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A high-profile legal scrap over the sale of a clifftop Auckland house is headed for the Supreme Court in an attempt to end a dispute which started four years ago.
In 2004, the family trust of Mark Moncrieff Stevens and Deborah Ruth Stevens sold their house at 23D Beach Rd in Castor Bay to a speculator, named in the official documents as Mr Larsen of Mahoenui Valley Trust.
The house was sold for $2,575,000, even though the Stevenses had initially wanted much more and noticed that 27 Beach Rd sold for $3.2 million in September 2003.
Premium boss Brian Guy, his son Lewis Guy and agent Pamela Riley acted for the Stevenses on the sale.
About six months later, the Mahoenui trust sold the house via a Bayleys agent for $3,555,000.
Riley brought Mahoenui's offer to the Stevenses and acted for the trust on the resale, which netted a $1 million quick-fire profit.
The Stevenses found out later that Riley was closely associated with Mahoenui. She had acted for it on many other deals and her daughter had also worked for the trust.
Although she told the Stevenses she had previously dealt with Larsen, she did not tell them his modus operandi was that he might resell the property within a short space of time.
So the Stevenses and fellow trustee Melva Beatrice Walker took action in 2006 in the High Court at Auckland, claiming breach of contract, negligence, misleading and deceptive conduct in breach of the Fair Trading Act and breach of fiduciary duty.
Premium had led them to believe the property was worth less than its fair market value, failed to disclose it had acted for Larsen before, failed to say the trust was buying the house for resale and failed to advise them of Larsen's background, they claimed.
Although Justice Patricia Courtney rejected the main thrust of the Stevenses' case, she found Premium guilty of misleading and deceptive conduct and breach of fiduciary duty.
Premium was in a position of "actual or potential conflict of interest and failed to disclose material information, namely the purchaser's modus operandi", she found. Expert valuation evidence found the house was worth $3.57 million at the time of sale.
"The relationship between Ms Riley and Mr Larsen created an actual conflict between the Stevenses' interests and those of both Premium and Mr Larsen," she ruled, awarding the Stevenses more than $1 million: $675,000 for the extent of the under-value at which the property was sold, $337,500 for the loss suffered for Premium's misleading and deceptive conduct, and $67,050 for the commission on the sale.
But that was not the end of litigation. In April this year, both the Stevenses and Premium went to the Court of Appeal. Premium said Justice Courtney was wrong to disregard market evidence, particularly that there was no buyer willing to pay more than $2.5 million for the house. She misinterpreted valuation evidence and Premium was not obliged to tell the Stevenses about Larsen's modus operandi, the agency claimed.
Premium said its non-disclosure of Larsen's modus operandi was not the cause of any loss. Larsen's offer was simply the best available at the time.
The Stevenses had bought a place in Parnell and needed to sell their North Shore house to complete the purchase, Premium said in its appeal.
"They made their own decision to accept the offer, notwithstanding their view [and Premium's view] that the property was worth more," Premium said in its appeal. Premium cited a valuation by Trish Freeborn of Sheldons who in May 2004 found the property was worth $3.57 million.
When Larsen engaged Riley to sell the property, Premium conducted what it acknowledged to the Court of Appeal was "an aggressive marketing campaign, based on a price guide of $3.8 million to $4.8 million, which was supported by the Sheldons valuation of $3.57 million".
Premium acknowledged that Riley knew Larsen was "an aggressive negotiator and a speculator prepared to take risks in the market. Premium said in its appeal that she further knew that Mr Larsen might suggest that he was purchasing a property for use as a personal residence but instead relist it soon after purchasing at a higher price."
The Court of Appeal's Justice Terence Arnold upheld the High Court ruling that Premium's actions had breached its legal obligations to the Stevenses.
But he dismissed the Stevenses' cross-appeal and cut the huge damages award against Premium to just $225,000.
He ordered the Stevenses to pay $3000 to Premium.
On July 29, the Supreme Court in Wellington granted both parties leave to appeal. Justices Peter Blanchard, Andrew Tipping, John McGrath, Sian Elias and Noel Anderson will hear the matter, set down for two days from November 13.
The Supreme Court is required to decide whether Premium was in breach of fiduciary duty and the Fair Trading Act because of its failure to disclose to the Stevenses that Larsen of the trust made a practice of buying and selling properties.
The court is also being asked to decide whether Premium is liable to pay an amount equivalent to all or any part of the profit made by the trust or alternatively whether the Court of Appeal adopted the correct approach in its assessment of damages and whether it correctly fixed the quantum of damages.
