Plaintiff v Defendants

Supreme Court of Victoria|2013-06-14|Before: SIFRIS J

CONTRACT - Agency agreement - Whether agent entitled to commission.

**1 The Plaintiff ("Raffoul") is a business broker and estate agent. At the relevant time he traded as TTechnique Business Brokers. Raffoul claims that he is entitled to commission in the sum of $1,100,000 (including GST) ("the Commission") from the Defendant, Fresh 2 U Pty Ltd ("the Company").

2 On 1 May 2011 the Company and Raffoul entered into a written agency agreement ("the Agency Agreement"). Pursuant to the Agency Agreement, Raffoul was engaged to sell the business of the Company known as Fresh 2U ("the Business"). He was entitled to the Commission if he fulfilled any of the conditions referred to in clause 2.1 of the Agency Agreement. The Second Defendant ("Vince") and the Third Defendant ("Mara") (together "the Guarantors") executed the Agency Agreement on behalf of the Company and guaranteed the obligations of the Company.

3 On 14 November 2011, the Company sold the business to H & A Fresh Family Pty Ltd ("the Purchaser"). The agreement was in writing ("the Sale of Business Agreement"). Raffoul claims that he introduced the Purchaser to the Company and is thus entitled to the Commission pursuant to clause 2.1 of the Agency Agreement.

4 The Defendants deny that Raffoul is entitled to the Commission. In essence they contend that there was no sale within the period referred to in the Agency Agreement and that Raffoul did not introduce the Purchaser to the Business. In this regard the crux of the defence was that a sale did not occur on 14 November 2011 because the Sale of Business Agreement was subject to conditions precedent which were either not fulfilled at all or only fulfilled at a much later date when settlement eventually took place on 23 March 2012 (after significant amendments to the Sale of Business Agreement including a reduction in the price).

5 A final matter by way of introduction relates to variations to the Agency Agreement. Two separate variation deeds were executed, one on 6 July 2011 and the other on or about 19 August 2011. Whichever document applies, the effect of the amendment - and this applies to both documents - was to defer or restructure payment of the Commission if the sale was to a specified company, namely The Fresh Family Pty Ltd ("TFF") or a party associated with TFF. This issue is a red herring and irrelevant to the dispute. Despite having occupied a disproportionate amount of court time both sides agree that the Purchaser is not relevantly - and whichever variation deed applies - related to TFF.**

6 In early 2011, Vince and Mara Demarte decided that the Company should sell the Business. Raffoul agreed to act as their agent and to find potential purchasers. The Agency Agreement between Raffoul and the Company was signed on 1 May 2011.

7 The Agency Agreement included terms, among others:

(a) Granting Raffoul an "Exclusive Authority Period" of 150 days from the date of execution;

(b) Granting Raffoul a non-exclusive "Continuing Authority Period" of a further 150 days;

(c) Setting the "Asking Price" at $7 million plus stock; and

(d) Setting Raffoul's commission at the fixed amount of $1 million plus GST.

**8 The Exclusive Authority Period under the Agency Agreement extended from 1 May 2011 to 28 September 2011.

9 The Continuing Authority Period under the Agency Agreement extended from 29 September 2011 to 25 February 2012.

10 The Authorisation Period referred to in the Agency Agreement included both periods and extended from 1 May 2011 to 25 February 2012.

11 Pursuant to the Agency Agreement, Raffoul's commission was payable in three circumstances:**

(a) Upon Raffoul obtaining an "Acceptable Offer" during the 300 days following execution of the Sale Authority (the "Authorisation Period");

(b) Upon the Business being sold to anyone during the Exclusive Authority Period; or

(c) Upon the Business being sold during the 12 month period following the Exclusive Authority Period to a "Purchaser" who was "Introduced to the Business" by Raffoul before or during the Authorisation Period (the terms Purchaser and Introduced to the Business are defined within the Sale Authority).

**12 The Agency Agreement defines "Acceptable Offer" as an offer to sell the Business for the specified price of $7 million, or another price for which the Company indicated a willingness to sell the Business (in other words, a price that the vendor considered "acceptable"). It was not a requirement of clause 2.1 that the sale of the Business actually be completed for commission to be payable.

13 Acting pursuant to the Agency Agreement, Raffoul found at least two potential purchasers for the Business. On 11 May 2011, Mr Azzam Yamak (also known as Alam Kamal) ("Kamal") and Mr George Katsakis ("Katsakis") signed a Confidentiality and Non-disclosure Deed allowing them to assess the Business with the prospect of purchasing it. Kamal and Katsakis were, at that time, interested in buying the business via Transwash Australia Pty Ltd ("Transwash") or a special purpose company - TFF - which was created on 8 June 2011 and was wholly owned by George, who was also TFF's only director. By 1 August 2011 a draft Sale of Business Agreement was in existence.

14 On this basis, Raffoul claims he became entitled to commission under Clause 2.1(a) and (c) of the Agency Agreement upon, at the latest, execution of the Sale of Business Agreement and whether or not the sale was in fact settled or completed. Raffoul also referred to email offers and an initial deposit of $200,000 from Kamal on 13, 19 and 20 May 2011, as the basis for his contention that the Commission was also payable under clause 2.1(b).**

15 Due to concerns regarding the payment of Raffoul's commission, negotiation took place between Raffoul, Kamal and Vince in relation to amending the Agency Agreement. On 6 July 2011, the Agency Agreement was varied by way of a Deed of Variation. Pursuant to the Deed, clause 17 was inserted into the Agency Agreement. Clause 17 is in the following terms:

This clause applies only in connection with an Acceptable Offer where the Purchaser is The Fresh Family Pty Ltd...or any other company, trust or entity in which the shareholders or directors of The Fresh Family Pty Ltd hold any share, unit, beneficial entitlement or right of control, either directly or indirectly ... ('TFF Parties')

The clause then sets out that if dealings with the TFF Parties did not result in a binding sale and purchase contract no commission would be payable, whereas if an Acceptable Offer from the TFF Parties led to a sale of the business by 20 December 2011 commission would be payable as follows:

(b) $770,000 (including GST) 120 days after settlement.

16 In August 2011 it appears that the parties were unable to locate the original signed version of the Deed of Variation. Thus, on or around 19 August 2011, Vince printed out what he thought was the agreed upon version of the Deed, signed it and had that copy countersigned by the relevant parties (the "19 August Deed"). However the evidence shows that the 19 August Deed was a prior draft of the Deed of Variation and not the final, agreed upon version. Relevantly, the 19 August Deed differed from the 6 July 2011 version as the 19 August Deed's contained the following clause 17:

This clause applies only in connection with an Acceptable Offer where the Purchaser is The Fresh Family Pty Ltd ... or persons or entities associated with The Fresh Family Pty Ltd ... .

17 There was some dispute over which version of the Deed of Variation bound the parties. While the 19 August Deed was executed later in time to the 6 July version, it is clear from the communications between the parties and their evidence that the version signed on 19 August 2011 was signed in error. This is evidenced by the following:

(a) The cover letter from Raffoul's solicitor enclosing the signed 19 August Deed specifically notes that though it was "dated 19 August 2011" he confirms "that it is operative from the date we exchanged email versions, being 6 July 2011."

(b) On 26 June 2012, Vince's solicitor noted in an email that Vince Demarte had signed "an earlier draft" of the Deed on 19 August 2011.

(c) The reasons given by the parties for the signing of the 19 August Deed, in their witness statements and during examination, was that the original 6 July 2011 Deed of Variation had been lost.

(d) Vince was unsure which version of the Deed was the final, agreed upon version.

(e) Raffoul's former solicitor and Vince's former solicitor both confirmed that the 19 August Deed was in fact an earlier draft of the final, agreed upon version.

(f) A marked-up version of the Deed of Variation was discovered which had the words of the 6 July 2011 Deed of Variation being inserted into the Deed, not removed. This is consistent with the 6 July 2011 Deed being the final version and the 19 August Deed being a draft.

18 Thus, though ultimately nothing turns on it, for the reasons discussed, in my view the 6 July 2011 Deed of Variation is the operative document. The 19 August Deed was mistakenly executed and does not represent the agreement between the parties to further vary the terms of the Agency Agreement.

**19 On 13 July 2011 a draft Sale of Business Agreement was drawn up between the Company and TFF for the sale of the Business. Katsakis, Kamal and Transwash were listed as guarantors on that draft agreement.

20 Katsakis was ultimately not interested in, or able to pursue, the purchase. However, Kamal continued negotiations with the Demartes on his own behalf (not on behalf of Katsakis or Transwash).

21 By 1 August 2011, negotiations between Kamal and the Demartes had advanced to the point where a further draft of the Sale of Business Agreement was drawn up. This draft agreement listed the purchaser as H & A Fresh Family Pty Ltd - a new company created by Kamal on 27 July 2011 for the purpose of purchasing the Business.

22 The final Sale of Business Agreement was executed on 14 November 2011 with H & A Fresh Family Pty Ltd as the purchaser. The purchase price was $7 million (composed of a $5.6 million purchase price and a $1.4 million "Earn-Out Amount" payable upon the achievement of certain revenue goals in the first 12 months following the sale).**

Variations to the Sale of Business Agreement and Settlement

**23 Pursuant to the Sale of Business Agreement settlement was to take place on 23 December 2011. However, this settlement was delayed due to the Purchaser's difficulties in arranging finance.

24 To assist the Purchaser in relation to financing the purchase, the parties executed Variation Deeds on 29 February 2012 and 23 March 2012 (the "Variation Deeds").

25 The Variation Deeds changed, among other things, the purchase price payable (reducing it to $5.6 million, $1.4 million of which was payable only upon the achievement of certain revenue goals), the date for completion (first to 29 February and then to 23 March 2012) and the deposit amount (increasing it from $700,000 to $1.2 million).

26 Ultimately, settlement of the sale and possession took place on 23 March 2012, pursuant to the amended Sale of Business Agreement.**

**27 The critical issue is whether the sale by the Company to the Purchaser pursuant to the Sale of Business Agreement[1] falls within any of the three sub-clauses of clause 2.1 so as to entitle Raffoul to the Commission. Accordingly it is convenient to deal with each sub-section separately.

28 The first sub-clause is clause 2.1(a). Was there an Acceptable Offer during the Authorisation Period? The answer must be yes. The Sale of Business Agreement is self-evidently an Acceptable Offer. The Company considered the terms acceptable and executed the agreement. This took place before the end of the Authorisation Period, namely 25 February 2012. The fact that the sale was subject to conditions precedent and was amended from time to time, including a reduction of the purchase price, does not affect the entitlement to commission. Commission was in no way dependent on completion or settlement and the amount of the Commission did not depend on the purchase price. It was fixed. Further, the definition of Acceptable Offer specifically contemplated an agreement with conditions precedent. Finally, the sale was relevantly a sale for the purpose of the Commission irrespective of the financial condition of the Purchaser or its ability to complete.[2]

29 The second sub-clause is clause 2.1(b). Was the Business sold by the Company to anyone during the Exclusive Authority Period, namely up until 30 September 2011? The answer is no.

30 The third sub-clause is clause 2.1(c). Was the Business sold by the Company within 12 months after expiry of the Exclusive Authority Period (namely by 28 September 2012) to a purchaser introduced by Raffoul during the Authorisation Period? The answer must be yes. Clearly the Business was sold before 28 September 2012 and the Purchaser, although a company specifically incorporated for the purpose of the purchaser of the Business, was relevantly introduced by Raffoul. The Agency Agreement defines "Introduced to the Business by the Agent" as being aware that the Business was available for sale as a direct or indirect result of the actions of the agent. The Purchaser and those behind the Purchaser were certainly made aware by Raffoul that the Business was for sale, as the evidence clearly demonstrates.[3] Finally the fact that the Purchaser was a company incorporated for the purpose of the acquisition does not affect any entitlement to the Commission.[4]

31 The Company and the Guarantors contend however that there was, in the period between 1 May 2011 and 6 July 2011, an oral variation to the Agency Agreement to the effect that they did not have to pay Raffoul his commission unless the Purchaser paid to the Company enough to discharge its debts, which exceeded $5 million.

32 There is no evidence of such an agreement, and indeed it is contradicted by the terms of the Variation Deeds and Vince's witness statement, which says that the agreed variation to the terms of the Agency Agreement were contained in the Variation Deeds. This was confirmed in his oral evidence under cross-examination.

33 In any event, oral evidence (including evidence of the parties' subjective intentions) is not, as a matter of law, admissible to add, vary or detract from the written terms of the Agency Agreement or the Variation Deeds, and the presumption is that the written instrument is intended to embody the parties' entire agreement.[5] Nor is evidence of the negotiations leading up to the Agency Agreement or Variation Deeds admissible to assist in interpreting them unless some relevant ambiguity is identified.[6]

34 There is in this case no written term in any of the written agreements that even remotely touches on the additional terms now contended for by the Company and the Guarantors. There is no ambiguity which could be resolved by the admission of extrinsic evidence. Finally, there is an insufficient basis to conclude that the parties entered into a collateral oral agreement. In fact the evidence points the other way. Having discussed and agreed on the terms of the Deed of Variation, with the assistance of their lawyers, it is more likely than not that had any agreement been concluded in relation to a sale to other parties, not covered by the Deed of Variation, the Deed of Variation would have said so. The matter was not dealt with in the Deed of Variation because there was no such agreement. In any case, any amendment to the Agency Agreement had to be in writing and signed by both parties.

35 The only conclusion that can be drawn is that the written agreements embodied, and were intended to embody, the objective agreement between the parties concerning Raffoul's entitlement to commission for assisting in selling the Company's Fresh 2U business. These agreements were negotiated by the parties and their lawyers. There is no mention at any stage in any document of the oral agreement contended for.**

36 In the circumstances, and for the reasons given, Raffoul is entitled to the commission. There will be judgment for the plaintiff in the sum of $1,100,000 against the Company and the Guarantors. No separate defence was pleaded or argued on behalf of the Guarantors and it follows that they are liable. I will hear from the parties in relation to interest and costs.

[1] In view of the firm decision I have come to I do not propose to deal with any earlier period and in particular whether there was an acceptable offer prior to 14 November 2011.

[2] Scott v Willmore & Randell [1949] VicLawRp 21; [1949] VLR 113 (FC).

[3] Kamal is the sole shareholder in the Purchaser company and his wife, Hawa Soufi-Sabbagh is the sole director and secretary.

[4] Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] VicRp 99; [1992] 2 VR 732, 742-3.

[5] Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, 347-353 (Mason J, Stephen and Wilson JJ agreeing); Gordon v McGregor [1909] HCA 26; (1909) 8 CLR 316.

[6] Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, 347-353 (Mason J, Stephen and Wilson JJ agreeing), 401-402 (Brennan J); Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45, [39]; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 86 ALJR 1, [1], [3]-[5]; McMahon v National Food Industries Ltd [2009] VSCA 153; (2009) 25 VR 251, [7]-[11] (CA); Carter, Law of Contract in Australia (LexisNexis, 5th ed, 2013) [12-05]-[12-12].

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