Northwalker Realty Pty Ltd v TFM Chatswood Land Pty Ltd (No 2)

Case •

[2022] NSWSC 1409

•

27 October 2022

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Northwalker Realty Pty Ltd v TFM Chatswood Land Pty Ltd (No 2) [2022] NSWSC 1409
Hearing dates: 10 October 2022
Date of orders: 17 October 2022
Decision date: 27 October 2022
Jurisdiction:Equity
Before: Richmond J
Decision:

Commission is payable by the defendant to the plaintiff pursuant to the agency agreement between the Parties in the amount of $1,504,110.59 (including interest). Defendant to pay the plaintiff’s cost of the proceedings. Judgment is not to be enforced for 28 days. Entry of the orders is to be stayed for 28 days to preserve the entitlement to set aside these orders pursuant to r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW).

Catchwords:

CONTRACTS — real estate agency agreement — whether plaintiff real estate agent entitled to commission pursuant to s 55 of the Property and Stock Agents Act 2002 (NSW)

JUDGMENTS AND ORDERS — entry — entitlement of the defendant to set aside orders to be preserved pursuant to r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) — delay of entry of orders for 28 days

Legislation Cited:

Property and Stock Agents Act 2002 (NSW) ss 55, 55A

Property, Stock and Business Agents Regulation 2014 (NSW)

Uniform Civil Procedure Rules 2005 (NSW) r 36.16

Cases Cited:

Al Maha Pty Ltd v Liu [2020] NSWCA 108

Altis Propco2 Pty Ltd v Majors Bay Development Pty Ltd [2022] NSWSC 403

Anderson v Densley (1953) 90 CLR 460; [1953] HCA 47

Blatch v Archer (1774) 1 Cowp 63

Caffrey v Montano [1968] 2 NSWR 182

Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd [2011] NSWCA 173, 282 ALR 152

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [2014] HCA 7

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53

Fletcher v Manton (1940) 64 CLR 37; [1940] HCA 32

Gauld v Obsidian Holdings Pty Ltd [2009] NSWSC 924

Glass v Ralph [1966] WAR 91

Hunyor v Tilelli (1997) 8 BPR 15,629

Kukolovski v Georges [2011] NSWSC 359

Luxor (Eastbourne) Ltd v Cooper [1941] AC 108

Maggbury Pty Ltd v Hatele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70

Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219

Marriott Industries Pty Ltd v Mercantile Credits Ltd (1991) 9 BCL 256

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Multi Modal Ltd v Polakow (1987) 78 ALR 553

New South Wales Land and Housing Corp v Sydney Wide Real Estate Co Pty Ltd (1998) 9 BPR 16,565

Northwalker Realty Pty Ltd v TFM Chatswood Land Pty Ltd [2022] NSWSC 1407

O’Neill v O’Connell (1946) 72 CLR 101; [1946] HCA 59

Octra Nominees Pty Ltd v Chipper [2007] FCAFC 92; ANZ ConvR 455

Price v Spoor (2021) 270 CLR 450; [2021] HCA 20

Re Bailey-Worthington and Cohen’s Contract [1909] 1 Ch 648

Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379; [1993] HCA 40

Re Young and Harston’s Contract (1885) 31 Ch D 168

Scott v Willmore & Randell [1949] VLR 113; [1949] ALR 510

Wang v Kaymet Corporation Pty Ltd [2015] NSWSC 1459

Waters Lane Pty Ltd v Sweeney [2006] NSWSC 222

Woolworths Limited v Crotty (1942) 66 CLR 603; [1942] HCA 35

Texts Cited:

AG Lang, Estate Agency Law and Practice in New South Wales (4th ed, 1991, Law Book Co)

Category:Principal judgment
Parties:

Northwalker Realty Pty Ltd (Plaintiff)

TFM Chatswood (Defendant) (no appearance)
Representation:

Counsel:
S Golledge SC, N Riordan (Plaintiff)

Solicitors:
H&H Lawyers (Plaintiff)
File Number(s): 2021/47071

JUDGMENT

  1. In this proceeding the plaintiff, Northwalker Realty Pty Ltd, is a real estate agent and the defendant, TFM Chatswood Land Pty Ltd (TFM), is a property developer. The plaintiff seeks to recover the commission payable by the defendant under an agency agreement between the plaintiff and the defendant dated 29 February 2016 (Agency Agreement). Pursuant to the Agency Agreement, the plaintiff was appointed to market apartments in an apartment complex located at Wolli Creek, Sydney called Xanadu (the Xanadu project) to prospective purchasers and achieved, either directly or through sub-agents, 30 exchanges of contract.

  2. The dispute has arisen because completion of each contract was conditional upon the registration of a strata plan creating the individual strata units which were the subject of the contracts, and this was not achieved until 9 July 2021, which was after the “Sunset Date” under each contract. As a result, only 6 of the 30 contracts proceeded to completion. Of the remaining 24 contracts, 19 were rescinded by purchasers exercising their right of recission and 5 were rescinded by mutual agreement of the purchaser and TFM.

  3. The hearing proceeded in the absence of the defendant. The background to why that is so is set out in Northwalker Realty Pty Ltd v TFM Chatswood Land Pty Ltd [2022] NSWSC 1407.

  4. The plaintiff relied on affidavits of Xinran (Yvonne) Liu sworn on 25 June 2021, 28 January 2022, 16 February 2022 and 30 September 2022 and certain other business records.

Facts

  1. The plaintiff was incorporated on 30 July 2015. Yvonne Liu is the sole director of the plaintiff and has held that position since 12 August 2016. The plaintiff during the relevant period held a real estate agent’s licence.

  2. The plaintiff specialises in the marketing and promotion of new developments. It has established commercial relationships and contractual arrangements with property developers that allow it to promote and sell properties, usually off-the-plan, to potential purchasers on behalf of developers. Since its founding in July 2015, the plaintiff has been involved in the promotion, marketing and selling of residential, retail and commercial properties in off-the-plan developments.

  3. TFM is a special purpose vehicle that was incorporated on 23 September 2015 for the purposes of carrying on the Xanadu project. At the time of its incorporation, TFM was a wholly owned subsidiary of Tasman Development Holdings Pty Ltd (Tasman) a property development company. At the time the Agency Agreement was entered into, the plaintiff was also a subsidiary of Tasman, together with a company called TFM Epping Land Pty Ltd (TFM Epping).

  4. Prior to the plaintiff entering into the Agency Agreement, the plaintiff had been appointed by TFM Epping as the exclusive selling agent for a residential property development in Epping (the Epping project). The plaintiff sold 61 of the 81 units comprising that development.

  5. At the time the Agency Agreement was entered into, Tasman, TFM Epping and the plaintiff shared a common director. In late 2018, a change in control of TFM occurred, and it became part of the APH Group so that the plaintiff and TFM ceased to be related entities.

  6. The Xanadu project was a property development undertaken by TFM over land situated at 25-29 Gertrude Street and 20-24 Innesdale Road, Wolli Creek, which involved the construction of 2 mid-rise residential buildings comprising 106 units in total, 1 having 9 storeys and the other having 5 storeys.

  7. Under cl 1 of the Agency Agreement, the plaintiff was granted exclusive selling rights of “the Property” for the period from 29 February 2016 to 30 September 2018 (around 3 months after the then expected completion date of the Xanadu project). The expression “Property” is defined by reference to its address being “25-29 Gertrude Street & 20-24 Innesdale Road, Wolli Creek, NSW 2205”. At the end of the description of the Property it is stated “Refer to clauses 4 and 5 regarding special instructions about the inspection and promotional activities for the Property.” Clause 4 is left blank. Clause 5 provides for the promotional activities for the Property as being “domain.com.au”, “realestate.com.au”, “Chinese newspaper” and “internet social media”.

  8. Under the heading “Price”, it is stated: “Agent’s opinion as to the current estimated selling price (or price range) $78,000,000 - $82,000,000 (this opinion is not to be construed as a valuation).”

  9. Clause 3 of the Agency Agreement deals with the agent’s remuneration and provides (the words in bold entered by hand in the original):

(i)   The Exclusive Agent shall be entitled to a fee of 5.5% of contract price, 2.2% is payable on exchange, the balance is on settlement (GST incl) if during the Exclusive Agency Period the Property is sold either: (a) by the Agent, or (b) by any other agent, or (c) by the Principal.

(ii)   The Agent shall be entitled to a fee of the agreed amount if at any time following the expiration of the Exclusive Agency Period the Principal enters into a contract for the sale of the Property with a purchaser effectively introduced to the Principal or the Property during the Exclusive Agency Period by the Agent, by any other agent or by the Principal.

(iii)   The Agent shall be entitled to a fee at the agreed amount if during the Continuing Agency Period the Agent effectively introduces to the Principal or the Property a purchaser who subsequently enters into a binding contract.

(iv)   The Agent’s fee is calculated on the selling price. If the sale is subject to GST then the Agent’s fee is calculated on the GST inclusive selling price.

(v)   The Agent’s remuneration in the event of the sale at the Agent’s estimate of the selling price would equate to [left blank in original] (GST incl).

(vi)   The fee to which the Agent is entitled shall be due and payable upon demand:

(a)   on completion of the sale; or

(b)   if the sale is not completed owing to the default of the Principal after the parties have entered into a binding contract; or

(c)   if after the making of the contract the Principal and the purchaser mutually agree not to proceed with the contract; or

(d)   upon the termination of the contract by the Principal if the sale is not completed owing to the default of the purchaser and the fee is the same or less than the amount of the deposit which is forfeited to the Principal.

…

WARNING: The term immediately above provides that a commission is payable under this Agreement even if the sale of the Property is not completed.

  1. Clause 6 provides for the reimbursement of marketing expenses incurred by the agent.

  2. On its appointment as the exclusive selling agent under the Agency Agreement the plaintiff established display suites and promotional stalls, prepared marketing materials (including brochures and investor reports), conducted an advertising campaign in print and online media and engaged and negotiated with prospective purchasers. The evidence establishes that it incurred expenses for this work in the amount of $145,570.57 for which it claims reimbursement under cl 6.

  3. These marketing efforts resulted in the plaintiff effecting the exchange of 30 contracts between TFM and purchasers for individual units within the development. Each of these contracts was entered into before any strata plan had been registered.

  4. The contracts were in a standard form. Clause 4.1 provided that completion was subject to and conditional upon the vendor obtaining registration of the draft strata plan annexed to the contract and an occupation certificate. It also provided that in the event that registration of the draft strata plan was not effected by the “Sunset Date”, as extended pursuant to cl 4.2, either party could by notice in writing to the other rescind the contract.

  5. Under each contract, the term “Sunset Date” was defined to mean 30 June 2019, but cl 4.2 permitted TFM to extend the Sunset Date by up to 12 months if the development works or registration of the draft strata plan were delayed due to one or more of the enumerated matters. TFM exercised this right to extend the Sunset Date for all relevant contracts to 30 June 2020. Any further extension required the consent of the purchaser. This was achieved for some, but not all, of the contracts and for those contracts the Sunset Date was extended to 30 June 2021.

  6. Clause 5 contained provisions regarding the registration of the draft strata plan, including relevantly the following:

5.1    Strata Plan

Subject to special condition 5.2, the vendor undertakes to use all reasonable endeavours and do all such things and execute all such documents to obtain the registration of the Strata Plan as shown in the Draft Strata Plan by the Sunset Date.

5.2   Variation to the Strata Plan

The vendor reserves the right to make any such alternations and amendments to the Draft Strata Plan which it deems necessary or desirable or as may be required by the Council or the LPI or other public authority to obtain the Strata Plan.

  1. The strata plan was registered on 9 July 2021. This occurred some 3 years after the initial estimated date for completion of the project (mid 2018) given to purchasers (see [57] below) and more than 2 years after the Sunset Date as that term was defined in the original contracts.

  2. As noted above, 6 of the contracts were completed and the remaining 24 contracts were rescinded. Of the latter, 5 were rescinded pursuant to an agreement between TFM and the purchaser. The balance of 19 were rescinded in consequence of purchasers exercising rights of rescission under cl 4.1 of the contract unilaterally; 9 of these had a Sunset Date of 30 June 2020 and 10 had a Sunset Date of 30 June 2021. In relation to the 19 unilaterally rescinded contracts, it is the plaintiff’s case that the sales did not complete owing to the default of TFM because it failed to achieve registration of the strata plan before the Sunset Date.

Issues

  1. Three issues arise. The first is whether the Agency Agreement, properly construed, is concerned with the proposed sale of 106 units that TFM intended to construct on the land (the plaintiff’s construction) or the sale of each parcel of the land in its underdeveloped state at the time the Agency Agreement was signed (as contended in the defence).

  2. The second issue is whether the plaintiff is entitled to receive its 5.5% commission on the 24 rescinded contracts for sale, in particular whether cl 3(vi)(b) applies on the basis that completion of those contracts did not occur “owing to the default of [TFM]”.

  3. The third issue is whether the Agency Agreement complies with certain requirements of s 55(1) of the Property, Stock and Business Agents Act 2002 (NSW) (which is now named the Property and Stock Agents Act 2002 (NSW)) (PSA) which TFM raises in its defence to deny liability and, if not, whether the discretion in s 55A should be exercised in favour of the plaintiff.

The principles of construction

  1. The relevant principles of construction of a commercial contract can be briefly stated. The rights and obligations of the parties are to be determined objectively, by reference to the text of the contract, its context and purpose: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Price v Spoor (2021) 270 CLR 450; [2021] HCA 20 at [27], [42] and [66]. The meaning of the terms of a contract are to be ascertained by asking what the reasonable businessperson would have understood those terms to mean having all the background knowledge that would be reasonably available to the contracting parties at the time of the contract: Mount Bruce Mining at [47]; Maggbury Pty Ltd v Hatele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70 at [11]. The enquiry is primarily directed at the contractual language, but the circumstances addressed by a contract and the commercial purpose and objects intended to be secured by the contract will also inform the assessment: Mount Bruce Mining at [47]. A court is entitled to approach the task of construing the commercial contract on the assumption that the parties intended to produce a commercial result or to avoid it making commercial nonsense or working commercial inconvenience: Mount Bruce Mining at [51]; Woodside Energy at [35].

“Property”

  1. The first issue referred to at [22] above arises because the Agency Agreement defines “Property” by reference to its address at the date of the agreement and does not refer to the 106 units to be created on registration of the Strata Plan after construction of the buildings on the land.

  2. The plaintiff submits, and I agree, that the correct construction of the Agency Agreement is that “Property” refers to the 106 units which TFM intended to construct on the land, for the following reasons.

  3. First, the plaintiff’s construction is supported by the following contextual matters arising under the Agency Agreement itself:

  1. The agency period specified in the Agreement ranges from 29 February 2016 to 30 September 2018, a period of some 2.5 years. The length of the agency period is more consistent with a project involving the construction, marketing and sale of multiple apartments to be sold off-the-plan, given the long-term nature of such a project, rather than the sale of the development lots as 7 separate titles.

  2. The structure of the agent’s remuneration under the Agency Agreement, whereby 2.2% is payable on exchange and the balance payable on completion, makes commercial sense where there is an extended lag between exchange and completion, as in the case of off-the-plan sales of units in a substantial and yet to be constructed building development.

  3. In the clause identifying the property, the Agreement refers to “clauses 4 and 5 regarding special instructions about the inspection of and promotional activities for the property”. While cl 4 is left blank, cl 5 identifies the promotional activities as being platforms that are more readily consistent with the marketing of residential apartments to consumers than as development sites to developers.

  1. Second, the circumstances surrounding the execution of the Agency Agreement also support the construction advanced by the plaintiff:

  1. Tasman was a property developer whose principal business was to construct and sell apartments off-the-plan through its special purpose vehicles, including TFM and TFM Epping.

  2. The plaintiff had been retained by Tasman as the selling agent for the TFM Epping development in December 2015, only 3 months before the date of the Agency Agreement and in which the plaintiff was tasked with marketing and selling multiple units.

  3. The Agency Agreement predates TFM’s acquisition of the property, and at that time the property was the subject of a development approval granted on 9 April 2015 for the “construction of two (2) residential flat buildings (9 and 5 storeys) comprising a total of 106 residential units” (Exhibit G).

  4. At the time of the execution of the Agency Agreement, the building work had not begun and the strata plan had not been prepared, even in draft. It was only in March 2016 that the surveyor was engaged to prepare a draft of the strata plan (Exhibit F). Hence, it is not surprising that the Agency Agreement did not particularise the “Property” by reference to particular units or the total number of units to be created through the construction of the building and the registration of the strata plan.

  1. In my opinion, for the above reasons, on the proper construction of the term “Property” the plaintiff was appointed to sell off-the-plan apartments that were proposed to be built at “25-29 Gertrude Street & 20-24 Innesdale Road, Wolli Creek, NSW 2205”.

Commission

  1. As stated at [21] above the plaintiff’s claim for commission under cl 3 of the Agency Agreement relates to contracts of sale falling into 3 categories: (1) 6 contracts for sale which were completed, (2) 5 contracts for sale which were rescinded by mutual agreement of TFM (as vendor) and the purchaser or purchasers, and (3) 19 contracts for sale which were unilaterally rescinded by the purchaser or purchasers due to failure of TFM to register the strata plan by the Sunset Date.

  2. Before addressing the plaintiff’s entitlement to commission, it is necessary to determine 3 issues of construction which arise. The first concerns an apparent inconsistency between cll 3(i) and 3(vi). The Agency Agreement is a standard form contract which leaves it to the parties to insert details of the fee to which the agent is to be entitled in cl 3(i). As noted above, the parties have inserted the words “5.5% of contract price, 2.2% is payable on exchange, the balance is on settlement” in cl 3(i). The words “payable on exchange” give rise to the first construction issue. This is because in the ordinary case one would expect the words inserted in cl 3(i) to simply state the amount of the fee and it would be left to cl 3(vi) to determine when that fee becomes payable. The structure of cl 3 if cl 3(i) had been completed simply by insertion of the amount of the fee is that the agent would only be able to recover the fee when the entitlement to the fee had vested because the service the agent must perform as identified in cl 3(i) has been performed and cl 3(vi) has made the fee due and payable: see Kukolovski v Georges [2011] NSWSC 359 at [24]-[25].

  1. The Agency Agreement here does not adopt that approach. Clause 3(i) identifies the fee as being 5.5% of the contract price, but then goes on to specify that 2.2% of that amount will be “payable on exchange” and the balance will be payable on settlement. This gives rise to an apparent inconsistency between cl 3(i) and cl 3(vi) in two ways: first, 2.2% of the fee is payable on exchange rather than in accordance with the regime set out in cl 3(vi) which is nevertheless expressed to apply to the “fee” not just the balance of 3.3%, and second, the balance of 3.3% is said in cl 3(i) to be payable “on settlement” whereas under cl 3(vi) it is payable on settlement or alternatively in any of the various situations where settlement does not arise which are covered by cl 3(vi)(b)-(d).

  2. The inconsistencies are to be resolved by application of the principle that the two parts of the clause should be read together and cl 3(i) should be treated as qualifying cl 3(vi) to the extent of any inconsistency between them: Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379 at 386-387; [1993] HCA 40. The use of the word “payable” in cl 3(i) indicates an intention that 2.2% of the fee would be payable at the time of exchange, no doubt because in the case of an off-the-plan sale there can be a long delay between exchange and settlement. Insofar as the balance of 3.3% is concerned, a commercially sensible construction is that this is payable on settlement (consistently with both cl 3(i) and cl 3(vi)(a)) but if settlement does not occur and one of the other alternatives in cl 3(vi) applies then it will become due and payable under cl 3(vi) under whichever alternative is applicable. In effect, the opening words of cl 3(vi) need to be read as if they said “the balance of the fee to which the agent is entitled under cl 3(i) shall be due and payable upon demand …”: Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53.

  3. Nothing turns on the fact that cl 3(i) makes 2.2% of the fee payable on exchange and cl 3(vi) makes the balance of 3.3% due and payable on whichever of the alternative events specified in (a) to (d) is applicable. While money can be "due" although not yet "payable" the converse is not true - to say that money is payable is to say that it must be paid, that is to say that it is due and the time for payment has arrived, at least in a case such as this where the service for which it is payable has been performed: see Marriott Industries Pty Ltd v Mercantile Credits Ltd (Full Court of the Supreme Court of South Australia, No 1441 of 1986, 30 May 1991, unreported) per King CJ; Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219 at [17] per Barrett J.

  4. The second issue of construction is the meaning to be given to the word “sold” in cl 3(i). The entitlement to the fee in respect of any unit arises if, during the exclusive agency period, that unit is “sold”. In my opinion, as the plaintiff contends, this refers to the execution of a binding contract for sale. This reflects the usual meaning given to the word “sale” in a conveyancing context: see Fletcher v Manton (1940) 64 CLR 37 at 49, [1940] HCA 32; O’Neill v O’Connell (1946) 72 CLR 101; [1946] HCA 59 at 109; Scott v Willmore & Randell [1949] VLR 113 at 115 and 125; Glass v Ralph [1966] WAR 91 at 96; Octra Nominees Pty Ltd v Chipper [2007] FCAFC 92 at [50]. This conclusion also reflects the structure of cl 3 which contemplates that part of the fee is payable on exchange and the balance is payable at a later time even if the contract is not completed.

  5. The third issue of construction concerns the meaning of “default” in cl 3(vi)(b). The plaintiff contended that the apparent object of cl 3(vi)(b) is to preserve the agent’s entitlement to commission where it has performed its side of the bargain (by effecting an exchange) but, through no fault of its own and due to some act or omission of its principal, the contract does not complete (referring to Kukolovski v Georges at [28]-[29] and Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 129). It was contended the term “default” should be construed as extending to the situation where there is a wrongful act or omission even if that act or omission does not amount to a breach of contract as between the vendor and purchaser. In the alternative, the plaintiff contends that if “default” requires some breach by the vendor of its obligations under the contract, then the court should find on the facts that TFM was in breach of the obligation it assumed to each purchaser to use its reasonable endeavours to obtain registration of the strata plan before the Sunset Date.

  6. In my opinion, neither of the cases relied upon by the plaintiff referred to in the previous paragraph provide any real assistance as to the meaning of “default” in cl 3(vi). However, it is a concept which has been considered in a number of cases, including in a conveyancing context.

  7. In Re Young and Harston’s Contract (1885) 31 Ch D 168 the issue was whether the vendor was entitled to interest under a clause of a contract for sale of land which provided that “if from any cause whatever other than wilful default on the part of the vendor”, completion of the contract was delayed beyond a particular date, the purchase money was to bear interest from that day to the day of actual payment. The vendor went overseas 2 days before the completion date which led to delay in his execution of mortgage documents with the consequence that completion was delayed. It was held that the vendor was not entitled to interest because the delay was caused by the wilful default of the vendor. Bowen LJ said (at 174):

The term ‘wilful default’ – though one in common use in such contracts – is not a term of art, and to pursue authorities with a view to defining for all time what is its meaning in a contract like this appears to me to press citation far beyond the point at which it ceases to be useful. Default is a purely relative term, just like negligence. It means nothing more, nothing less, than not doing what is reasonable under the circumstances – not doing something which you ought to do, having regard to the relations which you occupy towards the other persons interested in the transaction. The other word which is sought to define is ‘wilful’. That is a word of familiar use in every branch of law, and although in some branches of the law it may have a special meaning, it generally, as used in courts of law, implies nothing blameable, but merely that the person of whose action or default the expression is used, is a free agent, and that what has been done arises from the spontaneous action of his will. It amounts to nothing more than this, that he knows what he is doing, and intends to do what he is doing, and is a free agent.

  1. In Re Bailey-Worthington and Cohen’s Contract [1909] 1 Ch 648 Parker J after quoting the above passage said at [65]:

These words seem to me to imply that what is ‘reasonable under the circumstances’ and what ‘you ought to do having regard to your relations with others’ are one and the same thing, what one man may reasonably be expected to do, or not to do, having regard to the relations subsisting between him and another, is always an important element in determining his duty towards that other.

  1. After considering a number of additional cases Parker J then said (at 660):

Pausing for a moment to consider the effect of these decisions, I think they all point to this, that for default on a vendor’s part there must be a breach of some duty towards the purchaser, though in considering whether the vendor was or was not under the duty alleged the court would be guided by the nature of the contract and all the circumstances of the case.

  1. These cases were referred to with approval by Rich J in Woolworths Limited v Crotty (1942) 66 CLR 603; [1942] HCA 35 which was a case turning on the meaning of the expression “wrongful act, neglect or default” in the Compensation to Relatives Act 1897 (NSW) (and in particular whether those words encompassed a breach of contract). His Honour said (at 620):

The language of the statute, which by its express terms it is designed to remedy this defect of the common law, is large enough to embrace death arising from either type of default. In Doe d. Dacre v Dacre Eyre CJ said: “I do not know a larger or looser word than ‘default’ … in its largest and most general sense it seems to mean, failing” it is a relative term and takes its colour from the context. For instance, in the case of an absolute sale of goods the failure on the part of the vendor to perform what he had to perform constitutes default (in Re Woods and Lewis’ Contract). “Default” means not doing something which you ought to do, having regard to the relations which you occupy towards the other persons interested in the transaction (in Re Bagley-Worthington and Cohen’s Contract). Similarly, in Grein v Imperial Airways Ltd, Greene M.R. says: “The word ‘default’ is a word of wide signification and in its ordinary use does, I think, include a breach of contract.

  1. See also Multi Modal Ltd v Polakow (1987) 78 ALR 553 at 555 where French J (as his Honour then was) adopted Rich J’s statement in Woolworths v Crotty in determining the meaning of “default” in the former Federal Court Rules 1979 (Cth), O 20, r 1(1)(c).

  2. In New South Wales Land and Housing Corp v Sydney Wide Real Estate Co Pty Ltd (1998) 9 BPR 16,565 the issue was whether an agent was entitled to a commission on a sale where the contract contained a disclosure that the local council might impose a contribution for drainage amplification, but did not disclose that the day before the contract was entered into the council had adopted a plan which involved the purchaser making a significant contribution. The vendor terminated the contract claiming breach by the purchaser which was upheld by Brownie J in a separate unreported decision (see 16,566). Clause 12 of the Agency Agreement provided that “the commission to which the Agent is entitled shall be due and payable on completion of the sale or upon demand if the sale is not completed owing to the default of the [vendor] after the parties have entered into a binding contract.” Young J (as his Honour then was) held that the commission was not payable and said (at 16,567):

The defendant argued that this was a case where there was a default of the principal and that is why the sale was not completed. It points to the fact that Brownie J found that there was gross negligence in and about the disclosure of the contribution payable to the council. However, in this sort of clause the word “default” means the wrongful refusal to proceed to completion: see AG Lang, Estate Law and Practice in New South Wales, 4th ed., 1991, LBC, Sydney, p 393 and Caffrey v Montano [1968] 2 NSWR 182. Accordingly, the prime claim for commission fails.

  1. In this passage, Young J referred to AG Lang, Estate Agency Law and Practice in New South Wales (4th ed, 1991, Law Book Co) at 393. The passage being referred to appears at 392 where the learned author, after summarising the decision in Caffrey v Montano [1968] 2 NSWR 182, said:

Where the sale does not proceed to completion due to the vendor’s default, the agent in certain circumstances would be entitled to commission. However, “default” in this sense means something like wrongful refusal to proceed to completion. Where the vendor entered into a contract which was not completed because the vendor was unable to prove his title to part of the land sold, that was not held to be such a default as would entitle the agent to commission.

  1. As I read this passage, the learned author has sought to characterise the decision in Caffrey v Montano as indicating a meaning of “default” in this context as “something like wrongful refusal to proceed to completion”. While this description may be an example of a default by the vendor, a more comprehensive statement is that “default” is a relative term which connotes the failure to do something which the person ought to have done having regard to the nature of its relations to other persons interested in the relevant transaction, (see [39] – [42] above). In the present context, this directs attention to the obligations of the vendor under the contract for sale and to whether completion did not occur due to the failure of the vendor to comply with one or more of those obligations. This reflects the fact that cl 3(vi)(b) is directed at ensuring that the vendor should not, as against the agent, benefit from its own wrong under its contract with the purchaser.

  2. Caffrey v Montano was a case which applied the general principle that where the agency agreement is silent regarding what is to occur if the contract is not completed, it will generally be implied that the agent will only be entitled to its commission if non-completion is due to the default of the vendor: see Anderson v Densley (1953) 90 CLR 460 at 467; [1953] HCA 47. The Court of Appeal in Caffrey v Montano was concerned with a claim by an agent to recover commission on a sale of land where the contract did not complete. After the contract was entered into it was found that the land might be affected by a road widening plan formulated by the Department of Main Roads, which had previously been unknown to both parties to the contract, and the purchasers declined to proceed with the contract. There was no written agreement regarding the basis on which the agent was entitled to its commission. It was held that the agent was not entitled to the commission in these circumstances. The Court said (at 184):

The whole matter was summed up in a short statement of principle by the High Court in Anderson v Densley, supra: “Where an agent is employed on commission to sell a property (and non-completion is not due to the default of the vendor) the commission only becomes payable if the sale is completed.” With due respect to the learned district court judge we are of the opinion that this principle is precisely applicable to the present case and should have been applied to it; and we would propose so to apply it. This is a case, as his Honour found on the facts, of the kind obviously contemplated by the High Court, namely a simple retainer of an estate agent to sell a property, uncomplicated by any express terms governing the payment of commission such as were to be seen in some of the cases in the Court of Appeal and might, if they had been present, have indicated a contrary intention. As applied to such a case it is clear to us that in the light of the subsequent judgments which we have referred to in the English Court of Appeal, in the High Court and in the Full Court of this Court, the decision of the Victorian Full Court relied upon by his Honour does not, with respect to that Court, represent the law of this State. In such a case, and where the contract has not gone off by default of the vendor, commission is payable only if the sale is completed and the purchase money paid.

  1. It is apparent that the Court of Appeal did not regard the failure of the contract to complete as due to the default of the vendor because the issue regarding the road widening proposal arose after the contract was entered into. The Court of Appeal did not consider the meaning of the expression “default of the vendor”. While the decision in the case is consistent with treating default as extending to the “wrongful refusal to proceed to completion”, the decision does not appear to limit the word “default” in this context to that situation.

  2. In the present case, the term “default” in cl 3(vi)(d) needs to be construed in light of the nature of the transaction to which the Agency Agreement relates, which is the performance of the service of procuring the execution of off-the-plan contracts for the sale of units yet to be built which require the registration of a strata plan in order for completion to occur. Whether non-completion due to the failure to register the strata plan is due to the default of the vendor must turn on whether the vendor has failed to do something which, under the contract, it is required (i.e. has a duty or obligation) to do. In the present case the vendor does not have an obligation to procure registration by the Sunset Date but only to use all reasonable endeavours to procure that result. Hence, in my opinion, there will only be a default by the vendor if the failure to achieve registration is due to its failure to use all reasonable endeavours to achieve that result.

  3. Put another way, the transaction has identified the extent of the responsibility of the vendor for procuring registration of the strata plan by the terms of cll 4 and 5 referred to above. In circumstances where the vendor has not undertaken to procure registration of the strata plan by a particular date but rather undertaken merely to use reasonable endeavours to procure that result (as evidenced by the fact that the vendor has a right to rescind if registration is not achieved by the Sunset Date), it cannot be said that the vendor has failed to do something which it ought to do if despite using reasonable endeavours to procure registration of the strata plan by the Sunset Date that result is not achieved and the purchaser terminates the contract.

Application of clause 3 of the Agency Agreement to the 30 contracts

  1. I will now deal with the claim for commission for the 3 categories of contracts identified in [31] above. In relation to the first category, being contracts which completed, there can be no dispute that the plaintiff is entitled to the full commission of 5.5% on the purchase price under cl 3(i) read with cl 3(vi)(a).

  2. In relation to the second category, being 5 contracts where rescission occurred by mutual agreement, the plaintiff is entitled to the full 5.5% commission under cl 3(i) read with cl 3(vi)(c).

  3. In relation to the third category of 19 contracts involving unilateral rescission by the purchaser, the Sunset Date was 30 June 2020 for 9 of the contracts and 30 June 2021 for 10 of the contracts. In the case of the latter, the strata plan was registered 9 days after the Sunset Date. I am satisfied on the evidence referred to below that the plaintiff has established on the balance of probabilities that TFM failed to use reasonable endeavours to achieve registration by 30 June 2021.

  4. In relation to the other 9 contracts, it is necessary to consider the nature of TFM’s obligation to use reasonable endeavours and the evidence as to the reasons for the delay in registration of the strata plan.

  5. The expressions “best endeavours” and “reasonable endeavours” have generally been treated by the courts as imposing similar obligations: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [40]; Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd [2011] NSWCA 173; 282 ALR 152 at [67]. The nature and extent of an obligation to use reasonable endeavours is necessarily conditioned by what is reasonable in the circumstances, which can include circumstances that may affect an obligor’s business: Electricity Generation at [41]. If there is a difference between two expressions, it seems to be that the former imposes an obligation to do everything that is reasonably possible to bring about the stated end and the latter simply requires a person on whom the obligation is placed to take steps that a reasonable person in the circumstances would take to achieve that end, which is to be determined objectively: Altis Propco2 Pty Ltd v Majors Bay Development Pty Ltd [2022] NSWSC 403 at [73]; Waters Lane Pty Ltd v Sweeney [2006] NSWSC 222 at [59].

  6. Given that TFM was ultimately successful in achieving registration of the strata plan, albeit later than the Sunset Date in the relevant contracts, the question whether it used all reasonable endeavours to achieve that registration by the Sunset Date turns on whether there was delay in the steps necessary to achieve that registration and whether that delay was caused by TFM’s failure to use reasonable endeavours: Hunyor v Tilelli (1997) 8 BPR 15,629 at 15,631-15,635; Wang v Kaymet Corporation Pty Ltd [2015] NSWSC 1459 at [71]-[76].

  1. The plaintiff submitted that while it has the burden of proof in this regard, the evidence needs to be weighed according to the proof which it was reasonably within the means of the plaintiff to produce, particularly as regards evidentiary facts which are peculiarly within the knowledge of the vendor, rather than the plaintiff: see Hunyor v Tilelli (1997) 8 BPR 15,629 at 15,631; Blatch v Archer (1774) 1 Cowp 63 at 65. I accept that submission. See also Gauld v Obsidian Holdings Pty Ltd [2009] NSWSC 924 at [18].

  2. The evidence regarding the reason for the delay in registering the strata plan can be summarised as follows:

  1. On 9 April 2015, the original development application for the project was granted for “demolition of existing structures and construction of two (2) residential flat buildings (9 land 5 storeys) comprising a total of 106 residential units over a basement carpark podium with capacity for 137 vehicles & rooftop terraces”.

  2. In March 2016, TFM engaged a surveyor to prepare a draft of the strata plan for the 106 units and this was done by, at the latest, late June 2016 when several contracts were entered into with purchasers.

  3. On around 22 August 2016, an “Investor Report” for the project was issued by the plaintiff for potential purchasers, which stated under the headings “commence construction” and “expected completion” the “estimated dates” of “end of 2016” and “mid 2018” respectively. This document provides information about the developer (Tasman), the building (Decon) and the architect (Marchese Partners). The document represents that Tasman “has missioned to deliver superior property development projects on Australia under a rigorous project management framework” and cites Tasman’s relevant experience as including the Epping Project referred to above. Clearly, an investor would be entitled to treat the estimated completion date as one based on Tasman’s asserted expertise in “project management”. Although the document is prepared by the plaintiff, it can be inferred that it was approved by Tasman, a related party at the time and also the principal under the Agency Agreement.

  4. The project was divided into 2 stages. Stage 1 comprised essentially demolition and other site preparation works, and Stage 2 comprised essentially the construction of 2 apartment towers on the land.

  5. The contract for the Stage 1 works was entered into on 1 September 2017 with PTC Build Pty Ltd as trustee of PTC Building Unit Trust (PTC Build) as the contractor. It provided for the commencement date of the work to be 24 October 2017 and the completion date to be 31 May 2018. The contract sum was $7,290,507 (excluding GST).

  6. In October 2017, TFM entered into a loan agreement with Perpetual Corporate Trust Limited as custodian for the Gertrude Street Sub-Trust, as lender, to fund the cost of the Stage 1 works (Stage 1 Loan). The facility amount under the loan agreement was $8,700,000.

  7. As at 13 June 2018, PTC Build had completed approximately 70.6% of the Stage 1 works.

  8. On 28 June 2018, Ms Liu participated in a WeChat message group chat involving, among others, a director of TFM, in which the completion date of the Stage 1 works (which was specified in the contract to be 31 May 2018) was discussed. There was mention of delays caused by the weather, public holidays and applications with authorities yet to be finalised and concluded with a consensus that the completion would be extended to “August 2018”.

  9. On 18 July 2018, TFM was granted an extension under the Stage 1 Loan of 3 months until 18 October 2018 as it had yet to finalise a proposed new financing with a new financier (Stage 2 Loan) to fund both the Stage 2 works and refinance the Stage 1 Loan.

  10. TFM identified a lender, Qualitas Ltd, which was willing to provide the Stage 2 Loan, although it was only willing to do so if TFM met all of the conditions precedent to the provision of the facility as set out in a mandate letter issued by Qualitas Ltd in July 2018.

  11. On 19 October 2018, following the expiry of the first extension, TFM was in default under the Stage 1 Loan. At this time, no funds were available for drawdown under the Stage 2 Loan.

  12. On 17 December 2018, TFM was granted a further extension by PTC Build to 20 March 2019.

  13. In March 2019, TFM and Qualitas Ltd entered into a loan facility agreement for the funding of the Stage 2 works, and on 25 March 2019 the Stage 1 Loan was paid out by Qualitas Ltd by a drawdown under the Stage 2 Loan.

  14. On 8 March 2019, TFM entered into a contract with Binah Constructions Pty Ltd for the construction of the Stage 2 works. The contract sum was $33 million.

  15. During the period from 8 March 2019 to 9 July 2021 when the strata plan was registered, TFM experienced difficulties in meeting its obligations to its lender, Qualitas, which led to Qualitas issuing a letter on 13 March 2020 alleging that an event of default had occurred under the Stage 2 Loan. The evidence does not disclose any detail regarding the nature of the default or what was done to resolve it.

  1. The 9 rescinded contracts with a Sunset Date of 30 June 2020 were entered into during the period from 20 June 2016 to 29 March 2017. It is sufficient for present purposes to focus on delay in the period from 29 March 2017, when the last one was entered into, to 30 June 2020.

  2. It is apparent from the evidence that:

  1. There was an unexplained delay of approximately 208 days from 29 March 2017 to 24 October 2017 (the commencement date for the Stage 1 works). No construction work for Stage 1 could or did occur prior to 24 October 2017.

  2. There was a second unexplained period of delay of approximately 188 days from 31 August 2018 (which I will assume was the revised completion date for the Stage 1 works) to 8 March 2019 (the date of execution of the Construction Contract for the Stage 2 works). No construction work for Stage 2 could or did occur during this period.

  1. In my opinion, absent evidence from TFM to explain these delays which total 396 days, it is reasonable to attribute responsibility for both periods of delay to TFM given that the engagement of a builder for the Stage 1 and the Stage 2 works was a matter within TFM’s control and a necessary step for TFM to take in order to achieve registration of the strata plan by the Sunset Date. In light of what the Investor Report, issued in August 2016, said about the estimated date for the commencement of construction (and completion), it can be inferred from the evidence that each of these periods of delay was attributable to a failure on the part of TFM to use reasonable endeavours to engage the builders in a timely fashion. Without this delay of 396 days (ie. a little over 13 months) there would have been sufficient time for the construction to be completed and the strata plan to be registered by 30 June 2020.

  2. For these reasons, I conclude that it is more likely than not that had TFM used all reasonable endeavours to promptly construct the building and register the strata plan, the strata plan would have been registered by 30 June 2020.

Marketing expenses

  1. Insofar as the claim for marketing expenses is concerned, I am satisfied on the evidence that the plaintiff has established that it incurred marketing expenses of $145,560.57 for which it is entitled to reimbursement under cl 6 of the Agency Agreement.

Defences under the PSA

  1. In its defence, TFM raised defences under s 55 of the PSA which precludes a licensee from recovering commission unless the agency agreement complies with, relevantly, all applicable requirements of the Property, Stock and Business Agents Regulation 2014 (NSW) (Regulation). On the basis that compliance with s 55 of the PSA is an essential part of the plaintiff’s claim, the plaintiff has the onus of establishing that s 55 does not apply.

  2. The relevant provisions of the PSA are ss 55 and 55A which in their form as at 29 February 2016 provided relevantly:

55 No entitlement to commission or expenses without agency agreement

(1)   A licensee is not entitled to any commission or expenses from a person for or in connection with services performed by the licensee in the capacity of licensee for or on behalf of the person unless:

(a) the services were performed pursuant to an agreement in writing (an agency agreement) signed by or on behalf of:

(i) the person, and

(ii) the licensee, and

(b) the agency agreement complies with any applicable requirements of the regulations, and

(c) a copy of the agency agreement signed by or on behalf of the licensee was served by the licensee on that person within 48 hours after the agreement was signed by or on behalf of the person.

Note—

Section 55A allows a court or tribunal to order that commission and expenses are recoverable in certain circumstances despite subsection (1).

(2)   The regulations may make provision for or with respect to regulating the form of agency agreements and the terms, conditions and other provisions that an agency agreement must or must not contain. Without limiting this subsection, the regulations may prescribe one or more standard forms of agency agreement.

…

55A Relief from disentitlement to commission and expenses

(1)    A court or tribunal before which relevant proceedings are taken may order that commission or expenses are wholly or partly recoverable by a licensee who would otherwise not be entitled to the commission or expenses (under section 55) because of:

(a) a failure by the licensee to serve a copy of the relevant agency agreement on the person within 48 hours after it was signed by or on behalf of the person, or

(b) a failure of the relevant agency agreement to comply with the requirements of the regulations.

…

(3)    A court or tribunal is not to make such an order in circumstances of a failure of the agency agreement to comply with the requirements of the regulations unless satisfied that:

(a) the failure is a minor failure, and

(b) no loss has been suffered as a result of the failure by the person for whom or on whose behalf the services concerned were performed, and

(c) failure to make the order would be unjust.

(4) Proceedings are relevant proceedings if they are proceedings taken by a licensee for the recovery of commission or expenses from a person or proceedings on a consumer claim relating to commission or expenses (as referred to in section 36) in relation to which a licensee is a respondent.

  1. TFM contends in the defence that s 55(1)(b) of the PSA precludes any entitlement to commission or expenses for 3 reasons. First, it is contended that cl 1 of Sch 7 of the Regulation, which requires that the Agreement “must specify the address of the property … to which the agreement applies” is not satisfied because the address of the property is stated as “25-29 Gertrude Street & 20-24 Innesdale Road, Wolli Creek”. For the reasons given above concerning the proper construction of the term “Property” in the Agency Agreement, I agree with the plaintiff that the requirement has been met.

  2. Second, TFM relies upon cl 5 of Sch 8 to the Regulation. However, as the plaintiff submitted, that clause was repealed with effect from 1 January 2016 and accordingly TFM’s contention on that matter must fail.

  3. Third, TFM relies on cl 9(2) of Sch 7 to the Regulation which provides:

“If the agreement relates to the sale or purchase of residential property and provides for payment of commission to the agent calculated as a percentage of the sale or purchase price, the term must also specify the amount of the remuneration to which the licensee will be entitled calculated on the basis of a specified estimated sale or purchase price for the property.”

  1. As noted above, the relevant part of cl 3(v) of the Agency Agreement left blank that part of the clause which would have stated the amount of the agent’s remuneration in the event of a sale on the basis of the agent’s estimate. However, the agreement gave an estimate of the price, namely $78,000,000 to $82,000,000 and specified the manner in which the commission would be charged. As the plaintiff submitted, that enabled TFM to calculate an estimate of the remuneration if all the units were sold within the exclusive agency period. However, strictly, as the plaintiff accepted, the Agency Agreement does not comply with the requirement to specify the amount of the remuneration as required by cl 9(2) of Sch 7.

  2. In relation to this breach of s 55(1)(b), the plaintiff submitted that the discretion under s 55A(1) of the PSA should be exercised in its favour because the three requirements set out in s 55A(3) were met. I agree with that submission. In my opinion, the plaintiff’s breach of cl 9(2) of Sch 7 is a “minor failure” (a matter to be determined having regard to all the relevant circumstances of the case: Al Maha Pty Ltd v Liu [2020] NSWCA 108 at [37]) bearing in mind the nature of the failure and that the defendant was a member of a corporate group which was experienced in property development and would not have been misled by the failure. No loss has been suffered by the defendant as a result of that breach. I am satisfied that failure to make the order would be unjust particularly as the evidence establishes that the plaintiff performed the work for which the commission and marketing expenses are claimed. There is no evidence to suggest that the commission or marketing expenses are other than fair and reasonable. In all the circumstances, in my opinion the discretion under s 55A(1) should be exercised in favour of the plaintiff.

Conclusion

  1. At the conclusion of the hearing the court was provided with a schedule which set out the amount claimed by the plaintiff, as at 10 October 2022 if it is successful in its claim for the entire commission in respect of the 30 contracts for sale under cl 3. This is the amount of $1,476,946.91 plus interest of $25,223.42. The amount of $1,476,946.91 comprises $1,331,376.34 (being 5.5% commission on the 30 contracts for sale) less a set-off of 2 amounts previously paid by the defendant to the plaintiff (being $54,081 plus $4,987.76) plus the marketing expenses reimbursement of $145,570.57. The plaintiff calculated interest to the date of the hearing (10 October 2022) at $25,223.42. Interest calculated as at the date on which final orders were made is $27,163.68.

  2. Accordingly, the plaintiff is entitled to judgment in the amount of $1,504,110.59.

  3. I indicated at the hearing that if the plaintiff was successful, I would make an order staying the entry of orders to give effect to this judgment for 28 days. This is to allow the defendant under r 36.16 of the Uniform Civil Procedure Rules 2005 to seek to set aside the judgment reflecting the fact that the defendant was absent at the hearing.

  4. Accordingly, the court made the following orders on 17 October 2022:

  1. Judgment in favour of the plaintiff in the sum of $1,504,110.59.

  2. The defendant to pay the plaintiff’s costs of the proceedings, including any reserved costs.

  3. To the intent that any entitlement of the defendant to set aside orders 1 and 2 under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) be preserved, entry of orders 1 and 2 to be stayed for 28 days.

  4. Grant leave to Plaintiff to file submissions on costs by email to my associate by 24 October 2022.

  5. Grant leave to the Defendant to file reply submissions as to costs by email to my associate by 31 October 2022.

  6. Grant leave to the Plaintiff to respond to the Defendant’s submissions by email to my associate by 2 November 2022.

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Decision last updated: 27 October 2022

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Cases Citing This Decision

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Cases Cited

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Statutory Material Cited

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Al Maha Pty Ltd v Liu [2020] NSWCA 108
Altis Propco2 Pty Ltd v Majors Bay Development Pty Ltd [2022] NSWSC 403
Anderson v Densley [1953] HCA 47