Challenger Group Holdings Ltd v Concept Equity Pty Ltd

[2009] NSWCA 190

Appeal Outcome: Special leave dismissed with costs by the High Court, 12 February 2010 s222/2009

New South Wales

Court of Appeal

CITATION:	Challenger Group Holdings Ltd v Concept Equity Pty Ltd [2009] NSWCA 190
HEARING DATE(S):	6 July 2009
JUDGMENT DATE:	7 August 2009
JUDGMENT OF:	Allsop P at 1; Hodgson JA at 2; Macfarlan JA at 12
DECISION:	(1) Appeal allowed. (2) Set aside the orders made by Young CJ in Equity on 1 October 2008. (3) Declare that the respondent is not entitled to the fee which it claimed in its invoice to the appellant dated 18 August 2004. (4) Judgment for the appellant on the respondent’s cross-claim. (5) Order the respondent to pay the appellant’s costs of the proceedings at first instance and on appeal. (6) The respondent to have a certificate under the Suitors’ Fund Act 1951, if qualified.
CATCHWORDS:	CONTRACTS - agreement for introduction of merger/acquisition opportunities in the financial servies sector - entitlement to fee dependent on introduced opportunity being taken up - CONTRACTS - implied terms - whether real estate agency cases as to "effective cause" implied term relevant to financial services sector agreement - TRADE AND COMMERCE - licensing of business agents - Property, Stock and Business Agents Acts 1941 and 2002 - transitional provisions - whether agent suing for a service performed as a business agent
LEGISLATION CITED:	Interpretation Act 1987 Limitation Act 1969 Property, Stock and Business Agents Act 1941 Property, Stock and Business Agents Act 2002
CATEGORY:	Principal judgment
CASES CITED:	BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brian Cooper & Co v Fairview Estates (Investments) Ltd (1987) 282 EG 18 CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 Chang v Laidley Shire Council [2007] HCA 37; (2007) 234 CLR 1 David Leahy (Aust) Pty Ltd v Macpherson's Ltd [1991] 2 VR 367 Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2; (2001) 202 CLR 351 The County Homesearch Co (Thames & Chilterns) Ltd v Cowham [2008] 1 WLR 909 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
TEXTS CITED:	Chitty on Contracts, 28th ed. (1999) Sweet & Maxwell Macquarie Dictionary, 4th ed. (2005) Macquarie Library
PARTIES:	Challenger Group Holdings Ltd (Appellant) Concept Equity Pty Ltd (Respondent)
FILE NUMBER(S):	CA 40337/08
COUNSEL:	J E Marshall SC/G Lucarelli (Appellant) N C Hutley SC/R J Carruthers (Respondent)
SOLICITORS:	Minter Ellison (Appellant) Shaw Reynolds Bowen & Gerathy (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 2090/05
LOWER COURT JUDICIAL OFFICER:	Young CJ in Eq
LOWER COURT DATE OF DECISION:	7 August 2008
LOWER COURT MEDIUM NEUTRAL CITATION:	Challenger Group Holdings Ltd v Concept Equity Pty Ltd [2008] NSWSC 801

CA 40337/08
SC 2090/05

ALLSOP P
HODGSON JA
MACFARLAN JA

FRIDAY 7 AUGUST 2009

CHALLENGER GROUP HOLDINGS LTD v CONCEPT EQUITY PTY LTD

Judgment

1 ALLSOP P: I agree with Macfarlan JA. I would only wish to add that the conversation in early to mid-April 1997 between Mr Rose and Mr Ireland can be viewed as admissible to identify the commercial aim and genesis of the contract. Viewed as such, it reinforces and makes pellucid the commercial aim of remunerating the respondent for opportunities introduced as discussed in the first paragraph of the letter of 30 April 1997.

2 HODGSON JA: The circumstances in which this appeal is brought and the issues it raises are set out in the judgment of Macfarlan JA.

3 I agree with the orders proposed by Macfarlan JA and, subject to what I say below, I agree substantially with his reasons.

4 What Concept was proposing to do in the first paragraph of its letter of 30 April 1997 was to “introduce … merger/acquisition opportunities” and to “provide its services”. In the second paragraph, the words “merger/acquisition opportunities” are relevantly replaced by the words “these parties”; and this is reflected in the use of the word “party” in sub-par (1) of the second paragraph.

5 Thus, in my opinion and as suggested by Macfarlan JA, the introduction of a party would not be a performance by Concept of what was proposed by the letter, unless it amounted to the introduction of a merger/acquisition opportunity; and any relevant value such an introduction would have to Challenger was in its character as the introduction of such an opportunity. In those circumstances, I agree with Macfarlan JA that the business-like construction of the letter is that the “business relationship” or “business agreement” with an introduced party, referred to in sub-par (1), is a relationship or agreement referable to the introduced opportunity, and not one unconnected with it.

6 I agree with Macfarlan JA that this is confirmed by the third paragraph of the letter. That makes it clear that a “party” may relevantly be “introduced” even if Challenger has had previous dealings with that party, thereby confirming that the letter is not referring to the bare introduction of a party but rather to the introduction of a business opportunity. The letter provides to the effect that the introduction of a business opportunity will entitle Concept to a fee, even if Challenger had previously entered into negotiations with the party introduced, so long as these negotiations had ceased more than thirty days prior to the introduction.

7 In my opinion, this view of the agreement is also confirmed by the final paragraph of the letter, suggesting that what may give rise to a liability for fees is pursuit of the introduction, not subsequent unconnected and coincidental dealings.

8 For these reasons, and having regard to the factual analysis by Macfarlan JA, with which I agree, Concept was not entitled to a fee in this case.

9 These views make it unnecessary for me to express a view on whether an “effective cause” term would be implied, subject to being excluded by sufficient manifestation of contrary intention, into a contract such as this; or whether the difference in wording between sub-par (1) and sub-par (2) would be sufficient to exclude such a term.

10 As regards the statutory provisions, I would not myself draw a sharp distinction between (1) introduction of an opportunity and (2) services by way of negotiating for a dealing with businesses; so I am inclined to the view that s 42 of the 1941 Act and s 9(2) of the 2002 Act would apply. However, I agree with Macfarlan JA that the absence of any provision relating to corporations, similar to cl 3(3) of the Schedule of the 2002 Act, sufficiently manifests a legislative intention that s 9 of the 2002 Act not operate retrospectively. Further, without making a final decision on this, I am inclined to the view that cl 3(3) also manifests a legislative intention that the potential defence provided by s 42 of the 1941 Act to a claim falling within its terms should not be considered a right or privilege obtained or accrued, within s 30(1)(c) of the Interpretation Act 1987, and thus not affected by the repeal of the 1941 Act by the 2002 Act: cf s 5(2) of the Interpretation Act.

11 Thus, in my opinion, the orders proposed by Macfarlan JA should be made.

:

Nature of Case and Conclusions

13 In 1997, Concept Equity Pty Ltd (“Concept”) offered to introduce to Challenger Group Holdings Ltd (“Challenger”) “merger/acquisition opportunities in the financial services sector”. Challenger agreed to pay Concept a substantial fee in the event that Challenger formed a business relationship, or made a business agreement, with any party which Concept introduced.

14 An opportunity introduced by Concept in 1999 was the opportunity to acquire Associated Planners Group Ltd (“APGL” or “APG”). Negotiations involving Challenger, Concept and APGL occurred over a period of months but concluded in February 2000 without any agreement being entered into.

15 In late 2003 APGL initiated discussions with Challenger concerning the purchase by APGL of part of Challenger’s businesses. These discussions led to negotiations for the purchase by Challenger of APGL. That purchase was agreed and was publicly announced in April 2004, whereupon Concept claimed from Challenger under the 1997 agreement a fee for which it sues in these proceedings.

16 I have concluded that Concept is not entitled to the fee it claims because, on the proper construction of the 1997 agreement, its fee entitlement arose only if the opportunity which it introduced to Challenger was availed of or taken up ([70-72] below). This did not occur in the present case ([73-75] below. The opportunity introduced in 1999 was fully explored by the negotiations which occurred in late 1999 and early 2000 but was not taken up. The later negotiations of late 2003/early 2004 were separate, having an origin independent of the earlier negotiations and of the 1997 agreement between Concept and Challenger.

17 The alternative bases upon which Challenger resisted payment of the fee claimed by Concept were not well founded. In particular:

(a) The 1997 agreement did not contain an implied term that, to generate an entitlement to a fee, the introduction by Concept had to be the “effective cause” of the subsequent agreement or relationship entered into by Challenger ([77-82] below).

(b) The agreement between Challenger and Concept did not lapse through effluxion of time and was not abandoned ([83-84] below).

(c) Legislation requiring licensing of “business agents” would not have prevented Concept’s recovery of the fee it claimed ([85-91] below).

Factual Background

18 In 1997 Concept operated the Corporate Services Division of the Concept Financial Services Group. The services offered by Concept included acting on mergers and acquisitions, assisting in capital raisings and giving corporate advice (Blue Appeal Book 2H). Its managing director and sole shareholder, Mr Marcus Rose, gave evidence describing Concept’s role as in part to “introduce parties to each other and to facilitate discussions or negotiations between those parties that may then lead to an acquisition” (affidavit of 15 August 2006 [3]).

19 The managing director of Challenger in 1997 was Mr Bill Ireland. He had had extensive experience in the financial services and investment industry.

20 In early to mid April 1997 a meeting occurred at which the following conversation occurred between Mr Ireland and Mr Rose:

“Mr Ireland: Challenger wants to grow and expand. We want to produce our own products and we want to buy an insurance company to develop those products.
Mr Rose: Concept specialises in mergers and acquisitions. If Challenger retains Concept then it will look for opportunities, on the basis that if Concept introduces a business that Challenger successfully acquires, Concept will be paid a fee. We are out there talking to a whole host of insurance companies. I can introduce a number of these opportunities to you.
Mr Ireland: That sounds great.
Mr Rose: As there will be a few of these opportunities coming up, it will be simpler to put them to you without having to get a new authority completed every time. I would prefer to have a blanket appointment in place. Would that be acceptable?
Mr Ireland: Yes we would be happy with that.
Mr Rose: I will prepare a letter of engagement setting out the terms on which Concept will act for Challenger and if you are happy with them, sign it and fax it back to me.
Mr Ireland: OK. I will do that.”

21 Subsequently a letter dated 30 April 1997 was submitted by Concept to Challenger and was signed by Mr Ireland on behalf of Challenger (the “letter agreement”). The body of the letter was in the following terms:

“Further to your recent discussions with Mr Gil Hoskins with whom we are associated, I am writing to confirm that Concept Equity Pty Ltd would like to introduce to you a number of merger/acquisition opportunities in the financial services sector, and to also provide its services which include the review of strategic directions and issues, the negotiation and structuring of agreements and the co-ordination of lawyers and accountants.
Concept would be pleased to introduce these parties and/or provide its services to you on the understanding that, in the event that Challenger (or any related or associated entity):
(1) forms a business relationship or makes a business agreement with any party introduced by Concept (including any related or associated entity of the introduced party); and/or
(2) uses Concept’s services which results in the formation of a
business relationship or the making of a business agreement;
then Challenger will pay to Concept a fee based on the total consideration, value or benefit of the business agreement or business relationship formed equivalent to:
5% for the first $10 million;
3% for the next $10 million;
1.5% for all amounts thereafter.
With respect to any introduction, if, within a 30 day period prior to the date on which Concept introduces a party, Challenger has already entered into negotiations with that party, then Challenger will not be obliged to pay Concept the above fee. If this is the case we would request that you immediately notify us that Challenger has been previously negotiating with that party within the 30 day period.
If you would like to pursue these introductions and/or use our services on the terms outlined, could you kindly confirm your agreement and acceptance by executing where indicated and returning a copy to us by facsimile.”

22 The reference at the commencement of the letter to “your recent discussions with Mr Gil Hoskins” appears to be a reference to discussions which occurred prior to the meeting described in [20] above because, although Mr Hoskins was present at that meeting, the only evidence of what was said at the meeting was of statements of Mr Rose and Mr Ireland.

23 Subsequently, Concept and Challenger had some dealings, which are not presently relevant, which led to Challenger paying fees to Concept pursuant to the terms of the letter agreement of 30 April 1997.

24 In late 1999 Mr Rose spoke to Mr Ireland and to Mr John Barry, also of Challenger, in relation to a number of possible acquisitions, including one of Associated Planners Financial Services (“APFS”). After an initial indication of interest from Mr Ireland, Mr Rose had contact with Messrs Caulfield and Miles of APFS further to the contact which he had already had with APFS. On 3 December 1999 he told Mr Ireland:

“APFS is for sale. I told them I act for Challenger. I’ve spoken to Miles now. They have 150 Planners and $2.5-$3 billion under advice. Ray Miles is around until 17 December 1999 and would need to do a deal by then. I have told them I would send them a non disclosure agreement and he is to sign it and send it back to me. I’ll also send you an NDA [that is, a Non Disclosure Agreement] to sign and send back to me.”

25 Discussions concerning the Non-Disclosure Agreement led to Concept and Challenger commencing to refer to Associated Planners Group Ltd (“APGL” or “APG”), rather than APFS, as the subject of possible acquisition.

26 On 10 December 1999 Mr Rose submitted to Mr Ireland a Briefing Paper relating to APGL. APGL was described as being exclusively “a financial planning operation until very recently”. Reference was made to steps taken by APGL in 1995 “in an attempt to gain greater control over managed funds” and the commencement in 1998 of its own “Wrap Account” business. The former involved the progressive acquisition of a 49% interest in Associated Planners Management Pty Ltd (“APM”) which was said to be a “Superannuation Master Trust”. The Briefing Paper concluded with the comment that “APG is one of the largest distribution planning networks in the country. It is possibly the last opportunity to acquire a network of this magnitude” (Blue Appeal Book 213N).

27 On 15 December 1999 a meeting took place at which Mr Rose was present. At it, the following conversation occurred between Mr Ireland and Mr Miles:

“Mr Ireland: Challenger has access to capital to expand. They have good products, for example they have the best annuity and mortgage products around. We could either buy APG or form a strategic alliance or provide funding for the balance of the Master Trust buy out. When we purchased Garrisons it was half in shares and half in cash.
Mr Miles: We have an equity arrangement with various advisers with the best advisers earning about $1 million per annum. I do not think we need capital but we do have other needs. To buy APG it will cost $50 million for 50% to get it through the board. The last valuation capitalised the company at $36 million so it is no good putting in an offer of $30 million to us. To get it through the board we will have to value APG at $50 million. We have plenty of offers and we do not need capital right now but we are getting to a stage where we will need it. Timing is going to be critical for the wrap accounts and the price is also the major issue.
Mr Ireland: We are really interested in getting involved somehow. We want to work something out with you but perhaps we might subscribe capital and provide access to reward schemes to advisers.
Mr Miles: We need to think how Challenger and APG can get closer together with an equity arrangement that might include lending money to buy businesses through to share swap or for Challenger to take up 50% of the Master Trust by an injection of capital and repayment of capital through sales.” (Blue Appeal Book 14G-P).

28 Discussions ensued, with it becoming apparent in January 2000 that the asking price for 50% of APGL was in fact in the order of $60 million. Challenger regarded this as too much and discussions turned in February 2000 to a more limited transaction, that is, the possible purchase by Challenger of an interest in APM and the Wrap account business.

29 However on 10 February 2000, Mr Andrew Creaser of APGL said to Mr Rose:

“We have effectively sold APM to a consortium. APG is to retain 25%. You were not able to get to the table quickly enough. We are still open minded about getting closer to the Group.
There was much mucking around in January. If there was an earlier commitment in place we could have done something. The present deal however does not lock in APG. We still say if someone comes along with a $120m f*** off sale we would take it. Our preference is for a 50% sale.” (Blue Appeal Book 18M-Q)

30 After obtaining some further information from APGL, Mr Rose sent a Briefing Paper dated 19 April 2000 to Mr Barry of Challenger. This related to a possible purchase by Challenger of APGL for $80 million (Blue Appeal Book 19Q). Despite a follow up email from Mr Rose, Mr Barry does not appear to have responded to this proposal. Certainly, Mr Rose does not now recall receiving a response.

31 On 16 November 2000 Mr Rose forwarded to Mr Barry a copy of a media article referring to the purchase by “Zurich” of an interest in APGL (Blue Appeal Book 20C).

32 Mr Rose gave evidence that after February 2000 he did not receive any instructions from Challenger to put any further proposal to APGL and he did not suggest that he had any further communication with Challenger concerning APGL before May 2004. The only other communication with Challenger before that time to which Mr Rose referred in his evidence was contact about another investment opportunity on one occasion after an announcement in April 2003 that Mr Ireland was no longer to be the managing director of Challenger.

33 On 6 April 2004 Challenger publicly announced a proposal to acquire APGL for $91.3 million. That acquisition was subsequently effected by means of a scheme of arrangement.

34 By letter of 13 May 2004 to Challenger, Concept claimed that it was entitled to a fee under the letter agreement of 30 April 1997 as a result of introducing APGL to Challenger “and/or as a result of Concept’s services” “in connection with the negotiations with [APGL] after the introduction” (Blue Appeal Book 710M). After some further communications between the parties, Concept submitted a tax invoice dated 18 August 2004 for an amount of $2,051,500 including GST. Concept’s claim to the fee was based upon the letter of 30 April 1997 and was said to arise out of Challenger’s acquisition of the Associated Planners Group.

Challenger’s 2004 acquisition of APGL

35 The primary judge held that this acquisition in 2004 occurred pursuant to an agreement made “between corporations which were governed and constituted quite differently from when the” letter agreement of 30 April 1997 was entered into (Judgment [29]).

36 Prior to the acquisition, Challenger had “merged via a scheme of arrangement with a Packer Group entity CPH Investment Corp” (Orange Appeal Book 20H-J). This led to Mr Ireland ceasing to be managing director and Mr Chris Cuffe becoming chief executive officer of Challenger.

37 In 2000, Zurich had purchased approximately 30% ownership of APGL (Blue Appeal Book 111L). This led to APGL adopting a new constitution. The financial accounts for APGL in the period 2000-2003 stated that its principal activity was, throughout that period, insurance and financial consulting.

38 In its written submissions, Challenger described the evidence in the proceedings as to the circumstances in which negotiations for the 2004 agreement between Challenger and APGL were triggered. Concept did not dispute this description which was as follows:

“In late 2003, after the changes had occurred at APG and at Challenger, Mr Creaser, the then deputy managing director of APG put together a proposal for the APG board for a deal involving APG acquiring (not selling) the Garrisons part of Challenger’s business. Mr Creaser’s evidence explained his proposal. He had been aware of Garrisons Pty Limited which had been acquired by Challenger in the late 1990’s. Mr Creaser believed Challenger had had some difficulties in the market place but he knew Chris Cuffe and felt comfortable making contact with Chris Cuffe. He telephoned Mr Cuffe and told Mr Cuffe that APG was looking for acquisitions. The proposal was that Garrisons would be rolled into the APG stable in return for Challenger being issued shares in APG” (Orange Appeal Book 21D-H; references omitted).

39 After some discussions occurred, the transaction proposed between Challenger and APGL became one whereby Challenger would acquire APGL.

40 Mr Creaser of APGL gave the following evidence, which was not the subject of cross-examination, in relation to the acquisition:

“35. I never mentioned Concept Equity or Marcus Rose or the previous meetings with Challenger International in late 1999/early 2000 to anyone at Challenger during Project Webb. That was not deliberate; it simply never occurred to me as having any relevance at all. …
36. Challenger was a very different company in 2003. It was run by a different management team, headed up by Chris Cuffe as opposed to Bill Ireland. It did not cross my mind that there was any reason to mention the discussions which took place with Concept Equity and Challenger International in late 1999/early 2000 during Project Webb.
37. My initial contact with Chris Cuffe in 2003 had nothing to do with the earlier 1999/2000 discussions. When I spoke to Mr Cuffe in 2003 I had completely forgotten about those earlier discussions. What prompted me to contact Mr Cuffe was that I knew he had been appointed as CEO of Challenger, that he had a mandate to ‘fix’ Challenger and I considered it likely that he would be looking to sell Garrisons. Because of my regard for Mr Cuffe I considered it was probable we could ‘do business’ together.
38. Unlike in 1999/2000 when APG was looking for capital, I contacted Mr Cuffe in 2003 looking to pursue APG’s acquisition strategy. In 2003 APG was looking to ‘buy’ not ‘sell’ or ‘borrow’ as it was in 1999/2000.” (Blue Appeal Book 113 E-N)

41 Five of the persons who comprised the Challenger management team at the time of its negotiations and agreement with APGL in late 2003-2004, including Mr Cuffe, gave evidence in affidavit form that they had no knowledge of the earlier dealings between APGL and Challenger, or any knowledge of Mr Rose or Concept. Two other members of the management team were not called to give evidence but it was agreed between the parties that no Jones v Dunkel inference would be drawn against Challenger in this respect.

The Issues at First Instance

42 By its Further Amended Summons in the proceedings Challenger sought declarations as to the absence of any liability to Concept for the amount claimed by Concept’s invoice of 27 August 2004.

43 The forms of declaration sought by Challenger raised issues as to whether it was necessary under the letter agreement to imply a term that a business relationship or agreement with a third party had come about “within a reasonable time from the initial introduction” and whether it was necessary that Concept’s introduction be the “effective cause” of the business relationship or agreement that eventuated.

44 By its Cross-Claim, Concept sought payment of the fee claimed in the invoice. It alleged that it was an express term of the letter agreement that “in consideration of Concept introducing to Challenger one or more parties constituting merger and/or acquisition opportunities in the financial services sector and/or providing its services in relation thereto” Challenger would pay Concept a fee if one of the events referred to in sub-paragraphs (1) and (2) of the letter agreement occurred (see [21] above). It then alleged that “in or about December 1999, Concept introduced [APGL] to Challenger as a merger and/or acquisition opportunity for Challenger in the financial services sector” and that Challenger “formed a business relationship or made a business agreement” with APGL. Concept did not rely upon the portion of the letter agreement dealing with the provision of services, as distinct from that which related to the making of an introduction.

45 In the alternative, Concept alleged that if it was a term of the agreement that its fee was dependent upon the introduction by Concept being a “cause” of the subsequent business relationship or business agreement between Challenger and APGL, the introduction was in fact such a cause. The primary judge did not find that the introduction was a cause of the business relationship or the agreement and the Concept’s Notice of Contention does not assert that he should have found that. Accordingly, this alternative basis of Concept’s claim need not be considered further.

46 Challenger’s Further Amended Defence to Concept’s Cross-Claim alleged that Concept was precluded by the Property, Stock and Business Agents Act 1941 or the legislation which replaced it, the Property, Stock and Business Agents Act 2002, from recovering the fee which it claimed as a result of Concept not at any relevant time holding a licence under either of those Acts.

47 It is convenient at this point to set out the relevant terms of this legislation.

Property, Stock and Business Agents Act 1941 (“the 1941 Act”)

48 Prior to its repeal by the Property, Stock and Business Agents Act 2002 (“the 2002 Act”) the 1941 Act was amended on a number of occasions. As it was not suggested by either party that any earlier form of the Act was relevant to any issue in the proceedings, I refer to the terms of the 1941 Act as it stood at the time of its repeal.

49 The licensing requirement was contained in s 20, the relevant parts of which were as follows:

“20 Agents to be licensed

(1) A natural person must not act as or carry on the business of (or advertise, notify or state that the person acts as or carries on or is willing to act as or to carry on the business of):

(a) a real estate agent, unless the person is the holder of a real estate agent’s licence, or

(b) a stock and station agent, unless the person is the holder of a stock and station agent’s licence, or

(c) a business agent, unless the person is the holder of a business agent’s licence, or

(d) a strata managing agent, unless the person is the holder of a strata managing agent’s licence, or

(e) a community managing agent, unless the person is the holder of a strata managing agent’s licence, or

(f) an on-site residential property manager, unless the person is the holder of an on-site residential property manager’s licence.

(2) …

(2A) …

…

(3) A corporation shall not act as or carry on or advertise, notify or state that it acts as or carries on or is willing to act as or carry on the business of a real estate agent, a stock and station agent, a business agent, a strata managing agent, a community managing agent or an on-site residential property manager, as the case may be, unless the corporation has taken out a corporation licence and employs as the person in charge of its sole or principal place of business a person who holds a licence or licences of such one or more of the classes referred to in section 22 as may be appropriate.

(3A) A real estate agent, stock and station agent, business agent, strata managing agent, community managing agent or on-site residential property manager need not hold more than one licence to perform lawfully any of the functions of the agent that are also functions of any other of those agents.

(4) …”

50 The definition of “business agent” was contained in s 3 and was in the following terms:

“Business agent means any person (whether or not such person carries on any other business) who for reward (whether monetary or otherwise) exercises or carries on business as an agent for performing any of the following functions, namely:

(a) selling, buying or exchanging or otherwise dealing with or disposing of, or

(b) negotiating for the sale, purchase or exchange or any other dealing with or disposition of, or

(c) compiling for publication or compiling and publishing a document that contains a list relating solely or substantially to the acquisition or disposal by any person of,

businesses or professional practices or any share or interest in or concerning or the goodwill of or any stocks connected with businesses or professional practices.”

51 Section 42(1) included reference to the recovery of commissions and fees and was in the following form:

“42 Provisions as to commission etc

(1) Subject to this Act, no person shall be entitled to bring any proceeding in any court 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 such a holder, at the time of performing the service, or

(b) as a stock and station agent, unless the person was the holder of a stock and station agent’s licence, or employed such a holder, at the time of performing the service, or

(c) as a business agent, unless the person was the holder of a business agent’s licence, or employed such a holder, at the time of performing the service, or

(d) as a strata managing agent or as a community managing agent, unless the person was the holder of a strata managing agent’s licence, or employed such a holder, at the time of performing the service, or

(e) as an on-site residential property manager, unless the person was the holder of an on-site residential property manager’s licence or a real estate agent’s licence, or employed such a holder, at the time of performing the service,

and, in the case of a corporation, unless it was the holder of a corporation licence at the time of performing such service.”

Property Stock and Business Agents Act 2002

52 The relevant requirements for the holding of licences and the restraints upon recovery of fees and commissions are contained in ss 8 and 9 as follows:

“8 Agents required to be licensed

(1) A natural person must not act as or carry on the business of (or advertise, notify or state that the person acts as or carries on the business of or is willing to act as or carry on the business of):

(a) a real estate agent, unless the person is the holder of a real estate agent’s licence, or

(b) a stock and station agent, unless the person is the holder of a stock and station agent’s licence, or

(c) a business agent, unless the person is the holder of a business agent’s licence, or

(d) a strata managing agent or community managing agent, unless the person is the holder of a strata managing agent’s licence, or

(e) an on-site residential property manager, unless the person is the holder of an on-site residential property manager’s licence or a real estate agent’s licence.

Maximum penalty: 100 penalty units.

(2) 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 the holder of such a licence, at the time of performing the service, or

(b) as a stock and station agent, unless the person was the holder of a stock and station agent’s licence, or employed the holder of such a licence, at the time of performing the service, or

(c) as a business agent, unless the person was the holder of a business agent’s licence, or employed the holder of such a licence, at the time of performing the service, or

(d) as a strata managing agent or as a community managing agent, unless the person was the holder of a strata managing agent’s licence, or employed the holder of such a licence, at the time of performing the service, or

(e) as an on-site residential property manager, unless the person was the holder of an on-site residential property manager’s licence or a real estate agent’s licence, or employed the holder of such a licence, at the time of performing the service.

(3) This section applies to a natural person whether or not the person is a member of a partnership.

(4) The fact that a particular activity is an activity for which more than one class of licence may be appropriate does not require the holding of more than one type of licence so long as at least one of the licences that is appropriate to the activity is held.

(5) For the purposes of this section, a person is not considered to carry on a business merely because the person is a member of a partnership that carries on that business.

9 Corporations require corporation licence

(1) A corporation must not act as or carry on the business of (or advertise, notify or state that the corporation acts as or carries on the business of or is willing to act as or carry on the business of) an agent unless the corporation holds a corporation licence.
Maximum penalty: 200 penalty units.

(2) A corporation is not entitled to bring any proceeding in any court to recover any commission, fee, gain or reward for any service performed by the corporation as an agent unless the corporation was the holder of a corporation licence at the time of performing the service.”

53 The definition of “business agent” contained in s 3 is in the following terms:

“business agent means any person (whether or not the person carries on any other business) who for reward (whether monetary or otherwise) carries on business as an agent for exercising any of the following functions:

(a) selling, buying or exchanging or otherwise dealing with or disposing of businesses or professional practices or any share or interest in or concerning or the goodwill of or any stocks connected with businesses or professional practices,

(b) negotiating for the sale, purchase or exchange or any other dealing with or disposition of businesses or professional practices or any share or interest in or concerning or the goodwill of or any stocks connected with businesses or professional practices,

(c) any other function that is prescribed by the regulations for the purposes of this definition.”

54 Savings and transitional provisions are in Schedule 1 to the 2002 Act. Relevant provisions of that Schedule are as follows:

“3 Licences and certificates of registration under repealed Act

(1) A person who was the holder of a licence or certificate of registration under a provision of the repealed Act immediately before its repeal is taken to be the holder of the corresponding licence or certificate of registration under this Act.

(2) The corresponding licence or certificate of registration:

(a) is taken to have been issued subject to the same conditions to which it was subject under the repealed Act, and

(b) remains in force for the remainder of the period for which it was issued.

(3) Section 8 applies in respect of a service performed by a person before the commencement of that section as if a reference in that section to a licence included a reference to the corresponding licence under the repealed Act.

Note. Licences under the repealed Act were issued for 3 years.
…
14 Act extends to acts and omissions before commencement
Unless the context otherwise indicates or requires, a provision of this Act extends to any act or omission occurring before the commencement of the provision.”

The Decision at First Instance

55 The primary judge identified the first issue for his decision as whether Concept was entitled to a fee “where its introduction was not a cause of the 2004 deal”. His Honour expressly held that “Concept was not the effective cause of the deal in 2004” (Judgment [7]) and it is implicit in the way in which he framed the first issue that he did not regard the introduction as “a cause” of the 2004 acquisition.

56 His Honour referred to a number of authorities concerning the implication in commission agency agreements of a term that the agent will not be entitled to its fee unless it has been the “effective cause” of the transaction. In particular, he referred to the decision in Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2; (2001) 202 CLR 351. In that real estate agency case Gummow J referred to the requirement of “effective cause” as “one of the various concepts, understood as terms implied by law, which are found in the body of common law learning applicable to real estate agencies” and noted that terms of this kind, “although treated as implied by law, may be excluded by express provision made by the parties and as a result of the inconsistency with express terms of the contract in question” (at [81]). He went on to say that:

“The notion of ‘effective cause’ reflects the requirement expressed in a long line of cases that it is not enough that the engagement of the agent to find a purchaser or to introduce a purchaser was a step without the taking of which the sale would not have been effected. Something more immediate is required if the criterion of contractual liability is to be satisfied. This is because, as Macpherson J put it in Doyle v Mount Kidston Mining and Exploration Pty Ltd, it would be ‘quite artificial to suppose that the parties intended that the agent should earn his commission simply by finding or locating an individual who, independently of any further action by the agent, later agreed to buy the subject property’” (at [82]).

57 Outside the field of real estate agency cases, the primary judge referred to David Leahy (Aust) Pty Ltd v Macpherson’s Ltd [1991] 2 VR 367, Brian Cooper & Co v Fairview Estates (Investments) Ltd (1987) 282 EG 18 and The County Homesearch Co (Thames & Chilterns) Ltd v Cowham [2008] 1 WLR 909 and concluded that whilst the effective cause principle “does extend beyond estate agents”, “in reported cases outside the area of vendors’ real estate agent[s], the few reported cases indicate that courts are not slow to find inconsistency which will preclude the implication” (Judgment [20 and 24]).

58 He referred to the argument put by Mr Hutley, Senior Counsel for Concept, that in the present case there were two distinct situations in which commission was payable, identified by the two separate numbered paragraphs in the letter agreement, with the reference to causation in paragraph (2) (that is, in the words “which results”) indicating “that it is not an element of (1)” (Judgment [17]).

59 His Honour expressed his conclusion on the issue as follows:

“29 Although both constructions are open, in my view, bearing in mind the way courts have construed this sort of agreement in the past, the indications are that Mr Hutley’s approach is the correct one. There are two situations in which commission is payable, only one of which involves an element of causation. Even though what occurred in making the deal took place five years after the agreement and between corporations which were governed and constituted quite differently from when the agreement was made, the corporate entities were the same and the plaintiff must abide by its contract” (Judgment [29]).

60 He then considered an argument that the letter agreement of 30 April 1997 had lapsed or had been abandoned.

61 He referred to the statement of Tadgell J at first instance in David Leahy v Macpherson’s:

“It might very well be that, if the defendant did not acquire the company or business within a reasonable time of its submission or introduction by the plaintiff, the parties should be assumed to have agreed by implication either to treat the submission or introduction as having lapsed or as being inoperative under the agreement, or that each party might have a right to elect that the agreement should not apply to the submission or introduction” (at 377).

62 His conclusion was that there was insufficient material to show that, the parties intended that “introductions would only be operative for a certain while and then lapse”, or, even if they had that intention, “more than a reasonable time had elapsed” (Judgment [33-34]. As to abandonment, he referred to the following statement of Dixon CJ and Fullagar J in Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 432: “What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that … ‘the matter is off altogether’”.

63 He also referred to Chitty on Contracts, 28^th ed. (1999) Sweet & Maxwell, where it is said that:

“The party seeking to establish abandonment of a contract must show that the other party so conducted himself as to entitle him to assume, and that he did assume, that the contract was agreed to be abandoned sub silentio ” (at [23-027]; in the same terms in the 30 ^th ed (2008) at [22-027]).

64 The primary judge then considered the issues arising out of the legislation governing business agents.

65 He dealt first with an issue as to whether Concept carried on business in New South Wales. He held that it did and that finding is not contested on appeal.

66 Secondly, he concluded that Concept did not need a licence under the 1941 Act because its act of introduction to Challenger did not amount to “negotiating for the sale, purchase or exchange or any other dealing” (Judgment [60]). This was the only arguably relevant portion of the definition of “business agent”. Further, he doubted whether the “merger of two large financial entities by way of scheme of arrangement is within the concept of dealing with or disposing of businesses or professional practices” (Judgment [58]).

67 In any event, he held that the 1941 Act could not be relied upon by Challenger to defeat Concept’s claim because it had been repealed by the 2002 Act which he considered did not contain any saving provision which would assist Challenger and because at the time of the repeal Challenger did not have any “accrued right or privilege” to defeat Concept’s claim (see Interpretation Act 1987, s 30).

68 Finally, he held that the 2002 Act did not apply because the prohibition relevant to corporations (s 9(2)) refers to the holding of a “corporation licence” and “as it was not possible to hold a licence, the section cannot apply” (Judgment [74]).

The Issues on Appeal

69 Broadly, the issues on appeal mirrored those dealt with in the primary judge’s judgment. However in the course of supporting its argument that a causal link between the introduction and the acquisition was required, considerable weight came to be placed by Challenger upon the reference in the letter agreement to “opportunities”. Whilst maintaining its contention that an “effective cause” term should be implied as a matter of law upon the basis of the real estate agency cases, Challenger’s argument came to focus primarily upon the proper construction of the letter agreement. It is accordingly to that issue to which I turn first.

The Proper Construction of the Letter Agreement of 30 April 1997

70 The commercial objectives of the agreement are revealed by the first paragraph of the letter (see [21]) above). Apart from the provision of the identified services, the objective is the introduction by Concept to Challenger of “merger/acquisition opportunities” in the financial services sector (no doubt for remuneration, as is confirmed by the second paragraph). The reference in the second paragraph to Concept being pleased “to introduce these parties” must be understood in the context of what appears in the first paragraph which more fully describes what was contemplated. What was contemplated was not a mere introduction of natural persons or corporations, in the sense of causing them to become acquainted with Concept, but introduction of such persons in the context of identified “merger/acquisition opportunities” associated with them. This is confirmed by the terms of the second last paragraph which contemplates that Challenger may already have had negotiations with a party which Concept introduces and may therefore already be acquainted with them.

71 In my view it is implicit in the letter agreement that a fee will be payable if, and only if, an opportunity presented to Challenger by Concept is availed of, or taken up, by the forming of a business relationship or the making of a business agreement. Commercial contracts must be given “a business like interpretation”, with attention being given “to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure” CGU Insurance Ltd v Porthouse [2008] HCA 30; (2008) 235 CLR 103 at [43], quoting Gleeson CJ in McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579. To suggest that the formation of the business relationship or the making of the business agreement, upon which the entitlement of Concept to a fee depended, did not need to bear a relationship to the introduction of the “merger/acquisition opportunities” which was to be the consideration provided by Concept for the fee, would not in my view be to give this agreement a “business like interpretation”. The contrary interpretation would not in my view accord with common sense and would not reflect “what a reasonable person would understand by the language in which the parties have expressed their agreement” (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]). The “purpose and object of the transaction” to which regard must be had points strongly towards the approach I have taken (Toll, also at [40]).

72 It is important to note in this context that the fee is not a “flat” fee payable in respect of all introductions. If the client does not subsequently enter into any business relationship or agreement, no fee is payable. If it does, a fee calculated by reference to the consideration involved in the transaction is payable. Adapting the language used by Gummow J in Moneywood v Salamon Nominees to the context of the present case (see [56] above), it would in these circumstances be “quite artificial to suppose that the parties intended that” Concept should earn its fee by introducing a merger/acquisition opportunity to Challenger if Challenger did not avail itself of, or take up, that opportunity.

73 I do not consider that the “opportunity” presented by Concept to Challenger in 1999 was “availed of”, or “taken up”. As is apparent from paragraphs [24-29] above, Concept brought to Challenger’s attention an opportunity to acquire APGL, and brought Challenger and APGL together to enable that opportunity to be explored. The course taken by negotiations between Challenger and APGL in the following months illustrates that the opportunity should not be regarded as a narrow one confined to the acquisition of APGL as a whole (see [27-28] above). Understandably, the negotiations extended to alternative possibilities for a transaction when agreement could not be reached on the initial proposal.

74 The opportunity introduced by Concept to Challenger was fully explored by these negotiations. They did not lead to the opportunity being taken up. Whilst it could rarely, if ever, be said in a business context that the prospects of a “deal” are completely at an end, the exploration by Challenger and APGL of the introduced opportunity can fairly be regarded as having been completed, that completion having occurred without success being achieved. The negotiations commencing in late 2003, which led to the 2004 agreement, could not in any sensible way be regarded as a continuation, or even resumption, of the negotiations of late 1999 and early 2000. They were separate negotiations, having an origin independent of the earlier ones and of the agreement between Challenger and Concept. The evidence indicates that those who were involved in the negotiations in late 2003 and early 2004 on behalf of Challenger and APGL were either unaware of the earlier negotiations or at least did not advert to them (see [38-41] above). Those later negotiations did not involve the pursuit of an opportunity introduced to Challenger by Concept in 1999 but the pursuit of an independent opportunity.

75 An “opportunity” is “an appropriate or favourable time or occasion” (the Macquarie Dictionary, 4^th ed. (2005) Macquarie Library). The “appropriate or favourable time or occasion” brought to Challenger’s attention in late 1999 passed without being taken up.

76 It follows from this conclusion that Concept is not entitled to the fee which it claims and that the appeal must succeed. I nevertheless proceed to deal briefly, as follows, with the alternative bases upon which Challenger resisted Concept’s claim.

Whether an “effective cause” term should be implied

77 As is demonstrated by Moneywood v Salamon Nominees, the implication in real estate agency agreements, at least those where the agent acts for the vendor, of a prerequisite to fee entitlement that the agent be the “effective cause” of the transaction is well-established. The term is implied as a matter of law in the absence of a contrary intent appearing in the parties’ contract. As pointed out by Gummow J in Moneywood, this process of implication differs from the implication of terms in particular contracts upon the basis of business efficacy (at [80]).

78 I do not consider that the law has reached the stage where an implication can be made outside the field of real estate agency contracts that “an effective cause” term is, as a matter of law, part of the contract. Even if it had, I would find that the express terms of the present agreement in this case displaced the presumption. In particular, there is the matter relied upon by the primary judge, namely, that in one of its limbs (that dealing with “services”) the letter expressly requires a causative connection between the acts of Concept and the subsequent transactions (see [58-59] above). The limb concerned with introductions does not expressly embody a similar requirement. I think there is force in the submission made by Concept that the parties should be regarded as having turned their minds to the issue of causation in these paragraphs and decided to embody a requirement of causation in the one paragraph but not in the other.

79 That is not to say that the parties have not elsewhere in the letter agreement imposed upon the entitlement of Concept to fees a limitation which has a causative element. I have not spoken of the limitation in terms of causation as such but the conclusions I have reached in paragraphs [70-72] above as to the need for introduced opportunities to be availed of for fees to become payable to Concept do embody an element of causation in a broad sense. I however prefer to express my conclusions as I have done in those paragraphs, rather than in terms of causation, as those conclusions are directly related to the words used by the parties in their agreement.

80 If, as I have said is the case here, there is no presumption that an “effective cause” term is to be implied as a matter of law in a case such as the present, Challenger is required to show that the implication of such a term is necessary to give business efficacy to the agreement and to show that the criteria specified by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 have otherwise been satisfied (and see Moneywood at [80]). These criteria are not fulfilled in the present case, at least for the reasons that, first, it cannot be said that implication of the term is “necessary to give business efficacy to the contract” such that the contract is not “effective without it” and, secondly, that the term in the context of this agreement is not “so obvious that it goes without saying” (BP Refinery at 283). I agree with the submission made on behalf of Concept that there is a sensible commercial explanation of the arrangement which indicates that the implication of a term is not necessary to give the agreement business efficacy. That explanation is that Concept wanted, and Challenger accepted, an arrangement which obviated the need for proof by Concept of a strict causative relationship, as that proof would often be difficult because it would largely, if not wholly, be dependent upon facts not within Concept’s knowledge.

81 Further, if I am correct in what I have said in [71-72] as to the need for introduced opportunities to be availed of for fees to become payable, the parties have by the express terms of their contract made a provision in the field in which the implied term would operate. In those circumstances implication of the different term contended for would be inconsistent with the express terms and accordingly cannot be made.

82 These comments do not contradict what I have said in paragraphs [71-72] above as to the taking up of opportunities. There may of course be occasions when proof of that taking up is difficult. However usually the relationship in time between the introductions and transactions, and the continuity of negotiations and of personnel involved, will enable a strong inference to be drawn that an opportunity has been availed of. That inference does not arise in the present case because of the lapse of time, the discontinuity of negotiations and the changes in personnel. Inferences as to whether an introduction was “the effective cause”, or even “a cause” of a subsequent transaction, may not as easily be drawn as ones as to whether opportunities have been taken up because the former are more likely to involve consideration of the subjective intentions and motivations of those concerned.

Lapse or Abandonment

83 I agree with the primary judge’s views on these issues (see [60-63] above). If, as must be assumed if these issues arise for determination, the parties chose not to require a causal link of any type between an introduction and a subsequent transaction, there is no basis for concluding that they must nevertheless have regarded it as necessary that the transaction occur within “a reasonable time” after the introduction. Further, even if such a requirement were imported, it is by no means clear that ”a reasonable time” had here expired.

84 As to abandonment, the present is not a case where, as would be necessary (see [62-63] above), it can be concluded that there was an implied agreement not to proceed with the letter agreement of 30 April 1997. The best that Challenger can point to in the present case is an absence of communication over a significant period. This is not enough to give rise to an agreement for abandonment.

Property, Stock and Business Agents Act 1941

85 Assuming that, despite their repeal, the provisions of this Act are still applicable to the fee claim made by Concept, my view is that they do not provide a defence to Challenger to the claim.

86 It is true that Concept’s business included involvement in negotiations relating to dealings with or dispositions of businesses, such that the definition of “business agent” in s 3 was applicable to Concept (see [18, 50] above and particularly (b) of the definition), and that Concept did not hold a licence issued under the 1941 Act. However, the bar to the bringing of proceedings for commission arising out of the performance of a service was confined to a situation where that service was performed, so far as is relevant for the present case, “as a business agent” (see s 42(1)(c) quoted in [51] above). In my view it does not matter if a person has performed services as a business agent in relation to other transactions, or even in relation to the subject transaction, if the services provided and relied upon to generate the entitlement to the commission sued for are not ones falling within the definition of “business agent”. In such a case the person is not suing for any commission “for any service performed … as a business agent” (see s 42(1)). Rather, the service upon which Concept here based its fee claim was the introduction of APGL to Challenger. That was not a service of a type referred to in the definition of “business agent”.

87 The repeal of the 1941 Act is a further reason why it cannot be relied upon by Challenger to defeat Concept’s claim. Challenger contended that at the time of the repeal of the Act it had an “accrued right” under s 42 to defeat Concept’s claim. It was said that the bar to suit contained in s 42 was not a mere matter of procedure but gave rise to a substantive right of Challenger analogous to a Limitation Act defence (see John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503 at [99-100]; Chang v Laidley Shire Council [2007] HCA 37; (2007) 234 CLR 1 at [36-37]). Thus it was argued that s 30 of the Interpretation Act had the effect of preserving Challenger’s “right” notwithstanding the repeal of the 1941 Act.

88 However such “right” as s 42 might have given Challenger to defeat Concept’s claim had not accrued prior to repeal of the Act. Although the service performed by Concept (that is, the introduction) was performed whilst the 1941 Act was in force, the circumstance which allegedly triggered Concept’s entitlement to be paid commission (that is, the 2004 acquisition by Challenger of APLG) did not occur until after the repeal. In those circumstances, Challenger cannot be said to have had a relevant accrued right at the date of the repeal.

Property, Stock and Business Agents Act 2002

89 Section 9 of this Act contains the licensing requirement relating to corporations and contains a bar to recovery of commissions “for any service performed by the corporation as an agent” in the absence of the corporation holding a licence (see [52] above).

90 Clause 3(3) of the Schedule to the 2002 Act (see [54] above) provides that s 8 (concerned with natural persons) operates in relation to services performed prior to the commencement of the section as if “a reference in that section to a licence included a reference to the corresponding licence under the repealed Act”. Importantly, there is no similar provision in the Schedule relating to s 9 of the 2002 Act. In my view this omission must be regarded as deliberate, with the consequence that it must be concluded that s 9 (concerned with corporations) was not intended to have a retrospective operation. As it is a corporation, it is s 9, and not s 8, which is applicable to Concept

91 Clause 14 of the Schedule applies the Act to acts or omissions occurring before the commencement of the Act (see [54] above). However that clause is said not to be operative if “the context otherwise indicates, or requires”. What I have described in [90] above is in my view a sufficient contrary indication for this purpose.

92 For these reasons, Challenger’s defences based upon the 1941 and 2002 Acts would fail if, contrary to my view, Concept were otherwise entitled to the fee which it claims.

Orders

93 For the reasons I have given, Concept is not entitled to the fee for which it has sued. As a result, I propose the following orders:

(1) Appeal allowed.

(2) Set aside the orders made by Young CJ in Equity on 1 October 2008.

(3) Declare that the respondent is not entitled to the fee which it claimed in its invoice to the appellant dated 18 August 2004.

(4) Judgment for the appellant on the respondent’s cross-claim.

(5) Order the respondent to pay the appellant’s costs of the proceedings at first instance and on appeal.

(6) The respondent to have a certificate under the Suitors’ Fund Act 1951, if qualified.

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