Mill Estate Holdings Pty Ltd v Reinhardt
[2014] FCCA 906
•21 May 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MILL ESTATE HOLDINGS PTY LTD v REINHARDT & ANOR | [2014] FCCA 906 |
| Catchwords: CONSUMER LAW – Misleading and deceptive conduct – breach of contract – sale of real estate business – obligation to provide client contacts list – whether the contacts list was provided – value of the contacts list – whether the value of the contacts list was distinct from the goodwill component of the business. CONSUMER LAW – Misleading and deceptive conduct – breach of workplace agreement – loss of profits due to non-performance of work – counterclaim asserted – alleged non-payment of commission. CONSUMER LAW – Damages – assessment of damages – s.82 Trade Practices Act 1974 (Cth). |
| Legislation: Evidence Act 1995 (Cth), s.69 Trade Practices Act 1974 (Cth), ss.4, 52, 75B, 82 Federal Circuit Court of Australia Act1999 (Cth), s.77 |
| Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 4 FCR 450 Frith v Gold Coast Mineral Springs Pty Ltd (1983) 47 ALR 547 Google Inc v Australian Competition and Consumer Commission (2013) 294 ALR 404 Henville v Walker (2001) 206 CLR 459 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Jamieson and Ors v Westpac [2014] QSC 32 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Potts v Miller (1940) 64 CLR 282 Printers & Finishers Ltd v Holloway (No 2) [1965] RPC 239 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 |
| Applicant: | MILL ESTATE HOLDINGS PTY LTD |
| First Respondent: | BRYAN REINHARDT |
| Second Respondent: | REINHARDT PTY LTD AS TRUSTEE FOR THE REINHARDT FAMILY TRUST |
| File Number: | BRG 1075 of 2010 |
| Judgment of: | Judge Burnett |
| Hearing dates: | 29-30 July 2013, 11 September 2013 |
| Date of Last Submission: | 11 September 2013 |
| Delivered at: | Brisbane |
| Delivered on: | 21 May 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr M. Jones |
| Solicitors for the Applicant: | Toogoods Lawyers |
| Counsel for the Respondents: | Mr D. Gardiner |
| Solicitors for the Respondents: | Eatons Lawyers |
ORDERS
That there be judgment for the Applicant against the Respondents in the sum of $82,065.94.
That there be interest on the judgment sum in accordance with s.77 Federal Circuit Court of Australia Act1999 (Cth).
That subject to application being made for any other order within seven (7) days of the date of this order, the Respondents pay the Applicant’s costs of and incidental to the application to be assessed on the standard basis.
INDEX
1.Introduction
2.Material Facts
3.The Principal Agreement
4.The Misleading Representations
a.The Representation Claims Generally
b.Two Year Employment Representation
c.Contact List Representation
d.Toshiba Representation
5.Accessorial Liability
6.Breach of Fiduciary Duty
7.Breach of Contract
a.The Agreement
b.The Toshiba Contract
c.Breach of Contract of Employment
d.Breach of Contract to Provide Contacts List
8.Damages
a.TPA Breach
i.The Applicant’s Approach to Assessment
ii.Business Value and the Contacts List
iii.PM Agreement Guarantee
iv.Trading Losses
v.Loss on Mr Reinhardt’s Termination
vi.Transaction Costs
vii.Photocopy Losses
viii.Summary of s.82 Damgaes
b.Breach of Fiduciary Duty
c.Breach of Individual Workplace Agreement
d.Breach of Contract
9.Reinhardt’s Counterclaim
a.Commission Claims
b.Damages Summary
10.Conclusion
11.Orders
FEDERAL CIRCUIT COURT AT SYDNEY |
BRG 1075 of 2010
| MILL ESTATE HOLDINGS PTY LTD |
Applicant
And
| BRYAN REINHARDT |
First Respondent
| REINHARDT PTY LTD AS TRUSTEE FOR THE REINHARDT FAMILY TRUST |
Second Respondent
REASONS FOR JUDGMENT
Introduction
By an agreement dated 17 November 2006 (“the Agreement”) Mill Estate Holdings P/L (“the Applicant”) agreed to purchase from the Second Respondent (“Reinhardt”) all of its right, title and interest in a real estate business, Ray White Keperra (“the Business”), for a consideration of $40,000.00. The Agreement also contained other material provisions. It was negotiated between Mr Martin Millard for the Applicant and the First Respondent, Mr Bryan Reinhardt, for Reinhardt.
The entry of agreement followed protracted negotiations between Messrs Millard[1] and Reinhardt over a period spanning early September 2006 to 17 November 2006. In particular it is alleged that a number of representations were made to induce the Agreement. The Applicant complains that later events failed to demonstrate any basis for the representations. It alleges that in making the representations Reinhardt, by Mr Reinhardt, engaged in misleading and/or deceptive conduct and/or was in breach of various terms of the Agreement. It also claimed for damages for breach of fiduciary duties and of an individual workplace agreement associated with the sale of the business. It now seeks relief by way of damages for breach of contract, fiduciary duty and/or pursuant to s.82 Trade Practices Act 1974 (Cth) (“TPA”).
[1] Principal of the Applicant.
Reinhardt denies the Applicant’s case. Mr Reinhardt contends that following the transaction he commenced working for the Applicant, as agreed. However, he claims that the Applicant failed to pay him commission due in accordance with the Agreement. He claims for those outstanding commissions. He also claims for superannuation payments that he alleges were not paid.
Material Facts
Mr Millard is and was at all times an experienced real estate agent. He had conducted a very successful real estate agency trading as Harcourt Alderley and Harcourt Ferny Hills (now Harcourt Solutions), which services an area from Newmarket through to Samford in outer Brisbane. Reinhardt conducted its business in Keperra, an adjoining suburb. Through their respective agencies, Messrs Reinhardt and Millard were competitors.
The two men had met well before the events in the course of a real estate negotiation. Subsequently they met again on a semi-social basis when Mr Millard invited Mr Reinhardt to a lunch meeting because he was interested in recruiting him to work for the Applicant as a salesperson. Prior to that occasion many of Reinhardt’s staff had resigned and commenced working for the Applicant and the Applicant sensed an opportunity to employ Mr Reinhardt. At that time Mr Millard was not interested in acquiring Mr Reinhardt’s business but considered him to be a particularly able real estate salesman and thought that it would be beneficial for him to be employed at the Applicant. During that meeting Mr Reinhardt informed Mr Millard that he wanted to retire from the industry and that he was willing to sell the Business to him. Mr Millard indicated that he was not interested in purchasing Mr Reinhardt’s business. Mr Millard says that he invited him to work for the Applicant as a salesperson, an offer that was rejected.
However, in the meantime matters progressed and following further discussion the matter of sale was revived, subject to Mr Reinhardt reaching a satisfactory agreement concerning the disposal of the property management business he also conducted within the agency.
Shortly after another meeting was held, this time at Reinhardt’s office, where the major subject of conversation concerned Reinhardt’s Toshiba photocopiers. The matters discussed in that meeting are disputed and are addressed in detail below. However, additionally at that meeting the parties discussed Mr Reinhardt’s rental management business. The sale of it was critical to the transaction proposed between them. So much was evident from the consideration of that business. It was largely agreed that the value in a real estate business was in the property management side of the business. In this case the significant of the Reinhardt property management business was evidenced by its sale price of about $380,000.00 compared to the sale price of the sales business being acquired by the Applicant at $40,000.00.At that time Mr Reinhardt’s negotiations with a prospective purchaser of it, Rental Express, had broken down. However, Mr Millard had introduced him to another entity, Your Property Solutions Pty Ltd (“YPS”), which was interested in acquiring it. Resolving the sale of this component of Reinhardt’s business was critical to the transaction between the Applicant and the Respondents proceeding.
Eventually an agreement was reached concerning the property management business and YPS agreed to purchase the rental management business from Reinhardt. Mr Reinhardt stated that the standard industry practice was that when property management rights were sold, approximately 10% of the purchase price is retained to protect the purchaser in the event of rental clients failing to renew their agreements. This practice was reflected in the relevant agreement. He says that as a part of the negotiations he agreed to act as guarantor to YPS for Reinhardt’s sale of the property management business. He said he did that because he was keen for the agreement between the Applicant and Reinhardt to proceed. Significantly, it was never contended that this was to be part of the underlying arrangement between the Applicant and Reinhardt. It was merely a collateral arrangement to the principal agreement concluded between the parties. Given the Applicant’s performance of its obligations pursuant to that collateral agreement, nothing turns upon this matter. Its only relevance concerns the Applicant’s remedies for non-performance by Reinhardt of its obligation to repay the guaranteed sum.
Mr Millard considered that there would be a strong benefit by having Mr Reinhardt as an employee of the Applicant for two years. He was also enticed by the prospect of acquiring Reinhardt’s contacts list and the benefit of what he believed to be the very advantageous Toshiba photocopying agreement (“Toshiba agreement”).
Following those discussions Messrs Millard and Reinhardt continued to talk regularly about the terms of the deal, including the prospect of the Applicant employing Reinhardt’s two staff and taking over its lease and telephone services.
Mr Millard says that given Mr Reinhardt’s assurances that he would work for the Applicant for at least two years, and that the Applicant would receive his very large contacts list and the benefit of the Toshiba Agreement, he instructed the Applicant’s solicitors to start preparing a contract for the purchase of Reinhardt’s property sales business. He says that when giving instructions to his solicitors he did not request that a restraint of trade provision be inserted, although he assumes that one was inserted by the solicitor into the contract out of an abundance of caution.[2] He stated that the matters foremost in his mind at that time were:
a)The statement by Mr Reinhardt that he had no intention of being a business owner again and would not go into competition with the Applicant in the future;
b)That the Applicant would obtain Reinhardt’s 7000 name contacts list;
c)That the Applicant would derive an approximate benefit from the Toshiba agreement of $200,000.00; and
d)That Mr Reinhardt would work for the Applicant and that he was only to write $1 million worth of commission in his first year.
[2] Affidavit of Martin Millard filed 7 March 2012 at [65].
Mr Millard says that but for those four matters he would not have entered into an agreement to purchase Reinhardt’s real estate business.
Given those matters he says that he executed the Agreement for the sale of the business on 17 November 2006. Performance of the Agreement was effected by completion on 5 December 2006.
Mr Millard says that at the time of completion Mr Reinhardt was on leave and out of town but he returned in mid-January 2007. He says that upon his return Mr Reinhardt did not sign an employment contract immediately as provided for in the special conditions to the Agreement. He said that given the earlier exchanges he did not insist upon a written contract being signed prior to the Agreement. In addition, he said that by the time of settlement he had never seen Mr Reinhardt’s contacts list but based upon what Mr Reinhardt had said he believed that the contacts list would contain about 7000 names.
Mr Millard says that after the Agreement was signed, but before he received his first bill from Toshiba, Mr Reinhardt came to the Alderley office of the Applicant with the photocopier leases in hand stating “You have to assign these contracts, you must.” It appears that, notwithstanding the provisions in the Agreement, Toshiba were not prepared to assign the contracts to Mr Millard as he was a discharged bankrupt. Ultimately the Toshiba agreement was never assigned. It expired on 2 May 2010, although the Applicant took responsibility for it after completion of the sale.
After settlement Mr Millard made arrangements for Mr Reinhardt’s office to be set up and attended to other administrative matters. He says that he also requested that Mr Reinhardt forward to him the contacts list and execute an employment agreement. Neither of these matters were attended to. In the meantime, Mr Reinhardt had commenced work and was engaged in selling properties. However, because he had not signed an employment agreement Mr Millard organised a meeting between the two of them accompanied by their respective lawyers. Although nothing came of the meeting, it appears that Mr Reinhardt subsequently signed an “Individual Workplace Agreement” (“IWA”) on 21 March 2007.
Early concerns arose for the Applicant when Mr Millard received a complaint from YPS that Mr Reinhardt was using his old property management rights database to contact former clients.
At about the same time difficulties were also evident in the transfer of the contacts list to the Harcourt database. Mr Millard assigned two employees, Leon Comino and James Kenny, to assist in the transposition of names from Mr Reinhardt’s computer to a Harcourts computer. However, it appears that no successful transfer of the contacts list ever occurred.
Other difficulties also arose at about this time. For instance, the Applicant operated using a set of “House Rules.” They were in the form of standard operating procedures governing the conduct of employees and sales consultants working for the Applicant. The Applicant was subject to franchisor’s directives for marketing material, referred to as Harcourts’ “Brand Standards,” which also provided for compliance with the “House Rules.” It appears that shortly after Mr Reinhardt commenced working for the Applicant it is alleged he prepared marketing material which did not adhere to these procedures.
It is plain that by this time irreconcilable difficulties had arisen between the parties. Mr Millard says that a couple of days after this event, Mr Reinhardt telephoned him and said that he was going to open his own business. Mr Millard requested a meeting, which was subsequently convened a short time later at a coffee shop in Mitchelton. Mr Millard says that at the meeting Mr Reinhardt informed him that he was opening his own business in Bridgeman Downs, to which Mr Millard asked “What percentage of that business do I own?” He says that Mr Reinhardt responded, “None. I’ve already got a partner in line.” Mr Millard says he then asked, “Are you going to pay me back for what I’ve paid you?” He said that Mr Reinhardt stated that he would not. The meeting appears to have ended on that unhappy note.
The next day Mr Reinhardt attended at the office, at which point Mr Millard formally terminated him.
The Principal Agreement
The Agreement provided that Reinhardt would sell to the Applicant all its right, title and interest in the real estate business known as Reinhardt Pty Ltd trading as Ray White Keperra.[3] The consideration was stated to be $40,000.00. Prior to the Agreement considerable negotiation took place. Although there was some dispute concerning how negotiations commenced, it is at least agreed that the parties began negotiations in September 2006, from which point matters proceeded.
[3] Situated at Shop F8, Great Western Shopping Centre, Keperra.
A subsequent lunch meeting was arranged, which occurred on or about 20 October 2006. At that meeting Messrs Millard and Reinhardt discussed the latter’s retirement from real estate and the sale of the Business to the Applicant. Although nothing came of that meeting it concluded on the basis that the parties would meet again to discuss these matters further.
After that meeting Mr Millard and Mr Reinhardt spoke on three or four further occasions about these matters. The conversations were in general terms and not detailed. However, Mr Millard does recall that during these conversations Mr Reinhardt was “selling himself” as a good salesperson and a potential asset to the Applicant. Mr Millard says that he explained to Mr Reinhardt that he was reluctant to take on the Ray White Keperra business including its liabilities and obligations, such as leases and staff, and invest in promoting him as a salesperson without receiving something very good in return. He says that during the course of telephone conversations and face to face meetings Mr Reinhardt said that if the Applicant took him on as a salesperson he would want to “stay stable for 2 or 3 years” to “take advantage” of the opportunity. Mr Millard says that at that time, when he referred to staying for a length of time, he told him that he would want to formalise the arrangement. He said that there was never any discussion of Mr Reinhardt being an employee of the Applicant for less than two years and that Mr Reinhardt always spoke about remaining an employee for at least two years.
Relevantly, at that time Mr Millard says that Mr Reinhardt started telling him about a contacts list that he had with 7000 names on it a matter which is explored below.
Finally, in the course of a meeting alleged to have been in late November 2006 before the execution of the Agreement, Mr Reinhardt made various representations about the nature of the agreements Reinhardt had in place for its Toshiba photocopiers. These matters are considered below. Materially, representations allegedly made at the meeting are also relied upon by the Applicant.
The Misleading Representations
From the course of discussions, the Applicant contends that three actionable representations can be distilled:
a)If the Applicant purchased Reinhardt’s business and hired Mr Reinhardt as a salesperson he would continue in employment with the Applicant for at least two years (“two year employment representation”);
b)Reinhardt had a contacts list which contained 7000 names and which he would hand over to the Applicant and cease using if the Applicant purchased the Business (“contacts list representation”); and
c)Reinhardt held commercially favourable chattel leases for its photocopiers (“Toshiba representation”).
The Representation Claims Generally
The applicant contends that the facts support its claim that the First Respondent contravened s.52 TPA. Analysis of its claim must begin by identifying the conduct that is said to meet the statutory description of conduct that is “misleading or deceptive or is likely to mislead or deceive.”[4] That is, what did Mr Reinhardt do?
[4] Google Inc v Australian Competition and Consumer Commission (2013) 294 ALR 404 at [89].
The Applicant alleges the three instances of contravening conduct addressed above. Ultimately, whether the Respondents’ conduct was misleading and/or deceptive, or was likely to mislead or deceive, is a question of fact. In resolving that question the Court must examine the relevant course of conduct as a whole in light of the surrounding facts and circumstances.[5] The term “conduct” is to be understood according to its definition in s.4 TPA, in particular: “… doing … any act, including making a contract or arrangement or entering into an understanding.” For conduct to be misleading or deceptive it is not necessary that it convey an express or implied representation; it suffices that it leads or is likely to lead into error.[6]
[5] Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 625; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [34].
[6] Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 368.
Accordingly, conduct will be misleading or deceptive if it induces or is capable of inducing error.[7] Further, conduct is misleading or deceptive if the person to whom a representation is directed labours under an erroneous assumption. The relevant test is as follows: what is the likely reaction to the representation by ordinary or reasonable members of the class to whom the representation was directed?[8] In that regard the Court must consider whether the “ordinary” or “reasonable” members of that class would be misled or deceived.[9]
[7] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198.
[8] Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd.
[9] Google Inc v Australian Competition and Consumer Commission at 407.
In this instance I am satisfied for the reasons which follow that Mr Reinhardt made the two year employment representation and the Toshiba representation alleged against Reinhardt in circumstances that were misleading or deceptive, or likely to mislead or deceive. I am satisfied that he did not engage in conduct that was misleading or deceptive, or likely to mislead or deceive, in respect of the contacts list representation.
The making of the contravening representations constituted conduct as that term is defined. In my view, given the context, the contravening representations were made either wilfully or carelessly falsely but in either event were likely to lead, and did in fact lead, the Applicant into error. In my view, “ordinary” or “reasonable” members of the class of which the Applicant was a member would have been misled or deceived had they been in the Applicant’s position. The Applicant says that in reliance upon the conduct it entered into the agreement with Reinhardt. I accept that evidence.
It follows that I am satisfied that Reinhardt, in contravention of s.52 TPA, engaged in conduct that was likely to mislead or deceive and did in fact mislead the Applicant.
Two Year Employment Representation
As I have noted, the negotiations leading up to the conclusion of the Agreement followed over a relatively lengthy period. That is by reference to the quantum being paid for the Business. Mr Millard says that at a meeting in October 2006 at the Litse Lounge restaurant in company with Justin Tillman, the franchise development manager for Harcourts, Mr Reinhardt stated to Mr Millard that he wanted to “get out of real estate” and sell his Keperra business to him. He says that he told Mr Reinhardt that there was no “business to sell, that [Mill Estate] had [employed] all of his key staff, that [Mill Estate] did not need any more premises.” He mused that Reinhardt had nothing he wanted. Mr Millard says however that he went on to say to Mr Reinhardt that “What I want is you.” That meeting appears to have concluded without any resolution. However, a short time after Messrs Millard and Reinhardt spoke on the telephone and explored these matters further. Mr Millard says that in the course of these conversations Mr Reinhardt said to him that if the Applicant took him on as a salesperson he would want to “stay stable for 2 or 3 years” to “take advantage” of the opportunity. He also said “I am looking forward to just smashing it for the next two or three years and making a million with no pressure.” Mr Reinhardt denies that he made these statements. Ultimately, the resolution of this contest falls to be determined by reference to reliability and credit. For reasons provided elsewhere I have preference the evidence of Mr Millard to that of Mr Reinhardt. I have no reason to depart from that conclusion so far as it concerns this issue and accordingly I am satisfied Mr Millard’s view is to be preferred.
Subsequently, in October/November Messrs Millard and Reinhardt and their respective wives had dinner at Watt, a Brisbane restaurant. Mr Millard stated that the purpose of the dinner was to get to know Mr Reinhardt and his wife personally in order to assist in determining if they could work together on a personal basis. He noted that Mr Reinhardt had a reputation for being angry and difficult at times and that he had witnessed that. However, he also observed that he had real potential as a salesperson and he believed that by meeting his wife he could form a reliable assessment of that allegedly adverse quality. He also said that, although this was not the intention, matters eventually turned to business.
Mr Millard says that during the course of the dinner conversation Mr Reinhardt stated that he would never be a business owner again as he was sick and tired of the stress and pressure of owning and running a business. In that context, it was said that he also stated by way of explanation that he was concerned only about “stability” and “longevity.” Mr Millard says that these matters were affirmed by Mr Reinhardt’s wife, Linda. Mrs Millard gave evidence in support of the Applicant concerning this conversation. She recalls that at the dinner both Mr Reinhardt and his wife stated that they would never own a business again because doing so was affecting their health and relationship. She was candid enough however to concede that she did not recall all of the conversation from that night’s events, as it had happened so long ago.
Mr Reinhardt’s recollection varies. He says that at the dinner his wife said to Mr and Mrs Millard, “Martin, what happens if Bryan’s working for you doesn’t work?” to which she says Mr Millard replied, “If it works, it works. If it doesn’t, it doesn’t. It doesn’t matter because Bryan is out of the area and is not in competition with me anymore.” Mr Reinhardt says that concerning longevity he merely stated, “We do not want to commit to any period of time because the relationship may not work.” Further he stated that he had “no intention of opening another office.”[10]
[10] Affidavit of Bryan Reinhardt filed 21 September 2012 at [12]-[19].
Mr Reinhardt also agrees that at this time there was also discussion concerning a personal assistant, as well as debate over commissions, although nothing was resolved about that issue. He stated that he did not intend to commit to any period of time because he was unsure if the relationship would work, but admits that at that time he had no intention of opening another office.
Notwithstanding the social nature of the occasion and the very general circumstances in which the conversation arose, I am satisfied that Mr Reinhardt knew Mr Millard was concerned about this issue. He knew Mr Millard was interested in securing his services as a salesman. These remarks by Mr Reinhardt built upon his earlier remarks that he wanted to be stable for two to three years and ‘smash’ it, referring to sales performance. During the conversation Mr Reinhardt did not disavow the principal object expressed earlier, namely of him wanting something that would, essentially, work long term. Plainly, any long term arrangement would always be subject to a proviso that the parties’ work relationship was amicable. However, the discussion was not inconsistent with earlier statements made by Mr Reinhardt to Mr Millard.
For Mr Reinhardt’s part, concerning this issue he stated that he had approached Harcourts’ head office to enquire about opening another office under the Harcourts brand, but that his enquiry concerned locations outside the restrained trade areas. It is plain from his evidence that he had these matters in mind at the time of the Agreement. He stated that he had organised with a potential partner, Mr Bruce Slater, to open a new business but that he did not arrange to go into business with Mr Slater before he had caused Reinhardt to sell its business to the Applicant. He does not accept that he stated that he had this matter in mind before he caused Reinhardt to sell its business to the Applicant, noting that in the conversation he had with Mr Millard in June 2007 he stated that he thought he would not be ready to open the new business for about a year from then.[11]
[11] Affidavit of Bryan Reinhardt filed 21 September 2012 at [3](nnn).
At the time of settlement Mr Reinhardt was on holidays at Hamilton Island. Upon his return he commenced work at the office. At about that time he was also presented with a draft employment agreement which he took away but did not return. Mr Millard says that despite Mr Reinhardt’s failure to sign and return the employment agreement he was not concerned, as in his experience this type of behaviour was not unusual for real estate sales persons. He says that he continued to ask him to sign and return the document but that this never occurred. Ultimately, he asked Mr Reinhardt to attend a meeting and requested that they each have their lawyers present. Although the particulars of the date of the meeting are not mentioned, it was plainly held sometime in March 2007 because, although nothing was agreed at the meeting, a short time later Mr Reinhardt forwarded to Mr Millard a signed individual workplace agreement dated 21 March 2007. The agreement included no term providing for a minimum two year employment.
In this instance Mr Reinhardt made statements early in the formative negotiations which preceded of the Agreement concerning his willingness to commit to the Applicant. It is clear that from the outset what the Applicant wanted was to secure the services of Mr Reinhardt, particularly to enable it to develop its business in the new territory of McDowall and Bridgeman Downs. I accept that Mr Reinhardt said that he would commit to at least two years employment with the Applicant if it agreed to purchase his real estate business. Clearly Mr Reinhardt wanted to be relieved of his business and, on one version, thereby secured valuable consideration for a part of the business that otherwise had no value. I accept that he was only able to do so because Mr Millard acted upon the representation that he made that he would stay on for two years. At the time he made the representation he was engaged in discussion with Mr Slater, although at that point nothing had materialized from those discussions. Accordingly, Mr Millard’s offer proved to be timely and a convenient fall-back position until matters with Mr Slater crystallized, if at all. Mr Reinhardt’s failure to fully disclose that matter to Mr Millard was not only likely to mislead him about his long term plans but, in my view, did mislead him into believing that Mr Reinhardt was sincere in his statement that he would work for him for at least two years following the Applicant’s acquisition of the Business. I am satisfied that this conduct was misleading or deceptive, or likely to mislead or deceive.
Contact List Representation
After the lunch meeting in mid-October 2006 and during the course of the telephone conversations that followed, Mr Millard says that Mr Reinhardt started telling him about a contacts list that he had with 7000 names. Mr Millard noted that all estate agents maintained contacts lists because of reporting requirements, particularly in relation to trust accounts. He also noted that it was standard practice to record the contact details of prospective buyers and sellers. He stated that a real estate agent’s only asset is his database. Further, he stated that an agent’s historical sales records are also the best way to judge the likely prospective success of a real estate sales person. He noted that while an agency will sometimes hire a salesperson on pure potential, such a person does not have nearly the same value as a salesperson who has been a dominant agent in the marketplace and has an accumulated list of contacts. He stated that Mr Reinhardt’s representation concerning the contact list made him a particularly attractive potential employee. He stated that in the course of conversation Mr Reinhardt regularly repeated “I’ve got seven thousand on my database,” or words to that effect. He says that as an additional incentive he noted that if Mr Reinhardt sold his business to the Applicant, as a salesperson he would be free to move into more upmarket areas like McDowall and Bridgeman Downs, meaning that he would have no need for the contacts list he had developed for the less upmarket suburbs he had previously been operating in. Mr Millard says, accepting Mr Reinhardt at his word, that because of his statements concerning the contacts list he spoke with him about the Applicant adopting a marketing strategy in those old suburbs to capitalise upon the list.
In his evidence in chief, Mr Reinhardt did not completely dispute Mr Millard’s evidence. He stated that he did not recall telling Mr Millard about any specific contacts list at the time. He did however acknowledge that after owning his business for six years he did have a list of contacts which he had gathered. He also acknowledged that an experienced salesperson would establish a good following in certain areas, but contended that any “following” only had value if the relationships were maintained. He stated that the contacts list was only discussed once.
The differences between the parties’ recollection of events can only be resolved by reference to credit and reliability. In respect of this evidence I am satisfied that Mr Millard’s recollection is to be preferred. It bears a closer relationship to the objective facts and also has a ring of truth about it. Plainly, any real estate sales person operating a business, particularly over a lengthy period of time, would have maintained records for the reasons stated by Mr Millard. The more significant the business and the longer it operates, the more extensive the records will be. It is generally agreed that these contacts lists have some value as they can lead to potential custom. It follows that I am satisfied that the substantial allegation made by Mr Millard is correct. That is, Mr Reinhardt informed Mr Millard on a number of occasions that he had an extensive contacts list. That matter was both relevant and material. Further, it is not inconsistent with Mr Reinhardt’s evidence that he did indeed have a list of contacts gathered during the course of his business and that the list had some value, for, as Mr Reinhardt noted, he believed that he would permitted to “continue to use my contacts from the old areas that I worked in and send information to them but I couldn’t actively look for more business or drop flyers in the old area.”[12] Given that I am satisfied that a representation was made to that effect, and that there has been no serious challenge to Mr Millard’s contention that Mr Reinhardt told him that there were 7000 names on the list, I am persuaded that is more likely than not that he did make that statement. His evidence on this point also sits comfortably with the evidence that:
a)An agency itself generally has no goodwill value, as goodwill rests with the sales staff; and
b)Mr Reinhardt committed to remaining with the Applicant for at least two years following the Agreement. It was only if he did so that the Applicant could arguably have realized much value from the contacts list.
[12] Affidavit of Bryan Reinhardt filed 21 September 2012 at [3](r).
Mr Millard says that Mr Reinhardt simply failed to produce any such list.
Mr Reinhardt contends that he did provide the list. He stated that in part it was in the form of an Excel spreadsheet detailing his personal contacts. He says that this material was transferred to the Harcourts database.
The exact nature and form of the contacts list was not clear from Mr Reinhardt’s evidence. As noted earlier, he stated that it was simply on an Excel spreadsheet. However, what he told his expert, Mr William Charlton, more accurately informs the true position, namely that he prepared a list of his best prospects which he incorporated into an Excel spreadsheet on the Harcourts computer system. Otherwise, as he told Mr Charlton, his contacts list actually comprised several lists and they were stored on many different files on the computers sold by Reinhardt to the Applicant. Possession of those computers passed to the Applicant on sale.
Mr Millard says that through various officers of Harcourts he put in place arrangements for the information to be transferred to the Harcourts database. Reports to him were that nothing was happening concerning the transfer. Accordingly, he said that he spoke to Mr Reinhardt on a number of occasions requesting the contacts list, to which he says Mr Reinhardt usually responded, “yeah, yeah, yeah, I’ll get it to you this afternoon,” or provided some similar excuse.
Ultimately, the Applicant’s complaint is that no contacts list or other electronic contact data was provided. Mr Millard says that he caused his IT staff to search for that data and that their searches revealed that it did not exist. Mr Millard’s evidence on this point was thin. The Applicant sought to prove the matter by Mr Millard’s hearsay testimony. If the matter was documentary it would have been arguable that it fell within the s.69 Evidence Act 1995 (Cth) exception. However, that was not the way in which the matter was approached. I am reluctant to accept the hearsay evidence on a discretionary basis as this is a matter which I expect could have been subject to appropriate evidence and tested if necessary. That is particularly so because, for reasons provided elsewhere, I am satisfied that the list was provided. As Mr Reinhardt stated there were a numbers of lists comprising the “contacts list”. In those circumstances it is not inconceivable that the “contacts list” could not be readily located. At its best the Applicant’s case requires me to accept Mr Millard’s evidence at face value that the information is not accessible to him on his internal computer system and that it follows that this is so because the contacts list or lists were not provided. I do not accept that to be the case.
Clearly some form of contacts list must have existed following settlement of the Agreement, because the initial complaint from YPS to the Applicant was that Mr Reinhardt was using leads from his contacts list to make contact with their clients, a matter that contravened clause 12.2.2(c) of the property management sale agreement (“PM agreement”). Mr Reinhardt made admissions to his expert accountant that a contacts list comprising approximately 7000 names existed. Furthermore, the subsequent Excel list of 150 recent prospects prepared by Mr Reinhardt was made with the assistance of Harcourts’ IT staff. This plainly occurred following settlement and could not have been undertaken if there was no master list from which to harvest the information. Given these matters I am satisfied that a contacts list or lists containing approximately 7000 names existed. I am also satisfied on balance that the list or lists were loaded onto the computer system acquired by the Applicant on settlement of the Agreement.
In summary, I am satisfied that Mr Reinhardt made an oral representation to Mr Millard over the course of a number of meetings and telephone discussions in October 2006 concerning his contacts list, and that he would bring the list with him to the Applicant’s agency if the parties entered into agreement. It is plain from the circumstances in which the representation was made that it was intended to induce the entry into the Agreement, and I accept Mr Millard’s evidence that it did so. However, the representations were not misleading or deceptive, or likely to mislead or deceive, because the contacts list was provided at settlement, it being incorporated into the computer equipment transferred pursuant to the Agreement. The Applicant’s case on this representation fails.
Toshiba Representation
Aside from representations made in the course of general negotiation leading up to the contract, the Applicant also contends that representations were made concerning the value of the Toshiba leasing agreements Reinhardt held.
In early November 2006 a further meeting occurred between Mr Reinhardt and Mr Millard. This occurred at Mr Reinhardt’s Keperra office. Mr Millard recalls that the meeting seemed more tense than previous ones because at that time Mr Reinhardt had been unsuccessful in procuring a purchaser for his property management business. No doubt the stress was occasioned both by Mr Millard’s obvious keenness to proceed with the purchase of the agency but not the property management business, and Mr Reinhardt’s desire to proceed with the sale of the agency but only if the property management business could also be sold concurrently. At this meeting the parties discussed the Toshiba photocopiers. Mr Millard says that Mr Reinhardt stated to him that he had negotiated a “Platinum Plan” with Toshiba. He says that at that time he referred to some papers (“Focus rental agreement”) and pointed at a particular page with his index finger, tapping the page as he spoke. He says that Mr Reinhardt told him that he had negotiated a deal for black and white and colour copies, and while doing so he was pointing to a part of the document relating to black and white and colour copies. Mr Millard says that he could see from the page that the price noted was “for about 3.4 cents per copy for a total of 2 million copies.” Mr Millard says he asked Mr Reinhardt:
“How did you get such a good deal?”
He says Mr Reinhardt replied:
“Because I do so much photocopying and I negotiated with the boss of Toshiba … I got a better deal than Ray White can get … Martin you could never get this good a deal.”
Mr Millard says that as they were talking he did the arithmetic in his head. He worked out that 2 million copies at 10 cents a copy was $200,000.00 (10 cents a page was his approximation of the difference between 3.4 cents per page as indicated on the page and what he could expect to pay per colour copy, that is 14 cents a page). He said that by reason of that process his response to Mr Reinhardt’s remarks was “… that’s a good deal,” or words to that effect. He says that Mr Reinhardt continued to impress upon him that Mr Millard would “never get a deal as good as this,” all the while pointing at the 3.4 cent entry on the Focus rental agreement. Mr Millard says that Mr Reinhardt stated to him “this is why we have so many [real estate] flyers, Martin.” Mr Millard says that he said to Mr Reinhardt “We are paying 14c for colour copies” and he says that he asked him how the price for black and white and colour could be the same, to which he says Mr Reinhardt told him that the price was the same, saying words to the effect of “it is real.” Mr Millard stated that as he looked about the office it “looked like a printing shop.” He noted that there were two Toshiba E-Studio copiers in the Focus rental agreement and that there was also a third photocopier in Mr Reinhardt’s office, however that copier was not the subject of the Focus rental agreement. Aside from discussion concerning the photocopier, there was also discussion about commissions.
Mr Reinhardt has a different recollection of this conversation. He says the meeting occurred on 23 November 2006, that is, after the Agreement was signed (Mr Millard says that it occurred before the Agreement was signed). Further, Mr Reinhardt contends that while Mr Millard did look at photocopiers and other fixtures and fittings, the costs were not discussed in detail. He also says that Mr Millard did not ever request to see the photocopy agreements and that they were never shown to him. He otherwise generally denied the other matters which Mr Millard alleges occurred concerning the photocopier.
There was no objective material available to resolve the issue concerning the date this meeting took place. However, Mr Millard’s evidence as to the tension evident at this meeting was unchallenged. That point is telling because Reinhardt’s entry into the PM agreement was a concurrent requirement for entry into the Agreement. Had the meeting occurred after 17 November 2006, as Mr Reinhardt suggests, there would have been no basis for the tension. The fact of the meeting being tense is a very curious but important detail. It is not the sort of detail that would be manufactured. I accept that there was some tension at the meeting because Reinhardt had not reached agreement in principle with the prospective purchaser of the property management rights business and there was at the time a real risk of the whole transaction falling over. Perhaps against that background Mr Reinhardt was being careless in his language. In any event, I prefer the evidence of Mr Millard as to how the discussion progressed and the emphatic manner in which he says Mr Reinhardt accompanied his statements by consistently pointing at the front page of the Focus rental agreement to the base charge.
Mr Millard says that after completion of the Agreement he began receiving accounts from Toshiba for much higher sums than he had expected based upon the earlier representations made to him. Initially he thought that the office must have been printing larger volumes of material than he had initially contemplated, and accordingly he sought to introduce economy measures, quizzing staff about how many copies were being made of documents and initially calling out representatives from Toshiba and challenging them. Their initial response was to waive the accounts.
However, after a number of queries and visits from Toshiba, the company’s state manager became involved. He informed Mr Millard that his understanding was wrong and that the colour copy rate was higher. He gave Mr Millard a copy of the relevant “Sales Order and Service Agreement” that had been concluded between Toshiba and Reinhardt, dated 21 April 2006. That document, under “Additional Conditions,” noted:
“Colour: A4 12.0c + GST
A3 14.0c + GST.”
The rates were obviously significantly more than those provided for otherwise under the heading “SPECIAL INSTRUCTIONS” which referred to a print plan of “100,000 pages per quarter @ 3.15c + GST.” No doubt that related to standard black and white printing. The actual Toshiba Platinum plan contract noted the base charge of 3.465 cents including GST for a minimum 100,000 copies per billing period. Those figures had been hand written into the schedule on the face of the contract. Clause 4(n) of the contract noted:
“Subject to any special conditions in the Schedule, the Charge per Copy and the Excess Copy Rate may be increased on 30 days’ notice in writing to you by such amount as reflects any increase in the cost of supplying the Services.”
Although the Focus rental agreement is dated 1 August 2006, it was signed by Mr Reinhardt on 21 April 2006, the same date as the Sales Order and Service Agreement (which includes as an additional condition reference to the colour copy rate). The document does not appear to form part of the Focus rental agreement and there is no reference on the face of the document to anything except the base charge, being 3.15 cents plus GST per copy based upon a minimum usage. Mr Reinhardt denies these matters, stating simply that all relevant documentation was provided by him to his solicitor which in turn was incorporated into the contract and subject to Mr Millard’s due diligence.
Although the matter was open to be revealed by due diligence, I remain satisfied that the representations were made. Based upon the representations and accepting them at face value, Mr Millard did not do due diligence. Had he done so these matters would have come to his attention. However, given the nature of the statements that Mr Reinhardt made to Mr Millard, it comes as no surprise to me that he simply accepted the documents at face value, particularly given the clear reference on the first page of the document to the photocopy rate which was spoken of in the course of conversation. The special conditions colour rate was a figure buried in the depths of the document and was not readily discernible and was not physically referred to as were the other rates.
However the circumstances give rise to the question of whether there was a lack of reasonable care on the part of Mr Millard. The principles governing that issue have been considered previously. For instance, in Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Hill J considered the question in the context of a misrepresentation made in a real estate transaction. He determined that the question was whether s.52 or s.82 was intended to assist those who fail to take reasonable care of their interests. In addressing that issue, provisionally in the affirmative, he stated commencing at 136:
“The respondents' argument was founded upon what was said by Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198-199 where his Honour said:
“ … the court must decide objectively whether the conduct is misleading or deceptive or likely to mislead or deceive …
Section 52 does not expressly state what persons or class of persons should be considered as the possible victims for the purpose of deciding whether conduct is misleading or deceptive or likely to mislead or deceive. It seems clear enough that consideration must be given to the class of consumers likely to be affected by the conduct. Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the gullible as well as the astute, the section must, in my opinion, be regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens which the section creates cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests. What is reasonable will or [ [sic] ] course depend on all the circumstances.”
To similar effect are comments made by Gummow J in Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 241, where his Honour described it as “fundamental” that s 52 is not designed for the benefit of persons “who fail in the circumstances of the case, to take reasonable care of their own interests”. So too in Taco Co of Australia Inc v Taco Bell Pty Ltd; (supra) at 181, Franki J referred to the “extraordinarily stupid person” as being outside the protection of s 52. In Finucane v New South Wales Egg Corp (1988) 80 ALR 486, Lockhart J spoke of what his Honour referred to as a difference in emphasis between what was said by Franki J in Taco on the one hand and by Gibbs CJ in Parkdale (supra) on the other. His Honour said (at 515):
“In my view, the decision in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd , does not overrule the reasoning of Franki J in Taco Co of Australia v Taco Bell Pty Ltd, as to the definition of the class of persons likely to be affected by conduct in contravention of s 52. I prefer that reasoning and adopt it in this case. The definition of the class of persons likely to be affected cannot be stated in absolute terms. It is really a question of identification of the relevant class of persons according to the facts of a particular case. There may, for example, be a case of a corporation seeking to sell its products to more ingenuous members of society. The definition of the class of persons likely to be affected in that case would reflect the characteristics of those persons.”
The Full Court of this Court in Sutton v A J Thompson Pty Ltd (In liq); (1987) 73 ALR 233 in response to a submission that the applicants in that case had failed to take reasonable care in their own interests by not investigating more closely the affairs of the business which they had purchased described as a “bold submission” the proposition: “You should not have believed me when I misled you” and after referring to the four propositions enunciated by Wilson J in Gould v Vaggelas set out earlier, continued (at 240):
“… the possibility that a foolish person might be misled by some misrepresentation which no normal person would take seriously, is covered by the exclusion of representations which are not ‘calculated to induce’ entry into the contract — the test is objective, but must take into account the respective positions of the parties, including such matters as their knowledge of each other through previous dealings and their respective familiarity with the subject-matter of the contract.
Similarly, if a person is so determined to enter into a contract that he is not in truth influenced by some false representation made to him, he clearly has no case. But there is nothing in the principles cited, or in any other authority which has been brought to our attention, to suggest that a person who has been misled into entering a contract, by false representations of a type which were likely to produce that result, and in fact did so, can be deprived of his remedy because of his failure to check the accuracy of those representations: see, to the contrary, Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302 at 309; and Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601.”
In Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601 on appeal Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 at 96, Lockhart J with whose reasons Burchett J agreed, referred to what was said by Wilson J in Gould v Vaggelas and to the decision of Pincus J in Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302 where it had been held that the causal chain required for recovery of damages under s 82 of the Trade Practices Act had not been broken where the applicant failed to take reasonable care of his own interests by undertaking a proper investigation of the figures presented to it and commented:
“These decisions support the view that recovery under s 52 is founded by the applicant's actual reliance upon the misleading or deceptive conduct of the respondent although that conduct was not the only factor in the applicant's decision to enter a particular agreement, and although the applicant did not seek to verify the representations or did so inadequately and so failed to discover their falsity.”
A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant. However, in my view, the present cannot be said to be that case.”
I have detailed his Honour’s reasons in length because I believe that they apply with equal force in this instance.
I am satisfied that Mr Reinhardt made an oral representation to Mr Millard at Reinhardt’s office in mid-November 2006 concerning the photocopy rates which had been secured by Reinhardt with Toshiba. The representation stated that the photocopy rate was for colour and black and white copies when the rate per copy applied to black and white only. I accept that the representation was material to the applicant and that, in reliance upon the representation, the Applicant was induced into the Agreement. The circumstances of the representation and, in particular, the reference only to the first page of the Toshiba agreement (which addressed only black and white copy rates without reference to any other part of the document where other rates appeared) would have served to comfort a recipient of that information that only the page being referred to required review. Mr Millard was able to see the page being referred to and read enough of its contents to form a view on the attractiveness of the rate. At the same time he challenged Mr Reinhardt about the rate because it appeared to be so favourable. In the circumstances I do not consider Mr Millard to have acted unreasonably in relying upon the representation and taking Mr Reinhardt at his word. It follows, in my view , that there is no case here for the application of principles of proportionate liability provided for by Part VIA of the TPA. The representation was misleading in that it was false in a material particular and thus was made in contravention of s.52 TPA.
Accessorial Liability
The Applicant claims against both Mr Reinhardt and Reinhardt. Reinhardt is the alter ego of Mr Reinhardt. Mr Reinhardt was inextricably tied to the events and spoke for and on behalf of Reinhardt. By operation of s.75B TPA, he is a person who was knowingly concerned both directly and indirectly in the events the subject of complaints by the Applicant, and accordingly his conduct is attributable to that of Reinhardt.
Breach of Fiduciary Duty
As an employee Mr Reinhardt had a fiduciary duty to his employer, the Applicant.[13] In that case Mason J stated:
“[A] critical feature of [the relationship of employee and employer] is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position …”
[13] Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 96-97.
In that context the particular vulnerability of the Applicant was the obtaining of information relevant to the development of a business in the McDowall and Bridgeman Downs area. There is no allegation that he has used any other information, for instance concerning his original sales areas.
Strictly any confidential business information secured by Mr Reinhardt during the course of his employment by the Applicant in respect of the Bridgeman Downs and McDowall areas was information gained for the benefit of the Applicant and is subject to a duty of confidence owed by Mr Reinhardt to the Applicant. Any use of that confidential information procured during the course of the employer/employee relationship is subject to that duty. However, the difficulty in the Applicant’s case on this point is that it has not addressed in the evidence the business information which it contends is, in conscience, the Applicant’s and is thus protected by the duty of confidence and that information which has become Mr Reinhardt’s own and is untouched by the duty: Printers & Finishers Ltd v Holloway (No.2) [1965] RPC 239 at 255.
It is not sufficient to identify sales undertaken by Mr Reinhardt following the termination of the workplace agreement to prove a breach of duty. It may be that sales following termination did invoke the use of confidential information. However, if they did the basis for such a contention was not founded in the evidence and in the absence of evidence to the contrary it is entirely possible that such sales were the product of his efforts post-termination.
The Applicant’s claim for breach of fiduciary duty fails.
Breach of Contract
Mr Millard said that he instructed his solicitors to prepare a contract for the Applicant to purchase the Business in reliance upon Mr Reinhardt’s representations that:
a)he would work for the Applicant for at least two years;
b)he would provide to the Applicant his very large contacts list; and
c)the Applicant would enjoy the benefit of the Toshiba agreement.
It has not been suggested that the representations were ever intended to be included as express terms of the Agreement. They were plainly made as representations to induce the Agreement. However, the Applicant also claims that the representations had contractual significance giving rise to collateral contracts. For reasons which follow I accept that to be the case for all but the Toshiba representation.
The Agreement
The Agreement was in REIQ[14] form. It identified the Applicant and Reinhardt as buyer and seller respectively. It noted that the business being sold was a “real estate sales business” but that it “specifically excludes the property management rights of the Seller.” Item N dealt with plant and equipment included in the contract, which did not include the photocopiers. The photocopiers appear to have been included under the heading “Rental Agreements” which were particularised in Schedule C to the REIQ form contract. Significantly, the Agreement did not make express reference to either the contacts list, which I am satisfied was the subject of the contacts list representation, or the two year employment representation.
[14] Real Estate Institute of Queensland.
The Toshiba Contract
The Toshiba leases which formed attachments to schedules to the Agreement did not specifically address the representations Mr Millard says Mr Reinhardt made concerning them, which representations were in fact contrary to the rates for colour copies provided in the “Additional Conditions” box in the form attached to the principal Focus rental agreement. However, the Toshiba contracts were imported into the Agreement. The Applicant’s complaint concerning the Toshiba contract relates to the rate of colour copying. That matter was the subject of a directly misleading statement. It was apparent from the circumstances that it was not intended to be a contractual statement. It was merely intended to induce a contract, as it did.
The Toshiba representations made by Mr Reinhardt were intended to induce the Applicant into the Agreement, by proffering the Toshiba agreement as being more financially attractive that it truly was. The Toshiba agreement was always intended to be incorporated into the Agreement. It follows that the representations made about the benefits of the Toshiba agreement were never intended to be, or understood as, contractual, as they were only intended to be inductive of the Agreement which in fact followed. Likewise, the Applicant had no such contractual intent as it simply expected the Toshiba contracts to be incorporated into the Agreement. Plainly, the Agreement could only incorporate the Toshiba agreement terms as they stood. Accordingly, no contractual remedy arises in respect of this matter.
Breach of Contract of Employment
During the course of negotiations which led to the Agreement, numerous statements were made concerning Mr Reinhardt’s commitment to work for the Applicant. For reasons addressed elsewhere I am satisfied that those statements were made and that they were intended to have, and did have, contractual intent. That is, the entry into the Agreement provided consideration for the minimum two year employment agreement.
Mr Millard says that in June 2007 Mr Reinhardt telephoned him to tell him that he was going to open his own business and, consequently, that would be resigning from the Applicant. Mr Millard convened a meeting shortly thereafter to discuss the matter, at which time he says Mr Reinhardt told him that he was opening a business in Bridgeman Downs and that he was going into partnership with Mr Bruce Slater, who had previously been in the printing business. Mr Millard says that he said to Mr Reinhardt, “Are you going to pay me back for what I’ve paid you?” to which he says Mr Reinhardt responded in the negative. He said that he thought that Mr Reinhardt had lied and stolen from him, to which he says Mr Reinhardt responded, “You can’t stop me. I will do whatever I want with whoever I want,” and stated words to the effect that if he “wanted he would open up a shop right next to me.” He also stated that he had not arranged to go into business with Mr Slater before he had caused Reinhardt to sell his business to the Applicant. It appears that the meeting abruptly concluded on that note.
Mr Millard says that the next day Mr Reinhardt attended the Applicant’s Alderley office, at which time he says he said to Mr Reinhardt words to the effect, “Bryan, I paid a lot of money for your database and have invested heavily on growing your profile. You are meant to be staying here. You can’t just go and do this.” He says Mr Reinhardt responded, saying words to the effect of, “Well, I’m going to do it but I’m not ready to do it just yet. Why don’t I just work for a couple more months. We’ll both earn some money and then I’ll go and set up my business.” Mr Millard’s response was to terminate Mr Reinhardt’s employment.
The next day Mr Reinhardt attended the office, packed his desk and finally departed.
Mr Reinhardt’s conduct was clearly repudiatory. Given that character the Applicant, as it was entitled to do, accepted Mr Reinhardt’s breach and terminated the employment contract.
Breach of Contract to Provide Contacts List
The Applicant has pleaded an action for breach of the Agreement by Reinhardt’s failure to provide the contacts list. In paragraph 8A.2 of the Amended Statement of Claim the allegation made by the Applicant against Reinhardt is:
“The respondents had a list of names of contacts in relation to the second respondent’s business, which contained 7,000 names, and which the respondents would hand over to Mill Estate and cease using themselves if Mill Estate purchased the second respondent’s business.”
Paragraph 11 proceeds to allege that this matter, inter alia, constituted a representation which is subsequently relied upon in support of its misrepresentation case. Arguably, it also alleges a breach of a collateral agreement which it now submits in support of its claim for contractual damages.
For reasons I have addressed earlier, I am satisfied that a representation was made by Mr Reinhardt to Mr Millard concerning the contacts list. I am also satisfied that the representation was made in circumstances enlivening a contractual remedy. Mr Millard’s evidence was that at the time discussion ensued between he and Mr Reinhardt concerning the sale of Reinhardt’s property management business, “Mr Reinhardt started telling me about a contact list he had with 7000 names.” He continued:
“[26] I remember Mr Reinhardt saying to me, in the context of whether Mill Estate would buy Reinhardt Pty Ltd’s business, “I’ve got seven thousand on my database.” He kept repeating that number a lot as we kept talking.
[27] In relation to the contacts list, Mr Reinhardt also said to me that if Reinhardt Pty Ltd sold its business to Mill Estate, as a salesperson he would move into the more upmarket areas like McDowall and Bridgeman Downs, so he had no need for his contact list from the less upmarket suburbs he had been operating in up to that time.
[28] When Mr Reinhardt spoke about providing the contacts list to Mill Estate, I spoke to him about Mill Estate adopting a marketing strategy in those old suburbs (where Mr Reinhardt would no longer market) using the contacts list.”[15]
[15] Affidavit of Martin Millard filed 7 March 2012.
At the later meeting held just before 17 November 2006, he again made reference to Mr Reinhardt’s assurances, inter alia, “that [the Applicant] would receiv[e] his very large contacts list.”[16]
[16] Affidavit of Martin Millard filed 7 March 2012 at [64].
Whilst I am satisfied that the contacts list constituted a significant inducement, I also consider the circumstances to give rise to the establishment of a collateral agreement. The entry into the Agreement was subject to or conditional upon Mr Reinhardt providing his contacts list and entry into the Agreement provided consideration for the collateral agreement for the provision of the contacts list.
However, I am also satisfied from the evidence that the contacts list was provided, and accordingly Reinhardt did not breach the contract in this instance in the manner alleged.
Damages
The Applicant claims for damages against the Respondents under four heads:
a)Damages pursuant to s.82 TPA;
b)Damages for breach of fiduciary duty;
c)Damages for breach of individual workplace agreement; and
d)Damages for breach of contract.
TPA Breach
Damages for contravention of s.52 are provided for by s.82 TPA. Some broad principles relevantly emerge from the authorities:[17]
a)The purpose of the section is remedial and accordingly the principles of common law relevant to assessment in tort or contract are not necessarily relevant: Henville v Walker (2001) 206 CLR 459;
b)The measure of compensation is the amount of the loss or damage sustained: I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109;
c)To recover damages the Applicant must prove that the loss and damage was occasioned “by” the contravening conduct: Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514;
d)Reliance upon the contravening conduct need not be the sole cause of the Applicant’s loss or damage. However, some aspect of loss must be referrable to the contravening conduct: Henville v Walker;
e)Reference to “loss or damage” should be given no narrow meaning. It is wrong to approach the remedial provision of Part VI TPA by beginning with an attempt to draw an analogy with a particular form of claim under the general law: Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388;
f)Reference to “loss or damage” includes economic or financial loss: Wardley Australia Ltd v State of Western Australia;
g)Damages are available for consequential loss as long as the loss is a direct result of the contravening conduct: Frith v Gold Coast Mineral Springs Pty Ltd (1983) 47 ALR 547; and
h)If damage has occurred the Court must do its best to quantify the loss even if a degree of speculation and guesswork is involved: Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 4 FCR 450; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.
[17] Another extremely helpful decision on this point is Jamieson and Ors v Westpac [2014] QSC 32.
The manner in which the parties have approached the assessment of damages in this instance suggests that insufficient thought has been afforded to the relevant principles. In this instance the principal measure of damages for the Applicant is that loss it suffered because of the contraventions associated with the two year employment representation. While plainly other losses were associated with the Applicant’s acquisition of the business, the Applicant’s formulation did not appear to be informed by the principles detailed above. This follows irrespective of the findings of fact on issues such as the contacts list representation.
In its statement of claim the Applicant made an ambit claim for $200,000 damages for the various causes alleged. That claim was purported to be explained and particularised by the report of the Applicant’s expert accountant, Mr Lytras. While Mr Lytras’ report commenced from the correct premise by noting that the Applicant would not have entered into the Agreement except for the contravening conduct, the process of assessing the measure of damages that followed did not assess the appropriate measure of remedial compensation.
The Applicant’s Approach to Assessment
The approach to the assessment of damages pursuant to s.82 is now well established. The prima facie measure of loss is the difference between the price paid and the value of what is acquired at the time of the termination.[18]That was the approach proposed by Mr Lytras. However, his approach suffered from internal difficulties which, rather than rendering a loss, in fact establish that the Applicant enjoyed a bargain. That is, the value of the business acquired was equal to or more than was paid for it. Accordingly, there was no loss.
[18] Potts v Miller (1940) 64 CLR 282; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd at 657.
In summary, the Applicant’s claim and Respondents’ response was particularised as follows:
Particulars
Lytras
Charlton
Amount paid by applicant under contract
$40,000.00
$40,000.00
Amount paid by claw back
$44,725.00
$44,725.00
True value of business
Difference between Contract Price and True Market Value
($20,000.00)
$64,725.00
Understated
Overstated
Transaction costs
$5,628.00
$5,628.00
Trading losses
$18,457.00
Not a loss
Total
$88,810.00
Nil Damage
The damages alleged to have been suffered because of the misrepresentations were claimed by the Applicant to comprise the difference between the cost of the business less the actual value of the business,[19] together with its acquisition costs and trading losses subsequently incurred.
[19] Note, not at time of acquisition – although I think in the result that nothing turns on this.
Each of the Applicant and Respondents adduced expert evidence from accountants retained by them to assist the Court in the matter of assessment. Although the opinions expressed were significantly divergent, the divergence was premised upon differing assumptions underlying their various calculations. The most significant assumption of difference between the parties concerned the issue of whether or not Reinhardt agreed to but did not provide the Applicant with the contacts list. For reasons explained earlier I am satisfied that there was such an agreement and Reinhardt did supply the list.
As noted earlier, the Applicant’s approach was to claim the measure of damages as the difference between the price paid for the business and its true value together with the associated transaction costs and trading losses. Ordinarily that might prove to be an appropriate measure. However, the difficulties with the Applicant’s approach in this instance are threefold.
First, while I am satisfied that the Applicant’s accountant commenced correctly by recognising that the value of the business was to be arrived at by calculating the difference between the price paid and its actual value, I consider him to have adopted an incorrect methodology in the application of that principle. Mr Lytras included in the cost of the business the sum paid by the Applicant pursuant to a guarantee provision in the property management business contract. For reasons explained below there appears to be no basis for incorporating that figure into the purchase price of the property sales business: the business cost reflecting the sum paid for the property sales business together with the value of the guarantee (a matter that was extra-contractual as is discussed below) less the realised value of tangibles. It follows the consideration for the business was not $88,725.00 but $40,000.00 as stated in the Agreement schedule.
Second, the purchase price of the business at $40,000.00 arguably appears to constitute a considerable undervalue of the business. That price included the lease, equipment and goodwill which included the contacts list. If the equipment had a value of $20,000.00[20] and it is accepted that the lease of premises had no value because it was later assigned to a third party at no cost, then the value of the goodwill (which included the contacts list) was $20,000.00. That valuation, based upon the arm’s length price negotiated for the Agreement, is not consistent with the assessment of the value of the contacts list provided by Mr Lytras, who assessed its value at $40,000.00. The contrary was contended for by Mr Charlton, the Respondents’ expert. He essentially contended that the goodwill, including the contacts list, has no real value. In any event on Mr Lytras’ assessment the Applicant purchased chattels worth, say, $20,000.00 and a contracts list, worth on his instruction, $40,000.00. That is the Applicant paid $40,000.00 for a business worth $60,000.00. It didn’t overpay and thereby suffer loss, it achieved a considerable bargain.
[20] As I have determined, the Respondents did provide the contacts list. Accordingly, the true value of the business acquired was represented by the plant and equipment and the underlying lease arrangements and goodwill. On 26 September 2007 the Applicant sold the plant and equipment, with the exception of the two leased Toshiba photocopiers and the office lease. Much of that was acquired by De Brueys from Reinhardt upon its subsequent sale of the Keperra business to them for $16,000.00. However, Mr Lytras considered that the $16,000.00 figure understated the value of the plant and equipment acquired in the sale to B & H De Brueys because it occurred almost 10 months after the Agreement, during which time the plant and equipment would have further depreciated. Further, the sale excluded the two Toshiba photocopiers. Respectfully, I do not accept his evidence on this point. A comparison of the assets schedule attached to the Agreement and that attached to the B & H De Brueys sale contract shows that a significant number of assets were not included in the sale. In particular, the sale did not include any of the computer equipment. Furthermore, upon the sale of the equipment to B & H De Brueys the Applicant retained the benefit of the other lease agreements, including the Toshiba photocopying contract. While I accept that the agreement for the sale of some of the chattels to B & H De Brueys reflects an arm’s length transaction, in the absence of evidence addressing the value of the equipment which was retained and the value of the leases which were in place I do not think it is fair or appropriate to discount the primary consideration set by the Agreement. The premises and equipment on hand were sold to a third party for $16,000.00. For reasons addressed elsewhere I accept that this price constituted the market value of the equipment sold, which largely included the equipment on hand and sold at the time of the Agreement. However, it did not reflect the full value of all the equipment which the Applicant had acquired from Reinhardt. That equipment was not definitively valued and no estimate of it was provided in the Agreement schedule. However, it appears to have had a value greater than the $20,000.00 estimated by Mr Lytras. Even so, for want of a better figure I adopt that quantum.
Thirdly, the Applicant also expected to gain the benefit of Mr Reinhardt’s employment for two years and the advantage of a highly favourable photocopier agreement. These matters also were material in the Applicant’s decision to enter into the Agreement and any losses followed from those matters were not addressed in the Applicant’s calculation.
Arguably from the evidence it appears that the loss and damage suffered by the Applicant because of Mr Reinhardt ’s representations comprised:
a)The loss of his on the purchase of the real estate sales business;
b)the loss of Mr Reinhardt’s services for two years following the Agreement; and
c)the loss of the very favourable photocopy rates on the Toshiba agreement as represented.
Each of those matters is causally linked to the Respondent’s conduct and consequent loss, as the Applicant contends. Each of those matters requires consideration.
Business Value and the Contacts List
For reasons addressed elsewhere I am satisfied that no contravention occurred in respect of the contacts list. However, I am required to assess damages for this matter in any event and its valuation informs the question of whether or not the Applicant suffered a loss on the transaction.
Whether the price paid for the business reflected a loss is largely to be resolved by determining the value of the contacts list. That is, did the contacts list have a greater or lesser value than the goodwill of the business, or not?
It is appropriate to address this issue early because it was the subject of divergent views between the experts as to value and also highlights a difficulty I have with the Applicant’s contentions concerning the true value of the business.
Mr Lytras, the Applicant’s expert accountant, discussed the matter at Section 10 of his report under the heading “Lost Trading Profits.” Under that heading he sought to assess the lost trading profits head of damage representing the lost profit over the period June 2007 (the date of Mr Reinhardt’s termination) to the date of his report (30 June 2008), a period of approximately 12 months which he contended could be attributed to the Applicant not having access to the contacts list.[21] He contended that the assessment ought be undertaken on the basis that Mr Reinhardt was not an employee of the Applicant and that the contacts list otherwise would have been available for use by the Applicant’s other employees. His methodology principally involved disaggregating from the business the sales he anticipated Mr Reinhardt would reasonably have been able to be generate using the contacts list (based upon the additional revenues generated by the Applicant since the acquisition of Reinhardt’s business). That is, he looked at the revenues generated following acquisition ($192,710.00), of which $107,935.00 was attributable to Mr Reinhardt as an employee for approximately three to four months and as a referrer for approximately two to three months ($83,775.00). When annualised he estimated that Mr Reinhardt would have generated sales commissions of between $500,000.00 and $600,000.00 per annum working on the contacts list on a full time basis. That figure appeared to be consistent with information provided to him concerning Mr Reinhardt’s generated sales commissions prior to the Agreement. In the circumstances Mr Lytras adopted a median of $550,000.00 of sales per annum from the contacts list as sales reasonably capable of being achieved by Mr Reinhardt from the list. He estimated that the average gross sales commission generated from the sales initiated by Mr Reinhardt was approximately $10,150.00 and that, accordingly, annualised sales of $550,000.00 approximated 54 sales per annum from the contacts list.
[21] Although this was done in the context of assessing damages for breach of fiduciary duty, that factor does not impact the assessment exercise which Mr Lytras undertook.
Summary of s.82 Damages
It follows that I assess the Applicant’s damages under s.82 TPA at $124,726.00, made up as:
Loss of business value
$0
Value of contacts list
$0
Loss on Mr Reinhardt ’s termination
$74,373.00
Payment to YPS
$44,725.00
Transaction Costs
Photocopy losses
$5,628
$0
Total:
$124,726.00
Breach of Fiduciary Duty
Concerning the breach of fiduciary duty argument, the Applicant contends that Mr Reinhardt breached his duties as an employee owed to it as the employer. In particular this involved using information obtained as an employee, namely the contacts list. Mr Lytras assessed those damages at $81,250.00, made up as:
Lost Trading Profits
$41,250.00
Value of Contacts List
$40,000.00
Total:
$81,250.00
Respectfully, the Applicant’s basis for assessment of damages for breach of fiduciary duty is misconceived. In this instance upon Mr Reinhardt commencing employment with the Applicant he was assigned to new territory, namely in the Bridgeman Downs and McDowall areas. That territory was outside the restraint of trade area provided for in the sale agreement between them. At the time that Mr Reinhardt was engaged in sales activities in that location he was subject to a minimum two year employment contract between himself and the Applicant, with a view to developing business in that location. I do not think it is challenged that as an employee of the Applicant he had a fiduciary duty to it as his employer: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 96.
However, as I have earlier determined, the Applicant’s claim under the head fails because no evidentiary foundation exists addressing the principles enlivening a cause of action.
For the purpose of assessing damages the particular vulnerability of the Applicant in this instance was Mr Reinhardt obtaining confidential information relevant to the development of a business for it in the McDowall and Bridgeman Downs areas. The Applicant’s expert has not addressed this matter is his report. Whilst it is conceptually possible that Mr Reinhardt acquired some confidential information in the course of his brief period of employment which could have given rise to an entitlement to damages, there is no evidence to support it.
In the context of the breach of fiduciary duty claim the difficulty with Applicant’s claim for lost trading profits concerns the relevance of those lost trading profits to the breach of fiduciary obligations. It is not disputed that after the Agreement and after Mr Reinhardt commenced with the Applicant he largely ceased selling in the areas covered by the Reinhardt agency and commenced selling in new areas including Bridgeman Downs, an area that extended beyond the geographic boundary provided for by the restraint of trade clause. It follows, in my view, that the measure of damages does not include the loss of trading profits the Applicant sustained based upon the earnings the Applicant may have enjoyed had Mr Reinhardt been engaged in sales in and around the Keperra territory following any alleged breach of fiduciary duty. The appropriate measure is plainly the value of commissions less costs, which the Applicant ought to have enjoyed in respect of that business which was developed by Mr Reinhardt using the Applicant’s confidential information, which on the facts of this case are confined to sales in the McDowall and Bridgeman Downs areas. There is no evidence concerning those matters, and accordingly I am unable to make any assessment.
Breach of Individual Workplace Agreement
The applicant claims for $280,000.00 damages under this head. That sum is made up as:
a)Loss of profits to the end of the two year employment term of $240,000; and
b)Value of the contacts list $40,000.00
For reasons stated earlier I accept that Mr Reinhardt agreed to remain in the Applicant’s employ for two years following the Agreement. This did not occur. Mr Reinhardt’s employment was terminated for breach approximately 6 months into the two year term. The measure of damages is as set out above in addressing this issue pursuant to s.82 TPA. It follows that I assess the damages under this head at $74,373.00.
Mr Lytras also included under this head the value of the contacts list. Notwithstanding my earlier findings on the contacts list, even if there had been a failure to provide it that failure is not relevant to Mr Reinhardt’s breach of the workplace agreement and accordingly no allowance should be made for that loss under this head.
Breach of Contract
The final head concerns Reinhardt’s breach of the Agreement. As I have earlier determined I am satisfied that Mr Reinhardt breached the Agreement by failing to perform in accordance with his agreement to work for the Applicant for two years following the Agreement. I have earlier addressed the appropriate assessment for damages under those heads.
Reinhardt’s Counterclaim
It is agreed that Mr Reinhardt was to receive 68% of the net commission on sales he achieved whilst employed. The Applicant agrees that commissions are due to Mr Reinhardt in respect of sales executed by Mr Reinhardt. However, the parties disagree on the calculation of the quantum of unpaid commissions outstanding. It is agreed that Mr Reinhardt did introduce a number of listings between the time of settlement and his employment which matured into contracts. However, the parties are in dispute concerning the liability for sales introduced. The Applicant seeks to set-off so much as may be due by it to Mr Reinhardt against the sum it claims in its action against him and Reinhardt.
Commission Claims
Mr Reinhardt counter-claims against the Applicant for damages for breach of the Agreement. He says that it was a special condition of the Agreement that the Applicant would employ him following the completion of the Agreement as a real estate salesperson. He says that subsequently he entered into the IWA, which provided in clause 4(a) that he would be entitled to “an earned commission on each sale according to a schedule as presented and amended from time to time by us or in accordance with our “house rules.””
No schedule was attached to the IWA and no “House Rules” were advised by the Applicant to him. Mr Reinhardt alleged however that the oral agreement between him and the Applicant was that:
a)He would be paid a commission equal to 68% of the net commission on any sale (the net commission was to include a $450.00 deduction for the “Magic 50 marketing campaign”);
b)He would be paid 50% of commission received from the sale of listings referred by him to the Applicant and his sale staff during the period between the execution of the Agreement on 17 November 2006 and the start of his employment with the Applicant; and
c)The Applicant would make superannuation payments on all commission monies to which he was entitled.
He alleged that in the alternative the Applicant promised to him to pay commission payments equal to 68% of the net commission and that he undertook sales duties in reliance upon that promise. Mr Reinhardt contends that in breach of the IWA the Applicant has underpaid him $29,706.18 in respect of commissions due for sales introduced between the time of contract and his formal employment, as particularised below:
Property:
Commission as
Agreed at 50%:
Commission Paid:
Amount Owing
12 Hatia
$4,196.25
$201.12
$2,995.13
88 Cobalt
$4702.50
$1652.38
$3050.12
14 Barney
$3690.00
$552.00
$3138.00
3 Glenlee
$4,702.00
$702.32
$4000.18
23 Amaroo
$4308.75
$1180.34
$3128.41
783 Samford
$3301.88
$515.65
$2786.23
1/29 Movilla
$2655.00
$385.10
$2669.90
154 Kirralee
$5208.75
$814.43
$4394.32
23 Calca
$3470.63
$526.74
$2943.89
Total:
$36,235.76
$6,530.08
$29,706.18
The Applicant denies liability in respect of any of this sum. It says that there was never any agreement by it to pay Mr Reinhardt for any sales introduced between the date of the Agreement and his commencement with the Applicant upon his return from leave.
Mr Reinhardt further alleges that the Applicant has underpaid him the sum of $48,622.85 in respect of commissions due in accordance with their agreement following his entry into the IWA and before its termination. The particulars of those underpayments are as set out below:
Property:
Commission as
Agreed at 68%:
Commission Paid:
Amount Owing
24 Karri
$9,302.40
$3,204.64
$6,097.76
18 Howard
$7,874.74
$2,602.73
$5,292.01
31 Charolais
$8,179.72
$3,126.33
$5,053.39
3/21-25 Osbourne
$5,638.22
$2,117.20
$3,521.02
3 Burdan
$6,146.52
$2,319.03
$3,827.49
20/6 Myrtle
$5,286.32
$2,333.80
$2,952.52
108 Albany Forest
$5,911.92
$249.00
$5,662.92
31 Oxford
$8,179.72
$2,713.36
$5,466.36
95 Voyager
$7,441.51
$2,131.01
$5,310.50
22 Caesar
$5,508.00
$69.12
$5,438.88
Total:
$69,469.07
$20,866.22
$48,622.85
Mr Reinhardt’s claim for commissions has been amended at a number of stages during the course of proceedings. For the Applicant’s part it acknowledges a liability to Mr Reinhardt in respect of commission payable but contests the quantum of commission outstanding. It contends that while it has short paid commission due to Mr Reinhardt, the short payments are not nearly as extensive as contended for. Concerning properties sold by Mr Reinhardt particularised in the second table, the Applicant contends that the total commissions due were $69,469.07.[28] Further, it says that it has paid to Mr Reinhardt the sum of $36,414.52.[29] That is, the Applicant acknowledges that it is indebted to the Second Respondent in the sum of $33,054.55 on account of outstanding commissions. It denies Reinhardt’s new case which alleges that only $20,866.22 has been paid by the Applicant to him.
[28] As listed in the fourth column of Exhibit 4 under the heading “New Case.”
[29] As particularised in the fifth column in Exhibit 4.
The difference between the two figures has its genesis in the manner in which the commissions have been calculated. In the Respondents’ solicitors’ letter of 21 June 2007 directed to the Applicant, it was noted, inter alia:
“Our client instructs that the following payments are owing, or will become owing, to him:
…
We note that the above payments are before tax, and expect that deductions for taxation will be dealt with in the usual manner.”
The first point to note concerning that letter is that the nine properties listed accord with the properties listed in Exhibit 4. Secondly, the commissions claimed to be or become owing accord with those pleaded in the “New Case in Column 4 of Exhibit 4.” They are the same sums listed in the table above.
In a subsequent letter of 25 June 2007 the form of calculation of the commission was explained:
“Our client also seeks your client’s confirmation of the following in relation to these commission payments:
- Payment to our client is 68% of the gross commission (after deduction of the 8% Franchise Fee and $450.00 Administration Fee), plus 9% superannuation, pursuant to the agreement between our client and your client;
- A pay slip is to be provided on the day of transfer, showing the full amount paid, less lawful deductions (which our client understands to only be a postage bill of approximately $250.00 and a ‘Guaranteed Top Spot’ for 12 Pfeiffer Place of $170.00); and
- A copy of the Superannuation Transfer to be provided to our client, evidencing the payment to our client’s superannuation fund.”
In respect of each of the properties a payslip was prepared. In each instance the payslip appropriately records the amount paid less PAYG tax and other deductions providing for the “NET PAY.” The payslip also identifies the employer contributions made to “Super Reinhardt Retirement.” As was contended for by the Applicant there is no evidence to suggest that tax was incorrectly calculated, inappropriately deducted, or, having been deducted, not paid to the Australian Taxation Office on Mr Reinhardt’s behalf. It is plain from a review of each of the payslips that the “New Case” alleged and particularised in column 6 of Exhibit 4 pleads a case for Mr Reinhardt which does not make allowance for tax credits to his favour. By doing so it seeks to overstate Mr Reinhardt’s claim.
There is however no question, by reference to each payslip, that each of the primary commission claims has been understated. For instance, the payslip for 18 Howard Street in the box headed description provides property sales $5008.72. The Applicant accepts that the appropriate commission due was $7874.74 and to that end there has been an underpayment in respect of commissions due in respect of 18 Howard Street of $2,560.02. This error is replicated throughout the balance of those particular statements.
Although the Applicant in submissions broadly relies upon Exhibit 4 to summarise the evidence, there are two minor errors apparent in it. First, in column 5 concerning the old case it does not address commissions paid in respect of 24 Carey Court. The evidence demonstrates that commission allowed in respect of 24 Carey Court was allowed in the sum of $6,497.29. That sum was subsequently paid between Mr Reinhardt and his wife, with Mr Reinhardt receiving $4,408.11 and his wife $1,889.18. Accordingly, on that sale the Applicant ought to be allowed a credit for that payment, bringing the total of unpaid commission to $42,711.81. Further, the sum paid across in respect of 22 Caesar Road was $3,320.64 and not $3,372.39 as set out in the spreadsheet. That is an over claim of $51.75, which when set off against the alleged balance leaves a balance of $42,660.06, which should be credited to the Mr Reinhardt’s favour.
Mr Reinhardt also claimed an amount of additional advertising expenses. Generally I preferred the evidence of Mr Millard to that of Mr Reinhardt as being more reliable. Nothing about the circumstances of this alleged arrangement gives rise to any basis for departure from my original assessment of credit. I do not find that any such agreement was concluded by the parties as asserted by Mr Reinhardt.
The second part of Mr Reinhardt’s claim relates to commissions he claims to be entitled to on referrals. He says that it was agreed that he would be paid 50% of the full commission on referrals that were referred to the Applicant’s sales people while he was on his break after the business sale. He says that this did not occur and that he was only paid about 20% of the salesperson’s portion of commissions.
This claim is a new claim on the part of the Mr Reinhardt. It was first made in November 2012. Prior to that time the only claim that had been made was that which had been identified in the Respondents’ solicitors’ letters dating from 21 June 2007 where a detailed claim had been made in the letter under the heading “Payment of Outstanding Commission.” There is no apparent reason why Mr Reinhardt delayed in bringing this case. Plainly the Applicant had some arrangement or understanding in respect of these referrals because payments were made by it to Mr Reinhardt in respect of sales which were acknowledged to have been introduced.[30]
[30] There is an apparent exception in respect of the 1/29 Movilla Street property, which appears to have been introduced by Mr Ian Weaving, who was noted as the “lister” on the contract front sheet.
The nature of the claim is, to my mind, highly suspicious. Not only has it been made very late but it has been made despite many earlier efforts to formulate Mr Reinhardt’s claim. This was done initially by a solicitors’ letter of demand and subsequently in proceedings filed in Court. Against that background the claim smacks of recent invention. The Applicant has always maintained a 20% fee would be payable for sales introduced. In his evidence Mr Millard says that this accords with industry practice. Consistent with that practice his agency paid sums approaching 20% to Mr Reinhardt in respect of introduced sales. I am satisfied that that arrangement was to apply between these parties. I do not accept that there was any express or implied arrangement that the Applicant would pay Mr Reinhardt any other sum on account of introduced sales but the industry standard of 20% of the commission due.
That fact however does not prove the oral agreement now asserted by Mr Reinhardt. I have no reason to reach a differing view on credit concerning this matter to that earlier concluded. Accordingly I prefer the evidence of Mr Millard as being more reliable. It also accords with common sense. The Applicant had agreed to purchase Reinhardt’s business. That would include the transactions that followed the purchase of the business. To pay Mr Reinhardt beyond the industry practice for sales introduced, but in respect of which he had no other involvement, suggests double compensation for the goodwill value of the business just acquired for valuable consideration.
The basis for Mr Reinhardt’s second table is not immediately apparent. The “Commission as agreed at 50%” figures could not be founded in any number of possible permutations or combinations of figures contained in any contract front sheet. However, the Applicant offered no assistance in this matter either. The Applicant challenged the basis for the claim, not the figures. Accordingly I have proceeded to calculate the claim accepting as a base figure the unchallenged complaint set out in the pleading, namely the stated commission quantum equating to 50% of the total commission. Accepting that premise permits a ready computation of 20% of the total commission due and, in turn, the quantum of the underpayment. Again, Mr Reinhardt’s allegation concerning what he was paid was not, as a matter of fact, in issue. By adopting that process I have calculated the balance due as $7,964.22.00, as per the table below:
| Address | 50% | 100% | 20% | Paid | Balance Owing |
| 12 Hartia Ct | $ 4,196.25 | $8,392.50 | $1,678.50 | $201.12 | $1,477.38 |
| 88 Coblat | $ 4,702.50 | $9,405.00 | $1,881.00 | $1,652.38 | $228.62 |
| 14 Barney | $ 3,690.00 | $7,380.00 | $1,476.00 | $552.00 | $924.00 |
| 3 Glenlee | $4,702.00 | $ 9,404.00 | $1,880.80 | $702.32 | $1,178.48 |
| 23 Armaroo | $4,308.75 | $ 8,617.50 | $1,723.50 | $1,180.34 | $543.16 |
| 783 Samford | $3,301.88 | $ 6,603.76 | $1,320.75 | $515.65 | $805.10 |
| 1/29 Movilla | $2,655.00 | $ 5,310.00 | $1,062.00 | $385.10 | $676.90 |
| 154 Kirralee | $5,208.75 | $10,417.50 | $2,083.50 | $814.43 | $1,269.07 |
| 23 Calca | $3,470.63 | $6,941.26 | $1,388.25 | $526.74 | $861.51 |
| $36,235.76 | $72,471.52 | $14,494.30 | $6,530.08 | $7,964.22 |
Damages Summary
For reasons expressed earlier I am satisfied that the Applicant is entitled to damages against Reinhardt pursuant to s.82 TPA in respect of a contravention of s.52 TPA, damages for breach of the employment contract and damages for breach of contract. However, the assessment of those damages involved in part doubling up. The Applicant is only entitled to recover its damages once and accordingly I estimate damages at $124,726.00, being damages pursuant to s.82 TPA. As I have earlier noted, the Applicant’s damages relevant to the advance in support of the PM agreement is appropriately recoverable to pursuant to s.82 and has been allowed for under that head. The Applicant is also entitled to damages for Mr Reinhardt’s breach of contract of employment, which I have assessed but which also falls within its s.82 entitlement. Mr Reinhardt claims a setoff against the Applicant in respect of unpaid commission. I have assessed his entitlement under that head at $42,660.06.
Mr Reinhardt is accessorily liable for Reinhardt’s contraventions. Accordingly he is entitled to the benefit of the set off. Given the joint and several liability of Reinhardt and Mr Reinhardt, it too should be credited with the benefit of Mr Reinhardt’s credit and suffer judgment only for a sum that makes such an allowance, being the balance of $82,065.94.[31]
[31] $124,726.00 - $42,660.06 = $82,065.94
Conclusion
The Applicant has claimed against the Respondents for damages pursuant to s.82 TPA, damages for breach of fiduciary duties, damages for breach of contract and damages for breach of contract of employment. The Second Respondent counter-claimed against the Applicant for unpaid commissions to which he claims an entitlement pursuant to the contract of employment.
I am satisfied that the Respondents did engage in misleading and deceptive conduct and as a consequence the Applicant entered into the contract to purchase Reinhardt’s real estate agency. As a consequence it also entered into the employment agreement with Mr Reinhardt. As a consequence of the misleading and deceptive conduct the Applicant claims on the acquisition of Reinhardt’s business, for the non-provision of the contacts list, for a payment made to YPS on the Respondent’s behalf, transaction costs of and loss of profit following Mr Reinhardt’s failure to remain in its employment as an agent for a further one and a half years. It also claims against Mr Reinhardt as being accessorily liable for those damages.
The Applicant also suffered loss by reason of Mr Reinhardt’s breach of contract of employment. I am not satisfied that the circumstances support a claim for breach of fiduciary duty. In any event no damages were capable of assessment in respect of that breach.
I am satisfied that Reinhardt supplied the Applicant with the contacts list. It remains in possession of it and otherwise sold or transferred the balance of the business acquired from Reinhardt. It has suffered no loss associated with the purchase of it. However the Applicant did suffer other loss because of Reinhardt’s representation. They related to a guarantee obligation taken on, transaction costs and failure of an employment agreement. They total $124,726.00.00
The Second Respondent, Mr Reinhardt, is entitled to a sum on account of unpaid commissions I have assessed at $42,660.00. That sum is set off against the sum due to the Applicant.
The sum of $82,065.94 is due by the Respondents to the Applicant.
ORDERS
That there be Judgment for the Applicant against the Respondents in the sum of $82,065.94.
That there be interest on the judgment sum in accordance with s.77 Federal Circuit Court of Australia Act1999 (Cth).
That subject to application being made for any other order within seven (7) days of the date of this order, the Respondents pay the Applicant’s costs of and incidental to the application to be assessed on the standard basis.
I certify that the preceding one hundred and seventy-two (172) paragraphs are a true copy of the reasons for judgment of Judge Burnett
Associate:
Date: 21 May 2014
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