[1984] HCA 36
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
[1997] HCA 2
Commonwealth v Verwayen (1990) 170 CLR 394
[1990] HCA 39
Empire Waste Pty Ltd v District Court of New South Wales (2013) 86 NSWLR 142
Source
Original judgment source is linked above.
Catchwords
[2009] HCA 25
Chan v Zacharia (1984) 154 CLR 178[1984] HCA 36
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384[1997] HCA 2
Commonwealth v Verwayen (1990) 170 CLR 394[1990] HCA 39
Empire Waste Pty Ltd v District Court of New South Wales (2013) 86 NSWLR 142[2013] NSWCA 394
Ex parte WhiteRe Neville (1871) 24 LT 45
(1871) 6 Ch App 397
Fawcett v Whitehouse (1829) 1 Russ & M 132
39 ER 51
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296
[2012] FCAFC 6
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
[1984] HCA 64
Howard v Commissioner of Taxation (2014) 253 CLR 83
[2014] HCA 21
Investmentsource Corporation Pty Ltd v Knox Street Apartments Pty Ltd (2002) 56 NSWLR 27
[2002] NSWSC 710
Markson v Cutler (2007) 13 BPR 25
[2007] NSWSC 1515
Metropolitan Health Service Board v Australian Nursing Federation (2000) 99 FCR 95
[2000] FCA 784
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357
The plaintiff, Ryde Developments Pty Ltd (Ryde), was incorporated in June 2011 to undertake a mixed residential and commercial development situated between Porter and Belmore Streets in Ryde (the Development). In its final form, the Development consisted of 21 one bedroom units, 40 two bedroom units, 8 three bedroom units and 2 commercial shops. Ryde's sole shareholder is Mr Diaa Gabra who either alone or with others has carried on business as a property developer for the past 15 years or so through various corporate entities.
The first defendant, The Property Investors Alliance Pty Ltd (PIA), is a licensed real estate agent which specialises in selling new residential units off the plan to members of the Chinese community. The services it provides includes assisting purchasers with financing, providing rental guarantees for 3 years, providing pre-completion inspection services and ensuring that defects in the units sold by it are remedied. The second defendant, Mr Yue (Justin) Wang, is the sole director of PIA and is also a licensed real estate agent.
On 15 May 2012, Ryde and PIA entered into an exclusive agency agreement (the First Agreement) and 16 deeds of put option (the First Put Options). The precise characterisation of the relationship between the parties created by those agreements is a central issue in this case to which it will be necessary to return. For present purposes it is sufficient to observe that:
1. Under the terms of the First Agreement, Ryde appointed PIA as its exclusive agent up until 30 days after the registration of the Development's strata plan to market and to sell 16 nominated one bedroom units in the Development off the plan at or above a minimum price fixed for each unit by the agreement (referred to as the "Minimum Unit Price" or "MUP"). The total of the MUPs for the 16 units was $7,210,000;
2. Under the terms of the First Agreement, PIA did not have authority to enter into contracts for the sale of the units covered by the agreement on Ryde's behalf. However, by cl 4.4(g), Ryde warranted that it "will not unreasonably refuse for any reason to exchange contracts with any Purchaser referred or introduced by the Agent [PIA] during the currency of this Agreement of any Unit, provided that the Sale Price is equal to or not less than the MUP of the Unit concerned provided the completion date is not more than one (1) month after the day the Owner [Ryde] notifies the purchaser the strata plan for the Development has been registered, and the deposit is paid in accordance with clause 4.4(h) and (i)";
3. By cl 9.1 of the First Agreement, Ryde was required to pay "commission" to PIA on the sale of a unit which was calculated as the difference between the contract price and the unit's MUP.
4. Under the terms of each of the First Put Options, if the relevant unit was not sold, then Ryde could, at any time during the period commencing on the 21st business day after the registration of the strata plan for the Development and ending 80 business days after that date, require PIA to purchase the relevant unit at its MUP. That obligation was guaranteed by Mr Wang.
On 22 November 2013, Ryde and PIA entered into a second exclusive agency agreement (the Second Agreement) and 51 deeds of put option (the Second Put Options) relating to the sale of the balance of the units in the Development that had not been sold. The Second Agreement was in the same terms as the First Agreement, except for the addition of cls 4.6 (requiring PIA to refund any amount paid to it in respect of a sale if contracts were not exchanged) and 9.12 (permitting Ryde to defer paying commission until all lots covered by the agreement were sold to third parties or purchased by PIA under the put options). The total of the MUPs under the Second Agreement was $31,367,456. The Second Put Options were in the same terms as the First Put Options, except for the addition of an entire agreement clause.
PIA sold all but four of the units for substantially more than their MUPs and, on 24 February 2015, it rendered an invoice to Ryde for $5,106,024, which was the difference between the total sale price for the sold units and the total of their respective MUPs. Ryde has refused to pay that amount. Instead, it has paid the amount to its solicitors who hold the money in a controlled moneys account pending the outcome of these proceedings.
Ryde maintains that it is not obliged to pay the commission for two broad reasons. First, it claims that the First and Second Agreements (together, the Agreements) did not comply with the Property, Stock and Business Agents Regulation 2003 (NSW) (the Regulation), with the result that PIA is disentitled from claiming any commission under s 55(1) of the Property, Stock and Business Agents Act 2002 (NSW) (the Act). Ryde also claimed that the Agreements were void for statutory illegality. However, that claim was not pressed in final submissions.
Second, Ryde claims that PIA misled it concerning the fair market value for two bedroom units in the Development during the negotiations for the Second Agreement (but not the First Agreement). It claims damages for that conduct. That claim was put in terms of breach of fiduciary duty, as a claim for relief for misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL), and as a claim in negligence. A claim for damages for breach of a statutory duty arising from the Act was abandoned at the hearing, as was a claim said to be based on innocent misrepresentation.
By its amended summons and second further amended commercial list statement, Ryde seeks appropriate declarations, an order setting aside the Agreements and damages.
In response, PIA by its amended first cross-summons and second amended commercial list cross-claim statement claims:
1. Payment of commission of $5,105,724 under the Agreements, plus interest since 25 February 2015;
2. Alternatively, payment of commission of $3,465,724 under the Second Agreement;
3. Damages for Ryde's refusal to enter into agreements with the purchasers of lots 2, 37 and 40 introduced by PIA.
[4]
The Act and the Regulation
The Act has been amended since the circumstances giving rise to these proceedings occurred. References to the provisions of the Act and Regulation in this judgment are references to their provisions as they existed at the relevant time.
Section 55(1) of the Act provides:
A licensee is not entitled to any commission or expenses from a person for or in connection with services performed by the licensee in the capacity of licensee for or on behalf of the person unless:
(a) the services were performed pursuant to an agreement in writing (an agency agreement) signed by or on behalf of:
(i) the person, and
(ii) the licensee, and
(b) the agency agreement complies with any applicable requirements of the regulations, and
(c) a copy of the agency agreement signed by or on behalf of the licensee was served by the licensee on that person within 48 hours after the agreement was signed by or on behalf of the person.
"Licensee" is defined to mean "the holder of a licence under this Act". "Commission" is defined in s 54 to mean "remuneration by way of commission, fee, gain or reward for services performed by a licensee in the capacity of licensee".
Under s 8 of the Act, a natural person is not entitled to carry on the business of a "real estate agent" unless the person is a holder of a real estate agent's licence. Under s 8(2), an unregistered person is not entitled to bring any proceeding in any court to recover "any commission, fee, gain or reward" for any service performed by the person as a real estate agent.
Under s 9 of the Act, a corporation is not entitled to carry on business as an "agent" (which is defined to include "a real estate agent") unless the corporation holds a licence. Again, under s 9(2), a corporation is not entitled to bring any proceeding in any court to recover any "commission, fee, gain or reward for any services performed by the corporation as an agent unless the corporation was the holder of a corporation licence at the time of performing the service".
"Real estate agent" is relevantly defined to mean:
… a person (whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business as an auctioneer of land or as an agent:
(a) for a real estate transaction, or
(b) for inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept an offer to enter into, a real estate transaction or a contract for a real estate transaction, or
(c) for the introduction, or arranging for the introduction, of a prospective purchaser, lessee or licensee of land to another licensed agent or to the owner, or the agent of the owner, of land, or
(d) …
(e) …
but does not include a person who carries on business as an auctioneer or agent in respect of any parcel of rural land unless the regulations otherwise provide.
[5]
The Agreements
The essential terms of the Agreements and the Put Options have been described above. However, a number of other terms are relevant.
Recital E of the Agreements provides:
The Owner acknowledges:
(i) receipt from the Agent a copy of the approved guide entitled Agency Agreements for the sale of residential property not more than one month before the signing of this Agreement (February 2010 FTR 32) in compliance with s.56 of the Act;
(ii) any requirements under the Regulation forming part of the sales inspection report which are not incorporated into this Agreement is waived by the Owner.
The Agreements also contain many terms which are typical of a normal real estate agency agreement and contain a number of provisions which are directed at satisfying the requirements of the Act and the Regulation. Ryde relies on those provisions as indicating that PIA was acting as a real estate agent in selling the units that were the subject of the Agreements. It is not necessary to refer to all of the provisions relied on by Ryde. It is sufficient to refer to a number of them by way of illustration.
By cl 2a.(d) of the Agreements, PIA warrants that:
[I]t will attend to the marketing and promotion of the sale of the Units, including advertising and holding of seminars to promote the sale of the Units, without any cost to the Owner other than the commission which the Owner has to pay or give to the Agent pursuant to or under the terms of this Agreement …
By cl 3a. of the Agreements, Ryde acknowledges that PIA "has only been able to view the Land and such plans that [Ryde] has shown to [PIA] of the Development". By cl 3b, Ryde agrees that "the information contained in this Agreement shall be deemed to satisfy the obligation of [PIA] to provide a sales inspection report".
By cl 4.3 of the Agreements, Ryde acknowledges that "the required statement pursuant to clause 13 and part 1 of Schedule 8 to the Regulation is contained under the Remuneration Section in this Agreement".
Clause 10 of the Agreements contains statements required to be given pursuant to cl 13 and Parts 1 and 2 to Schedule 8 of the Regulation.
Clause 20(c) of the Agreements provides:
By signing this Agreement, the Owner acknowledges that the requirement in ss55(1)(c) of the Act requiring the Agent to provide copy of the signed agency agreement within 48 hours of the Owner's signing has been satisfied.
[6]
Factual background
The circumstances leading up to the signing of the First Agreement and First Put Options are not important. There is no allegation that PIA breached its duties (as opposed to the provisions of the Regulation) in connection with those agreements.
During the period from May 2012 to April 2014, only one unit the subject of the First Agreement was sold. Contracts for that unit were exchanged on 21 September 2012. The unit was sold for $510,000, $30,000 above its MUP.
Construction of the Development commenced in about January 2013. It was estimated at that time to take 18 months to complete. However, due to bad weather, it took an additional six months.
In early May 2013, Mr Gabra contacted Mr Wang to enquire whether PIA would be interested in selling the remaining units in the Development. Mr Wang asked for a description of the units, which Mr Gabra emailed to him on 9 May 2013.
Initially, Mr Wang showed limited interest in selling the remaining units. In cross-examination, he explained that he understood that Mr Gabra wanted an arrangement for the sale of the balance of the units which was similar to the agreements they had reached in relation to the sale of the one bedroom units. He thought that in those circumstances, he should take a passive role and wait for Mr Gabra to come up with prices that he wanted and that were acceptable to Mr Wang. Mr Wang's evidence is consistent with what actually happened, although nothing turns on Mr Wang's motives for acting in the way that he did.
Mr Gabra followed up his initial conversation with Mr Wang with an email dated 27 May 2013. Mr Wang replied on 22 June 2013 saying that "The time fly. We may meet next coming week". Mr Gabra responded on 24 June 2013 in these terms:
would you please send me the prices you think the units worth as agreed.
You told me that you will come up with TWO different prices:
1- If you sell them on my behalf with commission paid [to] you.
2- If you give me a guaranteed sale like the deal we already did.
You told me four weeks ago that your marketing team has been working on these prices.
I would like you to send me this list of prices before meeting so We know what we are talking about.
Mr Wang did not reply to that email. However, it appears that Mr Gabra and Mr Wang arranged to meet on 10 July 2013. In advance of that meeting, on 9 July 2013, Mr Gabra sent Mr Wang an email attaching "the price list of what I want for the units". The email also said "Please let me know if these prices need adjustments". Mr Gabra says that the prices (which were handwritten on a list of the units for sale) were based on information he had obtained from other agents together with his "personal opinion and experience as a developer".
[7]
Does the Act apply?
The application of the Act and of s 55, in particular, turns on whether PIA, in performing the services it did under the Agreements, was acting as an agent for the sale of units the subject of the Agreements "for and on behalf of" Ryde. Ryde submits that it was for a number of reasons.
First, contrary to the submissions of PIA, Ryde submits that the word "agent" in the phrase "as an agent", which appears in the definition of "real estate agent", is not to be understood in its ordinary sense. PIA submitted that the reference to "as an agent" in the definition must be a reference to an agent as ordinarily understood. It cannot be a reference to an "agent" as defined in the Act, since, if it were, the definition of "real estate agent" would be circular. Ryde takes issue with that submission. In its submission, the words "as an agent" are included in the definition of "real estate agent" because the definition applies both to a person who carries on business as an "auctioneer of land" (which is also defined) and also other people who engage in the activities identified in paras (a) to (e) of the definition. If the definition had not intended to catch auctioneers of land as well, the definition could simply have read:
real estate agent means a person (whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business:
(a) …
Moreover, according to Ryde, if "agent" is interpreted as meaning an agent as ordinarily understood, the definition of "real estate agent" would be otiose. The purpose of the definition is to make it clear that a person who carries on business of engaging in the activities listed in paras (a) to (e) is a real estate agent for the purposes of the Act. That definition would be unnecessary if a real estate agent was simply an agent as ordinarily understood.
In addition, even if those submissions are not correct, "as an agent" is simply used to make it clear that the definition of "real estate agent" is not intended to catch persons who engage in the relevant activities as principal.
Second, Ryde submits that even if "agent" is to be interpreted as meaning an agent as ordinarily understood, PIA clearly meets that requirement in this case. That is clear from the terms of the Agreements and the activities actually undertaken by PIA.
[8]
Did PIA comply with the requirements of s 55 of the Act?
Ryde's contention that PIA did not comply with the requirements of s 55 of the Act has two limbs. The first is that PIA did not comply with cls 4, 5 and 7 of Schedule 8 of the Regulation. The second is that the "applicable requirements of the regulations", referred to in s 55 of the Act also include the obligations set out in Schedules 1 and 2 of the Regulation and that PIA failed to comply with a number of those obligations including Schedule 1, cl 2 (requiring an agent to comply with fiduciary obligations arising as an agent), cl 3 (requiring an agent to act honestly, fairly and professionally with all parties in a transaction and not to mislead or deceive any parties in negotiations or a transaction), cl 6 (requiring an agent to act in the client's best interest at all times), cl 11 (requiring an agent not to accept an appointment to act where the agent would have a conflict), cl 19 (requiring an agent not to enter into an agreement that conflicts with the Act or the Regulation), and Schedule 2, cl 2 (requiring an agent to provide a sales inspection report containing the matters set out in that clause).
I do not accept the second limb of Ryde's argument. The short answer to Ryde's point is that reg 13 specifically says that "For the purposes of section 55 of the Act, an agency agreement must comply with the requirements of Schedules 7-14 as to the terms, conditions and other provisions that an agency agreement must or must not contain". It says nothing about the provisions of Schedules 1 and 2. Those schedules operate by reason of reg 11, which provides that the rules of conduct set out in those schedules are prescribed for the purposes of s 37 of the Act. It is plain that those requirements are not "applicable requirements of the regulations" for the purposes of s 55.
That leaves cls 4, 5 and 7 of Schedule 8.
Schedule 8, cl 4 applies "If the agreement provides for the property to be offered for sale by private treaty". The question raised by that clause is what the agreement provides, not what actually happened. In the present case, the Agreements did not provide for the sale of the units by private treaty. They did not provide any particular method of sale. Instead, they provided in cl 5.2 that PIA had "full and final discretion on the promotion, negotiation and marketing of the Units". Moreover, under cl 4.4(g), Ryde warrants that it "will not unreasonably refuse for any reason to exchange contracts with any Purchaser referred or introduced by the Agent during the currency of this Agreement of any Unit, provided that the Sale Price is equal to or not less than the MUP of the Unit concerned". It is plain from these provisions that PIA was entitled to determine the method of sale under the Agreements. As a result, cl 4 had no application.
[9]
Estoppel
PIA submitted that, even if it had failed to comply with the provisions of Schedule 8, Ryde was estopped from relying on those failures for the purpose of denying PIA's claim for commission under the First Agreement. It does not rely on estoppel in relation to the Second Agreement because of the availability of relief under s 55A of the Act in respect of that agreement.
The estoppel is said to arise from representations made in the First Agreement, that Ryde would not rely on any of the non-compliances, and what is said to be PIA's detrimental reliance on those representations by entering into the First Agreement and arranging for the sale of the 16 units the subject of the agreement between February and October 2014.
Having regard to the conclusions I have reached, it is not necessary to consider PIA's estoppel case. However, had it been necessary to do so, I would have concluded that an estoppel did not operate in this case.
Whether an estoppel can operate against a statutory right or prohibition depends on the terms of the statute. An estoppel may be available where the statute, on its proper construction, is designed to confer a benefit on an individual or class of individuals. It is not available where the purpose of the statute is to protect a particular class of individuals in the public interest: see Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39 at 404-7 per Mason CJ; at 456 per Dawson J; Tudor Developments Pty Ltd v Makeig (2008) 72 NSWLR 624; [2008] NSWCA 263 at [15] per Basten JA (with whom Beazley JA agreed); [89]-[90] per Handley AJA. Nor is it available where the statute prevents the parties from contracting out of the rights it confers and the obligations it imposes: Metropolitan Health Service Board v Australian Nursing Federation (2000) 99 FCR 95; [2000] FCA 784 at [21] per French J.
In Overmyer Industrial Brokers Pty Ltd v Campbells Cash & Carry Pty Ltd [2003] NSWCA 305, the Court of Appeal considered whether an estoppel was available against s 42AA of the 1941 Act. On that issue, Young CJ in Eq (with whom Meagher and Beazley JJA agreed) said (at [55]):
It would seem to me almost unarguable that the legislature has made it as plain as plain can be that there is not to be recovery of the remuneration in the instant case and that no estoppel in the face of the statute will lie.
[10]
Section 55A
PIA also submitted that if it had failed to comply with s 55 of the Act, it was entitled to relief under s 55A in respect of the Second Agreement. Again, having regard to the conclusions I have reached, it is not strictly necessary to consider this question. However, assuming that I am wrong in the conclusions I have reached, I would have granted relief under s 55A.
The court has power to make an order under s 55A in respect of a failure to comply with the Regulations if (a) the failure was minor; (b) no loss was suffered by Ryde as a consequence of the failure; and (c) a failure to make the order would be unjust.
In my opinion, each of these conditions was satisfied in this case.
Assuming there was a failure to comply with Schedule 8, cls 4, 5 and 7, each of those failures was minor. The failure to comply with cl 4 was minor because the selling price of the units was irrelevant to Ryde. The only amount that was relevant to Ryde was the MUP for each unit, which was clearly set out in the Second Agreement. The failure to comply with cl 5 was minor. A copy of the guide was provided to Ryde. Although it was not provided in respect of the Second Agreement, the Second Agreement mirrored the First Agreement and related to the sale of units off the plan in respect of the same Development. The failure to comply with cl 7 was minor given the nature of the transaction. The contract was for the sale of a large number of units off the plan in a development undertaken by Ryde. The Second Agreement and the Second Put Option already contained much of the information that would have been contained in the sales inspection report including the principal's name and address, the agent's name, address and telephone number, a description of the property and of the fittings and fixtures included in the sale of the property, and a description of the terms and conditions of sale known to the agent. Some of the information that was to be included in the report was irrelevant to Ryde, such as the agent's recommendation on the most suitable method of sale of the property, the agent's estimate of the selling price and details of any special instructions about the marketing and showing of the property. Consequently, the failure to attach what would have been a largely irrelevant report was minor.
I am satisfied that Ryde suffered no loss as a consequence of the failure to comply with Schedule 8, cls 4, 5 and 7. It is not obvious how the failure to comply with any of those clauses could have caused Ryde loss. Ryde submits that it suffered loss because PIA did not provide an estimate of the selling prices for the units or a price range, which would have been included in a sales inspection report. However, the parties had extensive discussions about the expected selling prices of the units and the discount that should be given to PIA if it agreed to the Put Options. There is no reason to think that the sales inspection report would have contained a different set of prices. And it is difficult to see how Ryde suffered any loss because of the failure to attach to the Second Agreement a sales inspection report that included those prices.
[11]
Breach of fiduciary duties
It is convenient to begin with the claim that PIA breached its fiduciary duties in connection with the Second Agreement.
Ryde's claim that PIA breached its fiduciary duties has the following steps:
1. An accepted category of fiduciary relationship is principal and agent: see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64 at 96-7 per Mason J;
2. Fiduciary duties can arise prior to the formation of the relationship that gives rise to them, such as during negotiations between the parties about entry into the particular agreement or arrangement giving rise to the fiduciary relationship: United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; [1985] HCA 49 at 5-6 per Gibbs CJ (in relation to negotiations for a partnership);
3. A fiduciary must account to the person to whom the fiduciary duties are owed for any benefit or gain which is obtained in circumstances where a conflict or significant possibility of conflict existed between the fiduciary's duty and the fiduciary's personal interest, at least in the absence of fully informed consent: Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36 at 198-9 per Deane J;
4. The relationship between PIA and Ryde was one of principal and agent and that was the relationship for which the parties negotiated. Consequently, PIA owed Ryde fiduciary obligations in negotiating and in discharging its obligations under the Second Agreement;
5. There was a direct conflict between Ryde's interests and those of PIA, since it was in Ryde's interest for the MUP in respect of each unit to be as high as possible whereas it was in PIA's interest for it to be as low as possible;
6. In those circumstances, PIA could only act if it advised Ryde not to rely on any advice it gave concerning the value of the units, if it disclosed to Ryde all the matters it was aware of that were relevant to the likely sale prices of the units, and if it obtained Ryde's consent to continue to act as its agent in those circumstances, which PIA failed to do.
The principal difficulty with this argument is step (b). A fiduciary relationship may exist before the formal agreement giving rise to the fiduciary relationship comes into existence. But that depends on the precise nature of the relationship between the parties at the time the fiduciary duty is said to arise. The example given by Gibbs CJ in United Dominions Corporation, in the passage on which Ryde relies, was illustrated by the decision of Lord Lyndhurst LC in Fawcett v Whitehouse (1829) 1 Russ & M 132; 39 ER 51, where it was held that (to quote Gibbs CJ at 5) "a person who is negotiating for himself and his future partners as an agent for the intended partnership, and who clandestinely receives an advantage for himself, must account for that advantage to the partnership when it is formed". The principle referred to by Gibbs CJ was explained in these terms by Mason, Brennan and Deane JJ (at 12):
A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.
It is apparent from this passage that the proposed partners in the example given by Gibbs CJ did not owe fiduciary duties to one another in relation to the negotiations of the terms of their partnership. Rather, they owed fiduciary duties because they had already commenced the partnership business or taken steps in the expectation that they would be in partnership, notwithstanding the fact that the agreement embodying the terms of their partnership had not been signed.
[12]
Misleading or deceptive conduct
The question whether conduct was misleading or deceptive in contravention of s 18 of the ACL turns on whether the conduct has a tendency to lead a person into error. The test is an objective one. It requires consideration of the impugned conduct as a whole: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [25] per French CJ. Where silence is said to form part of the misleading or deceptive conduct it will be relevant to consider "the knowledge of the person to whom the conduct is directed …[and] the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business" in order to form a view on whether there was "a reasonable expectation of disclosure" as an aid to characterising the conduct as misleading or deceptive: Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31 at [20] per French CJ and Kiefel J.
Essentially, Ryde's pleaded case based on s 18 of the ACL has two limbs. First, it alleges that Mr Wang, by providing Mr Gabra with the sales prices for units in the development at 4-8 Angas Street in the circumstances that he did, represented that the likely sales prices for the two bedroom units were "in the high five hundreds" and that the sales that were being achieved in the development at 4-8 Angas Street were the best comparison for likely sale prices for the two bedroom units in the Development. Second, it is alleged that PIA engaged in misleading and deceptive conduct by failing to inform Ryde of the fair market value of the two bedroom units in the Development and, in particular, that two bedroom units in the development at 3-13 Angas Street were comparable to those in the Development.
Ryde seeks relief on two bases. First, it seeks an order under s 237 of the ACL to the effect that the Second Agency Agreement be varied so as to permit PIA to recover commission at the rate of two percent of the sale price of each unit. Second, and in the alternative, it seeks damages under s 236 of the ACL, calculated as the difference between the MUP agreed for each two bedroom unit, which it says is an average of $600,000, and the MUP that Ryde would have agreed if the misleading conduct had not occurred, which it says is an amount of about $640,000.
[13]
Negligence
The claim in negligence does not raise substantially different issues. Ryde contends correctly that a real estate agent owes a duty to exercise due care and skill in the performance of the agent's duties. Those duties are said to include a duty to ensure that all information relevant to the price of the property is advised to the principal and a duty to disclose to the principal every material fact not known to the principal which affects the agent's opinion as to the fair market value of the property. Even assuming that that is a correct statement of the duties of a real estate agent in normal circumstances, it is not a correct statement of the duties of PIA in the particular circumstances of this case. For the reasons I have given in relation to the claims based on breach of fiduciary duty and misleading and deceptive conduct, PIA had no duty in this case of the type alleged.
[14]
PIA's cross claim
In relation to the three units in question, PIA submits that:
1. the relevant purchaser was introduced during the currency of the Second Agreement;
2. the sales price was greater than the applicable MUP;
3. consistently with its other obligations under the Second Agreement, it was not open to Ryde to fix a completion date that was more than one month after the day it notified the purchaser the strata plan for the Development had been registered;
4. the deposits for each unit had been paid in accordance with cls 4.4(h) and (l); and
5. therefore, under cl 4.4(g) Ryde was obliged to exchange contracts with the relevant purchasers.
Ryde, on the other hand, submits that at the time the exclusive agency period ended on 7 February 2015 the old contracts had not been rescinded and Ryde was not obliged to exchange contracts with the new purchasers following the expiration of that period.
I do not accept Ryde's submissions. Under cl 4.4(g), Ryde warranted that it would not "unreasonably refuse to exchange contracts with any Purchaser referred or introduced by [PIA] during the currency of the agreement" (emphasis added). The Agreements and, in particular, the Second Agreement (which is the relevant one) specifically contemplated that PIA might seek to substitute purchasers for particular units where the previous purchasers no longer wished to proceed. The new purchasers were introduced before the expiration of the exclusive agency period. It is not suggested that any of the new purchasers were unwilling or unable to complete within the time period specified in cl 4.4(g) or that any other condition to the operation of the clause could not be satisfied. Implicit in the clause is the notion that exchange or completion could occur after the agreement came to an end - or, more accurately, after the exclusive agency period came to an end. There is nothing unusual about that. The ancillary obligations imposed on Ryde - such as the obligations imposed by cls 4.4(j) and (k) - continued to operate to give effect to the obligation created by cl 4.4(g). The expiration of the exclusive agency period could not itself operate as a reasonable ground for refusing to exchange contracts when cl 4.4(g) operates by reference to when a purchaser is referred or introduced.
PIA calculates its loss on the three contracts as the difference between the MUP for the relevant unit and the price notified in the relevant sales advices, which totals $431,080. In my opinion, that is an appropriate basis on which to calculate PIA's losses. Ryde does not advance any reason to suggest otherwise.
[15]
Conclusion and orders
I have reached that there should be judgment in favour of PIA for the sum of $5,536,804 (that is, $5,105,724 plus $431,080). There appears to be no reason why Ryde should not pay interest on that amount at court rates from 24 February 2015 until the date judgment is entered. Moreover, there is no apparent reason why costs should not follow the event. However, I will give the parties an opportunity to make submissions on those matters if they wish to do so before final orders are made.
The parties should bring in short minutes of order to give effect to this judgment within 14 days of today's date. If the terms of the short minutes of order can be agreed, I will make them in chambers. If there are any outstanding issues, the matter may be relisted by contacting my Associate.
[16]
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: 21 April 2017
Parties
Applicant/Plaintiff:
Ryde Developments Pty Ltd
Respondent/Defendant:
The Property Investors Alliance Pty Ltd
Legislation Cited (7)
Property Stock and Business Agents Act 2002(NSW)s 55
Australian Consumer Law Interpretation Act 1987(NSW)s 33
Property, Stock and Business Agents Act 1941(NSW)
Property, Stock and Business Agents Act 2002(NSW)
Property, Stock and Business Agents Regulation 2003(NSW)
Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd [2017] NSWSC 436 | Case summary | Zoe
"Real estate transaction" is defined to mean "the purchase, sale, exchange, lease, assignment or other disposal of land, whether or not an auction is involved". "Land" is defined to include a lot within the meaning of the Strata Schemes (Freehold Development) Act 1986 (NSW).
Relevantly, the effect of these provisions is that a person or corporation is only entitled to recover commission (as defined) from a person for, or in connection with, acting as an agent for the purchase, sale, exchange, lease, assignment or other disposal of land (including a lot in a strata scheme) for or on behalf of that person if:
1. the person or corporation holds a real estate agent's licence;
2. the services were performed pursuant to a written agency agreement;
3. the agency agreement complies with any applicable requirements of the regulations.
Regulation 13(1) provides that, for the purposes of s 55 of the Act, an agency agreement must comply with the requirements of Schedules 7 to 14. Regulation 13(3) provides:
An agency agreement must not contain any term, condition or other provision that is inconsistent with a term, condition or other provision that the agency agreement is required to contain by this clause, but otherwise the terms, conditions and other provisions that an agency agreement can contain is not limited by this clause.
Schedule 7 sets out the terms applying to all agency agreements. Schedule 8 sets out the terms applying to agency agreements for the sale of residential property.
Relevantly, clauses 4, 5 and 7 of Schedule 8 provide:
4. Price at which property is to be offered
If the agreement provides for the property to be offered for sale by private treaty, the agreement must specify the price at which the property is to be offered.
5. Providing principal with consumer guide
The agreement must include a provision that states whether or not the agent provided the principal with a copy of the approved guide entitled "Agency Agreements for the Sale of Residential Property" (being the approved guide mentioned in section 56 of the Act) before the agreement was entered into and (if the guide was provided) specifies the date it was provided.
…
7. A sales inspection report to form part of the agreement
The agreement must include a copy of any sales inspection report prepared by the agent and given to the principal under clause 2 of Schedule 2.
Between the time the First Agreement and the Second Agreement were entered into, the Act was amended to include s 55A, which relevantly provides:
(1) A court or tribunal before which relevant proceedings are taken may order that commission or expenses are wholly or partly recoverable by a licensee who would otherwise not be entitled to the commission or expenses (under section 55) because of:
(a) a failure by the licensee to serve a copy of the relevant agency agreement on the person within 48 hours after it was signed by or on behalf of the person, or
(b) a failure of the relevant agency agreement to comply with the requirements of the regulations.
…
(3) A court or tribunal is not to make such an order in circumstances of a failure of the agency agreement to comply with the requirements of the regulations unless satisfied that:
(a) the failure is a minor failure, and
(b) no loss has been suffered as a result of the failure by the person for whom or on whose behalf the services concerned were performed, and
(c) failure to make the order would be unjust.
A number of other provisions of the Act and the Regulation are relevant to the way in which Ryde puts its case.
Section 37 of the Act provides:
Rules of conduct for licensee's business
(1) The regulations may prescribe rules of conduct to be observed in the course of the carrying on of business or the exercise of functions under a licence or certificate of registration.
(2) A licensee or registered person who without reasonable excuse contravenes a rule of conduct prescribed for the purposes of this section is guilty of an offence.
Maximum penalty:
(a) 100 penalty units in the case of a corporation, or
(b) 50 penalty units in any other case.
Regulation 11(1) provides that Schedules 1 to 6 are prescribed for the purposes of s 37 of the Act. Schedule 1 applies to all licensees and Schedule 2, Part 1 applies to real estate agents and registered persons they employ.
Schedule 1 relevantly provides:
2 Fiduciary obligations
An agent must comply with the fiduciary obligations arising as an agent.
3 Honesty, fairness and professionalism
(1) An agent must act honestly, fairly and professionally with all parties in a transaction.
(2) An agent must not mislead or deceive any parties in negotiations or a transaction.
…
6 To act in client's best interests
An agent must act in the client's best interest at all times unless it would be contrary to the Act or regulations under the Act or otherwise unlawful to do so.
…
11 Conflicts of interest
An agent must not accept an appointment to act, or continue to act, as an agent if doing so would place the agent's interests in conflict with the client's interests.
…
19 Agency agreements must comply with regulations
An agent must not enter into an agency agreement unless the agreement complies with any applicable requirements of this Regulation, as required by section 55 of the Act.
Clause 1 of Part 1 of Schedule 2 provides:
An agent must not act on behalf of a principal in respect of the sale of a property unless the agent has conducted a preliminary physical inspection of the property.
Clause 2 of Part 1 of Schedule 2 provides that on completion of the inspection required by cl 1, an agent must prepare and give to the principal a sale inspection report for the property. The clause then sets out the contents of the report which is to include "the agent's recommendation as to the most suitable method of sale of the property" (para (g)) and "the agent's estimate of the selling price (or price range) for the property" (para (h)).
Section 56 of the Act provides:
(1) A real estate agent must not enter into an agency agreement with a person for the sale of residential property unless the agent has provided the person with a copy of the approved guide not more than 1 month before the agreement is signed by or on behalf of the person.
Maximum penalty: 40 penalty units
(2) In this section:
approved guide means a guide with respect to the sale of residential property approved by the Director-General from time to time for the purposes of this section.
(3) A contravention of this section does not affect the validity of the agency agreement.
Besides clause 4.4(g) (quoted above), the Agreements contain a number of other terms relevant to PIA's cross-claim.
Clauses 4.4(j) and (k) provide:
The Owner warrants that the Owner
…
(j) will instruct and require the Owner's solicitor to reply promptly and reasonably to purchasers' inquiries or special requests within two business days of the receipt of the inquiry or request from the purchaser;
(k) will promptly attend to do all things and sign all documents that may be reasonably necessary to effect exchange of contracts with Purchaser introduced or referred by the Agent where the MUP sale price qualification above is met".
Clause 4.5 provides:
Further to clause 4.4(g), the Owner must not unreasonably delay exchange of contracts with Purchasers referred or introduced by the Agent, as long as the sale price is not less than the MUP for the Unit concerned.
Clause 7.1 relevantly provides that "The exclusive agency period on the sale of the Units in the Development … terminates at 5pm on the 30th day after the Owner has provided the Agent a copy of the registered strata plan for the Development".
Clause 7.3 provides:
The Owner agrees that the Owner must facilitate the replacement or substitution of the purchaser on any contract that is exchanged if requested by the Agent or the purchaser and confirmed by the purchaser of the unit concerned.
Clause 9.3 provides:
The Owner must still account for and pay the Commission on any Unit for which the Owner or any other party is the effective cause of the introduction or sale during the duration of the Agency Agreement; and the Owner must still account for and pay commission if the purchaser, from any source, enters into an unconditional contract with the Owner during the duration of the Agency Agreement and the contract is not completed though [sic] the fault of the Owner.
Clause 9.6 is also relevant. It provides:
The Owner acknowledges further that the Agent will have the incentive to do its best to achieve as high as possible Sale Price at all times and it is possible that the Agent may earn a higher rate of agent commission than normal and equally the Agent may earn a lower rate of agent commission than normal whether on a sale of a lot or from sales of more than one lot.
Mr Gabra and Mr Wang met on 10 July 2013. At that meeting, Mr Wang told Mr Gabra that he was interested in doing a deal in relation to the two bedroom units that was similar to the agreement in relation to the one bedroom units but that the prices sought by Mr Gabra were too high and that he would get back to him with prices that were acceptable to PIA. Mr Wang did not do so and Mr Gabra sent a follow-up email on 24 July 2013. In response to that email, Mr Wang sent an email attaching a price list which proposed sale prices somewhat less than those proposed by Mr Gabra. The covering email said "I may try 6.6% for this price list".
On 1 August 2013, Mr Wang sent Mr Gabra a price list he had obtained for units in a development at 4-8 Angas Street, Meadowbank. That development was less than a kilometre from the Development. Mr Gabra responded to that email the following day saying:
… these prices are with 2% commission not 6% which makes massive difference to the developer.
My pricing is the same as [Angas] street development but we increased the price to cover your 6% commission.
Based on the above and the prices I think you need to price my units accordingly and come up with a commission that would make it worth while [sic] for both of us.
There is a dispute concerning how Mr Wang came to send Mr Gabra a copy of that price list. According to Mr Wang, Mr Gabra asked Mr Wang whether he knew about the development and whether Mr Wang could send him a copy of the price list if Mr Wang managed to obtain a copy. Mr Wang says that one of his agents subsequently obtained a copy and, in accordance with Mr Gabra's request, Mr Wang provided a copy to Mr Gabra. On the other hand, Mr Gabra says that Mr Wang, when discussing the prices for the two bedroom units in the Development, said:
The only way to get mid six hundreds for them is to sell them to my clients with my 6.6% commission included, because the prices in the area for brand new units are high five hundreds according to a building selling in the area of 4-8 Angas Street, Meadowbank.
Following that conversation, Mr Gabra says that he drove past the development.
In a subsequent conversation, Mr Gabra says that he and Mr Wang discussed whether the 4-8 Angas Street development was comparable to the Development. During that conversation, Mr Wang is alleged to have said that the development was "the best comparison in Meadowbank" and that "[i]t's the only comparison in Meadowbank".
I prefer the evidence given by Mr Wang on this aspect. Mr Gabra's email in response to the price list does not make much sense if Mr Wang had already said to him that the only way to get prices in the mid six hundreds was to sell the units to clients of Mr Wang. Mr Gabra says that they had many conversations regarding the development at 4-8 Angas Street. However, that does not seem likely, given Mr Wang's generally unresponsive attitude. Similarly, it seems unlikely that Mr Wang would have sent Mr Gabra a copy of the pricelist without a request from Mr Gabra when Mr Wang did nothing else without being prompted by Mr Gabra. It also seems unlikely that Mr Gabra and Mr Wang would have focussed on the development at 4-8 Angas Street and not discussed other nearby developments in Ryde, of which there were a number, including developments in Belmore Street almost opposite the Development. It is true that the precise status of the other developments at the time of the conversation is not clear from the evidence. However, it seems unlikely that Mr Wang would have pointedly referred only to comparisons in Meadowbank when the likelihood is that both he and Mr Gabra were aware of the other developments in Ryde.
Again, Mr Wang did not respond to Mr Gabra's email. Mr Gabra sent an email on 13 August 2013 requesting a response. In that request he said:
I am still waiting for the price list which you think is suitable to sell the site and work for both of us. As mentioned to you before the attached prices [for 4-8 Angas Street] are for 2% and not 6% commission and nearly all 2 bedroom units are sold already.
The email went on to say that another agent had submitted a price list and that Mr Gabra wanted to put the units on the market by mid-September 2013 and therefore needed to make a decision.
Mr Wang responded to that email later that day apologising for the delay and asking for the prices and commissions proposed by the other agents. Shortly afterwards, Mr Gabra replied saying that he had two agents "who sell [through] the Asian market", one of whom charged 5% and the other 4%. He also said he had a local agent who would charge 2% and that the average price for two bedroom units was about $625,000.
Mr Gabra then went away for two weeks. On his return, on 2 September 2013, he sent an email to Mr Wang attaching what was said to be final prices for the Development. The attached list gave two prices: one on the assumption of a 5 percent commission; the other on the assumption of a 2 percent commission. Mr Gabra said he used the average of the prices shown on the price list he had obtained for the development at 4-8 Angas Street (which he said was $600,000) and made adjustments to those prices to take account of factors such as size of the unit, location and outlook on the assumption that Ryde would pay commission at the rate of 5 percent. He then deducted 3 percent of that amount to arrive at a figure on the assumption that Ryde would pay commission at the rate of 2 percent. It is apparent from this list that Mr Gabra had a clear view of what he wanted for the units and was prepared to adjust the prices of the units to achieve these amounts depending on the amount of commission that would be deducted.
At a meeting on or about 5 September 2013, Mr Gabra and Mr Wang discussed a price list showing the suggested prices proposed by Mr Gabra assuming a 5 percent commission. Mr Gabra has no real recollection of that meeting, except that during the course of it he recalls that Mr Wang said that he wanted 6.6 percent commission. That evidence is consistent with evidence given by Mr Wang and with the fact that Mr Wang wrote "6.6%" on the price list. Mr Wang also says that at that meeting Mr Gabra repeated that he would prefer to do a deal that was similar to the First Agreement and First Put Options and asked Mr Wang to provide a list of prices that he would be willing to pay on that basis. Following the meeting, Mr Gabra calculated the MUPs for the units on the basis that they would be 6.6 percent less than the prices that he had proposed on 2 September 2013 assuming a commission of 5 percent.
Again, Mr Wang delayed in providing Mr Gabra with a price list. Mr Gabra sent an email on 11 September 2013 asking for the list. Mr Wang finally sent the list on 16 September 2013 and then a revised list on 24 September 2013. The revised list was based on Mr Gabra's list sent on 2 September 2013, except that it contained an additional column headed "Option Price". The covering email stated that Mr Wang had deleted the big units because "I feel difficult to price". The option prices were based on an 8 percent discount on the prices proposed by Mr Gabra assuming a 5 percent commission.
Mr Gabra responded to the revised list on 25 September 2013 asking how many units would be subject to the option arrangement "because that will make a difference to the price I will accept". Mr Wang replied the same day saying that he would leave the number to Mr Gabra, but that he would want an agreement that Mr Gabra not sell the units he kept until PIA had sold all the units the subject of the Put Options. Mr Gabra responded the following day saying that if Mr Wang wanted to include a condition of that type then all the units would need to be sold on the basis that Ryde had a put option in respect of the units.
Nothing further of significance happened until 18 October 2013, when Mr Gabra and Mr Wang met to discuss the prices proposed by Mr Wang. After some discussion, Mr Wang agreed to prices that involved a discount of 6.6 percent on the prices proposed by Mr Gabra on 2 September 2013 assuming a commission of 5 percent. Both parties then instructed their solicitors to prepare agreements on that basis.
Mr Gabra and Mr Wang spoke by telephone on 21 November 2013, at which time it was agreed that PIA would also sell the remaining three bedroom units, again at a discount of 6.6 percent on the price that Mr Gabra had sought in his 2 September 2013 email (assuming a commission of 5 percent).
As I have said, the Second Agreement and Second Put Options were signed on 22 November 2013.
Almost directly opposite the Development in Belmore Street are two developments undertaken by Holdmark known as "The Oxford" and "The Row". Together, they comprise approximately 500 residential units. At the time Mr Wang was negotiating with Mr Gabra, he was also negotiating with Holdmark for PIA to be appointed an agent for the sale of those units. Mr Wang says that he mentioned to Mr Gabra that there was a possibility that PIA would be appointed as agent in relation to those developments; and given their proximity to the Development, it is hard to believe that Mr Gabra was not aware of them.
In fact, in late 2013 or early 2014 Holdmark appointed both CBRE and PIA to sell the units in the two developments. The prices of the units in those developments were determined by CBRE, presumably in consultation with Holdmark in or shortly before February 2014. The two agents then, in effect, drew lots to determine which agent would be responsible for the sale of units in which development. PIA got The Row. It had a launch for the sale of units in that development shortly afterwards.
Mr Wang described the market for the sale of the units in The Row as "hot". He also says, and I accept, that based on the asking price of units in that development and the successful sale of units in that development, he realised that PIA would be able to ask more for units in the Development than he had anticipated, which is what PIA did. In fact, over the following year, PIA was able to sell almost all the units in the Development for substantially more than their respective MUPs. In the case of units the subject of the Second Agreement, in most cases, the sale price was $30,000 more than the sale price set out in the list Mr Gabra had sent Mr Wang on 2 September 2013 (assuming commission of 5 percent). In the case of the units the subject of the First Agreement, the sale price was generally $100,000 more than the MUP, and in some cases more than that.
It is not disputed that PIA engaged in many of the activities of a real estate agent in selling the units that were the subject of the Agreements. Those activities included marketing the units for sale through the internet, by advertising the units and contacting potential purchasers directly, negotiating with potential purchasers, issuing sales advices to Ryde's solicitors in relation to sales and accepting "expression of interest" payments and deposits from potential and actual purchasers.
Mr Gabra began receiving Sales Advice Notices from PIA in March 2014 showing the prices that PIA was obtaining for the units. It appears that at about that time he had a discussion with Mr Sukkar, who had originally introduced him to Mr Wang. Mr Sukkar told Mr Gabra of a development at 3-13 Angas Street, Meadowbank, which was a large development opposite 4-8 Angas Street. Units in that development were advertised for sale on or about 1 October 2013 and a display unit for the development was opened on 5 October 2013. Contracts for the sale of 107 two bedroom units were exchanged in that development between about 18 October 2013 and 22 November 2013 at an average price of $650,000.
Following Mr Sukkar's conversation with Mr Gabra on 20 March 2014, Mr Sukkar sent Mr Gabra a copy of an extract from a LandMark White Valuation of units in that development. On receiving that extract, Mr Gabra arranged to meet Mr Wang on 24 March 2014. At that meeting, Mr Gabra complained that Mr Wang had not told him about the development at 3-13 Angas Street and the higher prices that had been achieved in that development. He asked Mr Wang to adjust the MUPs in the Second Agreement accordingly. Mr Wang refused to do so.
The strata plan for the Development was registered on 7 January 2015, with the result that the Agreements expired on 7 February 2015. Completion of the sale of 63 residential units in the Development took place between 20 and 24 February 2015. Four lots were not sold. They were lots 2, 37, 40 and 59.
PIA claims damages in respect of lots 2, 37 and 40. Each of those lots was the subject of the Second Agreement. PIA had introduced a purchaser for each lot in 2014. In January 2015, each of those purchasers sought to rescind. Between 27 and 30 January 2015, PIA provided Sales Advice Notices to the solicitors acting for Ryde in respect of each of the three units notifying a sale for a price which exceeded the applicable MUP. Each notice contained a notation to the effect that the previous purchaser was not proceeding. On 6 February 2015, the previous purchasers of lots 37 and 40 provided signed deeds of rescission to Ryde and the previous purchaser of lot 2 provided a scanned copy of a signed deed of rescission to Ryde on 16 February 2015 and the original on 19 February 2015. Ryde executed all three deeds on that day. However, on 23 February 2015 Ryde declined to exchange contracts with replacement purchasers. It gave two reasons. First, at the time PIA provided the relevant sales advice, the previous contracts remained on foot. Second, each of the proposed contracts provided that settlement was not to occur for more than 30 days.
Third, Ryde submits that the interpretation advanced by Ryde is supported by the decision in Investmentsource Corporation Pty Ltd v Knox Street Apartments Pty Ltd (2002) 56 NSWLR 27; [2002] NSWSC 710. That case concerned s 42AA of the Property, Stock and Business Agents Act 1941 (NSW) (the 1941 Act), which was the predecessor of s 55 of the Act. Section 42AA(1) relevantly provided:
A licensee shall not be entitled to:
(a) any remuneration by way of commission, fee, gain or reward for services performed by the licensee in his or her capacity as licensee, or
…
from the person for whom or on whose behalf those services were performed unless:
(c) the agreement pursuant to which those services were performed is in writing and signed by or on behalf of:
(i) the licensee, and
(ii) that person,
(d) the agreement contains such terms (if any) as may be prescribed, and
(e) a copy of the agreement was served by the licensee on that person within 48 hours of the agreement being signed by or on behalf of that person. …
As in the case of the Act, the effect of the 1941 Act was that s 42AA(1) applied to a licensed real estate agent acting in that capacity. "Real estate agent" was defined in a similar way to the definition of that expression in the Act. In particular, the definition included a person who "for reward … carries on business as an agent for … (a) inducing or attempting to induce or negotiating with a view to inducing any person … to buy, sell, exchange, lease, assign or otherwise dispose of any land, or (b) buying, selling exchanging leasing, assigning or otherwise disposing of any land, whether or not an auction is involved …".
The facts of Investmentsource were similar to the facts of the present case. The first defendant, Knox, owned a residential development in Chippendale. It entered into a written agreement with the plaintiff, Investmentsource, a licensed real estate agent, by which Investmentsource was appointed the exclusive agent to market the units in the development and Knox agreed to pay Investmentsource a marketing commission for the sale of the units. In addition, Milton Street Holdings Pty Ltd, a company related to Investmentsource, granted Knox a put option in respect of each of the units at a price fixed by the option. Knox was required to exercise that option in respect of a unit if the unit was not sold to a third party. The marketing commission payable by Knox to Investmentsource was the difference between the sale price, which was fixed by Milton, and the amount at which Milton was required to buy unsold units under the put option. In concluding that s 42AA applied to the sale of the units, Barrett J said:
[21] It is clear, in my view, that Investmentsource, in performing its role under [the agreement] was, for reward (being the payments provided for in clause 7), carrying on a business as an agent for matters within paragraphs (a) and (b) of the definition of "real estate agent"; …
[22] I should only add that I do not accept the submission made on behalf of Investmentsource that, in performing its selling role, Investmentsource was not acting for Knox and that, because it was Investmentsource which stood to gain profit over and above the stipulated base price for each unit, it was really selling for its own benefit and that of Milton (the benefit of Milton coming from the fact that a sale by Investmentsource caused the potential of an enforced purchase by Milton to be removed). The fact is that the seller under a sale arranged by Investmentsource was Knox; that so much of the proceeds of such a sale as did not exceed the base price went to Knox; and that, under clause 6.1 of the … agreement, it was the function of Investmentsource to "introduce Third Party Purchasers to the Vendor [Knox]". Knox was thus the client or principal of Investmentsource in the usual way and Knox was the seller of each unit sold to a buyer introduced by Investmentsource.
Ryde submits that, applying the same reasoning, PIA was acting as its agent in selling the units the subject of the Agreements.
PIA, on the other hand, submits that the expressions "as an agent" and "on behalf of" must be given their ordinary meaning and that on those meanings PIA was not acting as agent for or on behalf of Ryde. It advances a number of reasons in support of that submission.
First, it relies on the following statement of Mellish LJ in Ex parte White; Re Neville (1871) 24 LT 45; (1870) 6 Ch App 397:
But if the consignee is at liberty, according to the contract between him and his consignor, to sell at any price he likes, and receive payment at any time he likes, but is to be bound, if he sells the goods, to pay the consignor for them at a fixed price and a fixed time - in my opinion, whatever the parties may think, their relation is not that of principal and agent.
The position of the consignee in that case is said to be similar to the position of PIA in the present one.
Second, PIA submits that one of the key duties of an agent is to work "assiduously and diligently to elicit the most advantageous offer in the circumstances": see Markson v Cutler [2007] NSWSC 1515; 13 BPR 25 at [35] per Brereton J. Because of the contractual relationship between the parties, PIA did not have that duty.
Third, the entire risk of the transaction was with PIA, not with Ryde.
Fourth, the Agreements contained terms which are said to subvert the usual hallmarks of an agency relationship, including the fact that under cls 7.3-7.5 PIA could require Ryde to facilitate the substitution or replacement of the purchaser; and under cl 8 Ryde, not PIA, was to act as stakeholder. In addition, PIA was entitled to decide the method of sale and was obliged to pay the sale costs and Ryde was required to act at the behest of PIA.
Lastly, PIA submits that Investmentsource is distinguishable from the present case for two reasons. First, in that case the licensee was not the same entity as the underwriter (Milton). In the present case, they are one and the same. Second, in Investmentsource, Knox had both a right and an obligation to require Milton to buy unsold units at the specified price. In the present case, Ryde did not have an obligation to exercise the Put Option.
I do not accept the first of Ryde's submissions. However, I have concluded that PIA was acting as an agent for Ryde in selling the units the subject of the Agreements.
It is not easy to understand Ryde's submission that the definition of "real estate agent" does not require PIA to be acting as Ryde's agent as ordinarily understood. PIA's point is that "agent" cannot be a reference to agent as defined in the Act because "agent" as defined includes a "real estate agent" and "real estate agent" is defined to mean a person who acts as an agent in engaging in the activities identified in paras (a) to (e) of the definition. It is true that "agent" is used to refer to someone engaging in those activities other than an auctioneer. But that does not avoid the need to give meaning to the expression "as an agent". It is plain from the definition that a real estate agent is limited to a person who engages in the identified activities and who engages in those activities as an auctioneer or as an agent. Ryde is correct to submit that the phrase "as an agent" is included in the definition to make it clear, for example, that a real estate agent does not include a person who for reward engages in any of the activities identified in paras (a) to (e) as a principal. But it is not clear that that is the only purpose of the phrase; and put like that the submission begs the question of the difference between an agent and a principal in the context of the definition.
The word "agent" does not have a fixed meaning. Rather, its meaning must be ascertained from the context in which it appears, having regard to the legislative purpose of the requirement in which the expression is used: see CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; [1997] HCA 2 per Brennan CJ, Dawson, Toohey and Gummow JJ; Interpretation Act 1987 (NSW) s 33.
The purpose of the Act is to protect the interests of consumers of real estate agency services. It does that by regulating providers of those services through a system of licensing and the imposition on licensees of various obligations that are principally set out in the Regulation. It also prevents a licensee from recovering remuneration where the licensee has not entered into a contract that complies with the Act and the Regulation. It is evident that one of the concerns of the legislation is to ensure that a licensee discharges the usual obligation of a real estate agent to obtain the best price possible for the owner and a number of the provisions of the Act and the Regulation are directed to that end. But that is not the only concern of the legislation. Another important concern of the legislation is to ensure that an owner is properly informed concerning the terms on which the licensee is retained, including the terms governing the basis on which the licensee will be remunerated. Again, the Act and the Regulation contain a number of provisions directed to that end.
It is difficult to see why "agent" should be interpreted narrowly so that it does not catch a person unless that person performs all or most of the usual functions of a real estate agent, whatever they happen to be. The Act and Regulation are designed to protect consumers of real estate agency services. As I have said, an important way that they do that is by seeking to ensure that consumers are properly informed about the services that will be provided to them and the costs of those services. It would be odd to interpret that legislation as not applying where the proposed services are not typical of a real estate agency relationship. It might be thought that it is precisely those types of term that the legislation would be concerned to ensure were drawn to the consumer's attention. Moreover, if "agent" were interpreted narrowly in that way, it would provide an easy mechanism for avoiding the Act and the Regulation by the inclusion of atypical terms in the agency agreement. That could not have been the intention of Parliament.
There is more force in PIA's submission that it was not acting as an agent for the purposes of s 55 of the Act because, as a result of the contractual relationship between the parties, it was acting for its own benefit rather than the benefit of Ryde. However, it was still selling property belonging to Ryde and engaging in a number of activities that were typical of a real estate agent. In that sense it was acting as Ryde's agent. The protection afforded by s 55 of the Act was appropriate in those circumstances. In particular, the requirements that the agency agreement be in writing and be provided to the vendor (Ryde) were appropriate, and it is difficult to see why Ryde was not entitled to those protections simply because the benefits and risks of the sales were transferred to PIA as a result of the Agreements and Put Options.
The same is true of many of the provisions of the Regulation. There is a question whether the terms of the Regulation can be taken into account in interpreting the Act. The general principle is that they cannot: see Mine Subsidence Board v Wambo Coal Pty Ltd [2007] NSWCA 137; (2007) 154 LGERA 60 at [41] per Tobias JA (with whom Hodgson and Santow JJA agreed). However, an exception exists where the Act and the Regulation form part of a legislative scheme: Empire Waste Pty Ltd v District Court of New South Wales (2013) 86 NSWLR 142; [2013] NSWCA 394 at [70] per Bathurst CJ (with whom Beazley P and Hoeben JA agreed). In my opinion, that exception applies in this case. The relevant provisions of the Regulation form part of the scheme setting out what is required of real estate agents. Schedule 7 of the Regulation requires the agency contract to contain the name and address of the parties, a statement that the principal has authority to enter into the contract, a term setting out the extent of the agent's authority, a term setting out the duration of the contract and terms setting out the remuneration to which the agent was entitled. All those terms, and the protection they afford to the principal, were appropriate to a case where the risks of the contract were with the agent. Plainly, for example, it was important for Ryde to know that it would not receive any more than the MUP under the contract. Given that, it is appropriate to interpret the word "agent" broadly to include any case where one party is selling the real property of another.
The conclusion I have reached is supported by the decision in Investmentsource. The reasoning relied on by Barrett J is not relevantly distinguishable from the present case. In that case, Barrett J decided that the 1941 Act applied because Knox was the seller for whom Investmentsource arranged the sale. Exactly the same is true of the relationship between Ryde and PIA.
Schedule 8, cl 5 requires the agreement to include a provision that states whether or not the agent provided the principal with a copy of the approved guide referred to in s 56 before the agreement was entered into and, if so, the date that it was provided. Recital E of each of the Agreements contains an acknowledgement by Ryde that it received the guide "not more than one month before the signing of this Agreement". In fact, PIA provided Ryde with the approved guide on 12 April 2012, which was one month and three days prior to the First Agreement and approximately 17 months prior to the Second Agreement.
In my opinion, Recital E was sufficient compliance with cl 5. Clause 5 is only concerned with the contents of the agreement, not with whether the requirements of s 56 of the Act have been complied with, nor with whether the agreement accurately states the position. Section 56 specifically contemplates the possibility that the approved guide may not be provided in accordance with that section and states that a contravention of the section does not affect the validity of the agreement.
The purpose of the requirement in cl 5 that the contract state whether or not the agent has provided the principal with a copy of the approved guide is to draw to the principal's attention to the requirement under s 56 that the principal be given a copy of the approved guide. Recital E does that. Clause 5 leaves the consequences of a failure to comply with s 56 to the section and leaves the consequences of a false statement in the contract to be determined by the contract itself.
Clause 5 requires the agreement to specify the date that the approved guide was provided. The only purpose that requirement could have is to focus the parties' attention on the question whether the approved guide was given within the period specified in s 56. Again, the consequences of a failure to comply with the section are left to the section and the consequences of a failure to state accurately when the approved guide was given are left to the contract itself. In those circumstances, a statement that the guide was given within the 28 days of the contract being signed, which is the period specified in s 56, is adequate specification of the date. It could not have been intended that cl 5 would only be satisfied by the specification of a precise date, when the purpose of the requirement is satisfied by a specification that is worded in terms of the requirement set out in s 56 (that is, within one month before the agreement was signed) and a failure to comply with the requirements of cl 5 have such serious consequences. Or to put the point more generally, the requirements of Schedule 8, and cl 5 in particular, should not be interpreted more strictly than is necessary to give effect to the evident purposes of the requirements, particularly when the consequences of non-compliance are so serious for the agent.
Schedule 8, cl 7 requires the Agreements to contain a copy of "any sales inspection report prepared by the agent and given to the principal under clause 2 of Schedule 2".
Clause 7 does not require the agent to prepare a sales inspection report. That requirement is imposed by Schedule 2, cl 2; and the consequences of non-compliance of that clause are set out in s 37 of the Act - that is, a maximum penalty of the amounts specified in s 37(2). That is made clear by the requirement in Schedule 8, cl 7 that the agency agreement contain a copy of "any" report prepared under Schedule 2, cl 2. The use of the adjective "any" contemplates the possibility that there is no such report. The clause does not require a report to be attached which does not exist.
In the present case, PIA did not prepare a sales inspection report. Consequently, it did not fail to comply with Schedule 8, cl 7. It may have failed to comply with Schedule 2, cl 2. But that is not relevant for the purposes of s 55 of the Act.
PIA submits that that statement was obiter. However, it was a considered statement of the Court of Appeal. There is no relevant difference between ss 42AA and 55. For those reasons alone, I would have held that no estoppel applied.
Ryde's real complaint, of course, is that PIA failed to tell it that the expected prices for the units would be greater than their respective MUPs. It will be necessary to return to that complaint below. But that is not a loss that arises from the failure to attach a copy of a sales inspection report to the contract. It is a loss that arises, if at all, from a breach of duty on the part of PIA.
In my opinion, it would be unjust not to make an order under s 55A. The Second Agreement was negotiated between sophisticated and knowledgeable parties. It reflected a commercial relationship in which all the risks and benefits of a sale to a third party were placed on PIA. PIA took those commercial risks and incurred costs in connection with the marketing and sale of the units. It would be unjust if it were not entitled to obtain the benefits due to it under the contract.
In the present case, Ryde and PIA had not already embarked on some relationship giving rise to fiduciary duties in relation to the sale of the units in question at the time they were negotiating the terms of the Agreements. PIA had not, for example, started to market the units that were the subject of the agreement being negotiated or taken any other steps that were consistent with an agency relationship in relation to those units. Rather, the parties were negotiating on the terms that would define their relationship. Necessarily their interests in those negotiations were opposed. As Ryde recognises in its submissions, it had an interest in persuading PIA that the MUPs for the units should be as high as possible. PIA had the opposite interest. Necessarily that involved the parties forming their own views on the value of the units. PIA did not owe fiduciary obligations in those circumstances.
There are also difficulties with the absolute terms in which step (a) is stated and the consequences that are said to follow from it. In substance Ryde's case is that PIA was its agent, that PIA as agent owed a duty to obtain the best price possible for Ryde for the units the subject of the Second Agreement, and that PIA breached that duty because of the conflict that it had. But that misstates the position. As Mason J said in Hospital Products at 102, fiduciary duties are to be "moulded according to the nature of the relationship and the facts of the case": see also Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [34] per French CJ and Keane J; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [179] per Finn, Stone and Perram JJ.
In the present case, PIA was Ryde's agent in selling the units the subject of the Second Agreement because it was selling real property belonging to Ryde and in doing so engaging in many of the activities of an agent. However, that is not a complete statement of the relationship between the parties. As a result of the Second Put Options, PIA was also a purchaser or potential purchaser from Ryde. In that capacity it was not acting for Ryde and the relationship between the parties had none of the characteristics of a fiduciary one. As both parties must have appreciated, their interests in fixing the prices that PIA would pay for the units were opposed.
Moreover, once an agreement was reached, although PIA was selling property belonging to Ryde, it was doing so for its own benefit, not for the benefit of Ryde. In those circumstances, it is very difficult to see how PIA could have come under any obligation to obtain the best possible price for Ryde.
In my opinion, the case based of s 18 of the ACL must fail. There are a number of reasons.
First, to the extent that the case depends on representations said to have been made by Mr Wang that the development at 4-8 Angas Street was the best or only available comparable in Meadowbank, as I have explained, I do not accept that those representations were made. On the facts as I have found them, Mr Wang gave Mr Gabra a copy of the prices that had been obtained for the development at 4-8 Angas Street following a request by Mr Gabra. By complying with that request, Mr Wang was not making any representation concerning the comparability of the development at 4-8 Angas Street to the Development. Even if that is wrong, by providing Mr Gabra with the price list, Mr Wang, at most, was representing that the development at 4-8 Angas Street was comparable and that should be taken into account. There is no reason to think that that representation was misleading or deceptive.
Second, the parties were negotiating for an agreement under which PIA would be liable to purchase the units at prices agreed between the parties and any sale to a third party for an amount greater than those agreed prices would be for PIA's benefit. As I have said, and as Ryde accepts, that meant that Ryde had an interest in agreeing to the highest possible price that PIA would have to pay for the units and PIA had an interest in agreeing to the lowest possible price. Both parties to the negotiations were sophisticated and, by reason of their experience, must have had considerable knowledge of the property market. The starting point for the negotiations was a list prepared by Mr Gabra setting out the prices that he wanted for the units. Those prices were based on his own enquiries and experience. The negotiations proceeded from there. In those circumstances, Ryde could not reasonably have expected PIA to advise it on the most appropriate sales prices for the units.
Third, the legislative framework did not alter the position. It is true that that framework contemplated that PIA would provide Ryde with a sales inspection report that would include "the agent's estimate of the selling price (or price range) for the property" (Schedule 2, cl 2(h)). However, no such report was prepared or provided by PIA. Whatever the consequences under the Act of the failure to provide that report, the failure cannot have led Ryde into error concerning the value of the units.
Fourth, although Mr Wang conceded that he was aware of the development at 3-13 Angas Street and knew that it was being marketed before he signed the Second Agreement, there is no evidence that he knew the prices at which two bedroom units in that development were being marketed or sold, or that he appreciated that those amounts would provide a more accurate guide to the prices that were likely to be obtained for units in the Development than the prices obtained for units in the development at 2-8 Angas Street. Nor is there any evidence that Mr Wang appreciated at the time that Mr Gabra was unaware of the development at 3-13 Angas Street. It is difficult to see how it was misleading or deceptive of Mr Wang not to draw Mr Gabra's attention to that development in those circumstances.
Fifth, Ryde has not established that it suffered any loss as a consequence of PIA's conduct. Proof of loss is a pre-condition to relief under s 237 of the ACL and is obviously a pre-condition to recovery of damages under s 236. Ryde contends that it suffered loss because it would have been able to agree different MUPs for the units if it had known their true market value. But there are difficulties with that submission. It is not suggested that PIA knew the true market value of the units and did not disclose it or that it misled Ryde expressly about the true market value. Rather, the complaint is that Mr Wang should have drawn Mr Gabra's attention to the development at 3-13 Angas Street. But if he had done so, it is not clear what would have happened. There is no reason to think that as a result Mr Gabra would have been able to obtain sales information about the units in that development any sooner than he did or that that would have caused him to delay signing the Second Agreement. He was the person pressing Mr Wang to reach an agreement. Nor is there any reason to believe that Mr Wang would have agreed to higher MUPs. There is a question as to how comparable the units in the development at 3-13 Angas Street were to units in the Development. But whatever the position, there is no evidence that Mr Wang would have agreed to higher MUPs or would have accepted that some adjustment needed to be made to the MUPs having regard to sales in the 3-13 Angas Street development. The evidence suggests the contrary, since Mr Gabra proposed higher prices for the units and a lower percentage discount to allow for PIA's commission than the ones ultimately agreed and those figures were rejected by Mr Wang.