Federal Court of Australia|1994-12-16|Before: Doussa J, Mason J, Priestley JA, Gaudron JJ, And J, Beazley J

Colliers Jardine (Nsw) Pty Limited v Balog Investments Pty Limited and J Dan Pty Limited [1994] FCA 1553 (16 December 1994)

COLLIERS JARDINE (NSW) PTY LIMITED v. BALOG INVESTMENTS PTY LIMITED AND J DAN

Contract - breach of contract - real estate agency agreement - whether agent effectively introduced buyer - whether agent entitled to commission when property sold to a third party pursuant to a first right of refusal - whether there were implied terms of the agency agreement - no term to be implied in a standard form agency agreement that the vendor will not prevent the agent from earning a commission - whether contract frustrated - whether applicant entitled to remuneration on the basis of quasi contract - whether applicant entitled to relief on a constructive trust basis due to the unconscionable conduct of the respondent - quasi contract and constructive trust claims defeated on the basis that it was always possible under the contract that the applicant would perform work and have no entitlement to commission.

Trade Practices - whether respondent's failure to inform applicant of terms of contract with third party in contravention of s 52 of Trade Practices Act 1974 - whether applicant entitled to damages for loss of opportunity arising out of respondent's contravention of s 52.

Trade Practices Act 1974

Auctioneers and Agents Act 1941 (NSW)

L.J. Hooker Ltd v W.J. Adams Estates Pty Limited [1977] HCA 13; (1977-1978) 138 CLR 52

Australian Postal Commission v Peter Smith (unreported, Federal Court, Von

Tophams Ltd v Sefton (Earl) (1966) 1 All ER 1039

Atlas Tiles Ltd v Briers [1978] HCA 37; (1978) 144 CLR 202

Tribe v Taylor (1876) 1 CPD 505

Greene v Bartlett (1863) 14 CB (NS) 681

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR

Renard Constructions v Minister for Public Works (1992) 26 NSWLR 234 per Priestley JA

B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 52 ALJR 20

Stirling v Maitland and Boyd (1864) 5 B and S 840; [1864] EngR 752; 122 ER 1043

Luxor (Eastbourne) Ltd v Cooper (1941) AC 108

Nullagine Investments Pty Ltd v Western Australian Club Incorporated (1993)

[1993] HCA 45; 177 CLR 635 per Deane, Dawson and Gaudron JJ

Mackay v Dick (1881) App. Cas 251

O'Keefe v Williams [1910] HCA 40; (1910) 11 CLR 171

Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359

Castlemaine Tooheys Ltd v Carlton and United Breweries Ltd (1987) 10 NSWLR

Davis Contractors Limited v Fareham Urban District Council [1956] UKHL 3; (1956) AC 696

Brisbane City Council v Group Projects Pty Limited [1979] HCA 54; (1979) 145 CLR 143

Pavey and Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221

Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83

Lam v Ausintel Investments Australia Pty Ltd (1990) 97 FLR 458

Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 Lee Gleeson Pty

Ltd v Sterling Estates Pty Limited (1991) 23 NSWLR 571

Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 50,367

Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 53,193

Winterton Constructions Pty Ltd v Hambros Australia Ltd [1992] FCA 582; (1992) 39 FCR 97

General Newspapers Pty Ltd v Australian and Overseas Telecommunications

Corporation Ltd (1993) 40 FCR 98

Demagogue Pty Limited v Ramensky and Anor [1992] FCA 557; (1992) 39 FCR 31 Warner and Anor v Elders Rural Finance Ltd and Ors [1993] FCA 117; (1993) 41 FCR 399

Farrow Mortgage Services Pty Ltd (in Liq) v Edgar and Ors (1993) 114 ALR 1

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 526

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Solicitors for the Applicant: Minter Ellison Morris Fletcher

Solicitors for the Respondent: D.C. Balog and Associates

The Court orders that:

1. The respondents are to pay to the applicant the sum of $126,000.

2. The respondent is to pay the applicant's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BEAZLEY J The applicant is a commercial real estate agent, who, in 1990, was engaged by the respondents to sell the Central Plaza Hotel, located in George Street, Sydney. The property was eventually sold on 15 September 1992 to the Perpetual Trustee Company as trustee for Country Comfort Management Pty Limited for $12.6 million. The applicant claims it is entitled to commission on the sale of the property pursuant to its agency agreement with the respondents. Alternatively, it claims it is entitled to damages for breach of contract, to compensation pursuant to s 10 of the Frustrated Contracts Act, 1978 (NSW), to the payment of moneys equivalent to the amount of commission in quasi contract, equitable damages arising out of the respondents' unconscionable conduct or damages pursuant to s 82 of the Trade Practices Act 1974 (Cth). The respondents deny the applicant's entitlement to commission, damages or the payment of moneys.

2. Until its sale, the respondents were the registered proprietors of the hotel, which is located at Central, on the southern edge of the Sydney Central Business District, in proximity to Sydney's China Town. The hotel business was operated by Country Comfort Management Pty Limited (Country Comfort), pursuant to a management agreement entered into with the respondents on about 31 January 1992 (the management agreement). The applicant first commenced to market the hotel for sale in 1990. In the second half of 1991, the applicant commenced to more actively market the hotel and in mid-August 1991, Mr Balog, the managing director of the first respondent, agreed on behalf of the respondents to pay the applicant 2% commission on the sale price if it was successful in selling the hotel (the first agency agreement). This arrangement was confirmed by letter dated 19 August 1991. Mr South, who was then a director of the applicant and the State Director of its Hotel and Leisure Division, was responsible for the marketing of the hotel. He was assisted by Mr Karp, who was the Manager of the applicant's Hotels and Leisure Division. Mr Karp, reported directly to Mr South.

3. Between November 1991 and June 1992, the applicant arranged for inspections of the Central Plaza Hotel by nine different parties. One offer emerged in about February 1992, for $13.4 million net, and Mr Karp requested from Mr Balog a contract for sale of the hotel. The contract was forwarded under cover of letter dated 10 February 1992. That contract is not relevant for present purposes save that Special Condition 39 provided that a copy of the management agreement was annexed to the contract. However both Mr South and Mr Karp stated that the management agreement was not attached to the copy of the contract forwarded under cover of the 10 February letter.

4. Also about this time Mr Karp telephoned Mr Balog and said:

"We're working very closely with a potential purchaser of

the Hotel. We have got an offer from Resort Hotels

Management to operate the Hotel for the potential purchaser.

Its important that I look at the management agreement to

(sic) Country Comfort so that I can offer the best deal to

the purchaser."

6. Shortly afterwards, Mr Karp received a copy of an epitome of the management agreement, which had been prepared by Mr Balog. There was no reference in the epitome to clause 24 of the management agreement, which gave to Country Comfort, to use the language of the parties, a "right of first refusal".

7. The prospective purchaser withdrew its offer and nothing further happened until March 1992, when another party expressed interest in purchasing the hotel. Mr Karp again requested a copy of the management agreement from Mr Balog, advising him that:

"...I am still to receive a copy of the Country Comfort

Management Agreement. Can you send it to me by courier?"

9. However, Mr Karp received another copy of the epitome he had received earlier.

10. At about this time, the applicant became aware that Jones Lang Wootton, Singapore had marketed the hotel for sale for $12.5 million. On 16 March 1992, Mr South, met with Mr Balog and said:

"We have a major problem with other agents offering the

Hotel at a price lower than that you are prepared to accept.

It is undermining and frustrating all our efforts. I think

we can fix it in the following way: I need a month with

no-one else in the market. If you give me that time, I feel I

can sell it. Let us control it and we will encourage other

agents to work with us. Please have the other agents direct

all enquiries to us".

12. On the same day, the applicant forwarded to Mr Balog a Sales Inspection Report and Exclusive Agency Agreement (the second agency agreement), with a covering letter containing certain additional terms, which are not material to these proceedings. The agreement was executed by Mr Balog on behalf of the respondents. Relevantly, the terms of the second agency agreement were:

"2. i) IN CONSIDERATION of the Agent promising to use

their best endeavours to sell the subject

property, the Principal hereby grants to the

Agent exclusive selling rights of the property

for a period from 16/3/92 to 16/4/92 now called

the "Exclusive Agency Period".

3. i) The Agent shall be entitled to a commission of

2%...if during the Exclusive Agency period the

property is sold either: a) by the Agent; b) by

any other Agent; or c) by the Principal.

ii) The Agent shall also be entitled to a commission

at the agreed amount if at any time following

the expiration of the exclusive agency period

the owner enters into a contract for the sale of

the property to a purchaser introduced to the

Principal or the property during the Exclusive

Agency period by the Agent, by any other Agent

or by the Principal.

4. i) In addition to the exclusive selling rights

granted to the Agent under clause 2, the

Principal also grants to the agent non-exclusive

selling rights of the property commencing on the

expiry of the Exclusive Agency period specified

in clause 2 and until such time as the property

is sold or this agreement is terminated by

either party giving notice in writing, now

called the "Continued Agency Period".

ii) The Agent shall be entitled to the amount of

commission specified in clause 3 if during the

Continuing Agency Period they effectively

introduce to the Principal a purchaser who

subsequently enters into a binding contract."

13. In the ensuing months, the applicant was involved in arranging inspections of the hotel by interested parties. As at 2 July 1992, two further parties had made offers, namely a Miss Wong, on behalf of an Asian consortium and a Mr Geoffrey Landrey. Mr Landrey had first expressed interest in purchasing the hotel in early June. By letter dated 29 June 1992, Mr Landrey made an offer of $12 million. He also offered to pay $120,000 by way of an earnest, to exchange contracts within 7 days of acceptance of the offer, and to settle within 21 days of exchange.

14. Mr South was overseas between 30 June 1992 and 15 July 1992. During that time, Mr Karp dealt with the marketing of the hotel. On about 2 July 1992, Mr Karp telephoned Mr Balog and said:

"I have two definite purchasers for the hotel. One is Agnes

Wong, representing an Asian consortium, who have offered

12.8 million and the other is Geoff Landrey, a local

investor. I recommend that we deal with Landrey. He does

not require FIRB approval and he is also likely to take over

Country Comfort's management, making everything simpler."

"The 12.8 million is acceptable, but let's deal with both,

on a first come first served basis."

16. Mr Karp faxed the Wong offer to Mr Balog. At the same time, Mr Karp spoke to Mr Landrey and advised that he was not a front runner for the hotel. Mr Landrey requested a meeting with Mr Balog which Mr Karp organised for 7 July 1992 at Mr Balog's offices. However on about 7 July 1992, the Wong offer was withdrawn. The meeting between Balog and Landrey proceeded as arranged. During the course of the meeting, the following conversation occurred:

"Mr Balog: "I want a price higher than you have offered."

Mr Landrey: "Is there some non-monetary way of bridging the gap,

for example, deferred payment?"

Mr Balog: "Only if you can meet my requirements. I need

$12.8 million, because I have a mortgage worth

$12.4 million, legal costs of $50,000, $250,000

commission to pay Colliers Jardine and I want

$100,000 for myself."

After the meeting, Mr Karp spoke with Mr Landrey to the following effect:

"Mr Landrey: "What's it going to take for me to buy the

Hotel?"

Mr Karp: "$12.8 million."

Mr Landrey: "$12.8 million is, in my opinion, overpriced."

Mr Karp: "Why don't you make Tibor an offer which is nett

to him, and we could then perhaps negotiate our

fee?"

Mr Landrey: "That's a possibility...(I) will call you later."

17. On 9 July, Mr Landrey's solicitors advised the applicant that Mr Landrey would increase his offer to $12.35 million net. Mr Karp conveyed this offer to Mr Balog by telephone in these terms:

"Landrey is the only party left in the race. He has offered

$12.35 million. His offer is now nett to you because he has

agreed to pay Colliers' fee. Agnes Wong will not increase

her offer above $12 million under any circumstances."

18. At about this time, another offer was forthcoming from a prospective purchaser in Singapore and Mr Karp conveyed that offer to Mr Balog. However, on 10 July 1992, Mr Balog advised Mr Karp that both offers were rejected and that the respondents' sale price was $12.8 million. On about the same day, Mr Karp spoke to Mr Balog and said:

"...If you want to finalise a sale promptly, Landrey is the

only purchaser we have. Landrey may be able to improve the

non-monetary aspect of his offer, such as a reduced

settlement period".

19. Mr South returned from overseas on 15 July. He said that upon his return, he had a telephone conversation with Mr Balog as follows:

"Mr Balog: "I am going to talk to Landrey direct to discuss

acceptance of the deal."

Mr South: "OK".

Mr Balog: "By the way, Country Comfort have a right of

first refusal."

Mr South: "Christ, Tibor, why didn't you tell me that

before?"

Mr Balog: "It didn't concern you."

20. The applicant contends that this is the first time that it became aware of Country Comfort's right of first refusal. This is strenuously disputed by the respondents.

21. Mr South gave evidence that he informed Mr Karp that Country Comfort had a right of first refusal on 16 July. Mr Karp said that at the time Mr South told him this he said "why the hell didn't he tell us before". On the same day, according to Mr Karp, Mr Balog telephoned him and they had the following conversation:

"Mr Balog: "I will accept Landrey's offer of $12.35 million nett

as long as he will settle in 21 days and pay your

commission."

Mr Karp: "I will notify Landrey. You should now instruct

your solicitor to issue a final sale contract to

Landrey's solicitors and a Notice of Intended

Sale to Country Comfort as required under the

management agreement."

Mr Balog: "How should the Notice be worded and what price

should be quoted?"

Mr Karp: "The price sought from Country Comfort needs to

reflect the purchase price, your legal costs and

other expenses and the agency fee payable to

Colliers Jardine under our agency agreement."

Mr Balog: "How do you think the price should be made up?"

Mr Karp: "The purchase price offered by Landrey is $12.35

million. What do you think your legal and other

expenses will be?"

Mr Balog: "I think they will be approximately $50,000."

Mr Karp: "OK. You should add to the $12.35 million

$247,000 for Collier Jardine's agency fee. That

makes a total of $12,597,000, so let's say $12.6

million. Mr Landrey is very keen to exchange

contracts as soon as possible so please instruct

your solicitors immediately."

Mr Balog: "I will do so this afternoon."

22. Mr Karp said that he made a note of this conversation in both his diary and in his work book. The diary note, which is entered for 16 July 1992, states:

"...Do file note re Tibor Balog's ph. call regarding Country

Comfort + our commission.

He agreed to pay full comm (as per orig. agreement) if CC

buy CPH."

23. On the same line there then appeared this note in pencil:

24. The work book entry appears on the last four lines of an undated page but upon which there is another entry dated 21 July 1992. The work book entry also bears the date "21 July 1992". However this date had been written over the date "16 July". The work book entry states:

"TB called to confirm fee payable if CC proceed under "First Right

of Refusal" to acquire CPH. I conf. full fee payable under

original agreement - He agreed: Do file note CC AKS/see Diary".

25. On 23 July 1992, Mr South sent a facsimile transmission to Mr Balog requesting, amongst other documents, a copy of the management agreement, which he received on 24 July. Mr South said that was the first time he saw the terms of Country Comfort's right of first refusal in clause 24 of the management agreement.

26. In the meantime, the applicant continued to deal with Mr Landrey and to discuss the procedure for exchange of contracts. Mr Karp met with Mr Landrey on 17 July 1992 and by letter dated 20 July 1992 to Mr Balog, he confirmed that the meeting had been held with Mr Landrey "to discuss timing and lead up to Exchange of Contracts on the property".

27. The next significant event was a telephone call which Mr Karp said he had with Mr Balog on about 25 July 1992 in which Mr Balog raised the question of whether the applicant would claim an agency fee if Country Comfort acquired the property. Mr Karp said he informed Mr Balog that it would. Mr Karp said that the following conversation then occurred:

"Mr Balog: "That's right. We built your 2% fee into the asking

price within the Notice of Intended Sale issued to

Country Comfort."

Mr Karp: "Tony Leong of Country Comfort has had numerous

lengthy discussions with me to establish the

identity and background of the potential

purchaser, Mr Landrey, and whether there would

be an opportunity for Country Comfort to manage

the Hotel in the event that the prospective

purchaser was successful."

Mr Balog: "I realise that Country Comfort will not acquire

the Hotel unless the risk is evident. I agree

that the 2% fee is payable."

28. On 27 July 1992, following a telephone message from Mr Balog, in which he requested Mr South to provide certain details for inclusion in the contract of sale to Mr Landrey, Mr South sent the following facsimile transmission:

"Tibor,

Details are:

Purchaser: Mr and Mrs. G. and T. Landrey

Address/Solicitor: C/- George Khoury and Co

775 New Canterbury Road,

Hurlstone Park.

...

Contract

Price: $12.6 mill

Settlement: 30 days"

29. On 28 July 1992 Mr Karp had a telephone conversation with Mr Leong, the Group Development Manager of Country Comfort. Mr Leong informed Mr Karp that he understood that the applicant had found a buyer for the Central Plaza Hotel and inquired, in broad terms, as to the identity of the buyer and whether there was going to be a management deal in it for Country Comfort if the purchase proceeded.

30. On 4 August 1992, Mr South received a copy of a Notice of Intended Sale, which the respondents had served on Country Comfort on 30 July 1992. Clause 1 of the Notice was in these terms:

"The proprietor hereby gives the manager Notice of Intended

Sale and specifies Twelve Million Six Hundred Thousand

($12,600,000.00) as the price at which the manager or its

nominee is entitled to purchase the interest".

31. There was no provision in the Notice of Intended Sale in relation to the payment of agent's commission.

32. Between the date of service of the Notice of Intended Sale and 11 August 1992, Mr South was in constant contact with both Mr Landrey and with Mr Tony Leong. In early August, Mr Leong advised Mr South that Country Comfort was considering exercising its option to purchase the hotel. By letter dated 10 August 1992, Mr South advised Mr Balog of this and requested Mr Balog to provide certain information that Mr Leong had requested. He also communicated with D.C. Balog and Associates, the respondents' solicitors, conveying requests for information which had been made by Country Comfort.

33. On 11 August 1992, Mr South made several attempts to contact Mr Balog, to ascertain why Mr Balog's solicitors had not contacted Country Comfort's solicitors as Mr South had requested. Mr Balog returned the calls at about 7pm that night and said to Mr South:

"...I am not going to pay you any commission, you

know...you're not entitled to it."

34. That night, Mr South forwarded the following facsimile transmission to Mr Balog:

"Its a pity you have left the office already. There are one

or two matters we now need to discuss.

I've had the opportunity to speak with Tony Karp in Fiji.

He has a clear recollection and a diary note of your

discussions regarding the fee situation and Country Comfort.

Its (sic) equally clear to him as to me that you confirmed

our entitlement in the event Country Comfort buy.

Of more concern to me is the fact that I now realise I've

told Country Comfort a lie, however innocently, a lie

nonetheless.

I have been encouraging them, and working with them and

providing assurances all based on the fact that the offer on

the table is $12.6m. This of course was based on my

understanding of our arrangement of:

12.35 Net

.25 Commission

$12.60 Gross

Given that's not now the case I'll need to make them aware

of my mistake, which led to this lie." (the 11 August faxed

letter)

35. On 12 August 1994, Country Comfort exercised its rights under Clause 24 and entered into a contract for the sale of the hotel for $12.6m. Part, at least, of Country Comfort's motivation in purchasing the hotel was its concern that an incoming purchaser would not continue with Country Comfort as manager, with the consequence that Country Comfort would lose its presence in the Sydney CBD, which would seriously affect the marketability of the Country Comfort group.

36. Mr South said that if he had known of Country Comfort's right of first refusal before 16 July 1992, he would have taken steps to clarify with Mr Balog the position as to the applicant's commission, and if necessary, would have required the execution of a written agreement, confirming the applicant's entitlement to commission on the sale of the hotel in the event that Country Comfort exercised its rights under clause 24 of the management agreement. Mr South also stated that if he had known of Country Comfort's right of first refusal during his negotiations with Mr Landrey, he would have informed Country Comfort that Mr Landrey's interest was primarily as an owner and not as an operator, so that there was no reason for Country Comfort to exercise its right of first refusal. Mr South stated that by the time he had learned of Country Comfort's right of first refusal there was no time for him to prevent it from purchasing the hotel, as Mr Landrey's offer was based on either Resort Hotel Management being appointed as manager or Mr Landrey himself operating the hotel. He said that, with more time, he would have been able to negotiate an agreement between Mr Landrey and Country Comfort for Country Comfort's management of the hotel under Mr Landrey's ownership. Mr South was not cross examined on any of these matters. However, there was no evidence from either Country Comfort or Mr Landrey on these matters.

37. I have referred briefly to the bases upon which the applicant brings its claim against the respondent. Before dealing with those bases, the following preliminary questions arise for determination:

(i) which of the two agency agreements is the operative

agreement between the parties;

(ii) when did the applicant first become aware of Country

Comfort's right of first refusal pursuant to clause 24 of

the management agreement;

(iii) did the respondents inform the applicant, prior to entering

into the second agency agreement, that the applicant would

not be paid commission if Country Comfort exercised its

rights pursuant to Clause 24; and

(iv) was Mr Landrey's offer of $12.6 million, as conveyed to Mr

Balog, an offer of $12.6 gross or was it net of any

commission payable to Mr Landrey. Alternatively, was there

a doubt about the offer which was made.

38. Depending upon the answers to those questions, the following issues arise for determination:

(i) did the applicant effectively introduce Country Comfort as

the purchaser so as to be entitled to commission pursuant to

the agency agreement;

(ii) was the relevant agency agreement subject to any implied

terms;

(iii) was the agreement between the parties frustrated so as to

entitle the applicant to the value of the work performed

under the agreement pursuant to s 10 of the Frustrated

Contracts Act;

(iv) was the respondents' conduct, in entering into the relevant

agency agreement, without informing the applicant of Country

Comfort's rights under clause 24, unconscionable;

(v) is the applicant entitled to compensation on the basis

of quasi contract;

(v) was the respondents' conduct in entering into the agreement

without informing the applicant of Country Comfort's rights

under clause 24, misleading and deceptive or was it likely

to mislead or deceive, in contravention of s 52 of the Trade

Practices Act. If so, to what damages is it entitled

pursuant to s 82 of the Act.

39. Before dealing with these issues, it is convenient to refer to relevant terms of the management agreement.

40. Clause 24 of the management agreement provided for what the parties described as a "right of first refusal". Its terms were:

"24.1 If at any time during the Operating Term the

Proprietor wishes to sell or otherwise dispose of the Motel

or the Land or any part thereof or interest therein ("the

Interest") the Proprietor shall first give to the Manager a

written Notice of Intended Sale which shall specify the

price at which the Manager or its nominee is entitled to

purchase the Interest and any other terms and conditions of

such offer. The Manager or its nominee shall be entitled to

give notice of acceptance of the Notice of Intended Sale

within a period of fourteen (14) days from the date of

receipt of the Notice of Intended Sale. If such notice of

acceptance is duly given by the Manager or its nominee

within the specified period an Agreement for Sale of the

Interest containing the terms specified in the Notice of

Intended Sale shall be duly executed and exchanged by the

Proprietor and the Manager or its nominee (as the case may

be) within a period of fourteen (14) days of the date of

such notice of acceptance. If the Manager or its nominee

does not give such notice of acceptance within the said

period the Proprietor shall be entitled for a period of six

(6) months after the expiry of the said period to transfer

or otherwise dispose of the Interest to any other person

upon the same terms and conditions as those specified in the

Notice of Intended Sale."

41. Clause 18 was also relevant to the question of a sale of the hotel. Clause 18.3 precluded the respondents, as proprietors, from selling the hotel unless the incoming purchaser entered into a deed with Country Comfort "acknowledging, adopting and accepting the terms and conditions of the Management Agreement". Clause 18.3 was subject to clauses 18.4(a) and 18.4(b). Clause 18.4(a) enabled Country Comfort to give 3 months notice of termination if within "its reasonable discretion, (it) determines that it is not in the Manager's interest to" enter into such Deed with a new proprietor. Pursuant to clause 18.4(b) the vendor could terminate the management agreement in the event of an arms length sale to a third party. Both clauses 18(4)(a) and 18(4)(b) were subject to the payment of compensation calculated on the basis of a formula specified in the clause.

Which of the first or second agency agreements is the operative agreement between the parties?

42. It will be recalled that the first agency agreement was an oral agreement, confirmed in writing by letter dated 19 August 1991 from Mr Balog to the applicant. The only term of which there is evidence is that confirmed in the letter, namely for the payment of 2% commission. The agreement did not comply with the relevant statutory requirements of the Property Stock and Business Agents Act 1941 (NSW).

43. The second agency agreement was in a format common to real estate agency agreements. Its terms complied with s 42AA of the Property Stock and Business Agents Act 1941 (NSW) and the Regulations made thereunder. As is usual with such agreements, it was expressed to operate beyond the exclusive agency period, until either the property was sold or the agreement was terminated in accordance with the provisions of clause 4(i). Having regard to the comprehensive nature of the second agency agreement and the fact it complied with the relevant statutory requirements, I am of the opinion that the second agency agreement was intended as a complete substitution for the first, with the consequence that the first agency agreement was rescinded upon entry into the second: see generally British and Beringtons Ltd v N.W. Cachar Tea Co Ltd (1923) AC 48, 69; United Dominions Trust (Jamaica) Ltd v Shoucair (1969) AC 340.

When was the Applicant first informed of the existence of Country Comfort's right of first refusal?

44. The question of when the applicant became aware of Country Comfort's right of first refusal is central to the determination of the issues in this case. The applicant contends that it was first informed of the right of first refusal on 16 July 1992 and first received a copy of the management agreement on 24 July 1992. The respondents allege that the applicant had known of the right of first refusal since prior to the execution of the second agency agreement on 16 March 1992, as it had a copy of the management agreement prior to that time. Essentially, my determination of this question will depend upon my finding as to the credibility of Mr South and Mr Karp and that of Mr Balog.

45. There is no independent evidence of when the management agreement was forwarded to the applicant. However, there can be no dispute as to the applicant's receipt of copies of the epitome, which were forwarded on each occasion by fax. The first fax had a cover sheet upon which the date, "30 January 1992" was typed. Both faxes bear a machine imprinted facsimile transmission date, the first the "30 January 1992" and the second the "13 February 1992". The epitome, prepared by Mr Balog, made no reference to Country Comfort's right of first refusal. Other matters should be noted in relation to the epitome. First, on each occasion that the epitome was forwarded, it was in response to a request for the management agreement. Secondly, Mr Balog prepared the epitome and apparently made a deliberate decision to omit any reference to clause 24. Nor was there any reference to sub-clauses 18(3) or 18(4)(a). His reason for omitting clause 24 appears in the following evidence given under cross-examination:

"May I take it that the purpose of the summary was to

identify the important terms of the management agreement

which might be of interest to the applicant or to a

potential purchaser of the property?---To a potential

purchaser of the property.

You appreciated, did you not, that in providing those

epitomes or summaries, the information that you were

supplying was likely to be treated in a serious way by the

applicant in its dealings with prospective

purchasers?---Yes.

And that it was likely that the applicant and potential

purchasers would rely upon the matters contained in the

epitomes and summaries?---Yes.

And that the applicant and potential purchasers were likely

to regard the epitomes or summaries as setting out in an

accurate way the important provisions of the management

agreement?---For the purpose of management, yes.

HER HONOUR: Why only for the purpose of

management?---Because the agent asked it so that the

applicant can decide to proceed with the current management

or to switch over to another management or to manage by

itself.

46. I do not accept Mr Balog's explanation. In my opinion, the provisions of sub-clauses 18(3), 18(4) and clause 24 would, more likely than not, be relevant to an incoming purchaser.

47. Mr Balog's evidence as to the forwarding of copies of the epitome was inconsistent. In his affidavit evidence, he did not deny the applicant's evidence that in response to requests for a copy of the management agreement, copies of the epitome had been forwarded. In cross-examination, Mr Balog initially admitted that he caused the copies of the epitome to be sent to the applicant in early 1992. He later said:

"I don't think that before the second agreement he (Mr Karp)

had any epitomes or summaries".

48. Mr Balog's evidence as to when the applicant was given a full copy of the management agreement was also internally inconsistent. Mr Balog's affidavit evidence was that he had given Mr Karp a copy of the management agreement on about 16 March 1992. In cross-examination, Mr Balog identified this occasion as being when the second agency agreement was signed. In his affidavit evidence, Mr Balog alleged he told the applicant of the existence of the right of first refusal in a conversation with Mr Karp, at the time he gave Mr Karp a copy of the management agreement, when he said:

"Of course, you know that Country Comfort has a first right

of refusal...

You will note in the Management Agreement that Country

Comfort has a first right of refusal to purchase the

property but that it has already been submitted to them once

with a previous purchaser and they did not exercise their

right and the sale fell through. You realise, of course,

that if Country Comfort purchase the property, there will be

no commission payable to you".

50. In cross-examination, Mr Balog stated that he had spoken to Mr South about the existence of the right of first refusal prior to 16 March 1992. However, his evidence eventually on this point was:

"Is this the position: although you tell the court you can

remember saying something about it yourself, you just cannot

tell us at all what the response was, or the person that you

spoke to?---All I can say is that they accepted that this is

the case.

Please. You cannot tell us what the response was of the

person to whom you spoke, is that right?---Tat's(sic) right,

yes".

51. He also said in cross-examination that he recalled Mr South had a copy of the management agreement prior to that date. He then attempted to retract the specificity of this evidence as follows. Having first answered:

"(y)our recollection is, is it not, that you gave the

management agreement to Mr. Karp in about March of 1992---

Yes"

"You say, do not you, that you gave the management agreement

to Mr. Karp, correct?---To me, Karp and South meant the same

thing. I don't know who - which one got it.

You now do not have a recollection whether it was Mr. Karp

or Mr. South to whom you gave the agreement?---I've called

it Colliers Jardine and then I say yes.

...

You tell the court now, do you, that you cannot recall

whether it was to Mr. South or Mr. Karp that you gave the

management agreement, is that right?---My recollection is

that Karp and Tony South were in my office together

discussing the sales agency agreement, right, and that's the

time when I (sic) been asked for the management agreement

and I sent it to them."

53. At one stage during his cross-examination, having admitted that, in response to requests from the applicant, he sent copies of the epitomes, he said he had done so because the applicant had the full management agreement. He also said that on each occasion that the copy of the epitome was sent by fax "the full management agreement was to be sent each time". Not only is this latter answer inconsistent with his reason for sending the copies of the epitome instead of the full management agreement as asked, there is no evidence that he sent the management agreement as he alleged. Neither Mr South nor Mr Karp were cross examined to the effect that the management agreement had been sent on each occasion the epitomes had been provided.

54. Further inconsistency in Mr Balog's evidence is found in the following portion of his cross-examination:

"Mr South spoke to you about the (agency) agreement before

it was signed, did not he?---Yes.

On the occasion that you and (Mr South) spoke about the

second agency agreement, you did not personally at that time

hand across the management agreement, did you?---No, no.

There is no occasion, is there, upon which you personally

hand delivered either to Mr South or Mr Karp a copy of the

management agreement, is there?---Not to my recollection.

The recollection that you are informing the court of is one

whereby you caused someone else to provide the document, is

that right?---That's right, yes.

Is that person Mr Balog the solicitor, or someone else?---

No, it didn't go through Mr Balog. It came from our office

by mail.

Who was it within your office that undertook the task?---Our

secretary.

...

It would be false, would it not, to say that you gave to Mr

Karp or indeed, to Mr South, a copy of the management

agreement?---Personally, yes.

Because you never gave Mr Karp or Mr South a copy of the

management agreement, did you?---Not personally.

There was never an occasion, was there, when you spoke with

either Mr Karp or Mr South and present in front of both of

you was a copy of the management agreement?---No.

It is true to say, is it not, that before you say you took

some steps to cause the management agreement to be sent to

the applicant, you had not provided a copy of it?---Before

that?

Before that time?---No."(emphasis added)

55. A little later in his evidence Mr Balog stated:

"I think he (Mr Karp) had it (the management agreement)

before the second (agency) agreement was signed".

56. The respondents did not call Mr Balog's secretary, who was still an employee of Mr Balog at the time of the hearing, to give evidence as to the sending of the management agreement. I infer therefore that she was not able to give evidence which would assist the respondent: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.

57. Needless to say, the inconsistencies in Mr Balog's evidence cast grave doubts upon his credibility. He sought to explain his lack of specific recollection about matters by stating that he does not keep a diary. That however, does not explain the inconsistencies in his evidence. His evidence was at times contradictory. At other times, he sought to withdraw from the specificity of answers which he had given. In his affidavit, Mr Balog did not deny certain of the key aspects of the applicant's evidence. Under cross-examination, Mr Balog expanded upon his evidence in critical respects. Mr Balog is an experienced business person and is no stranger to litigation or the courts. The importance of setting out the whole of his evidence on important issues in his affidavit, and of denying allegations made in the applicant's affidavits, if he did not agree with them, should have been obvious to him. I also carefully observed Mr Balog in the witness box. I was not impressed with him as a witness. He pondered questions before answering, often with the result that he set about a course of gradual retraction of a positive assertion he had made earlier in his evidence, some examples of which are set out above. I am of the opinion that he did so if he considered that it would better assist his case.

58. On the other hand, Mr South was an impressive witness. He gave his evidence in a consistent and straightforward manner. He made appropriate concessions in his evidence where he did not have a clear recollection of matters. I consider that his willingness to make such concessions enhanced the overall reliability of his evidence.

59. Mr Karp's credit was also in issue, particularly in relation to his diary and work book entries. Mr Karp was intensely cross examined about the alteration of the date in the work book from "16/7/92" to "21/7/92" to the effect that he had fabricated the conversation and that work book entry was manufactured so as to support the applicant's case. It was clear from the cross-examination that the respondents had had this entry subjected to forensic analysis. However, no forensic expert was called and, consistently with the principles in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, I infer that the result of the forensic analysis did not assist the respondents' case. That of course does not mean that the diary and work book entries were genuine records of the conversation they record and it is necessary to deal with Mr Karp's evidence on this and on other matters in some detail.

60. In his affidavit, Mr Karp said that he had the conversation, which the diary and work book note is said to reflect, "on about 21 July 1992", that is, on the amended date recorded in the work book. However, in cross-examination, he said the conversation occurred between 16 and 21 July, and that he may not have made the diary entry on 16 July, but may have made it a day or two later. A little later, he said he would have made the diary entry:

"...Maybe a few hours at most. Maybe right after the

telephone conversation. Certainly after I discussed the

content of it with Tony South and he would have indicated

the importance of that discussion and hence the note was

made."

61. He subsequently confirmed this evidence as follows:

"Did you make it while you were having the telephone

call?---No, I would have made it after the telephone call,

after I discussed the importance of that clause with Tony

South, or that discussion, I should say."

62. When asked why he did not make it clear in his affidavit that the date in the work book had been altered, he replied: "I believe that I had made that clear by stating that on or around 21 July that event occurred". Mr Karp also stated that this period of time was extremely busy and he did not have the luxury of keeping his notes up to date. A copy of the work book note was annexed to Mr Karp's initial affidavit filed in the proceedings, and as Mr Karp pointed out, the date had clearly been changed and it was not a matter which could remain hidden. Mr Karp did not give evidence as to which entry he made first, although the following evidence seems to indicate that he may have made the diary answer first:

"It is quite possible...the discrepancy of that date (in the

work book) was because I perhaps picked the date up out of

my diary and only after the event recalled that it may have

been on the incorrect date."

63. It is not relevant to the legal issues in the case which entry was made first. The matter of importance is whether there was a conversation between Mr Karp and Mr Balog as Mr Karp alleges. In my opinion, the fact that there was both a diary entry and a work book entry and the difference in wording between the two, makes it unlikely that the entries were in respect of a fabricated conversation. Had the conversation been fabricated, I doubt that Mr Karp would have gone to the trouble of making two entries. One entry, in either the diary or the work book, would have sufficed "to corroborate" his evidence. In addition, it would have taken a highly devious mind to think through the "wisdom" of making the wording in the two entries different. I did not gain the impression that Mr Karp was so devious, notwithstanding that his evidence about when he made the two entries was unsatisfactory, in thesense that it does not enable a certain finding as to when the entries were made.

64. It will be recalled that Mr South made reference to the diary entry in the 11 August fax to Mr Balog. It is not clear from the fax whether the first occasion Mr Karp and Mr South spoke about Mr Karp's conversation with Mr Balog was shortly before Mr South sent the fax, or whether Mr South contacted Mr Karp at that time to check on something Mr Karp had previously told him. Mr South was not cross examined on this, nor was he cross examined to the effect that this aspect of the fax of 11 August 1992 was fictitious. Whatever be the position as to the first communication between Mr South and Mr Karp on this issue, the fax of 11 August 1992 is corroborative of the diary note entry having been made prior to that date.

65. There is other evidence of Mr Karp's which raises an issue as to his credibility. In his affidavit, he refers to a conversation with Mr Balog on 16 July in which he told Mr Balog to issue a Notice of Intended Sale to Country Comfort However, Mr Karp explained this evidence as follows:

"I recall that the telephone conversation I had with Mr

Balog I was now aware of the option to Country Comfort and

Mr Balog explained to me in that telephone conversation the

process by which he would have to proceed in order to get

them to either exercise their option or decline.

...

"I would have then used those words into my return

conversation to him."

66. I carefully observed Mr Karp in the witness box. His demeanour was careful and somewhat "studied". However, I attribute this to two factors. First, I believe he was genuinely concerned to be accurate whilst giving evidence. However this gave him an appearance of being 'over careful'. Secondly he knew that the discrepancy between the dates in the diary and work book entries was going to be raised. It was clear from his evidence, as he undoubtedly well appreciated before he gave his evidence, that he had no satisfactory explanation of how, why or when the amendment to the date in the diary note was made, nor could he say precisely when he made the entries. Notwithstanding that Mr Karp's evidence was attended by these difficulties, I did not gain the impression that he was deliberately lying. Indeed, my impression was the opposite.

67. There is another matter which supports the applicant's version of events, and that is the fact that right up until 11 August 1992, Mr South and Mr Karp continued to perform work associated with the proposed sale of the hotel, both with Mr Landrey and with Country Comfort. Its action in servicing the sale to Country Comfort made no sense unless the applicant believed that it was not only entitled to commission, but that it was going to receive it. Thus, whilst his evidence as to the conversation with Mr Balog to which I have just referred had an element of justification within it, I accept that Mr Karp was telling the truth to the best of his recollection. I am also satisfied that the diary note was made prior to 11 August 1992, being the date of Mr South's fax to Mr Balog. It is not necessary for me to make any finding as to when the work book entry was made.

68. It follows from what I have said that where the evidence of Mr Balog conflicts with that of Mr South and Mr Karp, I prefer the evidence of Mr South and Mr Karp.

69. The question which remains to be determined is, when did the applicant first become aware of Country Comfort's right of first refusal pursuant to clause 24 of the management agreement? Having regard to the findings in relation to credit which I have made, I find that the applicant first became aware of the right of first refusal when Mr Balog told Mr South of the existence of the right in the telephone conversation on or about 15 July 1992 when Mr South returned from overseas. Did the respondents inform the applicant, prior to entering into the second agency agreement, that the applicant would not be paid commission if Country Comfort exercised its rights pursuant to Clause 24

70. The answer to this question also depends upon whose evidence I accept. As I have accepted the evidence of Mr South and Mr Karp, I find that the respondents did not inform the applicant that it would not be paid commission if Country Comfort exercised its rights under clause 24 prior to entry into the second agency agreement.

Was Mr Landrey's offer of $12.6 million, as conveyed to Mr Balog, an offer of $12.6 gross or was it net of any commission payable to the Applicant

71. Having regard to my findings in relation to credit, the position in relation to this question is as follows. On 9 July, Mr Karp informed Mr Balog that the offer was $12.35 net and that Mr Landrey would pay the applicant's commission direct. On 16 July, Mr Balog said he would accept $12.35 net, upon conditions that there was a 21 day settlement period and Mr Landrey would pay the applicant's commission. Also on 16 July, when discussing the content of the Notice of Intended Sale, Mr Karp told Mr Balog that the purchase price to be specified should be calculated so as to comprise the $12.35 offer, and the applicant's commission of $247,000. These figures were given in the context of Mr Balog having told Mr Karp that the respondents would still pay commission even if Country Comfort purchased the hotel. Mr South confirmed this break-up in his 11 August fax. In my opinion, the final Landrey offer conveyed was $12.6 gross and this was understood by Mr Balog.

72. The applicant's claim in contract was put on two bases. First, the applicant claimed that it was entitled to commission pursuant to its agency agreement because it had effectively introduced a purchaser of the property to the vendor. Secondly, it was submitted that the agency agreement, whether it be the first or the second, was subject to certain implied terms, which in the events which had occurred, were breached. As I have determined that the second agency agreement is the operative agreement, I shall consider the applicant's claim on that basis.

73. Counsel for the applicant submitted that the applicant effectively introduced Country Comfort to the property and, as it subsequently entered into a contract for sale with the respondents, the applicant was entitled to its commission pursuant to clause 4 of the second agency agreement.

74. The question whether an agent has been the effective cause of the introduction of a purchaser who subsequently entered into a binding contract of sale has been the source of much litigation. However, the principles which govern the matter are well settled and are as stated by Gibbs J in L.J. Hooker Ltd v W.J. Adams Estates Pty Limited [1977] HCA 13; (1977-1978) 138 CLR 52 Gibbs J at 67-68:

"...the appellant must...establish the necessary causal

relationship between its actions and the sale, or in other

words, that the sale was brought about through its agency.

The law on this question was stated in Burchell v Gowrie and

Blockhouse Collieries Ltd (1910) AC 614 at 624 as follows:

"There was no dispute about the law applicable

to the first question. It was admitted that, in

the words of Erle C.J. in Green v Bartlett

(1863) 14 CB (NS) 681 at 685, 'if the relation

of buyer and seller is really brought about by

the act of the agent, he is entitled to

commission although the actual sale has not been

effected by him.' Or in the words of the later

authorities, the plaintiff must show that some

act of his was the causa causans of the sale

(Tribe v Taylor (1876) 1 CPD 505 at 510, or was

an efficient cause of the sale (Millar v Radford

(1903) 19 TLR 575))."

75. Like all questions of causation it is ultimately a question of fact as to what was the effective cause of sale. However, the application of the latin phrase "causa causans" is a useful tool in determining whether an event was the effective cause of sale. Its meaning was described by Lord Guest in Tophams Ltd v Sefton (Earl) (1966) 1 All ER 1039 at 1044 as follows:

"(t)o cause a thing to be done is the same thing as to be its

causa causans. "causa causans" is the real effective cause as

contrasted with the causa sine qua non which is merely an incident

which precedes in the history or narrative of events".

76. And as was stated by Jacobs J in Atlas Tiles Ltd v Briers [1978] HCA 37; (1978) 144 CLR 202 at 239:

"...broad statements, referring to..."causa sine qua

non","causa causans"...do not provide sound ground for the

elucidation of a principle but tend rather to express a

conclusion".

77. See also Australian Postal Commission v Peter Smith at 15 (unreported, Federal Court, Von Doussa J, 23 October 1990, SG 121/90).

78. The facts of Tribe v Taylor was an example of when it can be said a particular event is the "causa causans" of another relevant event. The plaintiffs were entitle to commission if they introduced capital into the defendant's business. The plaintiffs introduced a party who initially injected capital but who subsequently entered into partnership with the defendant and, pursuant to the partnership agreement, injected further large sums of capital. The plaintiffs claimed commission on the moneys invested pursuant to the partnership agreement. It was held, however, that the plaintiffs' introduction was not the "causa causans" of the partnership, but that the partnership had been brought about by an "original agreement" between the defendant and the new partner.

79. In the present case, the respondents did not give the Notice of Intended Sale required to be given under clause 24 of the management agreement until after a final offer, satisfactory to the respondents, had crystallised from Mr Landrey. The Notice was then given, specifying as the purchase price the amount of that offer, namely $12.6 million dollars. After the final Landrey offer was made, the applicant dealt with Tony Leong about aspects of the sale. However, had the Landrey offer not materialised, the respondents could still have given a Notice under clause 24, although they would have done so without knowing whether there was a ready buyer in the market place, and without knowing the price the market would otherwise have thrown up. The question is, therefore, whether, notwithstanding that Country Comfort's purchase was pursuant to the offer contained in the Notice of Intended Sale given under clause 24, the applicant was, to use the terminology in Tribe v Taylor, the causa causans of the sale, or in the language of Millar v Radford the "efficient cause" of the sale.

80. In my opinion, it cannot be said that the applicant effectively introduced Country Comfort to the property, notwithstanding the factual circumstances in which the sale was effected. Country Comfort had a contractual right pursuant to clause 24 of the management agreement, to be offered the property before it could be sold to a third party. The existence of that right was the operative cause of the sale. Accordingly, I am of the opinion that the applicant did not "effectively introduce" Country Comfort as the purchaser of the property and thus is not entitled to commission under clause 4(ii) of the second agency agreement on this aspect of its claim.

81. The applicant claimed that the following terms were implied terms of the second agency agreement:

"...(t)hat the respondents would enter into an agreement for

sale with any purchaser effectively introduced by the

applicant who was prepared to purchase at a price agreed to

by the respondents ('the first implied term').

...(t)hat the respondents had not done any act, matter or

thing undisclosed to the applicant which would or might

destroy the efficiency of the bargain the subject of the

Second Agency Agreement (the second implied term').

Further, or in the alternative to ...(that)... the

respondents had not done any act, matter or thing

undisclosed to the applicant which would or might hinder or

obstruct the entry by the respondents in (sic) an Agreement

for the sale with a purchaser effectively introduced by the

applicant who was prepared to purchase at a price agreed to

by the respondents ('the third implied term')".

82. During the course of the hearing, the applicant reformulated the second and third implied terms as follows:

"2. The respondents had not done and would not do anything

that would or might destroy the efficiency of the

bargain;

3. The respondents had not done and would not do anything

that would or might hinder or obstruct the entry by

the respondents into an Agreement for sale with a

purchaser effectively introduced by the applicant who

was prepared to purchase at a price agreed to by the

respondents."

83. Notwithstanding this reformulation, the terms sought to be implied were effectively the same as those contained it the Statement of Claim. The applicant alternatively claimed that these terms were implied warranties, although no additional submissions were directed to this point by either counsel.

84. Terms may be implied into a contract either as a matter of law or arising out of the surrounding facts and circumstances of a particular contract. Implication in the latter sense has been referred to as the ad hoc implication of terms: see H.K. Lucke "Ad Hoc Implications in Written Contracts"(1973) 5 Adelaide Law Review, p32. See also Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 per Mason J at 345-346; Renard Constructions v Minister for Public Works (1992) 26 NSWLR 234 per Priestley JA at 255-256. It is necessary to deal with implication in both its aspects to determine whether the terms, which I have referred to as the second and third implied terms, are implied terms of the second agency agreement. However, it is convenient to deal with the first implied term now, as it does not require much discussion. Its terms are inconsistent with the express provisions of clause 4(ii) of the second agency agreement. It thus offends one of the basic conditions necessary to be satisfied if a term is to be implied. See B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 52 ALJR 20 at 26. Accordingly, I reject that a term in the form of the first implied term should be implied into the second agency agreement.

85. It is well established that there is implied in every contract a promise not to prevent or hinder the other party from performing the contract: Hochester v de la Tour (1835) 2 E and B 678; 118 ER 922; Stirling v Maitland and Boyd (1864) 5 B and S 840; [1864] EngR 752; 122 ER 1043; Barque Quilpue Ltd v Brown (1904) 2 KB 269 at 271; Marshall v Colonial Bank of Aust'asia (1904) 1 CLR 633; Duncan v Mell (1914) 15 SR (NSW) 333 at 339; Luxor (Eastbourne) Ltd v Cooper (1941) AC 108. Cockburn CJ in Stirling v Maitland and Boyd, at 852-1047, described the circumstances in which the implication will arise as follows:

"(i)f a party enters into an arrangement that can only take effect

by the continuance of a certain existing state of circumstances,

there is an implied engagement on his part that he shall do

nothing of his own motion to put an end to the state of

circumstances, under which alone the arrangement can be operative"

86. The implication is sometimes cast in positive terms, namely that in every contract there is a promise by every party to it, "to do all such things as are necessary on his part to enable the other party to have the benefit of the contract": Nullagine Investments Pty Ltd v Western Australian Club Incorporated [1993] HCA 45; (1993) 177 CLR 635 per Deane, Dawson and Gaudron JJ at 359. See also Mackay v Dick (1881) App. Cas 251; Butt v McDonald (1896) 7 QLJ 68 per Griffith CJ at 70-71. In Mackay v Dick, Lord Blackburn stated at 263:

"...as a general rule, that where in a written contract it

appears that both parties have agreed that something shall

be done, which cannot effectually be done unless both concur

in doing it, the construction of the contract is that each

agrees to do all that is necessary to be done on his part

for the carrying out of that thing, though there may be no

express words to that effect. What is the part of each must

depend on circumstances".

87. I should mention in passing that there is no reason in principle to confine the statement in Mackay v Dick to written contracts to the exclusion of express oral contracts.

88. The High Court, in O'Keefe v Williams [1910] HCA 40; (1910) 11 CLR 171 and Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 has also dealt with the implication in such terms. In O'Keefe v Williams, Griffith CJ stated at 191:

"(e)very contract between subject and subject involves an

obligation, implied if not expressed, that neither party

shall do anything to destroy the efficiency of the bargain

which he has made";.

and in Shepherd v Felt and Textiles of Australia Ltd Dixon J stated at 378:

"...the contract established a relation between the parties

intended to subsist for a period, and it involved some

degree of mutual confidence and required a continual co-

operation...(s)uch an agreement inevitably imported a tacit

condition that the appellant should perform the services

faithfully which he contracted to give the respondent, and

should not endeavour to impede or defeat the respondent in

the sale of its manufactures..."(emphasis added).

89. In Castlemaine Tooheys Ltd v Carlton and United Breweries Ltd (1987) 10 NSWLR 468 Hope JA referred to the conditions for the implication of terms as a matter of law, either in contracts generally, or in particular classes of contracts. His Honour stated at 489 that:

"...the test of necessity and reasonableness...may be...the

test generally to be applied".

90. In Renard Constructions, Priestley JA considered that Hope JA had not used the word "necessity"...in the absolute sense". His Honour stated at 261:

"In regard to classes of contract to which particular

implications have been recognised as attaching, it is not

possible to say that the implication was always necessary,

in the sense that the contracts could not have worked

without the implied term(s)...but because the Court decided

it would be better or more appropriate or more reasonable in

accordance with the contemporary thinking of the judges and

parties concerned with such contracts that the term should

be implied than that it should not".

91. His Honour added that the concept of necessity, when used in the context of terms implied by law, was conveyed by:

"Holmes's phrase "The felt necessities of the time" where

necessity has the sense of something required in accordance

with current standards of what ought to be the case, rather

than anything more absolute."

92. I agree with his Honour's statement. In my opinion, the terms which the courts have from time to time held ought to be implied, either into particular classes of contract, or into every contract, are terms which are considered necessary for the reasonable operation of the contract in question.

93. The law is now well settled, at least in relation to commercial contracts, as to the conditions which must be satisfied before a term will be implied "ad hoc". These were identified by the Judicial Committee of the Privy Council in B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 52 ALJR 20 at 26 as:

"(1) it must be reasonable and equitable; (2) it must be

necessary to give business efficacy to the contract, so that

no term will be implied if the contract is effective without

it; (3) it must be so obvious that "it goes without saying";

(4) it must be capable of clear expression; (5) it must not

contradict any express term of the contract".

94. See also: Secured Income Real Estate (Australia) Ltd v St. Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 605-606; Codelfa Construction at 347; and Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 65-66.

95. In Renard Constructions, the question arose as to whether the principal in a building contract was required to act reasonably in deciding the matter of "satisfaction" under cl 44.1 of the General Conditions of Contract NPWC (being the standard form building contract in use in New South Wales). Clause 44.1 provided:

"If the contractor fails within the period specified in the

notice in writing to show cause to the satisfaction of the

Principal why the powers hereinafter contained should not be

exercised the Principal...may

(a) Take over the whole...of the

work...and...exclude from the site the

Contractor...or

(b) cancel the contract..."

96. Priestley JA referred to the five conditions necessary for the implication of a term ad hoc. His Honour concluded that the second condition, that the term must be necessary to give business efficiency to the contract, required a consideration of what would make the contract workable in a business sense. In applying that consideration to clause 44.1, his Honour stated:

"For the principal, in such circumstances, to be able then

to exclude the contractor from the site and/or cancel the

contract would be, in my opinion, to make the contract as a

matter of business quite unworkable. One way of explaining

this view is to say that no contractor in his senses would

enter into a contract under which such a thing could happen.

The reasonable contractor, the reasonable principal and the

reasonable looker-on would all assume that such a result

could not come about except with good reason.

...

The insertion of a subclause such as subcl 44.1 not subject

to the constraint of reasonable use by the principal is

quite inconsistent with all the main contractual promises by

each party to the contract to the other. The contract can

in my opinion only be effective as a workable business

document under which the promises of each party to the other

may be fulfilled, if the subclause is read in the way I have

indicated, that is, as subject to requirements of

reasonableness".

97. His Honour was of the view that a term to the same effect would be implied as a matter of law.

98. Before departing from the decided cases of when and what terms may be implied, either as a matter of law or ad hoc, reference should be made to Luxor Eastbourne Limited v Cooper and L.J. Hooker Limited v W. J. Adams Estates Pty Limited both of which dealt with the question of whether any terms, and if so, what terms may be implied into an agency agreement.

99. In Luxor Eastbourne Limited v Cooper (1941) AC 108, a real estate agent sought to have implied into its agency agreement a term, the effect of which was "to bind the principal not to refuse to complete the sale to the client whom the agent has introduced". Lord Russell of Killowen stated at 125:

"I can find no safe ground on which to base the introduction

of any such implied term. Implied terms, as we all know, can

only be justified under the compulsion of some necessity. No

such compulsion or necessity exists in the case under

consideration. The agent is promised a commission if he

introduces a purchaser at a specified or minimum price. The

owner is desirous of selling. The changes are largely in

favour of the deal going through, if a purchaser is

introduced. The agent takes the risk in the hope of a

substantial remuneration for comparatively small exertion."

100. Luxor was considered by the High Court in L.J. Hooker Limited v W. J. Adams Estates Pty Limited, where the agent had introduced a purchaser ready, willing and able to pay the vendor's nominated price. At the same time, the vendor was independently negotiating with another party. The interested purchasers became aware of the other's interest, and entered into an agreement that whosoever should be the successful purchaser, they would complete the purchase and develop the land, "jointly on the basis of equity". The vendor eventually sold the property to the party with which it had been dealing directly. Barwick CJ, Gibbs and Stephen JJ held that the agent had not introduced the purchaser to the owner or the land, nor was it the effective cause of the sale and thus was not entitled to commission. Gibbs J, at 66, referred to the statement of Lord Russell of Killowen (at 124) that agency agreements "are subject to no special rules and principles of their own". Further at 66 Gibbs J, as did Stephen J at 73, referred to the statement of Viscount Simon LC that the first task in determining whether a term should be implied was "to ascertain with precision what are the express terms of the particular contract under discussion". However, both Gibbs and Stephen JJ noted that the usual agent's contract is unilateral, that is, in such a contract, it is within the vendor's discretion whether to deal with a purchaser introduced by the agent, just as it is within the vendor's discretion to withdraw the property from sale, regardless of the efforts undertaken by the agent to effect its sale.

101. Greig and Davis, Law of Contract refer to this characterisation of the principal/agent relationship at 332. They state:

"(this) interpretation of the relationship between principal

and estate agent is inconsistent with any implied term

protecting the agent from a withdrawal of his mandate before

he has introduced someone who subsequently purchases the

property in question".

"There is no doubt that Luxor v Cooper represents the law in

Australia, and that therefore there is, in normal

circumstances, no room for an implied contract or promise

that the vendor will not prevent his agent earning his

commission".

103. I consider that this statement, including its qualification that there will be no such implication "in normal circumstances" correctly reflects the position as to the implication of terms in a standard form agency agreement. Were it otherwise, there would be implied into an agency agreement a term inconsistent with the express terms of the agreement specifying the circumstances in which the agent was entitled to commission and the terms upon which the agency agreement could be terminated.

104. Counsel for the applicant readily conceded that if the particular approach taken in Luxor with respect to commission contracts was adopted in the present case, the applicant would fail in its case that there should be an implication of terms in the form of the second and third implied terms. However, he submitted that Luxor was no barrier to the applicant's case for two reasons. First, it was submitted that upon a proper analysis of the judgments in Luxor, it was apparent that the various Law Lords were of the view that if a term of the type contended for was introduced, the agency agreement would be unworkable, and being unworkable, the Court should not imply it: see in particular Viscount Simon LC at 116-117. This amounts to a submission that the express terms of the agency agreement have to be construed to determine whether they permit the implication contended for. There is nothing remarkable in that submission. Secondly, it was submitted that there has been a substantial development in the law since Luxor. In particular, reliance was placed upon B.P. Refinery and Renard Constructions. The difficulty with this submission is that, as I have already stated, conformably with the statement in Greig and Davis, the view that Luxor is authority that, in the usual agency agreement, there is no room for the implication of a term that the vendor will not prevent the agent earning commission, is consistent with the principles which govern the implication of a term, both at law and ad hoc. However, the applicant's may be able to rely upon the qualification that Luxor's authority is confined to normal circumstances", by which must be meant circumstances usual to a commission contract.

105. I have referred above to the usual nature of a commission contract, that is, it is speculative, the agent not being guaranteed a return notwithstanding that work had been performed pursuant to the contract. The second agency agreement was of such a character. The applicant was entitled to commission if it introduced a purchaser who entered into and completed a contract of sale with the respondents: clause 4(ii). As is usual with contracts of this nature, there was nothing in its express terms to prohibit the respondents from withdrawing the property from sale, from refusing to deal with any particular purchaser, or from selling to a third party. As referred to previously, this discretion has sometimes been referred to as giving to the principal in an agency agreement the right to act unilaterally. However, in this case, there was one factor which fettered the respondents discretion, namely, clause 24 of the management agreement. The respondents were then subject to a further fetter imposed by Clause 24, that is, that the purchase price and any other conditions specified in the Notice of Intended Sale were met by a purchaser introduced by the applicant. In other words, the respondents were restricted in relation to the usual negotiability of the sale price and conditions.

Are the second or third implied terms, implied terms of the second agency agreement either as matter of law or ad hoc?

106. The question which arises therefore is whether, given these matters, are the second or third implied terms, implied terms of the second agency agreement? The terms implied by law into every contract to which I have referred, govern the conduct of the parties to a contract during the subsistence of the agreement. In the present case, the respondents had engaged in the conduct, which is sought to be set up as a breach of those implied terms, prior to the entry into the contract. However, it is useful in the first instance to test the position as if the management agreement had been entered into after the date of the second agency agreement. The effect of clause 24, had Country Comfort exercised its rights under it, was to put it out of the respondents' power to exercise its discretion to act under the agency agreement. In my opinion, whilst clause 24 of the management agreement would have the effect of hindering the performance of the agency agreement in the sense that it created an unusual or unexpected barrier to the applicant's entitlement to commission, it was a barrier different in effect than would have been the case if the respondent had actively, even if secretly, been soliciting offers in the market place. Accordingly, upon the assumption which I have made, I do not consider that either the second or third implied term was necessary for the reasonable operation of the second agency agreement, or necessary to make the contract workable in a business sense, as it is an ordinary incident of such contracts that an agent may not be entitled to commission as a result of the discretion reposed in the principal. Therefore, neither term would be implied, in my opinion, as a matter of law or ad hoc.

107. The implication of such terms, either as a matter of law or ad hoc becomes even more problematical in the circumstances of this case where the implication is sought to govern behaviour which occurred prior to the entry into the contract. In my opinion, whilst the authorities permit the implication of a term that parties are not to hinder or obstruct the performance of a contract once it has been entered into, they do not support the conceptual leap necessary to find that a prior action of the vendor would ex post facto be in breach of an implied term of a subsequent agreement. This would be the effect of implying the second or third implied terms. Accordingly, I reject this aspect of the applicant's claim.

108. Counsel for the applicant next submitted that, on the assumption that the contract between the parties is one whereby the respondents had a complete discretion to act in any manner they chose, that contract had been frustrated and the applicant was thereby entitled, pursuant to s 10 of the Frustrated Contracts Act 1978 (NSW), to payment for the work performed under the contract.

109. The basis upon which a contract may be frustrated was considered by the High Court in Codelfa Construction Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337. Mason J at 357 stated:

"...a contract will be frustrated when the parties enter

into it on the common assumption that some particular thing

or state of affairs essential to its performance will

continue to exist or be available, neither party undertaking

responsibility in that regard, and that common assumption

proves to be mistaken..."

110. See also Davis Contractors Limited v Fareham Urban District Council [1956] UKHL 3; (1956) AC 696, where Lord Reid at 723 described frustration as:

"...the termination of the contract by operation of law on

the emergence of a fundamentally different situation".

111. Lord Radcliffe, in the same case stated at 729:

"...frustration occurs whenever the law recognizes that

without default of either party a contractual obligation has

become incapable of being performed because the

circumstances in which performance is called for would

render it a thing radically different from that which was

undertaken by the contract...It was not this that I promised

to do."

112. See also Brisbane City Council v Group Projects Pty Limited [1979] HCA 54; (1979) 145 CLR 143.

113. Counsel for the applicant identified the frustrating event as Country Comfort's acceptance of the respondents' 'offer' of the hotel to Country comfort in the Notice of Intended Sale. It was submitted that, at the time the exclusive agency agreement was entered into, neither party contemplated that Country Comfort would exercise its rights under clause 24. In support of this submission, counsel for the applicant relied upon Mr Balog's evidence that, in March 1992, he had informed Mr Karp of Country Comfort's rights under clause 24 of the management agreement and had also informed him that it had not exercised their rights on a previous occasion. It was submitted therefore that, on these facts, although both parties were aware of the rights conferred by clause 24, neither party expected that the events provided for therein would eventuate. However, this submission is based upon a version of the facts which I have rejected and therefore this basis of the applicant's claim must fail. In any event, even on that version, it could not be said that a "fundamentally different situation emerged". If both parties were aware of the right of first refusal, the possibility that Country Comfort might exercise its rights under clause 24 always existed.

114. Counsel for the applicant submitted on the basis of quasi contract that the applicant was entitled to remuneration equivalent to the amount of commission agreed to in the second agency agreement. He submitted that although the second agency agreement was a valid subsisting agreement governing certain work to be performed by the applicant for a specified, albeit conditional remuneration, what in fact had happened was that the applicant, at the request of the respondents, had gone into the market place to attract the interest of potential purchasers of the property. Having attracted a purchaser ready to pay a price acceptable to the respondents, the respondents gave the Notice of Intended Sale to Country Comfort, as they were obligated to do under the management agreement. It was submitted that in those circumstances it was the applicant's work, requested and encouraged by the respondents, which was the ultimate reason for the sale of the property. The applicant was thereby entitled to claim remuneration for the work performed at the request of the respondent.

115. In Pavey and Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, the High Court recognised that unjust enrichment was the underlying basis whereby the law recognises an obligation on a party to make fair and just restitution for a benefit derived at the expense of another: see Deane J at 256-257, Mason and Wilson JJ at 227 agreeing, where his Honour stated:

"(t)he quasi-contractual obligation to pay fair and just

compensation for a benefit which has been accepted will only

arise in a case where there is no applicable genuine

agreement or where such an agreement is frustrated, avoided

or unenforceable.

In such a case, it is the very fact that there is no genuine

agreement or that the genuine agreement is frustrated,

avoided or unenforceable that provides the occasion for (and

part of the circumstances giving rise to) the imposition by

the law of the obligation to make restitution.

...

...unjust enrichment...constitutes a unifying legal concept

which explains why the law recognizes, in a variety of

distinct categories of case, an obligation on the part of a

defendant to make fair and just restitution for a benefit

derived at the expense of a plaintiff and which assists in

the determination, by the ordinary processes of legal

reasoning, of the question whether the law should, in

justice, recognize such an obligation in a new or developing

category of case: see Muschinski v. Dodds" (1985) 160 CLR

583, at pp619-620; Goff and Jones, op cit, p11ff."

116. The difficulty with finding that the applicant is entitled to remuneration on the basis of quasi-contract in the present case is that the work performed in seeking out purchasers in the market place up to the time of the giving of the Notice of Intended Sale was performed pursuant to the second agency agreement, which at all times remained a valid and subsisting contract. Regardless of the existence of the right of first refusal provided for in clause 24, it was always possible that the applicant would be remunerated for the work it did under the agency agreement. It was also possible that it would not. The position did not change when the Notice of Intended Sale was given, save that there then arose one of the circumstances whereby the applicant might not receive its remuneration, namely a sale to a party not introduced by the applicant, assuming that Country Comfort exercised its rights under clause 24 and entered into a contract for sale. Had Country Comfort not exercised its rights under clause 24, the applicant may still not have been entitled to commission, its entitlement at all times being dependant upon the completion of a sale by a purchaser it introduced. If the applicant was entitled to be compensated on the basis of quasi-contract, it would receive commission for work performed, notwithstanding that it was not entitled to commission for the performance of that same work under a valid and subsisting contract, namely the second agency agreement. However, when it is remembered that the underlying basis of the obligation imposed by quasi contract is unjust enrichment, it cannot be said that there is any basis upon which quasi contract is available as a remedy to enable the applicant to recover compensation for its work in locating a buyer in the market place which enabled the respondents to identify the price at which it should offer the hotel to Country Comfort pursuant to the provisions of clause 24 of the management agreement.

117. Counsel for the applicant next submitted that the respondents acted unconscionably towards the applicant so as to be entitled to relief on a constructive trust basis. Counsel pointed to the commercial unfairness of the arrangement as it eventuated and, whilst accepting that unconscionability is not necessarily to be equated with mere commercial unfairness, he submitted that the existence of commercial unfairness was a relevant factor in determining whether or not the respondents' conduct was unconscionable such as to afford relief. Counsel for the applicant conceded that the applicant, as were the respondents, was an experienced negotiator. He submitted, however, that factor would not disentitle the applicant to relief in the circumstances. It was said that both parties were entitled to work on the premise that if there were matters of such significance that they would or might influence the terms upon which the work under the contract was to be performed, and of which the other party would be ignorant unless disclosed, the absence of frank communication on that matter amounted to unconscionable conduct.

118. In support of this argument, counsel for the applicant drew an analogy with joint venture arrangements. He submitted that the High Court had held that where parties had engaged in a joint venture with the intention of both parties mutually benefiting, and where after contributions had been made to the joint venture by the parties, it fell apart in circumstances where it was never expected that only one party would obtain the complete benefit, it was appropriate to apply the principle of unconscionability to grant relief and to do so by the imposition of a constructive trust: see United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1; Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583. Counsel for the applicant submitted that although this case did not involve a joint venture, the second agency agreement amounted to a combination of the applicant and respondents in a common endeavour directed towards the sale of the property. The applicant devoted considerable time, effort and money to that exercise and introduced a proposed purchaser. The effect of the introduction of that proposed purchaser was described by counsel for the applicant as "the first domino that resulted in the collapse of dominoes that led to the ultimate sale". Further, the work would never have been performed had the full circumstances been disclosed to the applicant. In those circumstances, it was submitted that it was unfair for the respondents to retain that ultimate benefit without remunerating the applicant for its work.

119. In my opinion, the unconscionability claim suffers from the same difficulty which I consider defeated the claim in quasi-contract. It was always possible under the second agency agreement that the applicant would perform work and have no entitlement to commission. In addition, as I have already found, the circumstances here fell within the purview of the agency agreement in the sense that the respondents were always free to deal outside of the agency agreement. There was no restriction on that dealing. In my opinion, the bargain did not become unconscionable merely because the dealing in which the respondents in fact engaged was not within the applicant's contemplation at the time it entered into the agreement.

Claim for breach of s 52 of the Trade Practices Act

120. The final basis upon which the applicant based its claim for relief was for breach of s 52 of the Trade Practices Act. Counsel for the applicant submitted that the respondent's failure to inform the applicant of the management agreement was conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act.

121. The essential issue raised for determination by this claim is whether, in circumstances where a party would assume that a particular state of affairs existed, unless disclosed, the failure to disclose that information amounts to conduct which is misleading and deceptive. This issue raises a number of questions. First, is an agency agreement, such as the one here, of a type where a party entering into it would make such an assumption? Secondly, before such conduct could be misleading or deceptive or likely to mislead or deceive, does one party to the transaction have to expect that the other party would make that assumption? Thirdly, did the applicant make the assumption? Fourthly, depending upon the answers to the questions posed, did the respondent engage in conduct in contravention of s 52.

122. I have already stated, an agency agreement such as the one here, is speculative, discretionary and unilateral. Counsel for the applicant submitted that an agent, when entering into such an agency agreement, would expect that the vendor would have the usual discretion to deal with the property in the sense which I have described earlier and would not be fettered in any way in the exercise of that discretion, such as by a provision in the terms of clause 24. In my opinion, notwithstanding, and probably because of, the speculative, discretionary and unilateral aspect of such agreements, a real estate agent would enter into such an agreement on the assumption that there was no unusual circumstance which would fetter the vendor's discretion to deal. I am also of the opinion that a vendor would expect that an agent would enter into an agency agreement, knowing of the provisions relating to termination, and on the assumption that its right to commission would be dependant upon whether, prior to termination in accordance with the contractual provisions, the vendor agreed to enter into a contract with a purchaser introduced by the agent, and not upon any broader assumption.

Colliers Jardine (Nsw) Pty Limited v Balog Investments Pty Limited and J Dan Pty Limited [1994] FCA 1553

At a glance

Court

Decision date

Before

Source

Judgment (227 paragraphs)

Colliers Jardine (Nsw) Pty Limited v Balog Investments Pty Limited and J Dan Pty Limited [1994] FCA 1553 (16 December 1994)

Parties

Legislation Cited (4)

Cases Cited (32)