Crown International Consortium Pty Limited v Bruce Lyon (Holdings) Limited [2009] NSWSC 1194 (10 November 2009)

Last Updated: 12 November 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Crown International Consortium Pty Limited v Bruce Lyon (Holdings) Limited [2009] NSWSC 1194
This decision has been amended. Please see the end of the judgment for a list of the amendments.

JURISDICTION:


FILE NUMBER(S):
50192/2007

HEARING DATE(S):
20, 21 October 2009

JUDGMENT DATE:
10 November 2009

PARTIES:
Crown International Consortium Pty Limited ACN 080 435 829 - Plaintiff
Bruce Lyon (Holdings) Pty Limited ACN 000 555 410 - First Defendant
Cloudgard (No. 240) Pty Limited ACN 059 938 459 - Second Defendant
Bruce Lyon Pty Limited ACN 093 743 330 - Third Defendant

JUDGMENT OF:
Hammerschlag J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
A.J. Sullivan QC with I.R. Pike [Plaintiff]
M. Ashhurst SC [Defendants]

SOLICITORS:
Slater & Gordon Solicitors [Plaintiff]
McCabe Terrill Lawyers [Defendants]


CATCHWORDS:
CONTRACT – construction – joint venture agreement under which joint venturers in the development of real estate agreed that a company related to one of them will be appointed exclusive agent to market the development – parties appoint the agent to be exclusive for a limited period – one joint venturer proposes additional agent after expiry of exclusive period which other party rejects – whether on the proper construction of the agreement the party rejecting the proposal is in breach – PRACTICE AND PROCEDURE – declaratory relief – both parties claim declarations as to the operation of the agreement – lack of utility – declarations refused - DAMAGES – loss of opportunity – requirements for – plaintiff failed to establish breach or any damage arising from conduct complained of

LEGISLATION CITED:


CATEGORY:
Principal judgment

CASES CITED:
Commonwealth of Australia v BIS Cleanaway Ltd [2007] NSWSC 1075
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
International Air Transport Association v Ansett Australia Holdings Ltd (Subject to Deed of Company Arrangement) [2008] HCA 3; (2008) 234 CLR 151
FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343
Wilkie v Gordian Runoff Limited [2005] HCA 17; (2005) 221 CLR 522
Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99
United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177
Shepherd v Felt & Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286
Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1992) 179 CLR 332
The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638
Daniels v Anderson (1995) 37 NSWLR 438
Troulis v Vamvoukakis [1998] NSWCA 237

TEXTS CITED:


DECISION:
Summons dismissed with costs and the cross-claim dismissed with costs



JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST


HAMMERSCHLAG J

10 NOVEMBER 2009

50192/2007 CROWN INTERNATIONAL CONSORTIUM PTY LIMITED -V- BRUCE LYON (HOLDINGS) PTY LIMITED & ORS

JUDGMENT

BACKGROUND

1 HIS HONOUR: On 29 May 1998 the first plaintiff (“Crown”) and the first and second defendants (“Lyon”) became associated in an unincorporated joint venture, the objectives of which were to develop land at 74-76 Rawson Street, Epping in the State of New South Wales (“the Site”), by constructing on it, and then selling, apartments and retail and commercial space (“the Development”).

2 Crown is part of a group of companies which acquires property and develops it, usually by constructing residential apartments. Mr Iwan Sunito, an architect, is joint Chief Executive Officer of Crown.

3 The first and second defendants are companies associated with Mr Bruce Lyon.

4 The third defendant (“BLL”) is a licensed real estate agent which trades as Bruce Lyon Real Estate and is also associated with Mr Lyon.

5 The Development, which is styled “Genesis”, was completed in August 2006. It has nine levels and comprises 40 shops and 98 residential units.

The Joint Venture Agreement

6 The joint venture is governed by a written joint venture agreement entered into on 29 May 1998 (“the JVA”) and varied on 26 October 2001.

7 Under the JVA, Crown and Lyon each has a participation interest of 50% in the joint venture.

8 Relevant provisions of the JVA are set out immediately below.

9 Recital G is in the following terms:

The Parties have agreed to jointly establish an unincorporated joint venture for the objectives described in clause 2.

10 Clause 1.1 defines “Agency Agreement” to mean:

...the form of agency agreement to be entered into under clause 18 between the Parties and BLL for the advertising, marketing and sale of the Development.

11 Clause 1.1 defines “Development Objectives” to mean:

the Joint Venture Objectives set out in clause 2.1.

12 Clause 2 is in the following terms:

2.1 The objectives of the Joint Venture are:

(a) The obtaining of the Consents;

(b) The development of the Site in accordance with the Development Approval;

(c) Raising of the Development Finance;

(d) The marketing of and subsequent sale of the completed apartments, retail and commercial space comprising the Development; and

(e) Crown acquiring directly or indirectly fifty per cent (50%) Control of the total land area of the Site.

2.2 The parties declare their intention that as far as practical their investment in the Joint Venture will yield profits to the Parties, and that as when profits are made by the Joint Venture, such profits after making provisions for tax and reserves for working capital will be distributed directly to the Parties in accordance with their Participation Interests save as provided in clause 15.8.

2.3 The Parties state their intention that with mutual agreement a Party or Parties shall be entitled to take distribution of profits “in kind” rather than in cash with the intention of owning or benefiting from apartments in the completed Project in lieu of receipt of that Parties Participation Interest.

2.4 The name of the Joint Venture will be “THE CROWN-LYON JV”, which name will be acknowledged by the Parties as the Joint Venture name for the purposes of the Joint Venture.

2.5 The Joint Venture will be an unincorporated joint venture and nothing contained in this Agreement will be deemed or construed to constitute either Party a partner, agent or representative of the other Party, or to create any trust, and neither Party will have the authority, to act for, or to incur any obligation on behalf of the other Party, except as expressly provided in this Agreement.

2.6 The Parties rights and obligations under the Agreement are several and not joint or collective. Each Party is responsible for its own obligations as set out in this Agreement. The Parties do not intend to create a partnership and this Agreement is not to be construed as creating a partnership.

2.7 The Parties agree that they will ensure that the affairs and operations of the Joint Venture are conducted in an efficient and profitable manner and in accordance with good and sound business practice. The Parties further agree that they will conduct themselves in a professional manner calculated to lead to a satisfactory commercial relationship and will co-operate and negotiate with the other in good faith and in accordance with the provisions of this Agreement.

2.8 Each Party will exercise all its rights and powers, and generally will use its best endeavours, to ensure that the Joint Venture operates and carries on business so as to give full effect to the intent of this Agreement. (emphasis added)

13 Clause 4 is in the following terms:

Unless otherwise agreed, this Agreement will remain in force from the date hereof until the earlier of:

[(a) deleted];

(b) the mutual agreement of the Parties to end the Joint Venture;

(c) the performance of all legal and contractual obligations of the Parties under this Agreement and at law;

(d) the termination of this Agreement pursuant to the provisions of this Agreement.

14 Clause 18 is in the following terms:

Subject to the satisfaction of the condition contained in clause 13.5(a):

18.1 The Parties agree that the Joint Venture will enter into an exclusive Agency Agreement with BLL in respect of the advertising, sales and marketing of the Development.

18.2 The Parties will negotiate in good faith the terms of the Agency Agreement with BLL which will provide (without limitation for that): (emphasis added)

(a) subject to paragraph (d) exclusive agency rights for BLL in consideration of a commission of 3% for each completed sale;

(b) if either Party introduce a third party who is a Related Body Corporate or an officer of a Related Body Corporate (but who is not a director/secretary or shareholder of either Lyon or Crown) to the Development and that third party subsequently completes a purchase of part of the Development then a commission of 1% of the purchase price will be paid to the introducing Party.

(c) completed sales to directors/secretaries or shareholders of either Lyon or Crown will attract no commission.

(d) any completed sale to a purchaser as a result of the marketing of the Development by Raine & Horne, Castle Hill will attract a 3% commission to be paid on a conjunction basis (1.5% to Lyon and 1.5% to Raine & Horne, Castle Hill).

(e) BLL will produce a marketing program for the Joint Venture’s approval within 10 Business Days of the date of the Agency Agreement.

(f) the marketing of the Development will be subsequently in accordance with such agreed program.

18.3 The costs incurred in connection with the preparation of and entering into the Marketing Agreement will be a Joint Venture Expense.

15 Clause 26 is in the following terms:

No modification, variation or amendment to this Agreement, will be of any force or effect unless it is in writing and is signed by both Parties and such modification, variation or amendment expressly states that it is an amendment to this Agreement.

16 Clause 31 is in the following terms:

The Parties agree to do all things reasonably required to give effect to the Development Objectives and intention of this agreement. (emphasis added)

The Agency Agreement

17 On 20 October 2003 Lyon, purportedly on behalf of the joint venture, entered into a written agreement with BLL described as “Sales Inspection Report and Exclusive Agency Agreement (and Continuing Agency)”. I will refer to this agreement as “the Agency Agreement”.

18 Clauses 1 and 2 of the Agency Agreement are in the following terms:

Agency Period

1. IN CONSIDERATION of the Agent promising to use their best endeavours to sell the subject property, the Principal hereby grants to the Agent the exclusive selling rights of the property for a period from 20/10/03 to all properties sold now called called [sic] the “Exclusive Agency Period”

2. In addition to the exclusive selling rights granted to the Agent under clause 1, the Principal also grants to the Agent non-exclusive selling rights of the property commencing on the expiry of the Exclusive Agency Period specified in clause 1 and until such time as either the property is sold or this agreement is terminated by either party giving notice in writing, now called the “Continuing Agency Period”.

NOTE: If the Exclusive Agency Period is for a fixed term exceeding 90 days, then the Principal can terminate this agreement without penalty at any time after the end of the first 90 days by giving 30 days notice in writing. (This clause does not apply where the contract for sale provides for the construction by the Principal of a dwelling on the land).

19 Crown complained that Lyon did not have authority to enter into the Agency Agreement on behalf of the joint venture.

20 This led to a written amendment to the Agency Agreement being executed on 8 September 2004 by Crown, Lyon and BLL. Amongst others the following provision was included:

The Exclusive Agency Agreement shall be for a period of three (3) years from 31 March 2004 until 31 March 2007.

21 Accordingly, under the Agency Agreement (as amended) BLL was given exclusive agency rights until 31 March 2007 and non-exclusive selling rights thereafter, subject to termination as provided in clause 2 of the Agency Agreement and the NOTE.


The parties fall into dispute

22 As early as 1 June 2005, Crown commenced urging Lyon to agree to the termination of BLL’s exclusive agency and to the appointment of additional real estate agents to market the Development. Lyon did not agree. It took the position (which it was undoubtedly entitled to take) that BLL had an exclusive agency until 31 March 2007.

23 In a letter to Lyon dated 2 March 2007, Crown recorded that BLL’s exclusive agency was due to expire on 31 March 2007 and put to Lyon that notice of termination pursuant to cl 2 of the Agency Agreement should be given to BLL.

24 Lyon then (on one view of things) shifted from its earlier position. In a letter to Crown dated 5 March 2007, it said, amongst others, the following:

“We do not concur with the first paragraph of your letter. As previously advised, it is our view, and indeed that of Senior Counsel, that under Clause 18 of our Joint Venture Agreement, the appointment of Bruce Lyon Real Estate as the selling/marketing Agent is a continuing one which cannot be terminated without our consent as your Joint Venture partner. We reiterate our previous advice that the appointment of the Agency was a material consideration and condition of our Companies agreeing to enter into the Joint Venture Agreement with your Group in its current terms.”

25 In a letter to Lyon dated 16 May 2007, Crown proposed that an open non-exclusive agency be entered into with nominated agents “including Bruce Lyon Proprietary Limited, CJ Real Estate, Tracy Yap Realty, First National Real Estate Epping and other suitable local agents.” In addition, Crown proposed “that further agents specialising in project market sales be engaged to market units in the project.”

26 On 18 May 2007, Lyon responded that cl 18 of the JVA governed the appointment of BLL “as exclusive marketing agents” and that Crown’s request constituted a variation of clause 18 to which it would not agree. It advised that local agents had been offered “conjunction agency agreements and that only John Edwards Real Estate at Epping has responded to date.”

27 On 21 June 2007, Lyon informed Crown that it did not mind Crown inviting any agent it wished provided “that they sign a conjunction agency agreement with the exclusive agent, Bruce Lyon Real Estate and that they otherwise follow the required procedure.” Lyon repeated this position in a letter to Crown dated 20 September 2007.

28 By conjunction agency agreements is meant agreements under which other real estate agents can in conjunction with BLL introduce purchasers but on the basis that BLL and the conjunction agent share the agents’ commission between them.

29 On 1 November 2007 Crown instituted these proceedings. Originally it claimed a declaration that the Agency Agreement ceased to be an exclusive agency agreement on 31 March 2007 and continues as a non-exclusive agency agreement until such time as it is terminated in accordance with its terms. It also claimed damages.

30 On 25 September 2008 Lyon’s solicitors wrote to Crown’s solicitors conveying that Lyon did not oppose a declaration in the terms claimed but expressing the view that it was irrelevant to Crown’s damages claim.

31 Representatives of Crown (including Mr Sunito) and Lyon (including Mr Bruce Lyon) met on 4 December 2008. Minutes of the meeting reveal that Crown proposed the immediate appointment of Mr John Cho as a fully independent agent to market the Development. The minutes record further that Crown expressed the view that the advantage of appointing other agents would be that they would be “target specific” to Chinese, Korean, local or any other group market and would bring experience to the table.

32 Lyon rejected Crown’s proposal. The substance of its position was that BLL was the continuing exclusive agent and that the joint venture could appoint John Cho or other agents on a conjunction basis, but not otherwise.

THE PARTIES’ CLAIMS AND CROSS CLAIMS

33 Mr A Sullivan QC together with Mr I Pike of counsel appeared for Crown. Mr M Ashurst SC appeared for Lyon and BLL.

Crown’s claims

34 By its Further Amended Summons (filed in Court during final submissions) Crown claims the following relief:

1 A declaration that the Agency Agreement between Crown and Lyon ceased to be an exclusive agency agreement on 31 March 2007 and continues as a non-exclusive agency agreement until such time as it is terminated in accordance with its terms.

1A A declaration that the entry into of the Agency Agreement in September 2004 discharged any obligations of the parties under clause 18 of the JVA.

1B A declaration that the parties are under no obligation by virtue of clause 18 of the JVA to enter into an exclusive agency agreement with BLL covering any of the period from 1 April 2007.

2 Damages.

35 In paragraph 16 of its Commercial List Statement, Crown pleads that in breach of each of clauses 2.7, 2.8 and 31 of the JVA, the first and second defendants have asserted that the Exclusive Agency Period has not expired and that the joint venture is precluded from engaging other agents to market the property owned by the joint venture except as sub-agents of BLL.

36 In paragraph 17 of its Commercial List Statement, Crown pleads that by reason of Lyon’s conduct, it has suffered, and continues to suffer, loss and damage.

37 Crown pleads as particulars to paragraph 17 that if Lyon had not adopted the position which they have adopted, the joint venture would have engaged other agents to market the Development and, as a result, sales would have been greater than they have been.

38 During the hearing Crown modified and refined its claim for damages. It restricted its complaint to Lyon’s refusal to appoint one additional agent (Mr Cho). I shall refer to Crown’s proposal to appoint Mr Cho as “the proposal”.

39 It put that by rejecting the proposal on the grounds that BLL was the exclusive agent, Lyon had not considered it on its commercial merits and that as a result Lyon breached:

a clause 2.7 of the JVA because it:
i. failed to ensure that the affairs of the joint venture were conducted in an efficient and profitable manner and in accordance with good and sound business practice;
ii. conducted itself in an unprofessional manner and one not calculated to lead to a satisfactory commercial relationship;
iii. failed to cooperate and negotiate with Crown in good faith and in accordance with the provisions of the JVA;
b clause 2.8 of the JVA because it failed to exercise all its rights and powers and generally to use its best endeavours to ensure that the joint venture operated and carried on business so as to give full effect to the intent of the JVA; and
c clause 31 of the JVA because it failed to do something that was reasonably required to give effect to the Development Objectives and intention of the JVA.

40 Crown put that as a consequence of Lyon’s breach it lost the commercial opportunity of the appointment of an additional open non-exclusive agent to market the Development, and thereby suffered loss and damage.

Lyon’s cross claim

41 By Cross Summons Lyon claims the following relief:

1 A declaration that on the proper construction of the JVA the parties agreed that the exclusive agent for the advertising, sales and marketing of all of the properties of the Development is BLL.

2 An order that Crown execute an agreement to amend the end date of the period identified in clause 4 of the Agency Agreement from 31 March 2007 to 31 December 2008.

3 In default of Crown complying with the order referred to in paragraph 2 above, an order that the Registrar of the Court be empowered to execute all such instruments and do all such things in the name and on behalf of Crown as may be necessary in order to specifically perform the said joint venture agreement, and directions appointing the Registrar to so act.

THE DECLARATIONS AND COUNTER DECLARATIONS

42 The declarations and counter declarations reflect a controversy between the parties as to the operation of cl 18.1 of the JVA, which is necessary to resolve before consideration can be given to Crown’s damages claim.

43 Lyon’s declaration 1 reflects its contention that on its proper construction cl 18.1 imposes a continuing obligation on the parties to enter into another exclusive agency arrangement with BLL to operate from 1 April 2007 (that is from immediately after expiry of the exclusivity period under the Agency Agreement) until the Development is entirely sold.

44 If Lyon’s construction is correct, Crown’s claim that Lyon breached clauses 2.7, 2.8 and 31 by not considering the appointment of other agents cannot be sustained, because on it the JVA leaves no room for the appointment of other agents.
45 Conversely, Crown’s declarations 1A and 1B reflect its contention that cl 18 required the parties to enter into a once only exclusive Agency Agreement with BLL and that parties discharged that obligation by entering into the Agency Agreement.

46 Only if Crown’s construction is correct does the question whether Lyon’s conduct was a breach of clauses 2.7, 2.8 and 31 arise for consideration.

47 It is thus necessary first to resolve how cl 18 operates. This will resolve the claims and counter claims for declarations.

48 Crown correctly accepted that its declaration 1 does not resolve any real controversy between the parties. This is because the Agency Agreement provides that BLL’s agency ceased to be exclusive on 31 March 2007. Lyon does not, and has never, put otherwise. In this respect the position which Lyon through its solicitors took on 25 September 2008 was correct. Although non-opposition to the declaration was signalled, Lyon submitted that declaration 1 was of no utility and Crown did not make submissions that it was. Declaration 1 will be refused.

49 I turn then to whether on the proper construction of cl 18, upon the expiry of the exclusivity period under the Agency Agreement the parties were obliged (and remain obliged) to enter into a further exclusive agency arrangement with BLL or whether the parties’ obligations under cl 18 were fulfilled when the Agency Agreement was executed.

50 Lyon’s proposition that cl 18.1 requires the parties to negotiate more than one exclusive Agency Agreement is unsustainable. The words of the provision contemplate, as counsel for Lyon accepted, the entry into of one agreement being an “exclusive Agency Agreement”. He also accepted that the Agency Agreement meets that description.

51 It was put that support for Lyon’s position can be derived from the fact that there is no provision in the JVA for the appointment of any real estate agent other than BLL. This may be so but it does not mean that there must be more than one agreement with BLL.

52 Crown and Lyon each have a 50% participation in the joint venture. Although from 31 March 2007 BLL’s appointment is not in terms exclusive, it is in reality exclusive for so long as it is on foot and the parties do not appoint another agent. Unanimity is required for this to occur because of the parties’ equal interests.

53 The parties negotiated in good faith the terms of the Agency Agreement with BLL. Undoubtedly they accepted the entry into it as performance of the one off obligation for which cl 18.1 provides.

54 It follows that I accept that Crown’s construction of cl 18 under which only one agency agreement with BLL is contemplated, is correct.

55 No rationale was suggested on behalf of Lyon for the inclusion of the date 31 December 2008 in Lyon’s proposed order 2.

56 Lyon’s cross claim is to be dismissed.

57 Lyon put that even if Crown’s construction was correct, the Court should not make Crown’s declarations 1A and 1B on the grounds that they do not resolve a real controversy between the parties in any way that is of utility because:

a they are merely a step on the way to the resolution of the real dispute;
b BLL has no rights under the JVA, not being a party to it; and
c a finding that entry into of the Agency Agreement discharged the parties’ obligations under cl 18 is sufficient for all purposes.

58 I accept Lyon’s submission. This judgment resolves, in a way that finally binds the parties, that no new exclusive agency arrangement must be negotiated between the parties and BLL. No positive action is required. Crown’s proposed declarations 1A and 1B do not go anywhere. The real controversy is Crown’s damages claim. Crown’s declarations 1A and 1B are not needed and I decline to make them; see Commonwealth of Australia v BIS Cleanaway Ltd [2007] NSWSC 1075.

59 I accordingly turn to Crown’s damages claim.

CROWN’S DAMAGES CLAIM

Lyon’s response

60 In response to Crown’s damages claim, Lyon put that:

a cl 18.1 envisages an exclusive agency being given to BLL for the duration of the Development;
b even if the parties’ obligations under clause 18.1 were completed by the entry into of the Agency Agreement (which gave BLL a more limited form of agency than clause 18.1 envisaged), this does not change the fact that the JVA itself, at the time it was executed, contemplated as between Crown and Lyon that BLL would have an exclusive agency for the duration of the Development;
c clauses 2.7, 2.8 and 31 of the JVA are to be construed in the context of the JVA as a whole, and given that clause 18.1 contemplates an exclusive agency to BLL, the construction and operation for which Crown contends is at odds with cl 18.1 and should not be adopted;
d the evidence did not establish that Lyon’s rejection of the proposals was in bad faith; and
e Crown has not established that it suffered any loss as a result of the breaches alleged even if they are found.

The Law

61 Before proceeding to determine Crown’s damages claim it is necessary to set out the legal principles which govern the construction of the JVA and which govern the approach to be taken to damages for breach of contract and in particular to damages suffered as a consequence of the loss of a commercially valuable opportunity.

Construction generally

62 The meaning of words used in a commercial contract such as the JVA is to be determined by what a reasonable person would have understood them to mean. This requires consideration of the language used, the surrounding circumstances known to the parties, the purpose of the transaction and the objects which it was intended to secure: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; International Air Transport Association v Ansett Australia Holdings Ltd (Subject to Deed of Company Arrangement) [2008] HCA 3; (2008) 234 CLR 151 at [8].

63 A contract is to be construed as at the date it was entered into. Subsequent conduct of the parties cannot be used to construe its terms: FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343.

64 The whole instrument has to be considered. Preference is given to a construction supplying a congruent operation to the various components of the whole of an instrument: Wilkie v Gordian Runoff Limited [2005] HCA 17; (2005) 221 CLR 522 at 529.

65 If words used are unambiguous, the Court must give effect to them. If the language is open to two constructions, the one which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust will be preferred: Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99 at 109.

Provisions requiring parties to negotiate in good faith

66 It has recently been held that a provision requiring a party to negotiate in good faith is enforceable, what the phrase “good faith” signifies in any particular context and contract will depend on that context and that contract, and that it connotes an honest and genuine approach to the task: United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177.

Implied terms requiring cooperation

67 It is a general rule that there will be implied in a contract an obligation on each party to all such things as are necessary on the part of that party to enable the other party to have the benefit of the contract and not to hinder or prevent the fulfilment of the other party’s purpose; Shepherd v Felt & Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 at 378; Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607.

68 The duty embraces a duty to act honestly and in some cases a duty to have regard to the legitimate interests of the other party. The content of the duty will be determined by the specific contractual context; United Group Rail Services v Rail Corporation New South Wales at [66].

Damages generally

69 A plaintiff claiming to have suffered loss by reason of a defendant’s breach of contract bears the onus of proving the extent of that loss or damage: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286.

70 The general principle is that when assessing damages for breach of contract, the plaintiff is to be put in the position that he or she would have been in but for the breach, that is, the position if the contract had been performed: Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454.

Damages for loss of opportunity

71 The assessment of damages for a loss which depends on future chances or possibility of benefit may be fraught with difficulty and attended by uncertainty, but the mere fact that damages cannot be assessed without difficulty and uncertainty does not relieve a Court from the responsibility of attempting to assess them as best it can. Where there has been an actual loss of some sort the common law does not permit difficulties in estimating the loss in monetary terms to defeat an award of damages. A lost commercial advantage or opportunity is a compensable loss even where there is a less than 50 per cent likelihood that the commercial advantage will be realised. Damages for breach of contract are to be assessed by reference to the probabilities or possibilities of what would have happened: Sellars v Adelaide Petroleum NL [1994] HCA 4; (1992) 179 CLR 332 at 349; The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 125.

72 Where future or hypothetical events must be taken account of in assessing damages and proof of them is necessarily unattainable, the Court assesses the probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect that probability: Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 at 643; Sellars v Adelaide Petroleum NL & Ors at 350.

73 An opportunity may be lost because a party fails, in breach of its contractual obligations, to take steps which it is obliged to take. In such a case, in order to discharge its onus on the issue of causation, the plaintiff must establish (on the probabilities) that had there been no breach, the steps concerned would have been taken and it must also establish that the opportunity to gain a financial benefit (or avoid a financial detriment) was thereby lost; Daniels v Anderson (1995) 37 NSWLR 438 at 529.

74 There are limits to the lengths to which a court may properly go in doing the best it can to assess damages. In Troulis v Vamvoukakis [1998] NSWCA 237 at 14 Gleeson CJ said:

As Deane J observed in The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 118-119, the limitations of the curial process, or the nature of the subject matter in question, often mean that the task of assessing damages involves a pragmatic exercise of a kind traditionally left to the good sense of a jury. Where, however, what is involved is the valuation of the goodwill of a

business, and the plaintiff fails to adduce either reliable evidence of the trading results of the business, or evidence as to how one goes about valuing such a business, then there is an absence of the raw material to which good sense may be applied. Justice does not dictate that, in such a case, a figure should be plucked out of the air.

Did Lyon breach the JVA?

75 Clause 2.7 of the JVA refers to the affairs of the joint venture being conducted in an efficient and profitable manner and in accordance with good and sound business practice. It also refers to the parties conducting themselves in a professional manner and cooperating and negotiating in good faith and in accordance with the JVA. Clause 2.8 refers to the parties exercising rights and powers and using best endeavours to ensure that the joint venture operates and carries on business so as to give full effect to the intent of the JVA. Clause 31 refers to things reasonably required to give effect to the Development Objectives and intention of the JVA.

76 Crown put that these provisions were an express manifestation of the term usually implied in commercial agreements which requires a party to take steps to ensure that the other party obtains the benefit of a commercial agreement or to refrain from taking steps which deprive the other party of such a benefit.

77 Neither Crown’s submissions nor the evidence extended to articulating any particular standard of efficiency, profitability, good and sound business practice or professional conduct against which Lyon’s conduct was to be measured. It was not suggested by Crown that the joint venture has not been profitable.

78 Crown’s complaint is that by rejecting the proposal, Lyon caused the joint venture to operate less profitably than it would had the proposal been accepted. It is for this reason that Crown says Lyon failed to ensure that the affairs and operations of the joint venture were conducted in an efficient and profitable manner, in accordance with good and sound business practice, and in a professional manner calculated to lead to a satisfactory commercial relationship, and that Lyon failed to cooperate in good faith and in accordance with the provisions of the JVA. In support of the contention that Lyon’s rejection of the proposal was in bad faith, Crown pointed to the fact that Lyon’s original position was that BLL had exclusivity but then changed its stance when the exclusivity period ran out, instead saying that cl 18 conferred exclusivity on BLL. It also put that there was no commercial downside for Lyon in adopting the proposal.

79 I consider below whether Crown’s complaints have been made out on the facts.

80 But first it is necessary to consider whether Lyon’s rejection, on the grounds relied upon by it, of the proposal was a breach of the JVA or deprived Crown of a benefit under the JVA to which it was entitled.

81 For the reasons which follow I do not consider that it was.

82 The standard by which Lyon’s conduct is to be measured and what is the intent of the JVA and the benefits to which Crown is entitled under it are to be considered in the light of the whole agreement, the purpose of the transaction and the objects which it was intended to secure.

83 The purpose of cl 18 of the JVA was to bring about the appointment of BLL as the exclusive agent to advertise, sell and market the Development.

84 No doubt for this reason, the terms which cl 18.2 specifies for the Agency Agreement do not include any time period.

85 The purpose and effect of the proposal was to dilute BLL’s expressly contemplated exclusivity.

86 It is incongruent with the purpose of the JVA and the objects which it was intended to secure to construe (in general provisions such as clauses 2.7, 2.8 and 31) terms such as efficiency, profitability, sound business practice, professional behaviour, cooperation and negotiation in good faith to achieve a satisfactory commercial relationship and achieving the intent of the agreement, as requiring a party, on pain of being in breach, to consider a proposal intended to achieve a result directly in conflict with the express provisions of cl 18.

87 It can hardly be said that the parties contemplated that if one of them failed to agree (or even consider) a proposal intended to achieve a result directly in conflict with an express provision of the JVA, that party would be in breach of the JVA.

88 The appointment of an additional agent whilst the agreement with BLL was on foot, if such an appointment be a benefit, was not one which the JVA contemplated Crown would have and Lyon was under no obligation express or implied to cooperate with Crown in bringing about any such appointment.

89 BLL itself has no rights under the JVA. Its rights stem only from any agreement it concludes with the joint venture parties.

90 In September 2004 when Crown and Lyon (at Crown’s urging) gave BLL exclusive rights for only three years, BLL had no actionable complaint, but by the same token Crown and Lyon did not vary cl 18 (and it was not put that they did).

91 Crown correctly did not put that the entry into of the Agency Agreement constituted a modification or variation to the amendment. Clause 26 would stand in the way of that contention.

92 The terms of the Agency Agreement may have given BLL less than was contemplated by cl 18.1, but this did no more than to allow the parties (if they later agreed) to appoint other agents without thereby breaching the Agency Agreement.

93 If Lyon was bound in good faith to give consideration to the proposal on pain of being in breach of the JVA, in my view it discharged that obligation. The construction of the JVA which Crown adopted to justify BLL’s exclusivity was the correct one. At the lowest, it was one which was reasonably open for Lyon to adopt. The commercial downside involved in agreeing to the proposal would be the loss of BLL’s exclusivity, a consideration upon which Lyon was fully entitled to rely in rejecting it.

94 In my view, Crown has not established any breach by Lyon of the JVA.

95 Although it is not necessary to do so, I will nevertheless consider (on the hypothesis that Lyon’s conduct was in breach of the JVA) whether Crown has established any damage.

Did Crown suffer any damage?

96 In submissions Crown restricted its damages claim to the economic value of the opportunity it says it lost by Lyon not having considered the proposal on its commercial merits.

97 Crown put that it lost the value of the prospect that had Lyon considered the proposal on its commercial merits, Lyon would have acceded to it by agreeing to the appointment of one additional open agent, Mr Cho.

98 Crown put that had an additional open agent been appointed, the JVA would have achieved an accelerated rate of sales of units in the Development.

99 Crown sought to quantify what the value to it would have been if such an accelerated rate of sales had been achieved.

100 Crown’s initial position was that it was entitled to the full value of what it contends would have been the benefit of an accelerated rate of sales. This was put on the basis that it would prove that each of the steps leading to the alleged loss would have, on the balance of probabilities, occurred. This position was correctly abandoned as not being sustainable on the evidence.

101 Crown put that the ultimate value of the lost opportunity should be derived by:

a assessing the likelihood that Lyon would have agreed to the appointment of an additional open agent;
b then assessing the likelihood that, and the extent to which such an agent would have, achieved a better rate of sales; and
c finally, applying the ultimate likelihood so derived to what it says is the economic value of the accelerated rate of sales.

102 The end point (or on one view the starting point) is the contention that a higher rate of sales would have been achieved by the appointment of an additional agent. Crown sought to establish this by expert evidence of two witnesses.

103 Firstly, Crown relied on the evidence of Mr Stuart Cox, of CB Richard Ellis Pty Ltd, a valuer, who prepared a “property data report on residential developments comparable” to the Development. Mr Cox identified ten other developments within close proximity to railway facilities providing direct transport to the Sydney CBD, in which units were sold around the same period as the Development.

104 In respect of the Development and each of the other developments, Mr Cox took the number of units sold and divided it by the number of months over which the units were sold to derive a monthly sales rate.

105 Thirty-four units in the Development were sold over 22 months yielding a sales rate of 1.55 units per month.

106 The other 10 developments yielded monthly sales rates ranging from 0.82 to 4.17.

107 Mr Cox then took the sales rates of the Development and the other 10 developments and averaged them, which resulted in a monthly sales rate of 2.13.

108 Secondly, Crown relied on the evidence of Mr David Viarella, a valuer. Mr Viarella gave evidence of what in his opinion were the project marketing and responsibilities that would have been carried out by a reasonably competent agent from 31 March 2007 onwards in order to properly market the Development.

109 He was then asked to opine, on the assumption that the Development was properly marketed in the manner identified by him, on the number of sales which ought to have been achieved from 31 March 2007 to 10 March 2009.

110 The starting point for Mr Viarella’s opinion was Mr Cox’s data report, the correctness of which he assumed.

111 Mr Viarella opined that there are generally two main reasons why projects should sell within expected time frames and that both were the responsibility of the project market selling agents. The first is that the agent is totally “on top” of his project marketing responsibilities and the second is that the price point of the units being sold is correct and meets “the market’s price acceptance.”

112 Relying on Mr Cox’s evidence (which he referred to as the “CBRE report”) Mr Viarella observed that from March 2007 to November 2007, 19 units in the Development were sold producing a monthly rate of 2.11 and that from December 2007 to December 2008 15 units were sold producing a monthly rate of 1.15.

113 Mr Viarella’s view was that the rate of sales having practically halved during the two periods, “very serious alarm bells should have been ringing for the project marketing selling agents early into this 2008 period.”

114 He went on to opine that the project marketing agents were not on top of their responsibilities given the fact that this poor rate of sales was allowed to continue for so long without a price point correction to increase sales rates.

115 Mr Viarella opined, that the overall sales of the Development had not performed well when compared with the majority of other the developments identified by Mr Cox.

116 He expressed the opinion that the Development needed to obtain more sales during the period March 2007 to December 2008. He opined that that

“Whilst a number of projects showed rates of sale greater than 2 units per month, it is a fair expectation, in my opinion, to determine that the agent for the subject Genesis development would be selling at least an average of 2 units per month. It is my opinion that rate would have been achieved if the agent was on top of his marketing responsibilities, constantly monitoring the market, monitoring the subject and reviewing price points to maintain this necessary momentum.”

117 He concluded as follows:

“Based on the advice from the CBRE report identifying that 34 units sold over the 22 month period from March 2007 to December 2008, it is my opinion that 44 units should have sold (2 unit average/month x 22 months), this shows a loss in sales of 10 units during this period.”

118 Thirdly, Crown relied on the evidence of a forensic accountant Mr Smith who calculated the difference between the joint venture’s financial position on the basis of the sales of units in the Development that took place and the financial position in which it would have been had the accelerated rate of sales of two units per month been achieved. From this he derived the position Crown would have been in had the accelerated rate of sales been achieved.

119 Mr Smith carried out calculations based on two scenarios. Scenario 1 was that the units sold in the Development would have achieved the same prices but at the accelerated rate of two apartments per month and that the remaining unsold apartments would be sold either at 10% or 15% below their list price.

120 In Scenario 2 Mr Smith assumed that the units sold would have achieved sale prices at the average discount to the joint venturers’ price list which units sold at an earlier time had been sold (that is, on the footing that the higher rate of sales had been achieved) and again on the basis that the remaining unsold apartments would be sold either at 10% or 15% below their list price.

121 In both scenarios, holding costs of $128,778 were avoided and interest charges depending on the prices assumed for the units, were avoided. In Scenario 2 the adoption of historical prices meant that some units would in fact have sold at higher prices, producing what would have been an additional loss of investment income of $119,734.

122 Finally, the amount of the avoided interest and holding costs were the subject of evidence from the Crown’s Chief Financial Officer Mr Chris Fung, which was not challenged.

123 On Scenario 1 Crown’s 50% share of the loss was calculated to be $425,633 if the remaining unsold apartments sell at 10% below their list price and $413,670 if they sell at 15% below their list price. On Scenario 2 Crown’s share of the loss is $487,129 if the remaining unsold apartments sell at 10% below their list price and $475,166 if they sell at 15% below their list price.

124 For the reasons which follow, I have concluded that Crown has not established:

a on the probabilities that any commercially valuable opportunity was lost as a consequence of Lyon’s alleged breach; or
b if an opportunity was lost, that it had some value.

125 For Crown to have lost any commercial opportunity it would need to have established, as a matter of causation, that Lyon would have agreed to the appointment of an additional agent had it disregarded its view of the operation of cl 18, and considered the proposal having regard to other commercial considerations.

126 It was put that it was most likely that Lyon would so have agreed because to have done so involved “no downside”.

127 A threshold difficulty inherent in Crown’s position is the premise (which I consider to be incorrect) that Lyon was not entitled as part of its consideration of the proposal to have regard, as a commercial matter, to its view of how cl 18 was intended to operate and how the agency arrangements were to work, even if its view was legally incorrect. Its view of those matters were as much commercial considerations as were Crown’s views about the benefits of appointing an additional agent.

128 Leaving that aside, in my view Crown failed to establish that it was a realistic possibility, let alone more probable than not, that Lyon would have agreed to allow another agent to operate independently and not on a conjunction basis even if Lyon were to have disregarded its views of how cl 18 operated.

129 It was not put (nor could it properly have been) that Lyon was contractually obliged to agree to the proposal. Lyon took a different commercial view of BLL’s performance (or asserted lack of performance) to that taken by Crown.

130 Lyon’s related company BLL had the commercial benefit of practical exclusivity.

131 I do not consider that the evidence established any realistic prospect that Lyon would have agreed to dilute BLL’s position.

132 Properly viewed, the opportunity which Crown says it lost was in reality no more than the opportunity that Lyon would not breach the JVA. It was not the loss of a commercial opportunity in the sense in which that term is used in the authorities.

133 Seeking to characterise it as the loss of a commercial opportunity does not overcome the threshold difficulty that Crown must establish loss as a matter of causation. It has failed to establish any loss as a fact.

134 Even if a commercial opportunity was lost I do not consider that Crown has established that it had any value.

135 Mr Viarella’s opinion rests on Mr Cox’s exercise of determining the monthly sales rate of the Development and then comparing it to his average monthly sales rate of the other developments.

136 In my view Mr Cox’s exercise provides no rational basis upon which it is open (let alone safe) to conclude that the rate of sales of the Development was inadequate because it fell short of his derived average.

137 His derived average is only that. The rates of sale over the other developments vary widely. The lowest rate (Grand Pacific Apartments, Chatswood) is 0.82 per month and the two highest rates are 100 Belmore Street, Meadowbank at 4.17 per month and 8-10 Station Street, Homebush at 4.08 per month.

138 Mr David Cale a director of BLL gave evidence that the Homebush site is not in the area or price structure of the other developments and Belmore Street is not comparable because it fronts Homebush Bay, whereas the other developments are located on major arterial roads and much of the sales activity relied on occurred before the global financial crisis.

139 Mr Cale also pointed out that the rates for each development are derived over differing periods.

140 Removing only Homebush and Meadowbank from the calculation reduces the rate of all of the developments under consideration to 1.625 per month.

141 Nothing is known of the pricing or quality of the other developments or of their marketing.

142 Mr Viarella accepted that no attempt was made to determine whether any of the units considered by Mr Cox were more competitively priced than any other group of units he considered. He accepted that without carrying out an analysis of the circumstances each individual unit, one cannot tell what has caused a particular development to sell at a faster rate than another development. His evidence was that many forces come into play.

143 It follows from what I have said that Mr Viarella’s starting point, that the sales rate of the Development was less than it should have been, cannot be accepted.

144 It also follows that Mr Cox’s average rate is not a yardstick against which the performance of the Development can legitimately be assessed.

145 Mr Viarella’s conclusion that BLL had fallen short was based largely if not exclusively on the fact that less than his assumed acceptable rate was achieved. It follows further that the average rate is not a yardstick against which BLL’s efforts can legitimately be assessed.

146 Mr Viarella’s opinion that a greater rate of sales could and would have been achieved also depends on the units being sold at a price sufficiently competitive. There is no basis upon which a conclusion can be reached that the parties would have agreed to reduce prices to the point at which the rate would have increased as Mr Viarella says, or as to what those prices would have been.

147 Apart from the above, the evidence revealed nothing about Mr John Cho, the agent who Crown ultimately proposed on 4 December 2008.

148 There is no basis upon which a finding can be made that Mr Cho’s performance would have been any better than that of BLL.

149 It was put to Mr Cale that Mr Cho would have been in a better position to have marketed the development to potential buyers of Asian origin and that there is a significant Asian community in the Epping area. It was put to him that sometimes Asians are sometimes more comfortable dealing with Asian real estate agents than non-Asian ones. Mr Cale did not agree. His view was that if a purchaser was coming to buy a property, “if someone can provide service to them it doesn’t matter who they are”. His evidence was that they have never had any problems communicating.

150 The evidence did not establish that an additional agent would have done any better than BLL because of a connection with any ethnic community.

151 The evidence also did not establish that the appointment of an additional agent would itself have sped up the rate of sales in any event.

152 It is not necessary to deal with Lyon’s submission that Crown first specifically proposed the appointment of Mr Cho on 4 December 2008 and did not seek to prove any loss arising from the alleged breach by Crown referable to that time.

CONCLUSION

153 The summons is dismissed with costs and the cross-claim is dismissed with costs.

154 The exhibits are to be returned.

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AMENDMENTS:


11/11/2009 - typographical error - Paragraph(s) 78


LAST UPDATED:
11 November 2009