Appellant v Respondent

1 m3 Property (Vic) Pty Ltd, the appellant, claims to be entitled to the sum of $143,000 from Whitehorse Towers Pty Ltd, the respondent. m3 Property's claim is that Whitehorse Towers owes it $143,000 as an advisory fee payable pursuant to an agreement entered into between the parties on 27 April 2007. Whilst Whitehorse Towers admits the existence of the agreement relied upon by m3 Property, Whitehorse Towers maintains that no advisory fee is payable under the agreement.

2 On 12 June 2009, m3 Property commenced proceedings against Whitehorse Towers in the Victorian Civil and Administrative Tribunal to recover the advisory fee allegedly owing to it. On 18 July 2011, VCAT dismissed m3 Property's claim. Following the dismissal of its claim, m3 Property sought leave to appeal, on a question of law, pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998. On 2 September 2011, Randall AsJ gave leave to appeal on the following question of law:

"On the facts found by the Tribunal, as a matter of construction of the engagement letter [signed on 27 April 2007], is an advisory fee payable by [Whitehorse Towers to m3 Property]?"

3 This is the hearing of m3 Property's appeal. As described by both counsel, the appeal "involves a single, and relatively simple, question of the proper construction of an agreement".

4 The relevant facts are not in dispute.[1] m3 Property provides advisory services to owners and occupiers of commercial property in Australia. In 2007, Whitehorse Towers owned a commercial development site at 545 Station Street, Box Hill (" the Box Hill site").

5 Whitehorse Towers had received an offer of $13 million to purchase the Box Hill site. However, it wanted to test the market for possible development joint-venture partners before making any decision to sell the site. Whitehorse Towers retained m3 Property to market the Box Hill site to potential joint venture partners.

6 On 27 April 2007, m3 Property and Whitehorse Towers entered into an agreement, constituted by the signing of an engagement letter. The engagement letter relevantly provided as follows:

"RE: 545 STATION STREET, BOX HILL - ENGAGEMENT LETTER

This submission and engagement letter is in relation to the divestment and/or joint venture of the above property.

This letter confirms that Whitehorse Towers Pty Ltd in its capacity as owner of 545 Station Street, Box Hill has engaged m3property (Vic) Pty Ltd (ABN 99 472 148 297) to act as the Company's exclusive advisor in connection with the proposed disposal and/or Joint Venture partnership of the above property. We propose a success fee as follows:

(a) Advisory Fee

Where:

(i) the transaction is completed; or

(ii) a binding agreement is entered into which subsequently results in the Transaction being completed,

during the term of this agreement, the Company will pay m3property as consideration for the Services an advisory fee equivalent to 1.1% (includes GST) of the Contract price.

...

This agreement commences on the date of this letter and expires automatically on the earlier of 31 July 2007 or completion of the transaction."

7 m3 Property carried out extensive work, but concluded that there was no market interest in the joint-venture project proposed by Whitehorse Towers. On 22 June 2007, m3 Property informed Whitehorse Towers of its conclusions.

8 On the same day (22 June 2007), Whitehorse Towers entered into a contract of sale for the Box Hill site to a Francis Kwong and/or nominee for $13 million (" the first contract of sale"). Mr Kwong paid a deposit of $2.6 million to Whitehorse Towers, leaving a balance payable under the first contract of sale of $10.4 million.

9 On 28 February 2008, Mr Kwong nominated Box Hill Landmark Pty Ltd ("Box Hill Landmark"), a company of which he was the sole director and shareholder, as substitute purchaser under the first contract of sale.

10 Box Hill Landmark failed to pay the balance of purchase price due by 26 March 2008. On 27 March 2008, Whitehorse Towers served a notice of rescission on Box Hill Landmark and Mr Kwong. On 10 April 2008, Whitehorse Towers rescinded the first contract of sale, and the deposit of $2.6 million was forfeited to Whitehorse Towers.

11 On about 11 April 2008, Whitehorse Towers, Mr Kwong and Box Hill Landmark entered into terms of settlement, the effect of which was:

(a) Box Hill Landmark and Mr Kwong released Whitehorse Towers from any claim that the first contract of sale was improperly rescinded;

(b) Box Hill Landmark and Mr Kwong released Whitehorse Towers from any claim that the deposit paid to Whitehorse Towers under the first contract of sale was forfeited;

(c) Box Hill Landmark would pay Whitehorse Towers a "settlement sum" of $78,515 (as said by the parties, "presumably on account of interest damages or similar");

(d) Box Hill Landmark would enter into a new contract of sale to purchase the Box Hill site from Whitehorse Towers ("the second contract of sale");

(e) the price under the second contract of sale would be $10.4 million, being the balance due under the first contract of sale;

(f) payment of the full purchase price under the second contract of sale was due by 23 April 2008.

12 On 25 March 2008, m3 Property sent Whitehorse Towers an invoice in the sum of $143,000, for commission on "settlement of the sale transaction".

13 On 24 April 2008, the second contract of sale settled, and title to the Box Hill site was transferred to Box Hill Landmark.

14 On 28 April 2008, Whitehorse Towers responded to m3 Property that it had no liability to pay commission to m3 Property, because the first contract of sale had been rescinded.

15 At the hearing before VCAT, the following were matters of common ground between the parties:

(a) The term of the engagement letter commenced on 27 April 2007 and expired automatically on 31 July 2007 or 31 August 2007.[2]

(b) The automatic expiry of the term of the engagement letter would not, of itself, disentitle m3 Property from its fee if a binding agreement was entered into during the term but the transaction was completed after expiry of the term.

(c) The first contract of sale to Kwong made on 22 June 2007 was a binding agreement entered into during the term of the agreement.

(d) Kwong's nomination of Box Hill Landmark on 28 February 2008 was pursuant to that same binding agreement.

(e) Accordingly, if Box Hill Landmark as nominee under the first contract of sale had completed the purchase of the Box Hill site by paying the balance due under the first contract of sale by 10 April 2008 (being the expiry date of the notice of rescission), then Whitehorse Towers would have been liable to m3 Property the advisory fee.

16 The agreement provided for the payment of the advisory fee if a binding agreement was entered into which subsequently resulted in the transaction referred to in the engagement letter being completed. The central issue in this proceeding concerns the construction of the words "where ... a binding agreement is entered into which subsequently results in the transaction being completed".

17 Whilst the "transaction" referred to in the engagement letter is not specifically defined, it is tolerably clear that the reference to the "transaction" in the engagement letter is a reference to either the sale of the Box Hill site or the entering into of a joint venture partnership in respect of the Box Hill site.

18 The Tribunal summarised Whitehorse Towers' submissions as follows:

"23. The 'Thrust' of Whitehorse Towers' defence, described in its submissions, is:

'... that no fee is payable to M3 because the transaction under the First Contract of Sale (although entered into during the term of the Agreement) never completed. A fee would have been payable to M3 had the First Contract of Sale completed.'

1. 24. Whitehorse Towers submitted that the Tribunal should be guided in the construction of the engagement letter by certain 'uncontroversial' principles of construction of contracts, which included the following:

(a) Construction of a contract is an objective question for the Tribunal and the subjective beliefs of the parties are generally irrelevant in the absence of any argument for rectification or estoppel. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165.

(b) The Agreements must be given a business-like construction. Allstate Exploration NL v QBE Insurance (Australia) Ltd [2008] VSCA 148.

I agree with Whitehorse Towers that the above principles are non-controversial.

On a proper construction of the Agreement, the advisory fee was only payable to M3 where the binding agreement (ie the First Contract of Sale) entered into during the term of the Agreement completed."

19 The Tribunal then summarised m3 Property's submissions in the following terms:

"26. M3 argued in its submissions that there was a 'causal link between the first sale contract and the conveyance to [the purchaser under the second contract of sale]'. It set out with care the numerous points which indicated such a link. Its submissions continued as follows:

14. To put it in terms of causation, but for the first sale contract its recision and the terms of settlement, the replacement sale contract would not have come into existence.

15. The first sale contract was thus a binding agreement which 'resulted in' (in the sense of a (sic) being a direct or indirect cause of) the transaction being completed, albeit under the replacement sale contract.

16. Looked at from the other end of the prism, the transaction was completed as a consequence of the first sale contract, and specifically as a consequence of it (sic) being binding. The fact that the first sale contract was binding, was the obvious trigger for the entry into the terms of settlement."

20 Immediately following the summary of m3 Property's submissions, the Tribunal concluded:

"27. Here, I think, lies the difficulty for the applicant. While there may have been links between the two contracts, I do not consider that the first contract of sale can be said to have resulted in the transaction being completed. The first contract of sale was terminated. It did not result in anything. True, it left the principals of the contracting parties with a situation out of which they then constructed a new agreement, the second contract of sale, which did result in the transaction being completed, but they could just as easily have constructed an agreement which led to a different result. The fact that the parties were introduced to each other and negotiated a sale during the period of the engagement letter is not sufficient to satisfy the requirement that the agreement 'results in the Transaction being completed.' The first contract of sale was but the background from which another agreement was produced.

1. 28. The engagement letter contemplated the fee being payable to M3 only if a sale or joint venture was completed during the term of the engagement or an agreement was made in that period, but was completed outside the period. Accordingly, I consider that the word 'results' in clause (a)(ii) meant that the binding agreement resulted in the completion by being performed. It was not sufficient that it was a precursor of another agreement and in that sense was a cause of the other agreement."[3]

Construction of the agreement: principles to be applied

21 The principles to be applied concerning the construction of this agreement are not in dispute. The Court is required to consider what reasonable persons in the position of the parties would have understood the agreement to mean by reference to the text of the agreement, the surrounding circumstances known to the parties and the purpose of the transaction. In interpreting the words and resolving any ambiguity, the Court should proceed in a common sense and non-technical way and give the agreement a commercially sensible construction. The Court should have regard to all of the words used in the agreement "so as to render them all harmonious one with another" and to ensure the "congruent operation of the various components as a whole".[4]

22 m3 Property's appeal is limited to an appeal on a question of law. The construction of a written agreement is a question of law. However, once the task of construction is over, the question whether a particular set of circumstances falls within the operation of the contractual term is essentially a question of fact. That said, if, in determining whether particular circumstances fall within the operation of the relevant contractual provision, the fact-finding tribunal arrives at a conclusion which was simply not open to it, then that is an error of law; and the question whether the fact-finding tribunal arrived at a conclusion which was not open to it is a question of law.[5]

23 Initially, I was disposed to think that the appellant's complaints were questions of fact, about which it had no right of appeal. Specifically, the second, third and fourth sentences of paragraph 27 of the member's reasons appear to state, as a fact, that the first contract of sale did not result in the transaction being completed. In those sentences, the member said:

"... I do not consider that the first contract of sale can be said to have resulted in the transaction being completed. The first contract of sale was terminated. It did not result in anything."

24 However, ultimately, I have concluded that VCAT misconstrued the agreement. In paragraph 28 of the reasons, the member said:

"... I consider that the word 'results' in clause (a)(ii) meant that the binding agreement resulted in the completion by being performed. It was not sufficient that it was a precursor of another agreement and in that sense was a cause of the other agreement." (emphasis mine)

25 The parties were agreed (correctly, in my view) that an advisory fee was payable where a binding agreement was entered into during the term of the agreement and the transaction was subsequently completed. However, the contention that it was the binding agreement (entered into during the term of the agreement) which must be performed must be rejected. If it was intended that an advisory fee only be payable upon the performance of the specific binding agreement entered into during the term of the agreement, then the parties could have so provided. At the end of paragraph (a)(ii), it would have been a simple matter to insert the words "by the performance of the binding agreement".

26 Counsel for Whitehorse Towers submitted that the construction contended for by m3 Property depended upon the acceptance of propositions which he described as "uncommercial". The uncommercial propositions were said to be:

(a) There is no requirement under the agreement that the "binding agreement" entered into during the term of the agreement is ever completed.

(b) Provided that some other (undefined) agreement for the sale completes, even if entered into after (regardless of how long after) the term of the agreement, m3 Property becomes entitled to its advisory fee.

(c) It is not necessary that the parties to the "binding agreement" entered into during the term of the agreement be the same parties as the parties to the later (undefined) agreement.

(d) It is sufficient that some other subsequent contract results in a sale, even where such other contract is on fundamentally different terms (including as to price and completion date).

27 I reject these submissions. In each case, the question will be whether it can be said that the transaction completed (upon the terms of whatever agreement the vendor and purchaser might ultimately rely on) as a result[6] of the entry into of a binding agreement during the term of the agreement. As a counter to the propositions advanced on behalf of Whitehorse Towers, one only needs to look at the result that would be achieved on Whitehorse Towers' construction if the parties to the binding agreement decided subsequently to put that agreement to one side and enter into an agreement that they each thought better reflected the terms of sale. On Whitehorse Towers' construction, if the transaction was not completed during the term of the agreement, it would always have been open to Whitehorse Towers to replace the binding agreement with another binding agreement (perhaps on the same terms) and thereby avoid payment of an advisory fee under the agreement. In my view, such a construction would not be "commercially sensible".

28 It follows from what I have said above that the Tribunal misconstrued the agreement entered into between the parties. The question then arises whether this error of law made any difference to the outcome of the application before the Tribunal. As I have noted above, in paragraph [27] of the reasons, the member said:

"The first contract of sale was terminated. It did not result in anything."

29 Whitehorse Towers contends that this is a finding of fact which cannot be disturbed on this appeal, and the appeal must therefore be dismissed. However, m3 property contends that this finding was made because of a misunderstanding of the proper construction of the agreement. m3 property supports its submission by referring to the statement made a little further on in the reasons that "It was not sufficient that [the first contract of sale] was a precursor to another agreement and in that sense was a cause of the other agreement". m3 Property's submission on this issue must be accepted. If the first contract of sale subsequently resulted in the sale that occurred in April 2008, then m3 Property is entitled to the advisory fee. The finding that the first contract of sale "did not result in anything" must be read in the light of the Tribunal's conclusion that it was not relevant (or sufficient) that the first contract of sale may have been a cause of the later agreement.

30 On the proper construction of the agreement entered into between the parties, the question to be determined is whether, as a matter of fact, the entry into the first contract of sale subsequently resulted in the sale that occurred in April 2008. That is a question of fact to be resolved by VCAT, not this Court. While s 148(7)(b) of the Victorian Civil and Administrative Tribunal Act permits this Court to make an order that the Tribunal could have made, generally speaking, it is not appropriate for this Court to embark upon the exercise of resolving disputed questions of fact in appeals limited to questions of law. The position may be different if the material filed in the appeal enabled the judge hearing the appeal to conclude that the factual outcome contended for by one party would not be one that was open to the Tribunal. As it will be the Tribunal's task to resolve the factual question in this case, I propose to say no more than the present proceeding is not such a case.

31 It follows that the appeal must be allowed and the matter remitted to the Tribunal to be heard and decided again. I will hear the parties on the appropriate form of order and any question of costs.

[1] See paragraphs 7 to 17 of the outline of submissions on behalf of the appellant dated 4 November 2011 and paragraph 3 of the respondent's outline of submissions.

[2] There was a dispute at VCAT about whether the agreement was extended by one month. However, the parties agreed that nothing turned upon this dispute. Accordingly, the Tribunal did not determine this matter - and it is not necessary for me to determine this matter in this appeal.

[3] The judgment below went on to deal with further issues raised by m3 Property concerning an alleged implied term and unjust enrichment. These issues were determined by VCAT against m3 Property, but they (the implied term and unjust enrichment arguments) form no part of this appeal.

[4] See generally, Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, [40]; Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; [1932] All ER 494, 499, 503-4; Upper Hunter Country District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429, 437; Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] VicRp 99; [1992] 2 VR 732, 740; MLW Technology Pty Ltd v May [2005] VSCA 29, [76]-[81]; Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749, 770-1; ABC v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109; Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, [16] and Earney v Australian Property Investment Strategic Pty Ltd [2010] VSC 621, [97].

[5] See generally FAI Insurance Co Ltd v Savoy Pty Ltd [1993] VicRp 76; [1993] 2 VR 343, 351; S v Crimes Compensation Tribunal [1998] 1 VR 83, 88-89 (and noting that this decision concerned the interpretation and operation of statutory provisions, rather than contractual terms); and East Gippsland Shire Council v Strong [2001] VSC 448.

[6] Or, to use the language of the agreement, as a subsequent result.