Supreme Court New South Wales Medium Neutral Citation: Lauderdale v Cairns [2011] NSWSC 29 Hearing dates: Monday 7 February 2011 Decision date: 08 February 2011 Jurisdiction: Equity Division Before: Associate Justice Macready Decision: I make orders 1 and 2 in the originating process filed 23 November 2010. Catchwords: CORPORATIONS LAW - Application to set aside statutory demand - Claim for commission by a real estate agent - Held there was an off-setting claim based upon the agent's actions in acting as the purchaser's agent without informing the vendor for whom he also acted - Demand set aside Category: Principal judgment Parties: Lauderdale Project Pty Limited (Plaintiff) Cairns Property Consultants Pty Ltd (Defendant) Representation: Counsel: Mr D Klineberg (Plaintiff) Mr D Meltz (Defendant) Solicitors: Levitt Robinson (Plaintiff) MacGillivrays (Defendant) File Number(s): 2010/389942 Judgment 1HIS HONOUR: This is an application to set aside a statutory demand dated 2 November 2010 for an amount of $148,500 served on the plaintiff by the defendant. The subject matter of the demand is a claim for commission payable under a Real Estate agency agreement dated 29 January 2010. 2The ground advanced to set aside the demand is the plaintiff has an offsetting claim based on misleading and deceptive conduct in relation to the agency agreement and the negotiation of the sale which ensued. Background 3Prior to January 2010 the plaintiff owned a property at Boat Harbour Drive, Hervey Bay in Queensland. Mr Hooley was the principal of the defendant Real Estate company and he was aware in late 2009 that the property was not available as it was under an offer to a purchaser. He became aware that it was available for sale in January 2010. In late January 2010 he discussed with Mr Sanchez of the plaintiff company as to whether it was for sale. He said he had an interested purchaser who wanted to secure the agency agreement with the vendor before he proceeded further. 4This was agreed to and an agency agreement was entered into on 29 January 2010. Further, even before the agreement was signed, on the day before Mr Hooley had received an offer from the purchaser to pay $7 million for the property. He sent it to Mr Sanchez and it was in this form: " Offer to Purchase 200 Boat Harbour Drive, Pialba (Hervey Bay) We confirm that we wish to make the following offer to purchase: Purchaser RSP Property Investments Pty Ltd Purchaser Contact C/O - Ian Hooley Qld Property Agents 0418 773 699 Property Lot 1 on RP896205 Lot 39 on RP35178 Land Area 30,000m² Purchase Price $7,000,000 ($233/m²) Deposit $700,000 Due Diligence 90 days Settlement 30 days from the contract becoming unconditional (signed) On behalf of RSP Property Investments Pty Ltd." 5Mr Sanchez received the document and he refused the offer. 6On 2 February 2010 another offer of $8.9 million was made by the same purchaser and was rejected. The same day a third offer from the same purchaser for $9 million was made and was eventually accepted. 7Contracts were exchanged on 15 February 2010. It was completed on 16 August 2010. An invoice for the commission was sent on 27 June 2010 but on settlement no payment of the commission was made. Thereafter the defendant pursued payment and eventually issued the statutory demand on 2 November 2010. 8Under the agreement there is no doubt that the commission was payable in the amount claimed. The plaintiff says, however, that it has an offsetting claim based on misleading and deceptive conduct. The conduct complained of was the failure of Mr Hooley to disclose: (a) that the purchaser was merely a subsidiary of Bunnings. (b) that he, Mr Hooley, was a buying agent for Bunnings. 9Initially the plaintiff suggested that Mr Hooley was to be paid commission by Bunnings as well. However, on the face of sworn evidence from Mr Hooley and a representative of Bunnings that no such commission was payable or would be paid, the plaintiff did not press this aspect of the conduct. 10Mr Sanchez made some searches after exchange and found that the purchaser was a subsidiary of Bunnings and confronted Mr Hooley with this fact. The terms of the conversation are in dispute. Mr Hooley gave evidence of conversations to this effect: "6. I refer to paragraph 9 of the Affidavit of Michael Angel Sanchez dated 3 February 2011. I recall having a conversation with Mr Sanchez by telephone on about 28 or 29 January 2011 before I sent through the first offer to Mr Sanchez in which we had a conversation in words to the following effect: Mr Sanchez: Who was the buyer? Me: I'm instructed the buyer will be RSP Property Investments. Mr Sanchez:Who's behind it? Me: A major Australian company. I can't say any more. You can do some searches if you want to. Mr Sanchez: That's all right. Leave it with me. 7. I recall having a further conversation with Mr Sanchez on or about 1 or 2 February 2010 in which we had a conversation to the following effect: Mr Sanchez:I know it's Bunnings [referring to the ultimate company behind the purchaser]. Me: I can't comment further other then I am instructed the purchasing entity will be RSP Property Investments." 11Mr Sanchez agreed with the conversation in paragraph 6 and its timing. He placed the conversation in paragraph 7 as after the exchange and this was consistent with his other evidence. 12Clearly, there is a timing issue which cannot be resolved so I will proceed on the basis that Mr Sanchez only found out the fact that the purchaser was a subsidiary of Bunnings after the exchange. 13The actual conversation after exchange given by Mr Sanchez was as follows: "20 On or about 19 February 2010, I had a further conversation with Mr Hooley regarding the prospective purchaser in words to the following effect: I said:'I have made some enquiries. The actual purchaser appears to be Bunnings. Isn't that the case?' Mr Hooley said: 'Yes. I act on behalf of Bunnings, effectively as their purchasing manager. I acquire all their property and I get paid commission regardless of whether a sale I am negotiating goes through or not.' I said: 'Why didn't you tell me before I entered into the Agency Agreement that you were the Buyers Agent?'" 14Mr Hooley denied that he had a conversation with Mr Sanchez to this effect. He did not address the particular parts of the conversation in his denial. Leaving aside the question of commission, I think I should consider the claim bearing in mind the admission that Mr Hooley acted on behalf of Bunnings and was their purchasing manager and acquired all their property. 15The tone of familiarity between Mr Hooley and Mr Moody, property development manager for Bunnings in Queensland and the Northern Territory, as disclosed in their e-mails, would support this relationship. 16The other thing about the evidence in this case is that there was nothing Mr Hooley did to secure a better price by approaching serious other large scale buyers such as, for example, Woolworths. 17In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 Palmer J usefully described a genuine offsetting claim in these terms: "18. In my opinion, a genuine offsetting claim for the purposes of CA s.459H(1) and (2) means a claim or a cause of action advanced in good faith, for an amount claimed in good faith. 'Good faith' means arguably on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for liquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s.459H(1) and (2)." The plaintiff put its offsetting claim it in these terms: "22. The Plaintiff submits that it has a genuine offsetting claim against the Defendant. The Plaintiff claims that for the reasons outlined above, the Defendant engaged in misleading and deceptive conduct, and did not act in the Plaintiff's interests in the purchase, in circumstances where: (a) Mr Hooley entered into the agency agreement with Mr Sanchez to act as the Purchaser's agent for the sale; (b) Mr Hooley had a pre-existing relationship with Mr Moody and Bunnings; (c) that relationship was not disclosed to Mr Sanchez either before the agency agreement was signed or before the contract was executed; (d) the offers made to Mr Sanchez did not disclose that the purchaser , RSP Property Investments Pty Limited was an entity of Bunnings; (e) Mr Hooley knew that the purchaser was an entity of Bunnings; (f) Mr Hooley did not tell Mr Sanchez that the purchaser was an entity of Bunnings before the contract was executed; and (g) the only offers for the property solicited by Mr Hooley was the offers from Bunnings, via the purchaser." 18Although the offsetting claim is described in terms of deceptive and misleading conduct, the content of such conduct will depend upon the liabilities of persons such as Mr Hooley in the present situation. 19Agents are classic cases where fiduciary relationships arise. If an agent owes a fiduciary duty two masters there is always the chance that they will conflict. 20In a simple exposition of the problem Finn in Fiduciary Obligations puts it this way in chapter 22: "580. To ensure a loyalty which is undivided the courts have prohibited a fiduciary from serving 'two masters' at the same time in the same matter or transaction unless he has first obtained the informed consent of both 'masters' to his so acting. As Donaldson J observed in the agency case, North & south Trust Co v Berkeley; 'Fully informed consent apart, an agent cannot lawfully place himself in a position in which he owes a duty to another which is inconsistent with his duty to his principal ...' And even if informed consents are obtained, they will not absolve the fiduciary from liability to one master if he cannot properly discharge his duties to him because of conflicting duties owed to the other. Despite the courts inveigling against fiduciaries acting 'two ways' - and the protests have been more sustained in the case of solicitors in conveyancing transactions - the practice remains a common one occurring not only in agency transactions but also in dealings, for example, between trusts sharing common trustees and between companies having common board members. 581. The strictures imposed on double employments - or the conflict of duty and duty rule as it will be called - have a relatively narrow political compass. They are premised, first, upon proof that the same person has made himself a 'fiduciary' in more than one fiduciary relationship - and he becomes a fiduciary, as he does under the conflict of duty and interest rule, simply by undertaking to act for or on the behalf of another in some particular matter or matters. But the mere acceptance of multiple 'fiduciary' engagements or employments is obviously not offensive in itself. It is the staple of the commission agent, the solicitor, the corporate trustee, the company director and the liquidator. The vice condemned by the courts only arises when the fiduciary, and by his action or inaction in either or both of two relationships, brings about an actual conflict between duties owed in each relationship. In practice this most commonly occurs when he effects some dealing between, or acts in the same matter on the behalf of, his respective beneficiaries as where, for example, an agent to sell acts as undisclosed agent of the purchaser: his duty to the vendor to obtain the best possible price necessarily conflicts with his duty to the purchaser to get the lowest price." 21The complaint of which this author speaks in this last paragraph is what we are concerned with in this case. 22The author goes on to point out in paragraphs 582 and 583: "...But so long as the possibility of a conflict of duties remains no more than a possibility could be likely or unlikely ever to eventuate, there can be no breach of the rule. 'It is not enough that some ground for uneasiness as to... future conduct arises'. There must be a real, an actual, conflict in some present matter and not simply a theoretical conflict. 583. This may arise in either of two ways. (1) if the same fiduciary acts for two different and unrelated beneficiaries in the same matter or transaction without the informed consent of both to the double employment, then this without more is a conflict within the rule. So where an adviser in a sale is also the undisclosed adviser of the purchaser, he is automatically in breach of the rule. Similarly where a company director separately undertakes to different companies of which he is a director, to use his best endeavours to procure the one profit-making opportunity for each of them exclusively, then if both companies are not informed of the undertaking to the other, there is an offensive conflict. But notwithstanding that there is such a conflict, one of the two beneficiaries may be unable to complain of it. This will be so where he alone gave an informed consent to the double employment; or where he knew of the fiduciaries other engagement at the time he engaged him - in which case the resulting conflict is regarded as being that of that beneficiaries own making. (2) even if all the beneficiaries have consented to the double employment in the same matter, the fiduciary may still find, in performing his separate employments, that an actual conflict arises between duties owed in each. A solicitor, for example, while advising both the seller and purchaser of shares - the parties consenting to his so acting - might discover that the purchaser's existing financial commitments make it unlikely that he will be able to meet his obligations in the purchase. His duty to the seller requires him to disclose this. His duty to the purchaser prohibits the disclosure. This is obviously the very predicament which it is the ultimate object of the rule to prevent occurring - a conflict arising because the proper discharge of one duty assumed, necessitates breach of another." The author then talks of the consequences in these terms: 584. If a conflict arises in either of the above ways, three distinct consequences can be occasioned. The rule can vitiate a dealing effected by the fiduciary duty between his separate beneficiaries. It can render the fiduciary personally liable for any damage suffered by any of his beneficiaries as a result of his inability to discharge properly the duties he has variously undertaken. It can deprive the fiduciary of any remuneration to which he would otherwise be entitled for effecting a transaction for his separate beneficiaries." 23An interesting recent decision which applied the principles is Premium Real Estate Ltd v Stevens (2009) 2 NZLR 384. In this case, which also included a claim for misleading information being given, the Court held that the commission was forfeited because it had not been earned by good faith performance in relation to the pleaded transaction. There was no inconsistency in awarding damages and refunding of the commission. The commission was something the agent was not entitled to once it committed a breach of fiduciary duty, unless the agent was able to show that the breach did not go to the whole contract or that it had acted in good faith, which it had not been able to do. 24A similar view was expressed in Dargusch v Sherley Investments Pty Ltd (1970) QR 338. 25In the present case there is clear evidence, if it is accepted at trial, that the agent acted for both the vendor and purchaser without disclosure of this fact. The haste with which the deal was pushed through in negotiations without any attempt to market in other ways illustrates the agents failure to the purchaser. In my view there is a cause of action, whether expressed in terms of misleading and deceptive conduct or in breach of fiduciary duty. Such a cause of action would lead to at least the claim for commission being refused or set aside. 26It is necessary to see whether it is put forward in good faith. The defendants pointed to the fact that up until the statutory demand was issued correspondence about the payment of commission after settlement did not arise in any of the present complaints and had the hallmark of delaying tactics. Mr Sanchez's evidence, if it is accepted, indicates he did clearly raise his complaint after exchange of contracts but the sale was then a binding agreement and there was little he could do about it. 27Although there was lack of complaint thereafter, I am still of the view, given the facts before me, that the claim is brought in good faith. 28In those circumstances I find that there is an offsetting claim giving rise to damages in the amount of the commission. There may also be a claim which may lead to the setting aside of the contractual right to commission. Accordingly, I make orders 1 and 2 in the originating process filed 23 November 2010. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 February 2011