BETWEEN : WESTPOINT FINANCE PTY LTD (IN LIQ.) (ACN 072 812 803)

Contract - Claim for commission due in respect of real estate transactions - Claimant not a licensed agent - Commission prohibited by statute - Severability of contract

Restitution - Claim for value of services on quantum meruit where agreement for services unlawful

Estoppel - Matters against which estoppel does not prevail - Statutory prohibition of services

Real Estate and Business Agents Act 1978, pt I(4), pt III(26) and pt V(60)

Alpha Wealth Financial Services Pty Ltd & Others v Franklyn River Olive Co Limited & Anor [2008] WASCA 119; (2008) 66 ACSR 594

Hurst v Vestcorp Ltd (1988) 12 NSWLR 394

Tudor Developments Pty Ltd v Makeig [2008] NSWCA 263; (2008) 72 NSWLR 624

1 WISBEY DCJ: The plaintiff, a company now in liquidation, brings this contractual, alternatively restitutional claim against the defendant. The cause of action pleaded in par 7 of the statement of claim alleges that on or about 16 September 2004 the defendant agreed with the plaintiff that in consideration of the plaintiff assisting the defendant in the marketing of a subdivision development Grosvenor Village, the defendant would pay to the plaintiff a commission of 5% plus GST, of the sale price of each house and land package sold, the commission payable upon the transfer of land title to the purchaser.

2 Grosvenor Village was a land sub-division at 2 Dumbarton Road, Canning Vale, the developer being Conduit Advertising Pty Ltd, a company controlled by one Robert Auguste. The development involved the sale, following subdivision, of strata lots, in respect of which the purchaser was required, as a condition of the sale, to simultaneously execute a building contract with Westcourt Ltd t/a Plunkett Homes for the construction of a residence in accordance with agreed plans and specifications.

3 The defendant was the 'lead agent', which appears to have meant that it was the real estate agent primarily charged with the task of marketing the project. As the evidence disclosed however, when marketing difficulties were experienced it engaged the assistance of the plaintiff because of its alleged marketing expertise.

4 By letter dated 7 September 2004 to the defendant's representative Mr Murray, (exhibit 1, 108) Mr Auguste gave the defendant the following authority:

I hereby authorise you to grant an authority to Westpoint Finance to sell house and land packages at Grosvenor Village and pay them a commission of 5% plus GST, calculated on the total sales price including land and construction.

In order to facilitate this PRD will be paid a commission of 6% on all sales made by Westpoint. Commission shall be payable in full upon settlement of the land component as long as the purchaser has completed an irrevocable building contract for the lot and received finance approval from a reputable financial institution for the full amount of the transaction.

5 On the same day Mr Murray emailed Mr Beneworth, the plaintiff's national stock manager, (exhibit 1, 109) outlining a proposition whereby the developer would fund the payment of stamp duty on the land, and interest costs from the land settlement until the handover of the building, when there would be reimbursement with the final progress claim. The email advised that an agency agreement was being prepared and would be forwarded to the plaintiff.

6 On 16 September 2004 Mr Murray wrote to Mr Lewis, the plaintiff's sales manager, as follows:

As you are aware PRD Nationwide have been appointed as lead agents for the above project. We are pleased to have been able to employ the services of your firm to assist in the sale of the apartments. I write to confirm that your company will be paid a commission of 5% plus GST of the sale price of house and land packages sold in Grosvenor Village, payable in full upon settlement of the land component. (exhibit 1, 111)

7 It is this document that constitutes the agreement between the parties.

8 The plaintiff pleads that pursuant to the agreement it negotiated the sale and settlement of 14 lots, by reason whereof the defendant is indebted to it in the sum of $209,742.50. It alleges that on or about 4 May 2006 the defendant acknowledged liability.

9 In the alternative it pleads that the defendant is indebted to it on a restitutionary basis.

10 In the defence the agreement is essentially admitted. It is pleaded however that the sale price of each lot was increased by $10,000 which sum was to be rebated by cash back to the purchaser at settlement, and that it was agreed that the plaintiff's commission would be calculated on the net sale price.

(i) The letter of the 16 September 2004 was not a valid appointment in terms of s 60 of the Real Estate and Business Agents Act 1978 (an issue not pursued at trial).

(ii) From about January 2006 the plaintiff failed to undertake any of the duties it had agreed to perform as sub-agent, the responsibility therefore passing to the defendant.

(iii) At all material times the plaintiff was acting as a real estate agent within the meaning of the said Act; was not licensed to so act; and as a consequence of s 60 of the said Act was not entitled to receive any commission, reward or other valuable consideration in respect of the services performed.

12 In the reply it is pleaded that the services agreed to be performed by the plaintiff were beyond the scope of what would be undertaken by a real estate agent, and that because of the matters set out therein the defendant was estopped from withholding payment of the commissions received, or relying on the provisions of s 60 of the said Act.

13 The plaintiff tendered by agreement four volumes of documentation recording the relationship between the parties, and the activities undertaken and sales achieved by it (exhibit 1). By reason of agreement as to the documentation, the plaintiff did not adduce oral evidence.

14 The defendant called David Angus Murray, who has a commerce degree and experience in auditing and insolvency. He has worked for the defendant in the real estate industry since 1991.

15 Mr Murray described the defendant as exclusively a project marketing real estate agent. He described the plaintiff's proposed activity as that of an investment selling real estate agent. He stated that it was agreed with Mr Auguste that the defendant would approach the plaintiff because of its reputation for professionalism and expertise in the sale of investment properties.

16 Mr Murray referred to a meeting with Mr David Lewis representing the plaintiff, where Mr Lewis pointed out that the plaintiff received its income from sales commission, client for life fees, and commission on the arranging of finance. Mr Murray stated that he agreed with Mr Lewis that the plaintiff would manage the vendor-purchaser relationship from immediately before the offer to purchase was executed through to the completion of the building, and that notwithstanding the plaintiff would be entitled to its commission upon registration of the land transfer. It was also agreed that commission would not be calculated on the $10,000 advanced to the purchaser on land settlement and refundable at the completion of the building, which sum had been added to the contract price.

17 Following the agreement reached between the plaintiff and the defendant, the defendant provided the plaintiff with marketing material, and the plaintiff made a number of sales. Mr Murray stated that in respect of those sales the defendant did not have any contact with the purchasers until the plaintiff went into liquidation, its only involvement prior thereto being the trust retention of deposits paid.

18 The first stage of the development resulting in the issue of titles occurred in about March 2006, and settlements took place from that point of time until about May 2006. Housing construction did not commence on any of the lots until about mid-2006.

19 By facsimile dated 23 March 2006 (exhibit 1, 221), the plaintiff's liquidator advised the defendant that the plaintiff was placed into administration on 28 February 2006 and requested that all commissions due to the plaintiff be forwarded to the liquidator. By facsimile dated 29 March 2006 (exhibit 1, 230), solicitors Clavey Legal informed the defendant that it acted for Westpoint Realty which was the holder of a real estate agents licence and claimed the commissions sought by the plaintiff. The transmission advised that as the plaintiff was not the holder of a real estate agents licence it had no legal entitlement to commission. Mr Murray stated that was the first indication to the defendant that the plaintiff was unlicensed. By facsimile transmission dated 4 May 2006 which was copied to the plaintiff, the defendant advised the Administrator of Westpoint Realty (inter alia) that:

The majority of these units have now settled and we are holding Westpoint's share of the commission. Clearly Westpoint Finance have a claim to these moneys ... We have no intention of paying the funds to either party until this issue is resolved as such action would leave us in an untenable position. We would probably not defend any action brought against us unless Westpoint Finance offered to meet the cost of this defence. (exhibit 1, 246)

20 Mr Murray stated that construction had not commenced on any of the proposed residences when the plaintiff went into liquidation, with the result that the defendant was left having to administer the contracts through to completion of construction. As at 4 May 2006 there were still three land title transfers outstanding. When asked about his understanding of the plaintiff's obligations, Mr Murray stated:

And there were two contracts. One for the sale of the land, and one for the construction of a home, and administering the contract means ensuring that both parties meet their obligations. In this case we were acting for the vendor, so we were mainly responsible for dealing with the vendor and trying to keep him to his obligations, and it was Westpoint Finance's obligations to look after the purchasers and make sure they did everything they had to do.

21 He stated that all the title settlements occurred between April and July 2006.

22 In cross-examination Mr Murray agreed that the defendant had received and held in trust the deposit on each contract, and upon finalisation of the contract had deducted the 6% commission and paid it into its general account. He disputed having known that the plaintiff did not hold a real estate agents licence. He agreed that the defendant had not returned any commission to the developer.

Was the plaintiff engaged in the activities of a real estate agent?

23 Part I(4) of the said Act defines:

"real estate agent" as:

A person whose business either alone or as part of or in connection with any other business, is to act as agent for consideration in money or moneys worth, as commission, reward or remuneration, in respect of a real estate transaction as defined by this section.

"real estate transaction" as:

A sale, exchange, or other disposal of and a purchase, exchange or other acquisition of real estate.

"real estate" as:

Land within or outside the state and includes land of any tenure and buildings or parts of buildings within or outside the state.

24 The evidence clearly establishes that the plaintiff was to receive a commission for arranging contracts of sale of strata lots owned by the developer, to purchasers. It sought out prospective purchasers, gave them advice, arranged finance, and had them execute an offer to purchase a strata lot subject to a conjoined binding building contract. That is consistent with par 8 of the statement of claim. It was conducting real estate transactions for reward.

25 Part III of the said Act provides for the licensing of real estate and business agents, and requires not only that the agent be licensed, but also hold a triennial certificate.

26 Part III (26) provides that on or after 1 December 1979 a person shall not carry on business, or by any means hold himself or itself out as a real estate agent, unless he or it is licensed as such and holds a current triennial certificate. A breach of the section is visited with a monetary penalty of $20,000.

27 Part V (60) provides that an agent is not entitled to receive any commission, reward, or other valuable consideration in respect of his services in that capacity unless he is licensed and holds a current triennial certificate when the services are rendered. Section 60(3) makes it an offence punishable by a monetary penalty of $5,000 to demand or receive any commission, reward or other valuable consideration in contravention of the section. Section 60(4) provides that any commission, reward, or other valuable consideration received in contravention of the section is recoverable as a civil debt in a court of competent jurisdiction.

28 The legislative intent is very clear. It is to regulate and control the industry, and to provide the public with the assurance that those they engage to assist them, or with whom they deal, have been required to demonstrate that they have the necessary qualifications to provide proper advice and protection.

29 The conduct embarked upon by the plaintiff, in respect of which it seeks commission, was conduct in respect of which there was in the circumstances a statutory prohibition. Not only is the plaintiff 'not entitled to receive any commission, reward, or other valuable consideration' in respect of its services in that capacity, had it done so, the developer would have been entitled to recover the amount so received in civil proceedings.

30 The plaintiff seeks to avoid the mandatory consequence of s 60 in two ways.

31 Firstly, it argues that the contract was effectively two, being a contract for the sale of a strata lot, and a complimentary but independent contract for the erection of a dwelling on the lot. It argues that the contract in respect of the erection of the dwelling is not a real estate transaction, and that it is entitled to 5% commission of the sum attributable to the building contract.

32 The first obstacle in the path of that argument is contained in the statement of claim where the plaintiff variously alleges:

... the defendant was appointed lead agent for the sale of units in Grosvenor Village, Canning Vale (par 6).

The plaintiff and the defendant agree that in consideration of the plaintiff assisting the defendant in the sale of the Grosvenor Village units, the defendant would pay to the plaintiff a commission of 5%, plus GST, of the sale price of each house and land package (par 7).

...

... the conduct of the defendant providing the plaintiff with the various documents to enable the marketing and sale of the apartments in Grosvenor Village (par 7 particular C).

33 The pleading confirms the position demonstrated in the contractual documents in exhibit 1, and the evidence of Mr Murray, that in a practical sense each contract was for the sale of a strata lot and the construction of a dwelling thereon. Neither the developer nor the purchaser contemplated other than a package deal, and neither would have been prepared to enter into the contract unless it was. It is not possible to avoid the consequences of s 60 by endeavouring to dissect the contract into two components.

34 The second obstacle is that if it was possible to dissect the contract, the plaintiff's liquidation precluded it from carrying out its obligation relating to the administration of the building component.

35 In Hurst v Vestcorp Ltd (1988) 12 NSWLR 394, 445, McHugh JA when dealing with the issue of restitution stated:

When, as the result of a breach of the law passed for the protection of certain persons, one or more contracts come into existence, the rationale of the illegality doctrine requires the invalidation only of a contract or part of a contract which defeats that protection. In many cases the unaffected contractual provision will be severable from the affected part. But in other cases, such as the present, severance may not be possible. Although a provision is outside the scope of the statute, it may be inextricably linked with the affected part of the contract or contracts. But it does not follow that the parties are without remedy in respect of executed transactions entered into under the unenforceable contract.

In some cases the doctrine of restitution will enable a party to recover compensation for a benefit accepted by the other party under the contract even though the contract is unenforceable. Recovery of compensation in these cases does not depend on the terms of the unenforceable contract. The right of recovery is based on an obligation or promise which the law itself imposes; Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, 255 - 256. As the decision in that case shows, compensation may be payable in respect of work done and accepted under a contract even though a statute declares that the contract is unenforceable. Whether restitution is possible in respect of benefits accepted under a contract declared by statute to be unenforceable depends on the intention of the legislature. That is to say, the question is whether the legislation evinces an intention not only to invalidate the contract but to preclude the recovery of compensation by way of restitution for benefits given and accepted under the unenforceable contract; Pavey & Matthews v Paul (263, Deane J).

36 Not only is that important on the severance issue addressed above, it is also relevant to the second limb of the argument advanced by the plaintiff to overcome the consequence of s 60, namely that having performed the work, it is entitled in the absence of agreement to recover on a restitutionary basis the value of the benefit received by the defendant.

37 As already indicated, the legislative intent of the said Act is to provide public protection in real estate transactions, and to regulate the industry generally. Not only does s 60 direct that an unlicensed agent is not entitled to receive any commission, reward or other valuable consideration for services, it makes it a punishable offence for the agent to demand or receive any commission, reward or other valuable consideration, and provides a civil right of recovery to those who have paid commission. Clearly the consequence is not only to invalidate the agency contract, but to preclude absolutely the recovery of any benefit thereunder. There is no basis for a restitutionary claim.

38 The plaintiff's fallback position is that the defendant is estopped from withholding payment of the commission by reason of the course of conduct particularised in the reply, and specifically by reason of the fact that it submitted to the developer invoices seeking payment of commission on each of the contracts at the rate of 6% (of which 5% was attributable to the plaintiff) and received payment. The plaintiff relies upon the doctrine of estoppel by convention, the elements of which were set out by Buss JA in Alpha Wealth Financial Services Pty Ltd & Others v Franklyn River Olive Co Limited & Anor [2008] WASCA 119; (2008) 66 ACSR 594 [164]. Essentially those elements are encapsulated by Mason CJ in Commonwealth v Verwayen (1990) 170 CLR 394, 413 where his Honour said:

... it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but no more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs) which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness.

39 Whether there can be an estoppel in the face of legislative direction necessitates construction of the legislation. In Tudor Developments Pty Ltd v Makeig [2008] NSWCA 263; (2008) 72 NSWLR 624 [15], Basten JA stated:

The difficulties which can arise from the statutory proscription of particular forms of conduct without clear specification of the consequences of a contravention of the proscription is well-travelled territory in the courts. Even where the consequences are identified in the statute, a question may arise as to whether the statute is to be construed as conferring a benefit upon a particular individual or class of individuals (in which case any adverse consequences may be capable of being waived by the beneficiary) or whether the statute provides protection for a particular class of persons, in the public interest (in which case the statutory prohibition and its consequences will not be capable of waiver). It is inevitable that the answer to such questions will depend upon established principles of statutory construction and, in particular, attending to the language of the statute as it appears in its relevant statutory context.

40 The Real Estate and Business Agents Act 1978 is legislation intended (inter alia) to regulate the real estate industry in the public interest. As already indicated, s 26 makes it an offence for an unlicensed person to act as, or hold himself out as a real estate agent. Section 60 addresses the consequences, financial and otherwise, of a person conducting himself in breach of the said Act and, in particular, provides a right of recovery in respect of moneys received by him. In the context of the legislation there is no room for the application of estoppel.