeded in that way, the respondent must now accept the finality of the judgment of this court. No proper basis for the recall of the judgment has been made out. It is not in the interests of justice that, having with apparent deliberation omitted to provide sufficient support for its argument on valuation, the respondent should be given an opportunity of remedying that omission in the manner which it now proposes. The judgment of this court must stand.”

 

Earlier stories:

9 March 2009: Supreme Court finds against Premium, works through some theories on disclosure & value

8 December 2006: Premium Real Estate told to pay $675,000 difference between sale price & valuation after resale upsets original vendors

 

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Attribution: Judgments, story written by Bob Dey for the Bob Dey Property Report.

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Supreme Court finds against Premium, works through some theories on disclosure & value

Published 9 March 2009

The Supreme Court has ruled in favour of the sellers of a North Shore house and against the agent in a case dating back 5 years, on the basis of a preferred valuation although there was minimal market interest in the property, and because of a failure to tell the vendors the purchaser was a speculator.

 

The Supreme Court ruling reinstates the decision of Auckland High Court judge Patricia Courtney as to the valuation & margin used for assessing damages.

 

The bench of 5 judges issued the judgment in 3 sections, dealing with different elements of the case. In the first, Chief Justice Sian Elias delved into the extent to which real estate agents are under general duties to disclose material information and to avoid conflicts of interest, while Justice Peter Blanchard went into more detail on the effect of not telling the vendors that the purchaser was a property speculator with whom the agency had other dealings, but also into the fact that the agent had actively misled the vendors on the purchaser’s true status.

 

In the original High Court decision, Justice Courtney ordered Premium Real Estate Ltd to pay Mark & Debbie Stevens the $675,000 difference between the $2.575 million sale price of their Castor Bay home and one of 4 valuations used in court proceedings. Justice Courtney also ordered the North Shore agency to refund its $67,050 commission. Including costs & interest, the compensation order was close to $900,000.

 

Justice Courtney accepted Peter Mahoney’s $3.25 million as the value at April 2004, when the sale by the Stevens to Brett Larsen’s Mahoenui Valley Trust was agreed.

Justice Courtney found no basis to conclude Premium principal Brian Guy’s son, Lewis, had been negligent as listing agent in assessing a market value below the $3 million the vendors wanted to achieve, and no breach of the Fair Trading Act in the marketing campaign or in negotiations with Mahoenui. But she found Premium’s failure to disclose its relationship with Mahoenui’s trustee, Mr Larsen, amounted to misleading & deceptive conduct and a breach of fiduciary duty to the vendors.

 

4 months after the Stevens sold for $2.575 million, Premium acted for Mahoenui when it onsold for $3.555 million through a more extensive sales campaign – where the price guide was $3.8-4.8 million. I noted in my original story that Justice Courtney didn’t explore the Stevens’ ability to walk away from an agent who wanted to market their home for less than their expectations, and to engage another agency. The Supreme Court also didn’t venture into this aspect.

 

All 3 courts found Premium had breached a fiduciary duty of loyalty. The Supreme Court ordered Premium to pay $659,813 damages and to repay the $67,050 commission. The judgment sums bear interest at 7%/year from the date of settlement, 16 July 2004.

 

Justice Elias found Premium’s disclosures to the Stevens misleading without the further disclosure that Mr Larsen traded in residential properties. But she preferred the Court of Appeal’s measure of loss, which was between the Stevens’ sale price and the $2.8 million at which they’d indicated they were prepared to sell in response to an earlier prospective buyer: “Additional benefit they might, conceivably but speculatively, have obtained is not properly attributable to the breach of duty.”

 

Justice Elias said the property was on the market for 11 weeks, attracting only 2 bids of $2.2 million & $2.575 million. The tender process yielded no bids at all. “Why this contemporary evidence bearing on value was not taken into account is not explained beyond the suggestion (question-begging because itself based on the Mahoney retrospective opinion of value) that the property was marketed to the wrong market segment (buyers under $3 million rather than buyers over $3 million).”

 

On fiduciary duty, the chief justice said: “A canvassing agent must act in good faith in what he does and may not obtain a benefit for himself or another without the informed consent of the principal. Those core responsibilities have not been found to be breached by Premium. Rather, it has been held that Premium was obliged to disclose a conflict of interest arising out of the previous & potential dealings it had with Mr Larsen and to disclose any information which was material to Mr & Mrs Stevens in entering into the transaction with Mahoenui. I have reservations about the generality with which both obligations are expressed…..

 

“I would not want to be taken to agree with the view that the fact that, as at April 2004, Ms Riley (Pam Riley, the sales agent) had acted in the past or was currently acting for Mr Larsen in 8 property transactions and could reasonably hope for further work from him, set up a necessary conflict of interest whenever she introduced him to a vendor.

 

“It is not necessary to decide the point because of the view I take that liability here arises out of the misleading information provided. It seems to me, however, that it may be unrealistic to expect real estate agents to make formal disclosure routinely in this way.

 

“The judgment whether prior dealings are such as to set up a conflict may be fine. Real estate agents need to deal with those in the market if they are to fulfil their function. That they will maintain & foster relationships with purchasers who invest in property is to be expected if they are to make sales. Such agents are under a fiduciary duty not to prefer the interests of themselves or another over those of the vendor for whom they act….

 

“It is questionable whether a canvassing agent is subject to an additional obligation of disclosure for a presumed conflict arising solely out of past & prospective dealings with the purchaser. Under general agency principles, an agent must keep his principal informed about matters of concern to him. It may be queried whether a general obligation of this nature is realistically expected of canvassing agents such as real estate agents.”

 

In this particular case, however, Justice Elias agreed there was a breach “because the partial picture given to the vendor here by Ms Riley was misleading without further information. In those circumstances, non-disclosure amounted to concealment of the material information that the purchaser was a dealer in residential property.”

 

Justice Blanchard noted a point not reached by Justice Elias, that there were findings in the High Court, not challenged, “that Ms Riley, whose daughter worked for Mr Larsen as his personal assistant, knew that he often purchased properties and then resold them within a short period at a substantial profit.”

 

Justice Banchard picked up the point, raised by Premium, that the fact that Mr Larsen operated as a property speculator was information gained by Premium when acting previously for him and that it was bound to keep that information confidential.

 

On that, Justice Blanchard repeated a House of Lords decision: “If someone puts himself in a position of having 2 irreconcilable duties, it is his own fault. He cannot prefer one principal to another. The fact that he has chosen to put himself in an impossible position does not exonerate him from liability and he cannot use his discomfiture as a reason why his duty to either principal should be taken to have been modified.”

 

But in any case, Justice Blanchard said it was well known that Mr Larsen was a dealer in residential properties, and telling the Stevens that would have sufficed.

 

When Justice Blanchard moved on to the quantum of loss, he moved into an area of unproven guesswork as the basis for rejecting the Court of Appeal starting point of $2.8 million and returning to Justice Courtney’s assessment of $3.25 million.

 

It’s worth repeating to show how a judge can find a market where, it appeared, virtually none existed. He wrote: “Despite the fact that the property had failed to attract any bid above $2.575 million, I am of the view that the opinion evidence of value and the hindsight evidence available of the escalation of property prices… supported by the sale price achieved by Mahoenui, provides sufficient evidential basis for a conclusion on the balance of probabilities that such price could have been achieved.

 

“In this instance we (the Supreme Court majority) consider the Court of Appeal failed to bear this latter point in mind and too readily reached the conclusion that the Stevens would likely have sold the property for $2.8 million. The evidence they relied on for their conclusion all was directed to the time before the failure by Premium to make the disclosure the Stevens should have received.

 

“The court appears to have overlooked in its assessment that the Stevens still believed that their property was worth $3 million…. and were not especially concerned to acquire the Parnell property (to which they intended to move). In our opinion Justice Courtney was right to think that the Stevens – who were, as she found, not in a rush to sell – would have reappraised the situation if told that Mr Larsen was a speculator.

 

“The possibility that they may have sought other valuation advice cannot be disregarded. It is also likely, indeed probable, that they would have extended the sale period, and if they did so, it was quite possible that they would have achieved a sale at what the judge has determined to have been the current market value of $3.25 million.

 

“An orthodox measurement of their loss was therefore to use this figure. To depart from it, and to say as the Court of Appeal did that the Stevens were likely to have sold it at $2.8 million, too easily permits the errant fiduciary to find the ‘narrow escape route’.”

 

Earlier story:

8 December 2006: Premium Real Estate told to pay $675,000 difference between sale price & valuation after resale upsets original vendors

 

Want to comment? Email [email protected].

                                       

Attribution: Judgment, story written by Bob Dey for the Bob Dey Property Report.

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Premium Real Estate told to pay $675,000 difference between sale price & valuation after resale upsets original vendors

Published 8 December 2006


Premium Real Estate Ltd has been ordered to pay a couple the $675,000 difference between the sale price of their Castor Bay home and one of 4 valuations used in court proceedings.



High Court judge Patricia Courtney also ordered the North Shore agency to refund its $67,050 commission. Including costs & interest, the compensation order is close to $900,000.


Simpson Grierson litigation partner Willie Akel, who acted for the plaintiffs, said: “This judgment will have significant implications for the real estate industry.  It shows that real estate agents must make full disclosure of any potential conflicts of interest.  Failure to do so will be very costly.”


Premium principal Brian Guy said after Justice Courtney issued her ruling yesterday the decision was “a total surprise” and he was investigating grounds for appeal. “We are floored by this decision since we believe we sold the property at the then prevailing market price and do not believe we can be held responsible for what someone subsequently was prepared to pay for it.”


The speculator who bought the clifftop house at 23D Beach Rd paid $2.575 million, then sold it through Premium 5 months later for $3.555 million. Retrospective valuations used in the court proceedings were $2.7 million, $2.74 million & $3.25 million. A valuation the buyer commissioned for finance purposes, then used in subsequent marketing, was for $3.57 million (excluding chattels).


Justice Courtney discounted the 2 lowest valuations and the $3.57 million one and accepted Peter Mahoney’s $3.25 million as the value at April 2004, when the sale by the Stevens to Mahoenui Valley Trust was agreed.


Justice Courtney found no basis to conclude Mr Guy’s son, Lewis, had been negligent as listing agent in assessing a market value below the $3 million the vendors, Mark & Debbie Stevens, wanted to achieve, and no breach of the Fair Trading Act in the marketing campaign or in negotiations with Mahoenui.


But she found Premium’s failure to disclose its relationship with Mahoenui’s trustee, Mr Larsen, amounted to misleading & deceptive conduct and a breach of fiduciary duty to the vendors.


Justice Courtney said the Stevens were disappointed with the sale price, but one aspect she didn’t explore in her 42-page judgment was the Stevens’ ability to walk away from an agent who wanted to market their home for less than their expectations, and to engage another agency.


When the Stevens sold their home, they weren’t aware Mr Larsen was a property speculator for whom Premium agent Pamela Riley had acted in 8 other transactions, or that one of her daughters was Mr Larsen’s personal assistant and that Ms Riley’s other daughter, an architect, had undertaken design work on Mr Larsen’s beach house.


Justice Courtney said: “I find that Ms Riley had a high degree of insight into how Mr Larsen operated. In particular, her experience had showed her that he was likely to offer a figure below the asking price but obtain a valuation that indicated a higher value. He was likely to suggest that he was purchasing a property for use as a personal residence but instead relist it soon after purchase at a higher price. He was likely to use a valuation obtained for finance purposes in future negotiations to support a higher asking price.


“I now consider whether Ms Riley should have shared this knowledge with the Stevens. All of the information that Ms Riley had about Mr Larsen pointed to a buyer whose typical modus operandi was to buy at a price that would allow resale at a substantially higher price within a short time. I accept that this was not always the case, but it did appear to have happened many times. I think that the likely impact of such knowledge would have been to reinforce Mrs Stevens’ unhappiness about Premium’s appraisal & marketing of the property. I think that this would have led to a nervous reconsideration by the Stevens of their position…..


“Looking at the relevant circumstances, I conclude that Premium’s failure to disclose what it knew about Mr Larsen concealed information that the Stevens would have regarded as important and which would have affected their view of the offer. I therefore find that, in the circumstances of this case, Ms Riley’s failure to tell what she knew about Mr Larsen did amount to misleading & deceptive conduct. It was common ground between the parties that Premium, as the Stevens’ agent, owed them fiduciary duties. The fiduciary duty that Premium is alleged to have breached is the duty not to allow its interests or those of a third party to conflict with the Stevens’ interests without their informed consent.


“There was no evidence to suggest that Ms Riley did prefer Mr Larsen over the Stevens or that she provided Mr Larsen with information which might have assisted him at the Stevens’ expense. However, the extent to which Ms Riley benefited from her relationship with Mr Larsen inevitably raises doubts over Premium’s ability to give its undivided loyalty to the Stevens in relation to this particular transaction.”


Bran Guy said after Justice Courtney’s decision: “We absolutely refute the suggestion that we behaved improperly and will do whatever is necessary to defend our very good reputation.”


He said Premium’s Takapuna office, which he established in 1984, had negotiated 5 of New Zealand’s top 10 residential sales and it continued to set the benchmark, achieving record selling prices in every area in which it operates.


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Attribution: Judgment, Simpson Grierson & Premium releases, story written by Bob Dey for this website.

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