Williams v ATM & CPA Projects Pty Limited

Supreme Court of NSW|2015-05-19|Before: Ball J

Judgment

These proceedings concern an agreement entered into on 1 December 2011 (the 1 December Agreement) by which the first and second plaintiffs, Mr Morison and Mr Williams, allege that the defendants agreed to pay them commission in connection with marketing consultancy services they provided in relation to a residential real estate project owned by the first defendant, ATM & CPA Projects Pty Ltd (ATM), situated at 2 to 8 James Street, Carlingford (the James St Project). The plaintiffs allege that pursuant to the 1 December Agreement the defendants are obliged to pay them commission calculated at the rate of 4 percent on the sale price of the land together with 4 percent on the contract price of a building contract that the parties anticipated ATM would enter into with the purchaser of the land at the time of the sale. The anticipated building contract was a contract for the construction of 105 units on the land in accordance with a development approval that ATM had obtained.

Factual background

Before setting out the relevant background, it is necessary to say something about the affidavit evidence given by Mr Morison and Mr Williams. Both depose to a number of conversations they had with Mr Merhi in almost identical terms. Both denied that they had discussed their evidence with one another. I accept those denials. However, the likelihood is that the remarkable similarity between the evidence given by them arises from the fact that their affidavits were drafted by the same solicitor who chose the words in which to express the conversations each say he was a party to. Each witness was then asked to agree that those words represented the witness's recollection of events, which each did.
As McLelland CJ in Eq explained in Watson v Foxman (1995) 49 NSWLR 315 (at 318-319) when considering oral representations, evidence of oral statements given some years later need to be treated with considerable caution because recollections fade and may be altered by subsequent events. That problem is exacerbated in this case by the way in which the evidence of Mr Morison and Mr Williams was obtained. I have concluded that little weight can be placed on their evidence except to the extent that it is inherently probable, corroborated by documents or objective facts or involves admissions.
Mr Merhi is a successful property developer who, at the relevant time, through companies he controlled including ATM, owned a number of property related projects in Sydney.
Mr Merhi and Mr Morison met in about 2005. There is a dispute concerning the circumstances in which they met. Mr Merhi says that Mr Morison introduced himself as a real estate agent and a registered and accredited valuer at a function they both attended. However, it does not seem to me likely that Mr Morison introduced himself in that way. Mr Morison was not a registered valuer at the time and it appears that he was careful not to describe himself as a real estate agent because he did not hold a licence in accordance with the Property, Stock and Business Agents Act. The meeting was an informal one and it seems odd in that context that Mr Morison would have described himself in the way that Mr Merhi says he did. The likelihood, however, is that at that meeting and subsequent ones Mr Morison explained that he had developed relationships with a number of Chinese investors who had expressed an interest in investing in Australian real estate, and from time to time Mr Morison asked Mr Merhi if he had or was aware of any development or investment opportunities that he (Mr Morison) could market to potential investors.
Mr Williams also carries on the business of providing services in connection with property development and investment through Solglen. He met Mr Morison in 2008 and from time to time they worked on projects together.
At a meeting that occurred on or about 18 March 2011, Mr Morison introduced Mr Merhi to Mr Williams. There was a discussion about Mr Morison and Mr Williams assisting with the sale of the James St Project. Mr Williams said that the project was the type of project his Chinese contacts might be interested in. During the course of the conversation Mr Merhi told Mr Morison and Mr Williams that he was close to obtaining development approval and that he would be able to sell the property with a fixed price building contract to build the development in accordance with the approved plans. Mr Merhi also said that the land price would be between $12 million and $13 million and the building costs would be between $27 million and $28 million. There is a dispute about whether the parties also discussed how Mr Morison and Mr Williams would be remunerated, but nothing turns on the resolution of that dispute.
Following that meeting, a number of things happened. First, Mr Morison and Mr Williams prepared an information memorandum relating to the James St Project. Second, Mr Morison and Mr Williams entered into negotiations with Professor Bruce Ross, who apparently had Chinese business contacts, and Mr Guiheng Guo, who had shown some interest in the project, for an agreement to provide project management services to investors in the project. The agreement contemplated that the four of them would charge a "project initiation fee" of $250,000 and a project management fee of 5 percent of the total project cost, which they would share between them in accordance with agreed percentages. That agreement was never finalised. Third, Mr Morison and Mr Williams prepared a draft document recording the terms on which ATM was prepared to sell the project and setting out the basis on which Mr Morison and Mr Williams were to be engaged. The final version of that document (described below), which differed only slightly from the first draft dated 30 July 2011, sets out the terms of the contract on which the Mr Morison and Mr Williams sue. Lastly, in 2010 Mr Williams and Mr Morison had acted for Bundanoon Sandstone International Pty Ltd, a company controlled by the Qiao family, in connection with the acquisition by it of the Bundanoon Sandstone Quarry and from about May 2011 Mr Morison and Mr Williams were involved in negotiations for the appointment of Visy Capital Pty Ltd, a company controlled by Mr Merhi, as exclusive agent for the export of sandstone from the quarry.
On 25 August 2011, the Hills Shire Council gave development approval to the project.
Subsequently, in circumstances which are not clear, Mr Morison and Mr Williams became involved in negotiating sandstone supply arrangements on behalf of Visy with Capricorn Sandstone in Rockhampton and Gosford Quarries.
Mr Morison, Mr Williams and Mr Merhi met on 20 September 2011. During that meeting, there was a discussion concerning the fees that would be payable to Mr Morison and Mr Williams. On the following day, Mr Williams sent Mr Merhi a draft letter setting out the terms on which Mr Williams and Mr Morison would be paid commission on the sale of the project. The draft was in similar terms to the draft that Mr Williams had sent to Mr Morison in July 2011.
On 10 October 2011, Professor Ross prepared a draft letter to be sent to Chinese investors suggested by Mr Guo inviting them to inspect the James St Project.
On 25 October 2011, Mr Williams prepared a further draft of the letter setting out the terms on which he and Mr Morison were to be retained. The letter was addressed to: Mr. A. T. Merhi ATM and CPA Projects Pty. Ltd. The salutation at the beginning of the letter was "Dear Tony".
After recording that Mr Williams and Mr Morison had been working "for some time to bring the James St project to fruition" and that development approval had been received, the letter continued: You are prepared to sell the completed, strata titled project on the following terms: Purchase of site with Development Approval with all fees paid $13,000,000.00 Section 94 and Council contributions $ 553,190.00 Professional Fees and costs to Construction Certificate and costs of Strata Title $ 400,000.00 Building construction and handover $26,250,000.00 TOTAL COST $40,203,190.00 Payment of $40,203,190.00 will be in stages under two separate but interlinked contracts. Purchase of the site will be under one contract and will be paid for at contract commencement. Section 94 and Council contributions and costs to Construction Certificate will be payable under the second contract for building construction and handover at Construction Certificate issue and building and Strata Title costs will be paid by eight progress payments during the construction stage. This contract for building construction and handover is to be a guaranteed fixed maximum price contract with a guaranteed completion date to be agreed. Graham Morison and Michael Williams, through their respective companies, have been working with prospective purchasers on the above basis and have arranged to carry out project management duties for the successful purchaser. We believe that a successful sale is imminent. We therefore wish to confirm the following: ATM and CPA Projects Pty. Ltd. agree to give to Morison and Williams an exclusive right to introduce purchasers and arrange a sale for a period of six months from the date of signature of this letter of agreement. ATM and CPA Projects Pty. Ltd. agree that, upon the successful execution of a contract to purchase by a suitable purchaser, ATM and CPA will pay to Morison and Williams (or their respective nominees) a commission of 4% of the total of the two contract prices. The letter concluded by asking Mr Merhi to sign the letter "to signify your agreement to the above". The signature block for Mr Merhi's signature was in the following form: A. T. Merhi ATM & CPA Projects Pty. Ltd. It was apparent from the letter that it was also to be signed by Mr Morison and Mr Williams.
The parties met again on 1 December 2011. During the course of that meeting, they discussed the version of the fee letter dated 25 October 2011. There is a dispute about what was said. During the course of the meeting, Mr Merhi changed the figure "$13,000,000.00" to "$13,780,000" and the figure "$40,203,190.00" to "$40,983,190". The changes were based on a valuation of the land that Mr Merhi had received from LandMark White. Mr Merhi also changed the word "months" in the second bullet point to "WEEKS". The parties initialed each change and each signed the letter, which embodies the terms of the 1 December Agreement.
In relation to the last of the changes to the letter, Mr Merhi says that there was a conversation to the following effect: Me: You have the agency period for 6 months. This needs to be sold ASAP. You need to close the sale within six (6) weeks. You tell me that you are close to finalising a deal. My company can't agree to offer you 4% on both contracts unless you have this sale finalised within 6 weeks. MW: Six (6) weeks is okay. Is there anything else? Me: Everything else seems in order. I just wanted to be clear that the 4% commission is for the sale and where my company [ATM] stays in the deal as a JV partner. If it sells without me being involved as JV partner, within 6 weeks, then you don't get paid any commission. MW: That is fine. Both Mr Williams and Mr Morison deny this version of the conversation.
I accept Mr Merhi's version of the first two paragraphs of the conversation. He undoubtedly changed the word "months" to "weeks" and the likelihood is that he gave some explanation for the change. The explanation he says he gave is plausible and is consistent with the statement earlier in the letter that "We believe that a successful sale is imminent".
However, I do not accept that a conversation occurred in terms of the second two paragraphs. It was not contemplated at the time that the project would be sold without a building contract, and I think it is unlikely that it would have crossed Mr Merhi's mind specifically to raise that eventuality. Moreover, Mr Merhi was very careful to change the letter where he thought that it did not reflect the position to which he was prepared to agree. In my opinion, if he thought the letter was unclear about when the commission was payable, he would have made some amendment to the letter. He did not do so.
In January 2012, Mr Morison and Mr Williams prepared an updated version of the information memorandum. There is little evidence of what else, if anything, they did. Mr Williams says that, in addition to contacting Chinese investors, he tried to interest super funds in the project, although there is only documentary evidence that Mr Williams wrote to one superannuation fund (Commonwealth Superannuation Corporation) concerning the project. In the meantime, and throughout the period up until the end of May 2012, Mr Williams and Mr Morison were involved in trying to finalise the arrangements with Bundanoon Sandstone and what became a proposal for Visy to acquire the Capricorn Sandstone business for $8.25 million, which ultimately did not proceed.
Mr Morison and Mr Williams also became involved in seeking to obtain buyers for another project being developed by ATM at 12 James Street, Carlingford, which was a proposed mixed use development of 16 storeys consisting of 40 units (later increased to 44), a retail space and carparking. On 12 June 2012, Mr Williams sent Mr Qiao Jnr a copy of the information memorandum for that project.
In or about July 2012, ATM appointed Trifalga Real Estate as agent for the sale of the James St Project. Trifalga prepared a document setting out indicative sale prices for units in the development. However, it was unsuccessful in finding a buyer and on 17 September 2012 Mr Merhi terminated its agency. Subsequently, on 26 September 2012, ATM appointed Jones Lang LeSalle, Trifalga and CBRE as joint exclusive agents for the sale of the project. Following their appointment, they prepared an information memorandum inviting expressions of interest by Wednesday 31 October 2012. Mr Morison says that he became aware that Mr Merhi had instructed two real estate agents in relation to the sale of the land, but it is unclear precisely when and in what circumstances that occurred.
On 13 October 2012, Mr Morison introduced Mr Qiao Jnr to Mr Merhi and, on 30 October 2012, Mr Morison and Mr Merhi showed Mr Qiao Jnr a number of sites that he had developed or was in the process of developing. Those sites were: 1. Samantha Riley Drive, Kellyville, which was a site where Mr Merhi proposed to construct 746 home units; 2. A newly completed home unit project at Kellyville; 3. Projects at Baulkham Hills and Castle Hill that had been built by Mr Merhi or companies associated with him.
Mr Merhi says that prior to the meeting with Mr Qiao Jnr he had a telephone conversation with Mr Morison in which he agreed to pay Mr Morison "a reasonable commission of say 2% if [Mr Qiao Snr] ends up purchasing another site owned by one of my companies because of your introduction". Mr Morison denies that conversation. However, I prefer Mr Merhi's evidence on this aspect. The likelihood is that Mr Morison would have raised the question of his fees before agreeing to show Mr Qiao over projects in which Mr Merhi was involved.
On 13 November 2012, Mr Morison, Mr Merhi and Mr Williams showed Mr Qiao Jnr two other sites in which Mr Merhi or companies associated with him had an interest. One was known as The Islands at Kurrajong Hills and the other was a site at Bella Vista.
On 14 November 2012, Mr Merhi wrote to CBRE noting that its exclusive agency agreement had expired and asking it to discontinue working on the James St Project. There is no evidence that similar letters were sent to Jones Lang LeSalle and Trifalga.
On 11 January 2013, Mr Merhi sent Mr Morison and Mr Williams documents relating to a variation application to increase the construction approval in respect of the James St Project from 105 to 138 units.
At that time, it appears that the parties were seeking an investor in the project, rather than an outright sale. Mr Williams prepared an analysis of expected returns on the project using the figures that had been given to him by Mr Merhi for the price of the land ($14,000,000), construction costs ($34,500,000) and gross sales ($89,700,000). Mr Williams sent a copy of his analysis to Mr Merhi and Mr Morison on 14 January 2013. His analysis included as one of the project costs an amount of $3 million described as "Project Initiation and Management fees", which no doubt was a reference to the project initiation and management fees that Mr Morison and Mr Williams had originally proposed to charge potential purchasers of the project and to share with Professor Ross and Mr Guo. After receiving comments, and sending a draft to Mr Morison, Mr Williams circulated an amended analysis (which he described as "Revision B") on 15 January 2013 commenting that "the deal does not work if these figures are correct" and suggesting that the parties meet.
That meeting occurred on 17 January 2013. At that meeting, Mr Merhi said that he may be willing to reduce the land price to $13,000,000 and the construction costs to $240,000 per unit (that is, $33,120,000). He suggested that Mr Morison put those figures to Mr Qiao. Immediately following that meeting, Mr Williams prepared a further revision (Revision C) of his analysis, reducing the price of the land to $12,500,000. He sent that revision to Mr Morison for his comments and prepared a further version (Revision D) after receiving those, which Mr Morison sent to Mr Qiao Jnr on 25 January 2013.
There were further discussions between Mr Morison and Mr Williams and Mr Qiao Jnr and his father relating to the James St Project. On 3 April 2013, Mr Morison sent Mr Merhi an email saying that Mr Qiao Snr had requested information on two or three of his past projects, estimated start and completion dates for the James St Project and information about the expected return on funds invested. He also asked Mr Merhi to prepare a "contract for sale". Following that email, Mr Merhi arranged for HWL Ebsworth to prepare a draft joint venture agreement.
Mr Williams sent a copy of that draft to Mr Qiao Jnr on 26 April 2013. Mr Qiao asked for a simplified agreement, which Mr Williams sent to him on 5 May 2013.
On 8 May 2013, Mr Williams also sent Mr Qiao Jnr a draft agreement relating to the payment of fees by Mr Merhi and ATM. The draft agreement arose out of a proposal discussed between Mr Morison, Mr Williams and Mr Qiao Jnr in January 2013 that they establish a group which would source potential developments for Chinese investors. Ultimately, the proposal went nowhere. However, the agreement drafted by Mr Williams contained the following term: 6. If The Consultants are successful in introducing a suitable joint venture agreement substantially in accordance the [sic] Revised Estimates prepared by Graham Morison on 23.01.2013 and the Summary of Estimates - Revision D prepared by Michael Williams on 23.01.2013 (both appended to this agreement), then The Vendors will pay to The Consultants or their nominees a professional Services Fee of Two Million Dollars (AUD$2,000,000.00) plus GST. This fee will be divided equally between each Consultant. A copy of the agreement was not sent to Mr Merhi.
Mr Williams prepared a further draft of the Joint Venture Agreement by which Mr Qiao Snr would invest in the James St Project. Mr Williams sent a version of that draft to Mr Merhi on 24 May 2013. There were extensive negotiations in relation to the joint venture after that time. In addition, on 2 July 2013, Mr Qiao Jnr sent an email to Mr Williams indicating that his father would like to pay $11,000,000 for the whole James St Project. Mr Qiao Snr put that proposal directly to Mr Merhi at a meeting in late July 2013. It appears that Mr Qiao Snr also raised a proposal that he acquire a 70 percent interest in ATM on the basis that its value was $12,000,000 for an initial fee of $4,500,000. That proposal was rejected by Mr Merhi.
On 3 September 2013 Mr Morison sent Mr Merhi a letter dated 2 September 2013 that had been drafted by Mr Williams in relation to commission. The letter said: This letter will confirm that ATM and CPA Projects Pty. Ltd. has agreed to pay a Consultancy fee of two million dollars ($2,000,000.00) to the consortium of Graham Morison, Michael Williams and George Qiao or their nominees in consideration of them introducing Mr G Qiao senior and assisting in arranging the joint venture between Mr Qiao's interests and those of ATM and CPA Projects Pty. Ltd. or it's [sic] nominee for the development of [the James Street Project]. This fee is to be paid in full upon Mr Qiao senior subscribing to the proposed joint venture or, if agreed between the parties, by three equal instalments at dates to be agreed. This fee will be shared equally between Graham Morison, Michael Williams and George Qiao or their nominees. To confirm your agreement to this letter, please sign the attached copy of this letter and return it to me.
Mr Merhi did not return a signed copy of that letter. However, on 15 September 2013 he sent an email to Mr Morison, Mr Williams and Mr Qiao Jnr. The email stated that Mr Merhi had "been working under the expectation this project would be the foundation for an ongoing business relationship with [Mr Qiao Snr] for many future projects to benefit us all". It then set out the history of the matter and the difficulties with the latest proposal. It concluded: You will be aware that we have never agreed on commission. We had only agreed in principle that any agreed fee payable to you would be treated as a project cost payable as a monthly project management fee to be paid by both parties which would be in addition to my own project management fee, which was also to be agreed. Specifically concerning the attached Carlingford Agreement, given the above circumstances there is no justification for the payment of any fee whatsoever, we should forget this. …
There was a discussion between Mr Merhi and Mr Morison on 18 October 2013 concerning commission during which Mr Morison said that Mr Merhi should pay a commission in accordance with the 1 December Agreement. Mr Merhi asked Mr Morison for a copy of the agreement, which Mr Morison sent the following day.
On 25 November 2013, Mr Qiao Snr's lawyer, Mr Chiu, wrote to Mr Merhi's lawyer saying that he had been having difficulties getting in contact with Mr Merhi and indicating that Mr Qiao Snr was now thinking of acquiring a 100 percent interest in the property.
Following that email, negotiations commenced between Mr Qiao Snr and Mr Merhi for an outright sale of the property. Mr Williams and Mr Morison became aware of those negotiations and, on 6 December 2013, Mr Williams wrote to Mr Merhi saying that he had been advised by Mr Qiao Jnr that the sales negotiations on the project were drawing to a conclusion. He gave notice that he and Mr Morison proposed to issue an invoice for $1,842,928 on exchange based on a combined contract value of $46,073,190. The letter also said: We also confirm your later verbal agreement that this fee would be raised to Two Million Dollars (AUD$2,000,000.00) to accommodate George Qiao [Mr Qiao Jnr].
Following further negotiations, on or about 23 December 2013, Bridgeland Investment Pty Ltd, a company controlled by Mr Qiao Snr, and ATM exchanged contracts for the sale of the property for the sum of $12,000,000.
On 29 December 2013, Mr Qiao Jnr advised Mr Williams and Mr Morison of that sale.
On 10 January 2014, Mr Williams sent an invoice for commission of $480,000 (that is 4 percent of $12,000,000). He sent a further invoice on 18 March 2014 for 4 percent commission on a total contract price of $46,073,000 - that is, $1,842,800.00. It is that amount that the plaintiffs claim in these proceedings.

Was Mr Merhi a party to the 1 December Agreement?

The plaintiffs submit that Mr Merhi was a party to the contract because he signed it. In making that submission, they rely on the following statement of the law by Kiefel J in Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd [2006] FCA 1324; (2006) 236 ALR 115 at [105]: Generally speaking, where a party signs a contract without qualification as to the capacity in which they are signing, they are taken to be contracting personally. This may be otherwise where disclosure of the agency is made, but it needs to be clear that the party is acting as agent in the legal sense: Treitel, 2003, p 727. In Universal Steam Navigation Co Ltd v James McKelvie & Co [1923] AC 492 an agent was not held personally liable where they had signed "as agent". The question was what that meant. Lord Sumner (at 501-2) considered that, in the circumstances of the case, the words could only mean: "I am not liable but someone else is and he only". On the other hand the words "This vessel was chartered on behalf of … for account of" was not held to mean that the parties intended the agent not to be liable as charterer: Tudor Marine Ltd v Tradax Export SA [1976] 2 Lloyd's Rep 135 (The "Virgo"). In Hyundai, Dartbrook had entered into a charterparty as agent for a joint venture. There was no reference to the joint venture parties in the charterparty. Applying the principles stated above, Kiefel J had no difficulty in concluding that Dartbrook, as well as the joint venture parties, were parties to the contract.
In my opinion, the present case falls within the agency exception identified by Kiefel J. To the knowledge of the plaintiffs, the James St Project was being undertaken by ATM, the owner of the land and a company controlled by Mr Merhi. The form of the 1 December Agreement was a letter. It was natural to address that letter to a person, and the obvious person was Mr Merhi. However, the obligations imposed by the letter are the obligations imposed in the second and third bullet points. Those obligations are clearly expressed to be obligations of ATM, not of Mr Merhi. ATM could only act through Mr Merhi. It is for that reason that Mr Merhi was asked to confirm his agreement to those obligations. Although the letter did not specifically ask Mr Merhi to do so as ATM's agent, that is the only basis on which he could have done so. Mr Merhi signed the letter and his name appeared in the signature block. However, Mr Merhi was only required to sign the letter once and it is apparent from the form of the signature block that the letter was being signed by Mr Merhi for ATM. If the parties had intended Mr Merhi to be bound by the agreement, the agreement would have said so and Mr Merhi would have been required to sign in his own capacity. But the letter did not say so and Mr Merhi was only required to sign the letter for ATM. Consequently, he was not a party to the agreement.

The correct interpretation of the 1 December Agreement

The defendants plead that the terms of the 1 December Agreement are partly written and partly oral. Insofar as they are written, they are contained in the letter dated 25 October 2011. Insofar as they are oral they are said to be comprised in the conversation that occurred on 1 December 2011 during which it is alleged that it was agreed that the obligation to pay a commission was conditional upon a purchaser who was suitable to the first defendant executing the building contract and the contract for sale of the land, within six weeks of 1 December 2011.
The oral term, however, depends on a version of the conversation that I do not accept. In my opinion, the terms of the contract are to be found in the letter alone.
The correct approach to the interpretation of commercial contracts is not in doubt. It was helpfully summarised by French CJ, Hayne, Crennan and Kiefel JJ in these terms in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35]: The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". [footnotes omitted]
The 1 December Agreement raises two questions of construction. The first is whether commission was only payable under the agreement if Mr Morison and Mr Williams arranged a sale within the six week period stated in the second bullet point (as amended by Mr Merhi). The second is whether commission was payable under the agreement even if the only contract entered into was a contract for the sale of the land.
As to the first question, the plaintiffs contend that the second and third bullet points conferred independent rights on them. The second bullet point conferred an exclusive right "to introduce purchasers and arrange a sale" for a period of six weeks. The third bullet point conferred a right to a commission "upon the successful execution of a contract to purchase by a suitable purchaser", whenever that contract was entered into. The first right prevented ATM from appointing another agent within the six week period. The second right required ATM to pay a commission if a contract to purchase was entered into.
I do not accept that interpretation of the contract. In my opinion, the right to receive commission in accordance with the third bullet point cannot be divorced from the exclusive right conferred by the second bullet point. Taken together, the two bullet points give Mr Morison and Mr Williams an exclusive right within the six week period and provide that if they achieved a sale within that period, they were entitled to commission at the specified rate. The difficulty with reading the two clauses independently is that, read in that way, the right to commission is divorced from anything Mr Morison and Mr Williams did. Taken alone, the third bullet point states that Mr Morison and Mr William are entitled to a commission if the property is sold to a suitable purchaser whether they had anything to do with the sale or not. That makes no commercial sense. Read in context, when the third bullet point refers to "the successful execution of a contract to purchase by a suitable purchaser" it must be referring to such a contract arising from the activities of Mr Morison and Mr Williams referred to in the second bullet point. Those activities are the introduction of purchasers and the arrangement of a sale within a six week period. That conclusion is reinforced by the order of the two bullet points. The second bullet point states what Mr Morison and Mr Williams must do (as well as stating that their rights are exclusive ones). The third bullet point sets out what they get if they do it.
The interpretation I prefer is also reinforced by the context. Mr Morison and Mr Williams had been working on the sale of the project. The letter describes a successful sale as being "imminent". It is in that context that Mr Morison and Mr Williams wanted to put in place an agreement in relation to their commission on the expected sale. To their knowledge, Mr Merhi was keen to achieve a sale. It was natural in those circumstances for Mr Merhi to place a limit on the rights granted to Mr Morison and Mr Williams. The limit he chose and that they accepted was the six weeks. Interpreted in that way, the agreement was intended to address a specific set of circumstances that were expected to occur in a short period of time. If those events did not occur in that period, then the parties would need to negotiate a further agreement in relation to commission.
As to the second question, both parties accept that the 1 December Agreement was drafted on the basis that commission would be payable on both contracts. It is the defendants' contention that, on the correct construction of the contract, commission was only payable if both agreements were entered into. It is the plaintiffs' contention that commission on both contracts was payable if a "contract to purchase was entered into" and that the commission was payable on whatever prices were agreed. The plaintiffs also advance alternative cases that it was an implied term of the agreement that if the prices for the contracts changed, or the estimated price for the building contract changed, then they would be paid commission on the changed prices. Neither party suggested that commission was payable on the value of the contract actually entered into, even if it was only a contract for the sale of the property, although that was the basis on which Mr Williams originally claimed commission in his 10 January 2014 letter.
The defendants contend that the agreement does not cover the situation where the property was sold without a building contract. What was contemplated was set out in the first part of the letter - that is, two "interlinked" contracts, one for the sale and one for the construction of the units. The letter specifically records that "Graham Morison and Michael Williams … have been working with prospective purchasers on the above basis". Consequently, when the second bullet point refers to a "contract of sale", it must mean a contract of sale of the type contemplated by the letter and on which Mr Morison and Mr Williams had been working, which was a contract of sale interlinked with a building contract. No such contract was entered into.
The plaintiffs advance a number of reasons for why the defendants' interpretation must be rejected. First, they submit that it is plain from the third bullet point that the commission was payable on "the successful execution of a contract to purchase". The only contract for purchase was the contract for the purchase of the land, which the 1 December Agreement expressly said was to be a separate contract. Second, they submit that the agreement would be a commercial nonsense if commission were only payable in the precise circumstances described in the letter. In that event, ATM could vary the purchase price by a dollar and by that device avoid any obligation to pay a commission. Third, they submit that it was a breach of the agreement for ATM to enter into a sale contract without a building contract. Consequently, it was obliged to enter into both contracts and if it did not it would have to pay the commission in any event.
Of the two alternatives, I prefer the construction advanced by the defendants.
Some of the difficulties the plaintiffs point to only arise because they interpret the 1 December Agreement as intending to operate for an extended period of time, whereas, for the reasons I have given, it was intended to operate in a specific set of circumstances which were expected to occur within a short period of time.
That point aside, the reference in the third bullet point to "the successful execution of a contract to purchase" must be read as a reference to the execution of a "contract to purchase" that had the characteristics described in the agreement. One of those characteristics was a contract to purchase that was interlinked with a building contract. Unless a building contract was entered into at the same time, ATM would not get part of the benefit for which it was paying commission and there would be no means of calculating the commission payable because there would be no contract price by reference to which that calculation could occur.
That does not mean that the contracts had to be on the precise terms on which Mr Merhi had indicated that he was prepared to sell. In my opinion, when the third bullet point refers to "the successful execution of a contract to purchase" it is referring to a contract for the sale of the land which was entered into concurrently with a building contract. It is not referring to contracts for the precise amounts specified in the agreement. I accept that it makes no commercial sense to interpret the contract as requiring ATM to pay commission only if the price of the sale and building contracts were the precise amounts stated in the agreement. Moreover, if that was what was intended, it would make no sense to fix the plaintiffs' remuneration as a commission calculated by reference to the contract prices, since commission would only have been payable on a fixed price and could have been calculated in advance. When the 1 December Agreement sets out the price for the two contracts, it must be understood as setting out the minimum prices at which Mr Merhi was prepared to sell, not the only prices on which commission was payable.
It is possible that it was an implied term of the 1 December Agreement that ATM would not sell the property without a building contract during the term of the agreement and by doing so deprive the plaintiffs of their commission: see Stirling v Maitland (1864) 5 B & S 840; (1864) 122 ER 1043; Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126. However, no such term is pleaded. In any event, I have concluded that the term of the agreement was six weeks, and the alleged breach occurred well after the contract had come to an end. Moreover, if such a term were breached, it would not entitle the plaintiffs to the amount of commission that they claim. Rather, it would entitle them to damages arising from the breach. Those damages would be calculated as the value of the opportunity lost by the plaintiffs to earn a commission on the sale of the property with a building contract. There is no reason to believe that Mr Qiao Snr would have agreed to buy the property with a building contract. The negotiations leading up to the sale of the property suggest that he would not have, since he refused to buy the property or enter into a joint venture on that basis. There is no evidence to suggest that other purchasers were available to buy the property on that basis. Consequently, on the available evidence, the lost opportunity had little or no value.
It follows from what I have said that, on the correct construction of the agreement, the plaintiffs are not entitled to commission. Strictly speaking, then, it is not necessary to deal with the other defences advanced by the defendants. However, I should say something about them in the event that I am wrong in the conclusions I have reached.

Misleading and deceptive conduct

As I have said, the defendants allege that the plaintiffs represented that they would not claim and were not entitled to claim any commission from ATM unless the sale contract and building contract were executed within six weeks of 1 December 2011. The representation is alleged to have been a representation as to a future matter within the meaning of s 4 of the ACL, with the result that it is taken to be misleading if the person making the representation did not have reasonable grounds for making it. A person is taken not to have reasonable grounds unless evidence is introduced to the contrary: s 4(2). That requirement, however, does not have the effect of shifting the burden of proof from the person alleging that a representation is misleading or deceptive: s 4(3).
The representation is alleged to have been made in the conversation that Mr Merhi said occurred in the meeting on 1 December 2011. It is not entirely clear how the representation is said to have arisen from the conversation that occurred on 1 December 2011. According to Mr Merhi's account of that conversation, he explained his understanding of the agreement (that is, that commission was only payable if both contracts were entered into in the 6 week period) and Mr Williams agreed and Mr Morison said nothing. At most, on the defendants' case, Mr Williams and Mr Morison (by his silence) falsely represented that they agreed with Mr Merhi's interpretation of the contract. That does not involve a representation as to a future matter. It appears to involve a representation concerning the legal effect of the document that they signed.
In any event, the misleading and deceptive conduct case depends on a version of the conversation on 1 December 2011 that I do not accept. For that reason, it must fail.

Abandonment and withdrawal of authority

The defendants' case on abandonment depends on whether the parties by their conduct after 1 December 2011 evinced an intention no longer to be bound by the 1 December Agreement: see Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144 at 152 per Isaacs J. The defendants' case on withdrawal of authority depends on whether the defendants by their conduct withdrew the plaintiffs' authority to act for ATM. Both cases depend on essentially the same facts. In particular, the defendants rely on the following: 1. During the period 1 February 2012 to September 2013 the plaintiffs did not attempt to secure a purchaser to enter into both contracts; 2. The plaintiffs had not secured such a purchaser by 26 September 2012 and on that date ATM to the plaintiffs' knowledge entered into an agency agreement with Jones Lang LaSalle, Trifalga and CBRE; 3. By January 2013, the building costs had increased substantially; 4. During the period from January to April 2013, ATM negotiated with the Qiao interests for a joint venture which did not involve entry into a building contract; 5. On 8 May 2013, the plaintiffs sought a new commission agreement under which they (and Mr Qiao Jnr) would be paid a commission of $2 million, which they later purported to confirm in Mr Morison's letter dated 2 September 2013 to Mr Merhi.
In my opinion, the 1 December Agreement was abandoned. Even on the plaintiffs' case, that agreement was an agreement to pay commission calculated on the basis that the defendants would enter into two contracts, one for the sale of the land and one for the building of the units, even if the commission was actually payable on entry into the first contract. However, by about April 2013, it was apparent that Mr Qiao Snr was no longer prepared to enter into a contract of that type. Rather, he was considering entering into a joint venture agreement and subsequently considered buying, and ultimately did buy, the land without any building contract. Rather than look for alternative purchasers who were willing to enter into a contract of the type contemplated by the 1 December Agreement, each of Mr Merhi, Mr Morison and Mr Williams sought to negotiate an alternative agreement with Mr Qiao Snr. At the same time, Mr Morison and Mr Williams sought to negotiate a new commission agreement with Mr Merhi. The new agreement differed from the old one in important respects. It was tailored to the new situation that had arisen. The commission was for a fixed amount. It was proposed that Mr Qiao Jnr would be entitled to part of the commission. Moreover, it was anticipated that the commission would be payable by the joint venture company, not by ATM. The parties must be taken to have accepted that the previous commission agreement was no longer applicable because it was concerned with different arrangements and the fees payable under it were calculated on a basis that was no longer appropriate.
Ultimately, the joint venture agreement did not proceed and agreement was not reached on the terms of the new commission agreement. However, the parties never returned to an arrangement of the type contemplated by the 1 December Agreement. Instead, Mr Merhi reached an agreement to sell the property without any associated building contract. The parties could not have intended that the 1 December Agreement would revive in those circumstances.

The Property, Stock and Business Agents Act

Section 8(2) of the Property, Stock and Business Agents Act relevantly provides: A natural person is not entitled to bring any proceeding in any court or tribunal to recover any commission, fee, gain or reward for any service performed by the person: (a) as a real estate agent, unless the person was the holder of a real estate agent's licence, or employed [by] the holder of such a licence, at the time of performing the service, …
"Real estate agent" is defined in s 3(1) 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) collecting rents payable in respect of any lease of land and otherwise providing property management services in respect of the leasing of any land, or (e) for any other activity in connection with land that is prescribed by the regulations for the purposes of this definition. 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. "Real estate transaction" means "the purchase, sale, exchange, lease, assignment or other disposal of land, whether or not an auction is involved".
A person is an "agent" for the purposes of the Act if the person negotiates for the sale of real estate. It is not necessary for the person to have authority to bind his or her principal: Challenger Group Holdings Ltd v Concept Equity Pty Ltd [2008] NSWSC 801 at [46] per Young CJ in Eq.
Whether a person carries on business as a real estate agent is a question of fact. In order to carry on business, repetition and continuity of the activities which characterise the business are necessary. However, an isolated activity with the intention of repeating it is sufficient. As Lopes and Kay LJJ said in Re Griffin; Ex parte The Board of Trade (1890) 60 LJQB 235 at 237, cited with approval by Barwick CJ in Fairway Estates Pty Ltd v Federal Commissioner of Taxation [1970] HCA 29; (1970) 123 CLR 153 at 165: If an isolated transaction, which if repeated would be a transaction in a business, is proved to have been undertaken with the intent that it should be the first of several transactions, that is, with the intent of carrying on a business, then it is a first transaction in an existing business. See also Simpson v Donnybrook Properties Pty Ltd [2010] NSWCA 229 at [145] per Young JA (with whom Hodgson and Macfarlan JJA agreed).
Similarly, it seems to me that a person who holds himself or herself out as a person who is in the business of introducing potential buyers to potential sellers of property carries on that business even if the business is not generally successful in the sense that only in isolated instances do the introductions result in a sale.
It is common ground that neither Mr Morison nor Mr Williams had a real estate agent's licence.
The plaintiffs submit that they were not carrying on business as real estate agents. They appear to accept that they were carrying on a business but that business involved "much higher level services" that included the business of introducing contacts they had made and providing services that did not necessarily involve the sale of real estate, but included services such as the services they provided in relation to the Bundanoon Sandstone Quarry and project management services. Even if some of their activities could have been regarded as carrying on the business of a real estate agent that, they submit, was not the business they were engaged in in connection with the James St Project.
I do not accept that submission. I accept that the business engaged in by Mr Morison and Mr Williams was broader than the business of a real estate agent. However, it seems to me that a component of their business involved acting as agent for buyers or sellers of real estate and charging commission to sellers for their services. Those services could not be regarded as merely incidental to some other business.
In particular, it is evident that Mr Morison and Mr Williams were seeking to act for Mr Merhi and others who had real estate properties or projects which may have been of interest to their Chinese contacts in relation to the sale of those properties or projects and to charge commission on those sales. Mr Williams gave the following evidence concerning the proposed arrangements with Mr Qiao Jnr: Q. So you had in mind as at 4 January 2013 that if Mr George Qiao could in effect introduce Chinese investors in realty investments in Australia that this would be potentially a very lucrative business for you? A. Exactly. Q. You wanted to get into it didn't you? A. Yes of course. Q. The business of introducing Chinese investors to real estate projects in Australia? A. They didn't have to be Chinese. Q. Well anyone? A. That's right. Q. Provided they pay the commission? A. That's correct. Q. It didn't matter whether they were Caucasian, African, is that right? A. That's quite correct. Q. So you saw this as a very attractive business opportunity which you might be able to get into in a significant way if you had the financial backing or Chinese or other investors? A. That's correct. Q. That remained, in effect, an object of this group as you understood it, throughout the entire period of 2013, that is to say to Mr George Qiao to secure investors into real estate projects, correct? A. Yes, although I must say Mr Qiao didn't follow through very strongly and we, we did much more work than Mr Qiao.
Of course, no agreement with Mr Qiao Jnr was ever reached. However, it is apparent that Mr Morison and Mr Williams were still seeking to act for Mr Merhi in relation to the sale of other projects in which he had an interest. Mr Merhi understood that. He offered Mr Morison a two percent commission on the sale of other projects. Moreover, Mr Merhi expected Mr Morison and Mr Williams to act in relation to the sale of other projects. He used that fact as a reason why he was not prepared to agree to the $2 million commission they sought in relation to the James St Project. The focus of Mr Morison and Mr Williams' attention in relation to the sale of the James Street Project was on Mr Qiao, but earlier on they had sought to attract other buyers. They prepared an information memorandum for that purpose and sought other purchasers through Mr Guo and Professor Ross and Mr Williams wrote to the Commonwealth Superannuation Corporation to see whether it was interested.
Although as I have said, the services offered by Mr Morison and Mr Williams were not limited to acting as agents in relation to the sale of real property, the sale of real property was an essential feature of a number of contracts that they were seeking or hoped to negotiate, as Mr Williams accepted. The contracts in relation to the James St Project are an example. Under the terms of the 1 December Agreement Mr Morison and Mr Williams were to look for purchasers to enter into a real estate transaction - that is, the purchase of the properties on which the units were to be constructed. In order to make that sale more attractive to potential purchasers, what was also being offered was a building contract. But that does not alter the fact that an essential feature of the transaction was the sale of real property in respect of which development approval had been obtained. If the plaintiffs are right about the correct construction of the 1 December Agreement, they are entitled to commission for introducing a purchaser for the real estate alone. That is quintessentially a real estate transaction. It was the type of transaction, although not the only type of transaction, that they were seeking to negotiate.
Consequently, if I am wrong in the conclusion I have reached concerning the correct construction of the 1 December Agreement, I would have concluded that the plaintiffs are prohibited from recovering commission by s 8 of the Property, Stock and Business Agents Act.

Orders

It follows that the proceedings must be dismissed with costs.

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: 05 June 2015

Property, Stock and Business Agents Act 2002(NSW)s 8

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