DISTRICT COURT OF QUEENSLAND
CITATION:
James Prendergast Property Pty Ltd v Succeed Investment Pty Ltd & Ors [2019] QDC 230
PARTIES:
JAMES PRENDERGAST PROPERTY PTY LTD ACN 159 598 302 AS TRUSTEE FOR THE JPP TRUST ABN 53 297 400 754
(plaintiff)v
SUCCEED INVESTMENT PTY LTD ACN 613 531 267
(first defendant)HAYDEN MARK GAY
(second defendant)SHANNON EDWARD DAVIS
(third defendant)FILE NO:
1096 of 2019
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
District Court at Brisbane
DELIVERED ON:
19 November 2019
DELIVERED AT:
Brisbane
HEARING DATE:
13-15 November 2019
JUDGE:
Porter QC DCJ
ORDER:
1. Judgment be entered against the first and second defendants for $194,844.33.
2. I will hear the parties on interest and costs.
CATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the plaintiff and defendants contracted that the plaintiff would refer “referral partners” to the defendants – where the defendants operate a real estate business which includes rental property management – where the plaintiff became entitled to a benefit when 100 clients were referred to the defendants by referral partners – where the plaintiff had entered into a contract on substantially the same terms with the previous operators of the real estate business – whether clients introduced under the contract between the plaintiff and defendants included those introduced by referral partners who were themselves introduced to the real estate business under the previous contract
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – where the defendant contends that certain terms should be implied into the contract between the plaintiff and defendants – whether such terms are required to give the contract business efficacy – whether the parties’ subsequent conduct may be used to determine whether a term should be implied
AAP Industries Pty Ltd v Rehau Pte Ltd [2017] NSWSC 390
Ansett Transport Industries v Commonwealth (1982) 149 CLR 337
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Byrne v Australian Airlines Ltd (1995) 185 CLR 411
Codelfa Construction Pty ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VACA 286Sydney City Council v Goldspar Australia Pty Ltd (2006) 230 ALR 437
COUNSEL:
P Somers for the plaintiff
PE O’Brien for the first, second and third defendantsSOLICITORS:
Bennett & Philp for the plaintiff
Crouch & Lyndon for the first second and third defendants
SUMMARY
The first defendant (Succeed) operates a real estate business which includes rental property management. It obtains rental properties to manage, amongst other sources, from referral sources such as developers, financial planners and so on whose clients and customers own rental properties which require management. All parties agree that some of those referral sources were introduced by the plaintiff to the business.
The plaintiff says that, pursuant to an agreement with the defendants made in about October 2017 (the 2017 Agreement), it is entitled to a payment when the rental properties referred to Succeed since August 2017 from referral sources introduced either before or after that agreement reaches 100. The plaintiff says that that number was reached in September 2017 and that it is entitled to its payment in accordance with the agreement.
The defendants disagree on three grounds:
(a)First, they say that pursuant to the 2017 Agreement, the plaintiff is only entitled to a payment where 100 rental properties are introduced to the business from clients of referral sources introduced to Succeed under the 2017 Agreement, not clients of referral sources introduced under an earlier agreement;
(b)Second, they say that if it is sufficient that the referral source be one introduced to the business before the 2017 Agreement, then there are implied terms in the 2017 Agreement which require:
(i)100 properties to be calculated by reference to on-going referred properties not introduced properties (that is, a referral does not count if the property management agreement arising from the referral is terminated at any time); and/or
(ii)Where Succeed entered into its own referral agreement with a referral party introduced under an earlier agreement, referrals from those parties would not count toward the 100 properties.
(c)Third, if all these points are decided against the defendants, the defendants argue that only properties in fact referred after 10 October 2017 are included as properties covered by the 2017 Agreement.
If that is decided against the defendants, they accept that the plaintiff has over 100 properties and the calculation of the loss is not otherwise in dispute. However, the defendants do dispute that either of the second or third defendants are liable on the 2017 Agreement.
THE WITNESSES
There were four witnesses called in the trial: Mr Prendergast and Mr Warden for the plaintiff and the two director defendants. I found all four of them to be honest and generally reliable witnesses. Mr Warden and Mr Davis had a limited recollection of events but to their credit, did not appear to try to fill in the gaps with reconstructions of events.
Mr Gay and Mr Prendergast both had a good recollection of events, though Mr Prendergast appeared to have a more detailed recollection about his dealings with the defendants, and on points where he has a more detailed recollection and Mr Gay less so, I accept Mr Prendergast’s evidence. That is no criticism of Mr Gay. His evidence was forthright, even on points which he clearly knew did not assist his case. In any event, by the end of the trial there was very little by way of factual dispute between the parties.
There was one area only where I found Mr Gay and Mr Davis’ evidence unsatisfactory, being how the idea arose that certain properties which appeared on the JPren Spreadsheet (explained below) were not to be counted as such. Ultimately, however, that matter turned out to be of little relevance to the resolution of the case.
BACKGROUND
Mr Prendergast is the director and agent of the plaintiff.
Succeed owns and operates a property management business in Camp Hill trading as Image Property. Mr Gay and Mr Davis are the directors of Succeed.
Events leading to the 2016 Agreement
A property management business at Camp Hill operating under the name of Image Property Management has been in existence over the period relevant in this proceeding (the Business). There have been three different substantive ownership structures of the Business in that time.
The first is that which existed up to September 2016. During that period the Business was owned by Image Group Australia Pty Ltd (IGA). The second defendant (Mr Davis) was a director of IGA and a shareholder in that company. He purchased it in 2010. IGA is a real estate agency business operating at least in part on a franchise model and focusing on property management. At that time a Mr Ben Warden was employed as the principal agent in the Business, but he did not own it. Mr Warden was Mr Davis’ cousin, though nothing seems to turn on that. IGA had a business model which permitted employees to build up equity in a notional rent roll arising from the properties which they sourced, with a view to providing an asset against which the employee could borrow to buy into IGA. Some such arrangement existed between Mr Warden and IGA pursuant to which, if Mr Warden sourced his own rental properties for IGA, they would be held as to their capital value notionally for Mr Warden, although IGA received management income from the properties. The idea was to permit Mr Warden to build up a capital asset against which he could borrow to buy the Business.
It was in this context that Mr Prendergast and Mr Warden began their commercial relationship.
As at 2016, Mr Prendergast had access to a number of sources of referrals of rental properties. His access to those referral sources arose out of the business he conducted through the plaintiff as a property investment consultant. The plaintiff’s business involved Mr Prendergast giving advice to consultants such as accountants and financial planners in property investment, mostly it seems, for rent. Those consultants would make use of that advice in advising their own clients. Mr Prendergast did not generally deal with those clients, but with the consultants. The plaintiff also had its own direct clients.
Mr Prendergast noticed that his client consultancies did not have any established relationships with property managers who could manage properties of the clients of those consultancies who invested in rental property. He therefore investigated identifying a property manager to whom he could direct his consultancy clients (who would in turn refer their direct clients who bought rental property to the property manager for management services). In about 2015, Mr Prendergast came into contact with Mr Warden, who he had known socially some years before. The question of referrals came up and Mr Warden suggested that Mr Prendergast consider referring his referral partners to the Business.
After some discussion, he and Mr Warden agreed on terms for that to occur.
The fact and terms of that agreement (the 2016 Agreement) are admitted on the pleadings. They are stated in the SOC as follows:
2B. On or about 11 March 2016, Benwar Investments Pty Ltd entered into an agreement with the plaintiff (“the First Referral Contract”), pursuant to which:
(a)the plaintiff had and would continue to introduce referral parties to the Image Property Business;
(b)referral parties included organisations and business such as financial advisors and planners, accountants, property advisory firms, real estate agents, buyers agents, property developers and any other business who’s clients purchased or invested in residential investment properties;
(c)the purpose of the plaintiff introducing the referral parties to the Image Property Business was to have the referral parties’ clients list their properties for rental management with the Image Property Business;
(d)if a client or a referral party listed its property for rental management with the Image Property Business, the Image Property Business would designate that property in its books and records as a property the plaintiff (“JPren Properties”);
(e)upon the Image Property Business obtaining the listing of at least 100 properties designated as JPren Properties, the plaintiff would become entitled to a referral fee;
(f) the referral fee was to be calculated:
(i) [previously deleted];
(ii) in accordance with the following formula:
(TARC x 3) x 0.75 x half the number of JPren properties
Where the TARC was equal to the average of the weekly rent for all JPren Properties x average of the commission percentage for all JPren Properties x 52 weeks
Notwithstanding the admissions on the pleadings, there is a written agreement of 11 March 2016 in evidence (the 2016 written agreement). That written agreement provides:
11/03/2016
Referral arrangement between Ben Warden c- Benwar Investments Pty Ltd t/as Image Property Management & JPP Trust T/as Prendergast Property Pty Ltd.
Ben Warden Principal of Camp Hill and James Prendergast arrangement.
· Properties brought on from this relationship are to be earmarked and collared as BW&JP.
· At a critical total – 100. Each Hundred to be grouped at the 100 interval. When this total is reached this actions the option for sale. The sale does not need to occur but either party can qualify and action that it is.
· Properties are to be divided 50/50 ownership split in name.
· 50 properties to Benwar Investments Pty Ltd and 50 Properties remain BW&JP ownership held by James Prendergast.
· James Prendergast can only sell these properties to Ben Warden c/- Benwar Investments Pty Ltd or The Image Group (Australia) Pty Ltd.
· No outside sale to be an option.
The purchase price will be 75% of property value. Value is established by the rent roll multiplier that works on total return for 52 weeks x commission percentage and then by a multiple of 3.
Example/break down of cost for 1 property = rent $450 per week x management fee @ 8.8% x 52 wks = $2059.20 x 3 = $6177.60. 75% of $6177.60 = $4633.20.
All referral clients and referral partners, buyers agents, sales agents, developers that are introduced to Image Property through this relationship are to be earmarked as BW&JP referrals and all business that comes from these sources are to be referred back and tagged as BW&JP.
If Ben Warden no longer works for Image Property management for whatever reason the properties earmarked BW&JP will be paid for by The Image group to both parties Ben Warden and James Prendergast to the specifics above within in 45 days of the employment contract of Ben Warden ending.
Agreement Signed –
Ben Warden – Principal Camp Hill. Director Benwar Investments Pty Ltd
Signature
Date 11/03/2016
James Prendergast – Prendergast Property
Signature
Date 11/03/2016
Shannon Davis – Director The Image Group (Australia) Pty Ltd t/as Image Property Management
Unsigned
Date Undated
(All typographical errors in original)
The admitted agreement and the written agreement differ somewhat. However, unless the Court considers that it ought to disregard the admission, it is the admitted agreement which is the one from which this Court must work.
I see no reason to disregard the admission as to the terms of the agreement:
(a)First, neither party has urged that on me; and
(b)Second, the admitted contract is not inconsistent with how the writing could reasonably be construed.
That leaves the written agreement of 11 March 2016 in a rather anomalous state. Its main significance appears to be that it provided the form of agreement used for the 2017 Agreement which is the subject of these proceedings. However, it was also relied upon by the plaintiff to explain the decision taken by Succeed to pay out the plaintiff when Mr Warden sold his shares.
It is also worth noting that the written agreement is also consistent with the admitted agreement insofar as it is between Benwar and the plaintiff and does not include IGA. Although there is a promise made on behalf of IGA in the text, it would seem on its proper construction to be a promise made by Benwar as to what the owner of the Business would do if he ceased working for the Business.
The operation of the 2016 Agreement
Mr Prendergast’s evidence was that he commenced directing his referral sources to Mr Warden after the 2016 Agreement was reached on 10 March 2016. From the start of the relationship, Mr Prendergast trusted Mr Warden to keep records of those referrals which should be recorded as referrals under the 2016 Agreement. Mr Warden gave evidence that he did so. Mr Warden recorded the referrals in a spreadsheet which he kept but which was not tendered at trial, at least not directly. There is however a list of such properties as an exhibit to the Share and Unit Sale Agreement (SUSA) (exhibit 16) along with the 2016 written agreement, whereby Mr Davis bought back into the Business in 2017 (discussed below).
The referral process would work by Mr Prendergast referring Mr Warden to a referral source and sometimes arranging or assisting in facilitating the first contact. It was then generally up to Mr Warden to maintain and develop that relationship to obtain referrals of client properties from that referral source. Mr Warden described some referrals as “hot” (whereby he seemed to mean the ground had been prepared for him by Mr Prendergast) and some as “cold” (whereby he perceived he was cold calling). Mr Prendergast put it a little differently. He said he did facilitate the initial contacts and was in constant contact with the major referrers. Mr Warden agreed that there would be occasional joint social occasions.
From early in the relationship, it was common for referral sources to seek some kind of benefit for the referrals. Mr Prendergast said (and Mr Warden agreed) that these could take one of two common forms: a referral commission or payment upfront to the referring party or a reduced ongoing commission for the clients who they introduced. Later one of the major referral sources negotiated a small portion of the income stream from the management fees for the clients.
Mr Prendergast said that from the start, these kinds of incentives and side agreements occurred and were not taken into account by either party as affecting the plaintiff’s rights under the 2016 Agreement. While he seemed a little reluctant directly to answer the question, ultimately Mr Warden agreed that was so. It is certainly consistent with how the parties administered the 2016 Agreement and how the payout of that agreement was calculated. I accept that both parties acted on that basis in respect of the 2016 Agreement.
Mr Warden and Mr Gay buy the Business
By mid-2016, Mr Warden (with some assistance from the plaintiff’s referral sources) had managed to assemble a significant rent roll of his own, in accordance with the arrangement explained in paragraph [11] above. Mr Warden explained that he required a rent roll of 250 properties to be able to raise sufficient funds to buy the Business.
He did not have enough properties in his own name alone to acquire the Business. However, the second defendant Mr Gay also had a rent roll in his name which he had developed while at the West End office of Image Properties. Together Mr Warden and Mr Gay had sufficient properties under management in their own names to acquire the Business. In July 2016, the Business was sold by IGA to the first defendant, Succeed. Succeed was the vehicle by which Mr Warden and Mr Gay acquired the Business. Mr Warden and Mr Gay each owned 60 shares. Mr Gay was at that time also working with Image Property in a business operating in West End, but moved to Camp Hill about a month before the sale settled.
Thereafter, the arrangement between Mr Warden and Mr Gay was that each kept the clients they had introduced as notionally their own, and all new introductions from any source went to the benefit of Succeed. This included further referrals under the 2016 Agreement.
When Mr Gay joined Mr Warden at Camp Hill, Mr Warden had responsibility for the dealings with Mr Prendergast. However, Mr Gay was told about the agreement with the plaintiff and the relationship with Mr Prendergast. Mr Gay said he was familiar with the terms of the 2016 Agreement though he did not see the written agreement until Mr Warden sold out of Succeed in 2017.
There was no discussion about how the purchase of the Business by Mr Warden would affect the 2016 Agreement. All parties just continued with their dealings on the same basis as had been established up to then. Mr Prendergast described the situation as business as usual. Mr Warden said the same: he said nothing changed.
Not long after Succeed bought the Business, Mr Gay began to deal directly with Mr Prendergast. Mr Warden had branched out into residential sales, while Mr Gay retained responsibility for the property management business. This included building the rent roll (now for Succeed) as well as supervising management.
It was in that context that he soon became the primary contact for Mr Prendergast and his referral sources, and became responsible for the maintenance and development of those relationships. From that point onwards, Mr Gay was the person who had primary responsibility for, and contact with, Mr Prendergast and his referral sources.
It was not exactly clear which of Mr Gay or Mr Warden were responsible for keeping records of the referral properties under the 2016 Agreement thereafter, but Mr Warden appeared to retain ultimate responsibility for this.
The recording process seems to have continued as before: the properties introduced by the plaintiff’s referral sources (styled JPren Properties) were recorded on a spreadsheet called “Image by Numbers” kept by Succeed. Another record was kept in a business software package seemingly used for managing the property rental business called “Property Me”. Mr Gay was much more precise in his evidence on this issue than Mr Warden.
Given some of the matters in contention about how incentives and direct arrangements with the plaintiff’s referral sources were dealt with later, it is important to note the following uncontentious matters.
First, Mr Gay gave evidence that during the period of the 2016 Agreement, he dealt with the four major referral sources for the plaintiff: they were identified as Imanagewealth, PI Finance, Silvertail Property Group and Full Financial. He said that incentives had been paid to each of these referral sources of some kind during the 2016 Agreement. He said he had a good relationship with them. He said Mr Prendergast also had some role in the on-going relationships, particularly with Silvertail.
Second, Mr Gay said that few if any of the referred clients in the period of the 2016 Agreement terminated their management rights with Succeed. He could identify none.
Mr Davis’ role in the Business over this period was very limited. The Business operated as an Image Property franchise and thus Mr Davis remained interested in the performance of the Business. He provided mentoring and management advice to Mr Gay and Mr Warden but had no direct involvement in the operation of the Business generally, or the relationship with the plaintiff in particular.
Mr Warden leaves Succeed
By mid-2017, Mr Warden decided to sell his shares in Succeed. Different accounts were given of why this occurred. It sufficient for this trial to observe that Mr Warden did not want to continue in the Business and that Mr Gay and Mr Davis (as owner of the franchisor) were concerned about the performance of the Business. Mr Davis’ concern is understandable given the interest of IGA in the performance of the Business as an Image Property branded enterprise.
The resolution of Mr Warden’s departure was by the SUSA signed on 8-9 August 2017. The SUSA did not settle until about 5 October 2017. I will return to the SUSA presently.
Mr Warden appears to have left the business rather suddenly in July 2017. Mr Gay seems to have managed the relationship with Mr Prendergast, as he had been doing for some time. He told Mr Prendergast that Mr Warden was leaving, that Mr Davis was going to buy in to Succeed, and that the plaintiff’s agreement with Mr Warden (i.e. Benwar) would be honoured. Events occurred as Mr Gay foreshadowed, though it took until October 2017 for the settlement of the SUSA and the payment of the plaintiff under the 2016 Agreement to occur.
All parties acted on the basis that the plaintiff would be paid out under the 2016 Agreement from that point on. The payout of the plaintiff was dealt with as part of the SUSA. That agreement annexed the 2016 written agreement and a schedule of properties which were “JPren” properties, totalling 94. The SUSA then provided for the purchase price payable by Mr Davis[1] to Mr Warden to be adjusted depending on how the obligation to the plaintiff was dealt with. One option was that the purchase price be reduced by the amount payable. The payout of the 2016 Agreement occurred on 5 October 2017, immediately following settlement of the SUSA. A bank cheque for $144,000 was purchased by Succeed in favour of the plaintiff and paid to the plaintiff.
[1]He purchased through a company but that is not relevant to this proceeding.
There was no formal termination or novation of the 2016 Agreement whether in the SUSA or otherwise. However, Mr Davis expressed the view that the 2016 Agreement was effectively terminated by the payout arising from the SUSA because Mr Warden had left the Business and the 2016 Agreement was with Benwar.
It is a fine legal question whether by that time the 2016 Agreement was with Benwar or whether it had been impliedly assigned to Succeed and novated to Succeed (as to rights and liabilities respectively) following the purchase of the Business by Succeed. The plaintiff pleaded that it had been assigned as to “rights and liabilities”, which is in substance the same thing (even if there is no allegation of novation of liabilities). It might be thought there were some grounds for that conclusion. The referred properties went to the benefit of Succeed, rather than being recorded as Benwar properties, once the purchase had taken place. However, Mr Prendergast was never aware of this. He was not provided with documents which showed how the referrals were being recorded. Ultimately, I consider it was Benwar which remained liable to the plaintiff even after Succeed purchased the Business. This is not to say, however, that Succeed was not understood by both the plaintiff and Benwar as benefitting from the 2016 Agreement. It was common knowledge of both Benwar and the plaintiff that the referred clients would become clients of the Business. That situation never changed.
However, in my view, the 2016 Agreement could not in practice survive the departure of Mr Warden from the Business because once he departed, Benwar would have put it outside its capacity to perform the agreement. Further, I find that a reasonable person in Mr Prendergast’s position would have known that the intention of the SUSA payout was to bring that agreement to an end, for the same reason. That conclusion is reinforced by the fact that, looked at objectively, the payout was one properly payable only under the last clause dealing with the departure of Mr Warden. That clause on its proper construction seems to me to respond to the situation where the 2016 Agreement had to be terminated because of the circumstances which arose i.e. the departure of Mr Warden (albeit in slightly different factual circumstances to those contemplated in that clause).
Accordingly, from the time that Mr Gay informed Mr Prendergast that Mr Warden was leaving the Business and the plaintiff would be paid out, it should have been evident that a new agreement dealing with the referral relationship between the plaintiff and the Business would be required.
Further, it appears that both Mr Gay and Mr Davis for Succeed and Mr Prendergast for the plaintiff each considered a new agreement was called for. Mr Gay and Mr Davis thought that was necessary because the payout under the 2016 Agreement brought it to an end. Mr Prendergast thought that was necessary because he wanted the security of an agreement with Succeed which had been committed to in writing by Mr Davis.
Ultimately, there is not much of substance between these two views from the perspective of the issues relevant in this case. The important point is that soon after Mr Warden’s departure was communicated, both parties agreed that a new agreement should be made.
The 1 August 2017 meeting
This was confirmed by the 1 August 2017 meeting between Mr Prendergast and Messrs Gay and Davis. That meeting was organised to address the future relationship of Succeed and the plaintiff. None of the witnesses had a detailed recollection of the discussions at the meeting. Mr Prendergast seemed to have the best recollection. He said (relevantly) as follows:
“… And could you tell the court, please, what was said in the course of that meeting? --- Yes. Hayden and Shannon both said to me that they were happy with the referral agreement that was currently in place to Camp Hill. They both told me that they were wanting to continue the agreement, and I also said them that I was at – I – I was keen to keep the agreement going as well.
Okay? --- Yeah. Sorry. I also made a point of saying to Shannon that although I had a – a friendship with Ben Warden, I didn’t want that to get in the way of the business relationship that we had started and the momentum that we had to date.
…
…did you make any particular requests in the course of the meeting of something you might want?...I was pushing for a new agreement signed. I wanted Shannon’s commitment on paper. I wanted his signature on the agreement.
And in the course of that meeting was anything said about how records were going to be kept, going forward, of the referrals?---Yes. I..requested that, going forward, we had an open share platform that we could view all the properties that I was referring on.
…
Okay. And what did they say to that request?---That was yes, they would do that.
All right. And what was their response when you asked them ofr a new written document?---They were happy to do the new written document
Mr Gay’s recollection was less specific. He said:
Now, do you recall what was said during this meeting?---We briefly discussed a bit more detail about the share sale agreement that was currently pending at this stage, and we discussed that we’d be open to entering a new agreement with James and, you know, we were happy with, obviously, the growth that that supplied Ben at the time and – and we’d be open to entering a new agreement, yeah.
And do you recall anything that Mr Prendergast said?---Not really. I – I just – I don’t know the exact words, but he was happy with the service Image was providing his clients and he was happy to, you know, keep that going in respect to a new deal and do that directly with myself, as his previous direct contact was with Ben, yeah.
Do you recall anything that Mr Davis said during the meeting?---I don’t, no.
Do you recall what you said?---That we’d be happy to enter a new agreement and, you know, we would, following that meeting, go away and draft it up and get it over to him to – to assess and hopefully move forward, yeah.
And who asked for a written agreement?---It was fairly mutual. I think James asked for it to be sent over to review, and I was happy to do that, yeah.
Was anything else said during the meeting?---It was fairly brief. I’d – I’d probably say it took all of 30 minutes to have a coffee, talk about Ben’s exit and entering a new agreement. It – it was – there wasn’t a lot of detail after that, no.
Mr Davis’ recollection of what passed at the meeting was quite vague, though to the extent he did recall it, it was consistent with the recollection of the others.
In my view, the following matters of relevance emerged from the meeting:
(a)First, all parties expressed satisfaction with the existing arrangement whereby the plaintiff had been directing its referral sources to the Business with success for both parties and wanted to continue it;
(b)Second, both parties wanted a written agreement regulating their commercial relationship. Further, I find that all parties contemplated such agreement would be on substantially the same terms as the 2016 Agreement. While that was not specifically stated on Mr Gay’s evidence, it is consistent with Mr Prendergast’s evidence and it is consistent with how Mr Gay approached drafting the new agreement;
(c)Third, a transparent record keeping process would be required to replace the existing arrangement whereby Mr Prendergast simply relied on Mr Warden to keep proper records (while this was not recalled by Mr Gay or Mr Davis specifically, it was uncontentious that that process was put in place by Mr Gay immediately after the meeting); and
(d)Fourth, there is no evidence of any statement by Mr Gay or Mr Davis to the effect that the new agreement between the plaintiff and Succeed would exclude from the calculation of JPren properties clients referred by existing referral sources.
This last point is relevant because the defendants had pleaded that such a statement was made and had promissory effect. No evidence of the statement was given, and Mr Prendergast denied it was made in evidence. The failure of the defendants to come up to proof on this issue did not emerge until after Mr Davis’ evidence. The allegations were abandoned in the Second Further Amended Defence filed on the last day of the trial. However, the issue was a live one during Mr Prendergast’s evidence.
Mr Prendergast gave evidence that he had other potential property management referral options, he identified a Ray White business which had shown interest earlier and continued to do so. He gave evidence he had ongoing relationships with the key existing referral sources: Imanagewealth, Silvertail Property Group, Full Financial and PI Finance. None of that was challenged. He also said if no further agreement was proposed, he would have tried to redirect his referral sources elsewhere (a fortiori where it was proposed that the agreement exclude referrals from existing sources). None of this evidence was persuasively challenged. While one cannot be certain how successful Mr Prendergast would have been, it does demonstrate on credible evidence the commercial benefit to Succeed from continuing with a relationship in which clients from existing referral sources were credited as JPren properties. Mr Prendergast’s on-going goodwill to Succeed was at least arguably necessary for them to keep referral sources that Mr Prendergast had introduced.
Further, it appeared that at least Mr Gay was aware of Mr Prendergast’s on-going close connections with at least some of the important existing referral sources. Even if he was not, it is my view that reasonable persons in the position of the defendants would have been aware of the commercial risk to their existing relationships with the referral sources introduced by Mr Prendergast if the defendants tried to exclude the plaintiff for future benefits for clients referred from those sources.
From the August meeting to the 2017 Agreement
Both before and after the 1 August 2017 meeting, Mr Prendergast gave evidence that he took positive steps to reassure his referral sources that the departure of Mr Warden did not mean that their relationship with the Business had to change.
Mr Gay said that from his perspective after the meeting “we were really acting as business as usual”. There is no suggestion that was not the approach also in the short period between Mr Warden’s departure being announced and the 1 August 2017 meeting.
The evidence demonstrates that business as usual meant that existing referral sources continued referring clients, those clients were allocated in Succeed’s records as JPren properties and Mr Prendergast, as I have said, reassured his referral sources that it was business as usual.[2]
[2]TS1-105.46.
Also, as I have already observed, immediately following the 1 August 2017 meeting, Mr Gay created the open access spreadsheet which Mr Prendergast asked for to show properties which were allocated as JPren referrals. That document is important to this case and requires some further description.
Mr Gay explained that he used a spreadsheet program on Google Drive as the record sought by Mr Prendergast of the JPren referrals (the JPren Spreadsheet).
The physical characteristics of the JPren Spreadsheet need to be described. Evidence was given that that document was accessible only by viewing the document on a webpage. It was stored on a Google Drive outside the control of the parties. The document as a whole, including all its metadata, could not be downloaded. So far as I was told, the only way to record particular views of the data as presented on the webpage was by screenshots. That was the process used to identify and tender particular views relied upon in evidence at the trial.
Mr Somers for the plaintiff sought to tender the whole of the JPren Spreadsheet in its webpage format. As the document could not be downloaded, he sought to tender it by way of tendering the link to the webpage. I refused the tender. In my view, this was not a tender of a document, but rather the tender of a location where a document could be found. I rejected the tender of the document in this manner.
In my view, there are good reasons why the document (which undoubtedly exists) cannot be tendered in this way. It was unclear as to who ultimately controlled the document and who could alter it. Mr Gay had administrator rights and he recalled conferring them only on one other staff member. However, he could not be certain that others did not have such rights. Further, it is unknown and perhaps unknowable as to what capacity those controlling the webpage might have to alter the document. These considerations mean that it is not possible to be confident that the document on the webpage at the time it was “tendered” would remain in that form.
Further, where the document which purports to be an exhibit is held outside the control of the Court, the Court has no way of being certain that the document will continue to exist in the future, or continue to be accessible. There are presumably detailed terms and conditions which regulate use of the proprietary software which permits the JPren Spreadsheet to be created, modified and accessed. The Court did not know those terms and conditions. It is entirely possible that a third party supplier licensing use of the software or managing the webpage could quite properly close the relevant webpage or prevent access, thus causing the exhibit to “disappear”. Indeed even if the third party supplier improperly prevented access or deleted the document, there would be little the Court could do about it.
Ultimately, relevant views of the document were the subject of a screenshot and tendered in that way. That process was effective to put the views of the document which are relevant before the Court.
I now turn to the substantive content of the JPren Spreadsheet. Mr Gay created the spreadsheet on 4 August 2017, immediately after the 1 August meeting it seems. He said he did so to ensure Mr Prendergast could see for himself how many JPren properties there were at any time, consistent with Mr Prendergast’s request.
The spreadsheet has the following characteristics.
First, it records and identifies each version of the spreadsheet, linking the version to the date of the amendment and the person who amended it (by reference to log in details presumably). It can be seen from the screenshot exhibits (for example exhibit 18) that the version history with that information can be called up and shown as a side window. Clicking on the alteration date will show the spreadsheet at that date and amendments made that date can be highlighted.
Second, it is possible to create multiple pages of the spreadsheet. Mr Gay gave evidence that he created a number of separate pages. The first page is “Sheet 1”. He accepted that he created that page to show to Mr Prendergast who had access to that sheet the properties allocated as JPren properties from time to time.
Mr Gay was the administrator of the web page. He had the power to permit another party (presumably identified by log in details) to access some or all of the spreadsheet. He gave Mr Prendergast authority to access the Sheet 1 page. Indeed it was common ground that Mr Prendergast regularly looked at Sheet 1 and Mr Gay knew that. Indeed that was the purpose of creating Sheet 1. Further if Mr Prendergast thought properties had been omitted he would raise it with Mr Gay, who would correct or update the Sheet 1 list accordingly. There is no evidence of an example where Mr Gay refused to do so (though that might have happened). There were examples where he did do so. And there are two properties which, he accepted in evidence, should have been included but were overlooked, presumably by both parties (discussed below).
Mr Gay also created seven other sheets. These can be seen along the bottom of the pages at exhibit 19. Mr Gay explained these were extracts of Sheet 1 which allocated the JPren property to its JPren referral source. It can be seen these include the four already mentioned, along with three others. The purpose of this was twofold:
(a)It provided transparency for those referral sources of the client they had referred; and
(b)It permitted Succeed to keep track of the particular incentives and arrangements it had directly with those parties.
Third, as I have already noted, Mr Gay recalled only himself and Mr Rivett (an employee) having authority to alter the JPren Spreadsheet. This is consistent with the metadata shown in the exhibits.
The JPren Spreadsheet was created by Mr Gay, as can be seen from the version history, on 4 August 2017. On that date he transferred all the JPren properties from the existing records kept in house. Those properties totaled 94. At some stage after that, Mr Gay entered the line under the 94th entry, which he said he did to indicate the cut off point for the 2016 Agreement. It is understandable he would do so given that those properties were dealt with under the SUSA.
Thereafter, Mr Gay added properties to Sheet 1. On 21 September 2017, he added properties 95 to 102 (exhibit 18). On 26 September he added property 103. On 27 September he added property 104. It does not seem any other properties were added before the written agreement was signed on 10 October 2017. It is to that document that attention now turns.
The 2017 Agreement
It was agreed by 1 August 2017, that a new agreement in writing would be entered into. Further, I find that the parties contemplated that that would be an agreement substantially in the form of the 2016 Agreement. This follows from the evidence of Mr Prendergast that the defendants said they were “happy with the referral agreement that was currently in place to Camp Hill. They both told me that they were wanting to continue the agreement”. Mr Gay was not as precise but his evidence is generally consistent with that proposition and it is consistent with what he in fact did. The first draft was not produced until 4 October 2017.
There was no direct explanation for the delay that I recall, but it was almost certainly the result of two matters: the delay in finalising the SUSA and the payout of the 2016 Agreement and the common understanding of both parties that the new agreement would be substantially the same as the 2016 Agreement, permitting business as usual pending preparation of it.
The first draft was produced by Mr Gay. He said he drafted the first draft copying from a pdf version of the 2016 written agreement, changing the names of the parties and the text as necessary to deal with those changes. The trigger for this appears to have been the settlement of the SUSA. The only other change was to take out the last paragraph dealing with Mr Warden departing the Business.
Mr Prendergast responded seeking an additional clause which provided the prospect for the parties to terminate the agreement after six months if the parties are not happy to continue in accordance with the terms of the agreement.
Having secured that change, all parties signed the document on 10 October 2017.
The 2017 Agreement provided (on Image Property letterhead):
10/10/2017
Referral arrangement between Hayden Gay & Shannon Davis C– Succeed Investment Pty Ltd t/as Image Property
Camp Hill & JPP Trust T/as Prendegast Property Pty Ltd.
Hayden Gay, Shannon Davis Principal of Camp Hill and James Prendergast arrangement:
·Properties brought on from this relationship are to be earmarked and collared as JPren.
·At a critical total – 100. Each Hundred to be grouped at eth 100 interval. When this total is reach this actions the option for sale. The sale does not need to occur but either party can qualitfy and action that it is.
·Properties are to be divided 50/50 ownership split in name.
·50 properties to Suceed Investments Pty Ltd and 50 properties remain Succeed & JPren ownership held by James Predergast.
·James Prendergast can only sell these properties to Hayden Gay, Shannon Davis – Succeed Investments Pty ltd.
·No outside sale to be an option.
The purchase price will be 75% of property value. Value is established by the rent roll multiplier that works on total return for 52 weeks x commission percentage and then by a multiple of 3.
Example/break down of cost for 1 property = rent $450 per week x management fee @ 8.8% x 52 = $2,059.20 x 3 = $6,177.60. 75% of $6,177.69 + $4,633.20.
All referral clients and referral partnets, buyers agents, sales agents, developers that are introduced to Image Property through this relationship are to be earmarkets as Jpren referrals and all business that comes from these sources are to be referred back and tagged accordingly.
Both parties involved in the rental agreement, will re access six months following signing the agreement to ensure no changes are needed and all parties are happy to continue in accordance to the above points. If either party is not happy this will trigger a pay out within 60 days notice, to close out the agreement.
Agreement Signed –
Hayden Gay – Principal & Diroctor of Succeed Investments T/as Image Property Camp Hill
Signature
Date10/10/2017
Shannon Davis – Diroctor of Succeed Investments T/as Image Property Camp Hill
Signature
Date10/10/2017
James Prendergast – Prendergast Property
Signature
Date10.10.2017
[Typographical errors in original]
Both parties agree that a binding contract arose after the 1 August meeting. Having abandoned the case that there were binding contractual terms agreed at the 1 August meeting, the defendants now contend that the agreement is one entirely in writing and comprised in the 10 October document. The plaintiff maintains alternative submissions:
(a)It submits that there was an agreement which was partly oral (the 1 August meeting), partly in writing (the 2017 Agreement document) and partly by conduct (after the event involving the manner in which the JPren properties were recorded, which it is uncontentious is inconsistent with the whole of the defendants’ case); or
(b)It agrees in the defendants’ submission that the agreement was entirely in writing and contained in the 10 October 2017 Agreement.
On the alternative case, the parties are only apart on questions of construction.
In my view, the 2017 Agreement was an agreement wholly in writing and contained in the 10 October 2017 document. The 1 August meeting contemplated a new agreement and contemplated one in writing. Further, the draft agreement was prepared then reviewed and specifically adopted by Mr Prendergast. It was then signed by all parties in that form. Looked at objectively, the parties intended to record their agreement entirely in writing.
This interpretation of the contractual character of the parties’ dealings does not make the preceding conduct irrelevant. The 2017 Agreement is a good example of how a written contract frequently cannot be objectively construed without reference to the preceding dealings. It is replete with ambiguous terms and phrases such as “relationship”, “referral clients”, “referral partners” which cannot be understood without reference to the preceding conduct of the parties which identifies relevant facts known to both parties.
I will return to construing the 2017 Agreement below.
The main difference of substance in determining the parties’ rights by reference to the writing in the 2017 Agreement rather than by reference to the alternative informal contract alleged by the defendant lies in the relevance of subsequent conduct. As will be seen, the most important item of subsequent conduct relied upon by the plaintiff was Mr Gay’s conduct in maintaining the JPren Spreadsheet in a manner inconsistent with the construction of the 2017 Agreement contended for by the defendants. It is to the subsequent events, including that conduct, that I now turn.
Events following the 2017 Agreement
Following the execution of the 2017 Agreement, Mr Gay continued to maintain the JPren Spreadsheet. Mr Prendergast continued to monitor it to see that all clients referred were entered on the spreadsheet and Mr Gay gave evidence that he knew that was occurring. This continued to occur until September 2018.[3]
[3]Exhibits 7 and 8.
From 10 October 2017 until September 2018, JPren properties continued to be added to the JPren Spreadsheet including, relevantly to issues in dispute in this proceeding:
(a)Many properties which were referred from the four large referral sources which had been introduced by Mr Prendergast under the 2016 Agreement; and
(b)Many properties for which a payment of some kind was made to the referral source (called referral fees in the defendants’ case).
By early August 2018, the JPren Spreadsheet showed that the plaintiff was approaching the 100 properties trigger point identified in the 2017 Agreement. Mr Prendergast was, not surprisingly, eager to reach that point and secure the significant benefit which would then flow. He began raising the issue with Mr Gay around 7 August 2018, as seen in text messages sent around that date. He gave evidence that the JPren Spreadsheet hit the 100 properties target on 5 September 2018. That is confirmed by the printout of the JPren Spreadsheet, Sheet 1, as at that date.[4] Indeed that print out shows three properties queried by Mr Prendergast that day being added to the spreadsheet.[5]
[4]Exhibit 15.
[5]Exhibit 8.
Thereafter, Mr Prendergast repeatedly sought to contact Mr Gay and ultimately Mr Davis, to secure payment of the sum he considered due under the 2017 Agreement.
The dispute emerges: Mr Prendergast’s evidence
From Mr Prendergast’s perspective, matters developed as follows from then. Properties continued to be added to the JPren Spreadsheet, reaching a total of 116.[6] (It appears that the total reached that level because 14 properties were referred and added to the JPren Spreadsheet between 13 September 2018 and 30 November 2018. This is odd because the defendants’ took a view of the construction of the 2017 Agreement which meant that Mr Prendergast was not even close to 100 properties from at least the end of September 2018 and possibly earlier. Yet the JPren Spreadsheet, under Mr Gay’s control, continued to be administered in the way it always had, without regard to the matters raised in this proceeding.)
[6]Exhibit 19.
Mr Prendergast sent texts to Mr Gay which were not responded to in a manner confirming that payment would be made. On 27 September 2018, he sent an email directly asserting that the 100 properties point had been reached and calling on Mr Gay to confirm. On 2 October 2018, Mr Gay responded, ambiguously it must be said: “Confirming receipt of your email, in line with our recent correspondence. I have also forwarded this to Shannon [Davis] to ensure all parties are on the same page”.
There was no evidence of any meaningful response, so Mr Prendergast sent an email to Mr Davis directly on 24 October 2018. Mr Davis responded that day in the following terms:
We don’t share your thoughts on number of introductions and in many cases we have had to pay the individuals introduced.
The first agreement was honoured even though I didn’t make the agreement but we will not be paying for managements that have not been introduced from yourself or have been paid already.
When I have the information from my business partner, who was away last week- you will be informed.
This is the first time that the defendants communicated in writing to Mr Prendergast that they disputed that the 100 property trigger point had been reached. It is also notable that Mr Davis gave evidence that he knew about the JPren Spreadsheet but did not review it himself, and seemingly from the language in the email, he adopted this position at a time when his business partner (Mr Gay is the only possibility on the evidence) was not present to be consulted on the email.
Mr Prendergast then went to the premises of the Business on 16 November 2018. He met Mr Gay in reception and they went outside to discuss the matter. It was suggested in cross examination that Mr Prendergast was asked to go outside because he was getting heated. Mr Gay did not give any such evidence.
Mr Prendergast said that up to that time, and indeed on that day, Mr Gay did not say he disagreed that the 100 properties had been reached, but that the problem was because Mr Davis did not agree. Mr Prendergast said that was said on 16 November and might have been said earlier.
What is clear is that on that day, Mr Gay gave a printout of the JPren Spreadsheet to Mr Prendergast showing the 116 properties and then of his own volition did a calculation of the payment due under the 2017 Agreement based on those 116 properties. He calculated $194,844.33. Mr Prendergast subsequently issued a tax invoice for that amount inclusive of GST in March 2019 and commenced these proceedings on 1 April 2019.
The defendants’ version
It can be seen that two key elements of the defendants’ case, that only properties from new referral sources fell within the 2017 Agreement and that no fee was payable if a referral fee was paid direct to the referral source, are foreshadowed in Mr Davis’ email of 24 October 2018. This is the first time they are mentioned in the documentary record. Further, the JPren Spreadsheet was never administered on the basis of either of those propositions, and Mr Gay calculated the entitlement on the basis of the JPren Spreadsheet on 16 November 2018.
Despite this, Mr Gay said that both issues arose in discussions with Mr Davis following the JPren Spreadsheet hitting the 100 properties mark. This must have occurred therefore after 5 September 2018.
He said that he communicated the first proposition (i.e. that only referrals from new referral sources were covered by the 2017 Agreement) to Mr Prendergast at some stage during the period up to 16 November 2018 by telephone. He did not say he mentioned the second proposition (that a direct referral payment meant that the plaintiff was no longer entitled to payment). He also said that at some stage he assumed that Succeed was entitled to exclude the plaintiff from its referral commission under the 2017 Agreement just by causing Succeed to enter into a direct referral agreement with one of Mr Prendergast’s referral sources.[7] However, there is no evidence he ever told Mr Prendergast of this assumption, despite its startling implications for the plaintiff and despite having a good relationship with Mr Prendergast.
[7]TS2-56.10.
Mr Davis, for his part, was vague as to how the two propositions above emerged. He agreed they came up between he and Mr Gay when the 100 properties was reached on the JPren Spreadsheet and that his 24 October 2018 email was the first time he raised the points made in that email. However, he said “It might’ve been the first direct communication I’ve had with James, but for a long time before that, Hayden and I had thought that there – we had a disagreement.” On reflection, that evidence is ambiguous as to who he had had the disagreement with, Mr Gay or Mr Prendergast.
Findings about the dispute
This part of the evidence is the only part where there is a meaningful departure in the evidence of the witnesses. I prefer the evidence of Mr Prendergast.
First, I do not accept Mr Gay’s evidence about the phone call communication of the ‘new referral sources only’ point. Mr Prendergast would have responded to that suggestion forcefully and in writing at the time it was made.
Second, I do not accept that Mr Gay and Mr Davis had harboured concerns about the approach to the calculation of properties as shown in the JPren Spreadsheet for a ‘long time’, if that is said to be earlier than 5 September 2018. There is not a shred of evidence that is true. I can accept Mr Gay started to get concerned about having to pay out under the 2017 Agreement when the 100 property point approached, but that is a different matter. There is no suggestion of any such concern to be found in the evidence, and all the conduct of Mr Gay in relation to the JPren Spreadsheet is to the contrary.
Third, and most important, I do not accept that Mr Gay thought up the points used to impugn the entitlement of the plaintiff nor that he accepted that they were correct when discussed with Mr Davis. It is entirely inconsistent with the way that he managed the JPren Spreadsheet and with his conduct in carrying out the calculation on 16 November 2018. The carrying out of that calculation, of his own volition, is not the act of a person holding a determined view that the JPren Spreadsheet was utterly wrong and mistaken in approach.
Mr Davis was clearly the senior partner in his relationship with Mr Gay at least in respect of commercial experience. Mr Davis gave evidence that he achieved success in the kind of business in which Mr Gay was, and is, seeking to make his way. In my respectful view, these circumstances have made it difficult for Mr Gay objectively to recall the particulars of how the dispute arose and his attitude to it, at least early on. He was willing to be led by Mr Davis in this respect. I find that Mr Gay did communicate to Mr Prendergast that the issue was with Mr Davis, not with him. I reject his evidence that he assumed he could exclude the plaintiff by reaching a referral agreement with Mr Prendergast’s sources (at least until the idea was raised by Mr Davis, or came up in their discussions after 5 September). I also reject his evidence of communicating an objection to the 100 properties calculation.
I recognise that Mr Gay was doing his best to give both honest and reliable evidence and I think he generally succeeded. However, on these specific points, I was unable to accept his evidence as reliable, even though honestly given.
Other relevant events
There are two other factual matters to note.
First, in late December 2018, PI Finance terminated all the property management agreements its clients had with Succeed. This appears to have been the consequence of PI Finance creating its own property management business. This resulted in 17 properties being removed from the Succeed rent roll. The management agreement for most of those properties ended on 21 January 2019, then one in February, two in March and two in June 2019. They are said to be properly deleted from the total by the defendants’ alleged implied term that properties introduced but which terminated the management agreement are not included as JPren properties.
The following findings of fact are relevant to that argument:[8]
(a)These terminations occurred after the 100 properties mark was reached on 5 September 2018; and
(b)These terminations occurred after a minimum of 20 weeks operation and a maximum of 104 weeks of operation, during which Succeed obtained management fees.
[8]See Annexure A to the Plaintiff’s Trial Submissions which I did not understand to be ultimately disputed as to the facts shown.
There is no suggestion that Mr Prendergast was responsible for PI Finance’s decision to do its own property management.
Second, there were two additional properties which, on the plaintiff’s construction of the 2017 Agreement, should be added to the JPren total, though both were terminated by PI Finance as outlined in the first point above.[9]
THE ISSUES
[9]TS2-58.30 to .32.
Introduction
Ultimately, there were five issues which had to be resolved.
First, on its proper construction, were clients introduced under the 2017 Agreement limited to those introduced by referral partners who were themselves introduced under the 2017 Agreement (as the defendants contend) or did it include clients introduced under the 2017 Agreement by referral sources which had been introduced under the 2016 Agreement (as the plaintiff contends). If that issue is resolved in favour of the defendants, the plaintiff must fail because on this construction it is not disputed that the total of JPren properties falls well below 100.
Second, if the first issue is resolved in favour of the plaintiff, the next issue is whether clients introduced between the 1 August 2017 meeting and the execution of the 2017 Agreement on 10 October 2017 are, on the proper construction of the 2017 Agreement, included in the JPren total. It is uncontentious that there are 10 such properties: see paragraph [74] above. There is a further property relied on by the defendants, being number 13 in the schedule to the defence which was seemingly introduced on 10 February 2017. This was during the 2016 Agreement. It is unclear how this property came to be added after the 1 August 2017 meeting but in any event, even if included, it is not by itself sufficient to take the plaintiff below 100 without other exclusions also applying.
CONCLUSION
Judgment will be entered against the first and second defendants for $194,844.33. I will hear the parties on interest and costs.