CENTREPLEX PTY LTD -v- NOAHS ROSEHILL WATERS PTY LTD  WASC 252 (12 July 2019)
CENTREPLEX PTY LTD
NOAHS ROSEHILL WATERS PTY LTD
Practice and procedure – Applications for interlocutory injunction restraining defendant from preventing the plaintiff from performing its obligations pursuant to the agreement – Whether plaintiff has a prima facie case for final relief – Whether balance of convenience favours relief sought by plaintiff – Turns on own facts
Contract – Construction of commercial contract – Whether agreement lawfully terminated by notice of termination – Whether plaintiff breached the agreement – whether the agreement was repudiated by plaintiff – Turns on own facts
LE MIERE J:
- The plaintiff company, Centreplex Pty Ltd, is a licensed real estate agency which carries on business as Rosehill Realty. The defendant, Noahs Rosehill Waters Pty Ltd (Rosehill), is a company formed for the specific purpose of acquiring, developing and selling land at West Parade, South Guildford (the Land).
- In 2016 Rosehill Realty and Rosehill entered into a marketing and sales agreement (the Agreement), pursuant to which Rosehill Realty agreed to provide sales and marketing services to Rosehill in respect of the Land.
- On 17 June 2019, Rosehill delivered to Rosehill Realty a notice of termination (Notice of Termination) terminating, or purporting to terminate, the Agreement.
- On 21 June 2019, Rosehill Realty commenced this action by writ of summons in which Rosehill Realty claims a declaration that the Agreement has not been lawfully terminated by Rosehill by the Notice of Termination, an injunction requiring Rosehill to continue to perform its obligations under the Agreement and damages.
- By chamber summons of 21 June 2019, Rosehill Realty seeks an interlocutory injunction restraining Rosehill from preventing Rosehill Realty from performing its obligations under and pursuant to the Agreement.
- Rosehill asserts that the Agreement has been lawfully terminated by the Notice of Termination and opposes the grant of the interlocutory injunction.
- For the reasons which follow Rosehill Realty’s application for an interlocutory injunction will be dismissed.
- The recitals to the Agreement set out the following. Rosehill has secured rights to acquire and develop the Land and proposes to develop the Land, over a number of stages, which will result in the subdivision of the Land into approximately 600 to 700 Subdivided Lots which will then be sold to individuals as house and land packages (Development). Rosehill has requested Rosehill Realty to assist in the marketing and sales of the Development.
- The Agreement provides that Rosehill irrevocably authorises and directs Rosehill Realty to undertake and manage the Sales, that is, Sales of Subdivided Lots (residential lots created as a result of the subdivision of the Land). Rosehill Realty acknowledges that Rosehill will be selling the Subdivided Lots as part of a house and land package involving both a Land Contract (a contract for the sale of a Subdivided Lot entered into by Rosehill with a buyer introduced by Rosehill Realty) and a Building Contract (a contract entered into by a purchaser of the Subdivided Lot with a builder to construct a dwelling on a Subdivided Lot the subject of a Land Contract). Rosehill Realty acknowledges that Rosehill reserves the right to accept or reject any offer that it may receive to purchase a Subdivided Lot in its absolute discretion.
- Clause 2.2(a) of the Agreement provides that Rosehill Realty agrees that Peter Francis Burke (Mr Burke) will be made available to oversee the management of all of the Sales. Clause 2.2(b) provides that Rosehill Realty will, at its sole cost (in relation to the proposed display village homes contained within the Development) employ and manage all sales personnel whose responsibilities will be to assist Rosehill Realty in carrying out the functions there described from (i) to (x).
- Clause 3 of the Agreement provides for the commission payable to Rosehill Realty. Rosehill agrees to pay to Rosehill Realty the Commission, that is an amount equal to 5.87% of the Sale Price (the total price for the Sale which includes the price of the Building Contract) in respect of each Sale, irrespective of whether Rosehill Realty is responsible for a Sale.
- Clause 4 of the Agreement provides for Rosehill Realty to undertake Marketing Activities. By cl 4.1 Rosehill irrevocably authorises and appoints Rosehill Realty to undertake the Marketing Activities for the Development. In consideration for the payment of the Marketing Fee, Rosehill Realty is to manage, coordinate and undertake such Marketing Activities as it deems fit. Marketing Activities may include but will not be limited to those activities listed in Schedule 1 of the Agreement, for a total price not exceeding the total price corresponding with each activity or, where a particular activity is not listed, for a price agreed in writing between Rosehill Realty and Rosehill. The Marketing Fee is an amount not exceeding $2.5 million unless otherwise agreed in writing by the parties.
- Clause 5 provides for the payment to Rosehill Realty of the Marketing Fee. Rosehill Realty is to render marketing tax invoices to Rosehill for its cost and the cost of undertaking the Marketing Activities provided that the total costs invoiced by Rosehill Realty to Rosehill do not exceed the Marketing Fee.
- Clause 6.1 deals with Noise Attenuation Certification. Rosehill Realty is responsible for the management and certification of the statutory requirement to provide noise attenuation into each house and land package in accordance with Australian Standard 2021-2015 Acoustics – Aircrafts noise intrusion – Building siting and construction (AS2021).
- Clause 7 deals with default by Rosehill Realty. Clause 7(a) provides that if Rosehill considers that Rosehill Realty is in breach of the Agreement, then Rosehill must give Rosehill Realty a written notice (initial default notice) detailing the alleged breach, what Rosehill considers Rosehill Realty must do to remedy the breach (if capable of remedy) and give Rosehill Realty a reasonable period of time (which shall be no less than three months) within which to remedy the breach. Clause 7(b) provides that if Rosehill issues to Rosehill Realty an initial default notice then, if after the expiry of the notice the breach is not remedied by Rosehill Realty then Rosehill may issue a further default notice (further default notice) setting out the reasons Rosehill considers Rosehill Realty has not remedied the breach, what Rosehill considers Rosehill Realty must do to remedy the breach and give Rosehill Realty a further three months to remedy the breach.
- Clause 8 deals with termination of the Agreement. The parties agree that the proper interpretation of the clause is as follows. Rosehill may by written notice to Rosehill Realty terminate the Agreement if Rosehill Realty fails to comply with both an initial default notice and a further default notice. The right of termination conferred on Rosehill by cl 8 is in addition to any rights which Rosehill may have at law, in equity or pursuant to any statute to terminate the Agreement. In particular, if Rosehill Realty breached a term of the Agreement entitling Rosehill to terminate the Agreement at common law or repudiated the Agreement then Rosehill is entitled to terminate the Agreement without complying with the notice provisions of cl 7 and cl 8.
- Clause 10 is a dispute resolution provision. It provides for a party to give to the other party a notice of dispute and then to attempt to resolve the dispute. If that is unsuccessful then the dispute is to be referred to mediation. If a dispute cannot be resolved following mediation the parties agree that the dispute shall be referred to arbitration under the Commercial Arbitration Act 2012 (WA).
- Clause 17 is a clause about variation. It provides that the Agreement may only be varied by a deed executed by the parties.
- By cl 21, each party acknowledges and agrees that monetary compensation alone may not be an adequate remedy to the other party for a breach of its obligations under the Agreement and that accordingly specific performance of those obligations may be an appropriate remedy.
- By the Notice of Termination, Rosehill stated that it gave to Rosehill Realty notice of termination of the Agreement by acceptance of Rosehill Realty’s repudiation of the Agreement and the exercise of Rosehill’s election to terminate the Agreement as a consequence of fundamental breaches of the Agreement by Rosehill Realty. The notice gave details of breaches of cl 4.2, cl 6.1, cl 2.2(a) and cl 2.2(b) of the Agreement. The notice also stated that Rosehill Realty has breached the implied term of the Agreement requiring Rosehill Realty to render faithful service to Rosehill and stated 13 matters said to constitute that breach or breaches.
- Where an applicant seeks an interlocutory injunction, the applicant must identify the legal or equitable rights which are said to be determined at the trial and in respect of which the final relief is sought. An interlocutory injunction in the auxiliary jurisdiction can only lie in order to protect an equitable or legal right, which the plaintiff might enforce by final judgment.
- Before the court will exercise its discretion to award an interlocutory injunction, an applicant must satisfy the court that:
- (1) there is a prima facie case, in the sense that there is a serious question to be tried as to the plaintiff’s entitlement to relief, and a sufficient likelihood of success to justify the preservation of the status quo pending trial;
- (2) the plaintiff is likely to suffer injury for which damages will not be an adequate remedy; and
- (3) the balance of convenience favours the granting of an injunction.
- The question of the adequacy of damages is an aspect of the balance of convenience not a separate requirement. The question of whether the applicant will suffer irreparable injury for which damages will not be adequate compensation involves no more than a consideration of whether the injury cannot properly be compensated in damages, or by some other remedy. The question of whether the injury cannot properly be compensated in damages involves a consideration of whether it is just in all the circumstances that the plaintiff be confined to their remedy in damages.
- In assessing the balance of convenience in an interlocutory injunction application, the interests of third persons are relevant and have more or less weight according to other material circumstances. Whether those interests tend to favour the grant or refusal of an injunction in any case depend upon the circumstances of the case. Hardship visited upon third persons by the grant of an interlocutory injunction will rarely be decisive. In this case, the hardship to employees of Rosehill Realty, if the injunction sought is refused and their employment is terminated, is relevant but not decisive.
- The requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought, such as the fact that the grant or refusal of the interlocutory application would dispose of the action finally.
- The requisite strength of the prima facie case and the balance of convenience are not independent. The more the balance of convenience supports the respondent, and the more serious the consequences for a respondent, the stronger will be the prima facie case the applicant may need to establish to support an interlocutory injunction. Conversely, in a case where the balance of convenience strongly favours the applicant, then the strength of the prima facie case required to support the interlocutory injunction diminishes.
- Although the court will often examine the strength of a case for an interlocutory injunction, the court will not normally undertake a preliminary trial and will rarely attempt to resolve disputes of fact. The extent to which the court will consider the merits of disputes as to legal issues will depend on the circumstances of the case. There is no inflexible rule.
- There has been conflict in the authorities about whether these principles should apply equally to mandatory interlocutory injunctions. The better approach is that the same principles should apply. The better approach is, as Kiefel J has explained, that the classification of an injunction as mandatory should not automatically attract a requirement that the court should have further confidence in the correctness of the order. The focus should be on the effect of the proposed order. A prohibitory injunction is capable, in some cases, of having a more serious effect on the parties than a mandatory one. There can also be a fine line between an order which requires something to be done and an order which prohibits something from being done; sometimes the former can be recharacterised as the latter. Merely characterising an interlocutory order as mandatory should not invite a different approach.
- Nevertheless, the nature of the contract and the appropriateness of the remedy of an interlocutory injunction in the nature of specific performance are closely intertwined concepts. The difficulty of courts supervising contracts has been a major block to the specific enforcement of contracts. Justice Finn has used the classification ‘relational contract’ to describe ‘a contract that involves not merely an exchange, but also a relationship, between the contracting parties’. Courts are generally more reluctant to order injunctions in the nature of specific performance in a case of relational contracts than transactional contracts.
- The Agreement contains express rights of termination. However, it is common ground that the express rights of termination conferred by the Agreement operate in addition to any common law rights of termination for breach or repudiation. Rosehill does not rely upon its express right to terminate the Agreement conferred by the Agreement. Rosehill relies upon its right to terminate the Agreement for breach of the terms of the Agreement by Rosehill Realty and for repudiation by Rosehill Realty of its obligations under the Agreement.
- The right to terminate the performance of a contract arises relevantly under three circumstances. First, breach of a condition, secondly, the sufficiently serious breach of an intermediate term, and thirdly, repudiation of obligation. A condition is a contractual term any breach of which entitles the promisee to terminate the performance of the contract. An intermediate term is a term the breach of which entitles the promisee to terminate the performance of the contract only if the breach is sufficiently serious.
- Where a promisee elects to terminate a contract, what matters is whether the promisee is entitled to do so, not the basis stated by the promisee for doing so. Termination of a contract may be justified by reference to any ground that was valid at the time of termination, even though it was not relied on at the time.
- The effect of an election to terminate the performance of a contract for breach or repudiation of obligation is to discharge the parties from the duty to perform their respective contractual obligations. Thus, if Rosehill was entitled to terminate the Agreement, it has done so and both parties are discharged from their duties to perform their contractual obligations.
- Rosehill Realty says that it did not breach the Agreement, Rosehill was not entitled to terminate the Agreement, Rosehill’s Notice of Termination is of no effect, the Agreement remains in force and Rosehill owes to Rosehill Realty a contractual duty to carry out Rosehill’s obligations under the Agreement, including the obligation not to prevent Rosehill Realty from carrying out its rights and obligations under the Agreement.
- Rosehill says it was entitled to terminate the Agreement by reason of Rosehill Realty’s repudiation of the Agreement and Rosehill Realty’s fundamental breaches of the Agreement. Whether or not Rosehill was entitled to terminate the Agreement depends on whether or not Rosehill Realty had committed a breach, or breaches, of the Agreement, which entitled Rosehill to terminate the Agreement, or Rosehill Realty had repudiated the Agreement. Rosehill is not confined to the grounds or breaches set out in its Notice of Termination.
- It is convenient to refer to the breaches of the Agreement by Rosehill Realty alleged in the Notice of Termination, as well as the alleged breaches and repudiation advanced by Rosehill on the hearing of this application.
- Clause 4.2 of the Agreement provides that Rosehill Realty is to undertake Marketing Activities for a total price not exceeding the total price corresponding with each activity or, where a particular activity is not listed, for a price agreed in writing between Rosehill Realty and Rosehill.
- In the Notice of Termination, Rosehill claims that Rosehill Realty breached cl 4.2 of the Agreement by undertaking Marketing Activities for a total price exceeding the total price corresponding with each activity in Schedule 1 in the amount of $311,002 and by undertaking a particular activity not listed in Schedule 1 for a price that was not agreed in writing between Rosehill Realty and Rosehill in the amount of $110,000.
- Rosehill Realty says that the marketing plan was frequently amended and that all amendments, expenditure of funds on marketing and any substantial decisions in relation to marketing in general, were discussed and approved at meetings between Mr Burke representing Rosehill Realty and representatives of Rosehill. Mr Burke attaches to his affidavit sworn 21 June 2019, copies of minutes of meetings which he claims evidences agreements to vary the marketing plan. The minutes are not signed. Rosehill does not admit the agreements or discussions recorded in the minutes.
- Rosehill does not admit the amendments to the Agreement alleged by Rosehill Realty were agreed to by Rosehill, and further says that in any event the Agreement cannot be amended orally. Rosehill relies upon cl 17 (variation) of the Agreement, which provides that the Agreement may only be varied by deed executed by the parties. Rosehill relies upon Rock Advertising Ltd v MWB Business Exchange Centres Ltd as authority for the proposition that a contractual term prescribing that an agreement may not be amended save in writing is legally effective and the oral variations to the Agreement in relation to Marketing Activities alleged by Rosehill Realty are of no force and effect.
- Whether or not Rosehill Realty breached cl 4.2 of the Agreement depends on questions of fact and law which cannot be resolved on this interlocutory application.
- Clause 6.1(d) of the Agreement provides that Rosehill Realty is responsible for the management and certification of the statutory requirement to provide noise attenuation into each house and land package in accordance with AS2021, including payment of all fees and costs associated with obtaining certification under AS2021. The Notice of Termination states that Rosehill Realty breached cl 6.1(d) of the Agreement by failing to pay fees and costs associated with obtaining noise attenuation certification under AS2021, in the amount of $66,671.
- Rosehill Realty denies that it breached cl 6.1 as alleged. Mr Burke says that in a discussion in Shanghai in about late 2016 with Ms Lee representing Rosehill, Ms Lee agreed that Rosehill would pay the fees and costs associated with noise attenuation certification.
- Rosehill relies upon the variation by deed only clause of the Agreement.
- Whether or not Rosehill Realty breached cl 6.1(d) of the Agreement as alleged depends on questions of fact and law which I cannot resolve on this interlocutory application.
- Clause 2.2(a) of the Agreement provides that Rosehill Realty covenants and agrees that Mr Burke will be made available to oversee the management of all of the Sales. The Notice of Termination alleges that Rosehill Realty has breached cl 2.2(a) since on or before 9 January 2019 by reason of the fact that Mr Burke has ceased to be licensed in accordance with the requirements of the Real Estate and Business Agents Act 1978 (WA) to oversee the management of all of the Sales on behalf of Rosehill Realty.
- Mr Burke says that in about August 2018 in a meeting with Ms Lee, he advised Ms Lee that he would not be renewing his real estate agent’s licence when it came due for renewal in December 2018, and therefore could not act as licensee for Rosehill Realty and told Ms Lee he would arrange for someone else to act as licensee. Mr Burke’s license lapsed on 9 December 2018. Mr Burke says that since 9 December 2018, Mr Alan Stott, a licensed real estate agent, has been the licensee of Rosehill Realty and Mr Stott has been a director of Rosehill Realty since 14 December 2018. Rosehill Realty says that if it has breached cl 2.2(a), which it denies, it cannot be a fundamental breach of the Agreement entitling Rosehill to terminate.
- Rosehill did not elaborate upon its allegation beyond what is set out in the Notice of Termination. For the purposes of this application I find that Rosehill Realty has not committed a breach of the Agreement entitling Rosehill to terminate by reason of Mr Burke ceasing to be a registered real estate licensee from 9 December 2018.
- Clause 2.2(b) of the Agreement provides that Rosehill Realty will, at its sole cost (in relation to the proposed display village homes contained within the Development) employ and manage all sales personnel whose responsibilities will be to assist Rosehill Realty in the matters there set out from (i) to (x). In the Notice of Termination Rosehill alleges that Rosehill Realty has breached cl 2.2(b) and gives particulars of the allegation in eight paragraphs.
- Rosehill Realty asserts that the particulars are not made out, the particularised conduct is not required by cl 2.2(b) and, in any event, could not constitute a fundamental or repudiatory breach.
- On the hearing of this application Rosehill did not orally elaborate upon its allegation that Rosehill Realty breached cl 2.2(b) of the Agreement. For the purposes of this application I find that Rosehill Realty did not breach cl 2.2(b) of the Agreement as alleged.
- There is authority that in contracts of agency there is an implied condition that the agent shall render faithful service and that if such services are not rendered the principal may elect to terminate the contract, and the termination takes place on that implied condition.
- In its Notice of Termination Rosehill alleged that Rosehill Realty breached the implied term of the Agreement requiring Rosehill Realty to render faithful service to Rosehill and gives 13 particulars of that failure. The first is that Rosehill created multiple Letters of Commitment for a number of individual lots and in certain instances backdated Letters of Commitment, with the intent of withholding original Letters of Commitment from financiers as part of finance applications and/or promising purchasers that they would receive incentives from Rosehill that were not offered to them by Rosehill at the time Rosehill entered into a Land Contract with them.
- Michelle Kirk, a solicitor and director of Rosehill, gives evidence in support of Rosehill’s allegations in her affidavit affirmed on 25 June 2019. Ms Kirk says:
17.4.1 I refer to ‘PFB12’ annexed to Peter Burke’s affidavit of 21 June 2019 which is a letter from Bennett + Co to Centreplex dated 24 April 2018 seeking an explanation in relation to the conduct of one of Centreplex’s agents, Guilliaume Duguay.
17.4.2 Mr Duguay stated in an email (which is set out in Bennett + Co’s 24 April 2019 letter) that he had altered a Letter of Commitment dated 16 September 2018, signed by Ms Klarich which set out the value and description of certain items that were to be included in the sale to a particular purchaser so as to include additional items to a value of $22,500 which had not been included in the original letter. The second letter was also dated 16 September 2018, but as set out in Mr Duguay’s email, was in fact created on about 20 December 2018. This letter was in substance identical to the first letter including having been signed by Ms Klarich. However as set out above Ms Klarich’s employment had been terminated by then. As far as I am aware the Board of [Rosehill] had not authorised the additional items promised in the second letter.
17.4.3 Annexed and marked as ‘MK5’ which is a copy of an email chain which includes an email from Catherine Burke to Martine Jones (a Centreplex employee) dated 9 April 2018 in which Catherine Burke states as follows:
“Hi Martine, please see attached Letter of Commitment. We had to create two as the bank cannot see the 27.5k package if you could please lodge the 20k however keep the 27.5k for reference to what I will receive.”
17.4.4 Catherine Burke is the daughter of Peter Burke and a selling agent employed by Centreplex. The property the subject of this email is a property that she was purchasing herself. I do not know why the bank was not supposed to see the Letter of Commitment.
17.4.5 I have become aware of numerous other Letters of Commitment which have been altered in a similar way. I am concerned that the reason for the creation of altered Letters of Commitment was to overcome problems encountered by purchasers in securing finance approval from banks based on valuations of the properties in question.
- Rosehill Realty does not dispute that an obligation to render faithful service as an agent is implied in the Agreement and does not dispute that a breach of that implied term may entitle Rosehill to terminate the Agreement. Rosehill Realty says that it did not breach an obligation to render faithful service as an agent. Rosehill Realty relies upon an affidavit sworn by Mr Duguay on 26 June 2019 in which Mr Duguay swears:
- On 16 September 2018, I drafted a letter of commitment in relation to lot 138.
- The letter referred to a bonus pack comprising a sustainability package that was standard on every sale (being solar panels, bore connection, landscaping and fencing) and 2 incentives which were part of a special offer available at the time (home theatre package and air conditioning).
- On 16 September 2018, I presented a draft of the letter to Ms Sandra Klarich, the general manager of [Rosehill]. She approved of the offers of the bonus pack and the 2 incentives in the draft letter, and signed it on behalf of [Rosehill]. I know from previous dealings that Ms Klarich, as general manager of [Rosehill], was authorised to approve letters of commitment and sign them on behalf of [Rosehill]. To my knowledge, Ms Klarich had done this on many occasions on sales of lots in Rose Hill Waters estate. A copy of this letter is attached and marked “GDD1”. I sent a copy of the letter to [Rosehill Realty’s] contracts manager, who I believe sent a copy of the letter to the buyer because that is [Rosehill Realty’s] standard practice.
- On about 17 December 2018, I was advised by the buyer’s finance broker that the valuation had come in below the land and build contract price.
- On about 19 December 2018, I provided the finance broker with information concerning comparable properties, details of noise attenuation technologies included in the home and a copy of the letter of commitment (GDD1).
- On about 20 December 2018, I was advised by the finance broker that, while the information I had provided on comparable sales and noise attenuation had marginally increased the value, the valuer’s view was that the value of incentives stated in the letter of commitment (being the home theatre package and air conditioning, which totalled $22,500) should be deducted from the land value on the grounds that the home theatre was a nonfixed chattel and the air conditioning was part of the build. I understood this to mean that although [Rosehill] agreed to provide the home theatre, it was not taken into account by the valuer when valuing the property because it was a chattel.
- I discussed the matter with Ms Klarich and Mr Peter Burke on about 20 December 2019. We discussed whether the home theatre as stated in the letter of commitment confused the valuer who reduced the valuation because of it. To clarify the matter for the valuer, Ms Klarich, Mr Burke and I discussed whether it would be more simple to change the letter of commitment to remove the home theatre package and to remove the airconditioning because, as it turned out, it was already included in the build contract.
- I drafted an amended letter of commitment which had these items removed. I presented the letter to Ms Klarich, who approved it and signed it for [Rosehill]. A copy is attached and marked “GDD2”. I then sent the amended letter to the finance broker.
- On about 27 December 2018 I was contacted by a valuer who asked me whether each property sold by [Rosehill] received the air conditioning incentive. I said that the air conditioning incentive was part of a special offer and was not given to all purchasers.
- On about 3 January 2019, I was informed by the finance broker that there was a new valuation on lot 138 at the land and build contract price.
- While I was aware that Ms Klarich had been dismissed as general manager of [Rosehill] in early December, I knew that she remained a director of [Rosehill] and continued to hold a power of attorney.
- Both letters of commitment were provided by me to the finance broker. I do not know whether the finance broker provided both letters to the valuer who provided the final valuation.
- In response Rosehill says that Ms Klarich did not have authority to execute the second Letter of Commitment on behalf of Rosehill and that Rosehill Realty, through Mr Burke, knew that. Rosehill has produced what it says are minutes of a board meeting of Rosehill held on 6 December 2018 at which Ms Klarich and Mr Burke, amongst others, were present. The minutes record the following resolutions or conclusions:
- That the Company terminate the employment of Ms Sandra Klarich as general manager on one months’ notice in accordance with the terms of her employment contract due to the unsatisfactory progress of the Company’s Rosehill Project over the period Ms Klarich has acted as general manager and the recent concerns raised by the Company’s financiers in relation to the information provided to them in relation to the progress of the Project.
- To revoke all authorities provided by the Company to Ms Klarich to execute documents and conduct business on behalf of the Company including all powers of attorney granted by the Company to Ms Klarich in connection with the Rosehill Project.
- Thus, Rosehill says that Rosehill Realty drafted the second Letter of Commitment, backdated it, caused it to be executed by Ms Klarich purportedly on behalf of Rosehill when Rosehill Realty knew that Ms Klarich had no authority to do so, and then presented the letter to the financier.
- Further, Rosehill says that Rosehill Realty has not refuted the evidence that Catherine Burke created multiple Letters of Commitment or that numerous other Letters of Commitment have been altered.
- Senior counsel for Rosehill Realty, Mr Donaldson SC, submits that whether or not Rosehill Realty breached the implied term and that Rosehill was entitled to terminate the Agreement depends on questions of fact.
- I find it unnecessary to consider the other breaches of the implied term of faithful service alleged by Rosehill, except for the alleged repudiation to which I will refer shortly. It is sufficient to say that whether or not Rosehill Realty breached a term of faithful service implied in the Agreement depends, at least in part, on questions of fact which cannot be resolved at this interlocutory stage.
- Rosehill relies upon another matter which it says entitled it to terminate the Agreement. Rosehill says Rosehill Realty has breached cl 2.2(a) by which Rosehill Realty covenanted that Mr Burke will be made available to oversee the management of all the Sales and cl 4.2(a) by which Rosehill Realty covenanted that Mr Burke will be made available to oversee the management of the Marketing Activities.
- The basis for these alleged breaches of the Agreement is that on 17 May 2019 Mr Burke became an undischarged bankrupt. That has consequences for his ability to manage a company. Section 206B(3) of theCorporations Act 2001 (Cth) provides that a person is disqualified from managing corporations if the person is an undischarged bankrupt. Section 206A(1) provides that a person who is disqualified from managing corporations under pt 2D.6 (which includes s 206B) commits an offence if:
(a) they make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(b) they exercise the capacity to affect significantly the corporation’s financial standing; or
(c) they communicate instructions or wishes (other than advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation:
(i) knowing that the directors are accustomed to act in accordance with the person’s instructions or wishes; or
(ii) intending that the directors will act in accordance with those instructions or wishes.
- Section 206A(1B) provides that it is a defence to a contravention of subsection (1) if the person had permission to manage the corporation under either s 206GAB or s 206G and their conduct was within the terms of that permission. In this case Mr Burke does not have such permission.
- Rosehill says that since Mr Burke became bankrupt he has been disqualified from, and therefore unable to, manage the Sales and the Marketing Activities and consequently Rosehill Realty has been in breach of cl 2.2(a) and cl 4.2(a).
- Rosehill further says that Rosehill Realty has repudiated the Agreement by reason of Mr Burke’s bankruptcy. Repudiation comprises the manifestation of inability as well as of recalcitrance. Rosehill says that Rosehill Realty is unable to make Mr Burke available to oversee the management of the Sales and the Marketing Activities because if he were to do so he would commit an offence under s 206A(1) of theCorporations Act.
- Rosehill says not only is that conduct a repudiation of the Agreement but also that the balance of convenience is against granting the injunction, or the court should not exercise its discretion to grant an injunction because if Mr Burke oversees the management of all of the Sales and oversees the management of the Marketing Activities he would be committing an offence under s 206A(1) of the Corporations Act. Therefore, either Rosehill Realty cannot comply with its obligations under cl 2.2(a) and cl 4.2(a) of the Agreement, or if it did so it would be procuring Mr Burke to commit an offence.
- Rosehill Realty has not said, and does not say, that it will not comply with cl 2.2(a) and cl 4.2(a) of the Agreement. However, as I have said, repudiation comprises the manifestation of inability as well as of recalcitrance. Conduct that is self-disabling is repudiatory. Rosehill says that Rosehill Realty is unable to perform its obligations under cl 2.2(a) and cl 4.2(a) because Mr Burke would be committing an offence under s 206A(1) if he oversees the management of the Sales and Marketing Activities.
- Rosehill Realty says that Mr Burke may oversee the Sales and the Marketing Activities without committing an offence under s 206A(1) of the Corporations Act, because overseeing the Sales and the Marketing Activities does not fall within any of the prohibitions in pars (a), (b) or (c) of s 206A(1).
- Rosehill says that overseeing the Sales and the Marketing Activities falls at least within par (a) of s 206A(1) of the Corporations Act and therefore at the time Rosehill gave the Notice of Termination, Rosehill Realty was unable to perform cl 2.2(a) and cl 4.2(a) of the Agreement and had thereby repudiated the Agreement.
- Whether overseeing the Sales and the Marketing Activities as required by cl 2.2(a) cl 4.2(a) of the Agreement requires or involves Mr Burke making, or participating in making, decisions that affect the whole, or a substantial part, of the business of Rosehill Realty in contravention of s 206A(1) of the Corporations Act is a complex question of fact and law.
- The decision of the High Court in Shafron v Australian Securities and Investments Commission is of assistance in determining the scope of s 206A(1)(a) of the Corporations Act. In Shafron, the High Court affirmed the decision of the New South Wales Court of Appeal that the appellant, in his combined role of general counsel and company secretary of James Hardie Industries Ltd, breached his duty of care as an ‘officer’, as that term was defined in s 9 of the Corporations Act. One of the issues addressed by the High Court was: in what respect or respects did the statutory definition of ‘officer’ apply to the appellant? The term ‘officer’ of a corporation was defined by s 9 of the Corporations Act (and is defined by s 9 of the Corporations Act) as:
officer of a corporation means:
- (a) a director or secretary of the corporation; or
- (b) a person:
- (i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
- (ii) who has the capacity to affect significantly the corporation’s financial standing; or
- (iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation); or
- Subparagraph (b)(i) of the definition of ‘officer’ is in substantially the same terms as s 206A(1)(a) of the Corporations Act.
- Mr Shafron submitted that he was not an officer as he merely provided information and advice to the board in assisting the board to make decisions. In rejecting that submission the High Court said:
Fourth, sub-par (i) of par (b) distinguishes between making decisions of a particular character and participating in making those decisions. Contrary to Mr Shafron’s submissions, participating in making decisions should not be understood as intended primarily, let alone exclusively, to deal with cases where there are joint decision makers. The case of joint decision making would be more accurately described as ‘making decisions (either alone or with others)’ that as one person ‘participating in making decisions’. Rather, as the Court of Appeal rightly held (28), the idea of ‘participation’ directs attention to the role that a person has in the ultimate act of making a decision, even if that final act is undertaken by some other person or persons. The notion of participation in making decisions presents a question of fact and degree in which the significance to be given to the role played by the person in question must be assessed.
- The High Court found that Mr Shafron had participated in making decisions of sufficient importance to engage the s 9(b)(i) definition in the Corporations Act:
That what he did can be described as proferring advice or providing information for the board’s consideration is not an end to the relevant inquiry. The conclusion that he participated in making the decision depends not only upon what he did but also upon identifying the relationship between his actions and the decision to adopt the proposal as ‘participation’ in making the decision. In this case, Mr Shafron was one of three executives who shaped and developed the proposal through its successive variants; he was one of the executives who presented successive proposals to the board; he was, as the Court of Appeal found (35), part of the ‘promotion of the separation proposal to the board’, a board that did not itself decide what elements would go to make up any of the several proposals it considered and was, as ASIC submitted, ‘reactive’ rather than ‘proactive’ in the formulation of the proposals. And he did all this as a senior executive employee of the company who, with Messrs Macdonald and Morley, decided what would be put to the board.
- Rosehill says, in effect, Mr Burke will make, or participate in making, decisions that affect a substantial part of the business of Rosehill Realty if he oversees the management of all of the Sales and the management of the Marketing Activities.
- ‘Management’ was considered by Ormiston J in Commissioner for Corporate Affairs (Vic) v Bracht. InBracht, the Commissioner for Corporate Affairs alleged that Mr Bracht was concerned in or took part in the management of Helti Pty Ltd contrary to s 227(1) of the Companies (Victoria) Code which provided that a person who is an insolvent under administration shall not be a director or promoter of, or be in any way (whether directly or indirectly) concerned in or take part in the management of, a corporation without the leave of the court. Ormiston J considered that ‘management’ in s 227(1) comprehends activities which involve policy and decision making related to the business affairs of the corporation, affecting the corporation as a whole or a substantial part of that corporation, to the extent that the consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs. It is apparent that Ormiston J’s reasoning inBracht forms the basis of the prohibition in s 206A(1) of the Corporations Act. Ormiston J further held that to ‘be concerned in the management of a company in s 227(1) of the Companies (Victoria) Code requires an involvement of some kind in the corporation’s decision making process which is more than passing and involves some responsibility, but not necessarily of an ultimate kind whereby control is exercised. Absence of ultimate responsibility for decisions does not take an insolvent outside s 227’.
- Rosehill Realty says that Mr Burke has and continues to oversee the management of all of the Sales and the Marketing Activities without contravening s 206A(1) of the Corporations Act. Alan Stott is and has been since 14 December 2018 a director of Rosehill Realty. Rosehill Realty operates its real estate business under Mr Stott’s real estate licence. Mr Stott says:
- All staff working in the business, including the general manager Peter Burke report to me.
- I establish, monitor and maintain the Business’ policies and procedures.
- I supervise the staff and review all relevant matters as required to ensure that the business and its staff comply with the provisions of the Real Estate and Business Agents Act and the relevant Code of Conduct.
- I am responsible for [Rosehill Realty’s] trust account obligations.
- I am actively engaged in the day to day affairs of the business. This includes dealing with sales enquiries, allocating enquiries, reviewing, supervising and assisting with active sales matters, and engaging in regular meetings and correspondence with the representatives of the Business’ developer clients, including [Rosehill].
- Overseeing the management of all of the Sales and the Marketing Activities may require or involve Mr Burke making, or participating in making, decisions that affect a substantial part of the business of Rosehill Realty, notwithstanding that Mr Burke reports to Mr Stott and Mr Stott carries out the functions I have referred to.
- Whether or not overseeing the management of all of the Sales and the Marketing Activities involves making, or participating in making, decisions that affect a substantial part of the business of Rosehill Realty in contravention of s 206A(1) of the Corporations Act is a complex question of fact and law. In Bracht, Ormiston J observed that while it is easy to exclude from the concept of management those activities of a corporation which consist in the carrying out of day to day routine functions in accordance with predetermined policies, whether they be clerical or involve the ordering or supplying of goods or services on its behalf, it is harder to fix on those elements which are critical to management.
- On the face of it, an obligation ‘to oversee the management of all of the Sales’ and ‘to oversee the management of the Marketing Activities’ in relation to the Development at least arguably involves making, or participating in making, decisions that affect a substantial part of the business of Rosehill Realty in circumstances where assisting in the marketing and sales of the Development is the major part of Rosehill Realty’s business.
- There is a serious question to be tried whether or not Rosehill Realty has repudiated the Agreement as a result of Mr Burke’s bankruptcy. There is a serious question to be tried whether Mr Burke would commit an offence under s 206A(1) of the Corporations Act if, pursuant to an interlocutory injunction, he oversees management of all of the Sales and management of the Marketing Activities.
- I find that Rosehill Realty has made out a prima facie case that it is entitled to final relief by establishing that it has not breached or repudiated the Agreement, so as to entitle Rosehill to terminate the Agreement. However, I am unable to make any finding as to the strength of Rosehill Realty’s case for final relief. The evidence is relatively sparse. Rosehill Realty did not respond to some of the evidence adduced by Rosehill but stated that that was because of the exigencies of time. I did not have the benefit of developed arguments in relation to the content of the obligation on Rosehill Realty to make Mr Burke available to oversee management of the Sales and the Marketing Activities and the scope of s 206A(1) of the Corporations Act.
- I find that the balance of convenience and justice favours the refusal of the relief sought by Rosehill Realty.
- Rosehill Realty advanced three major arguments as to why the interlocutory injunction should be granted. First, damages will not be an adequate remedy. Rosehill Realty points to cl 21, the inadequacy of damages clause in the Agreement. That is relevant in assessing the balance of convenience but it is not decisive.
- Damages may be an inadequate remedy where it may be extremely difficult for the court to quantify compensatory damages. Rosehill Realty says that it would be difficult to quantify compensatory damages. If the injunction is refused Rosehill will appoint another agent to manage the Sales and undertake the Marketing Activities. The Sales achieved by an alternative agent may not accurately reflect the Sales that would have been achieved by Rosehill Realty if it had continued to undertake management of the Sales and the Marketing Activities.
- The assessment of damages suffered by Rosehill Realty as a result of the unlawful termination of the Agreement, if it is so found, will involve predicting the Sales that would have been achieved by Rosehill Realty if the Agreement had not been terminated. Any predictive exercise has its difficulties but the difficulty of assessing damages in this case would not be insuperable.
- Secondly, Rosehill Realty submitted that if an injunction is not granted, five employees will be made redundant and dismissed. Senior counsel for Rosehill Realty, Mr Donaldson SC, summarised the matter this way:
People are going to lose their jobs if this injunction is not ordered – innocent people, as it were, not Mr Burke, but a number of other people who [Rosehill Realty] will have to terminate their employment if this injunction is [not] ordered.
- Rosehill says that the employees are not long standing employees. The employee employed for the longest period is Mr Duguay, who has been employed for a little under three years. Rosehill says that the hardship to Mr Duguay must be considered in the light of his conduct in relation to the Letters of Commitment. The remaining employees have been employed for periods ranging between about two and a half years and six months. Harm to nonparties is a relevant consideration. That employees will or may lose their jobs is a consideration which I have taken into account in considering whether the balance of convenience or justice favours the grant of an injunction.
- Thirdly, Rosehill Realty says that the injunction may only operate for a short time. The Agreement contains an arbitration agreement. Rosehill Realty says that the disputes arising from the initial default notice and the further default notice, together with a dispute about Rosehill’s failure to pay marketing fees and other matters, have been referred to arbitration. The arbitration is due to be heard in July 2019. Rosehill Realty says that the arbitration is likely to resolve the disputes between it and Rosehill. I accept that the arbitration may resolve many of the disputes between Rosehill Realty and Rosehill. However, it would not resolve all of the disputes. Whether or not the Agreement was lawfully terminated by Rosehill is not the subject of the arbitration. Rosehill says that it will press for that matter to be determined by this court. Even if the parties and the court approach the interlocutory processes with the objective of resolving the matter expeditiously, it is likely to be some time before the matter is resolved.
- The following matters cause me to refuse the interlocutory injunction sought.
- First, the injunction would oblige Rosehill to continue the Development through the agency of someone in who it has lost confidence and against whom it is currently engaged in litigation. The relationship between the parties is of a fiduciary character and depends upon mutual confidence. The courts will not normally enforce the continuation of such a contract by injunction.
- The performance of a contract of agency will not normally be enforced by an order for specific performance or other similar order. The authors of Bowstead & Reynolds on Agency explain that general approach:
A contract of agency is by its nature a personal contract; the relationship between the parties is of a fiduciary character and depends upon mutual confidence. It has long been established that the courts will not normally enforce the continuation of such a contract, whether directly by an order for specific performance or indirectly by injunction. A normal remedy for breach of contract by the principal is therefore an action for damages. But because these specific remedies are equitable they are discretionary and it is therefore not possible to state the principal has no exceptions. In this context the contract of agency has many similarities with the contract of employment: indeed some agents may be employees. … The continuation of confidence is clearly a factor of importance, especially in what may be called the field of pure agency where the agent represents the principal vis-à-vis third parties and can bring him into contractual relationship with them [citations omitted].
- Rosehill Realty submitted that there was no evidence that Rosehill had lost confidence in Rosehill Realty because no director or employee of Rosehill had gone on evidence to expressly say so. Rosehill Realty says that, despite the disputes giving rise to the arbitration, the parties have been able to productively work together in relation to Sales of the Land and have achieved approximately five sales per month since August 2018.
- Rosehill stated in its Notice of Termination that Rosehill Realty has breached the implied term of the Agreement requiring Rosehill Realty to render faithful service to Rosehill by the conduct set out in 13 paragraphs of the notice. That conduct, notwithstanding that it is denied by Rosehill Realty, is conduct which Rosehill asserts Rosehill Realty has engaged in and has breached Rosehill Realty’s obligation to render faithful service to Rosehill. Ms Kirk, on behalf of Rosehill, has affirmed in her affidavit that the allegations of breach set out in the Notice of Termination are accurate. Thus, notwithstanding that Rosehill Realty denies the allegations, Rosehill believes and maintains their accuracy. That is sufficient evidence that Rosehill considers that the relationship between the parties has broken down.
- By the Agreement, Rosehill appoints Rosehill Realty its agent for the purpose of undertaking the Sales. Rosehill Realty may make representations to prospective buyers of the Subdivided Lots for which Rosehill may be liable. That is a reason why the court should not grant an injunction requiring Rosehill to permit Rosehill Realty to continue as its agent in circumstances where Rosehill alleges that Rosehill Realty has engaged in creating multiple Letters of Commitment for individual lots, backdated Letters of Commitment and, in at least one case, caused a Letter of Commitment to be executed purportedly on behalf of Rosehill when Rosehill had given no authority to do so.
- Secondly, there is a serious question as to whether Rosehill Realty can perform its obligations under the Agreement without Mr Burke committing an offence under s 206A(1) of the Corporations Act. The court should not exercise its discretion to issue an injunction facilitating Rosehill Realty to perform its obligations under a contract where it is seriously arguable that to do so would involve an offence being committed under s 206A(1) of the Corporations Act.
- Thirdly, if the injunction is granted the court might have to give a series of rulings to enforce the order because of the imprecise obligation imposed on Rosehill by the injunction.
- The proposed injunction is prohibitory in form; it restrains Rosehill from preventing Rosehill Realty and its officers, employees and agents from performing its obligations under, and pursuant to, the Agreement. In substance it is mandatory in the sense that it requires Rosehill to carry out its duties under the Agreement, insofar as that is necessary to enable Rosehill Realty to carry out its obligations under the Agreement.
- For example, cl 4.2(b) of the Agreement provides that Rosehill Realty must engage its best efforts to manage, coordinate and undertake such Marketing Activities as it deems fit, which activities may include but will not be limited to those activities listed in Schedule 1 of the Agreement, for a total price not exceeding the total price corresponding with each activity or, where a particular activity is not listed, for a price agreed in writing between Rosehill Realty and Rosehill. Clause 4.2(d) provides that the Marketing Activities shall be reviewed for each stage of the Development and may be amended on such terms as agreed in writing by the Parties. The duty of Rosehill to review the Marketing Activities and to negotiate a price for Marketing Activities that are not listed in the Schedule is uncertain. It may lead to a series of rulings to enforce the order whenever Rosehill Realty alleges a breach.
- Furthermore, it is unclear what obligation the injunction would place on Rosehill in relation to activities by Rosehill Realty on the one hand, and the Severns on the other hand in relation to marketing and sales of the Lots. For example, the responsibilities of Rosehill Realty under cl 2.2(b) of the Agreement includes welcoming visitors to the home displays. Would Rosehill be obliged by the injunction to exclude the Severns from the display homes notwithstanding that, by its attorney, Rosehill has engaged the Severns as its agent to sell the lots?
- Clause 2.1(d) of the Agreement provides that Rosehill reserves the right to accept or reject any offer that it may receive to purchase a Subdivided Lot in its absolute discretion. However, is Rosehill obliged to consider any offer that it may receive from Rosehill Realty to purchase a Subdivided Lot where an offer has been presented by the Severns in relation to the same Subdivided Lot?
- The Agreement is a relational contract, it involves not merely an exchange but also a relationship between the contracting parties. Mr Burke has attached to his affidavit sworn 21 June 2019 minutes of meetings between representatives of Rosehill Realty and Rosehill. The first are minutes of a meeting held over three hours on 19 October 2017 which discuss a range of matters concerning the Development. The second are minutes of a meeting lasting an hour and 15 minutes on 21 August, a meeting lasting two and a half hours on 22 August and a meeting of unspecified duration on 24 August 2018. Those meetings again cover a range of matters covering the relationship between Rosehill and Rosehill Realty. The third set of minutes is for a meeting on 26 October 2018, which appears to have principally been concerned with marketing the Development. Those minutes are evidence of the ongoing relationship between Rosehill Realty and Rosehill arising from the Agreement.
- The fact that the court might have to give a series of rulings to enforce the injunction whenever there was an alleged breach and a consequent application by Rosehill Realty is undesirable because the only means available to the court to enforce its order is punishment for contempt, which is unsuitable as an instrument for adjudicating upon the disputes that may arise.
- Fourthly, Rosehill by its attorney, Alceon Group No 50 Pty Ltd (Alceon) has entered into agreements in relation to the future sale of lots in the Development with Lindsay and Ryan Severn. The agreements have been signed by Alceon, Rosehill’s financier, pursuant to a Power of Attorney that Alceon has under the Debt Facility Agreement between Alceon and Rosehill. The first agreement is between Rosehill and Lindsay Severn who is a licensed real estate agent which commences, or commenced, on 29 June 2019 and is a nonexclusive agreement. The agreement will terminate upon the second agreement coming into effect. The second agreement is between Rosehill and Ryan Severn. It will come into effect when Ryan Severn obtains his triennial certificate and becomes a licensed real estate agent. The second agreement is an exclusive agreement. If the injunction is granted then Rosehill will arguably be in the position of either breaching the injunction or will breach the agreements with the Severns. The grant of the injunction sought may coerce Rosehill to breach its agreement with the Severns and its agreement with its financier, so as to avoid the risk that it might otherwise suffer the dire consequences of breaching the injunction.
- Fifthly, Rosehill may not be able to obtain compensation under Rosehill Realty’s undertaking as to damages. On 21 June 2019 Mr Burke swore that Rosehill Realty’s only substantial assets are:
- (a) the Agreement;
- (b) [Rosehill Realty’s] claim against [Rosehill] in the Abitration;
- (c) a sales and marketing and project management agreement between [Rosehill Realty] and a property developer in respect of a development in Gnangara (Suntower agreement); and
- (d) amounts due to [Rosehill Realty] under the Suntower agreement amounting to approximately $1.2 million, which Mr Burke estimates will be received between August and December 2019.
- Neither the Agreement nor Rosehill Realty’s claim against Rosehill in the Arbitration are assets against which Rosehill is likely to be able to execute if it is ultimately successful in this proceeding. There is no material before the court to establish that the Suntower agreement, or amounts claimed by Rosehill Realty under the Suntower agreement, are realisable and will be assets against which Rosehill may execute or provide funds from which Rosehill Realty may pay any compensation due to Rosehill.
- Rosehill Realty has produced its 2018 financial statements and 2018 tax return. Rosehill Realty’s balance sheet as at 30 June 2018 showed cash assets of $1,662,349, comprised principally of a BW Build Fund account and BW Business account and receivables in the form of Trade debtors of $1,477,046. Noncurrent assets consist principally of loans owing by Greentop Nominee Pty Ltd of $439,567 and Maryalma Trust of $806,508. The total liabilities are shown to be $3,261,894.
- Mr Burke has produced a document which he describes as a copy of Rosehill Realty’s aged receivables list as at 26 June 2019. The receivables are stated to be $1,493,756 of which $1,137,477, or 76.1% of the aged receivables, are more than four months old. The largest receivable is the sum of $594,992 claimed to be owing by Rosehill. That is the subject of dispute with Rosehill. The other major receivables are said to be the sums of $461,102 from Suntower Pty Ltd and $309,236 from Suntower which relate to the Gnangara development. The remaining receivables total approximately $128,000. The evidence does not disclose the nature of those receivables and the likelihood that the amounts will be received by Rosehill Realty. There is no current list of Rosehill Realty’s assets other than its receivables and no current list of its liabilities.
- My analysis of the financial information is as follows. The material does not disclose any assets which are readily realisable. The evidence does not satisfy me that Rosehill Realty will be able to pay compensation to Rosehill for any loss or damage suffered by Rosehill if it is ultimately shown that Rosehill Realty should not have received the benefit of the proposed interlocutory injunction.
- Rosehill Realty’s application for interlocutory injunction will be dismissed.
Associate to the Honourable Justice Le Miere
12 JULY 2019