Netline Pty Ltd v QAV Pty Ltd [No 2]

(2) I would not grant specific performance of the agreement, and would order damages to be assessed.

1. His Honour then set out the relevant facts as follows:
   1. On or about 1 February 2008, the Owners of Ascot Village Strata Plan 46542 (the Strata Company) and the Manager, as letting agent, entered into an agreement entitled Letting and Services Agreement.
   2. Under this agreement, the Manager agreed with the Strata Company that the Manager would offer letting services and other ancillary services for lots 1 ‑ 37 in the Ascot Village complex.
   3. The agreement was for a term of five years, with three further terms each of five years. The effect of cl 3 is that the agreement is automatically renewed for each further term unless either the Manager gives the Strata Company three months' written notice prior to the commencement of the further term of its intention to terminate the agreement, or the Strata Company gives a termination notice under s 39A of the Stata Titles Act 1985 (WA) (the Act), terminates the agreement under cl 9, or terminates the Caretaking Agreement (referred to below).
   4. Under the Letting and Services Agreement, there are two forms in which the Manager can provide letting and ancillary services to lot owners. One is under a fixed return arrangement, and the other under a split return arrangement in accordance with sch 2 to the Letting and Services Agreement.

1. On 19 February 2008, the Owners entered into a contract to acquire the Premises.
2. On 29 February 2008, the Owners and the Manager entered into an agreement entitled Appointment of Letting Agent - Split Return (the Split Return Agreement). Under this agreement the Owners appointed the Manager until termination under cl 9 to be sole agent for the Owners to let the Premises and provide the letting services set out in cl 4 (the Letting Services), and to provide Ancillary Services detailed in items 2.1 and 3.1 of the schedule. The agreement provides for the payment of fees in accordance with the schedule.
3. Clause 4 provides that:

(a) offer the Premises for rent as short‑stay accommodation on behalf of the Owners;

(b) let and manage the Premises competently and diligently;

(c) endeavour to maximise the rental income for the Premises in the circumstances of the prevailing rental market;

(d) where applicable and with the cooperation and assistance of the Owners, set and maintain standards and services in relation to the star rating for the Premises established periodically by tourist accommodation rating authorities such as the RAC;

(2) the Manager must account to the Owners within 14 days of the end of each month for charges and details of Ancillary Services performed and charges and details of Letting Services performed and rental income derived.

1. In the course of his reasons his Honour found there was a fiduciary relationship between the plaintiffs and the defendant. He also found that the relationship had broken down entirely. For present purposes it is not necessary to detail why the relationship failed. But, it is important to note the relationship between the plaintiffs and the defendant was toxic. The plaintiffs accused the officers of the defendant of engaging in criminal conduct. Reports were made to various public agencies including the police. The defendant, for its part, took defamation action against the plaintiffs. Despite the fact his Honour's judgment was delivered over four years ago it would appear the relationship between the parties has not healed.
2. One issue which was not dealt with by his Honour was the question of whether or not the contractual relationship between the plaintiffs and the defendant had come to an end. His Honour found the defendant had no right to terminate the contractual relationship and it might be thought that, although specific performance of the contract was not ordered, the repudiation by the defendant had not been accepted and the contract continued in force. That seemed to be the position of both parties up until closing submissions. By that stage both parties accepted the contract came to an end on the delivery of his Honour's judgment on 2 April 2015. The reasons why that is so are not presently of concern. What is important is the fact the contract actually terminated as at 2 April 2015.
3. At that point the parties were in legal limbo. The plaintiffs had no right to call on the defendant to offer letting services. For their part the defendant had no right to let the plaintiffs' apartment and generate income. For the first and only time throughout this litigation the parties reached an agreement. It was reduced to writing in a document titled 'Residential Tenancy Agreement'. A copy of that agreement appears as attachment SK5 to an affidavit of Sidney Charles Knell sworn 5 April 2019. Effectively the agreement was a fixed return agreement - the parties agreed the defendant would pay the plaintiffs a fixed sum for the use and occupation of their unit. The agreement was entered into on 15 April 2015 and was for a period of three months. As a letter from the defendant to the plaintiffs dated 2 April 2015 (attachment SCK‑02‑01 to the affidavit of Mr Knell sworn 16 April 2019) makes clear the purpose of this agreement was to allow the parties to sort out what was to happen next.
4. On 16 June 2015, the defendant wrote to the plaintiffs solicitors making two proposals in relation to the plaintiffs' unit (see attachment SK‑02‑02 of Mr Knell's 16 April 2019 affidavit). The first was what was described as a 'slightly modified form of split return'. The alternative was a fixed return lease which Mr Knell (the author of the letter) described as 'the same as our normal Fixed Return offer'. So in other words what was being offered was either a reinstatement of the split return agreement shorn of its fiduciary aspects or a fixed return agreement.
5. The plaintiffs clearly found themselves in a very difficult position. The decision of Beech J had for them been a pyrrhic victory. Although his Honour found the contract remained on foot, the relief which the plaintiffs sought - that is specific performance - was not ordered. That meant they owned a unit in a complex where all of the other units were managed by the defendant. It was not practical for the plaintiffs to manage the unit themselves - they would have had to arrange to take bookings, receive guests, run an accounting system and so on. They really could do nothing but use the services of the defendant. The fact they sought specific performance of the agreement bears that out. So, they were faced with accepting one of the two alternatives offered by the defendant. (In the same correspondence the defendant offered to purchase the plaintiffs' unit. That offer was not accepted and neither party saw that non‑acceptance as in any way relevant to the assessment of damages).
6. There then followed an email exchange between the plaintiffs' solicitors and the defendant's solicitors. The first of these emails which is relevant was sent by the plaintiffs' solicitors to the defendant's solicitors on 10 July 2015. That email is in the following terms:

My clients accept the proposed under the heading 'Our offer' on page 3 of your client's letter of 16 June 2015, subject to the following:

1. My clients can terminate the tenancy by giving 30 days notice at any time after delivery of the Masters reasons, such notice only to be given if my clients have sold the property and need to be able to give vacant possession to the purchaser.
2. In that event, your client must pay to my client the full amount of rent that would have been paid for the balance of the period to 31 January 2018, such payment to be made as a lump sum to be paid no later than 7 days after the termination of the tenancy.

It seems to us that these are reasonable terms and the second proviso is consistent with the proposition that my clients' damages could be discounted by the amount of the rent offered by your client to the extent it would represent mitigation of my clients' losses. Hence, consistent with the measure of damages, your client would need to pay the balance of the rent if the tenancy is terminated.

I look forward to your response. My clients would give favourable consideration to extending the current tenancy for say 14 days to enable further time for discussion.

1. That counter offer was rejected the same day by an email sent from the defendant's solicitors to the plaintiffs' solicitors. On 13 July the plaintiffs' solicitors sent an email to the defendant's solicitors which was to the following effect:

I confirm that my clients are prepared to proceed on the basis of the first proposal outlined in your email, ie fixed return ($589 per week).

1. The agreement was never reduced to writing. But, it was common ground between the parties that the agreement reached in the email exchange was implemented and continues. During the course of his evidence Mr Lance said that his solicitors were not authorised to accept the defendant's offer and he did not regard it as binding. Whatever may be his personal views, it is clear an agreement was reached. Counsel for the plaintiffs did not suggest otherwise. In his evidence Mr Knell said that the defendant 'has continued to use the Apartment as a short term Serviced Apartment exactly as it did before the matter proceeded to Court. Again, there was no break in continuity': see paragraph 13 of Mr Knell's affidavit of 5 April 2019.
2. It is clear the contractual relationship between the parties is in effect the fixed return agreement shorn of the fiduciary relationship. In fact it is possible the relationship between the parties is so close to what persisted prior to the termination of the original agreement that there are in fact fiduciary duties owed by the defendant to the plaintiffs. But neither party argued for that position. Counsel for the plaintiffs during the course of his closing submissions, when I questioned him about the contractual position, said the evidence was a contract between the plaintiffs and the defendant in the nature of a residential tenancies contract. He accepted that contract could probably be terminated on one month's notice. Counsel for the defendant was of the same view. Where counsel differed was the consequences of that finding as to the contractual position.
3. The plaintiffs submitted the circumstances of this case was such that they had no choice but to enter into some form of agreement with the defendant. In choosing the fixed return agreement they were taking steps to mitigate their loss. But the acceptance of that agreement did not otherwise compromise their claim for damages. The plaintiffs maintained they would have received more under the split return agreement than they received under the now prevailing fixed return agreement. They were therefore entitled to damages. They had not, by accepting the present arrangement, compromised their position.
4. The defendant took entirely the opposite approach. It said as of 2 April 2015 there was no contract between the plaintiffs and the defendant. The defendant acknowledged that consequent upon the decision of Beech J's decision the plaintiffs had an entitlement to damages which arose out of a failure on the part of the defendant to perform the contract. A necessary concomitant of that right to damages was an obligation on the part of the plaintiffs to mitigate their loss. At that point there were a number of possibilities. One possibility was that the defendant simply refused to deal with the plaintiffs and left them to make what use they could of the unit. The plaintiffs would then have been obliged to use their best endeavours to obtain an income from the unit. But if, as seems likely, the logistics were such that renting the unit was not possible then the plaintiffs were entitled to damages being the difference between what they actually received as income for the unit and what they would have received under the agreement in place prior to April 2015.
5. Another alternative, and one which actually occurred, was that the plaintiffs could enter into a contractual relationship with the defendant - a new contract - which would provide them with income. When this option was offered the plaintiffs really had no alternative but to accept one or other of the proposals put to them. Had they had not done so they would not have been mitigating their loss. The plaintiffs fully appreciated they could not manage the unit themselves. So they accepted what was in effect a fixed income agreement. But they could have accepted the split return agreement. The fact they decided on the fixed income agreement rather than the split return agreement was their decision and any difference in income between the two agreements was a matter for the plaintiffs. They made an election and they must live with the consequences.
6. In response to that, the plaintiffs say they were not in a position to trust the defendant and if they had accepted the split income agreement it would, of necessity, have depended for its efficacy on the honesty of the defendant. They say they were therefore justified in accepting the fixed income agreement and any difference in income between the two agreements should sound in damages. It should be noted when I use the word 'trust' in this context I am not referring to any fiduciary relationship between the parties. The plaintiffs say, and I accept, they did not 'trust' the defendant in the non‑legal sense that word is generally used.
7. To complete the picture regarding the arrangements between the plaintiffs and the defendant I should refer to a Deed Poll entered into by the defendant. Because of its importance to the outcome of this application I will quote the deed poll in full. (It is exhibit 3):

TO ALL TO WHOM THESE PRESENTS SHALL COME, QAV PTY LTD ACN 108 230 922 of Unit 1/75 Longland Street, Newstead in the State of Queensland sends greeting:

1. QAV PTY LTD ('QAV') is a defendant in proceedings in the Supreme Court of Western Australia matter number 1289/2014:
2. Netline Pty Ltd and Kathryn Isabel Harris are the Plaintiffs.

1. The Plaintiffs seek damages for determination of an agency agreement in 2013:

1. The Plaintiffs were, at the time of the conduct terminating the above‑mentioned agreement, receiving payment pursuant to a Split Return agreement, as opposed to a Fixed Return arrangement, according to the terms of the above-mentioned agreement:
2. The Supreme Court of Western Australia determined that the contract was wrongfully terminated and awarded damages to be assessed with no order for specific performance:
3. Immediately after the Supreme Court of Western Australia provided reasons for judgment, QAV sought to continue the arrangements on an interim basis to permit the Plaintiffs to transition to new arrangements:
4. In the course of time, it became clear that the Plaintiffs wished to accept a return based on the above-mentioned fixed return agreement and did not wish to proceed under an alternative that would have provided a return in the nature of a Split Return arrangement referred to above:
5. Accordingly, the Plaintiffs have been operating under a fixed return arrangement after the bringing down of the reasons for judgment referred to above:
6. In the result, QAV believes that the Plaintiffs are not entitled to any amount in excess of the Fixed Return which has been provided to them, because a Fixed return was an Option under the Agreement which was wrongfully terminated, and the Plaintiffs have taken that option:
7. Nevertheless, QAV has determined to enter this Deed Poll through an abundance of caution, so that the matter of mitigation of loss can be carefully considered by the learned judicial officer, assessing the damages:

1. QAV covenants with Netline Pty Ltd and Kathryn Isabel Harris, the Plaintiffs, that it will pay the amount calculated under the formula set out in the First Schedule to the Plaintiffs, with the deductions made shown in the First Schedule for as long as QAV holds the management of the property under the Letting and Services Agreement dated 1 February 2008 any renewal and extension thereof up to and including the 31 January 2028.
2. QAV will ensure that the payments are made, even if it has assigned its rights under the Letting Authorisation Agreement.
3. Any such payment as abovementioned is dependent upon the Plaintiffs making Unit 107 in the complex at Perth Ascot Central Apartments available to QAV as their tenant, in consideration of the payment and the terms of the letting as set out in the Second Schedule. It is intended that the terms in the Second Schedule are in the same terms as are presently provided.
4. All costs of and incidental to the preparation of this Deed Poll are to be borne by QAV.
5. This Deed Poll is to take effect immediately upon execution and delivery will be effective upon the provision of a copy of this Deed Poll to the Plaintiffs or their solicitors.
6. QAV consents to the non-exclusive jurisdiction of the Supreme Court of Western Australia respecting this Deed Poll.

IN WITNESS WHEREOF THIS DEED POLL IS EXECUTED ON THE FOURTEENTH DAY OF JUNE, 2019 IN ACCORDANCE WITH S.127(1)(b) OF THE CORPORATIONS ACT AS A DEED UNDER THE HAND OF A DIRECTOR AND SECRETARY

We are prepared to offer a monthly fixed return along the same lines as the plaintiffs have enjoyed since on or about April 2015. This amount is less furniture charges and any other charges covered in the conditions of the lease as Schedule 2.

In respect to the forthcoming Six Months - the rent offered to the plaintiffs will be $452.04 per week. This figure is derived by examining the RMS Room Income Summary Report which shows the accommodation income derived for each of the 36 Dual Key Apartments in the complex. For example, the average monthly income after taking 45% of that income as the owners return between 1st December 2018 to 31st May 2019 is $23,506 or $452.04 on a weekly basis.

At the end of this six month period we will do another calculation under the same basis and offer the plaintiffs a weekly rental again by examining the RMS Room Income Summary Report for the previous six months, working out the average weekly income after taking 45% of that income as the owners return.

The Defendant is willing to offer a fixed weekly return on this basis on an ongoing basis until 31st January 2028 or until the Plaintiff sells the Lot or the Defendant no longer operates the On Site Letting and Caretaking Taking Agreement.

1. In my view the defendant has made good its defence to the plaintiffs' claim. I am satisfied the present arrangements reflect the plaintiffs' decision to enter into a fixed return agreement rather than a split income agreement. That was their election. If they had gone the other way they may have been better off. But it was their choice. While I accept they did not trust the defendant I am not satisfied that faced with two choices they could not have accepted the split return agreement. After all, the thrust of the plaintiffs' action before Beech J was an attempt to maintain the status quo - that is the split income agreement. It is inconsistent for them to advance that case on the one hand and then, having been unsuccessful in obtaining the specific performance order to not accept effectively what they wanted when it was actually offered to them.
2. In the end result then I am not satisfied the plaintiffs are entitled to any awarded damages. That means it is unnecessary for me to canvass the extensive expert evidence which was tendered by the parties. But I would make this observation. In his closing submissions, counsel for the plaintiffs, in his usual careful and methodical way, calculated the damages he said should be awarded to the plaintiffs based upon the most favourable view, so far as the plaintiffs were concerned, of the expert evidence. The figure he arrived at was $443,753. The amount the plaintiffs are presently receiving is approximately $450 per week. That amounts to approximately $22,500 per annum. The total return then for the next eight years would be in the region of $180,000. To suggest the plaintiffs should get that amount plus a further additional payment of almost $450,000 is simply unreasonable. The fact is the plaintiffs are getting a return now which is commensurate with what they would have got had they had been successful in obtaining an order for specific performance.
3. There is one final matter. During the course of his closing submissions, counsel for the defendant conceded the plaintiffs were entitled to an amount in relation to furniture rental. The figure quoted at that time may now be out of date and it should be updated. The orders I make will reflect that payment. However, with respect to the claim for damages, I would fix the plaintiffs' entitlement at a nominal $10.
4. I will hear from the parties as to the form of orders and as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CITATION : NETLINE PTY LTD -v- QAV PTY LTD [2020] WASC 23 (S)

Costs - Assessment of damages - Defendant largely successful - Turns on own facts

The plaintiffs pay the defendant's costs on a party-party basis

Brookvista Pty Ltd v Meloni [2009] WASCA 180

Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397

Netline Pty Ltd v QAV Pty Ltd [2020] WASC 23

1. These reasons deal with the issue of costs subsequent to my assessment of damages: see Netline Pty Ltd v QAV Pty Ltd [2020] WASC 23. I assessed the plaintiffs' entitlement to damages at a nominal $10. After delivery of my reasons the parties conferred and managed to reach agreement save as to costs. The plaintiffs concede they should pay the defendants' costs of the assessment of damages. The defendants say they are entitled to costs on a full indemnity basis.
2. Central to the defendants' submissions is reliance upon the decision of the Court of Appeal in Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115. That case concerned a Calderbank offer. In this case there was no such offer and for that reason (and other reasons) the plaintiffs say indemnity costs are not appropriate. For its part, the defendant does not point to a specific letter which could be characterised as a Calderbank offer. Rather, they say the principle in the Lo Presti decision can be adapted to the facts of this case so that offers to settle which were made have the same effect as a Calderbank offer.
3. The principles the defendant would draw from the Lo Presti decision are as follows:
   1. the mere fact that the recipient of a Calderbank offer is ultimately worse off than he or she would have been had the offer been accepted does not mean that its rejection was unreasonable;
   2. in determining whether conduct is 'reasonable' or 'unreasonable' involves matters of judgment and impression;
   3. matters to be considered are the stage of the proceeding at which the offer was received, the time allowed for the offeree to consider the offer, the extent of the compromise offered, the offeree's prospects of success assessed at the date of the offer, the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs if it was rejected;
   4. the party who makes the Calderbank offer that is rejected bears the onus of satisfying the court that it should make an award of indemnity costs; and
   5. there is no basis for qualifying the concept of 'unreasonableness' by words such as 'manifestly', 'plainly' or otherwise.
4. Against that background the defendants submit offers were made almost immediately after the determination that there was to be an assessment of damages. The offers were made over a lengthy period and there were repeated invitations to settle. The offers made were generous in that they gave the full financial equivalent of the contract the plaintiffs had lost. Objectively assessed, the defendant says the plaintiffs had little prospect of success, particularly in the light of the amount sought. The offers were clearly expressed. The defendant concedes it never advised the plaintiffs that if the offers were rejected an application would be made for indemnity costs.
5. On behalf of the plaintiffs it was emphasised that there was no Calderbank offer which was rejected. Indeed, the plaintiffs say it is arguable that in reaching an accommodation with the defendant pursuant to which the unit the subject of the dispute was rented out an offer was actually accepted. But the prime submission is that the principle applicable to a Calderbank offer simply do not apply in this case because there was no such offer.
6. Counsel in his written submissions also makes the point that there can be no suggestion the plaintiffs' case was hopeless such that it falls within the principles of Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 [401] (Woodward J). Furthermore, there was no improper or unreasonable conduct on behalf of the plaintiffs such as would justify an order for indemnity costs: Brookvista Pty Ltd v Meloni [2009] WASCA 180 [32].
7. In the end, I am satisfied the plaintiffs' arguments should be accepted. I am not satisfied there was a Calderbank offer made by the defendant in the sense those offers are usually understood. Furthermore, the plaintiffs' case was far from hopeless. It was very carefully presented and while ultimately unsuccessful, it merited careful consideration. It should also be borne in mind that the assessment of damages was necessitated by the defendant repudiating a contract when it had no grounds for doing so. I accept the original proceedings are separate and distinct from the assessment of damages. But it remains the fact that the assessment of damages was necessitated by the inappropriate conduct of the defendant.
8. In all the circumstances, I am satisfied an order in terms of the plaintiff's minute ought be made. I make the following orders:

(a) The defendant pay the plaintiffs the sum of $10.

(b) The defendant pay the plaintiffs the sum of $14,987.76 in respect of the furniture rental charges.

(c) The defendant pay the plaintiffs interest on the sum of $14,987.76 at the rate of 6% per annum pursuant to s 32 of the Supreme Court Act 1935 (WA) from 26 May 2015 until payment in full.

(d) The plaintiffs pay the defendant's costs with respect of the assessment of damages, to be taxed, if not agreed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.