Caduceus Enterprises International Pty Ltd v Complete Lending Pty Ltd
[2015] QDC 159
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- Unreported Judgment
- Caduceus Enterprises International Pty Ltd v Complete Lending Pty Ltd[2015] QDC 159
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Caduceus Enterprises International Pty Ltd v Complete Lending Pty Ltd[2015] QDC 159
Caduceus Enterprises International Pty Ltd v Complete Lending Pty Ltd[2015] QDC 159
DISTRICT COURT OF QUEENSLAND
CITATION: | Caduceus Enterprises International Pty Ltd v Complete Lending Pty Ltd [2015] QDC 159 |
PARTIES: | CADUCEUS ENTERPRISES INTERNATIONAL PTY LTD (plaintiff) v COMPLETE LENDING PTY LTD (first defendant) COMPLETE LENDING (No 2) PTY LTD (second defendant) |
FILE NO/S: | BD 2651/14 |
DIVISION: | Civil |
PROCEEDING: | Determination of questions before trial |
ORIGINATING COURT: | District Court of Queensland |
DELIVERED ON: | 19 June 2015 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 3, 5 December 2014 |
JUDGE: | McGill SC DCJ |
ORDER: | Questions answered:
|
CATCHWORDS: | CONTRACT – Interpretation – commercial contract – interpreting document as a whole – commercial purpose of document – businesslike interpretation CONTRACT – Consideration – entitlement to commission in respect of transactions – effect on accrued entitlement of termination of contract. EQUITY – Equitable assignment of part of chose in action – benefit of chose in action redirected by assignor to third party – whether remedy available to assignee against third party. Australian Broadcasting Corporation v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 – applied. Bamford v Investment Solutions (Aust) Pty Ltd [2015] QDC 12 – followed Barnes v Addy (1874) LR 9 Ch App 244 – applied. Barros Mattos Junior v MacDaniels Ltd [2005] 1 WLR 247 – distinguished. Re Bruynius [1995] 1 Qd R 492 – applied. Concut Pty Ltd v Worrell (2000) 75 ALJR 312 – cited. Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd [2014] QSC 265 – considered. Durham Brothers v Robertson [1898] 1 QB 765 – applied. Electricity Generation Corporation v Woodside Energy Ltd (2014) 88 ALJR 447 – applied. Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 – applied. Federal Commissioner of Taxation v Sara Lee Household and Body Care (Australia) Ltd (2000) 201 CLR 520 – cited. Friend v Brooker (2009) 83 ALJR 724 – cited. FTV Holdings Cairns Pty Ltd v Smith [2014] QCA 217 – applied. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 – cited. Lumbers v W Cook Builders Pty Ltd (2008) 232 CLR 635 – cited. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 – cited. MJ Arthurs Pty Ltd v Portfolio Housing Pty Ltd [2015] QCA 86 – considered. Moses v Macferlan (1760) 2 Burr 1005 – cited. Sellers v London Counties Newspapers [1951] 1 KB 784 - applied. Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 – applied. |
COUNSEL: | CC Heyworth-Smith QC and JP Morris for the plaintiff. BWJ Kidston for the defendants. |
SOLICITORS: | Johnsons Solicitors for the plaintiff. Mahoneys Solicitors for the defendants. |
- [1]The plaintiff is the corporate vehicle of a Ms Sullivan who was formerly employed as a finance broker within a group of companies belonging to a Mr Sample. In 2008 there was some change to the business of the group, and the first defendant was incorporated as the company through which finance was to be arranged for clients of the group. The plaintiff was incorporated so that through it her services were to be provided to the first defendant, for that purpose. The arrangement between the plaintiff and the first defendant was incorporated in a written contract, though there were later changes made to the terms of that contract. In early 2012 however the contract between the plaintiff and the first defendant was terminated.
- [2]Under the contract between the plaintiff and the first defendant, the plaintiff was to be paid remuneration in respect of services provided by Ms Sullivan in the form of commission relating to financial facilities arranged by the plaintiff in cases where the purchase of the property was settled. That commission was of two kinds: payment of a particular amount at the time when the purchase of the property settled, and payment of a periodic amount during the life of the financial facility. These were referred to as an “upfront commission” and a “trail commission” respectively. From the point of view of the lenders, the commissions were payable to the first defendant, and the contract between the plaintiff and the first defendant provided for the plaintiff to receive a percentage of the commissions payable by the lender.[1]
- [3]Upfront commissions and trial commissions were paid during the subsistence of the contract, but when the relationship terminated payments of trail commission to the plaintiff also ceased. In 2014 the plaintiff brought these proceedings, seeking damages for breach of contract, or in the alternative restitutionary relief against the first or second defendants or both, a declaration as to the plaintiff’s entitlement to its share of the trail commissions and an order that they be secured to the plaintiff. The involvement of the second defendant arises because in January 2013 the first defendant had the lender pay the ongoing trail commissions to the second defendant. In 2013 the first defendant was deregistered, but it was reinstated by order of the Supreme Court in 2014, no doubt to enable these proceedings to be brought.
- [4]The matter was placed on the commercial list on 26 September 2014, and on 10 October 2014 I ordered that the following questions be determined separately and prior to the trial of the action:
- (1)Did the plaintiff and first defendant enter into any and what written agreement and any and what subsequent variation of the written agreement in relation to the matters, the subject of this proceeding?
- (2)Is the plaintiff entitled to be paid trail commissions under that agreement as varied notwithstanding its termination?
- (3)If so, is the plaintiff’s entitlement to be paid trail commissions enforceable against the first defendant or the second defendant?
- (4)Whether the notice dated 12 August 2014 from the solicitors for the first defendant to the plaintiff was effective to reduce to zero percent that entitlement to be paid trail commissions?
- [5]The determination of those preliminary questions came on for hearing before me on 3 and 5 December 2014, when evidence was taken and argument was presented; judgment was reserved. Unfortunately, because of the time taken to complete reserved judgments in other matters tried earlier last year, I did not have time to prepare these reasons prior to taking a period of long leave this year, so that unfortunately the delivery of these reasons has been delayed. For that I apologise.
Background
- [6]The fourth question referred to above will not mean anything in the light of such explanation as I have given so far. At least for that reason it is appropriate that I set out more about the background to this dispute, as it emerged from the evidence led before me, since the factual situation is somewhat complex. Ms Sullivan who has some background in the banking industry began to work in 2002 for Sample & Partners, a mortgage reduction business; consultants such as her would arrange to refinance home loans of clients of the business: p 14. In time she became more involved in management work, including training others, and in 2008 she was involved in the restructure of the business in which the first defendant was set up: p 15.[2] As part of that restructure there was a company set up to sell investment properties, with the first defendant as financer to write loans to finance the purchase of those properties.[3] At that time she and her husband set up the plaintiff, as the vehicle through which her services would be provided to the first defendant.
- [7]For the purpose of setting up the business, and also negotiating remuneration for the plaintiff, she dealt with Mr Sample. Most of the negotiation were oral, but there was some exchange of emails. She also dealt with Mr Crouch, the solicitor who was Director of Corporate Services for the group: p 21. The remuneration of the plaintiff was agreed in an exchange of emails in mid-July 2008: Exhibit 3, Exhibit 4. There were then some negotiations about the terms of a contract. Ultimately there was a contract prepared by the first defendant which was executed on behalf of the plaintiff by Ms Sullivan: p 27.[4]
- [8]Ms Sullivan would visit persons who were proposing to buy investment properties and go through the finance details with them, and if they wanted to proceed would prepare and help them execute applications for finance to purchase the property: p 29. A lot of those visits did not result in settlements, because a lot of people changed their mind and did not proceed. Ms Sullivan said that during the original discussions it was agreed that her remuneration would be reviewed after six months, and she followed this up in April 2009; Exhibit 11. There was some oral negotiation and exchange of emails, but ultimately the new arrangements were confirmed in an email Exhibit 13: p 33. The effect of this was that she would provide training for new finance consultants, the plaintiff would receive 75% of the upfront and trail commissions on applications that she wrote herself in respect of loans formally approved from 17 April 2009, and it would receive 20% of upfront and trail commissions on applications written by other financial consultants that she had trained. In addition, the rate of 75% of trail commissions was to become applicable to loans which had previously settled. On her evidence this was an oral offer from the first defendant to the plaintiff which was accepted by the plaintiff by the email Exhibit 13. She said that this variation was implemented.
- [9]There was very little dispute between the parties as to the existence and effect of this variation. The plaintiff submitted that the defendants were asserting that the variation was expressly by reference to particular clauses in the existing written agreement, and I accept that there was no express reference to those clauses in the oral offer from the first defendant which was accepted by the plaintiff. Nevertheless, the clauses in the written agreement were the clauses which contained references to the percentages which had been varied by this further agreement. The defendants submitted that the plaintiff was contending that the effect of the variation was to substitute a new agreement for the previous agreement, rather than simply to vary the previous agreement. It is not at all clear to me that the plaintiff was actually so contending during the trial, but anyway my understanding of the position is that whether there is a new agreement or a variation of the earlier agreement depends on the express or inferred intention of the parties.[5] In the present case it seems to me that there is nothing to indicate that the parties intended to bring into existence a new contract generally, rather than simply to vary by agreement the existing contract between them. I find the effect of this variation was simply to vary the existing written contract to the extent agreed.
- [10]By the beginning of 2010 Ms Sullivan was finding the arrangement unsatisfactory because she was spending too much time on training consultants.[6] On 5 January 2010 she sent an email to Mr Purcell proposing that she would cease to train other consultants, and her remuneration would be increased to 85% of upfront and trail commissions: Exhibit 14.[7] She said that subsequently Mr Purcell said that that had been agreed to, and thereafter commission at that rate was paid: p 34. Again this involved an adjustment to the rate of commission on trail commissions for loans which had settled previously. So far as the evidence before me revealed, this amendment was not documented by the first defendant.
- [11]In 2010 there was a further change in the way things occurred. One of the matters agreed back in July 2008 was that the payment to the plaintiff would come directly from the aggregator: p 36.[8] That however was not put into place until August 2010, the plaintiff having previously sent invoices to the first defendant in respect of entitlements to commission.
- [12]In 2011 this part of the business of the group was not performing well, and by the end of the year it was clear that the business model was not working, and this business would be closed down.[9] In January 2012 there was a meeting between Ms Sullivan and Mr Sample and Mr Purcell at which Mr Sample said that the contract was being terminated.[10] The meeting was amicable up to the point where Mr Sample said that he was taking the trail, i.e. the trail commissions, at which point it seems to have degenerated into an argument. [11] There was no agreement to that effect. On 2 February 2012 Ms Sullivan received an email from Mr Crouch which offered her a consultancy on the basis of commission of 50% of upfront and 50% of trail commissions: Exhibit 17. Ms Sullivan said that the plaintiff had not been paid commission which was owing prior to termination on 12 February 2012, though there was a small amount of offset required in respect of a previous overpayment: p 43. Nor has any further payment of trail commission been made.
- [13]In January 2013 Mr Crouch asked the financier to pay the continuing trail commissions payable to the first defendant instead to the second defendant, and the financier has since complied: p 73. Following this, the first defendant was deregistered. The only other thing of consequence that happened was that on 12 August 2014, after the proceeding was commenced and the claim served on the defendants, the solicitors for the defendants wrote to the plaintiff purporting, pursuant to clause 8.2 of the written agreement, to reduce to 0% the entitlement to be paid trail commission. There is no dispute that such a notice was sent; its effectiveness is the subject of question four and I will come to that in due course.
Question 1
- [14]There was ultimately no dispute that on or about 7 August 2008 the plaintiff and the first defendant entered into a contract in writing in the terms of document 1 in Exhibit 8. It was also ultimately uncontentious that this written contract was the subject of two oral variations, on 6 April 2009, which increased the percentage of commission payable to the plaintiff and which provided for commission in respect of loans settled by other consultants who had been trained by the plaintiff, and in January 2010, by removing the obligation to train other consultants and the entitlement to payment of commission in respect of such other consultants, and increasing the percentage of commission payable to the plaintiff to 85%. The first question should be answered accordingly.
Question 2
- [15]The issue raised by this question is whether the termination of the agreement meant that the plaintiff’s entitlement to be paid trail commissions disappeared. It was not disputed that the agreement had been effectively terminated in February 2012. As a general proposition, the termination of a contract discharges both parties from the performance of future obligations under it, but does not have the effect of discharging the parties from rights which have accrued prior to termination in favour of either of them: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-7. This applies to rights to receive any consideration for which the contract provides, or rights to damages in respect of any breach of contract prior to termination.
- [16]These principles were applied by the High Court in Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361. In that matter the plaintiff was the agent of an American manufacturer of tractors and entered into an agreement with the defendant allowing the defendant to purchase those tractors on payment of a fixed price to the manufacturer, and a percentage commission to the plaintiff. The commission was payable on the arrival of each consignment in Australia, the tractors being sent directly by the manufacturer to the defendant in response to orders from the defendant. The agreement provided expressly that it would immediately terminate if the agreement between the plaintiff and the manufacturer was determined. That in fact occurred on 3 February 1925. Prior to then the defendant had ordered and taken delivery, in America, of a number of tractors but they did not arrive in Australia until after the termination of the agreement, and the defendant denied that it was liable to pay commission to the plaintiff under that agreement. Dixon and Evatt JJ in a joint judgment said at pp 379-80:
“When a contract comes to an end by reason of the occurrence of an event upon which the parties have by an express provision made it terminate, the question whether an inchoate liability arising thereunder does or does not become enforceable must in the end be governed by the intention of the parties. It is a rule of law that when a simple contract is discharged by the election of one party to treat himself as no longer bound after the other has committed a breach of the contract, rights and obligations which have already arisen from the partial execution of the contract shall remain unaffected (see McDonald v. Dennys Lascelles Ltd.). No doubt it is open to the parties to provide in advance for such an event and by a stipulation to the contrary to produce some other effect. When the parties themselves have provided for the determination of the contract on a given contingency, the consequences flow altogether from their contractual stipulation and are governed by their intention, either actual or imputed. In the present case, however, all the agreement expressly says is that in any of the specified events it shall immediately terminate and be at an end. In applying such a compendious provision to a continuing relationship of the complicated character which the agreement establishes some guidance may be found in the nature of the agreement and of the obligations to which it gives rise. But primarily it remits the inquiry to a general consideration of what is involved in the sudden termination of an executory agreement under which liabilities are accruing from day to day. We are concerned only with a liability to pay a liquidated demand. In general the termination of an executory agreement out of the performance of which pecuniary demands may arise imports that, just as on the one side no further acts of performance can be required, so, on the other side, no liability can be brought into existence if it depends upon a further act of performance. If the title to rights consists of vestitive facts which would result from the further execution of the contract but which have not been brought about before the agreement terminates, the rights cannot arise. But if all the facts have occurred which entitle one party to such a right as a debt, a distinct chose in action which for many purposes is conceived as possessing proprietary characteristics, the fact that the right to payment is future or is contingent upon some event, not involving further performance of the contract, does not prevent it maturing into an immediately enforceable obligation.
In the present case the thirty-two tractors had been delivered before the termination of the contract. On behalf of the respondent company, which under the agreement occupies the position of a vendor, the price payable to the vendor's supplier had been paid by the appellant company and the property had under the agreement passed to it. In point of law the percentage formed part of the price payable to the respondent company as vendor. Its payment, however, was by the terms of the contract deferred until the arrival of the goods at Fremantle. This contingency depended upon external events constituting no part of the performance of the contract. The right to payment, no doubt, was at the time of the termination of the agreement contingent but it was a debt otherwise completely vested in the respondent company as creditor. The termination of the agreement did not prevent it becoming absolute on the occurrence of the contingency.
For these reasons we are of opinion that the determination of the agreement affords no answer to the respondent company's claim.”
- [17]Part of that passage was quoted and applied recently by the Court of Appeal: MJ Arthurs Pty Ltd v Portfolio Housing Pty Ltd [2015] QCA 86 at [10]. There was no dispute in that matter as to the applicability of those general propositions, the issue on appeal being whether the trial judge was correct to conclude that as at the date of termination of the oral agreement between the parties one of the parties had in respect of a number of properties done everything which was required of it under the agreement in order to earn the consideration provided for in the agreement in respect of that property.
- [18]This approach has also been applied in relation to the termination of the employment of a commercial traveller who was selling advertising and entitled under his contract of employment to commission in respect of each instance of publication of an advertisement arranged by him: Sellers v London Counties Newspapers [1951] 1 KB 784. It was common ground that the issue was one as to the exact terms of the contract, but the majority, noting that there was no express statement in the contract that all rights to commission ended with the termination of the employment, approached the matter on the basis that the plaintiff was entitled to commission on orders obtained during his employment even if the entitlement to be paid that commission was postponed until the printing of the advertisement, where that occurred after his employment had been terminated. Birkett LJ said at p 802:
“To decide otherwise would be to decide that, although the plaintiff had fulfilled his part of the contract, having obtained the orders in the course of employment, and although the defendants had printed them and thus had the benefit of his work, nevertheless he was not to have what the contract promised him, because when the time for payment came he had been dismissed.”[12]
- [19]The approach of the majority was applied by McGinness DCJ in Bamford v Investment Solutions (Aust) Pty Ltd [2015] QDC 12 at [130].
- [20]It is therefore important to consider carefully the terms of the contract in writing between the parties. It does not seem to me that either of the variations of the agreement changed the terms of that contract in any respect material to this issue. The document provided in clause 1 for the plaintiff to carry out the services described in schedule 1, clause 2 contained various warranties which are not immediately relevant, and clause 3 provided that the first defendant “may assign the benefit of this agreement at its discretion provided that any assignee enters into a covenant to comply with the terms of this agreement.” The clause went on to prevent the plaintiff from assigning the benefit of the agreement without the consent of the first defendant, and provided for notice of any contemplated change in the ownership or control of the plaintiff’s business.
- [21]Clause 4 contained a number of provisions which appear to be designed to ensure that the relationship created was a contract for services rather than a contract of service, and there were further such provisions in clause 9. Clause 5 contained an obligation of the plaintiff to work exclusively for the first defendant, to respect the first defendant’s confidential information and intellectual property, and provided for a restraint on the plaintiff’s ability to solicit the custom of certain persons following the termination of the agreement. Clause 6 provided for insurance and for an indemnity in respect of any loss, damage or injury to the first defendant caused by the plaintiff, its employees or agents, and clause 7 required the plaintiff to comply with its legal obligations.
- [22]Clause 8 provided relevantly:
“8.1 The company shall make payments to the contractor as provided for in schedule 2 to this agreement provided that the services have been properly supplied in accordance with the terms of this agreement.
8.2 Schedule 2 may be changed at the discretion of the company at any time by the giving of seven days’ notice.
8.3 All tax invoices issued by the contractor must strictly comply with the requirements of schedule 2.
8.4 The contractor shall issue a tax invoice to the company any time during business hours from the day after settlement has taken place.
8.5 Payment for the work carried out pursuant to the tax invoice supplied shall be effected by the company within seven days of having received the tax invoice.
8.6 The company reserves the right to defer payment due to the contractor if there is work remaining to be carried out by the contractor with respect to any of the works whatsoever.”[13]
- [23]Clause 10 appointed the plaintiff the first defendant’s agent for certain purposes under the Financial Transactions Reports Act 1988. Clause 11 dealt with termination of the contract. It provided for its termination on 30 days written notice by either party; it also provided for termination in various other situations such as breach by the plaintiff or its employees of certain obligations. The clause then continued:
“11.2 Upon termination all obligations of the company and the contractor shall cease except the contractor’s obligations under clauses eleven, four, five and two.
…
11.4 The contractor acknowledges that as a result of the termination of this agreement for whatever reason or howsoever arising, that the company may need to appoint another contractor for the express purpose of ensuring that all products and services provided to the company or its clients are in fact provided and received and further acknowledges and agrees that:
- (a)the company may need to proportion or redirect any commission entitlements or payments due to the contractor to another contractor for the purpose of ensuring that provision of the product or service to the company or its clients.
- (b)pursuant to 11.4(a) it is expressly agreed between the contractor and the company that the commission and/or payment for all such circumstances aforementioned shall be apportioned on an equal basis.
- (c)where the contractor is required by the company to provide services to the company or its clients who have previously been serviced by another contractor, the contractor agrees that any services rendered by it to the company or the company’s clients shall attract an entitlement of only one half of the contractor’s ordinary commission in earnings per schedule 2 of this agreement.
11.5 On termination of this agreement and prior to any accrued commissions being paid, the contractor must return to the company [certain things set out].”
- [24]Clause 12 dealt with the confidential information, clause 13 with the computer software user license, clause 14 contained an acknowledgement that each party had the opportunity to seek separate legal advice prior to signing the agreement, clause 15 provided for severability of any invalid part of the agreement, clause 16 contained a condition precedent for arbitration, clause 17 an address for service, clause 18 a “non-waver” provision, while clause 19 provided that the agreement should be construed and take effect according to the laws of Queensland. Schedule 1 set out the services required: it is sufficient to note that the services required in relation to clients speak generally in terms of things to be done prior to settlement of their loans.
- [25]Schedule 2 which dealt with the “contractors fee” provided as follows:
“1. For the duration of this agreement the contractor shall be paid a commission fee following settlement directly from the aggregator FAST as follows:
- (a)60% of the upfront commission payable on any one matter
- (b)60% of the trail commission payable on any one matter.
2. If for any reason the commission received by the contractor in any one quarter does not exceed $21,249 then the contractor will be paid by the company the difference between that which is received and the said sum of $21,249. The contractor will invoice the company in respect of the said difference in commission earned and the sum of $21,249 at the end of each quarter.
3. In the event of termination of this agreement by any means outlined in the agreement, the company may vary the timing of payments or part payments of the above contractor fee to reflect the timings for the fulfilment of the duties outlined within the agreement with particular reference to the first schedule and clause 7 contained herein. The fees to be paid will be apportioned on the basis of the above-applied fee to work completed and funds received for work to be completed. Contractors shall at all times be paid proportionately for work completed on all settled files.”
Consideration
- [26]The agreement is obviously badly drafted. For a start, there is a good deal which is not clearly defined or even clearly identified, such as the meaning and content of the expressions “upfront commission” and “trail commission”. A certain understanding of the context in which the agreement was to operate is therefore necessary in order to work out exactly what the agreement provided. In relation to the effect of termination on obligations under the contract, it seems to me that there are a number of provisions which provide some indication each way. Clause 11.2, for example, provides on the face of it that all obligations cease except certain obligations of the plaintiff. There are provisions in clauses five and eleven which on their face one would expect to operate after termination, though it is difficult to see why there should be a general extension to post-termination operation of clauses two and four. The defendants submitted that the wording of clause 11.2 was sufficiently broad to indicate that even accrued obligations in respect of commission were discharged by termination of the contract, but such an interpretation is plainly inconsistent with clause 11.5, which expressly contemplates the payment of accrued commissions after termination of the agreement.[14] It seems to me that a more natural interpretation of clause 11.2 is that it simply restates the ordinary position, that future obligations of the parties under the contract are discharged.
- [27]There is also the curious provision in clause 11.4, which appears to contemplate the appointment of a new contractor to complete work which has been left incomplete by the contractor upon the termination of the agreement, and to provide for the apportionment of commission which becomes payable as a result of the completion of that work between the contractor and the new contractor. That seems to mean that, if the contractor had started dealing with a particular client prior to the termination that the contract but had not reached the point where commission became payable and another contractor did further work with the client to achieve that result, some commission would still become payable to the contractor under the agreement, notwithstanding that it had not, prior to the termination of the contract, done everything required of it under the agreement in order to earn payment of that commission. This is more generous to the plaintiff than the common law position.
- [28]There is also the considerations that, if clause 11.2 has the wide interpretation sought to be placed on it by the defendants, it would discharge any accrued right to upfront commission as much as to trail commission. It seems clear from schedule 2 that the upfront commission in respect of a particular loan becomes payable upon settlement of that loan. Clause 11.5 refers expressly to “accrued commissions”, and on its face is inconsistent with the notion that upon termination of the agreement accrued commissions which have not yet been paid cease to be payable. This clause clearly provided that the right to accrued commissions continues after termination of the agreement, although payment may be postponed until certain matters have been attended to by the plaintiff. This is also inconsistent with the interpretation sought to be placed on clause 11.2 by the defendants.
- [29]It was submitted for the defendants that clause 11.4 does not upon its proper construction operate in respect of trail commissions, because the definition of “service” was limited to duties that need to be performed up to and including settlement of the loan. I accept that, and indeed agree with that interpretation, but it does not answer the point that, even so interpreted, clause 11.4 is inconsistent with the notion that clause 11.2 means that there is no obligation on the company to make any payment of commission after termination of the contract. Clause 11.2 does not on its face distinguish between upfront commission and trail commission, or indeed between any other categories of obligations of the company. Either it means that the effect of termination is that any obligations of the company to make any payment in respect of anything ceases, or it is simply stating the common law position that upon termination any continuing obligations on the company, which might otherwise mature into accrued right to commission, would cease. Apart from being consistent with the other provisions to which I have referred, that interpretation would be consistent with the exclusion from the operation of clause 11.2 of certain continuing obligations of the contractor. In effect, the function of the clause is to provide that certain future obligations on the contractor will survive termination of the contract.
- [30]It was contended for the defendants that schedule 2 did not give rise to an accrued or unconditional right to payment of trail commissions as such payment was conditional upon the agreement remaining on foot. That argument was advanced on the basis of the introductory words of clause 1 of schedule 2 “for the duration of this agreement”. Those words, read literally and out of context, would suggest that any obligation to pay the contractor continued only while the agreement was in force, but there is the same difficulty in reading those words in that way because, on their face, they apply as much to the upfront commission as to the trail commission. Given the other provisions of the agreement to which I have referred, it seems to be clear that the agreement interpreted as a whole indicated that upfront commissions which had accrued but had not in fact been paid at the time of termination of the agreement remained payable, and it follows that these words should not be given the wide interpretation contended for by the defendants.
- [31]Apart from the earlier provisions, to which I have referred, dealing with termination, clause 3 of schedule 2 also dealt with the timing of payments or part payments in the event of termination of the agreement, a provision which was inconsistent with the notion that in the event of termination of the agreement any obligation on the part of the company to make any payment of commission which has not already been paid will disappear. Clause 3 of schedule 2 appears to be an attempt to cover the same ground as clause 11.4, in a way which may be difficult to reconcile with it, and is really just a further indication of how badly the agreement has been drafted. Fortunately what the contract provides in such a situation does not have to be decided. For present purposes the significance of clause 3 of schedule 2 is that it is inconsistent with the proposition that the effect of clause 1 is that upon termination of the agreement any obligation on the part of the company to pay unpaid commission disappears. Once that interpretation has gone, there is no rational basis to interpret clause 1 in a way which distinguishes between accrued but unpaid upfront commission and accrued but unpaid trail commission, payable on any one matter.
- [32]It seems to me that a more reasonable and businesslike interpretation of clause 1 of schedule 2 is that it provides an entitlement to commission following settlement during the continuation of the agreement, in other words, the introductory words relate to and limit “settlement” rather than the obligation to make a payment. Commission is earned by reference to the settlement of matters during the operation of the agreement. This would then be subject to the specific provisions in the contract dealing with matters worked on prior to the termination of the agreement where the settlement occurs subsequently, dealt with in clause 3 of schedule 2 and clause 11.4. That I accept would not be the more natural literal interpretation of the words, but in my opinion reflects what a reasonable business person would have understood those words to mean in context. I do not consider that they have the effect that the obligation to pay trail commission is conditional upon the agreement remaining on foot, nor that the first defendant would be released from any accrued obligations in respect of any particular matter under this clause in the event of termination of the agreement.
- [33]This interpretation is reinforced by the principal that a court is entitled to approach the task of interpretation of a commercial contract on the basis that the parties intended to produce a commercial result. In Electricity Generation Corporation v Woodside Energy Ltd (2014) 88 ALJR 447 the High Court said at [35]:
“The meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context and the market in which the parties are operating.’ As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result.’ A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”
- [34]The notion that the right to continue to receive trail commissions would cease on the termination of the contract would at least amount to the working of a commercial inconvenience, and be objectively unreasonable. The agreement was brought into existence in the context where lenders would pay commission in respect of financial facilities provided by them, with the commission including payment of a continuing commission during the subsistence of the financial facility. The commercial purpose to be secured by this contract was to arrange for the plaintiff to be the person who dealt with the customer with a view to putting in place such a financial facility, which, if put in place, would give rise to an entitlement on the part of the first defendant to commission from the lender, and it provided for remuneration for the plaintiff by means of a share of that commission.
- [35]The share of the trail commissions was obviously an important part of that remuneration. That is clear from Exhibit 16, which recorded a claim for commission as at 21 January 2012, though it was actually prepared by the aggregator: p 37. In that document the value of the trail commissions, $5,304.30, was not much less than the value of the upfront commissions, $6,196.69. There were seven upfront commissions, whereas trail commissions were payable on 228 transactions, and I expect in the next invoice there would have been trail commissions payable on 235 transactions, less any which had been brought to an end, i.e. payed out or defaulted, during that period. I would expect that most loans to finance the purchase of investment properties would run for a number of years, probably of the order of 10 or 20 years, so that in the long term the value of trail commissions would be a significant part of the remuneration of the plaintiff.
- [36]The position is similar to that discussed by Birkett LJ in the quote from Sellers (supra), a state of affairs which his Lordship plainly regarded as unreasonable. The interpretation for which the defendants contend would be unreasonable and for that reason uncommercial. No doubt the first defendant could have sought the inclusion of such a term in a properly drawn contract and, if the plaintiff had agreed to it, that would be the end of the matter, though I venture to doubt whether the plaintiff would ever have signed a contract containing such a term. In the present case where the contract is ambiguous, in my opinion this consideration favours an interpretation which is more reasonable and more commercial in its effect, and for that reason is to be supported.
- [37]There was an argument advanced for the defendants that the plaintiff had not done all that was required of it to give rise to an accrued right under the agreement to trail commission in relation to any particular transaction, because there was an ongoing obligation to service clients while the facility was in place, and once the contract was terminated that was taken over by the first defendant.[15] That argument is wrong, for two reasons: first, no such obligation was imposed on the plaintiff by schedule 1, which set out what the plaintiff had to do; second, clause 1 of schedule 2 clearly provided that the right to both commissions arose on settlement, that is, on settlement of a particular transaction.
- [38]Once that had occurred, what the plaintiff had was an accrued right, something which was really different from a right under the contract. As pointed out in West Australian Farmers (supra), once all the facts have occurred which entitle one party to a right under a contract as a debt, there comes into existence “a distinct chose in action which for many purposes is conceived as possessing proprietary characteristics”. This is something which is enforceable regardless of the fact that the contract under which it came into existence is itself no longer in existence. It follows that the entitlement to enforce that right is something which, although arising out of the contract, strictly speaking does not exist under the contract. For that reason question 2 may have been unfortunately framed, and should have been expressed as: “Is the plaintiff entitled to be paid trail commissions arising out of that agreement as varied notwithstanding its termination?” That in substance asks whether the plaintiff is entitled to enforce the distinct chose in action which arose once it had done everything required of it under the contract in respect of a particular financial transaction to earn commission in respect of that transaction. So understood, the answer to the question is “yes”.
Question 3
- [39]Once one gets to that point, there is no doubt that that chose in action is enforceable against the first defendant. The chose in action is one which lies against the first defendant, and there is nothing which would prevent its enforceability. The real issue, and the issue which was particularly debated, is whether the plaintiff has any cause of action against the second defendant. It was submitted for the defendants that there had been no assignment of the benefit of the contract with the plaintiff from the first defendant to the second defendant, and that is plainly correct; the contract had been terminated, and the benefit of it could not have been assigned after termination. What the evidence does reveal however is that the first defendant arranged with the aggregator for the trail commissions still being paid under the aggregator’s obligation to be paid to the second defendant rather than to the first defendant.[16]
- [40]The plaintiff has pleaded that the first defendant arranged for the continuing trail commissions to be paid to the second defendant rather than to it, and that this occurred at some stage between February 2012 and January 2013, and is presumably still occurring. It was further alleged that the second defendant had knowingly received commission payments rightfully due and payable to the plaintiff, and had been unjustly enriched, held the commission payments on trust for the plaintiff, and continued to receive commission payments, the right to which rested with the plaintiff. It was further alleged that the second defendant had knowledge of the facts and circumstances of the contractual obligations and liabilities of the first defendant, that Mr Sample was the controlling mind of each of the defendants, and that the payments received by the second defendant were received without consideration.
- [41]The defendants admitted that on or about 17 January 2013 the first defendant directed the aggregator in respect of financial products settled on its behalf (including those settled by the plaintiff on its behalf) to thereafter pay all ongoing trail commissions to the second defendant. Whether Mr Sample was the controlling mind of the first and second defendants was contentious on the pleadings, and evidence was called with a view to showing that that was not the case. There was however no dispute before me that from about January 2013 the trail commissions were paid by the aggregator to the second defendant.
- [42]In circumstances where the plaintiff is entitled to receive a share, indeed the bulk, of those continuing trail commissions paid by the aggregator, and they have in fact been received by the second defendant, it can be said that to that extent the second defendant has been unjustly enriched at the expense of the plaintiff, but it does not necessarily follow that there exists a restitutionary remedy. The High Court has cautioned against the notion that a restitutionary remedy will exist simply because one party has been unjustly enriched at the expense of another.[17] It is necessary to consider whether any right to relief arises in some established category of case. It is therefore preferable to turn to a more conventional analysis of what has occurred.
- [43]Here, the first defendant was entitled to receive upfront commissions and trail commissions from the aggregator in respect of financial transactions put in place,[18] a chose in action held by it once it had done everything required of it in order to secure such commission in respect of a particular transaction. By the contract between the plaintiff and the first defendant the first defendant agreed for consideration that in certain circumstances the plaintiff would receive a percentage of those commissions. In this situation, the agreement between the plaintiff and the first defendant that the plaintiff would be paid a share of the commissions operates as an equitable charge upon such commissions, or an equitable assignment of part of such commissions, that is to say an equitable charge on, or an equitable assignment of part of, the first defendant’s chose in action in respect of such commissions.
- [44]That is the effect of the decision of the Court of Appeal in Re Bruynius [1995] 1 Qd R 492, where it was held that an equitable assignment required no particular form of words and an engagement or direction to pay out of a debt or fund a sum of money constitutes such an equitable assignment though it does not operate as an assignment of the whole fund or debt.[19] That decision was cited with approval by the Court of Appeal in FTV Holdings Cairns Pty Ltd v Smith [2014] QCA 217 at [44], a case where debtors who owned some real property had given to a creditor an irrevocable authority to their solicitor to pay a particular amount to the creditor out of the proceeds of sale of the property. Fraser JA, with whom the other members of the Court agreed, said in that paragraph:
“…immediately upon the proceeds of the sale of the borrowers’ house coming into existence the borrowers held part of those proceeds sufficient to discharge the appellant’s debt upon trust to pay the appellant, and in the meantime the appellant held an equitable right which was ‘a higher right than the right to have specific performance’ of its contract with the borrowers.”
- [45]In fact when the property was sold the borrowers instructed the solicitor not to pay any of the proceeds of sale to the appellant but to pay the balance after discharging the mortgage to them. That was characterised as a breach of fiduciary duty, because it was “designed to produce a breach of the borrowers’ prospective duty as trustees to pay the relevant part of the proceeds to the appellant. Secondly, at settlement the borrowers received the whole of the balance proceeds of sale without accounting to the appellant for its debt and, thirdly, after settlement the borrowers retained the resulting credit balance in their bank. Those were breaches of the borrowers’ fiduciary duty as trustees to pay the relevant part of the proceeds to the appellant.”
- [46]Applying that reasoning to the present case, the contract between the plaintiff and the first defendant amounted to an equitable charge or assignment in favour of the plaintiff of part of the first defendant’s chose in action in respect of commission against the aggregator, so that the first defendant thereafter held that chose in action as a trustee to pay the relevant part of the proceeds to the plaintiff. By arranging for those proceeds to be paid instead to the second defendant, the first defendant was in breach of its duty as trustee. That gives rise to equitable remedies against the first defendant, but whether it also gives rise to an equitable remedy against the second defendant depends on whether there is a proprietary remedy, or whether the case falls within one or other limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244 at 251-2. As to the latter, the relevant passage was quoted by Fraser JA in FTV at [48]. The two limbs are respectively those who receive and become chargeable with some part of the trust property, and those who assist with knowledge in a dishonest and fraudulent design on the part of the trustees.
- [47]In that case it was said at [53] that the borrowers had breached their fiduciary duties dishonestly and fraudulently in failing to pay the creditor from the proceeds of sale, and that the solicitor knew the facts from which that should be inferred.[20] In that case it was held that there was no application of the first limb in Barnes v Addy because there was no evidence that the solicitor had ever actually received either the bank cheque on settlement or the proceeds of sale except for a small sum in respect of his fees. In the present case however, the second defendant has received the trust property, that is to say the plaintiff’s share of the trail commissions. It is chargeable if it received it with notice of the trust.[21] At the relevant time, Mr Crouch, who arranged the transfer and was Director of Corporate Services for the group, and hence of both defendants, knew of the plaintiff’s claims: p 84. So did Mr Sample: p 108. It has not pleaded and proved that it received them as a bona fide purchaser for value without notice of the plaintiff’s equitable interest in them.[22] If the second defendant had notice of the plaintiff’s interest, the plaintiff’s entitlement to be paid trail commissions is enforceable, to that extent, against the second defendant.
- [48]If so, it is probably unnecessary to embark on the question of whether the second defendant was also liable under the second limb of Barnes v Addy, on the basis that it was knowingly concerned in the breach of trust of the first defendant, in arranging for the commission to be paid to someone else by the aggregator, thereby putting it out of its power to pay the plaintiff its share. It was said that the borrowers’ action in FTV was dishonest and fraudulent for the purposes of this rule. If the first defendant’s action in the present case was dishonest and fraudulent, the question is whether the second defendant had knowledge of this. What is required is one of the four categories of knowledge identified in the passage quoted by Fraser JA at [51]:
“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man.”
- [49]The case advanced by the plaintiff was that the relevant knowledge was held by the second defendant because Mr Sample was the controlling mind of the second defendant, and that knowledge was possessed by him.
- [50]There was evidence in the form of ASIC searches about the first defendant (Exhibit 20) and the second defendant (Exhibit 21). These show that the first defendant was registered on 19 May 2008 and at that time had one director, Mr Purcell. He ceased to be a director on 23 October 2012, when Mr Decru became the director, a position he continued to hold until the company was deregistered on 21 June 2013. Mr Purcell and Mr Decru respectively also held the office of secretary of the company over the same times. When the company was initially incorporated the sole shareholder was GMS Group Nominees Pty Ltd. On 25 June 2008 25 of that company’s 100 shares were transferred to Mr Purcell and his wife and on 28 October 2009 a further 10 of them were so transferred. On 10 January 2013 all of the shares in the company were transferred to GMS Group Holdings Pty Ltd.
- [51]The second defendant was incorporated on 24 February 2012. At that time Mr Decru became the director, the position he retains. At the time of incorporation there were 99 shares issued, 33 held by each of Mr Decru, GMS Group Nominees Pty Ltd and DRP Financial Services Pty Ltd. GMS Group Nominees Pty Ltd transferred its shares to SWH Investments Pty Ltd on 24 February 2012, and on 6 June 2012 DRP Financial Services Pty Ltd transferred all its shares, and Mr Decru transferred 8 of his shares, to SWH Investments Pty Ltd. Then on 6 September 2012 both that company and Mr Decru transferred all their shares to GMS Group Holdings Pty Ltd.
- [52]I also have an ASIC search for GMS Group Nominees Pty Ltd: Exhibit 23. That company was incorporated on 13 March 2000, when Mr Sample became the director; there was another director only between September and October 2010. Mr Sample is and has always been the only shareholder. Exhibit 22 is the ASIC search on GMS Group Holdings Pty Ltd. It was incorporated on 29 July 1997. Mr Sample is the only director, and has been since 26 October 1998. He is also the only shareholder. Mr Sample also said that he was a director of GMS Group Queensland Pty Ltd, which has since 1997 traded under the name Sample and Partners: p 87.[23]
- [53]Mr Sample said that he had some discussions with staff when the new business venture, of selling house and land packages with finance arranged by the first defendant, was set up: p 88. He said that once the company had been established his ongoing involvement was nil: p 90. The house and land packages were sold by a company Australian Property Directions Pty Ltd, of which Mr Purcell was also a shareholder, and the general sales manager: p 117. The effect of this was that he was running the business of that company on a day to day basis: p 118.
- [54]Mr Sample said he was told that the businesses were in a very poor financial position a couple days or a week prior to the meeting where he told Ms Sullivan that the plaintiff’s contract would be terminated: p 90. He said when told this he came straight to Brisbane and had a meeting with Mr Purcell, after which staff were let go and the business was put into voluntary administration: p 91. He said that he was in the meeting with Ms Sullivan in January 2012 at the request of Mr Purcell because he, Mr Purcell, was going through a breakdown at that time: p 92. Mr Sample said that his standard practice with all consultants that he has had over the years is that no trail commission was paid after the contract was terminated: p 89. He said that the second defendant was set up with a view to pursuing a different business, refinancing home loans in an environment of interest rates coming down, and it did mortgage broking work in the context of refinance only: p 92.
- [55]According to Mr Crouch, the decision to redirect the continuing trail commissions from the first defendant to the second defendant was made by him, because by the beginning of 2013 the first defendant was no longer trading, and had no function other than to receive the trail commissions: p 73, 83. Mr Crouch said that at regular meetings the group’s accountants pointed this out and suggested that the trail commissions be redirected and the company wound up. He agreed with this, and he decided to take that course. He said that it was his decision, and he was not directed to do it by anyone else, though he did inform Mr Sample: p 84.[24] The second defendant at that stage was trading, in the business of arranging refinancing of mortgages, having been set up with that purpose when the decision was taken that the investment property selling business would be discontinued.
- [56]Mr Purcell said that the similarity of name was because of what he described as the “intellectual property” available in the office: p 122; I take it that this means signs, brochures, letterheads and other things like that, with the name “Complete Lending” on them. This material was then reused by the second defendant in its business. It was submitted that there was no reason why the first defendant could not have conducted that business, and that the setting up of the second defendant and the transfer of the trail commissions to it were a scheme to deprive the plaintiff of the benefit of its right in those commissions, but this was denied by the defendants’ witnesses, and on the whole it seems to me that the explanation given by those witnesses is plausible. After all, the first defendant was set up when the new business of selling investment properties was established, and it would be unsurprising if the same thing happened when this other new business started. Mr Sample may find it convenient to have separate companies for each distinct part of his business.
- [57]On the question of whether Mr Sample was the controlling mind of both companies, it is clear that both of these companies were companies within the group of companies that was controlled by Mr Sample. Within the group overall, he was the “boss”. Mr Crouch spoke of telling him everything that mattered, and spoke of the first defendant as “one of his companies”: p 85. At the time when these trail commissions were redirected to the second defendant, the sole shareholder of each defendant was a company of which Mr Sample was the sole director and shareholder. Each of the defendants had only one director, the same person, Mr Decru, who was not called, nor so far as the evidence goes even consulted about this change. Mr Crouch evidently regarded it as being within his authority as director of corporate services for the group to make the change himself.
- [58]Mr Crouch said he discussed the change with Dan (p 74 line 37), presumably a reference to Mr Purcell, but this must have been a mistake on his part because Mr Purcell had gone as director of the first defendant long before January 2013, and was not involved in this decision: p 132.[25] This error I think reflected Mr Crouch’s attempts to diminish the significance of Mr Sample in relation to the operation of these companies. Another example was at p 80 line 27 when he was asked what he did when he received Exhibit 6 and answered that he discussed it with Mr Purcell; it emerged that he had also discussed it with Mr Sample. Again, this appeared to be part of a deliberate attempt on his part to downplay Mr Sample’s involvement in the business. In those circumstances, I do not regard Mr Crouch as having given frank and reliable evidence, in relation to this aspect of the matter at least, and I am wary about the reliability of his evidence generally, but obviously there are parts of his evidence on which I am prepared to act.
- [59]Mr Sample in his evidence displayed a hearty, down to earth manner which I thought was contrived, in order to justify the superficiality of his evidence and his inability to recall anything very much about the details of the transactions. He was also obviously seeking to distance himself from these companies. He said at p 90 that his ongoing involvement with the first defendant after the plaintiff’s services had been retained was nil. That was not true. He may well have left the day to day running of the business to Mr Purcell, or indeed others, but he remained involved: Mr Crouch had discussed Exhibit 6 with him, as just noted. He approved the plaintiff’s remuneration in 2008,[26] was the person who agreed to the variation of the contract in 2009, and was consulted about the second variation.[27] Mr Purcell spoke to him about the first defendant once or twice a month: p 119. Further, in August 2011 he requested daily updates on all files, at a time when APD was in some financial difficulty: Exhibit 27. This was well before January 2012 or late December 2011 when he claimed he had been told of that difficulty. I need not multiply examples; I do not regard Mr Sample as a reliable witness. It does not mean however that his evidence amounts to evidence to the contrary.
- [60]On the other hand, Ms Sullivan gave evidence in a straightforward and persuasive way, made reasonable concessions under cross-examination, and was not shown to be unreliable. I accept her evidence and prefer it to that of Mr Sample, although there is little if any direct conflict. Mr Sample had little recollection of the conversations with her in 2008, and no recollection of the meeting in 2009: p 96, 104. I do not think that there was any conflict between her evidence and that of Mr Purcell, who appeared to be fairly frank, but given the problems he was facing, and my favourable impression of Ms Sullivan, if there is a conflict, I prefer the evidence of Ms Sullivan.
- [61]I think it is clear enough that Mr Sample was the person in control, and hence the controlling mind, of the group as a whole. These companies were part of the group; Mr Crouch as director of corporate services to the group was happy enough to deal with their arrangements, subject to keeping Mr Sample informed. Mr Sample may well have allowed subordinates such as Mr Purcell and Mr Crouch to handle day to day matters within the group, but clearly if he wanted to exert his authority he was in a position to do so, and he was told of anything of significance that his subordinates did. In my opinion, that makes him the controlling mind of the companies in the group, and hence of both defendants.
- [62]It does not necessarily follow that the second defendant is liable under the second limb of the rule in Barnes v Addy. One of the requirements of that limb is that the third party be knowingly concerned in a dishonest and fraudulent design on the part of the trustee or fiduciary. That requires some element of conscious dishonesty, at least on the part of the trustee. In Farah Constructions Pty Ltd (supra), it was held that a misrepresentation by the trustee was not dishonest or fraudulent because the individual concerned might not necessarily have appreciated the difference between the true facts and the way in which the representation was expressed, a relatively subtle difference rather than something which was blatantly false. In the present case, all of the defendants’ witnesses seemed to take the view that the effect of the contract with the plaintiff was that trail commissions ceased to be payable if the agreement was terminated.[28] I have concluded that that was not the correct interpretation of that contract, but it does not necessarily follow that any view of the operation of the contract to the contrary would have to have been dishonest and fraudulent.
- [63]If the first defendant knew that the plaintiff was entitled to the trail commissions and deliberately had the commissions transferred to the second defendant in order to prevent the first defendant from paying them, that would be a dishonest and fraudulent design; but if the people concerned honestly believed that the plaintiff had no claim, their design was not dishonest or fraudulent, unless it was one which any reasonable person would have characterised as dishonest or fraudulent. In the present case, I am not persuaded that either Mr Sample or Mr Crouch did not honestly believe that the plaintiff was not entitled to recover the trail commissions, nor am I persuaded that no reasonable person could hold that view. It follows that I am not persuaded that in the present case there was any dishonest or fraudulent design, and accordingly the plaintiff is not entitled to succeed under the second limb in Barnes v Addy.
- [64]On the other hand, the first limb in Barnes v Addy is applicable in circumstances where the second defendant received the trail commissions from the aggregator, so long as the second defendant received them with notice. For this limb, notice, that is, knowledge of facts which would put an honest and reasonable person on enquiry, is sufficient. Both Mr Sample and Mr Crouch had notice of the plaintiff’s claims. Mr Sample was present at the meeting when the plaintiff first claimed the trail commissions, and Mr Crouch admitted that he was aware of the claims at the time when the trail commissions were redirected to the second defendant. Given their positions, that notice was in my opinion attributable to the second defendant. Accordingly, the second defendant is liable under the first limb of Barnes v Addy.
- [65]The second defendant is also liable on a simpler basis, that it is the alter ego of the first defendant. In Farah Constructions Pty Ltd (supra) the court held that a company that was the alter ego of a person who was liable to account to a beneficiary for benefits received was on that basis also liable to account: [110], [128]. In Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd [2014] QSC 265, Jackson J at [101] expressed some concerns about the principled basis for this approach, but at [103] noted that Farah Constructions had accepted the corporate alter ego basis of third party company liability. As he noted the defaulting trustee or fiduciary would not escape personal liability by having the benefits received by an alter ego company rather than himself, but it may be in the plaintiff’s interest to have a remedy against the company rather than the individual trustee. That is illustrated by the present case, where the plaintiff is particularly seeking a remedy against the second defendant.
- [66]If the alter ego doctrine holds, I think it is a very small step to say that it applies also where one company which is the alter ego of Mr Sample is the defaulting trustee and another company which is his alter ego is the recipient of the resulting benefit. Jackson J characterised this as a separate basis of liability from liability under either limb of Barnes v Addy, and if he is correct in this, this is a separate basis upon which the second defendant is liable.
- [67]It also seems to me that the second defendant is liable to a proprietary remedy on tracing principles. The effect of the equitable assignment of part of the chose in action to the plaintiff is that the plaintiff would have proprietary remedies in respect of that chose in action, and hence can trace the proceeds into the hands of a volunteer.[29] On the evidence the second defendant is a volunteer in respect of the receipt of these payments, so the second defendant’s title to them is inferior to that of the plaintiff.
- [68]In these circumstances, it is really unnecessary for the plaintiff to rely on a restitutionary remedy. I am not sure that the mere fact that a plaintiff is entitled under a contract to be paid money from a particular source and the other party to the contract in fact pays the money to someone else means that the plaintiff has a cause of action for money had and received against that someone else. Perhaps Lord Mansfield would take the view that the action lay in these circumstances; they appear to fall within his broad statement in Moses v Macferlan (1760) 2 Burr 1005 at 1008. Much like general statements about unjust enrichment, this general statement is not a reliable guide to the limits of the scope of the action for money had and received.[30] It does not seem to me that the facts fall within any of the established categories of that cause of action, and I was not cited any authority which supported the existence of such a cause of action in a matter such as this.[31] I am not persuaded therefore that the plaintiff is entitled to recover on that basis.
- [69]Nevertheless, on the grounds that I have otherwise set out, the plaintiff is also entitled to recover from the second defendant that share of the trail commissions received by it to which it was entitled under its contract with the first defendant. Accordingly question 3 should be answered “yes” in respect of the first defendant and “yes”, in respect of the plaintiff’s share of those trail commissions in fact received by the second defendant, against the second defendant.
Question 4
- [70]The notice given on 12 August 2014 purported to be given under clause 8.2 of the contract. The defendants argued in the alternative that if it was found that the parties intended that the obligation to pay trail commissions extended beyond the termination of the agreement it followed that the parties intended that clause 8.2 would also continue to operate. I do not accept that proposition. The position is not that the contractual obligation to pay trail commissions continued beyond termination, but rather that prior to termination the contractual obligation to pay a trail commission in relation to particular properties had turned into a chose in action having proprietary characteristics, which survived the termination of the contract. But the fact that that chose in action survives, because the contract did not provide to the contrary, does not mean that parts of the contract continue to operate after termination.
- [71]The contract provided specifically that certain obligations on the plaintiff continue to operate after termination, but otherwise the contractual obligations, and indeed contractual rights, of the parties came to an end on termination. Accordingly the first defendant’s right under clause 8.2 to vary the terms of schedule 2 came to an end on termination. There is however another reason why there is no substance to this argument: the variation contemplated by clause 8.2 was obviously prospective. It can only apply in relation to an entitlement to commission which arises after the expiration of the seven day notice contemplated by that clause. The idea that the first defendant could, under that clause, vary the entitlement to remuneration which has already accrued would be as unreasonable an interpretation as the notion that the first defendant could somehow render remuneration already paid repayable by reducing the right to it retrospectively. The clause only applies to remuneration earned in the future. In those circumstances of course it can have no meaningful operation after the termination of the agreement. The answer to question 4 is therefore “no”.
- [72]When these reasons are published, I will invite submissions as to what should occur next with these proceedings, and as to the costs of the determination of the preliminary questions.
Footnotes
[1] In practice it was a little more complicated than this: the loans were arranged through another entity referred to as an aggregator, which dealt with the first defendant: p 20; Purcell p 123; Document 15. But that does not make any difference.
[2] This was prompted by an ASIC proceeding against Mr Sample’s companies, and an unfavourable judgment: Crouch p 78; Sample p 95.
[3] Sullivan p 16, p 45; Crouch p 71, p 76; Sample p 101.
[4] An unexecuted copy of the written agreement is Document 1 in Exhibit 8, the defendant’s trial bundle, but it was common ground that a written contract in those terms was entered into between the plaintiff and the first defendant. I shall refer to documents which are part of Exhibit 8 simply as “Document X”.
[5] Federal Commissioner of Taxation v Sara Lee Household and Body Care (Australia) Ltd (2000) 201 CLR 520; Concut Pty Ltd v Worrell (2000) 75 ALJR 312.
[6] Even when there were other consultants, she did most of the business: p 65.
[7] There was evidence that this was an unusually high percentage to be paid to a consultant: Exhibits 24, 25. The relevance of that to the questions to be answered did not emerge.
[8] See also Document 1, schedule 2, clause 1.
[9] Crouch p 74; Purcell p 125.
[10] The formal written notice of termination in accordance with clause 11.1 of the contract was given on 12 January 2012: Document 12; Purcell p 123.
[11] Sullivan p 38; Purcell p 124, 128.
[12] Evershed MR dissented on the basis that as a general proposition in a contract of service all rights on the servant’s part to remuneration by commission or otherwise cease on the termination of the service unless by the terms of his contract provision to the contrary is clearly made.
[13] The plaintiff was “the contractor” and the first defendant “the company”.
[14] The contract should be interpreted as a whole, so that if possible all parts work coherently together: Australian Broadcasting Corporation v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109.
[15] There was evidence that clients would, occasionally but rarely, contact the first defendant in relation to their finance facility, and while the contract continued Ms Sullivan dealt with these enquiries: p 61. Mr Purcell said that this did occur: p 129-30.
[16] Crouch p 73-4, Exhibit 8 document 13. The aggregator appears to have readily gone along with this. This occurred after 14 January 2013.
[17] Lumbers v W Cook Builders Pty Ltd (2008) 232 CLR 635 at [85]; Friend v Brooker (2009) 83 ALJR 724 at [7].
[18] Crouch p 76; Document 15 Clause 5, Schedule 5. Clause 5.7 provided expressly that the right to receive trail commissions (called trailer commissions) survived termination of that agreement.
[19] Durham Brothers v Robertson [1898] 1 QB 765 at 769 per Chitty LJ, cited with approval at p 498. Note here the requirement that the payment to the plaintiff be made directly by the aggregator.
[20] The borrowers were insolvent, and the creditor was suing the solicitor.
[21] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [112].
[22] The evidence was that no consideration was given: Crouch p 75 line 35.
[23] Later he said it was the trading name for GMS Group Holdings Pty Ltd: p 95. The former is more likely to be correct as it was a response to a leading question in evidence in chief.
[24] Mr Sample denied that he directed that this be done, or that he knew about it at the time: p 93.
[25] He ceased to be a director of the first defendant in October 2012: Exhibit 20; Purcell p 125.
[26] Crouch p 79.
[27] Purcell p 132.
[28] Sample p 89; Purcell p 130; Crouch p 84, and see Exhibit 17.
[29] The existence of a proprietary remedy in equity was recognised by Jackson J in Cornerstone Property and Development (supra) at [71].
[30] It carries more weight in England: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 572.
[31] The plaintiff referred to Barros Mattos Junior v MacDaniels Ltd [2005] 1 WLR 247. That was a very different case, concerned with the recovery of money paid where the payment had been induced by fraud, and turned on the scope of the defence of change of position.