The relatively simple sale of a Mortgage Choice franchise at Robina descended into a two-day court argument over differing interpretations of the obligation of the buyer to employ the seller as a loan writer following settlement.Neil Bamford claimed to have agreed to the $750k sale only on the promise from buyer and occasional golf partner, Donald Fleming that – as an independent contractor – he would be paid 65% of the company’s commission on each loan he wrote over the following three years, plus 6% to account for super.
The business contract was signed up in August 2008. Shortly prior to the scheduled settlement in October, Fleming requested and Bamford agreed, that $125k of the price be carried as vendor finance.
When settlement eventually occurred in December, adjustments as to rent, utilities and on a phone system lease – although provided for in the contract – were ignored. Neither was Bamford’s employment agreement signed up by then.
Bamford was duly paid $3.3k due at the agreed rate of 71% on the $1.3 mil in loans written for December but after Fleming returned from franchisee training in Sydney – when the parties exchanged their adjustment reconciliations – things soured between them.
Fleming was apparently having “second thoughts” about the seller’s role and had decided he would “handle all loan enquiries, reduce Bamford’s role as loan writer, reduce his commission, thereby enabling the business to make more money, and correspondingly, Mr Bamford to make less”.
He demanded that the commission rate be reduced to 65% and that in 12 months it be reduced again to 50%. If this was unacceptable, “there was no need for Bamford to be in the office”.
Fleming also contended he knew nothing of the phone lease referred to in the seller’s adjustment list and demanded Bamford front with $20k to pay it out.
When sued for the commissions due on $14.6 million in loan written before his departure after the Australia Day weekend, plus those expected to be written over the coming three years, Fleming defended on the basis that the proposed employment agreement was yet to be finalised. He also argued that Bamford had walked out without cause, and was therefore the party in breach.
But according to District Court Judge Katherine McGuiness, the seller’s actions were – given the buyer’s repudiation of the agreed (but undocumented) employment terms – reasonable and he should be compensated for his financial loss which she set at $33k for loans already written and $60k – having regard to ‘contingencies, only about 1/3 of the amount claimed – for those expected to have been written over the following 3 years. Interest of $24k was also ordered against the buyer.
In addition, Fleming was also ordered to reimburse Bamford the $27k required to pay out the phone system, with the court deciding the lease had been sufficiently disclosed in the contract.
Given though that Fleming intended to offer employment on the contested terms, his subsequent about-face did not constitute misleading or deceptive conduct.