On 11 December 2020, Ms Liu served lapsing notices on New Island Developments and New Island Apartments. Ms Liu said she took this step as she believed that the caveats had been wrongfully lodged in the first place, at a time when she was a director of New Island Developments and the sole director of New Island Apartments. Ms Liu did not provide any authority for the caveats to be registered on title. Further, the Settlement Agreement prescribed that the Meadowbank Land was to be sold. Ms Liu considered that the caveats would raise concerns in potential purchasers; removal of the caveats would alleviate these concerns and may result in a better sale.
On 17 December 2020, Mr Fu's solicitors wrote, setting out their construction of cl 2.1(e) of the Settlement Agreement, which required agreement between the parties on all terms of the sale of the Meadowbank Land, not just the agency agreement. Consent was sought to the lodgement of further caveats pending sale of the Meadowbank property by noon on 18 December 2020, failing which, further proceedings would be commenced.
On 18 December 2020, Ms Liu's solicitors advised that their client was in a meeting until noon that day, but anticipated providing a response by 1.00 pm. At 1.30 pm, Ms Liu's solicitor responded at length, advising that cl 2.1(e) had been complied with by Ms Liu but, nonetheless, agreed to set a reserve price of $11 million and provided a draft contract of sale, together with Corrs' engagement letter. Ms Liu did not consent to the lodgement of further caveats, noting that the removal of the caveats was "long overdue" and, in fact, "the caveats should never have been lodged". Further, "You have not indicated any aspect of the arrangement for the proposed sale of the property that are not agreed." Mr Fu was asked to advise of any such aspect and what he proposed. For its part, New Island Investment One proposed to provide a schedule of statutory duties and supporting documents on or before 1 February 2021 and confirmed that it would comply with cl 2.1 of the Settlement Agreement regarding the distribution of sale proceeds. If any amounts were in dispute, then such amount could remain in the trust account of New Island Investment One's solicitor, with 30 days' notice to be given of any intention to give instructions to pay the funds out.
At 2.30 pm on 18 December 2020, Mr Fu approached the Duty Judge; orders for short service were made. By Summons, New Island Developments and New Island Apartments sought a declaration that they had a beneficial interest in the Meadowbank property pursuant to a constructive or resulting trust consequent on their contribution to the purchase price of the land. Further, a declaration was sought as to the true construction of the Settlement Agreement. By Notice of Motion, an extension of caveats was sought or, alternatively, leave to lodge further caveats, together with interim injunctions.
On 22 December 2020, the matter came before the Duty Judge. Orders were made by consent and without admission, extending the caveat and injuncting New Island Investment One from entering into a contract for sale of the Meadowbank property. Further, the defendants were to provide the plaintiffs with details of any offer to purchase the property within two business days. Following the making of these orders, Ms Liu's solicitor enquired whether Mr Fu agreed to sale by public auction, whether he agreed to a reserve price of $11 million and the proposed sale price of $12 million plus GST and the like. To the extent that there was disagreement, the reasons were sought, together with alternative proposals. Further, pursuant to cl 2.1(f) of the Settlement Agreement, an update was provided.
On 12 January 2021, Mr Fu's solicitor replied, proposing an alternative regime for the sale of the Meadowbank Land. On 18 January 2021, Ms Liu's solicitor provided an update on the sale. Ms Liu was informed by her solicitor that the plaintiffs had suggested that one way to short circuit the issues would be for the plaintiffs to buy her out. (Mr Creais did not recall whether he initiated the telephone call, but agreed that those words were familiar.)
On 19 January 2021, Ms Liu's solicitor provided a schedule of statutory duties which had been paid in respect of the Meadowbank Land, totalling $350,653.57, with a further $340,108.25 yet to be paid. Supporting documents were provided. Ms Liu's solicitor also responded to the letter of 12 January 2021; Ms Liu did not agree with the alternate regime. A further update on the progress of the sale was provided on 21 January 2021 and 26 January 2021. In particular, the contract for sale had been amended "as the property was used or occupied since [New Island Investment One's] acquisition".
On 29 January 2021, Mr Fu's solicitor replied, pressing for a reserve price to be set and querying the GST position for the sale of the land. Further details were sought in respect of the statutory duties. Clarification was also sought as to the use and occupation of the property since its acquisition, said to have been contrary to previous advice. Ms Liu's solicitor clarified that the earlier update was an error, "We confirm that the Meadowbank Land has not been used or occupied" (emphasis in original).
On 1 February 2021, Ms Liu's solicitor set out proposed procedures for any sale, as directed by Lindsay J earlier that day. The parties continued to correspond on the proposed sales regime. By 10 February 2021, the parties had agreed on the way forward. Ward CJ in Eq made orders by consent and without admission, varying the interim injunctions such that New Island Investment One was permitted to enter into a contract of sale following an auction on 2 March 2021 to the highest bidder at or above the reserve price.
On 11 February 2021, Ms Liu's solicitors provided a further update on the sale process. On 22 February 2021, the parties agreed that the reserve price should be set at $8.8 million excluding GST. As offers began to come in from potential purchasers, details were provided to Mr Fu and comments given. Further updates were sought by Mr Fu and provided.
[2]
Sale
On 25 February 2021, Mr Tao incorporated Olumn Development Pty Ltd. Mr Fu's solicitor made an offer to purchase the Meadowbank Land for $9 million plus GST, with sale as a going concern. On 26 February 2021, Ms Liu's solicitors sought further details in respect of the offer. Mr Fu's solicitor responded, advising that the purchaser would be Olumn Development. Further emails were exchanged as to the precise terms of the offer. The offer was accepted. Emails continued in respect of the terms of a lease between the purchaser and New Island Investment One.
On the evening of 1 March 2021, contracts were exchanged. The property was sold subject to existing tenancies. The purchaser was Olumn Development. The price was $9 million. The auction was cancelled. Further correspondence ensued between the parties in respect of the payment of rent, reconciliation of statutory duties and the upcoming figures to be paid on settlement. Ms Liu attended to payment of outstanding rates, electricity, fire alarm monitoring, water and land tax. Where the parties could not agree on how the proceeds of sale would be paid out, arrangements were made to pay the moneys into Court.
On 14 April 2021, the sale was completed. The settlement statement recorded adjustments to the amount to be paid on settlement in respect of rates, water and land tax. In particular, an adjustment was made to the purchase price to increase the price by the amount of the benefit obtained by the purchaser for the land tax paid to the end of 2021, that is, from 14 April 2021 to 31 December 2021, being $122,674.29. The proceeds of sale were paid into Court, being $8,936,589.79.
On 18 May 2021, Mr Fu filed an Amended Summons, seeking declaratory relief in respect of the payment of the net proceeds of sale. In response, Ms Liu's solicitors advised that they considered that Mr Fu had breached the Settlement Agreement, causing loss and damage. On 12 August 2021, Ms Liu filed a notice of motion seeking leave to file a cross-claim.
The parties corresponded further in respect of the apportionment of the net proceeds of sale, including by reason of "statutory duties" paid by Ms Liu until the Meadowbank Land was sold. A sticking point between the parties was whether the land tax paid by Ms Liu for the period from April to December 2021 should be treated as a "statutory duty" or "relevant tax" under the Settlement Agreement. This affected whether Ms Liu was entitled to be fully reimbursed for this amount before the remainder of the proceeds of sale was divided between the parties, or to receive only her pro rata share of the land tax paid. Following the exchange of without prejudice correspondence, Mr Fu agreed "without admissions to simply get the matter resolved" to permit Ms Liu to deduct post-settlement land tax of $129,254.48 (which included the amount of $122,674.29 plus the accrued penalty interest) from the funds in Court before the balance was split between the parties. On 24 September 2021, Ward CJ in Eq made orders accordingly, also granting leave to the defendants to file a cross-claim, being the matter presently before the Court. The parties were to bear their own costs of their respective motions. The costs of the proceedings to date on the Summons and Amended Summons were otherwise reserved.
[3]
CAUSATION AND LOSS
Ms Liu said she reviewed the proposed agency agreement on 3 February 2020 and was prepared to sign it. Ms Liu considered that the terms of the agreement were standard and acceptable. I note, however, that the very fact that the Knight Frank Sales Inspection Report and Auction Agency Agreement was incomplete rather suggests that, even if Ms Liu was prepared to sign it, the agent may not have been expecting her to, but rather that further details would be provided so that the agency agreement could be completed. Otherwise, Knight Frank was in breach of rules of conduct, which may have amounted to an offence. I infer that Knight Frank had no intention of committing an offence.
Ms Lui said, that as a result of the delayed sale of the Meadowbank Land, she suffered loss and damage, being a lower sale price than what would have been the case if the property had been sold in accordance with the agency agreement proposed on 3 February 2020. Ms Liu said that, had Mr Fu agreed to the terms of Knight Frank's proposal and the draft agency agreement provided on 3 February 2020, she would have caused the agent to commence the marketing campaign immediately with a view to the auction taking place on 17 March 2020 and settlement on 28 April 2020. Ms Liu's expectation at the time was that the Meadowbank Land would have sold for at least $12 million. Damages in the sum of her pro rata share of $3 million (for the reduced sale price) together with land tax, rates, water, electricity and other charges which it would not have otherwise incurred or paid, totalling $231,749.47 inclusive of GST.
Mr Fu denied that his actions caused any loss or damage. In the alternative, Mr Fu maintained that Ms Liu failed to mitigate any loss or damage by failing to provide reasonable information sought by Mr Fu to enable agreement on necessary terms or, alternatively, not proceeding with the Knight Frank agency agreement and auction on the nominated date where, on Ms Liu's case, she was entitled to sell the land without his consent. Further, where Ms Liu sent the second draft agency agreement on 24 March 2020, he was no longer able to consent to the first draft agency agreement. Any failure to consent to the first agency agreement, from 3 February 2020, to 24 March 2020 did not result in loss or damage.
The general measure of damages for breach of contract is the amount, so far as money can provide, necessary to put the plaintiff in the position they would have been if the contract had been performed: Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350; Wenham v Ella (1972) 127 CLR 454; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653; [1986] HCA 81. Any loss alleged to be suffered must have been caused by the breach of contract: Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196; Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516; Bennett v Minister for Community Welfare (1992) 176 CLR 408. Whilst damages are assessed at the date of breach, subsequent events may be taken into account so that the damages awarded are as accurate as possible: Wenham v Ella; Smith New Court Securities Ltd v Citibank NA [1997] AC 254; Golden Strait Corp v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353; [2007] UKHL 12. See, generally, JW Carter, Contract Law in Australia (7th ed, 2018, LexisNexis) at [36-17]. Where a loss of chance is alleged, there must be some basis to say that the chance had some value for more than nominal damages to be awarded: Fink v Fink (1946) 74 CLR 127; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377.
The first question is causation: what would Ms Liu have done if Mr Fu had performed his contractual obligation under cl 2.1(e). I am prepared to accept that, if Mr Fu advised his agreement within the requested timeframe of midday on 4 February 2020, that Ms Liu and Knight Frank would have signed the proposed agency agreement. I am less prepared to accept that the marketing and auction of the property would have proceeded 'without a hitch' within the time frame proposed in the Sales & Marketing Proposal, being one week to prepare to market the property, a five-week marketing campaign commencing on 10 February 2020 and an auction on 17 March 2020. The lack of cooperation between the parties was such that, most likely, this suggested program would have been interrupted and delayed at some point.
In parallel with the proposed marketing and auction of the property was the emerging COVID-19 pandemic and government restrictions. A mere nine days after the auction date proposed in Mr Ong's initial email, in-person auctions were prohibited. That is, there was a little over a week between 17 March 2020 and the auction being deferred until the restriction on auctions was lifted. On the balance of probabilities, it is more likely than not that the auction would not have taken place on 17 March 2020, given the fractious relations between the parties coupled with the parties' likely rising concerns as to whether this was the best time to put the property on the market at all.
If I am wrong about this, then it is necessary to consider what the Meadowbank Land would likely have sold for at auction on 17 March 2020. I am mindful that a judge ought consider each of a party's claims, including in the event that the judge may be wrong on other conclusions, to assist the appeal process and obviate recourse to a new trial: Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34 at [3] (per Leeming JA). If there is good reason not to take this course, the reason should be identified in the judgment: Gulic v Boral Transport Ltd [2016] NSWSCA 269 at [7] (per Macfarlan JA, Gleeson JA and Garling J agreeing). Making detailed contingent findings in respect of damages in this case is no small task. The experts produced three individual and one joint report. Further evidence was adduced from Darren Keen, and tested, on a voir dire, followed by an expert conclave which, together, occupied the whole day. 'Unpicking' this evidence is no easy matter where the parties' counsel failed to confer and agree on how the conclave should be conducted, initially embarking on divergent courses before ultimately converging towards the end of the day. Some eight points of difference were explored between the experts. As a consequence, undertaking this task 'in the alternative' will substantially increase the length of, and delay in the delivery of, this (and other) judgments.
Put shortly, Mr Keen was called for the Ms Liu. He encountered two difficulties. First, Mr Keen adjusted the sale price achieved by two comparable properties by 10% due to the fact that the settlement period for those properties was only two weeks. There was no particular basis for this adjustment, where Mr Keen had never encountered such a situation before. Second, while Mr Keen also gave evidence based on his experience as a real estate agent, features of the proposed agency agreement - which he considered to be "common" - were, fact, in breach of the Property, Stock and Business Agents Regulation 2014 at the time. Grahame Hollinshead was called for Mr Fu. He was an impressive witness who gave evidence in an utterly fair manner. Mr Keen was of the opinion that the market value of the Meadowbank Land as at 17 March 2020 was $12 million. Mr Hollinshead was of the view that the market value was $8.975 million. I have generally preferred the views of Mr Hollinshead. As such, I would accept the value assessed by Mr Hollinshead. As a consequence, there was no loss, where Mr Fu later paid $9 million plus GST for the property in any event.
The parties agreed that, if the Meadowbank Land had been sold at auction on 17 March 2020 and the contract for sale had been completed six weeks later, then the "statutory duties" incurred between the notional settlement and the actual sale of the property on 14 April 2021 were $231,749.47 including GST. The only issue between the parties was whether the post-settlement land tax of $129,254.48 should be deducted from this amount: see [128]. On this issue, I agree with Ms Liu's counsel. The $231,749.47 excluded "statutory duties" incurred and paid outside the relevant date range of 29 April 2020 to 14 April 2021. This figure did not include the land tax which the parties had agreed should be reimbursed out of the sale proceeds before the balance was split pro rata between the parties. The $129,254.48 reimbursed to Ms Liu did not compensate her for land tax paid for the period from 29 April 2020 to 14 April 2021. Rather, land tax from 29 April 2020 to 14 April 2021 was $163,881.13. There was no double counting. No adjustment would need to be made on this account.
I also accept Ms Liu's submission that there was no failure to mitigate. Only reasonable steps need be taken in mitigation: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at [134] (per Hayne J). Signing the agency agreement absent Mr Fu's consent would have been a brave step. The preferable course to achieve a prompt sale was to provide a further draft of the agency agreement on 24 March 2020, addressing Mr Fu's queries.
Ms Liu also sought a declaration that, on and from 3 February 2020, Mr Fu's failure to withdraw the caveats was a breach of cll 3.1 and 3.4 of the Settlement Agreement. This subject was barely mentioned in Ms Liu's closing submissions. I am tempted to treat it as not pressed. The caveats were withdrawn to enable completion of the sale of the Meadowbank Land. Ms Liu did not seek damages in respect of Mr Fu's failure to withdraw the caveats. Where no purpose is served by making such a declaration, were there a proper basis to do so, I decline to consider this further.
[4]
ORDERS
For these reasons, make the following orders:
1. Dismiss the First Cross-Claim with costs.
2. If any party seeks a special costs orders in respect of the First Cross-Claim:
1. any affidavit and submissions (limited to 3 pages) to be filed within 7 days; and
2. any affidavit and submissions in reply (limited to 3 pages) to be filed within 7 days thereafter,
such issue to be determined on the papers.
1. If any party seeks a costs order in respect of the costs reserved in respect of the Summons and Amended Summons filed on 18 December 2020 and 18 May 2021 respectively:
1. any affidavit and submissions (limited to 3 pages) to be filed within 7 days; and
2. any affidavit and submissions in reply (limited to 3 pages) to be filed within 7 days thereafter,
such issue to be determined on the papers.
1. Parties to notify any errors or omissions within 7 days.
[5]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 12 March 2024
Parties
Applicant/Plaintiff:
New Island Developments Pty Ltd
Respondent/Defendant:
New Island Investments One Pty Ltd
Legislation Cited (2)
Property, Stock and Business Agents Act 2002(NSW)
Property, Stock and Business Agents Regulation 2014(NSW)
Cases Cited (25)
PROPER CONSTRUCTION
The first task is to construe the Settlement Agreement, in particular, cl 2.1(e). Where neither party relied on post-contractual contract, it is convenient to do so now. Ms Liu contended that the Settlement Agreement was wholly express and in writing. Mr Fu contended that the terms of the Settlement Agreement were partly express and partly implied. It was said to be an implied term of cl 2.1(e) that any party seeking agreement on terms to be agreed would propound to the other party all terms or, alternatively, all necessary terms, on which the Meadowbank Land was to be sold. Further the party seeking agreement would provide reasonable information to the other party on request and in a timely fashion, to enable agreement to be reached and not unnecessarily withheld. Further, the parties seeking agreement would allow the other party a reasonable opportunity to consider the terms on which the Meadowbank Land was to be sold, propounded by the parties seeking agreement. Alternatively, on the true construction of the Settlement Agreement, no party would be in breach of cl 2.1(e) unless or until these matters had been attended to. Alternatively, performance by one party of any obligation to agree under cl 2.1(e) was conditional on the other party attending to these matters.
The relevant principles are notorious, recently repeated in Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 407 ALR 613; [2023] HCA 6 at [27], quoting Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at [16]:
"It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it."
If, after considering the contract as a whole and the surrounding circumstances, the Court concludes that the language of a contract is unambiguous, then the Court must give effect to that language unless to do so would give the contract an absurd operation: Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [73]-[75] (per Leeming JA, Gleeson and White JJA agreeing). The ambiguity of a contract may only be revealed once the surrounding circumstances are considered, that is, ambiguity is a conclusion, rather than a precondition to the admissibility of evidence of surrounding circumstances: Cherry v Steele-Park at [79]. As such, commercial context may be considered from the outset, as it was, for example, in Laundy at [36].
The quality of drafting may also be taken into account when construing a contract, as Moshinsky, Derrington and Colvin JJ explained in Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2022] FCAFC 16 at [14]:
"Some commercial instruments present as having been drafted with the coherence and consistency in terminology and grammatical expression that may be expected of an experienced and expert commercial lawyer. In such cases it is appropriate for the language to be construed by reference to the customary forms adopted in such instruments. Others present as 'a clumsily tailored variation of an ill-fitting off-the shelf precedent': Ecosse Property Holdings at [51] (Gageler J). In such instances, no reasonable business person would interpret the instrument with the same eye to differences in language and terminology as might be appropriate for instruments that have a different form of structure and expression. Some commercial instruments, are relatively informal or are brought into existence to meet the exigencies and necessities of everyday commercial life without time or inclination to ensure neatness of grammar and consistency in terminology. Others present as being carefully considered and settled by those with considerable experience in their drafting. All such characteristics of the instrument as a whole should be brought to account when giving a businesslike construction to the instrument."
These observations have particular resonance here: the Settlement Agreement is brief and imperfectly drafted, reflecting the circumstances in which the document came into existence. The parties and defined terms are simply described by cross-reference to the pleadings. Spelling and grammatical errors abound. Nonetheless, the Court is entitled to approach the task of construction on the assumption that the parties intended to produce a commercial result, construing the contract so as to avoid making "commercial nonsense or working commercial inconvenience": Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35] (per French CJ, Hayne, Crennan and Kiefel JJ).
Clause 2 broadly dealt with four subjects. In order of appearance, the first subject was what to do with the legal proceedings. Noteworthy, it was proposed that the proceedings would be dismissed with no order as to costs and all previous costs orders vacated, by the filing of consent orders within four business days of the Settlement Date, that is, by 13 December 2019: cl 2. (a)-(c). On any view, the proceedings would be disposed of long before the Meadowbank Land was sold or, indeed, before the sales process had even begun. With the giving of the releases (cl 3) and the ability to plead the Settlement Agreement in bar to any further proceedings (cl 4), the parties proceeded on the basis that the sales regime described in the Settlement Agreement was sufficiently robust, such that it was not thought prudent to defer dismissal of the proceedings until after the Meadowbank Land had been sold to the parties' satisfaction.
The second subject was what to do with the Meadowbank Land, specifically, how to retrieve the funds outlaid by New Island Developments and New Island Apartments, whether with or without the approval of Mr Fu. This was the subject of cl 2.1(d)-(j) and, as I read it, the 'main item of business' in the Settlement Agreement. Notwithstanding the environment of mistrust in which the Settlement Agreement was executed, and that Mr Fu and the caveators stood to receive the bulk of the net proceeds of sale (cl 2.1(g)), the sales regime conferred the task of selling the Meadowbank Land largely onto Ms Liu. Presumably, this was by reason of her relative expertise as a real estate agent. Specifically, Ms Liu was to remain as sole director and shareholder of the registered proprietor of the Meadowbank Land, being New Island Investment One: cl2.1(d). Ms Liu would choose a selling agent to sell the property "on terms to be agreed" and keep Mr Fu informed of the sale regime: cl 2.1(e) and (f).
The third subject was what to do with the corporate entities. This was largely dealt with by cl 2.1(k)-(n). Mr Fu was to gain control of New Island Developments and New Island Apartments (save for a small residual holding by Ms Liu of 1% of the shares of New Island Apartments). Ms Liu retained New Island Investment One: cl 2.1(d).
Fourth and relatedly, Ms Liu was required to provide financial disclosure in respect of New Island Apartments: cl 2.2. The environment of mistrust finds further expression in cl 2.2(b) and (c), where Ms Liu warrants that the General Ledger is true and correct and that there are no other extraordinary liabilities; if these warranties are false or misleading in respect of items exceeding $10,000, further deductions will be made from Ms Liu's share of the proceeds of sale.
Returning to the 'main item of business', Ms Liu's ability to sell the Meadowbank Land was not unconstrained. Where Ms Liu was to remain the sole director of New Island Investment One, with ostensible authority to make decisions in respect of the sale of the Meadowbank Land, it is unsurprising that cl 2.1 contained a number of 'controls'.
The primary control was set out in cl 2.1(e). That is, whilst it was left to Ms Liu to choose one of the five real estate agents nominated in cl 2.1(e), it was that agent which would perform the tasks of a selling agent, rather than Ms Liu herself, and "on terms to be agreed". I will consider this clause in more detail at [39].
The second control was a reporting obligation. Whilst it was envisaged that Ms Liu would liaise with the selected agent on behalf of the parties, she was obliged to regularly update Mr Fu, either fortnightly or on request, as to the agent's progress: cl 2.1(f).
The third control was that an independent lawyer was to be appointed to act on the sale of the Meadowbank Land: cl 2.1(i). The Settlement Agreement did not specify when the independent lawyer was to be appointed.
The fourth control was that adjustments to the disbursement of the net proceeds of sale, on account of expenses incurred, or revenue earned, by Ms Liu in respect of the Meadowbank Land, were to be supported by evidence: cl 2.1(g) and (j).
Returning to the proper construction of the primary control, cl 2.1(e) is reproduced for ease of reference: (emphasis added)
"The Meadowbank Land is to be sold by any of the following 5 agents as selected by Ms Liu: CBRE; JLL; Colliers; Knights Frank or Savilles, on terms to be agreed, such agreement not to be unnecessarily withheld."
Does "terms to be agreed" mean the terms of the agency agreement, or the terms on which "[t]he Meadowbank Land is to be sold" including the contract for sale of land, or some variant of these possibilities. Clause 2.1(e) is susceptible of more than one plausible meaning; the proper construction is determined by application of the principles earlier outlined. As observed in Onley v Catlin Syndicate Ltd (as the underwriting member of Lloyd's Syndicate 2003) (2018) 360 ALR 92; [2018] FCAFC 119, "It goes without saying that a construction that avoids capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit": at [33] (per Allsop CJ, Lee and Derrington JJ).
Here, the surrounding circumstances are important and had two key features. First, the parties to the Settlement Agreement were well-advanced in what appears to have been complicated litigation, involving a number of property developments and not insubstantial sums of money. The dispute concerned an apparently undocumented business arrangement, by which Mr Fu would bring in money from Chinese investors for use in the Sydney property development market, guided by Ms Liu. The propriety of Ms Liu's actions had been called into question, with allegations of misappropriation of substantial sums and over-charging. This was met with counter-allegations that Mr Fu had not abided by their agreement, nor stood by his earlier directions. That is, as earlier mentioned, the Settlement Agreement was executed in an environment of mistrust. Where the commission and fees charged by Ms Liu had been the subject of allegations of over-charging in the litigation, and criticised in Mr Farrell's report, the parties to the Settlement Agreement would have anticipated that the proposed terms of any agency agreement would be the subject of careful scrutiny.
Second, Mr Fu and Ms Liu were sophisticated businesspeople, legally represented, who had been involved in property development for some years. As a licensed real estate agent, Ms Liu would have been expected by the parties to be aware of the rules and regulations governing real estate agents selling commercial property. Where, notwithstanding the environment of mistrust, it was Ms Liu who was tasked with selling the Meadowbank Land, I consider that the contracting parties intended that the rules and regulations would be complied with on this occasion, that is, the sale of the Meadowbank Land would be done 'by the book'.
As to what those rules and regulations were, the Property, Stock and Business Agents Act 2002 (NSW) then provided that a real estate agent was not entitled to any commission or expenses unless the agency agreement complied with the applicable requirements of the regulations: s 55(1)(b). Section 37 of the Property, Stock and Business Agents Act 2002 also provided that the regulations may prescribe rules of conduct to be observed in the course of carrying on business as a real estate agent; contravention of a rule of conduct without reasonable excuse was an offence. The Property, Stock and Business Agents Regulation 2014 (NSW) prescribed rules of conduct applicable to all licensees in Schedule 1: reg 7(1)(a). Clause 16 of Schedule 1 provided: (emphasis added)
"16 Insertion of material particulars in documents
An agent must not submit or tender to any person for signature a document, or cause or permit any document to be submitted or tendered to any person for signature, unless at the time of submission or tendering of the document all material particulars have been inserted in the document."
The Property, Stock and Business Agents Regulation 2014 prescribed rules of conduct applicable to real estate agents engaged in sales in Part 1 of Schedule 2: reg 7(1)(b). The schedule required the agent to conduct a preliminary physical inspection of the property before acting on the sale: cl 1. Clause 2 provided: (emphasis added)
"2 Sales inspection report required for property
On completion of the inspection required by clause 1, an agent must prepare and give to the vendor a sales inspection report for the property. The report must specify the following and be signed by the agent:
(a) the name and address of the person on behalf of whom the agent is acting,
(b) the date of preparation of the report,
(c) the agent's name, business address and telephone number,
(d) a description of the property, including the address of the property and such other details as may be necessary to enable the property to be readily identified,
(e) a description of any fittings and fixtures that are to be included in the sale of the property,
(f) any terms and conditions of sale known to the agent (for example, whether or not vacant possession is to be given),
(g) the agent's recommendation as to the most suitable method of sale of the property,
(h) the agent's estimate of the selling price (or price range) for the property,
(i) details of any covenants, easements, defects, local government notices or orders affecting the property that are known to the agent,
(j) details of any special instructions about the marketing and showing of the property,
(k) the name, business address, telephone number and address for service of documents of the solicitor of the person on behalf of whom the agent is acting."
Viewed objectively, I consider that a reasonable person in the position of the contracting parties would have intended that "terms to be agreed" included - at least - the matters on which a real estate agent was required to have instructions before putting a property on the market. That is, "terms to be agreed" was not limited to the agent's commission. Nor did the parties intend to leave fundamental aspects of the property sale such as price to the selling agent, or as instructed by Ms Liu. Nor, viewed objectively, did the parties intend to leave key terms such as the method of sale, marketing period or budget, to the selling agent or to Ms Liu's instructions given to that agent.
Beyond the obligation to appoint an independent lawyer "to act on the conveyance", the Settlement Agreement is otherwise silent as to how the basic features of the proposed sale would be ascertained, including such things as price. Once terms were agreed under cl 2.1(e), Ms Liu had control of the sale process. As sole director of the vendor, Ms Liu was retaining the selling agent and instructing the independent solicitor acting on the conveyance. Further, once terms were agreed under cl 2.1(e), Mr Fu was thereafter obliged to "do all things and execute all further documents necessary to give full effect to this agreement and the transactions contemplated by it": cl 7.4. This was so, even though the bulk of the proceeds of sale were to be paid to Mr Fu.
Having regard to the genesis of the Settlement Agreement, the commercial purpose (being the sale of high-value property held in the name of one party but said to have been funded by the other), the attributes of the contracting parties and the contracting environment, I conclude that "terms to be agreed" referred to the substantive terms on which the Meadowbank Land would be offered for sale, not just the terms on which the selling agent would be retained. Or, to use the statutory language, "all material particulars" of the proposed sale of the Meadowbank Land were to be agreed by the parties before the sales process began. Indeed, there is no real difference between the competing constructions advanced by Ms Liu and Mr Fu. So long as the agency agreement included "all material particulars" when submitted for signature - where the 'checklist' of items to be specified in the sales inspection report provided a ready guide - and Mr Fu agreed to the appointment of the selected agent on the terms there set out, then effectively the parties had also thereby agreed on the substantive terms on which the Meadowbank Land would be offered for sale.
To conclude otherwise would have the consequence that the sales regime was far from robust, as appears to have been envisaged by the earlier portions of the Settlement Agreement disposing of the proceedings: see [30]. Leaving all of these important matters to be determined by the selling agent, on the instructions of Ms Liu, would make a commercial nonsense of the constraints sought to be placed on Ms Liu's ability to control the sale of the Meadowbank Land. Nor do I accept that such a construction renders cl 2.1(f) otiose. Once the Meadowbank Land was listed for sale, Ms Liu would continue to perform an important function by keeping Mr Fu updated on the progress of the sales regime. Obviously enough, as offers came in from interested purchasers, the parties' attitude to offers or particular requests, for example, for extended settlement periods, would need to be considered. If the opportunity arose to exchange contracts before auction, Ms Liu would be able to progress the matter via this clause. If the property was not exciting any interest at the listing price, then further instructions would need to be obtained via this clause. If the sales process was going well and the auction was likely to be a success, then the reporting function continued to serve a purpose, where the parties could prepare for next steps. Nor does such a construction prevent the parties from agreeing to amend the proposed terms of sale as the sales regime progressed; cl 2.1(e) simply required the parties to agree on the substantive terms on which the property would be put up for sale.
As to what is meant by "such agreement not to be unnecessarily withheld", the phrase does not appear to have been judicially considered. The obligation not to unreasonably withhold consent is, however, a "settled and well-understood notion": New Standard Energy PEL 570 Pty Ltd v Outback Energy Hunter Pty Ltd [2019] SASCFC 132 at [135] (per Nicholson J). As a matter of English language, there does not appear to be any material distinction between these phrases, such that the case law as to whether consent has been unreasonably withheld may assist, to which I will return at [86].
BREACH
It is at this point that Ms Liu contends that, by reason of Mr Fu's four queries of 3 February 2020, 5 February 2020, 5 March 2020, and 20 March 2020, Mr Fu unnecessarily withheld his consent to the proposed agency agreement with Knight Frank in breach of the Settlement Agreement. Mr Fu denied that the email from Ms Liu's solicitors of 3 February 2020 constituted a request for consent but, in any event, Ms Liu did not allow a reasonable opportunity to consider the proposed terms, said to be in breach of the implied term or the true construction of the Settlement Agreement. Nor did the email propound all terms or, alternatively, all necessary terms on which the Meadowbank Land was to be sold. In particular, the plaintiffs did not propound a contract for sale of land as referred to in Knight Frank's document, nor make plain whether the agent's commission was to be inclusive or exclusive of GST, nor nominate the proposed solicitor to act on the conveyance, nor propound a reserve price, and a range of other matters. In any event, by Mr Fu's emails of 5 March 2020 and 20 March 2020, reasonable information was sought, but not provided in a timely fashion or at all, to enable agreement on necessary terms to be reached and not unnecessarily withheld.
Having construed the contractual obligations, the question is whether the parties' performance fulfilled those obligations, this being a mixed question of fact and law: Margaronis Navigation Agency Ltd v Henry W Peabody & Co of London Ltd [1965] 1 QB 300 at 318 (per Roskill J). The onus of proving breach is on the promisee: Hart v MacDonald (1910) 10 CLR 417 at 428. The parties must perform as and when promised, in precise compliance with the contract. An obligation is not discharged by 'substantial performance' unless the contract so provides: Nick Seddon and Rick Bigwood, Cheshire & Fifoot Law of Contract (11th Australian edition, 2022, LexisNexis) at [9.5].
As to whether Mr Fu's agreement was "unnecessarily withheld", I have drawn on the cases considering the obligation not to unreasonably withhold consent: EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78 (Buss JA, Owen and Newness JA agreeing), St Barbara Ltd v Hockley (No 2) [2013] WASC 358 (per Beech J) and Fulham Partners LLC v National Australia Bank Ltd (2013) 17 BPR 32,709; [2013] NSWCA 296. The following principles may be stated:
1. The onus lies on the party who contends that agreement was unreasonably withheld.
2. Whether agreement was unreasonably withheld is not to be considered in the abstract, but according to the particular contract; the grounds of refusal should relate to, be consistent with, and not extraneous to, the contractual regime.
3. The Court does not review the decision to withhold consent on the basis of whether that decision was correct but whether, looking at the whole process and the objective facts, the withholding was unreasonable.
4. Whether consent has been unreasonably withheld is to be determined when the consent was refused, that is, only facts and circumstances existing at the time consent was refused can be used to support or challenge the refusal.
5. An important factor is whether the grounds for withholding consent were held honestly.
Returning to whether Mr Fu performed the contractual obligations imposed by cl 2.1(e), the problem for Ms Liu's case is that the time for performance of that obligation had yet to arrive, where the terms to be agreed had not been placed before him for consideration. Some proposed terms had been supplied; other terms had yet to be made available: see [72]-[75]. Not all of the details omitted from Knight Frank's document could be regarded as substantive terms on which the Meadowbank Land would be offered for sale, for example, whether permission was given for the agent to erect a "For Sale" sign on the property. Other matters left incomplete were, however, substantive.
Inclusions fall into this category. This matter was effectively left until the preparation of a contract for sale. What was to be sold, together with the land, was clearly an important matter. The same problem arose with the agent's cross-reference to the contract of sale in respect of covenants, easements, defects, notices, orders and special conditions. This does not mean that the time for performance did not arrive until a contract for sale was prepared, but it did mean that the proposed inclusions, details of covenants, defects and the like needed to be formulated for Mr Fu's consideration, perhaps in the Sales Inspection Report.
These difficulties were compounded by the fact that the vendor's solicitor had not been appointed either. Ms Liu said that, in her experience, an agent was frequently appointed before a contract of sale had been prepared. That may well be the case. However, this was not your usual property sale. Rather, the property was being sold in accordance with a Settlement Agreement after protracted litigation.
Another substantive term was whether the property was sold with vacant possession or subject to existing tenancies. This was clearly an important matter, not only for any tenant or interested purchaser, but given the implications for whether the property was being sold as going concern and thus whether GST was payable on the purchase price; it may also affect existing use rights. As earlier mentioned, the proposed agency agreement contained an error in this regard: see [73].
Ms Liu said she was not sure why the "subject to existing tenancies" box was ticked by Knight Frank, where a registered lease on title had expired and the land was untenanted. Ms Liu did not see any issue, however, with the box being ticked as she thought it would "cover the potential scenario where a purchaser wished to enter into a short term lease prior to settlement". Ms Liu said she was nonetheless prepared to sign the agreement. Ms Liu's explanation is not easy to understand, and I do not accept it. An experienced real estate agent would readily appreciate the difference between a property sold subject to existing tenancies, and arrangements for an incoming purchaser to occupy a property before completion on, say, a licence arrangement.
Importantly, while the agent gave an estimate of the selling price which might be achieved at auction, the reserve price was "TBC". Agreement on this matter was key. No figure was proffered to Mr Fu for his consideration. Also critically, the account into which funds held by the agent and due to the vendor would be paid was left 'blank'. Where the parties were operating in an environment of mistrust, with allegations of misappropriation of funds, this information was a key detail requiring agreement.
If I am wrong in my conclusion that there was no breach, as the time for performance of Mr Fu's obligation had yet to arrive, then the question is whether his agreement was unnecessarily withheld. So far as the evidence reveals, Ms Liu had done little to select an agent in the seven weeks after the Settlement Agreement was executed, apparently on the advice of one of the agents not to list the property until after the holiday season, and where some of the agents were on leave. Having made contact with Knight Frank on 28 January 2020, met the agent on 31 January 2020 and obtained a sales and marketing proposal on 1 February 2020, providing Mr Fu with some 26 hours to advise his attitude to the proposed agency agreement might be thought a little ungenerous.
In any event, Mr Fu initially sought details, on 3 February 2020 and 5 February 2020, of the meetings or other enquiries made by Ms Liu with the other-named agents. Presumably, Mr Fu understood from the email from Ms Liu's solicitors of 14 January 2020 that such meetings had taken place and was interested to know the terms on which the other-named agents were prepared to sell the Meadowbank Land, in order to make a decision as to whether to agree to the appointment of Knight Frank. Whilst the Settlement Agreement did not give Mr Fu a right to seek this information, as a matter of practicality, provision of these details may have facilitated his agreement.
More specific queries were raised by Mr Fu in respect of Frank Knight's proposal, on 5 March 2020 and 20 March 2020, to clarify the type of auction and whether the property would be sold as a going concern, "If it is not, it is necessary that the reserved price be $13.75m plus". The latter query was important, affecting a substantive term on which the Meadowbank Land may be offered for sale, including the reserve price. There was no response to these queries by the date at which it is said that Mr Fu was in breach of his obligations. There is no suggestion that Mr Fu was withholding consent other than honestly. The matters on which Mr Fu sought agreement or information were important. I am not satisfied that Ms Liu has discharged the onus of establishing that Mr Fu's agreement was unnecessarily withheld.