An agent recruited to procure options over 10 lots comprising a development site agreed to a 2.2% commission on the sale prices for each property signed up.
The 12-month appointment agreed in April 2016 between Norton Property Group and developer Ozzy States Pty Ltd also provided for a $22,000 retainer to Norton and allowed the agreement to be terminated by either party on the giving of 7 days’ notice.
Between August and December 2016, Norton signed the owners of lots within the site in Ashfield in Sydney’s Inner West to whom Ozzy paid option fees totaling $182k representing 1% of the agreed purchase price of each parcel.
During this period, Norton – operated by property strategist Christos Exarhos – invoiced Ozzy $401k for commissions due under their Buyers Agency Agreement.
The standard form REINSW agreement was regrettably not well suited for the agent’s role in that it did not specify whether an option for to purchase was a “contract” for the purposes of triggering commission payments and nor was it designed to accommodate an appointment in respect of multiple properties.
Presumably because Ozzy’s Remolo Nigro at least initially understood the deal required payment upon each option being secured, it paid $200k of the invoiced sum to Norton.
The viability of the development depended on all properties being acquired which proved unachievable. Ultimately Ozzy exercised none of the options.
In 2017, the developer filed a lawsuit in the NSW District Court to recover the $200k it had paid, less the retainer, on the basis that it had been paid by mistake and the agent had no entitlement to it.
Norton counterclaimed for the unpaid balance of its invoice, $201k.
The dispute was adjudicated by Judge Robert Webber before whom Ozzy argued Exarhos’ company should disgorge the funds it had received because of the misleading and deceptive conduct it had engaged in by issuing invoices for sums to which was not entitled because the options it secured were not “contracts”.
Those contentions found favour with the court which ordered Norton to repay the $200k it had received from the developer less the retainer to which it was always entitled.
On appeal, the developer conceded that its obligation to pay commission on a signed contract was not dependent upon them all being signed but insisted that none of the signed options qualified the agent for commission.
Justice Mark Leeming noted that just as the standard form agreement was not apt to accommodate the agent’s task to procure signed options, an argument as to the semantics of the document provisions was inappropriate where “the parties recorded their bargain in loose language”.
His Honour found the issues the court was nevertheless required to decide, to be finely balanced and difficult to resolve.
The commercial purpose – he noted – appeared relatively clear namely to place the principal in a position where it could apply for development approval and if it saw fit, acquire the land.
He had no difficulty in concluding that an option – annexing standard form contracts that would come into existence on the date and by virtue of its exercise – was capable of meeting the literal meaning of “a contract for the purchase” of the parcel to which it related.
“The best characterisation of the option agreements,” Justice Leeming observed “was that the grantors for valuable consideration promised to sell the property upon condition that the other party binds itself to perform the terms of the offer embodied in the contract”.
An “only slightly straining of the language” was needed – he reasoned – to conclude an option in relation to land was a land sale contract.
His Honour then pondered the differences between the two.
An option contract is different to the sale contract that results from its exercise. An option contract does not oblige the vendor or to convey title. Once the option is exercised, a contract for the purchase of the property comes into existence subsequent to the exercise of the option.
And considering the present dilemma it was relevant that the agent was to be paid $22k – “not a trivial sum” – in any event for its efforts, irrespective of obtaining or the exercise of the options.
“That tends to confirm,” His Honour decided, “that the balance of the buyer’s fee – which could be hundreds of thousands of dollars, dwarfing the retainer fee, was dependent upon the options being exercised”.
Thus with Justice Anthony Payne concurring, Norton’s claim for the remaining $201k it had invoiced the developer was dismissed.
Justices Leeming and Payne upheld the Norton’s appeal against the lower court’s misleading and deceptive conduct finding.
In their view, there was no basis for concluding that the agent’s claimed entitlement to fees was anything other than opinion that the fees were due and payable.
“A statement by a party to contract of a legal conclusion may frequently be nothing more than the expression of an opinion,” Justice Leeming wrote in his 25 page judgement.
The issue of the invoice for commission could therefore not be considered misleading or deceptive as a result of which Ozzy’s claim for repayment of the $200k it had “mistakenly” paid to the agent was dismissed.
The deadlocked result means neither party will recover any funds from the other but Norton holds on to the $200k it had already received.
The court also directed that neither recover any legal costs from the other in respect of either the appeal or the trial.
In dissent, Justice Richard White held that the agent had complied with its obligations under the Buyers Agency Agreement by signing up option contracts and ought to be entitled to recover its full commission for that work from the developer together with legal costs of the appeal and the trial.
Norton Property Group Pty Ltd v Ozzy States Pty Ltd (in liq) [2020] NSWCA 23, Leeming JA Payne JA and White JA. 21 February 2020 Read case
