Cannon Real Estate Pty Ltd v Hubble [2000] VSCA 116

Court of Appeal (Vic)|2000-06-23|Before: BROOKING, ORMISTON and PHILLIPS, JJ.A.

PRINCIPAL AND AGENT - Estate agent - Sale of land and business - Commission - Requirement of "contract enforceable against a purchaser" - Effect of condition in contract enabling purchaser to end contract if licence not obtained - Failure by a purchaser to give notice as required by condition - Whether commission payable.

I agree with Phillips, J.A. that this appeal should be allowed.

I express no opinion on the correctness of the decision in Trotter v. McSpadden[1].

In this matter I have had the benefit of reading the judgment of Phillips, J.A. and would agree with him, for the reasons he has stated, that this appeal should be allowed.

Contracts for the payment of commission, as he points out, almost invariably depend upon the terms of the contract of engagement of the agent, which should set out the terms upon which commission is payable, and likewise they depend, for their outcome, on the terms of the contract between vendor and purchaser. It is natural that lawyers and their clients would desire to put each of these kinds of contracts and their manifold variations of form into seemingly water-tight compartments in order to produce certainty as to liability for commission. Over the years estate agents and the bodies who represent them have tried to devise terms of engagement which will produce certainty and speed of resolution. The terms which have enabled agents to keep their commission as soon as the ink is dry on a sale note have, not unsurprisingly, been seen as unfair by vendors who wish to give flexibility to purchasers without incurring liability for commission before the purchaser is irrevocably bound.

The present case must be seen as one depending entirely on its own facts, although decided against a background of accepted principles relating to conditions resolutive. There is therefore no need to examine matters of principle further than have been discussed in the judgment of Phillips, J.A., but I would desire to note that it has not been necessary to examine the correctness or otherwise of Trotter v. McSpadden[2]. In those circumstances, by reaching my conclusions, I should not be seen as endorsing necessarily everything that was said by the learned judge in that case.

This is an appeal by Cannon Real Estate Pty. Ltd. ("Cannon") from a judgment given in the County Court on 2 November 1998 after trial before judge alone of a third party proceeding commenced by Peter Francis Hubble against Cannon when he was sued by the purchaser over the failed sale of a brothel in York Street, South Melbourne, of which he, Hubble, was the owner. In the third party proceeding judgment was given in favour of Mr. Hubble on both claim and counterclaim and it is from that judgment that Cannon now appeals.

By an exclusive sale authority of 23 August 1995 Mr. Hubble appointed Cannon to act as his agent for the purpose of selling the brothel, and the land on which it stood, for $1.1 million or any other price agreed to by him. According to the signed form of authority, the agent's fees were to be $75,000 and Mr. Hubble, as the vendor, was obliged to pay those fees "if the vendor sells the property during the currency of this agreement". "Sale" was defined as "the result of obtaining a binding offer" ,"sell" was given "a corresponding meaning", and "binding offer" was defined to mean an offer resulting in a "contract enforceable against a Purchaser". There was one complication. Mr. Hubble dealt with one Douglas Nicholas who at the time was an employee of Cannon. Prior to his entering into the exclusive sale authority, Mr. Hubble was assured (he claims) by Mr. Nicholas that if the sale did "not go through", there was no fee.

In due course Mr. Nicholas, acting for Cannon, introduced Mr. Hubble to John Kantzos and on 23 October 1995 the two of them entered into two separate but related agreements providing for the sale of the land and the sale of the business for a total sum of $1.1 million. The contracts made provision for the appointment of a nominee to be the purchaser. A deposit of $50,000 was paid by one Lidolar Pty. Ltd. in two instalments: the first of $20,000 on 29 September 1995 and the second of $30,000 on 23 October 1995. A third payment of $10,000 was made on 23 October "as a security deposit". This payment was associated, we were told, with the purchaser's being given the opportunity by the vendor, once contracts were exchanged, of seeing how the business was conducted. Be that as it may, by means of these three payments, $60,000 was paid to Cannon which it has since retained. It has not been paid anything further.

A person operating a brothel is required to have a licence from the Prostitution Control Board, by virtue of Part 3 of the Prostitution Control Act 1994. The parties were all alive to this requirement and both contracts contained a similar, specially typed condition which, in the case of the sale of the land, was as follows:-

"18. The Purchaser may end the Contract if the application for a Licence to operate a Brothel is not approved by the Prostitution Control Board by the 31 March 1996 only if the Purchaser:

(a) has made an immediate application for the Licence;

(b) has done everything reasonably required to obtain approval of the Licence;

(d) has disclosed all relevant information in the application to the Prostitution Control Board and not withheld information which would have made the applicant ineligible from the outset from obtaining a licence."

In the case of the sale of the business, special condition 6 was the same save that it had an extra paragraph, requiring that the purchaser not be in default under any condition of the contract when the notice was given. These two special conditions thus gave the purchaser an option to end the contract, should a licence not be obtained by 31 March 1996, but the option was conferred only on terms - terms specifying both the circumstances in which the option arose and, in paragraph (c), the means whereby it could be exercised.

No licence was obtained either before 31 March 1996 or at all, but there was no direct evidence given at trial of any notice in writing to the vendor under the special condition in either contract. There was evidence, in the form of a certificate from the Prostitution Control Board, that Mr. Kantzos never applied for a licence, but the vendor's solicitor received in February 1996 what purported to be nomination forms whereby Lidolar Pty. Ltd. was nominated to be purchaser of the land and Spiros Tselios as purchaser of the business. Some time after the contracts were entered into, we were told, the purchaser had some informal trial of the running of the brothel and, according to certain correspondence which went into evidence subject to objection, on 13 February 1996 the purchaser's accountants wrote to Cannon complaining that the business was not operating "at the extent to which [the purchaser was] initially advised", seeking to have the price reduced by $150,000 and threatening to cancel the contracts. On 4 April 1996 the Prostitution Control Board wrote to the solicitors for Mr. Kantzos stating that an application by Mr. Tselios for a licence had "not yet been considered by the Board" although he had been "interviewed, fingerprinted and tested on his knowledge of the Act". On 12 April 1996 Mr. Hubble's solicitors wrote to Mr. Kantzos's solicitors asserting that Mr. Kantzos had not done everything reasonably required to obtain a licence, an allegation which was promptly met by Mr. Kantzos's solicitors asserting, by return fax, that Mr. Tselios had "done everything reasonably required to obtain approval of the licence" and threatening proceedings should the matter not be resolved by 15 April 1996. On 24 April 1996 Cannon's solicitors wrote to Mr. Hubble's solicitors asserting a right to retain the commission, and purporting to agree with Hubble that "the Purchaser has not done everything reasonably required to obtain approval of the application for a licence and therefore is bound by the Contract of Sale".

While this correspondence was admitted into evidence, by reason of the objection taken it was not evidence of the facts stated in it. None the less it did demonstrate a dispute - or at least an emerging dispute - between vendor and purchaser over the fate of the contracts. It is not surprising, then, that on 1 May 1996, Mr. Kantzos, as purchaser, and Mr. Hubble, as vendor, entered into a further agreement. As pleaded by Mr. Kantzos in this proceeding, the two men agreed that the contracts between them would be discharged, that Mr. Hubble should retain $10,000 "of the deposit" and that he should "repay to the plaintiff [Kantzos] the balance of the deposit $50,000 forthwith". This new agreement was identified as the "discharge agreement" and when Mr Hubble failed to make the payment of $50,000, Mr. Kantzos sued him for it, relying simply upon the promise to pay contained within the "discharge agreement" of 1 May 1996. That was the start of this proceeding.

Mr. Kantzos filed his writ in the County Court on 24 May 1996 and on 11 July 1996 he obtained summary judgment against the defendant for $50,000 plus costs. Shortly after summary judgment was obtained, Mr. Hubble, as defendant, served on Cannon a third party notice dated 27 June 1996, alleging that Cannon was not in the circumstances entitled to its fees and claiming, first, contribution and indemnity in respect of any sum which Mr. Kantzos, as purchaser, might (sic) recover in the proceeding and, secondly, a refund of the further sum of $10,000. Cannon counterclaimed for the balance of its fees, being $15,000.

The third party claim and counterclaim came on for hearing before a judge in the County Court on 30 October 1998. After a two day trial, his Honour found for Mr. Hubble and dismissed Cannon's counterclaim. Accordingly, on 2 November 1998 judgment was given against Cannon, as sought by Mr. Hubble, for $60,000 with costs. Those costs were not only the costs of the third party proceeding: they included also the costs which Mr. Hubble had been ordered to pay to Mr. Kantzos and his costs of defending Mr. Kantzos's claim against him. Cannon now appeals, contending that the claim against it should have been dismissed and that it should have succeeded on the counterclaim for the balance of its fees.

As matters now stand, Cannon accepts that, subject to any claim it has to commission, it holds the sum of $60,000 "as agent for and on behalf of its principal, Hubble". Mr. Hubble accepts that if Cannon is entitled to commission, the sum of $60,000 may be retained by it. Cannon does not make any claim to retain that sum unless it is entitled to commission. Thus, the battle lines are drawn: in the third party proceeding, both claim and counterclaim depend upon Cannon's entitlement to commission.

First and foremost, Cannon points to the contracts that were exchanged for the sale of the land and the sale of the business. Both, it contends, were enforceable contracts notwithstanding the purchaser's right to terminate the contracts in the circumstances specified in Special Condition 18 of the contract for the sale of land and Special Condition 6 of the contract for the sale of the business. Accordingly, Cannon contends, upon the purchaser's entering into those contracts, Cannon became entitled to its fees of $75,000, of which it has so far been paid only $60,000.

For Mr. Hubble it was submitted that the submission thus far should be rejected. The contracts, when they were entered into, contained resolutive conditions which were, for present purposes, in the same terms. They entitled the purchaser, at its option, to "end the contract if the application for a licence to operate a brothel is not approved ... by the 31 March 1996". Thus, the contracts entered into were defeasible and in those circumstances (so the argument ran) Cannon was not entitled to its fees, otherwise than conditionally. It was entitled to its fees upon selling; selling was the result of obtaining a binding offer and a binding offer was an offer resulting in a contract enforceable against the purchaser. In contrast, it was said, these two contracts were enforceable against the purchaser only on condition; they would both come to an end if the purchaser brought them to an end in accordance with the special conditions. To support this analysis, Mr. Hubble relied upon Trotter v. McSpadden[3]. For Cannon it was submitted that that case was either distinguishable or wrongly decided, counsel referring to Scott v. Willmore & Randell[4] and Reid v. Bennett[5] (two of the cases canvassed in Trotter), although in Reid v. Bennett this very point was expressly left open[6]. Obviously decisions in other cases must be used with particular care in this area; for, as was pointed out in Luxor (Eastbourne) Ltd. v. Cooper[7], each case will turn upon the precise terms of the contract under which the commission is claimed to be payable - and contracts usually differ. As will be seen, it proves unnecessary in the end to resolve the issue raised by this first submission of Cannon, and so I refrain from doing so. I simply proceed upon an assumption that, because of the special conditions attaching, Cannon was not entitled to commission as soon as the contracts of sale were entered into.

More to the point so far as Cannon's claim is concerned is that the conditions to which I have just referred, entitling the purchaser to bring the contracts to an end, never came into play. True it is that each condition depended upon a licence not being granted by 31 March 1996 and no such licence was ever granted by the Prostitution Control Board, either by that date or otherwise; but the condition gave only a right to the purchaser to end the contract if he chose to do so and the exercise of that right depended upon the purchaser's satisfying the four (or in one case five) paragraphs that were attached to the condition. According to the first three of these, the purchaser must have made "an immediate application for a Licence", must have "done everything reasonably required to obtain approval of a Licence", and must have served "written notice ending the Contract on the vendor on or before two business days after the 31 March 1996". There was debate before us about whether it was shown at trial that these three paragraphs had been satisfied, but in the end counsel for Mr. Hubble accepted (correctly I think) that, whatever else might be said in relation to the evidence (which was far from satisfactory on this aspect), there was no evidence of any written notice served by the purchaser "on or before two business days after the 31 March 1996". In the correspondence, which as I have said was admitted subject to objection, there was some passing reference to a letter dated 4 April 1996, but there was no evidence whether that was or was not a notice purporting to end the contract. Although Mr. Hubble's solicitor gave evidence, he was not asked about notice ending the contract, notwithstanding that such notice, if given, would probably, I suppose, have been sent to him as solicitor for the vendor.

Accordingly it must be accepted that there was no evidence that the purchaser ever exercised the right given him by the special conditions, to end the contracts when a licence was not granted by 31 March 1996. Indeed, as the judge expressly found, there was no admissible evidence that any application for a licence had ever been made by or on behalf of the purchaser; such evidence as there was (in the form of the certificate from the Control Board) was to the opposite effect; and unless there had been an "immediate application" (to use the language of the contracts) the purchaser never qualified in the first place for the right given him by the special conditions. But that does not matter now; it is enough that there was no evidence that the purchaser exercised the right. While each contract contained a resolutive condition which, had it been invoked, might have brought the contract to an end, the special condition is irrelevant for present purposes for want of any evidence that the purchaser purported to act under it. We are concerned with events after 31 March 1996, not before; if it matters, we are concerned with events after 4 April and so beyond the period within which the purchaser might have acted to bring the contract to an end. In my opinion, we must therefore proceed upon the footing that the contracts remained on foot - or would have remained on foot had it not been for the "discharge agreement" into which the purchaser and the vendor entered on 1 May 1996. That "discharge agreement" may well have been entered into because of a dispute which had arisen, or was looming, over whether the purchaser had the right to bring the contract to an end (whether under the special condition or otherwise), but again that does not matter for present purposes. Cannon was no party to "the discharge agreement"; or, at all events, it is no longer alleged by Mr. Hubble that Cannon was a party to the agreement of 1 May. Whether or not Mr. Nicholas encouraged Mr. Hubble to enter into the agreement of 1 May 1996 with the purchaser I do not say, but that agreement is strictly speaking res inter alios so far as Cannon is now concerned.

In those circumstances, there seems no impediment to Cannon's claiming its fees: Reid v. Bennett[8]. As Mr. Hubble's agent it acted to bring about the contracts which were executed within the terms laid down by the exclusive sale authority and those contracts, although containing a condition of defeasance, survived beyond the time within which that condition might have been called into operation. The issue of the special conditions was raised in the pleadings, first by the third party's alleging that the special conditions had never become operative (for want of an immediate application for a licence and so on) and then in answer by Mr. Hubble's alleging that all had been done as required under them. Cannon pleaded, too, the "discharge agreement" of 1 May 1996 - and it must be said that the very notion of such a "discharge agreement" implies that, at the time, there were contracts in existence which could be discharged. If it be that Cannon bore the onus at trial of establishing that the two contracts were not brought to an end by operation of the special conditions relating to a licence, then, given the state of the evidence overall, I think that Cannon discharged that onus. Thus far, therefore, there is no reason to conclude otherwise than that Cannon was entitled to its fees under the exclusive sale authority and on that basis Mr. Hubble's claim should be dismissed and Cannon's counterclaim should succeed.

Mr. Hubble relies then upon the so-called assurance given him orally by Mr. Nicholas at the time when he signed the exclusive sale authority, that if there was no sale, there would be no fee. The trial judge referred to it in such words - "no sale, no fee" - and of course, if the assurance was expressed so simply as that, it would not impinge upon the conclusion so far expressed. There was a sale, as I have said, and the fact that it did not proceed to settlement was the independent choice of the purchaser and the vendor, a decision to which Cannon was not, it seems, a relevant party. But Mr. Hubble contends that by this assurance the commission was really made to depend upon not upon "sale" simpliciter but upon the sale's being completed by final payment and transfer. This sale was not so completed and the reason for that, he says, was irrelevant; it formed no part of the assurance that was given.

In the course of the trial, Mr. Nicholas was asked about the commission and he said this (at p.45 of the transcript):-

"Did you tell Mr. Hubble that he was responsible for your commission? --- No Was there ever discussion about him being responsible for your commission? --- No, we only get paid on success - your sale goes through. That is the complete agreement between me and my boss, wherever I'd be working. We only get paid when it's settled. Was that ever explained to Mr. Hubble? --- Yes, he was aware of that. When did you explain it to Mr. Hubble? --- Basically from the start I explain to people when we sign an original agreement that we only get paid if the sale goes through. That is still the same today. His Honour: Is that because, unlike a house purchase, the purchaser of a brothel has to get a licence? --- Yes. Otherwise the business is worthless to him? --- That's right.".

Before us, there was some debate about what was meant by being only "paid on success", or just when it can be said that "the sale goes through", or "when it's settled". The contract entered into with the purchaser over the land stipulated (apparently, I should add, for it was rather ill-drawn) for settlement on 31 January 2006 or earlier by agreement, and it cannot be supposed that the agent was in some way deferring commission for more than 10 years. More likely, Mr. Nicholas' assurance (if such it was) was intended to mean, and understood as meaning, that if the purchaser of the brothel failed to get a licence from the Prostitution Control Board, then commission would not be payable. The difficulty, then, for Mr. Hubble is that, if that was the understood intent, the contracts of sale might be said to have given full expression to that qualification on Cannon's entitlement to fees. In each case the special condition relating to the licence expressly entitled the purchaser (in certain circumstances) to end the contract if a licence was not obtained by 31 March 1996. Why should the assurance, given by Mr. Nicholas, be supposed to have any further life, given that the contracts of sale, once exchanged, both contained this express provision? Such a question is given point by this finding made by the judge:-

"Hubble relied upon Nicholas's advice concerning the drawing of the necessary contracts and, in particular, in relation to the special conditions concerning the licence from the Prostitution Control Board ... "

Whatever the answer to that question, it is in this case very difficult to determine precisely what was meant by Mr. Nicholas's oral assurance (if such it was) about the payment of commission. Reference to the "success" of the sale, or to when the sale "goes through" or is "settled", will mean different things to different persons: there are many possibilities and mere uncertainty might be enough in itself to answer any case which depends upon this "assurance". But let it be supposed for the sake of the argument that some sure meaning can be attached to what was said in evidence and that the judge could properly have found an assurance which, so far as the words themselves went, qualified (to some extent at least) the terms of the written document. The difficulty then facing Mr. Hubble is to establish that that oral assurance did form part of the agreement between the parties. What was pleaded was an agreement which was partly oral and partly in writing, but in this case it is plain enough that if Mr. Hubble is to be relevantly advantaged by an oral assurance, that oral assurance must to that extent be inconsistent with the written document. In my opinion there is no warrant in the circumstances of this case to suppose that an oral assurance, inconsistent with the written document, should be taken to have been part of the agreement between the parties. See for example Fitzgerald v. Masters[9] at 426-7 per Dixon, C.J. and Fullagar, J. and Van der Sterren v. Cibernetics (Holdings) Pty Ltd[10] at 158 per Walsh, J.; as to the possibility of the assurance operating as a collateral contract, see Australian Provincial Assurance Association Ltd. v. Producers and Citizens Co-operative Assurance Co. of Australia Ltd.[11] at 362 per Dixon, J. and Gardiner v. Grigg[12].

It follows, in my view, that Cannon ought to have succeeded below and Mr. Hubble ought to have failed. The only case pleaded by Mr. Hubble was one of an agreement which was partly oral and partly in writing and what has been said thus far is sufficient to dispose of that case. For his part, the trial judge was much impressed, I think, by the oral assurance given by Mr. Nicholas. His Honour said, for instance, in the course of his judgment :-

"I am satisfied that Hubble entered into this agreement based on Nicholas' assurance of no sale, no fee. Nicholas agreed that this was the case and never sought to resile from it. Cannon Real Estate, however, his former employer, who had no part in the negotiations, now seeks to resile from it and retain the $60,000 deposit paid by Kantzos and an extra $15,000 to make up the agreed fee of $75,000."

With respect, I cannot agree with this last comment. Cannon does not seek to resile from any assurance. It relies upon the fact that a sale was achieved and the assurance is then of no consequence save to reinforce its claim for commission. To describe the assurance in the terms of "no sale, no fee" is merely to raise the question of what was meant by "sale". As I have said, Mr. Hubble is not assisted unless "sale" meant something more than the entry into a final and binding contract; for that was what was procured, given that the condition of defeasance was never called into play in the events which followed.

Later in the judgment, the judge referred to the purchaser's becoming disenchanted with his purchase. His Honour said:-

"There is evidence that Kantzos became disenchanted with the takings of the brothel business after he went into it for a trial period in early September 1995. .... In any event, he had no licence by 31 March 1996 and withdrew from the contract. Hubble was suspicious as to his motives and he and Nicholas went to the Prostitution Control Board but could not find anything out there."

The evidence does not support a finding that the purchaser "withdrew from the contract" if by this his Honour meant that the purchaser exercised the right given him by the special conditions to end the two contracts. On the other hand, as the judge also noted, on 1 May 1996 both purchaser and vendor mutually released other from their obligations under the contracts. The judge said that "the agreement [of 1 May] was with Kantzos and Cannon Real Estate through Nicholas", but that is no longer an allegation which is made. It is no longer contended by Mr. Hubble that Cannon was party to the discharge agreement. It may be that Mr. Hubble was led at the time by Mr. Nicholas to believe that Cannon would repay the deposit which they held; one may suppose that readily enough, or presumably Mr. Hubble would not have been so foolish as to promise to return to the purchaser what had been paid to Cannon. But by 1 May Mr. Nicholas was no longer an employee of Cannon and he had no authority to speak or act for Cannon, even if Mr. Hubble was not aware of this until later.

The crux of the decision at trial is found, I think, in this passage in the reasons for judgment:-

"Cannon Real Estate now seeks to retain these moneys [i.e., the $60,000] as part of its commission, even though no sale eventuated to Kantzos and he is - that is Cannon - has paid no commission to Nicholas".

The payment by Cannon to Nicholas of "commission" is a reference to the terms on which Nicholas worked for Cannon, but the reference to "no sale" eventuating is, I think, incorrect. For the reasons I have given, it seems to me that a sale did eventuate to Kantzos and that, by reason of that sale, Cannon is and was entitled to its commission.

Other criticisms were made of the judgment below. Thus, on behalf of Cannon it was submitted that the judge appears to have dealt with a case other than that which was pleaded; for beyond discussing the assurance as an oral term of the contract (which was pleaded), his Honour referred to Nicholas' inducing Hubble to enter into the contract with Cannon (the exclusive sale authority), to reliance placed by Hubble on the assurance given him by Nicholas, to "the uncontradicted evidence of Nicholas as to the condition precedent on which Hubble entered into the contract with Cannon" and even to a "representation" made "in good faith" by Nicholas to Hubble at the time of the discharge agreement that Cannon would repay "the deposit paid by Kantzos". Yet, as Cannon's counsel pointed out, there is nothing at all in the pleadings to suggest that Mr. Hubble was resting his case to recover the $60,000 on anything other than an oral term of his contract with Cannon. There was no suggestion in the pleadings, of misrepresentation and inducement, of estoppel and reliance, or of any condition precedent. Such possibilities were simply irrelevant to a determination of the issues that were raised. The judge had to consider whether the term relied upon by Mr. Hubble had been established (and it was left, in my view, uncertain); he had to consider whether the term relied upon was incorporated in the agreement between Mr. Hubble and Cannon (and in my view, if certain, it was not so incorporated because it was inconsistent with the document which was signed); he had to consider whether a sale was brought about by the agent, notwithstanding the condition of defeasance (and in my view a sale was achieved when the time for reliance upon the condition passed without the condition's being relied upon). The judge found that the sale "did not go through", but for the reasons I have given that was irrelevant; Cannon remained entitled to its commission.

For these reasons, I would allow the appeal and set aside the judgment entered below. In lieu, I would dismiss the defendant's claim against the third party,

with costs and on the counterclaim I would give judgment for the third party in the sum of $15,000 with costs.

[7] [1941] A.C. 108 at 124 per Lord Russell of Killowen

[8] [1955] V.L.R. especially at 510-11

At a glance

Court

Decision date

Before

Source

Judgment (56 paragraphs)

Parties