APD Technology Pty Ltd v Maximo Developments Pty Ltd

Case [2021] FCA 678

FEDERAL COURT OF AUSTRALIA

APD Technology Pty Ltd v Maximo Developments Pty Ltd [2021] FCA 678

File number: NSD 2003 of 2018
Judge: STEWART J
Date of judgment: 25 June 2021
Catchwords:

CONTRACTS – real estate agent’s contract – where effective agency commission on the sale of real property was 50% of the sale price – where vendor seeks to recover the whole of the commission less an amount said to be reflective of a fair and reasonable commission – whether alleged misrepresentations by the agent as to substantial part of the commission being paid back to the buyer were made – whether the agent breached its fiduciary duty to the vendor as its agent in proposing such a commission clause – whether subsequent email communication varied or waived reliance on the terms of the agency agreement – whether estoppel defence established

CONTRACTS – tort – solicitor’s duty to client under retainer and at general law – whether the fourth respondent as the vendor’s solicitor breached his duty to the vendor by allowing a special condition with regard to payment to the agent to form part of the sale contract – where solicitor was retained after the commission clause had already been agreed to – whether solicitor breached duty to vendor by failing to advise that commission clause was of no force or effect because it was induced by misrepresentations or unconscionable conduct – whether solicitor was aware of such conduct – whether the solicitor breached his duty to the vendor by paying the commission to the agent from his trust account

INSURANCE – liability insurance – cover clause – where indemnity against “civil legal liability for any claim for compensation” – whether the first to third respondents are entitled to be indemnified for defence costs by their insurer – whether vendor’s claims against the agent are for compensation or restitution – whether indemnity excluded by operation of the exclusion for dishonesty

Legislation:

Consumer and Competition Act 2010 (Cth) Sch 2 (Australian Consumer Law) ss 18, 21, 236

Corporations Act 2001 (Cth) ss 601AG, 601ED
Cases cited:

Australian Competition and Consumer Commission v Flight Centre Travel Group Ltd [2016] HCA 49; 261 CLR 203

Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; 160 FCR 35

Barnes v Addy (1874) LR 9 Ch App 244

CGU Insurance Ltd v Porthouse [2008] HCA 30; 235 CLR 103

Commonwealth Bank of Australia v Smith (1991) 42 FCR 390

Hall Brothers Steamship Co Ltd v Young [1939] 1 KB 748

Harle v Legal Practitioners Liability Committee [2003] VSCA 133; 13 ANZ Ins Cas 51-605

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; 241 CLR 1

Kantfield Pty Ltd v Lockwood [2003] VSC 420

Kyriackou v ACE Insurance Ltd [2013] VSCA 150

McCann v Switzerland Insurance Australia Ltd [2000] HCA…

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APD Technology Pty Ltd v Maximo Developments Pty Ltd [2021] FCA 678
Case
[2021] FCA 678
Decision Date

CaseChat Overview and Summary

In the matter of APD Technology Pty Ltd v Maximo Developments Pty Ltd, the plaintiff, APD Technology, sought to recover a substantial commission from the defendant, Maximo Developments, for the sale of a property. The dispute arose from an alleged misrepresentation by the real estate agent, Sasan Rahmani, that a significant portion of the commission would be refunded to the buyer. The court had to determine if such misrepresentations occurred and if Rahmani breached his fiduciary duty to the vendor. Additionally, the court examined whether the vendor's solicitor, Mr Arcuri, breached his duty by allowing a special condition concerning the commission to be part of the sale contract. The insurer's liability for the defence costs against a claim by the Australian Securities and Investments Commission (ASIC) was also in question.

The legal issues centred on the existence of misrepresentations, the breach of fiduciary duties, the solicitor's duty under retainer, and the insurer's obligation to indemnify the defence costs. The court evaluated the evidence regarding the alleged misrepresentations by Rahmani and Mr Arcuri's knowledge and actions concerning the commission clause. The court also scrutinised whether the claim against the insurer was for compensation or restitution, and whether the exclusion for dishonesty applied.

The court found that the plaintiff's evidence regarding the alleged misrepresentations was not credible and dismissed the claims against the first, second, and third respondents. The court held that the solicitor, Mr Arcuri, did not breach his duty to the vendor by allowing the commission clause to be part of the sale contract, as he was retained after the clause had been agreed upon. The court concluded that the claim against the insurer for defence costs was not for compensation or damages, but rather for a civil penalty, and was thus not covered by the insurance policy.

The court ordered the dismissal of the proceeding against the first, second, and third respondents, as well as against the fourth respondent. The parties were directed to bring in agreed or competing orders regarding the costs and disposition of the cross-claim within specified timeframes. The court provided for further submissions and indicated that the remaining issues could be determined through a short oral hearing or on the papers, based on the parties' preferences.

Orders

Orders of the court

1. The proceeding against the first, second and third respondents be dismissed.

2. The proceeding against the fourth respondent be dismissed.

3. Within 14 days of these orders:

(a) The parties to the principal proceeding bring in agreed or competing orders with respect to the costs of the proceeding, and in the event of competing orders then the parties file written submissions of no more than three pages in support of the costs orders that they seek.

(b) The parties to the cross-claim bring in agreed or competing orders with respect to the disposition of the cross-claim and costs, and in the event of competing orders then the parties file written submissions of no more than three pages in support of the orders that they seek on the cross-claim.

4. Within 28 days of these orders, the parties:

(a) File any submissions (of no more than three pages) in response to any of the submissions filed under order 3.

(b) Indicate by way of email to the Associate of Stewart J whether they wish the remaining issues to be determined after a further short oral hearing or whether they are content for the issues to be determined on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The defence to the third amended statement of claim similarly denies all allegations that Mr Rahmani made representations about the purchase price being inflated as a means for a Chinese buyer to bring money into Australia and/or the purchase price being substantially refunded to the purchaser. Mr Arcuri’s evidence relevant to the representations It will be recalled that on 2 February 2017, Mr Arcuri had a conference with Mr Doan. Mr Arcuri’s file note records that Mr Doan told him that Mr Doan believed “that some monies are being paid back by Sasan (significant amounts) with Sasan receiving approximately $600,000 commission.” It was put to Mr Arcuri in cross-examination that in fact Mr Doan had said to Mr Arcuri words to the following effect, “Sasan told me many times that Century 21 and the conjunction agent’s commission is 2.2% of the sale price and that a big proportion of this commission is going back to the buyer.” Mr Arcuri denied that he was told that and said that he was not told the source of Mr Doan’s belief that money was to be paid back to the purchaser. He also denied having been told that Maximo and the conjunction agents were only a mechanism in the middle earning 2.2% on the sale. Mr Arcuri’s evidence in cross-examination was that it was his understanding throughout that a lot of the money was to be paid back to the purchaser via the Chinese agents, but not that Mr Rahmani was the source of his understanding, whether directly from Mr Rahmani or as reported by Mr Doan. To the suggestion that the commission arrangement between Mr Doan and Mr Rahmani was exceptional and unusual and that it begs an immediate inquiry as to why a vendor would conceivably commit themselves to a sale on those terms, Mr Arcuri said that he had been dealing with Mr Doan and Mr Rahmani for many, many years, and that such a structure was part of the way that they did business. So, in the context of their dealings he did not find it unusual. Mr Arcuri said that he did not expect that there would have been some side agreement between the two companies qualifying the terms of the commission. Mr Arcuri said that he viewed Mr Doan as one of the smartest and most cunning business people he had ever met in his professional career of some 40 years. He said that it was absolutely in character for Mr Doan to agree the kind of commission structure which would have his company paying 50% of the sale price of a property that sold for more than $20 million in commission. Why Mr Doan’s version must be rejected There are a number of reasons why the evidence of Mr Doan that Mr Rahmani told him, prior to the 5 November 2016 Form 6 being executed, that most of the sale price was to be paid back to the buyer and that he relied on that cannot be accepted as proved. Indeed, for the reasons that follow, I reject Mr Doan’s version on this point. First, there are Mr Doan’s different versions of the material conversations. The first five versions given by Mr Doan do not mention Mr Rahmani having said that most of the commission was to be paid back to the buyer, or that the price was artificially inflated for that purpose. Moreover, as observed above (at [78]), the original version of the statement of claim and several of the earlier versions given by Mr Doan alleged that Mr Doan did not want to know about what Maximo and the conjunction agent achieved above $12 million and that that could be their commission. That asserted position is incompatible with the case ultimately sought to be run which was not only that Mr Rahmani told Mr Doan that the buyer would be paid most of any amount of the purchase price greater than $12 million, but that Mr Doan relied on that.

Decision

Reasons for decision

As I have not heard from the parties to the cross-claim on what form of relief would be most appropriate in the circumstances, I will give them the opportunity to bring in agreed or competing orders to give effect to these reasons.Conclusion As the parties have not had the opportunity to make submissions on costs, I will not make any orders on costs and I will provide for the parties to either agree or make submissions on costs. Insofar as the matter as a whole is concerned, there should be orders as follows:(1)The proceeding against the first, second and third respondents be dismissed.(2)The proceeding against the fourth respondent be dismissed.(3)Within 14 days of these orders:(a)The parties to the principal proceeding bring in agreed or competing orders with respect to the costs of the proceeding, and in the event that it is the latter then the parties file written submissions of no more than three pages in support of the costs orders that they seek.(b)The parties to the cross-claim bring in agreed or competing orders with respect to the disposition of the cross-claim and costs, and in the event that there are competing orders then the parties file written submissions of no more than three pages in support of the orders that they seek on the cross-claim.(4)Within 28 days of these orders, the parties:(a)File any submissions (of no more than three pages) in response to any of the submissions filed under order 3.(b)Indicate by way of email to the Associate of Stewart J whether they wish the remaining issues to be determined after a further short oral hearing or whether they are content for the issues to be determined on the papers.

Ratio Decidendi

Legal Principle Established

The underlying claim in respect of which indemnity was claimed was for defence costs in respect of a proceeding brought by the Australian Securities and Investments Commission (ASIC) against the insured. ASIC had sought a declaration that the insured, and others, had engaged in conduct in contravention of s 601ED of the Corporations Act 2001 (Cth) by operating a managed investment scheme which required registration but was not registered. ASIC had also sought relief restraining the insured from further operating or promoting the scheme in question, and that the scheme be wound up. Ultimately ASIC’s proceeding was discontinued and no order for costs was made, but the insured was left significantly out-of-pocket in respect of his own legal costs for which he sought indemnity under his professional indemnity policy. See Kyriackou at [9] and [17]. The question was thus whether ASIC’s claim against the insured was a claim for civil compensation or civil damages for breach of a duty owed in a professional capacity within the meaning of the insuring clause. With reference to Kantfield Pty Ltd v Lockwood [2003] VSC 420 at [12], it was held in Kyriackou (at [51]) that a claim for civil damages or civil compensation does not include a claim in debt, and on the basis of that reasoning such a claim does not encompass a claim for restitution or for a civil penalty; still less does it include a claim for a declaration and an injunction. It was therefore concluded that ASIC’s claim against the insured was not such a claim and was not covered. However, the Court in Kyriackou also considered whether a claim by an aggrieved person with respect to the managed investment scheme would be a claim covered by the policy. That was because ASIC could conceivably have amended its relief and sought the payment of damages to the investors: at [37]. With reference to Hall Brothers Steamship Co Ltd v Young [1939] 1 KB 748 at 756, it was held (at [52]) that a claim for damages requires a breach of a duty or obligation and would therefore exclude claims for restitution or debt. It was reasoned that any claims by investors in the managed scheme would likely be for the return of borrowed funds, or to enforce contractual rights “– in other words, for restitution of money had and received, or for a debt due or payable under contract – neither of which would constitute payment of compensation or damages.” It is particularly on that reasoning that Hamilton relies in the present case. In Smart v AAI Ltd [2015] NSWSC 392, another case dealing with a similar issue, the insured was referred to as Q1. It was a finance broker. The claimants against Q1 had transferred sums of money to it on the basis that the funds would be used to make loans to clients of Q1 who would then repay the loans to the claimants (at [2]-[3], [7]). The claimants were not repaid anything, the funds having been misappropriated by Q1’s general manager (at [4]). Since there had been no intention on the part of the general manager to lend the funds to clients and no clients, Q1 was liable to the claimants for damages for breach of contract (at [7]). Q1 had been wound up and deregistered, so the claimants brought claims against Q1’s insurer under s 601AG of the Corporations Act (at [5]-[6]). One of the issues in the case was whether Q1’s liability to the claimants was covered by the policy of insurance.