Emmons Mount Gambier Pty Ltd v Specialist Solicitors Network Pty Ltd

ORDERS: 1. Appeal allowed. 2. Verdict and judgment of the trial judge to be set aside and in lieu thereof there be a verdict and judgment entered for the appellant. 3. The respondent to pay the appellant's costs of the proceedings appealed from and the appeal but receive a Suitors' Fund certificate with respect to the appeal, if otherwise entitled.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40730/04 DC 420/2003

GILES JA HODGSON JA STEIN AJA

26 April 2005 EMMONS MOUNT GAMBIER PTY. LTD v SPECIALIST SOLICITORS NETWORK PTY. LTD. JUDGMENT 1 GILES JA: I agree with Stein AJA 2 HODGSON JA: I agree with the orders proposed by Stein AJA, and substantially with his reasons. I would add a few comments. 3 In order for the respondent to be entitled to commission, it was necessary for it to show both (1) that its introduction of Kemayan to the property contributed to the occurrence of the subsequent contact made with the appellant by Mr. Reed on behalf of Kemayan, and (2) that the impediment of the gap between the offer it obtained of $25 million and the final agreed price of $29.7 million, was one which it could and would have overcome if not deprived of the opportunity of doing so. 4 On the first question, the primary judge made a highly material factual error in asserting that Kemayan made direct contact with the appellant with the consent of the respondent; and otherwise he did not address either of the two questions. In these circumstances, this Court should either reach its own conclusion as to whether those matters are established, or else order a new trial. In my opinion, because no credibility issue is involved, it is appropriate for this Court to reach its own conclusion. 5 The circumstance that the contact from Mr. Reed occurred shortly after the introduction of Kemayan to the property by the respondent could support an inference that the contact from Mr. Reed was not an independent introduction of Kemayan. On the other hand, the circumstance that Kemayan did not contact the appellant direct, in accordance with what Mr. Wheeler said was the arrangement made with Mr. Hor, and the absence of any evidence from Mr. Hor to explain this or to explain how it was that Kemayan came to deal with Mr. Reed, count against the drawing of that inference. Thus, it is very doubtful if the possibility that Kemayan was introduced to the property independently by Mr. Reed was excluded, on the balance of probabilities. 6 As regards the second question, the respondent did not establish, on the balance of probabilities, that it could have overcome the gap between the offer of $25 million and the subsequently agreed price of $29.7 million, if not deprived of the opportunity of doing so. The circumstance that this impediment was in fact overcome by Mr. Reed was some evidence that it could have been overcome by Mr. Wheeler, but the apparent disinclination of Kemayan to deal further through Mr. Wheeler, and Mr. Wheeler's lack of experience in the sale of hotels, mean, in my opinion, that the necessary inference should not be drawn, on the balance of probabilities. 7 Thus, I agree with Stein AJA that the respondent did not establish that it was an effective cause of the sale. 8 STEIN AJA : Introduction 9 The appellant Emmons Mount Gambier Pty Ltd appeals from a decision of the District Court whereby his Honour Judge Twigg found that the respondent, Specialist Solicitors Network Pty Ltd, was an effective cause of the sale of the Cambridge Inn Hotel from the appellant to the United Group Property Holdings Pty Limited in December 1996. This was the principal issue in dispute before the District Court and before the Court of Appeal. His Honour awarded the respondent commission of $594.000 together with interest. 10 The respondent acted in the relevant dealings through Mr Russell Wheeler, a director and shareholder of the company Specialist Solicitors Network Pty Ltd. The owner and principal director of the appellant was a Mr Bruce Mathieson. The prospective purchaser whom the respondent claimed to have introduced was a Malaysian Company, Kemayan Hotels and Leisure Ltd (Kemayan). Mr Stanford Hor was an employee of Kemayan and its principal director was a Mr Simon Wan. 11 It is the appellant's case that the respondent was not an effective cause of the sale of the hotel because Mr Wheeler's efforts did not bring about the sale. Rather, it was the efforts of a second agent, a Mr Reed, which resulted in the sale.

Facts 12 Mr Wheeler had known Mr Hor since the early 1980's. In mid June 1996 Mr Hor told Mr Wheeler that he had commenced work for Kemayan and that it was interested in buying a hotel in Sydney. He gave Mr Wheeler a newspaper article from the Financial Review about Kemayan buying into the Australian hotel market. Mr Hor inquired whether Mr Wheeler knew of any hotels for sale. 13 In late June 1996 a contact of Mr Wheeler's suggested he speak to Mr Bruce Mathieson of the appellant about the possible sale of the Cambridge Inn Hotel. Mr Wheeler telephoned and had a brief conversation with Mr Mathieson wherein Mr Mathieson confirmed that they may be prepared to sell the hotel. Mr Wheeler faxed a letter to Mr Hor on 29 June 1996 and had a number of conversations with him during July 1996. Ultimately Mr Hor said that Kemayan was interested in buying a hotel but would not pay commission. That was up to the vendor, he said. 14 On 1 August 1996 Mr Wheeler telephoned a director of the appellant, Mr Ross Blair-Holt. Mr Blair-Holt confirmed that the appellant was interested in selling the Cambridge Inn. Mr Wheeler said he had an interested party. He asked for 3 percent commission. Mr Blair-Holt offered 2 percent and they agreed. 15 Mr Wheeler faxed a letter dated 1 August 1996 to Mr Blair-Holt who sent a letter of the same date to Mr Wheeler offering a non-exclusive agency arrangement in terms of Mr Wheeler's letter. The letter said that the agency was to expire on 30 September 1996 and that the sale price was $30 million. 16 Later that day Mr Wheeler spoke to Mr Blair-Holt and they agreed on the deletion of the expiry date of 30 September 1996. Mr Blair-Holt said words to the effect "If you introduce someone and the deal goes ahead you'll get your fee." 17 The next day Mr Wheeler contacted Mr Hor and asked if Kemayan would be interested in inspecting the Cambridge Inn. Later that day Wheeler telephoned Blair-Holt and told him that he wanted to show Mr Stan Hor of Kemayan through the Cambridge Inn. 18 On about the 5 or 6 August 1996 Mr Wheeler and Mr Hor inspected the hotel. The following day Mr Hor asked for trading figures, occupancy rates and evidence of Mr Wheeler's role. Mr Wheeler telephoned Mr Blair-Holt and requested the material. On 7 August 1996 Mr Blair-Holt sent Mr Wheeler the trading figures with the occupancy rates to follow. 19 Later that day Mr Wheeler sent Mr Hor the trading figures and a copy of his exchange of correspondence with the appellant of the 1st August 1996. The following day he received and passed onto Mr Hor the occupancy rates. 20 Around 12 August 1996 Mr Wheeler spoke to Mr Hor who said that Kemayan was interested but only at $25 million. Mr Wheeler said the vendor wants $30 million. Mr Hor said that was too much. Mr Wheeler asked if he could tell the appellant that Kemayan was prepared to pay $25 million. Mr Hor said "yes". 21 Mr Wheeler phoned Mr Blair-Holt and told him that Kemayan was prepared to offer $25 million. Mr Blair-Holt was dismissive and reiterated that they wanted $30 million. 22 Mr Wheeler then spoke to Mr Hor and told him that the vendor would not accept less than $30 million. Mr Hor said he thought that the owner Mr Simon Wan was only interested at $25 million. 23 On about 15 August 1996 Mr Wheeler asked Mr Hor if there was any chance of increasing the offer and Mr Hor said he would ask Simon Wan. Two days later they talked again and Mr Hor said that Mr Wan might be interested in paying more but would need to talk to the owner directly. 24 Mr Wheeler telephoned Mr Blair-Holt and told him. Mr Blair-Holt acquiesced, and Wheeler then gave Mr Hor Blair-Holt's phone number. 25 About a week later Mr Wheeler, having heard nothing, telephoned Mr Blair-Holt who told him that he had not heard from Kemayan but would let him know if there was any contact. In late August 1996 Mr Wheeler again rang Mr Blair-Holt who said that he had not heard from anyone. 26 According to Mr Wheeler he telephoned Mr Hor at the beginning of September 1996 and asked what was happening. Mr Hor indicated that he did not think anything was happening. 27 As a result Mr Wheeler believed that Kemayan was only prepared to pay $25 million and the appellant was not prepared to sell for less than $30 million. Because he had not heard from Mr Blair-Holt he assumed that there had been no contact between Kemayan and the appellant. Accordingly, Mr Wheeler did nothing further. He ceased any efforts to bring about a sale. 28 On 2 September 1996 a Mr Angus Reed of Australia Asia Property Services telephoned Mr Mathieson of the appellant. He indicated that he had a potential purchaser for the Cambridge Inn. He asked for a 2 percent fee. Mr Mathieson offered 1.5 percent. Mr Reed, who did not give evidence at the trial, faxed Mr Mathieson a letter. Later Mr Blair-Holt saw Mathieson's fax of Mr Reed's letter which had been sent back to Mr Reed, and which showed the reduced fee. He said that Mr Mathieson told him that Mr Reed was dealing with Kemayan. 29 Two weeks later, on 16 September 1996, Mr Reed faxed a letter to Mr Mathieson referring to previous correspondence and discussions and attaching an offer of $29,150.000. The letter said that "We have held many discussions with the group's Chief Executive, Mr Simon Wan and have been able to improve Kemayan's offer level to $29,150,000." The offer enclosed was clearly a serious offer properly documented and signed by Wan. The offer was rejected. 30 On 2 October 1996 Mr Reed wrote to the appellant communicating a further verbal offer of Kemayan of $29.7 million. The letter also agreed to reduce Reed's commission to $300,000. This would produce a net price to the appellant of $29.4 million. 31 The following day, 3 October 1996, Mr Reed faxed Mr Blair-Holt the written offer of $29.7 million from Mr Wan. On 4 October 1996 Mr Blair-Holt wrote confirming the agreement of the appellant to accept that offer. 32 A contract was subsequently entered into. It contained a warranty that the purchaser had not been introduced to the property by any agent other than Mr Reed. The sale was subsequently completed and the commission paid to Mr Reed. 33 Mr Wheeler did not become aware of the sale until 2002 when he complained to the appellant and later commenced the subject proceedings.

The trial 34 At the trial Mr Hor gave evidence in the respondent's case. He made it plain that Mr Wan was the decision-maker in Kemayan and he (Mr Hor) played no part in the decision to purchase the hotel. He gave no evidence which supported the proposition that Mr Wan's decision to buy the hotel was influenced by anything done by Mr Wheeler. Mr Wan did not give evidence. There was an affidavit tendered wherein Mr Wheeler indicated that he had been unsuccessful in contacting Mr Wan, and also Mr Reed. 35 As I have said before, Mr Reed was not called to give evidence. There was therefore no direct evidence of how Mr Reed knew that the appellant was interested in selling the hotel. However, Mr Reed, who unlike Mr Wheeler knew the hotel business, would not have had great difficulty in finding out the position. There was, more importantly, no evidence of how contact was made between Mr Reed and Kemayan and Mr Wan. The question arises as to what inferences might properly be drawn from the limited evidence. 36 His Honour summarised the submissions of both parties. Unfortunately he did not analyse the submissions in any depth or make clear findings of fact. He merely concluded that he was satisfied that the respondent was the effective cause of the sale of the hotel to the purchaser. He gave no real reasons for this conclusion. 37 The judge's reasons included: "On my finding, the Plaintiff found the purchaser who was ready, willing and able to purchase the hotel. The Plaintiff effected the most arduous and most difficult task of finding the ultimate purchaser. When that purchaser made direct contact with the Defendant with the permission of the Plaintiff, the Defendant took advantage of the effective work previously completed by the Plaintiff. By further negotiations without allowing the Plaintiff the opportunity of being involved, a sale was completed. The Defendant sold the hotel to the purchaser introduced by the Plaintiff on terms that were only different as to the gross price in order to obtain a net price of $27.4 million. The agent agreed to reduce his commission in order to effect this change of the net price. The Plaintiff was not given the opportunity offered to Reed to reduce its commission to achieve the Defendant's net price." [The last mentioned figure should clearly be $29.4 million, not $27.4 million.] 38 The appellant complains about his Honour's conclusion about direct contact between the appellant and the purchaser with Mr Wheeler's permission. At the appeal the respondent conceded that there was no evidence of any direct contact, the only evidence being of Mr Reed passing on Kemayan's offers to the appellant; and that was not contact with Mr Wheeler's permission. This was a factual error on a matter of some significance to the judge's conclusion.

Discussion 39 It is trite to say that for the respondent to succeed there has to be established a causal connection between the agent's efforts and the completion of the transaction ( Burchell v Gowrie [1910] AC 614). To prove this it has to be established that the agent was an effective cause of the sale. Putting it another way, that the sale was brought about by the agent's instrumentality ( Ryan v Horton (1911) 12 CLR 197). This case is also authority for the proposition that the agent claiming commission bears the onus of proving he was the or an effective cause of the transaction (at 203). What the respondent has to show is that his efforts continued to influence the purchaser in its eventual decision to buy. In effect, the agent has to prove that his initial efforts flowed through to Wan thus causing the ultimate sale ( Moneywood Pty Limited v Salamon Nominees Pty Limited [2000] 202 CLR 351). The question is whether Wheeler's efforts continued to influence Kemayan to purchase the hotel. 40 Also involved in this is what inferences might legitimately be drawn as to Mr Reed's role. Was his an independent introduction to the property or did he merely build on Mr Wheeler's previous efforts? 41 The difficulty for the respondent is the absence of evidence from Mr Wan and Reed and the small amount of relevant material advanced by Mr Hor in his evidence, which did little to help Mr Wheeler's case. These gaps can only be filled by properly available inferences from the proven facts. 42 It seems to me that it is not an available inference from the evidence that the purchaser, Mr Wan, who had no contact with Mr Wheeler whatsoever and only received information from Mr Hor, continued to be influenced by Mr Wheeler's efforts. It is clear that Mr Reed worked hard on Mr Wan over a number of weeks. He was able to bring Mr Wan from an undocumented verbal offer of $25 million to a serious written offer of $29,150,000 and then up to an offer of $29.7 million, very close to the $30 million the appellant had been seeking. 43 The appellant submitted that the evidence is plain that it was Mr Reed's work on price which brought about the sale and not the original efforts of Mr Wheeler in introducing Kemayan to the property, which had ceased to have a role. 44 By the end of August 1996 it is obvious that Mr Wheeler had given up his efforts. His efforts were spent. The impediment was price. He understood that Mr Wan was stuck on $25 million and the vendor on $30 million. There was, in effect, no room for him to move. But it was Mr Reed whose efforts closed this gap to a final agreed price of $29.7 million, giving a net figure of $29.4 million to the appellant. 45 It is simply insufficient to rely on the introduction alone and the verbal offer of $25 million. Given the impediment of price it was Mr Reed and not Mr Wheeler who bridged the gap. To my mind, it cannot be inferred from the evidence that Mr Wheeler's efforts flowed through to Mr Wan, when he made the ultimate offer of $29.7 million which was accepted by the vendor. It cannot be inferred that Mr Wheeler's efforts continued to influence Mr Wan to buy the property. To use the words of Brereton J in Baker v Leonard Oades Pty Ltd [1964-5] NSWR 1745, the yeast of Mr Wheeler was no longer working. 46 As to Mr Reed's participation, it seems to me that it cannot be inferred from the evidence that his introduction to the property and the purchaser was not an independent one or that he simply built on Mr Wheeler's earlier efforts. I say this particularly because Mr Wheeler gave up on the issue of price. It was Mr Reed who worked successfully to bridge this gap. The suggestion that Mr Reed was merely building on the back of Mr Wan's original offer of $25 million should be rejected.

47 As to what Mr Wan would have told Mr Reed of his prior knowledge of the hotel, it is difficult to speculate. He may well have told him that he was aware of the hotel and that he had made an offer of $25 million. But this does not lead to an inference that this flowed into his ultimate decision to purchase the property for $29.7 million. That, it appears to me, was the independent work of Mr Reed, Mr Wheeler having given up on the obstacle of price.

48 In my opinion, the respondent has not discharged the onus on it of proving that Mr Wheeler's efforts were an effective cause of the sale. On the state of the evidence it was Mr Reed who was the effective cause. While it is possible that two agents are each, independently, an effective cause of sale, and thus two agents are entitled to commission, this is not one of those rare cases. (see discussion in L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52, per Barwick CJ at 61 and Jacobs J at 86.)

49 His Honour embarked on no reasoning process in his conclusion in favour of the respondent. He gave no real reasons for his conclusion that Mr Wheeler was an or the effective cause of the sale. He was, of course, obliged to give adequate reasons. In that circumstance this court is entitled to form its own conclusion on the evidence, which was within a reasonable compass and can be viewed by accepting the respondent's evidence wherever there was a disagreement with that of the appellant's witnesses. This court is in as good a position as the trial judge to draw inferences from the proven facts. 50 Accordingly, I am of the view that the appellant is entitled to succeed on the appeal and it is unnecessary to examine any other issue. His Honour's verdict and judgment should be set aside and a verdict and judgment entered for the appellant.

Orders 1. Appeal allowed 2. Verdict and judgment of the trial judge is set aside and in lieu thereof there be a verdict and judgment entered for the appellant. 3. The respondent to pay the appellant's costs of the proceedings appealed from and the appeal but receive a Suitor's Fund certificate with respect to the appeal, if otherwise entitled.

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