realT Properties Pty Ltd v Arete Real Estate Pty Ltd

[2024] QDC 180

DISTRICT COURT OF QUEENSLAND

CITATION:

realT Properties Pty Ltd v Arete Real Estate Pty Ltd & Anor [2024] QDC 180

PARTIES:

realT Properties Pty Ltd

(plaintiff)

v
ARETE REAL ESTATE PTY LTD

(first defendant)

KAREN LEANNE MCDONALD

(second defendant)

FILE NO:

2691 of 2023

DIVISION:

Civil

PROCEEDING:

Trial

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

12 November 2024

DELIVERED AT:

Brisbane

HEARING DATES:

26 and 27 August 2024, 21 October 2024

JUDGE:

Kent KC DCJ

ORDER:

(a)   Leave given to the plaintiff to amend the claim and statement of claim adding a claim in debt, in accordance with the draft attached to the plaintiff’s supplementary submissions.

(b)  Judgment for the plaintiff on liability.

(c)   The parties are to be heard as to

(i)         Final assessment of quantum of the debt as reduced by the defendants’ claim for set off;

(ii)       Interest; and

(ii)      Costs.

CATCHWORDS:

CONTRACT – SALE OF RENT ROLL – Whether the first defendant lawfully terminated the contract – Where the defendant provided notice of termination before the date of completion – Whether the plaintiff performed its contractual obligations – Whether the plaintiff was in breach or there was anticipatory breach – Whether the plaintiff is entitled to specific performance or damages in the alternative – Where the defendant seeks to impute an implied term – Where the plaintiff seeks contractual remedies and seeks to add a claim in debt based on the same pleaded facts – Where the parties wish to be further heard on calculation of set off and the amount outstanding

LEGISLATION:

Property Occupations Act 2014 (Qld), ss 102, 113, 114, 133

CASES:

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] 180 CLR 266

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

Commonwealth v Amann Aviation Pty Ltd [1991] 174 CLR 64

Curran v Newpark Cinemas Ltd [1951] 1 All E.R. 295

Heiko Constructions Pty Ltd v Tyson (2020) 282 FCR 297

McDonald v Dennys Lascelles Ltd (1933) 48 CLR

Sunburnt Plaza Pty Ltd v Maloney [1988] 166 CLR 245

Szepesvary v Weston [2018] FCAFC 224

Young v Queensland Trustees Ltd (1956) 99 CLR 560

COUNSEL:

C. Martin for the plaintiff
S. Philippou for the defendants

SOLICITORS:

Law Shared Lawyers for the plaintiff
McCarthy Durie Lawyers for the defendants

Introduction

The contract

1. The plaintiff claims for specific performance, alternatively damages in lieu thereof or in debt for failure to pay the purchase price concerning a contract for the sale of a rent roll. The plaintiff is a real estate agency which managed 46 properties on a rent roll and contracted to sell it to the first defendant on 15 May 2023. The second defendant is the sole director and secretary of the first defendant. Both defendants were parties to the contract, the second defendant agreeing by clause 14 to be liable for the first defendant’s due performance. Clause 15 provided for a 10 percent interest rate on outstanding purchase money.

2. The contract provided for a 10 percent deposit, to be followed by two further payments on completion of sale; a payment of 80 percent of the purchase price to the plaintiff; and a payment of 10 percent to the plaintiff’s solicitor, to be held on trust for any adjustments to be made in accordance with clause 10 of the contract on a date 180 days after completion. The completion date was 30 June 2023.

3. Clause 10, sometimes referred to as a retention clause, was designed to allow for the contingency that a rent roll is intrinsically fluid in character. Landlords may withdraw from it, upon notice to the agent, which necessarily changes the nature and value of the asset being sold without any fault of the parties. Where such landlords withdrew during the retention period, the mechanism allowed for a downward adjustment of up to 10% of the price.

   The dispute

4. The present dispute arose following the resignation of the plaintiff’s property manager, Rebecca Lane. She tendered her resignation at very short notice during the currency of the contract. She had worked for the plaintiff for more than five years and was obliged by her contract to give at least four weeks’ notice but purported to give two days’ notice. She also arranged for some of the clients, with whom she had a previous relationship, to leave the plaintiff’s rent roll. This necessarily had an impact upon the value of the asset; again, without any fault of the parties.

5. After Ms Lane had tendered her resignation on 5 June with indications that she was intending to contact her former clients to notify them of her departure, several of those property owners gave notices of revocation of their appointments of the plaintiff as their agent on 6 and 7 June 2023, reducing the numbers of properties on the rent roll effectively by 11. The notices, however, were required by statute to be of 30 days duration, which meant that they did not come into effect until after settlement on 30 June.

6. Upon hearing of the landlords’ actions, the first defendant gave notice on 15 June 2023, purporting to terminate the contract based on what is said to have been an anticipatory breach; its position was that the plaintiff could no longer complete, since it effectively could no longer transfer all of the 46 properties contemplated by the parties.

7. The plaintiff rejected the notice of termination and treated the contract as continuing to be on foot. It requested the first defendant’s account details on 29 June, to redirect tenant income; they were not provided. Then it tendered performance of the contract on 30 June. It informed the defendants of its intention to do so (in an email of 29 June, ex. 14, p 165 of the Court Book) and attended at the appointed time and place with a number of documents to effect the transfer of the relevant rights to the defendant purchasers.

8. The defendants did not attend or pay any further money under the contract. Accordingly, these proceedings were issued, for specific performance of the agreement; alternatively, damages in substitution therefor. The defendants’ counterclaim is for return of the deposit on the basis the termination was lawful.

9. The rent roll further contracted after settlement. By 27 December (the conclusion of the 180-day period), 16 of the 46 appointments had left.

   Issues

10. In order for the plaintiff to succeed in specific performance of the contract or the alternative damages, it must demonstrate that the contract was not lawfully terminated by the first defendant on 15 June 2023. It would then be entitled to specific performance or damages. The defendants assert that the termination was lawful, and the first defendant is thus entitled to a refund of the deposit.

11. Apart from the above issues in relation to liability, there are issues as to quantum and how it might be calculated.

    The evidence

12. Many of the relevant facts are either uncontentious or agreed. The broad narrative is set out above. As at the date of the contract, the plaintiff held 46 appointments as property agent under the Property Occupations Act 2014 (Qld) (“the Act”). The contract was negotiated between the parties. Both were experienced in real estate and the first defendant had purchased rent rolls previously. The purchase price was arrived at by using a conventional multiplier of 2.9 to the income generated by the properties the subject of the rent roll. The result was an agreed purchase price of $278,574.04.

    Due diligence

13. The agreement pursuant to Clause 5 was subject to and conditional on the first defendant being satisfied with its due diligence enquiries as to the rent roll within 30 days of the contract date. If the first defendant was not satisfied with its enquiries by 5:00pm on the stipulated date, then upon giving notice in writing thereof, the contract would be automatically at an end and all deposit monies paid were to be refunded. Clause 5(ii) provided that in the event the first defendant did not satisfy, waive or terminate the contract by the stipulated date, then the contract would be unconditional.

14. The first defendant conducted its due diligence enquiries and confirmed (somewhat earlier than required) that it was satisfied therewith on 6 June 2023. The contract thereupon became unconditional. The parties agreed to change the completion date from 1 July 2023 to 30 June 2023.

    Notices of revocation

15. As noted above, on 6 and 7 June 2023 several landlords gave the 30 days written notice of the revocation of their appointments of the plaintiff as their property agent. These related to 11 of the 46 appointments held by the plaintiff  but did not take effect until about 6 and 7 July 2023. That is, the notices of revocation did not take effect until after the settlement date, and the plaintiff - on its case - still held 46 appointments as at 30 June. This relates to the plaintiff’s ability to complete.

    Defendants’ right to terminate

16. The defendants were told of the notices concerning the 11 properties in a conversation between Nicole Dunn of the plaintiff and Amanda Thomas, an employee of the first defendant, on 14 June 2023. Broadly, Ms Dunn said that Rebecca Lane had “gone rogue” and given notice of resignation; she had contacted landlords and landlords had given notice of termination.

17. Thus, the first defendant sent correspondence on 15 June terminating the contract based on what was said to be an anticipatory breach by the plaintiff because the matters stated by Ms Dunn constituted a declaration of inability to perform. This depends on the proposition that the transfer of properties contained in annexure A (a list of the 46 properties, which was intended to be, but was not, annexed to the contract) is an essential term going to the heart and purpose of the contract. It is said that the plaintiff was wholly and finally disabled from performing its contractual obligations (Sunburnt Plaza Pty Ltd v Maloney [1988] 166 CLR 245 at 262, 264 and 280). The defendants alternatively say that even if the appointments which had been terminated could be assigned, there was nevertheless an anticipatory breach because the words spoken gave rise to a reasonable inference that the plaintiff was unable to perform.

18. In resisting the conclusion that the first defendant was able to lawfully terminate the contract on 15 June, the plaintiff points to the features that:

    (a)The things allegedly said could not constitute anticipatory breach and the plaintiff was always ready, willing and able to perform; and

    (b)The contract had become unconditional on 6 June 2023.

    Further the plaintiff says, in the circumstances and the statutory framework, the 46 appointments were in fact assigned; it completed its contractual obligations and is entitled to recover the purchase monies as a debt.

    Contract unconditional

19. The plaintiff argues that the first defendant was unable to terminate the contract after it became unconditional, according to the contract. Thus, clause 5 was inserted for the defendants’ protection. The first defendant waived the benefit of it and was then required to perform.

    Anticipatory breach

20. Further, the plaintiff says that the events relied upon by the defendants did not amount to anticipatory breach. The notices of revocation on 6 and 7 June 2023, not taking effect until after settlement, did not mean that the plaintiff could no longer perform its obligations. Rather, the circumstances fell to be dealt with under the retention clause which was created for this kind of circumstance.

    The Act – nature of assignment

    Were the appointments assigned?

21. To conclude whether the plaintiff could and did perform its obligations under the contract, the question of its assignment of the appointments to the first defendant must be examined. Appointments can be terminated at any time, without reason, by 30 days’ notice under section 114 of the Act. However under s102(1)(b) and s113, the agent (here, the plaintiff) may assign such an appointment during its continuation in force for the 30 day notice period - the agent still “holds” the appointment during this period, as set out in s113 - and the obligation then passes to the assignee to, in effect, complete the assignment by giving written notices thereof within 14 days “after the assignment”. This suggests that the assignment occurs when the assignor performs the act of assignment; although, unhelpfully, there is no prescribed form for the assignment. The nature of this statutory assignment is of a particular kind (distinct from and containing different elements from assignment at common law or equity). It creates the position where the existing appointment is then taken to be an appointment by the landlord client of the assignee; this occurred here, to the assignee’s benefit. The assignee could thereafter collect rents and charge commission as if appointed by the client, which, by operation of the statute, in effect it was.

22. Thus, the plaintiff’s position is that the appointments were all assigned, it having done everything in its power, and everything necessary, to do so. Thereafter the defendant had the benefit of the assignments and the plaintiff effectively had performed its obligations under the contract. The first defendant, as assignee, then had an obligation to notify the clients of the assignments within 14 days, per s113(2) (thus, the effect of s113 is that the assignment has taken place by that stage i.e. before the assignee gives notice). Its failure to do so is no fault of the plaintiff and does not affect the effectiveness of the assignment. Had the first defendant chosen not to send the letter and completed the contract, by sending the s113 notices it would have been receiving commissions since settlement.

23. Further, the plaintiff argues that if the requirements of law or equity were necessary to be observed for an effective assignment, they were met in any event: no particular formality was required nor is anterior notice to the assignee or the assignee’s consent necessary (Szepesvary v Weston [2018] FCAFC 224 at [32]). The plaintiff clearly expressed its intention to make an immediate disposition of the appointments under s102 and gave notice of this in writing, in advance, as the correspondence sets out, and it tendered performance on 30 June.

24. Thus, the plaintiff argues completion occurred other than payment of the purchase price, which is accordingly recoverable as a debt.

    Defendants’ arguments

25. The defendants argue that the assignments of the appointments did not take place. They say the statute did not create a new process of assignment and there was no assignment at common law or in equity. They point to Clause 4 of the contract which provides for the rights and obligations attaching to the rent roll passing to the buyer on completion. No doubt this is correct, but it does not speak to the individual appointments or processes of s102 and s113 discussed above. As I have concluded, the assignment process under the Act is a creature of statute and was effectual in the circumstances.

26. As to assignment at law, the defendants argue that the purported assignments occurred without tangible or visible impact and were confined to the minds of the plaintiff’s controlling officers. In these circumstances, the assignments are said to be ineffectual, comparing the position to Curran v Newpark Cinemas Ltd [1951] 1 All E.R. 295. In this case, a direction given to a second party to pay money to a bank, of which the bank was unaware, was ineffectual because the direction could have been revoked by the party giving it, in the absence of evidence that the bank had been notified of or agreed to the arrangement. In my view, however, this comparison is not helpful. The assignment here took place pursuant to the statutory template - not present in Curran - and notice was to be given by the assignee as required by s113(2). Its failure to do so premised on a wrongful purported termination does not make the case analogous to Curran.

27. The defendants further argue that the appointments concerning the 11 properties the subject of the termination notices did not continue to be “in force” (as described in s102(1)(b)) during the 30-day notice period); thus, they could not be assigned during that period. This is a contentious proposition for which no authority is cited. It is hard to conceive what the status of the appointment is if it is not in force during the statutory minimum notice period; for example, the agent would necessarily continue to receive rents and be entitled to its commissions during this time. The defendants’ argument seems to propose some limbo status for revoked appointments during the notice period commencing at the date of the giving of the notice. This is not mentioned in the statute and is not logically attractive.

    Conclusion regarding assignment

28. In my view, the plaintiff’s position should be accepted as to this issue. The appointments did continue in force, and were capable of being assigned, and were assigned, by the plaintiff as described above. Thus, the plaintiff performed its contractual obligations.

29. The retention clause provided for the possibility of some of the properties leaving the rent roll, with consequent adjustment of the price. The formula provides for an adjustment up to a maximum of ten percent. This was part of the contract negotiated between the parties. The plaintiff points out that the defendants were aware of this when they learned of the notices of revocation and that the negotiated adjustment was to provide for such a situation. Thus, in the plaintiff’s submission, there is no anticipatory breach: it was able to and did perform its obligations; and it appropriately tendered performance and is entitled to enforce its rights under the contract, including recovery of outstanding purchase money as a debt as discussed below.

    Conclusion as to defendants’ right to terminate

30. My conclusions are that the plaintiff was not in breach of the contract at the time of the purported termination, nor was there an anticipatory breach. The notices of revocation, necessarily - pursuant to statute - taking the minimum 30 days notice period to take effect (i.e. after completion date), did not result in the plaintiff being unable to complete. The appointments were assigned under the Act and the plaintiff properly tendered performance.

31. To the extent that the disappointing events following Ms Lane’s peremptory short notice resignation and her following actions impacted on the parties’ contractual relationship, the impact fell to be dealt with potentially in two ways: firstly, by the parties - including the defendants in a brief window after completion - being able to attempt to convince the landlords to reconsider; and, secondly, by the defendants being compensated under clause 10, which was the agreed mechanism to deal with such situations. For these reasons my conclusion is that the defendants did not have a right to terminate as at the date of the purported exercise of that right. Thus, the plaintiff succeeds on liability. The defendants should have paid the purchase price when due and did not do so.

    Implied term

    The term contended for

32. The defendants argue that clause 10 only applied to loss of management of properties after the date of completion, and thus not to the 11 properties under discussion. This comes about because the retention clause is said to apply from the date of completion to the day 180 days after completion. It is not quite clear what this means, but perhaps it is intended to refer to appointments where the notice of termination is only given after the date of completion.

33. In the present circumstances - where the notices were given before completion - the defendants seek to rely on an implied term to the effect that “should any properties subject to the rent roll provide notice of termination prior to completion, the purchase price shall be reduced by the sum attributable to the price agreed for the subject property (a pre completion adjustment term)”. The point of this is to permit compensation for any appointments “lost” prior to completion (and thus, the defendants argue, not subject to the clause 10 adjustment). The compensation payable would be a sum equal to the purchase price paid for the lost appointment and would be additional to the adjustment under clause 10.

1. The defendants acknowledge that the relevance of the implied term would be that, if the contract were found not to have been validly terminated - as I have found above - it would relate solely to the assessment of damages. It does not impact the question of liability.

   Should the term be implied?

2. The implication of the term is hard to accept where clause 10 does not say this in its terms. Further, as the notices only expired after the completion date, the management of the properties was, in any case, not lost until after completion. Further, the defendants’ argument must also include the proposition that, even if the notices were given and the 30-day notice period had expired pre-settlement, clause 10 would not apply. This seems illogical and I cannot accept it. Consistently with my findings in [28]-[31] above, I cannot accept that clause 10 did not apply in the present case.

3. For a term to be implied, as the defendants acknowledge, it must be reasonable and equitable; necessary to give business efficacy to the contract; so obvious it goes without saying; capable of clear expression; and not contradict any express term of the agreement (see for example BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] 180 CLR 266 at 283).

4. The plaintiff resists the implication of such a term. It is inconsistent with industry practice, not necessary for business efficacy, and contradicts clause 10.

5. I have found that the pre-settlement terminations did fall within the ambit of clause 10, thus there is no occasion for the alleged implied term to arise. This underlines that it is not necessary for business efficacy. Further, as the plaintiff argues, it is inconsistent with industry practice and is contradictory of clause 10.

6. Courts generally are slow to imply a term. In many cases, what the parties have actually agreed represents the totality of their willingness to agree (particularly here, where clause 13 explicitly states the agreement constitutes the entire agreement between the parties); each may have agreed to take its chances in relation to an eventuality for which no (or no separate precise and explicit) provision is made (although as outlined above, my conclusion is that clause 10 does cover the eventuality, so in this case provision was made). The more detailed and comprehensive the contract, the less ground there is for supposing that the parties failed to address their minds to the question at issue; see Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 346 per Mason J.  This is particularly so where, as here, the parties are relatively sophisticated commercial businesses with experience in the field who negotiated the contractual terms.

   Conclusion regarding implied term

7. The parties, who were experienced, negotiated the contract; it includes a term as to its entirety; the proposed term is not necessary for business efficacy, nor is it so obvious it goes without saying; and it is not apparently consistent with industry practice or the explicit clause 10 (which seems to, in any case, render the proposed implied term otiose). I bear in mind the quoted passage from Codelfa. In the circumstances, and applying the relevant principles, I do not find the defendants’ asserted pre-completion adjustment term to be implied.

8. This then leads to the analysis of what loss is established from the breach, according to the terms of the contract and the evidence at the trial.

   Loss

   Contractual remedies

9. The primary remedy sought by the plaintiff is specific performance. If such an order is not granted, the plaintiff seeks damages for its loss because of the defendants’ breach of contract (i.e. its wrongful repudiation). The plaintiff is to be restored to the position it would have been in if the breach had not occurred: see Commonwealth v Amann Aviation Pty Ltd [1991] 174 CLR 64 at 80.

10. The plaintiff argues that its position at completion, had the breach not occurred, would have been payment of $230,059.23 (80 percent of the purchase price). $28,757.40 would have been paid to the plaintiff’s solicitor, being the “retention amount” of 10% of the purchase price. Then, on 27 December 2023, it would have been an adjustment under clause 10, resulting in the transfer of the retention amount to the first defendant.

11. However, these amounts need to be adjusted to take account of the value of the income derived by the plaintiff since 30 June 2023. These amounts effectively should be credited to the defendants as a set off.

    Debt

12. Since the completion of the evidence, the plaintiff has sought to reframe, or further frame, its case as one in debt. Where a sum of money is unpaid pursuant to a contract. a breach of the contract is actionable, as pleaded here. But such a situation also gives rise to recovery of the sum as a debt (or indebitatus assumpsit), which is not a mere breach of contract, but the wrongful detention of money (Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567). This has procedural as well as substantive advantages. In an action for debt, the onus of proving payment falls on the defendant; Young v Queensland Trustees Ltd at 569-70.

13. The plaintiff performed all of its obligations - completion was effected, from the plaintiff’s perspective - and the balance of the purchase price became payable on settlement date. Thus, the balance of the purchase price, at least the 80% which was then due, became a debt and was able to be recovered accordingly (see McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 475 - 6). The essential facts for a claim in debt were pleaded. The plaintiff argues there is no practical injustice to the defendants; the nature of the facts and the case advanced has not changed; and there is no reason to think the defendants would have conducted the case differently (Heiko Constructions Pty Ltd v Tyson (2020) 282 FCR 297 at [85]-[87]).

14. Relevantly to the assessment of the loss on contractual principles, the plaintiff says that it was unable to sell the rent roll after 30 June 2023 to reduce the loss. This is primarily because it had nothing to assign to any potential purchaser because of the appointments having been assigned on 30 June 2023 to the first defendant. In any case, there are practical reasons it could not have resold at the same price and terms as those of the contract with the defendants. The owners of the 11 properties had already given notice of revocation. The market for rent roll is limited. Thus, any attempted resale would have been at a lower price.

15. However, these matters are simplified when the action is conceived as one in debt. The money was obliged to be paid, has not been, and is claimable.

16. The defendants resist the repleading of the action in debt. They argue that no assignment took place, therefore there is no debt. However as set out above, I have concluded this issue in favour of the plaintiff. The plaintiff performed its obligations and the 80% payment became owing.

17. The defendants further argue that there is no proven loss, when analysed on contractual principles. There remains a strong market for the sale and purchase of rent rolls, and the roll could have been resold without loss. Any loss which was suffered is to be reduced by the income generated by the rent roll during the period of the loss. The defendants refer to some passages in the report of Mr McKinnon, the forensic accountant called by the plaintiff, to support the contentions that: the value of the roll had or may have increased; the plaintiff retained a valuable asset, the value of which exceeds the adjusted contract price; and, accordingly, there was no loss.

18. However, this misses the point that the contract, in truth, was completed and the unpaid purchase price became due and owing. The plaintiff does not retain the asset, whatever its value. The assignment was completed; the rent roll belongs to the first defendant, which, upon sending the notifications, will become entitled to the commissions.

    Conclusion as to leave to amend

19. The relevant facts for the action in debt were always pleaded and proven. The exercise of the discretion to permit the limited amendment to set out the claim in debt occasions no prejudice where the material facts had been pleaded and the evidence adduced. As the plaintiff argues, there is no reason to think the defendants would have conducted the case differently. There is no reason not to allow the amendment sought.

    Conclusion on liability

20. The plaintiff succeeds against the defendants in the claim in debt. To the extent necessary, it is also found that the plaintiff would succeed in its pleaded breach of contract claim. However the claim in debt is apposite and simplifies the calculation of quantum.

    Quantum

21. The plaintiff is entitled to its outstanding purchase price of $230,059.23. It is not entitled to the retention amount in the circumstances. Conversely there must be a set off for the accounting to the defendants for net income received as commissions since settlement date which are the property of the first defendant, the contract having been completed as outlined above. There will also need to be a calculation of interest. The parties have sought to have the principal findings as to liability made, and consequent upon the plaintiff’s success, to have the opportunity to agree on or narrow the dispute as to this issue, which is appropriate.