When Bryan Reinhardt sold his Ray White agency business to Martin Millard in November 2006, the deal envisaged the merger of the two businesses and Reinhardt staying on for a “minimum of two years” as an employee.
Base price for the agency sale of $40k was to be adjusted up to take into account any deductions for contingencies that arose on the rent roll sale to separate buyer, Your Property Solutions.
Milliards company paid $85k to incorporate the agency into his Harcourts group while the rent roll sold in the region of $335k.
The business sale contract included a restraint of trade (non-compete) obligation on Reinhardt’s part but omitted the employment provision.
A Real Estate Industry Individual Workplace Agreement (IWA) was prepared but lacked essential details – the commission split for one – which was finally settled at 68% to Bryan and 32% to Harcourts.
The IWA was finally signed in March 2007 but far from specifying a minimum period of two years engagement, it classified Reinhardt as a “regular casual” who could be terminated or who could resign with just one week’s notice.
Millard claimed to have signed the IWA on those terms in a last gasp effort to commit Reinhardt to his employment obligation, believing the 2 year understanding would prevail.
When Reinhardt made it clear he wouldn’t stay for the duration, Millard sued, alleging misleading or deceptive conduct on his colleague’s part.
He won the first round in the Federal Circuit Court which ordered Reinhardt to pay $80k to compensate Millard for the absence of his services over the period.
On appeal to the Federal Court, Justice Steven Rares ruled that because Millard had engaged solicitors to prepare the contracts, the absence of the employment provision in the business contract indicated it had not been a critical term.
Put another way, it could not be said that the two-year service provision was a crucial element of the deal on which Millard had relied.
Such conclusion was even more compelling given that Millard had settled the transaction without any employment terms having by then been finalised, the judge decided.
That the IWA was only entered into many months after the transaction itself finalised and given that it allowed for termination on one week’s notice, “it was beyond reasonable comprehension that Millard had relied on the representation as something on which he had based his decision to buy Reinhardt’s agency”.
The court re-assessed payments made and re-calculated the sum that was due to Millard by Reinhardt as just $2k.
In such circumstances no order for costs was made against either party for either the trial or the appeal.
Reinhardt v Mill Estate Holdings Pty Ltd  FCA 1056 Read case report