ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 04-CV-274335SR
DATE: 20140109
BETWEEN:
Partners Realty Ltd.
Plaintiff
– and –
Rosalind Morrow
Defendant
Bernard B. Gasee/Omar Sewhdat, for the Plaintiff
V. Ross Morrison, for the Defendant
HEARD: September 10, 11, 12, 13, 2013, December 9, 2013
Pollak J.
REASONS FOR JUDGMENT
[1] The plaintiff, Partners Realty Ltd. (“Royal Lepage”), is a licensed real estate broker claiming the amount of $17,788.75 from the defendant, Rosalind Morrow (“Ms. Morrow”), for real estate commission payable pursuant to a listing agreement (the “Agreement”) with respect to Ms. Morrow’s home. Although Ms. Morrow entered into an Agreement of Purchase and Sale for her home, she did not go through with the sale. Royal Lepage is claiming commission on the aborted sale. Ms. Morrow’s position is that she is not liable for the payment of commission as Royal Lepage is materially in breach of the Agreement. She submits that the material breach is the failure of Ms. Kara-George (the Royal Lepage real estate agent) to disclose to Ms. Morrow that she was representing the purchasers, pursuant to an agreement, before Ms. Morrow agreed to list her house with Royal Lepage.
[2] Ms. Kara-George had contacted Ms. Morrow several times in the previous year to attempt to get the listing of her home. She then asked Ms. Morrow if she could show her house to her purchasers.
[3] On March 22, 2004, right after she showed the house, she met with Ms. Morrow and her friend, Mr. Storie, to present an offer to purchase. Ms. Morrow was very anxious to hear what the terms of the offer were. Ms. Kara-George, however, would not show her the offer until she got a listing agreement for the sale of the home. Ms. Morrow testified that she tried to negotiate a commission agreement with Ms. Kara-George but she insisted on the listing agreement. They then agreed to enter into the Agreement for one week. Ms. Morrow testified that the reason for her hesitation was because she was not sure she wanted to sell her house instead of keeping it as an investment property and renting it out. Although she had plans to move into another house, she did not have to sell her house.
[4] Right after Ms. Morrow signed the Agreement on the evening of March 22, 2004, Ms. Kara-George showed her the offer.
[5] With respect to the commission, the Agreement provided:
COMMISSION: In consideration of your listing the Property, I agree to pay the Listing Broker a commission of 3.5% three point five of the sale price of the Property or n/a for any valid offer to purchase or lease the Property from any source whatsoever obtained during the Listing Period and on the terms and conditions set out in this Agreement OR such other terms and conditions as I may accept.
I agree to pay such commission as calculated above if an agreement to purchase or lease is agreed to or accepted by me or anyone on my behalf within 90 days after the expiration of the Listing Period (Holdover Period), so long as such agreement is with anyone who was introduced to the property from any source whatsoever during the Listing Period or shown the property during the Listing Period. If, however, the offer for the purchase or lease of the Property is pursuant to a new agreement in writing to pay commission to another registered real estate broker, my liability for commission shall be reduced by the amount paid by me under the new agreement.
I agree to pay such commission as described above even if the transaction contemplated by an agreement to purchase or lease agreed to or accepted by me or anyone on my behalf is not completed, if such non-completion is owing or attributable to my default or neglect.[Emphasis added.]
[6] Although Ms. Morrow did enter into an agreement for the sale of her house, the transaction did not close, because of her refusal to close. Royal Lepage argues that as provided for in the Agreement, Ms. Morrow is liable to pay the commission, as the failure to close was the result of her refusal to do so.
[7] Both parties agree that Royal Lepage had a fiduciary obligation to Ms. Morrow and that such obligation is breached if there is non-disclosure of a material fact.
[8] The Agreement also contained the following clause:
DUAL AGENCY: I hereby acknowledge that the Listing Broker may be entering into buyer agency agreements with buyers who may be interested in purchasing or leasing my Property. In the event that the Listing Broker has entered into or enters into a buyer agency Agreement with a prospective buyer or tenant for my Property, I hereby consent to the Listing Broker acting as a Dual Agent for the transaction, however, the Listing Broker is required to inform me in writing of a Dual Agency situation with the Seller and Buyer at the earliest practical opportunity and in all cases prior to any offer to purchase or lease being submitted or presented.
I understand and acknowledge that in a Dual Agency situation the Listing Broker must be impartial and equally protect the interests of the Seller and buyer in the transactions. I understand and acknowledge that in a Dual Agency situation the Listing Broker shall have a duty of full disclosure to both the Seller and the buyer, including a requirement to disclose all factual information about the property known to the Listing Broker.
However, I further understand and acknowledge that the Listing Broker shall not disclose:
• that the Seller may or will accept less than the listing price, unless otherwise instructed in writing by the Seller;
• that the buyer may or will pay more than the offered price, unless otherwise instructed in writing by the buyer;
• the motivation of or personal information about the Seller or buyer, unless otherwise instructed in writing by the party to which the information applies or unless failure to disclose would constitute fraudulent, unlawful or unethical practice;
• the price the buyer should offer or the price the Seller should accept; and
• the Listing Broker shall not disclose to the buyer the terms of any other offer.
However, it is understood that factual market information about comparable properties and information known to the Listing Broker concerning potential uses for the Property will be disclosed to both Seller and buyer to assist them to come to their own conclusions.
I further acknowledge that the Broker may be listing other properties that may be similar to my Property and I hereby consent to the Broker acting as an agent for more than one seller without any claim by me of conflict of interest. [Emphasis added.]
[9] Ms. Morrow submits that Ms. Kara-George owed her an obligation as her fiduciary to make full and timely disclosure of all material facts, and to obtain her informed consent to being represented on a dual agency basis. It is also submitted that Ms. Kara-George breached that duty and the terms of the Agreement. Ms. Morrow argues that Ms. Kara-George did not notify her in writing of her dual agency situation “prior to any offer being presented,” as required by the Agreement, as there is no evidence of Ms. Kara-George’s written disclosure of the buyer agency agreement. Further, Ms. Kara-George did not get Ms. Morrow’s written acknowledgement of the dual agency as required by the Real Estate Council of Ontario (“RECO”).
[10] Royal Lepage submits that Ms. Kara-George did not breach her fiduciary duty, and that it has met its burden of proving that fact.
[11] Ms. Morrow testified that she only found out that Ms. Kara-George had entered into a Buyer Agency Agreement with the purchasers when they started an action against her in April, 2004 for damages for her refusal to sell her house. Ms. Morrow testified she was “stunned” to find out that Ms. Kara-George was also the agent for the buyers. She stated that had she known that before she agreed to the terms of the Agreement, she would not have retained Ms. Kara-George as her agent and would not have listed her home with Royal Lepage. She testified that, on the evening she negotiated the offer with the purchasers, she asked Ms. Kara-George for her advice with respect to the state of the real estate market, and that she had relied on that advice.
[12] Royal Lepage submits that it was clear to Ms. Morrow that Ms. Kara-George had a relationship with the buyers and that she had already shown them other properties. Ms. Kara-George told Ms. Morrow several times she had a “buyer under contract,” who had approved financing, who was a sincere committed buyer and familiar with the area.
[13] It is submitted that nothing material was withheld from Ms. Morrow. Ms. Kara-George did explain dual agency to Ms. Morrow when she inspected her home and left a package which Ms. Morrow said she would read. That package included the listing agreement and agency brochure. She said she also explained it again when she brought the offer to Ms. Morrow’s house.
[14] I find that Ms. Kara-George did not review the dual agency provision of the Agreement with Ms. Morrow. In her evidence-in-chief, she testified that she did, but in cross-examination she admitted that in her examination for discovery she testified that she did not specifically read over this dual agency clause with Ms. Morrow before the Agreement was signed. Ms. Morrow and Mr. Storie denied that Ms. Kara-George had read and gone over that clause with them.
[15] In any event, I further find that the evidence was that Ms. Kara-George did not inform Ms. Morrow in writing of the dual agency situation that was in existence prior to the offer to purchase being presented, as was specifically required by the Agreement. This Agreement is the basis for Royal Lepage’s claim against Ms. Morrow. The Agreement was clear. Royal Lepage had an obligation to disclose the actual existence of the dual agency relationship to Ms. Morrow prior to the presentation of the purchasers’ offer, by reason of the buyer agency agreement between Ms. Kara-George and the purchasers. The reason for this specific requirement in the Agreement is obvious. Ms. Morrow has the right to know the nature and the terms of the relationship she is entering into with Ms. Kara-George and Royal Lepage when she enters into the Agreement. It is a very important and material term of the Agreement. Ms. Morrow testified that had she known that Ms. Kara-George had an agreement with the buyers, she would not have entered into the Agreement. Further, she stated that she asked for and relied on Ms. Kara-George’s advice, thinking she was acting only in her interests and not those of the buyers. I do not accept the submissions of Royal Lepage that the actions of Ms. Kara-George, of leaving a RECO pamphlet with Ms. Morrow, or of reviewing the dual agency clauses in the Agreement and the Agreement of Purchase and Sale, were enough to comply with the clear requirements set out in the Agreement. She did not disclose the existence of her agreement with the buyers, which had the effect of creating an actual dual agency situation.
[16] Royal Lepage submits that Ms. Kara-George’s breach of the Agreement was not material. There is no evidence that Ms. Kara-George did anything inappropriate with respect to the Dual Agency situation to breach any fiduciary duty. Any breach thereof, if any, was only technical at most, and not prejudicial to Ms. Morrow, and was not a cause for Ms. Morrow to cancel the sale transaction. There is no evidence that Ms. Kara-George did anything to favour the buyer to the detriment or prejudice of Morrow.
[17] It is noted that when Ms. Morrow advised she would not go through with the sale on April 1, she was not aware of any regulatory requirements regarding Dual Agency. This therefore could not be what caused Ms. Morrow to refuse to proceed with the sale. I do not accept this submission. The issue in this case is what the consequence of the breach of the Agreement is (which I have already found above) and specifically, whether that breach should disentitle Royal Lepage to its commission.
[18] Royal Lepage submits that there is no causal connection between the failure of Ms. Morrow to pay commission and the alleged failure of Ms. Kara-George to get a formal dual agency form signed by Ms. Morrow or a signed pamphlet (which Ms. Morrow refused). Further, there was no evidence that any significant information was withheld by Ms. Kara-George or that Ms. Kara-George made any negligent statement that prejudiced Ms. Morrow. It is submitted that any failure to get a dual agency form signed is a matter for the ethics committee to deal with, and not for the courts to resolve. There was nothing in the evidence or in any of the RECO clauses that stated that any breach of an ethics clause would result in the agent’s losing or being denied a commission. I do not accept that the issue in this case is whether Royal Lepage’s agent breached the RECO rules. I have defined the issue above. This submission is therefore not relevant.
[19] Finally, Royal Lepage also relies on Ms. Morrow’s sophistication as a corporate lawyer to argue that Ms. Morrow should have known about the dual agency. Ms. Morrow argues that her background does not absolve Royal Lepage from its fiduciary obligations. I agree. The case of Royal LePage Team Realty Inc. v. Temple, [2008] O.J. No. 301 (Ont. S.C.), is persuasive authority to support this view.
[20] To address the issue of what the consequences of the breach of the Agreement are, Ms. Morrow relies on the Ontario Court of Appeal case of Raso v. Dionigi (1993), 1993 8664 (ON CA), 12 O.R. (3d) 580.
[21] In that case, the court discussed the narrow exception to the general rule “that an agent cannot serve two masters.” At page 586, the Court quoted W.F. Foster in “Dual Agency: Its Implications for the Real Estate Brokerage Industry,” Meredith Memorial Lectures, Current Problems in Real Estate (1989), at p. 76, as follows:
However, there is one exception to this rule: conduct on the part of an agent which prima facie constitutes a breach of his fiduciary obligations will not be treated as such if he has made full and timely disclosure to his principals that is, if he has complied with his obligation of disclosure. An agent must be able to prove that the transaction was entered into by his principal after the agent has made "full and fair disclosure of all material circumstances and of everything known to him respecting the subject matter of the contract which would be likely to influence the conduct of the principal". But it is clear from the case law that mere full disclosure in itself is insufficient -- an agent, through "clear and affirmative proof” also must establish that the parties to the transaction (that is, in the context of a dual agency, his two principals, the vendor and the purchaser) "were at arms length" and that after receiving the information the principals "agreed to adopt what was done" by the agent or what the agent proposes to do.
[22] Further, the court held at p. 587 that the obligations of the agent include:
“disclosure of everything known to him respecting the subject matter of the contract which would be likely to influence the conduct of his principal or everything that would be likely to operate upon the principal’s judgment.”
[23] The evidence of Ms. Morrow was that she asked for and relied on Ms. Kara-George’s advice when she was negotiating the terms of the Agreement of Purchase and Sale, after the presentation of the offer. Further, she testified that had she known about the dual agency she would not have entered into the Agreement. I have found that the Agreement required Ms. Kara-George to make the dual agency disclosure before the offer was presented and that Ms. Kara-George breached the Agreement. I find that the disclosure of the dual agency was material and would certainly be included in the criteria set out in the Raso case of:
“everything known to him respecting the subject matter of the contract which would be likely to influence the conduct of his principal,” or everything that “would be likely to operate upon the principal’s judgment.”
[24] I find that Ms. Kara-George and therefore Royal Lepage breached the Agreement by not disclosing a material fact with respect to the nature of the obligations of Royal Lepage.
[25] I agree that the direction given by the Court of Appeal in the Raso case is applicable in this case, and that the material breach of the Agreement by Royal Lepage’s agent, Ms. Kara-George, precludes it from entitlement to commission, pursuant to that Agreement. The Plaintiff’s claim is therefore dismissed.
Costs
[26] If the parties are unable to agree on the issue of costs, they may make brief written submissions to me. As the rules provide, the submissions will be no longer than three pages in length. If there are any offers of settlement that bear on the issue of costs, these should be included. The Plaintiff’s costs submissions (copied to the Defendant) will be delivered by 12:00 p.m. on January 16, 2014, with the Defendant’s costs submissions (copied to the Plaintiff) to be delivered by 12:00 p.m. on January 23, 2014.
Pollak J.
Released: January 9, 2014
COURT FILE NO.: 04-CV-274335SR
DATE: 20140109
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Partners Realty Ltd.
Plaintiff
– and –
Rosalind Morrow
Defendant
REASONS FOR JUDGMENT
Pollak J.
Released: January 9, 2014