Laoulach v Lee Commercial Investments

DECISION : See para 60 of the judgment.

CATCHWORDS : REAL PROPERTY - Injunctions - Defendant agreed to pay third party commission on sale of lots of property in Queensland - Third party not licensed as real estate agent in Queensland - Third party agreed to assign to first plaintiff commission payable by defendant - Defendant disputed obligation to pay first plaintiff commission - Defendant and third party executed irrevocable authority agreeing to pay first plaintiff commission - Where irrevocable authority allegedly executed by person acting without authority of defendant - Where irrevocable authority allegedly procured through duress - Where irrevocable authority allegedly invalid for failure of consideration - Whether serious question to be tried that defendant bound by agreement to pay first plaintiff - Whether serious question to be tried that first plaintiff entitled to injunctions restraining defendant from distributing proceeds of sale of lots of property - Interlocutory relief granted - PRACTICE & PROCEDURE - Cross-vesting - Application for transfer of proceedings to Supreme Court of Queensland - Section 5(2)(b) Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) - Where balance of convenience as to parties and witnesses even - Where subject matter of proceedings is land in Queensland - Where resolution of proceedings likely to involve interpretation of Queensland statute for which there is no New South Wales equivalent - Whether Queensland is the "more appropriate forum" - Application for transfer of proceedings granted.

Jurisdiction of Courts (Cross Vesting) Act 1987 (NSW) LEGISLATION CITED : Property Agents and Motor Dealers Act 2000 (QLD) Property Law Act 1974 (QLD) Trade Practices Act 1974 (Cth)

CASES CITED : Wigan v Edwards (1973) 1 ALR 497

Badui Laoulach PARTIES : v Lee Commercial Investments

COUNSEL : Plaintiff: D Allen Defendant: T Maltz

SOLICITORS : Plaintiff: Proctor & Associates Defendant: Jackson Smith Solicitors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

2837/06 Baudi Laoulach & Anor v Lee Commercial Investments Pty Ltd JUDGMENT 1 HIS HONOUR: Yesterday in the duty judge list I heard two applications in these proceedings. The first is an application by the first plaintiff, Mr Baudi Laoulach, for injunctions until further order restraining the defendant, Lee Commercial Investments Pty Limited, from distributing the net proceeds of sale of 13 lots in a real estate development in Hillview Road, Bowen, Queensland up to an amount of $212,000. He also seeks interlocutory orders restraining Lee Commercial from further encumbering those lots. 2 The second plaintiff, Ray L Developments Pty Limited, seeks an order that Lee Commercial be restrained until further order from terminating contracts for the sale of two lots in the development to it. 3 The second application is brought by Lee Commercial. It seeks an order pursuant to subs 5(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) that these proceedings be transferred to the Supreme Court of Queensland. 4 On 22 May 2006, I made orders by consent in substance in the form now sought by the plaintiffs to operate up to 4.00 pm yesterday. I extended those orders to today in order to give judgment this morning. 5 Lee Commercial's position was that it was prepared to consent to the extension of the orders made on 22 May 2006 for a few weeks if the proceedings were transferred to the Supreme Court of Queensland, with a view to that Court determining the plaintiff's claim for interlocutory relief. However, it appeared to me that the same material would need to be considered on each application, if only to ascertain the issues, the subject matters upon which evidence is likely to be adduced at a final hearing, and who are the probable witnesses. Moreover, as the application for interlocutory relief was ready to proceed, it was appropriate that it be dealt with. Application for Interlocutory Injunctions 6 I will deal first with the plaintiffs' application for interlocutory injunctions. The plaintiffs' case, which is supported by evidence on affidavit which has not yet been tested, is that Lee Commercial was a developer of eighteen lots of property in Bowen in Queensland. On 14 December 2004, it made an agreement with a company called Investment Realty Pty Limited to pay commission on the sale of lots in the development. The agreement provided for Investment Realty to market and sell the lots. It was described as an exclusive agency up to 7 February 2005. The so-called commissions were the difference between a stated price to be received by the vendor and whatever contract price was achieved. The agreement provided that $5,000 of such commissions would be payable within seven days of exchange. If all the lots were not sold by 7 February 2005, no further commission would be payable and Lee Commercial would retain all future commission and profits. 7 Investment Realty carries on business in New South Wales. It was not licensed as a real estate agent in Queensland under the Property Agents and Motor Dealers Act 2000 (Qld). I was told it was registered as a real estate agent in New South Wales. 8 The agreement between Investment Realty and Lee Commercial was negotiated between Mr Michael El Khoury, on behalf of the Investment Realty, and a Mr Barry Richardson, on behalf of Lee Commercial. It appears to have been signed by a director of Lee Commercial, Ms Robyn Lee. 9 Mr El Khoury said that he arranged for the sale of fifteen lots in the development, although as at a 7 February 2005 only one lot was under contract. 10 On 25 August 2005, an agreement was made between Mr Laoulach, Investment Realty and a Mr Robert El Khoury. The agreement recited that Investment Realty "acknowledged" that commission of $312,000 was payable to it, that it had borrowed $380,000 from Mr Laoulach and that it had agreed to repay those moneys on receipt of commission for the sale of the development in Hillview Road, Bowen. 11 The only operative provision of the agreement was that Mr El Khoury guaranteed repayment of the debt. However, Mr Laoulach asserts that Investment Realty had agreed to assign to him the commission payable to Investment Realty by Lee Commercial. The subsequent conduct of Investment Realty appears to corroborate that assertion. 12 The plaintiffs' evidence is that by August 2005, there was a dispute in relation to the commission. Lee Commercial maintained that Investment Realty was not licensed in Queensland and not entitled to commission. It also maintained that the question of commission was no business of Mr Laoulach. It was a matter to be sorted out between Mr El Khoury and Mr Richardson. 13 On 8 September 2005, a meeting was held in Sydney attended by Mr Richardson, representing Lee Commercial, Mr Laoulach, Mr El Khoury of Investment Realty, an architect, Mr Brandon, and a Mr Hammer. Lee Commercial says, and the plaintiffs deny, that another person, whom Lee Commercial calls "an enforcer", was also present. 14 The plaintiffs' evidence is that at this meeting Mr Laoulach's claim as assignee of a debt owed by Lee Commercial to Investment Realty for commission was compromised. Mr Laoulach says that it was agreed that Lee Commercial would not pay $312,000 claimed by Investment Realty. Instead it would pay Mr Laoulach $212,000 from moneys received on the settlement of the contract of the properties, and agreed to charge its interest in the properties with that debt in favour of Mr Laoulach. 15 According to Mr Laoulach, during the meeting Mr El Khoury and Mr Richardson discussed figures and after that discussion, the following conversation occurred: "… Michael El Khoury said: 'On 15 blocks you will pay me $212,000' Barry Richardson said 'OK, I have to verify it with Roger Johanson.' I said, 'The debt is my debt, I want you to prepare an irrevocable authority so that we all agree here. That debt becomes a debt between me and Lee Commercial. It is not commission it is a debt. I also want a caveatable interest and a charge on the properties to ensure I get paid.' Barry Richardson said, 'Yes, I will get Rod Johanson to secure your money.' He then left the room and came back about 5 minutes later. About an hour later a fax came in. I do not have a copy of this. I rejected this document and Barry Richardson telephoned Roger Johanson. The phone was handed to David Hammer, who said, 'Roger stop playing games (sic) you know what we want in the document. Lets make it nice and simple.' Shortly after another facsimile arrived. We all agreed that it what (sic) we wanted. The document arrived with a signature on it above the words 'Lee Commercial'. I saw El Khoury and David Hammer sign the document … " 16 Mr Laoulach contends that to give effect to the agreement, Lee Commercial and Investment Realty executed the document called an irrevocable authority. It consisted of four pages. The first page bears the heading "irrevocable authority". It was drafted and signed by Mr Johanson for Lee Commercial. He is Lee Commercial's solicitor. It was signed by Mr El Khoury for Investment Realty. The document states: "Investment Realty Hereby Irrevocably and for value authorize you to pay to BAUDI LAOULACH on the settlement of each lot sold by us for you of a land lot at Lot 55 Hillview Road, BOWEN QLD [currently part of Lot 55 RP 749213 County Herbert Parish Pring], amounts equal to the commission due to Investment Realty Pty Ltd as shown on the attached schedule provided valid Tax Invoices are issued by our company to you. Lee Commercial Investments Pty Ltd also charges its interest in any block of land so sold, on and from the date of registration of the plan of subdivision creating the lot, with the obligation to meet the payment aforesaid. This authority is intended for the benefit of BAUDI LAOULACH for the purposes of Section 55 Property Law Act."

17 This document was faxed by Mr Johanson to Mr Richardson in Sydney having first been signed by him. Three pages were then attached and signed by Mr Richardson and Mr Hammer. One page listed the contracts and contract prices for various lots. Another page listed what were called "net prices" for lots, presumably the prices to be kept by Lee Commercial. One page was a calculation of so-called commission totalling $212,120, without commission of $30,000 in respect of each of lots 14 and 16, or $272,120 inclusive of those lots. 18 The defendant says there is a not a serious question to be tried that it is bound by an agreement to pay Mr Laoulach amounts totalling $212,000 from the settlement of 13 lots in the development in accordance with the schedule attached to the irrevocable authority signed by Mr Richardson. 19 First, it says that Mr Richardson had no authority to enter into such an agreement. He was not director or an employee of Lee Commercial. The plaintiffs were aware of this. However, on the plaintiffs' evidence, there had been reasonably extensive dealings with Mr Richardson, with him acting on behalf of Lee Commercial. On the plaintiffs' evidence, Mr Richardson came to Sydney for the purpose of negotiating a resolution of the dispute concerning commission. The extent of his actual authority will be an issue to be decided at the final hearing. 20 No question was raised before me as to the authority of Mr Johanson to take the steps he did on behalf of Lee Commercial on 8 September 2005. The document, which he signed on behalf of Lee Commercial, provided for a schedule to be attached showing the commission due. The document was sent to Mr Richardson when it was known that it was required for the purposes of a meeting then being held at which Mr Laoulach was present. It is reasonably arguable that Lee Commercial, through Mr Johanson, held out Mr Richardson as having authority to complete and sign the schedule to be attached to the irrevocable authority on behalf of Lee Commercial. 21 Next, Lee Commercial says that the agreement was procured through duress. Mr Johanson deposes that Mr Richardson told him, and Mr Hammer later confirmed, that he was being subjected to threats of physical injury if the matter was not resolved then and there. 22 He says that Mr Richardson told him that a "fellow" had been brought along who was identified as an enforcer. This "fellow" said nothing, but his presence was threatening. Mr Johanson said that this was the reason why he faxed the irrevocable authority. 23 It is not possible to decide the issue of whether duress was applied on this interlocutory application. That will also be a question for final hearing. The allegation of threats is denied. There is no evidence that the allegation was raised before it was included in Mr Johanson's affidavit. On the application before me, Lee Commercial did not read any affidavit from Mr Richardson, although the application was served on the defendants on 19 May 2006. During the hearing I was told that the defendant's solicitors had received a faxed copy of an affidavit from Mr Richardson. This was before the hearing concluded. The defendant elected not to seek leave to reopen to read that affidavit. In these circumstances, the untested allegations of duress do not prevent there being a serious question that Mr Laoulach is entitled to the relief sought. 24 Next, the defendant said that there was no consideration for the alleged agreement of 8 September 2005, because no commission was due to Investment Realty. This was because Investment Realty was not a licensed real estate agent in Queensland and therefore could not recover the commission. Alternatively, it was said that Mr Laoulach's rights were as a beneficiary under a contract allegedly made for his benefit between Investment Realty and Lee Commercial, which he could enforce only by virtue of s 55 of the Property Law Act 1974 (Qld). This was the contract containing the irrevocable authority. It was said that the moneys due under the irrevocable authority were only such commission as was due to Investment Realty. No commission was due because Investment Realty was not licensed in Queensland. Further, even if the agency agreements were enforceable, the commission claimed vastly exceeded the maximum amount allowable under the Queensland legislation. Moreover, under the agency agreement, Investment Realty was not entitled to commission on sales made after 7 February 2005, and there was only one such sale. 25 However, these arguments do not answer the way in which Mr Laoulach puts his claim. He maintains that there was a tripartite agreement, which was partly oral and partly evidenced by the document containing the irrevocable authority. It was submitted on his behalf that the agreement involved a compromise of the dispute as to whether Investment Realty was entitled to commission and, if so, in what amount, and the dispute as to whether Mr Laoulach could claim such commission as an assignee. The compromise involved a new agreement under which Lee Commercial acknowledged that the debt showed in the attached schedule was due. 26 As I understood it, the plaintiffs' position is that Mr Laoulach did not claim as a third party beneficiary to the contract between Investment Realty and Lee Commercial. Nor does he claim any such commission as was due to Investment Realty under the agency agreement. Rather, a new debt was created on 8 September 2005. 27 The plaintiffs also say that if the Queensland legislation would otherwise be an answer to the claim that no debt was owing, because Investment Realty was not licensed in Queensland (which itself may be a debateable proposition given that the Investment Realty carried on business in New South Wales and it is said the sales were effected to New South Wales residents), it was misleading for Lee Commercial to have made the promise in the irrevocable authority, and through Mr Richardson to have attached the schedule stating that the amounts of commission were due. 28 The plaintiffs' amended statement of claim contains an alternative count for misleading and deceptive conduct, and for an injunction pursuant to s 80 of the Trade Practices Act 1974 (Cth) to restrain the defendants from relying upon the Property Agents and Motor Dealers Act as a reason not to pay Mr Laoulach. 29 In my view, it is reasonably arguable on the plaintiffs' evidence that a compromise agreement was reached between the three parties to the effect alleged. If so, the question is not what rights Investment Realty had against Lee Commercial, but what obligations Lee Commercial assumed to Mr Laoulach. 30 Assuming, as I do for present purposes, that Mr Richardson and Mr Johanson had authority to bind the defendant and the agreement is not void or voidable for duress, it is arguable that Lee Commercial agreed to pay to Mr Laoulach the amount set out in the schedule attached to the irrevocable authority, totalling $212,120 from the proceeds of settlement of each lot. 31 Lee Commercial also argued that there was no consideration for such a compromise because Mr Laoulach did not have an honest and bona fide belief in his claim against it (Wigan v Edwards (1973) 1 ALR 497 at 512-513). However that itself is a question for final hearing. I could not conclude on this application that there was not a serious question to be tried that Mr Laoulach did have such a belief. 32 The matter is complicated by the fact that on 15 May 2006, Mr Johanson wrote to purchasers or prospective purchasers of four lots. In his letters he stated: "Notwithstanding our prior letters to you suggesting a proposed settlement date and the notice to complete, our client has now instructed us to confirm that no valid contract exists. Our client withdraws from negotiations with your client in respect of the sale of this lot".

33 On 19 May 2006, being the day on which these proceedings were served, the defendant purportedly terminated five other contracts. Curiously, the same solicitors, Proctor and Associates, act for all of these purchasers or prospective purchasers. They also act for the plaintiffs. No submissions were made to as to effect of this correspondence. 34 Questions may well arise whether the defendant was entitled to "withdraw" from the prospective sale of four lots and to terminate the contracts for five other lots, particularly if that were done to deprive Mr Laoulach of commission otherwise payable. It is not necessary to go further into this at this stage, because the interlocutory relief sought only goes to dealing with the net proceeds of sale received by the defendant, or its further encumbering the properties. Whether Mr Laoulach has rights in respect of contracts which have been terminated by Lee Commercial, or in respect of lots where there was no contract for sale, assuming that to be the position, are questions which can be dealt with later. 35 I conclude that there is a serious question to be tried that Mr Laoulach is entitled to the relief he claims. It may be necessary for Investment Realty, which was a party to the alleged tripartite agreement, to be joined to the proceedings, but I do not consider its non-joinder at the this early stage to be fatal to Mr Laoulach's application. 36 The claim of Ray L Developments arises in the following way. It was a purchaser of two of the blocks. Mr Laoulach says that at the meeting of 8 September 2005, Mr Brandon and Mr Hammer claimed that they were owed $65,000. He says that Mr Richardson told them that they would be paid from the Hillview development. According to Mr Laoulach, Mr Brandon said that they would assign the debt to Mr Laoulach and Mr Richardson agreed to pay the debt to Mr Laoulach. Mr Laoulach says that it was later agreed in November 2005, between he and Mr Richardson, that $65,000 would be deducted from the purchase price of the two blocks. That version of the events is not inherently convincing, but it is supported by a letter written by Mr Richardson to Ray L Developments dated 24 November 2005, which states: "This letter serves to confirm that Lee Commercial Investments has received the sum of $65,000 (SIXTY FIVE THOUSAND DOLLARS) in value from RAY L. DEVELOPMENTS, and authorizes the deduction of this amount from the proceeds of sale at settlement of 2 lots in the estate known as HILLVIEW PLACE which are already under contract to RAY L. DEVELOPMENTS."

37 The letter was copied to Mr Johanson. The defendant says that Mr Richardson had no authority to write this letter. It is not necessary to consider this in any detail. Ray L Developments wishes to complete the purchase of the two lots, either by deducting $65,000 from the purchase price, or, if the monies are not so deducted, by its being protected against the $65,000 being dissipated. 38 The contracts were due to be settled on 23 May 2006. Ray L Developments drew cheques for the full amount of the purchase price. According to Mr Johanson, but for the orders made on 22 May 2006, the contracts for those lots would have been terminated. 39 In substance, Ray L Developments seeks an order for specific performance of the contracts. It is willing to perform them according to their proper tenor, whatever that might be found to be, having regard to the letter of 24 November 2005. It is appropriate to continue the restraint against the defendants purporting to terminate those contracts so that that claim can be properly considered. 40 There was little evidence lead on the balance of convenience. The defendant made no submissions about it. There was no challenge to the adequacy of the plaintiffs' undertakings as to damages. As I understand it, each plaintiff gives an undertaking in respect of all of the interlocutory relief sought, even though they have separate causes of action. 41 It appears that the defendant is a trustee. The terms of the trust and the defendant's financial position are unknown. The defendant has one issued share. There are two fixed and floating charges in favour of the financiers registered with the Australian Securities and Investments Commission against it. If the alleged agreement of 8 September 2005 is binding, then Mr Laoulach is entitled to a charge over the lots to secure the debt due to him. There is a risk that if the injunctions are not continued and it is ultimately held that the plaintiffs are entitled to the relief claimed, the plaintiffs may be without effective remedy. 42 The balance of convenience favours the grant of the interlocutory relief sought. For these reasons, upon the plaintiffs' giving the usual undertaking as to damages, I will make the orders sought.

Application for Transfer of Proceedings 43 On the application for transfer of these proceedings to the Supreme Court of Queensland, pursuant to s 5(2)(b)(iii) of the Jurisdiction of Courts (Cross-Vesting) Act, the question is whether this Court, or the Supreme Court of Queensland, is the more appropriate forum, having regard essentially to the same considerations as those specified by the House of Lords in Spiliada v Maritime Corporation [1970] AC 460. The question is essentially a "nuts and bolts" management decision usually made by reference to factors such as those identified by Higgins J in Dawson v Baker (1994) 120 ACTR 11, set out in James Hardy Co Pty Limited v Barry (2000) 50 NSWLR 357 at [95]. 44 The factors relevant to the present case are the balance of convenience to parties and witnesses; the substantive connections with New South Wales and Queensland; and the application of substantive law. 45 As to the convenience of parties and witnesses, the scales are almost evenly balanced. Mr Laoulach is in Sydney. The other attendees of the meeting of 8 September 2005 whom the plaintiff would be expected to call, namely Mr Brandon and Mr Hammer, are in Sydney. Mr El Khoury is also in Sydney. Mr Laoulach's solicitor at the time, Mr Kekatos, who can be expected to be called, is also in Sydney. The plaintiffs say that they propose also to call a finance broker to give evidence concerning the background to the agency agreement, and that he is also in Sydney. 46 There are three current and former directors of the defendant who are expected to give evidence on the question of Mr Richardson's authority. They reside in Queensland. Mr Richardson resides in Queensland, as does Mr Johanson. They are all likely to be called. 47 Whilst the evidence of the three directors appears to go to a relatively narrow issue, namely the authority of Mr Richardson, it can be expected that in determining that issue the relationship between Mr Richardson and the company might be explored in some detail, and is likely to cover a wide period of time. I cannot conclude that the evidence of witnesses to be called from Queensland would be shorter than the evidence from the witnesses in New South Wales, or that there would be any material difference in travel and accommodation cost for one or other of the parties depending upon the State in which the proceedings continue. 48 In this case, the dominant consideration is that the proceedings concern land in Queensland. The second plaintiff's claim is one for specific performance of its contract to purchase Queensland land. Whilst this Court has jurisdiction to deal with all of the matters raised, the subject of the dispute is closely connected with Queensland. Because of that connection, it is almost certain that questions of the interpretation of Queensland statutes will arise. That is so even though, on the way the plaintiffs put their case, those questions may be not be determinative. 49 As an example, the defendant says that there is no consideration for the agreement of 8 September 2005, because no commission was payable to Investment Realty owing to the operation of the Queensland Property Agents and Motor Dealers Act. It is not an answer to this point, in considering what is the more appropriate forum in which the case is to be tried, for the plaintiffs to say that they can succeed even if the defendant is correct. There will still be a question as to whether the defendant is correct. That is to say, there will still be a question as to whether the Act required Investment Realty to be licensed and, if not, what are the consequences of its not being licensed. 50 Questions are also likely to arise in relation to the operation of s 55 of the Property Law Act, which has no New South Wales counterpart. It is desirable that these questions be determined by a Queensland court. 51 I will therefore make orders for the transfer of the proceedings to the Supreme Court of Queensland as sought in the defendant's notice of motion. 52 Questions arose during the hearing as to the circumstances in which it would be open to the defendant to discharge or modify the interlocutory relief ordered. That will be a matter for the Queensland Supreme Court. 53 For these reasons, I make the following orders:

1. Upon the plaintiffs by their counsel giving the usual undertaking as to damages, I order that the defendant be restrained until further order from distributing the net proceeds (being the money which would be received by the defendants on settlement after adjustments and disbursements under the contracts, conveyancing costs, legal costs and the discharge of any encumbrances on the land) from the sale of lots 1, 2, 6, 7 10, 11, 12, 13, 14, 15, 16, 17 and 18 of Hillview estate in Bowen, Queensland, up to the amount of $212,000.
2. That the defendant be restrained until further order from further encumbering lots 1, 2, 6, 7 10, 11, 12, 13, 14, 15, 16, 17 and 18 of Hillview estate in Bowen, without first giving the first plaintiff 14 days' notice in writing.
3. That the defendant be restrained until further order from terminating the two contracts with the second plaintiff for the sale of land known as lots 14 and 16 of Hillview estate in Bowen Queensland.
4. I make an order in accordance with paragraph 1 of the defendant's notice of motion filed on 29 May 2006.
5. I order that the costs of the plaintiff's notice of motion filed on 19 May 2006 and the defendant's notice of motion filed on 29 May 2006 be costs in the proceedings.

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