In September 2001, a Saskatoon restaurateur and businessman decided to sell his steak house. The seller contacted a local real estate agent who was registered with a brokerage. The agent and the seller signed an exclusive listing agreement that ran from September 25, 2001 to December 15, 2001. Listing price for the restaurant was $2,400,000. The agent believed that the recently renovated restaurant would be perfect for a large national chain to purchase and he tried to interest the chain, but they were not interested because of the property’s location.

The agent marketed the restaurant extensively but failed to find a buyer. The price was dropped to $1,900,000 but it still failed to sell. When the listing agreement expired in mid-December, the agent approached the seller to renew the agreement. The seller refused to relist but agreed that if the property sold he would pay the agent the commission. The seller also indicated that he was willing to sell the property for $1,500,000 if an offer was made that same day, but no buyers came forward with an offer.

The agent continued to market the property and again contacted the national chain’s head office. He also spoke to a local investor. The local investor (buyer 1) was interested in the property and asked the agent to write up an offer. The agent took the offer to the seller, who agreed to consider it. While the seller was considering the offer, the agent continued to market the property to other people, including the previously mentioned national chain. Additionally, the agent suggested to one of the other potential buyers that a national chain restaurant might be interested in leasing the property. The agent did not tell either buyer 1 or the seller that he was continuing to market the property other people, as well.

The seller counter-offered in late December and buyer 1 accepted. Condition removal was set for January 31, 2002, with a closing date of March 1, 2002.

Buyer 1 was interested in the property because of its price; he was not interested in running a restaurant, rather, he was looking for a tenant. At that time, the national restaurant chain decided it might be interested in the property after all. Buyer 1 instructed the agent to prepare a proposal to lease and this was presented to the chain’s management on January 15, 2002. The agent did not tell the original seller that the national chain might now be interested in the property.

The chain’s management indicated they were not interested in leasing the property, but were instead interested in purchasing it. A contract was signed with buyer 1’s lawyer, with a condition removal date of January 31, 2002, and a closing date of March 4, 2002. Later, the chain indicated that it needed a two-week extension for condition removal. To facilitate this, buyer 1 asked for a two-week extension on his contract with the original seller. At no time was the original seller made aware of the property’s sale to the chain. The original seller and his wife heard rumours of the sale to the chain and asked the agent if there was any truth to them. The agent assured them, at various times, that the rumours were unsubstantiated.

The agent was concerned about his position in the two sales and consulted a lawyer. He continued to act for both buyer 1 and the original seller.

The original seller found out about the sale to the chain for the first time when he discovered that the transfer of land was from his company directly to the chain (the lawyers had decided this would be more beneficial to the finances of buyer 1). The agent collected commissions from both sales.

The original seller sued the agent and the brokerage for breach of fiduciary duties.

The court looked at whether the agent was acting as an agent of the seller, in the absence of a current listing contract. The court concluded that the agent’s actions in continuing to market the property were those of an agent. The court quoted William Foster in Real Estate Agency Law in Canada when he stated that agency can be established by agreement –“written or oral, or express or implied from the conduct of the parties.”

The court also stated that the agent was in dual agency once buyer 1’s offer was presented to the seller. As such, he owed fiduciary duties to both, The court suggested that the agent and seller’s relationship met the criteria for a fiduciary relationship: the fiduciary has scope for the exercise of some discretion or power; the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

The agent testified that he did not tell the original seller about the chain’s purchase of the restaurant because he owed a fiduciary duty to buyer 1 not to disclose the particulars of the second sale.

The court concluded that the agent breached his fiduciary duties to the original seller by not providing full disclosure of the flip and by deceiving the seller with his silence. The court also concluded the agent’s primary concern was not his fiduciary duty to buyer 1, but rather, in possibly losing his real estate commission on the second sale. The court stated: “The real focus on whether or not a realtor, as a fiduciary, has any obligation to a client has nothing to do with whether or not he or she may possibly lose a real estate commission. The sole consideration of the realtor is whether or not they are performing his or her fiduciary duty to be fair and honest in disclosing everything and not to deceive or mislead, no matter if that involved the possible risk of losing a real estate commission. “

The court awarded the original seller damages of $337,750. This case is currently under appeal.

(Crescent Restaurants Ltd. v. ICR Brokerage Inc. 2008 SKQB 383)

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