Town and Country Property Management Systems Pty Ltd v Elie Kaltoum

[2003] NSWSC 813

CITATION:	Town & Country Property Management Systems Pty Ltd & Anor v Elie Kaltoum & Ors [2003] NSWSC 813
HEARING DATE(S):	20 August 2003
JUDGMENT DATE:	17 September 2003
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Re-opening refused
CATCHWORDS:	PRACTICE AND PROCEDURE - re-opening of decision by trial judge - when appropriate - decision made that defendant liable for breach of contract, and reference to Master to assess damages proposed in judgment already delivered - defendant alleges that recovery of damages would involve plaintiff recovering damages for loss of profits which could only have been earned in circumstances of plaintiff acting illegally - plaintiff also puts claim for loss of damages on alternative basis to loss of profits, namely loss of capital item - DAMAGES - general principles - recoverability of damages for breach of contract for loss of profits which could only have been earned by plaintiff acting in circumstances involving illegality
LEGISLATION CITED:	Property, Stock and Business Agents Act 1941
CASES CITED:	Autodesk Inc v Dyason (No.2) (1993) 176 CLR 300 Brownbill v Kenworth Truck Sales (NSW) Pty Ltd (1982) 59 FLR 56 Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 Lee v McClellan (1995) 127 FLR 383 Smith's Newspapers Limited v Becker (1932) 47 CLR 279 State Rail Authority v Codelfa Construction Pty Ltd (No.2) (1982) 150 CLR 29 Wentworth v Rogers [2002] NSWSC 921 Wentworth v Woollahra Municipal Council (No.2) (1982) 149 CLR 672 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410
PARTIES :	Town & Country Property Management Services Pty Limited - First Plaintiff/Respondent PFD Asset & Property Management Pty Ltd - Second Plaintiff Elie Kaltoum - First Defendant/Applicant Sandy-Real Estate Pty Ltd T/as Town & Country Real Estate Merrylands - Second Defendant MKR Holdings Pty Ltd - Third Defendant Matthew Karl Francis Robinson - Fourth Defendant
FILE NUMBER(S):	SC 3625/99
COUNSEL:	S Reuben - Plaintiff/Respondent RS Angyal - Defendants/Applicant
SOLICITORS:	Sid Hawach & Associates - Plaintiff/Respondent Lincoln Smith & Company - Defendants/Applicant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

17 SEPTEMBER 2003

3625/99 TOWN & COUNTRY PROPERTY MANAGEMENT SERVICES PTY LIMITED & ANOR v KALTOUM & ORS

JUDGMENT

1 HIS HONOUR: In these proceedings Town & Country Property Management Services Pty Limited (“T&CPMS”) and PFD Asset & Property Management Pty Ltd (“PFD”) sued Mr Elie Kaltoum, his company Sandy-Real Estate Pty Ltd (“Sandy-Real Estate”), and certain other legal entities. After a hearing of a separate question concerning liability, I held, in a judgment delivered on 26 March 2002, that Mr Kaltoum had breached a contractual restrictive covenant.

2 That restrictive covenant was one which Mr Kaltoum had entered with T&CPMS on 26 August 1997, when Mr Kaltoum caused a company which he controlled to sell to T&CPMS various business assets connected with the carrying on of a real estate business in Parramatta. The sale was on the basis that Mr Kaltoum became an employee of T&CPMS, and gave a restrictive covenant in these terms:

“the Covenantor upon retiring or having his employment terminated will not directly or indirectly and whether solely or jointly with or as director, manager, agent or servant of any person or corporation carry on, or be engaged or interested in, any business of the nature of the business hereby sold, or any significant component thereof, to [sic] prevent his name to be used in connection with any such business
(a) within the area of ten (10) kilometres from the current place of business of the Seller;
(b) for a period of two (2) years.”

3 The employment of Mr Kaltoum by T&CPMS ended on 28 September 1998. Thus, the restraint to which he had agreed operated for two years from 28 September 1998.

4 T&CPMS was, at the time Mr Kaltoum gave the restrictive covenant, a subsidiary of MKR Holdings Pty Ltd (“MKR”), a company controlled by a Mr Robinson. Pursuant to agreements made in November and December 1998, MKR sold its shares in T&CPMS to PFD. PFD was a company controlled by Mr Edward Lee. Under those agreements, effective control of T&CPMS passed to Mr Lee on 12 December 1998. The breach in relation to which T&CPMS sued Mr Kaltoum, and which I held had occurred, was that Mr Kaltoum had, through Sandy-Real Estate, carried on a real estate business at Merrylands, which was a place within 10 kilometres with the place of business of T&CPMS.

5 I held that that action for breach of contract was available to T&CPMS (though not to PFD), and was available against Mr Kaltoum (though not against Sandy-Real Estate).

6 The Statement of Claim identified two types of damage which T&CPMS alleged it had suffered. The first was that it had lost various contracts for the management of rented real estate. These lost contracts are ones with landlords who stopped dealing with T&CPMS and started dealing with Mr Kaltoum or Sandy-Real Estate. The second was that it “has also lost the benefit of Management Agreements which it could and would have entered into in the restricted area with customers within that area.”

7 In the judgment which I deliver on 26 March 2002, I did not actually make any orders. I set out the orders which, uninstructed by argument, I would have made, but gave the parties the opportunity to further argue about the orders which were appropriate to give effect to my findings. One of the orders which I foreshadowed making was an order for a reference to the Master to inquire and certify what was the amount of damages which T&CPMS had suffered by reason of the breach.

8 On 4 July 2002 Mr Kaltoum filed a Notice of Motion, seeking, amongst other things, the re-opening of the decision I had made. By the time the Notice of Motion was heard, it was only the application for re-opening that was pressed. This judgement is my decision on that Notice of Motion.

Why the Notice of Motion has Taken so Long to be Heard

9 On 11 July 2002 I made the following orders:

“1. Order that the first defendant’s cross-claim be dismissed.
2. Order that the plaintiffs pay the costs of the third and fourth defendant of the proceedings.
3. Order that the first and second defendants pay the costs of the plaintiffs and of the third and fourth defendants of the cross-claim.
4. Statement of claim dismissed in so far as it brings claims against the third and fourth defendants.
5. Stand the hearing of the notice of motion over to 2 December 2002.”

Those orders had the effect of finally disposing of the proceedings so far as all parties except the plaintiffs, Mr Kaltoum, and Sandy-Real Estate were concerned.

10 As well as giving directions for the filing of evidence concerning the Notice of Motion, I noted that at the hearing on 2 December 2002 it was proposed that if leave was granted for proceedings to be re-opened, that the proceedings as so re-opened would be heard forthwith.

11 On 2 December 2002 the Notice of Motion was not ready to proceed, so it was stood over to 27 June 2003. Orders were made for filing of submissions.

12 By 3 June 2003 it had become apparent that the hearing date of 27 June 2003 was not suitable to counsel. The hearing date of 27 June 2003 was vacated, and a new hearing date for the Notice of Motion was appointed for 20 August 2003. The hearing of the Notice of Motion went ahead on that day.

Basis of the Re-Opening Application

13 Mr Kaltoum seeks to re-open the hearing, to argue that T&CPMS ought be entitled to no damages against him, or alternatively ought be entitled only to nominal damages, for reasons connected with illegality. The illegality is that T&CPMS did not have licenses it was required to have to be able to carry on the business of property management, and people who worked in its business did not have licenses which they were required to have. Mr Kaltoum contends that if his contention of illegality is upheld, no reference to the Master would be needed, as the appropriate remedy for the plaintiff would be one of either no damages, or nominal damages.

14 The Property, Stock and Business Agents Act 1941 has now been significantly amended by the Property, Stock and Business Agents Act 2002. That latter Act commenced on 1 September 2003. However it was the 1941 Act which was in force over the period during which the restrictive covenant which Mr Kaltoum gave limited his activities (that is, the period from 28 September 1998 until 27 September 2000.) It was common ground that the 1941 Act is the relevant one to consider for the purposes of deciding the illegality argument.

15 The Property, Stock and Business Agents Act 1941, section 3, defines “real estate agent” as meaning:

“… a person (whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business as an agent for …
(b) … leasing … any land … or
(c) collecting rents payable in respect of any lease of land …
[subject to an exception not presently relevant].”

16 That Act contains the following relevant provisions:

“20(3) A corporation shall not act as or carry on … the business of a real estate agent … unless the corporation has taken out a corporation licence and employs as the person in charge of its sole or principal place of business a person who holds a licence or licences of such one or more of the classes referred to in section 22 as may be appropriate.
(4) A person guilty of an offence arising under this section is, in addition to a penalty specified in section 87(2), liable to a penalty not exceeding 1 penalty unit for each day on which the offence occurs.
21(4) No person employed as the person in charge of a place of business shall perform duties or services at that place on behalf of 2 or more licensees (whether corporations or individuals) not being individuals who are in partnership with one another.
22(1) A licence under this Act (other than a licence taken out by a corporation) shall be one of the following classes, namely:
(a) a real estate agent’s licence …
(3) …
(c)(i) a licence taken out by a corporation shall set forth the name of the corporation and the address of its sole or principal place of business.
(4) (a) Subject to this Act a licence shall be in force for a period of 3 years from the date of its issue …
(b) A licence may be renewed and on each renewal shall, subject to this Act be in force for a further period of 3 years.
23(9B) A licence shall not be granted to a corporation:
(a) where the corporation is the holder of a licence at the commencement of section 5 of the Auctioneers & Agents (Amendment) Act 1975 or where the corporation, not being the holder of a licence, makes application for a licence before that commencement – after a day that is 3 years after that commencement, or
(b) where the corporation makes application for a licence after that commencement,
unless at least half the number of directors of the corporation are licensed in respect of the class or classes of business that the corporation carries on or proposes to carry on.
30(2) The Director-General shall keep a register of all licences and of all renewals, restorations and cancellations of licences, and refusals of applications, and disqualifications, which register shall be available for perusal by any member of the public upon payment of the prescribed fee.
51 real estate sales person means a person (other than a holder of a real estate agent’s licence) who, as an employee of a real estate or a corporation that employs a real estate agent ( the employer ):
(a) induces or attempts to induce or negotiates with a view to inducing any person:

· to … lease … or otherwise dispose of any land, or

· to make an offer to … lease … or otherwise dispose of any land, or

· to accept an offer to … lease … or otherwise dispose of any land, or

· to enter into a contract for the … leasing … or other disposal of land, or

(b) elsewhere than at the place of business of the employer:

· collects rent payable in respect of any lease of land. …

(c) for or on behalf of the employer, introduces or arranges for the introduction of prospective … lessees or licensees of premises to a real estate agent … or to the owner, or to an agent of the owner, of the premises …
56(1) A person must not, unless the holder of a certificate of registration issued to the person:
(a) be or remain as a real estate salesperson … in the employment of a person licensed (or required to be licensed) under this Act, or
(b) represent, whether expressly or impliedly that the person is a real estate salesperson … in the employment of a person licensed (or required to be licensed) under this Act, or
(c) act as or exercise or perform any of the functions of a real estate salesperson. …
(1A) A person who is the holder of a certificate of registration must not act as or exercise or perform any of the functions of a real estate salesperson … unless the person does so as an employee of a holder of a licence under this Act.
(1B) A real estate salesperson … must not exercise or perform any of the functions of a real estate salesperson … unless he or she does so under the supervision of a person:
(a) who is the licensee in charge of the place of business at which the employee is employed, and
(b) who is the holder of a licence that allows the licensee to exercise or perform that function without contravening this Act.
(2) Any person who commits any contravention of or fails to comply with any of the provisions of this section shall be guilty of an offence against this Act.
58(2) The Council shall keep a register of all certificates of registration, which shall be available for perusal by any member of the public upon payment of the prescribed fee.
59(1) Every holder of a certificate of registration under this Part shall have a registered employer and a registered address in New South Wales.
(2) The registered employer and the registered address of a holder of a certificate of registration under this Part shall be specified in the certificate of registration.
87(1) Every person who commits any contravention of or fails to comply with any of the provisions of this Act shall be guilty of an offence against this Act.
(2) Where no penalty is specially provided for any offence against this Act any person guilty of such offence shall be liable, if a corporation, to a penalty not exceeding 40 penalty units, and, if an individual, to a penalty not exceeding 20 penalty units.
(3) Where any person is convicted of an offence against this Act the court may, in addition to any penalty or imprisonment imposed, order that the registration of the person be cancelled or order that the licence or licences (if any) or the certificate of registration (if any) held by such person be delivered up and cancelled, whereupon such registration or licence or licences or certificate of registration shall thereafter be deemed and taken to be cancelled and/or that such person shall be disqualified, for such period as the court may think fit, from holding any licence or certificate of registration under this Act.
89 A document purporting to be a certificate under the hand of the Director-General and stating that any person is or is not or was or was not on any date or during any period mentioned therein the holder of a licence of a class specified therein or the holder of a certificate of registration shall in all courts and before all persons and bodies authorised by law to receive evidence be prima facie evidence of the facts alleged.”

17 On 30 May 2002 certain summonses which had been issued against T&CPMS by the Department of Fair Trading, were heard. The outcome of that hearing came to the attention of the solicitor for Mr Kaltoum, around 11 June 2002. He commenced enquiries which resulted in the present application being brought.

Facts Concerning the Licences Connected with the Business

18 At the earlier hearing before me, an affidavit of Mr Lee sworn 23 October 2001 was read. It included the following:

“At the time the Second Plaintiff completed the purchase of the Rent Roll business of the First Plaintiff on or about 12 December 1998, two of the staff who formerly worked in the business remained employed in the business, they being Roger Labib and Nicole. They remained so employed until 31 March 1999 and 31 December 1998 respectively …
At the time I purchased the business the Licensee was John Bradshaw who to the best of my knowledge and belief, operated it on behalf of the First Plaintiff for about 2 years prior to the purchase. … In fact neither of them did so and I then had to make my own arrangements to obtain a Licensee so as to comply with the requirements of the relevant legislation. The various Licensees of the business from time to time were:

·	Gordon Johnstone	-	from 26.02.1999 to 19.10.1999
·	Burge Babain	-	from 18.10.1999 to 28.10.1999
·	Chris Coore	-	from 27.10.1999 to 28.11.1999
·	Alastair Barns	-	from 23.11.1999 to 20.05.2000
·	Kenny Loh	-	from 28.06.2000 to 10.09.2000

Each of those persons was located on a full-time basis at the Parramatta office during the time the relevant person was the licensee of the business.
In addition to myself, my wife and daughter, and the relevant licensee from time to time, there were other persons employed in the business as I have indicated below. The persons who have the letter “A” beside his or her names were employed mainly in administration or managerial positions … The persons who have the letter “C” beside his or her name were employed in property management …

Employee	Period of Service
Franc Boey	(C)	27.12.1998 – 15.10.1999
Angie Ng	(A)	18.01.1999 – 10.10.2000
Nicole Jones	(C)	18.01.1999 – 31.03.1999
Marie Sarkis	(C)	01.04.1999 – 31.12.1999
Ray Woon	(A)	01.05.1999 – 30.11.1999
Jeff Padd	(C)	01.12.1999 – 15.01.2000
Huseyin S Nizan	(C)	10.04.2000 – 31.05.2000
Agnes B Terbuck	(A)	31.11.2000 – 31.09.2000
Christine McGrath	(C)	15.01.2000 – 29.04.2000”

It is to be observed that this affidavit says who were the licensees of “the business” , and employees of “the business” , without identifying whether those licensees and employees were carrying out their functions on behalf of T&CPMS, or PFD.

19 Evidence obtained since mid-2002, shows that T&CPMS had a corporation licence from 9 June 1992. That licence was renewed continually until it expired on 8 June 1999. A certificate under section 89 of the Act states these facts, and goes on to say “this licence became inactive on 19 November 1999.”

20 A different section 89 certificate says that:

“The Licence was issued on 9 June 1992 and remained in force until 8 June 1999 when the corporation was not renewed in accordance with the requirements of s 23(9B) of the Act.”

21 After 11 December 1998 T&CPMS had only one director, namely Mr Lee. Mr Lee has never held a real estate agent’s licence. A search at the Department shows that from 8 December 1998 to 17 February 1999, the licensee-in-charge of T&CPMS was Michael Fern.

22 PFD had a corporation licence from 27 October 1999.

23 An ASIC search shows that, during the whole of the period from 9 December 1998 to 7 July 2002 PFD had a director besides Mr Lee. As well, internal records produced by PFD show that, from dates either the same as or very closely approximating those which Mr Lee had identified in his affidavit read at the trial, PFD had appointed someone who was a licensee to be its registered licensee. That evidence is summarised as follows:

Name	Period of directorship of PFD (ASIC search)	Period of licensee of PFD (PFD documents)
Keith Sweeney	9/12/98 – 26/2/99
Gordon Johnstone	26/2/99 – 19/10/99	26/2/99 -
Burge Babain	15/10/99 – 22/11/99	15/10/99 – 28/10/99
Chris Coore	27/10/99 -
Alastair Barns	22/11/99 – 7/7/02	22/11/99 -
Kenny Loh	12/6/00 -

24 Even though the period of restriction under Mr Kaltoum’s restrictive covenant did not end until 27 September 2000, Mr Lee (whether through T&CPMS, or PFD) did not continue to carry on the rent roll business for the whole of that time – the business was sold by T&CPMS on 5 July 2000.

25 Of the employees identified in paragraph 5 of the affidavit which Mr Lee swore on 23 October 2001 who are connected with property management activities, search of the register maintained by the Director-General shows the following:

Name	Period of service according to Lee affidavit	Results of Director-General search
Franc Boey	27.12.1998 - 15.10.1999	Held certificate of registration from 15 July 1999 to 19 October 1999, as employee of T&CPMS
Nicole Jones	18.01.1999 – 31.03.97	No certificate of registration showing her employer to be T&CPMS
Marie Sarkis	01.04.1999 - 31.12.1999	Certificate of registration from 13 April 1999 to the present, and her employer during the restraint period being T&CPMS
Jeff Padd	01.12.1999 - 15.01.2000	No person of this name holds a certificate of registration showing his employer to be T&CPMS. A Jeffrey Paddison held a registration from 24 November 1999 to 23 February 2000, as employee of PFD
Huseyin Nizam	10.04.2000 - 31.05.2000	No certificate of registration showing his employer to be T&CPMS
Christine McGrath	15.01.2000 - 29.04.2000	No certificate of registration showing her employer to be T&CPMS

Principles for Re-Opening

26 Appellate courts usually take a stringent attitude to re-opening any case in which reasons for judgment have been delivered (Wentworth v Woollahra Municipal Council (No.2) (1982) 149 CLR 672; State Rail Authority (NSW) v Codelfa Construction Pty Ltd (No.2) (1982) 150 CLR 29; Autodesk Inc v Dyason (No.2) (1993) 176 CLR 300. The circumstances in which a trial judge ought re-open a decision which he or she has given is affected by the availability of appeals from the first instance judge. I accept the principle laid down by Barrett J in Wentworth v Rogers [2002] NSWSC 921 at [9] that:

“… a single judge whose decision is susceptible to appeal through readily available channels (with or without any preliminary need for leave to appeal) should allow re-opening after judgment where it is obvious to that judge that the decision has miscarried and that the miscarriage may be rectified and the situation retrieved by attention to the matter by that judge rather than by an appeal court. What is highly undesirable is that the first instance judge should be cast in the role of hearing what amounts to an appeal against his or her own decision.”

27 The application of that principle may well be affected by circumstances, such as occur in the present case, where it is alleged that there are reasons of public policy, which had not originally been put to the judge, why the result arrived at in the reasons for decision which have been delivered ought be changed. Such an argument does not involve inviting the judge to come to a different conclusion on issues which he or she has already decided – rather it invites attention to completely different reasons, not previously considered, why the result should be different. While the usual reluctance of the courts to re-open judgments already given is based on a public interest in maintaining the finality of litigation, in circumstances where an illegality argument is sought to be raised, there is a countervailing public interest in the courts not giving judgments which contravene public policy. In circumstances where the trial might well have run differently had the illegality argument been raised at the outset, however, fairness to litigants other than the one who seeks to raise the argument might require that it not be permitted at that late stage.

Circumstances Relevant to the Re-Opening Application

28 No party at the trial pleaded any issue concerning illegality. However, there was evidence that Mr Lee intended to operate the business through PFD rather than through T&CPMS. As well, there were various references to the situation concerning licensing of the business both in affidavit evidence filed and served well before the trial, and also in the course of the trial itself. Mr Robinson filed and served an affidavit dated 9 June 2000 which included the following material.

“ Paragraph 10
Annexure “G” is an agreement made on 11 December 1998. The reason it had to be signed was the inability of Mr Lee and his companies to satisfy the licensing requirements under agreement, Annexure “C”. Newco Pty Limited was unable to obtain registration as a Real Estate Agent.”

(Annexure “G” is the second of two agreements under which PFD came to control T&CPMS. PFD was referred to in that agreement as “Newco Pty Ltd”).

29 Mr Robinson’s affidavit also contained the following statements:

“ Paragraph 12
… Since none of Mr Lee or his companies could obtain registration under the relevant licensing regulations, he did not take over the business until 12 December 1998, and he did not provide qualified or adequate staff to meet the business. … In addition, Town & Country Property Management Services Pty Limited did not have a Licensee within the meaning of the Act in charge as required in the sale of share contracts, and was therefore trading in breach of the Law. …
Paragraph 16
… Mr Lee and his companies were trading without the appropriate Licensee or any experienced staff …
Paragraph 17
In addition, Mr John Bradshaw had resigned as Licensee of Town & Country, and Mr Lee was therefore trading in breach of the licensing regulations and to the best of my knowledge, used Mr Bradshaw’s name, despite the fact that Mr Bradshaw had resigned. …
Paragraph 37
… Mr Lee and PFD Property Management Pty Limited had considerably damaged the business they had purchased by not being properly licensed and by not having trained staff running their office…”

30 In another affidavit which Mr Robinson swore on 24 April 2001 he said:

“When Mr Lee took over Town and Country Property Management Service he did not have a licensee in place. The company he was operating therefore illegally received landlord’s rent money with no management agreements and no license.”

31 At the trial every one of the portions I have just quoted from Mr Robinson’s affidavits was objected to, and rejected. One of the bases of objection was relevance, when there was no pleaded illegality defence. However, the fact that these affidavits had been sworn and served at all should have drawn the attention of Mr Kaltoum and his legal advisors, well before the trial, to the fact that there was the possibility of an illegality argument.

32 At the trial, counsel for the Robinson interests, Mr Allen, asked Mr Lee in cross-examination whether T&CPMS had a licensee in place as at 13 December 1998. That question was objected to on the ground of relevance (T.87) and the following exchange occurred.

“ALLEN: … My understanding was that the management of Town & Country and in particular, the rent roll that was part of the property of Town & Country is in issue.
HIS HONOUR: The size of the rent roll is certainly an issue.
ALLEN: Yes, but how it was actually managed is an issue as well.
HIS HONOUR: Where does the existence or otherwise of the licensee fit into this picture?
ALLEN: It shows what processes were in place to provide for the good management of the rent roll, in that the inference can be drawn as to how the rent roll was managed, whether there was an appropriate licensee.
HIS HONOUR: What you’re seeking to do is to say if there was no licensee that’s a marker of sloppiness from which I should draw an inference of some sort.
ALLEN: Yes.”

Some cross-examination then occurred directed to whether particular employees were, or were not, licensed.

33 The next day, when Mr Lee was being re-examined by Mr Reuben (counsel for T&CPMS and PFD) on the topic of who was, or was not, licensed Mr Allen objected to a question asked in re-examination, in the course of which the following exchange occurred (T.162):

“REUBEN: I think that Mr Allen was attempting to draw certain conclusions about the witness concerning a breach of regulations. I don’t think I need to say it in the presence of the witness, but I want to clear this up for the purposes of the evidence that’s already been given.
HIS HONOUR: One thing that I ought ask at this stage, Mr Allen, is you are not running an illegality case in a subterranean fashion, are you? It is certainly not pleaded.
ALLEN: Not in subterranean fashion. I can’t rely on my submissions in that sense, but I can rely on it for other means such as credit and how the business was run, as I indicated yesterday. It does go to how the business was run.”

The solicitor representing Mr Kaltoum as an advocate at the hearing was present throughout these exchanges. The exchange provided a further clear indication of the possibility of an illegality argument being available, arising from the licensing status of the business under the operation of the plaintiffs.

34 Pursuant to the orders which I made on 2 December 2002 for the filing of submissions for this Notice of Motion, counsel for T&CPMS filed submissions on 2 June 2003. Those submissions included a basis for opposing re-opening, that, “The applicant has not sought leave to amend any pleadings relied upon by him at the trial.” Other portions of the submissions said:

“3.1 The applicant has not put forward any evidence or explanation for his failure to raise the allegations or their purported effect on the outcome of the case nor have they ever sought to amend their pleadings.” …
“4.1 If at the trial, evidence had been sought to be given or tendered as to the allegations, that evidence would have been disallowed, in the absence of leave being granted to Mr Kaltoum to amend his defence.
4.2 Even if leave to amend was now sought, such leave should and would be refused in circumstance where the applicant has deliberately framed his case in a particular way or the Respondent may have conducted its case differently had the issue been raised: Burnham v City of Mordialloc (1956) VLR 239.”

35 Notwithstanding this repeated reference to the pleadings, counsel for Mr Kaltoum did not seek leave in any pre-hearing written submission, or at the outset of the oral argument, to amend the pleadings to raise any issue of illegality. At the close of the argument on the Notice of Motion, he said that he would seek leave to amend the pleadings, and submit a draft pleading. On 9 September 2003, at a time when these reasons for judgment were at the stage of final proofreading before delivery, a draft Amended Defence arrived at my chambers, under cover of a letter dated 2 September 2003. I will not delay delivery of these reasons for judgment by re-listing the matter for argument about whether the amendment should be permitted.

36 The matters I have referred to in paragraphs 28 to 35 are all ones which tend against exercising the discretion to permit the earlier hearing to be re-opened. I will not, however, decide the application to re-open on the basis of those matters. Rather, I have come to the view that, even if re-opening were to be permitted, it would not produce the result for which Mr Kaltoum contends, namely that the damages are bound to be nil or nominal. That is a sufficient reason not to permit it to be re-opened. I turn now to explain how I have come to that view.

Merits of the Illegality Argument

37 Even though there has been no amendment to the pleading, the substance of the argument which Mr Kaltoum wishes to put is fairly clear, both from affidavits which have been filed for the purpose of the Notice of Motion, and from submissions, and (now) from the draft Amended Defence.

38 The contract which T&CPMS sues on is the restrictive covenant which I have set out at paragraph 2 of these reasons.

39 In Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413 Gibbs ACJ said:

“There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits.”

40 None of those “four main ways” apply to this covenant which Mr Kaltoum has given. The covenant is nothing more than a promise on the part of Mr Kaltoum that he will not do certain types of activities, for a particular period of time. The covenant was given by Mr Kaltoum to T&CPMS long before Mr Lee had anything to do with T&CPMS.

41 The law concerning illegality has a potential impact upon this covenant in a different way to those identified by Gibbs ACJ in Yango. It arises from the way in which T&CPMS would need to go about proving that it has suffered damage as a consequence of Mr Kaltoum’s breach of the covenant.

42 Damages for breach of contract are assessed on the basis of the difference between the situation which the plaintiff is in when the contract has been breached, and the situation the plaintiff would have been in if the contract had not been breached.

43 When there is a statutory provision like section 20(3) Property, Stock and Business Agents Act 1941, prohibiting a corporation from carrying on a particular type of business unless it has taken out a particular type of licence, it may be the case – I do not need to decide for the purpose of the present application whether it is actually the case – that damages cannot be recovered which have the effect of a plaintiff recovering a sum to make good profits which the plaintiff could have made only by operating a business illegally. Authorities which tend in favour of that proposition include Smith’s Newspapers Limited v Becker (1932) 47 CLR 279 at 288 (Rich J), 291-292 per Starke J, 296-299 per Dixon J, 304-313 per Evatt J, 315 per McTiernan J; Brownbill v Kenworth Truck Sales (NSW) Pty Ltd (1982) 59 FLR 56, especially at 69, per Sheppard J; Lee v McClellan (1995) 127 FLR 383 at 387-388. An argument against such damages being irrecoverable in the present case is that the legislation does not expressly prohibit an unregistered real estate agent from recovering fees, and that, in accordance with the principles in Yango, and in Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 any contract between the unlicensed real estate agent and its customers were not impliedly prohibited. It could also be argued that even when there were deficiencies in the licensing status of the employees of the business, the legislation does not impliedly prohibit T&CPMS from suing to recover profits it could have earned by using employees who did not hold the required licences.

44 I do not seek to decide whether damages for loss of profits would be recoverable by T&CPMS, because T&CPMS argues that one way in which it wants to put its case concerning damages for the contracts which it lost to Mr Kaltoum is on a basis which depends not on the profits which T&CPMS would have earned from those contracts, but rather which depends upon the capital value of the management contracts. T&CPMS does not disclaim reliance on the “lost profits” approach to calculation of damages (which might or might not be foreclosed to it, if there were to be pleading amendment to raise the illegality arguments, and those arguments were to succeed). Rather, T&CPMS says that even if the “lost profits” approach was foreclosed to it, it could still recover damages on the “lost capital value” approach to calculation of the damages. No argument was put forward by Mr Kaltoum that if an unlicensed real estate agent was deprived of a capital asset, which that unlicensed real estate agent could have, in commercial terms if not in legal terms, sold or made available to someone who could legally turn it to account, recovery of damages for that capital loss was either expressly or impliedly prohibited by the legislation. It may be that the sale or capital value of the management contracts in the hands of T&CPMS is depreciated below what the value might be in the hands of a real estate agent who could legally have turned them to account by itself performing those contracts, or perhaps even completely destroyed – but it is a question of fact whether that is so.

45 As well, I note that the question of whether there has been a breach of section 20(3) in the present case is complicated by the fact that T&CPMS held a license until 8 June 1999. It is true that, throughout the period from 12 December 1998 to 8 June 1999 T&CPMS was an entity which, if it had applied for a license during that period, would not have been granted one, because of section 23(9B) Property, Stock and Business Agents Act 1941. But that does not make it a corporation which was not licensed, in the period up to 8 June 1999.

46 I have not overlooked the fact that Mr Kaltoum also relies upon there being a breach of section 20(3) arising from T&CPMS not having employed as the person in charge of its sole or principal place of business a person who held a real estate agents licence, and upon various real estate sales persons not being licensed. I say nothing about the merits of those arguments, except that Mr Fern was a licensee-in-charge for the period 8 December 1998 to 17 February 1999, so the argument about having no licensee-in-charge cannot apply during that brief period. All that matters, for present purposes, is that, when there is one way in which T&CPMS can put its case on damages which is not bound to fail completely by reason of any illegality argument, that suffices to show that there is sufficient prospect of damages being recovered to warrant a reference to a Master to inquire into the quantum of damages recoverable.

1. Notice of Motion of First Defendant filed 4 July 2002 dismissed.

2. First Defendant to pay costs of Plaintiff of that Notice of Motion.

3. Direct the Plaintiffs and First and Second Defendant to bring in Short Minutes of Order, within 28 days of delivery of these reasons for judgment, to give effect to my judgment of 26 March 2002, in so far as the orders made on 11 July 2002 have not already done so. Any argument concerning costs of the hearing of the principal proceedings, so far as not already decided, will be held when those Short Minutes are brought in.

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Last Modified: 09/19/2003