Harcourts has won a court victory over its youngest former franchisee, Gurpreet Grewal, who must repay $1 million in loans, but a $250,000 claim against him and his wife for franchise fees has failed.
In a case heard in the High Court at Auckland last month, Associate Justice Roger Bell ruled Harcourts, New Zealand's largest real estate network, is entitled to summary judgment for $1,012,300.05 in loans it made to Grewal, also known as Preet.
Bell dismissed Harcourt's applications against Grewal and his wife for more than $250,000 in franchise fees, saying evidence was not sufficient and Harcourts' case on that front was inadequate.
But Harcourts, represented in court by Tyrone Cooley, had established the $1m loan agreement and that there were payment defaults on those. Grewal was guarantor and he did not contest that part of the case, the judge said.
Grewal, represented by Gareth Round, had admitted giving the loan guarantees but he and his wife had disputed liability for the franchise fees.
Preet & Co Real Estate had franchised offices in Howick, Ellerslie, Botany, Manurewa, Otahuhu, Pakuranga, Manukau and Papatoetoe, the decision said, as well as Preet & Co Rentals.
But last August, it came to light that funds were missing from the trust account of Preet & Co Real Estate.
"The evidence is silent as to how the funds went missing. There is nothing to suggest Mr and Mrs Grewal took the funds," the judge said.
"It later turned out that there were also funds missing from the trust account of Preet & Co Rentals," the judge noted. The Bank of New Zealand declined to extend an overdraft to meet the shortfalls.
"Both companies were clearly insolvent," the judge said, noting how they were put into liquidation in April. Harcourts took that liquidation as a default under the loan agreement and demanded Grewal repay the $1m.
Grewal said in his defence that after the companies went into voluntary administration last year, he worked hard to sell personal and company assets.
He got a buyer - JK Realty, the Harcourts' franchise owner for Mt Albert and St Heliers. But Grewal claimed Harcourts encouraged a price reduction on JK's original offer for his businesses.
He claimed he was "tricked" into signing a loan guarantee and there were set-offs against Harcourts' claims. Harcourts had received confidential information about the two businesses which it was not entitled to and which it misused, he claimed.
Harcourts had also undermined the value of the real estate agency business by giving the BNZ a low market valuation and threatened him that he had to restructure and sell half of his shares in the company. That resulted in the administrators coming in, he said.
If news became public that trust account funds had gone missing, "it would be extremely damaging to the business of both companies", the judge said. "The public would be reluctant to deal with the franchisees if they could not be confident that their money would be safe in the trust accounts."
Grewal also wanted to keep the business going and looked to Harcourts for "continued support", he said in his defence.
But the judge decided Harcourts' claim had succeeded only on the $1m loan advanced and it was entitled to that sum plus contractual interest including default interest.