Brott v Maher & Ors

[2005] HCATrans 305

[2005] HCATrans 305

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M3 of 2005

B e t w e e n -

ISSAC ALEXANDER BROTT

Applicant

and

PATRICIA MAHER

First Respondent

JUSTICE MAHER

Second Respondent

DOMINUS MAHER

Third Respondent

SIMPLY IRRESISTIBLE PTY LTD

Fourth Respondent

EIGHTY‑SIXTH ETERNITY PTY LTD

Fifth Respondent

BUNDOORA ALL‑WEATHER MARKET PTY LTD

Sixth Respondent

PAMAH PTY LTD

Seventh Respondent

Application for special leave to appeal

McHUGH J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 29 APRIL 2005, AT 9.50 AM

Copyright in the High Court of Australia

__________________

MR A.G.UREN, QC:   If the Court pleases, I appear with my learned friend, MR J.J. ISLES, for the applicant.  (instructed by Issac Brott & Co)

McHUGH J:   Yes, Mr Uren. 

MR UREN:   Now, I notice in the respondents’ material they did indicate they did not wish to present oral argument.

McHUGH J:   Yes, there is no oral argument on behalf of ‑ ‑ ‑

MR UREN:   We did not know whether that meant there was to be no appearance or not, but it may be that the respondent did not wish to appear.  I have no particular knowledge of that.

McHUGH J:   Well, you put your oral argument.

MR UREN:   If the Court pleases.  We advance two reasons in this case for a grant of special leave to appeal.  The first is that the matter involves a point of law of public importance and the second is related to some of the factual findings of fact, which the Court of Appeal made or relied on, which, in our submission, it was not open to them to have decided the case on the basis of, in the face of findings made by the trial judge and also by reason of the way in which the case was conducted below.

If we can go to the first matter first and I must say we address the first matter on the basis that the Court will recall there are two relevant documents here relating to the commission.  One was the deed, which was signed by the client, and the other one was the letter of 1 March, which was not signed by the clients.  The case was conducted and it seems to us that his Honour accepted that there was no material difference between the two as to the basis upon which the commission was payable, that is to say, it was always payable on a conditional basis.  The argument that we put in respect of the first matter, that is to say, the point of law of public importance, does in part, in any event, rely on the client having been told that the commission is payable on success, rather than payable simply on the expiry of certain dates.  There are reasons which we have mentioned in our submissions as to why that submission should be accepted, which we will go to later.

As to the public importance aspect, the circumstances of this case, in our submission, involve a commission payable in a commercial setting – it is important to realise that in the context of some of the cases which the courts below relied on, which were not cases of that nature – in which the persons involved were experienced in commerce.  That is to say, the persons on all sides were experienced in commerce, which includes the solicitor’s clients. 

There seems, so far as we are able to ascertain, and would also seem, so far as the other side is able to ascertain, too, no decided case like this case.  There seems to be no case in which it seems to us that the question of the extent of what I might call “the obligation of disclosure of material facts” relates to the issue of what must be disclosed in the commercial context by a person who is to receive a commission conditional upon results or, in the category of case of which this, particularly, was one, where the commission was payable by way of extraction from the other side.  There seems, in our submission, to be no case of that sort which is able to be used as an analogy, and, consequently, the courts below used analogies and general expressions from cases which were considerably divorced from the present one in their factual circumstances. 

Now, in our submission, the actual decision of the court was, or involves, that if the vendor’s agent obtains commission by agreement from the purchaser, that is to say, if the processes of negotiation between the parties are such that the vendor is successful in extracting the payment of commission from the purchaser by agreement, then the vendor’s agent must explain to his client, he being in a fiduciary position, that he or she now has an incentive to act improperly towards the vendor in breach of the duty of single‑minded loyalty and seek consent to the payment in that setting. 

Now, in our submission, it is a matter of importance as to whether the obligation – again, using perhaps a slightly inappropriate word – goes so far as to require that the vendor in those circumstances explain to the client that there is now an incentive for the client to be cheated, as it were, by his own agent, acting improperly, simply because the commission is conditional upon success as many commissions are – in fact, one might say most commissions are – and is able to be extracted from the other side. 

In our submission, it is a matter of importance in a commercial setting as to whether an agent may not take the commercial client to be sufficiently aware of the agent’s interest in the matter – if the word “interest” is an appropriate one in these circumstances – and to allow for that interest in the context of the trust which the client reposes in the agent in any event.

Now, the reason why we put it that way is this.  If the agent is supposed to say to the client, “Now, I am getting a commission payable on success and also now I am getting a commission payable by the other side, which I have, in my bargaining for you, required the other side to pay, then this now gives me an incentive to act improperly in your interests and therefore you should take into account, despite the fact that you have employed me in a position of trust, that your trust in me might be misplaced”. 

Now, to take your Honour Mr Justice McHugh’s expression, the floor of the stomach test or the smell test, in our submission, that statement does not pass what we might call the stomach test.  It would seem to be, if we might respectfully say, grossly unsatisfactory that a commercial agent is required to make a statement of that sort to the client in a commercial context merely because the circumstances are that commission is payable on the basis of success and even if the commission is able to be, by agreement, extracted from the other side. 

The logic of the decision in the Court of Appeal, in our submission, applies not only to cases where the commission is payable by the other side, but also to cases where a commission conditioned on success is payable by the agent’s own client.  Now, the court in its reasons thought that there were considerations which made those two cases different, but, in our submission, they lack conviction, with respect, and the logic of the decision is that a burden would be placed on a commission agent which, in our submission, is far too onerous and is not one required by the relationship between the parties.

Now, there is also the question of whether there was a true conflict of interest in any event, because the word “interest” has a number of meanings and applications.  Whether it means, in any particular context, that the party would be better off if a particular event occurs or whether, at the other end of the spectrum, we have the situation of somebody who is a party to a transaction and thus has an interest in the transaction itself, tends to us to indicate that it is not possible to take cases in which the word “interest” is used in one context and apply them in cases where the word “interest” may be applicable in another context and say, “Well, look, because your obligations in a category of cases at one end of the spectrum require a particular course of conduct, then, at the other end of the spectrum, they also require the same course of conduct”. 

The cases which were relied on down below were really cases where a solicitor was, in one case, Makaronia, in fact on the other side of the transaction, because they were the lender of the money and the mortgagees, and in other cases where the solicitor has been acting on both sides.  We may also say that in two of those cases where the solicitor was acting on both sides it would seem to us – one was Beach Petroleum and the other one was, I think Mothew’s Case – it would seem to us that the solicitor was not required to tell the client that acting on both sides had any particular implications with respect to the client’s behaviour, but the fact that the solicitor was engaged to the knowledge of the commercial client on each side of the transaction was a sufficient special disclosure. 

So we do emphasise the commercial nature of this case.  The fact that the respondents were, as his Honour found, experienced in commerce and litigation was a significant feature which made inapplicable some of the statements of principle contained in cases which might be of the little old lady and the big, bad bank category. 

The significance of the case, in our submission, is that it concerns in a practical way the obligations of persons involved in fiduciary commercial transactions, and there is a public benefit in people of that nature knowing precisely where they are in those circumstances and in knowing precisely how far their explanation should go to the client and whether they have an obligation to explain to the client that there is now some sort of incentive which the agent might have to act improperly with respect to the client. 

In our submission, if the case is able to be categorised in that way, then it is a matter of significance to have that issue resolved, especially in the situation where there does not appear, so far as we can see, to be any case which has been decided which has similarities anywhere near approaching the circumstances of this case and that, therefore, statements of degrees of generality taken from cases which have no particular relationship to the present have been used to govern a quite different kettle of fish and have been applied here in a context which is quite different to those.  So, in our submission, the point which the court decided was one of significance in those respects.

Now, the other aspect of the case is the way in which the Court of Appeal dealt with some of the factual matters and these are matters as to which we feel a sense of some grievance, because of some of the things which were said and some of the bases upon which the way in which the case had been run down below was, in our respectful submission, disregarded by the Court of Appeal.  If I could take the Court to the application book at page 111, the Court will see that when the Court of Appeal and Mr Justice Phillips, in this instance, was considering the difference which he saw between the unsigned letter, which appears at 109, and the deed of agreement, which appears at 109 to 110. 

He took the view that whereas the client knew the contents of the deed of agreement by virtue of having signed it but was not shown to be aware of the contents of the unsigned letter, that a significant difference was introduced into the equation by virtue of the fact that the unsigned letter which contained the terms on which commission was ultimately payable was expressed to be conditional, that is to say, conditional on success, whereas the deed of agreement was not.  The court saw a significant difference between the case where the commission was to be payable merely on dates as opposed to commission payable on results. 

Now, the difficulty with what the court found there was, firstly, the way the case was run at trial was not that there was any significant difference between the two in that regard.  The way the case was run at trial was that there was not disclosure of the fact that there was a conflict.  It was not that there was not disclosure of the basis upon which payment was made.  The learned trial judge, noting the difference between the two documents, merely said that the terms of the second were not precisely the same as the terms of the first.  His Honour did not come to the conclusion that the terms of the first were in any sense significantly different.  The words which were used were simply that they were not precisely the same. 

The point that we made was that it must be perfectly clear to persons engaged on any commercial basis that where the commission is payable for procuring a sale, it is not made for procuring nothing.  This is taking the terms of the deed for our present purposes.  He is not paying it for nothing; procuring the sale in fact means a commission payable for getting the ultimate transactional result.  It is not a commission payable on particular dates without reference to the sale having been procured.  Indeed, although the Court of Appeal found that there was a difference between the terms of the two documents, if I could take your Honours to paragraph 21 of the reasons of Mr Justice Phillips at page 111, his Honour said:

One answer to this would be (if it were the fact) that payment of the Herszberg fee was in truth not conditional, which to my mind is how the Deed of Agreement reads.  But the unsigned letter was in evidence and it is difficult to dismiss it as altogether irrelevant –

So far, there is no disagreement, but his Honour went on to say: 

moreover, to describe the fee as an “introduction fee” or as a fee “for procuring the sale” suggests that Brott and Herszberg were looking forward to completion. 

Now, that was in fact our point.  His Honour has regarded it as a reason for distinguishing between the unsigned letter and the deed of agreement, but the words “introduction fee” appear in the unsigned letter.  The words “for procuring the sale” do not appear in the unsigned letter, they appear in the deed, as can be seen from recital I on page 110, which was precisely our point.  “Procuring the sale” suggests that they were in fact looking forward to completion. 

Now, this was the ordinary sort of transaction in which the common understanding is that when you get a commission for procuring a sale, there has to be a sale which eventuates, not a payment for nothing.  The Mahers never said that they understood that the payment was to be made of the commission on particular dates, whether the transaction eventuated or not, and one might have, if that submission had been made, certainly been able to make significant inroads onto the clients’ credit, at least the Mahers’ credit, if they had said that.

McHUGH J:   Well, significant inroads were made on their credit.  The trial judge would not accept either side, unless evidence was corroborated.

MR UREN:   Yes, we understand that, your Honour, and we are proceeding on the basis of the facts which the trial judge found, not on the basis of the facts which either side put forward.  That is the way the case must, of course, be proceeded.  But there was no significant difference, in our submission, between the deed of agreement and the unsigned letter except as to the dates of payment.  The basis of payment must always have been that procuring the sale got the commission.  No sale, no commission.  And, as was accepted by the Court of Appeal in its argument, although not in its conclusion:

a “fee for procuring a sale” suggests that Brott and Herszberg were looking forward to completion –

which is, in fact, the way the case was run.  But at least one of the bases on which the Court of Appeal determined the case against the applicant is that he had not told the client that the fee was to be conditional.  Now, that, in our submission, was not a finding which was open to be made by the Court of Appeal and, in any event, it would have been incorrect in these particular circumstances.  Then the Court of Appeal went further and at page 114 said:

Indeed one might go further because, so far as I can tell, the reason for payment of the Herszberg fee was not disclosed either.

So the further element of non‑disclosure, which the trial judge never mentioned and which the Court of Appeal managed to find, was that the reason for payment of the Herszberg fee was not disclosed.  But the reason for payment of the Herszberg fee was accepted by the trial judge, I think, at page 31 of the application book in paragraph 103(b) as being:

in effect a broker’s commission paid by the purchaser as part of the sale transaction.

Now, the whole of paragraph 103 does warrant some reference, because that acquits Mr Brott of dishonesty and of attempting to obtain an improper advantage in the context of acquitting Herszberg, because they must have both been involved if there was any problem in that regard.  Consequently, for the Court of Appeal to say that the reason for payment of the Herszberg fee was not disclosed either is, in our submission, something which was not open to be said, nor was it put to Mr Brott, we might say, and it is contrary to the trial judge’s findings.  The fact that there was a strong incentive to Mr Brott to continue dealing with Mr Herszberg was put by the Court of Appeal at page 112, again, contrary to the trial judge’s findings in paragraph 103.

McHUGH J:   Yes, but, in substance, that finding was the same as the finding that the trial judge made, was it not, that your client had a material reason for not antagonising Herszberg?

MR UREN:   Your Honour, the clients were on the horns of a dilemma.  They had to settle with the bank.  There was nobody else in view.  The reason for not antagonising Herszberg was to get the clients the money; it was not to get Mr Brott his fee.  And as the judge’s examination of the facts on the negligence issue shows perfectly clearly, Mr Brott did in fact

attempt, so far as was humanly possible, to obtain terms from Herszberg which the client would be happy with.

McHUGH J:   I notice your time has expired.

MR UREN:   Yes, it has expired.  Those are the reasons why we submit that special leave should be granted.

McHUGH J:   Yes, thank you, Mr Uren. 

The application for special leave to appeal in this matter is refused.  The Court is of the view that the applicant has insufficient prospects of succeeding on appeal to warrant a grant of special leave.  Accordingly, the application is dismissed with costs.

MR UREN:   If the Court pleases.

McHUGH J:   The Court will now adjourn to reconstitute.

AT 10.13 AM THE MATTER WAS CONCLUDED