Southwell Holdings Pty Ltd v Topple

1. [1]

   The plaintiff, Southwell Holdings Pty Ltd (Southwell), appeals from a decision of the Local Court of New South Wales dismissing its claim for remuneration under an agency agreement that it entered into with the defendant, Barry Topple, in relation to the sale of his property in Marchmont, New South Wales (Property). Southwell brought the appeal pursuant to s 39(1) of the Local Court Act 2007 (NSW), which provides that a party to proceedings before the Local Court sitting in its General Division may appeal to the Supreme Court on a question of law.

2. [2]

   Southwell’s summons, filed on 22 July 2024, contained a single ground of appeal, namely, that the Magistrate erred in concluding that, on the proper construction of the agency agreement, Mr Topple was not required to pay Southwell remuneration in respect of the sale of the Property. In support of that ground, Southwell relied on one of the two clauses of the agency agreement that it had relied on before the Magistrate, namely, cl 3.1(a), but advanced a different construction to what it had submitted to the Magistrate. Mr Topple did not object to Southwell putting a construction of the clause that was different to what it had run in the court below, in circumstances where the question of the proper construction of the agreement was one of law: see Bowes v Chaleyer (1923) 32 CLR 159 at 172; [1923] HCA 15.

3. [3]

   For the reasons outlined below, I do not accept the construction of cl 3.1(a) of the agency agreement that Southwell advanced in these proceedings. It follows that the summons will be dismissed.

Background to Southwell’s claim

1. [4]

   The background is not in dispute and may be stated shortly. On or about 23 October 2019, Mr Topple and Southwell entered into an agency agreement for the sale of the Property. The agency agreement was a standard form document (the footer indicated that it was prepared by the Estate Agents Co-operative Ltd) to which details specific to the parties, the Property and their agreement were added. The agency agreement consisted of three parts, which were described at its commencement as follows:

2. [5]

   Part 1 of the agency agreement comprised a form with a series of entries regarding the Principal, the Licensee, and the Property, including a schedule of property particulars. Part 1 of the agency agreement in the present case identified Mr Topple as the Principal and George Southwell as the Licensee. Mr Southwell, who was an employee of Southwell, confirmed in the Local Court that he made no personal claim to be a party to the contract or to any remuneration thereunder. The Magistrate considered that it was “clear enough as a matter of construction that the contracting party was probably objectively intended to be the plaintiff company”; and that if the requirements in the agency agreement for remuneration had been satisfied it would have been an appropriate case in which to exercise the power in s 55A(1) of the Property Stock and Agents Act 2002 (NSW).

3. [6]

   Part 2 of the agency agreement addressed specific aspects of the agreement between Mr Topple and Southwell, again with certain information filled in. Item A in Part 2 provided:

4. [7]

   Item C in Part 2 provided:

5. [8]

   At the conclusion of Part 2, immediately before the parties’ signatures, was an acknowledgment and confirmation that “before signing this agreement the Licensee and the Principal/s have read and understood and agree to the terms and conditions in Part 3 of this agreement”.

6. [9]

   Clauses 3.1 and 3.2, to which the heading of Item C referred, are in Part 3 of the agency agreement. Clause 3.1 provided:

7. [10]

   Clause 3.2 was more relevant to the argument that Southwell put in the Local Court. For completeness, it provided:

8. [11]

   On 11 December 2019, during the Exclusive Agency Period (as defined in Item A in Part 2), Mr Topple entered into a put and call option deed for the Property with Byron and Lea McIntyre. An email of that date from a paralegal at Mr Topple’s solicitor to Mr Southwell confirmed entry into the option deed and noted, among other things, that the call option was exercisable at any time up to 31 December 2021. In the same email, the paralegal requested, on behalf of Mr Topple, that the forthcoming auction be cancelled.

9. [12]

   The option deed was in evidence before me, as it was in the Local Court, although neither party submitted that the terms of the option deed were relevant to the specific question of construction that Southwell raised. Mr Topple submitted that it was not permissible to rely on the option deed to construe the agency agreement, including because it was entered into some months earlier and was a standard form contract. Southwell referred me to the option deed for its factual relevance as it was the exercise of the call option for which the option deed made provision that led to the sale of the Property and its claim for remuneration under the agency agreement. The McIntyres exercised the call option on 1 July 2021, after the expiry of the Exclusive Agency Period, and consistently with the option deed the parties entered into a contract of sale for the Property for $1,400,000. On 15 July 2021, the sale completed.

10. [13]

    In its amended statement of claim in the Local Court, Southwell claimed $42,000 by way of remuneration under the agency agreement for the sale of the Property to the McIntyres, together with a claim for interest from 15 July 2021 pursuant to s 100 of the Civil Procedure Act 2005 (NSW). Southwell put its claim for the remuneration on two bases, both of which the Magistrate dismissed:

    1. (1)

       The Property was sold by Southwell during the Exclusive Agency Period, entitling Southwell to remuneration pursuant to cl 3.1(a). Southwell submitted to the Magistrate that Mr Topple’s entry into the option deed satisfied the requirement for entry into “a contract…for the sale of the Property or of an interest in the Property” within the meaning of that clause.

    2. (2)

       Alternatively, Southwell satisfied cl 3.1(c) because the McIntyres had been “effectively introduced to the Principal or the Property” by Southwell as the Licensee.

11. [14]

    There is limited utility in addressing the Magistrate’s reasons as to the second of these issues because Southwell did not challenge his Honour’s conclusion that it did not introduce the McIntyres to Mr Topple or to the Property. On the first issue, Southwell’s primary submission before the Magistrate was that the option deed was properly characterised as a conditional contract of purchase of the Property which entitled it to the agreed remuneration either upon the date of entry into the option deed or upon the date of completion of the sale following exercise of the option (both of which had occurred). Alternatively, Southwell submitted that the option deed was a conditional contract for the sale of an interest in the Property. The Magistrate did not accept either of those submissions.

12. [15]

    As I have noted above, although Southwell maintained in these proceedings that it was entitled to remuneration pursuant to cl 3.1(a) of the agency agreement, it did not make the same submissions about the application of the clause as it made to the Magistrate. Instead, Southwell relied on a different aspect of cl 3.1(a) and raised a different point of construction.

Southwell’s argument on construction of cl 3.1(a) of the agency agreement

1. [16]

   It was common ground that the agency agreement was a commercial contract and that the meaning of its terms was to be determined by “what a reasonable businessperson in the position of the parties would have understood those terms to mean”, having regard to the language used, the surrounding circumstances known to them and the commercial purpose that the contract secured: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]. As Leeming JA observed in Norton Property Group Pty Ltd v Ozzy States Pty Ltd (in liq) [2020] NSWCA 23 at [55], which also concerned an agency agreement (in that case, a buyers agency), the text is of particular significance when a document is in a standard form, although the commercial circumstances that the document addresses and the objects it was intended to secure will also guide its construction.

2. [17]

   In applying those general principles, Southwell focused on the first set of parenthetical words in cl 3.1(a), which I have emphasised in the clause below:

3. [18]

   Southwell submitted that, read in context, those parenthetical words were intended to expand the scope of what constituted a contract for the sale of the Property. In its submission, the “critical question” that the parenthetical words raised was: “to what aspect of the option, adopting a businesslike construction, did the words ‘Exclusive Agency Period’ apply”. Putting it another way in its written submissions in reply, Southwell submitted that the question was whether satisfaction of the condition in cl 3.1(a), in the case of an option being exercised, depended upon “the timing of the exercise, or the timing of the grant of the option”.

4. [19]

   Southwell submitted that the parenthetical words in cl 3.1(a) did not answer this question in terms. Rather, it submitted that, read in context, the parenthetical words could be construed in three ways:

5. [20]

   Southwell submitted that the third construction was the correct one. It submitted that the inclusion of the words “being exercised”, without any qualification as to the time of exercise, indicated that cl 3.1(a) would be satisfied if an option was granted during the Exclusive Agency Period and that option was ultimately exercised, whether the option was exercised during the Exclusive Agency Period or after its expiry.

6. [21]

   Southwell submitted that the placement of the parenthetical words immediately after the word “contract” supported this construction, as did other provisions of the agency agreement, specifically cl 5.1, cl 5.5 and cl 7.1 (in Part 3). Clause 5.1 contained a warranty on the part of the Principal that the Principal had authority to enter into the agency agreement with the Licensee. Clause 5.5 contained an acknowledgement on the part of the Principal that “by signing this Agreement the Principal is precluded from selling the property himself/herself during the Exclusive Agency Period without paying the Remuneration”. Clause 7.1 provided that a prospective purchaser could inspect the Property but only with an exclusive marketing agent or their nominee, and cross-referred to Item G in Part 2. Southwell submitted that these clauses highlighted that the agency agreement was concerned to ensure that the Licensee received remuneration for any transaction involving the Property that occurred during the Exclusive Agency Period, and that the construction of the parenthetical words for which it contended was consistent with that objective.

7. [22]

   Southwell also submitted that the construction of cl 3.1(a) for which it contended was consistent with the broad commercial purpose of an exclusive agency period. By contrast, the first and second alternative constructions of cl 3.1(a) (see (a) and (b) in [19] above) would result in the Licensee investing money and time during the Exclusive Agency Period to no benefit, while the Principal could obtain the benefit of a sale during that period and yet avoid paying the remuneration. It submitted that only the third construction met this mischief. Southwell referred in this context to the general character of put options and call options, submitting that the former put the Principal in the position of having effectively secured a sale at the time of the option (subject to the Principal exercising the option), while the latter secured a purchase for the purchaser (subject to the purchaser exercising the option). Southwell emphasised the nature of a call option, submitting that the grant of a call option would effectively deprive the Licensee of anything to sell.

8. [23]

   In its written submissions, Southwell referred to Mainteck Services Pty Ltd v Stein Huerty SA (2014) 89 NSWLR 633; [2014] NSWCA 184 (“Mainteck”) at [115]-[121], in which Leeming JA discussed the circumstances in which words may “be supplied, omitted or corrected, in an instrument, where it is clearly necessary to avoid absurdity or inconsistency”: Fitzgerald v Masters (1956) 95 CLR 420 at 426-7; [1956] HCA 53 (“Fitzgerald v Masters”). In oral submissions, counsel for Southwell submitted that recourse to authorities such as Mainteck was not necessary because, when read in the context of the whole agency agreement and in terms of what the parties would reasonably have understood it to mean, its preferred construction was the most reasonable construction. Nonetheless, Southwell submitted that authorities such as Mainteck confirmed the construction for which it contended, as the other two constructions it posited would deprive the Licensee of its remuneration in a manner that did not accord with reasonableness or with what the parties would expect the agency agreement to mean:

   1. (1)

      As to the first construction, Southwell submitted that it was unlikely that an agency agreement would be entered into if an option were granted beforehand. Relying on the nature of a call option as granting an equitable interest to the option holder which prevents an owner from selling elsewhere, Southwell submitted that there would be nothing that the Licensee was capable of selling, and no agreement could be contemplated. There would also in that circumstance be a difficulty in terms of the Principal’s warranty in cl 5.1.

   2. (2)

      As to the second construction, Southwell submitted that the parenthetical words would have no real work to do if the option was exercised during the Exclusive Agency Period, as there would in that event be a contract of sale.

9. [24]

   Mr Topple submitted in writing that the parenthetical words could be read in accordance with their ordinary meaning. So read, and read in context, the parenthetical words were directed at an option being exercised during the Exclusive Agency Period. As the words could be read in that way, and that reading constituted a reasonable and businesslike construction, there was no ambiguity, let alone ambiguity which justified supplementing those words, contrary to the position for which Southwell contended. Mr Topple relied in this regard on Jireh International Pty Ltd t/as Gloria Jean’s Coffee v Western Exports Services Inc [2011] NSWCA 137, in which Macfarlan JA stated at [55] (Young JA and Tobias AJA agreeing):

10. [25]

    Accepting it was a standard form agreement, the clear purpose of the agency agreement was to achieve the sale of a property (in this case, the Property). Mr Topple appointed Southwell as his selling agent for that purpose, on an exclusive basis between 23 October 2019 and 13 February 2020 and on a non-exclusive basis thereafter, until the Property was sold or the agreement was terminated on seven days’ written notice (Item A of Part 2). If Southwell satisfied cl 3.1 in Part 3 then it was entitled to the remuneration in Item C of Part 2 (save for in one case that is not presently relevant), with the remuneration being due and payable in accordance with cl 3.2.

11. [26]

    Clause 3.1 contains four circumstances in which, as the chapeau to the clause states, “[t]he Licensee shall be entitled to the remuneration set out in Item C of the Particulars”. Two of those circumstances, in paragraphs (b) and (d), are formulated in terms which seek respectively to mirror paragraphs (a) and (c) but are not applicable in the present case as they only apply if the Principal is a corporation. Accordingly, although the whole clause is instructive, I will refer only to paragraphs (a) and (c) below.

12. [27]

    The focus of cl 3.1(a) is the occurrence of a prescribed event (entry into a contract of a particular character) in a prescribed period (“during the Exclusive Agency Period”). If the Principal (here, Mr Topple) “enters into a contract (which includes by way of an option being exercised) for the sale of the Property or of an interest in the Property” during the Exclusive Agency Period, the Licensee (here, Southwell) is entitled to remuneration irrespective of whether or not the Licensee introduced the person to the Principal or to the Property. Taking a straightforward example, if Mr Topple had introduced a buyer to the Property before the commencement of the Exclusive Agency Period, and he then entered into a contract for sale of the Property with that buyer during the Exclusive Agency Period, Southwell would have been entitled to the remuneration pursuant to cl 3.1(a) even though Southwell did not introduce the buyer to the Property.

13. [28]

    Turning to the parenthetical words on which Southwell relied, reading them in context and in accordance with their ordinary meaning, they are directed to a particular mechanism by which entry into a contract for the sale of the Property or an interest may be effected: “by way of an option being exercised” (emphasis added). To answer the question that Southwell submitted was posed by the parenthetical words (see [18] above), those words are squarely directed at the timing of the exercise of an option, not the timing of the grant of the option. It is the exercise of an option that creates the binding obligation: here, a contract for the sale of the Property the subject of the agency agreement or of an interest in that Property. As Mr Topple submitted, if “an option being exercised” leads to the Principal entering into a contract of that character during the Exclusive Agency Period, the Licensee is entitled to remuneration.

14. [29]

    The parenthetical words confirm that exercising an option leading to entry into a contract for sale during the Exclusive Agency Period will satisfy cl 3.1(a) whether the Principal granted the option before the commencement of that period or during its currency. Southwell questioned the likelihood of either occurrence as a matter of commercial reality, but that question was answered by the facts of the present case, with the option deed making provision for a call option period that included part of the Exclusive Agency Period. If the McIntyres had exercised the call option during that period, Southwell would have been entitled to remuneration under cl 3.1(a) in respect of the contract for sale of the Property even though, as the Magistrate found, Southwell did not introduce the McIntyres to Mr Topple or the Property. It is also possible to envisage circumstances in which an option deed is entered into before an Exclusive Agency Period. As counsel for Mr Topple submitted orally, a vendor could enter into a put option deed and also enter into an exclusive agency agreement in order to test the market. Exercise of such an option during the Exclusive Agency Period would entitle the Licensee to remuneration under cl 3.1(a). The critical point for Southwell’s construction, as Mr Topple submitted, is that reading the words of cl 3.1(a) in this way does not give rise to any confusion or ambiguity.

15. [30]

    This construction is also supported by the balance of the clause, specifically cl 3.1(c). The circumstance to be satisfied in cl 3.1(c) is not directed at the occurrence of an event during the Exclusive Agency Period. Rather, it creates an entitlement to remuneration if the Licensee introduces a person to the Principal or the Property during either the Exclusive Agency Period or the Non-Exclusive Agency Period. If the introduction requirement is satisfied, the Licensee is entitled to remuneration if the contract for the sale of the Property or of an interest therein is entered into “either during the Non-Exclusive Agency Period or thereafter” (my emphasis).

16. [31]

    Thus, to take another straightforward example, if Southwell had introduced a person to Mr Topple or to the Property during the Exclusive Agency Period, and that person entered into a contract for sale of the Property after that period expired, Southwell would have been entitled to remuneration under cl 3.1(c). As I noted above, in the Local Court Southwell argued (unsuccessfully) that it was entitled to remuneration on this basis, because Southwell had introduced them to Mr Topple or to the Property and the McIntyres had exercised the call option and entered into the contract for sale of the Property with Mr Topple. Like cl 3.1(a), cl 3.1(c) includes parenthetical words directed at options, with a minor difference in the formulation – “(which includes by way of exercise of an option)” – which in my view confirms the meaning of the equivalent phrase in cl 3.1(a).

17. [32]

    Southwell’s argument that a contrary construction was productive of uncommercial and irrational results did not sufficiently bring to account the operation of cl 3.1(c). In essence, Southwell relied on a practical risk of a Licensee introducing a purchaser during the Exclusive Agency Period, only for the Principal to wait until the expiry of that period to enter into a contract with that person, as supporting its construction of cl 3.1(a). Clause 3.1(c) alleviates that risk. The two clauses operate together so as to balance the commercial risks and opportunities for the Principal and the Licensee: during the initial Exclusive Agency Period, entry into a contract for sale triggers the Licensee’s remuneration entitlement, while during the Non-Exclusive Agency period (or thereafter), the Licensee can still satisfy a remuneration entitlement provided the Licensee effectively introduces the purchaser to the Principal or the Property.

18. [33]

    The existence of the warranty in cl 5.1, that the Principal has authority to enter into the agency agreement, does not create a difficulty in terms of reading the parenthetical words in cl 3.1(a) in accordance with their terms. Nor do cl 5.5 or cl 7.1. As Mr Topple submitted, those clauses do not prohibit the sale of the Property by the Principal during the Exclusive Agency Period. However if, during that period, the Principal enters into a contract for sale, the Principal will be required to pay remuneration to the Licensee.

19. [34]

    By contrast, notwithstanding Southwell’s submission that it did not need to supplement the parenthetical words, the construction for which it contended necessarily entailed supplementing the parenthetical words in cl 3.1(a) both to incorporate the grant of an option and to expand the time for its exercise beyond the Exclusive Agency Period. Kirk JA recently summarised the applicable principles in Zhong v Guan [2024] NSWCA 300 (Payne JA and Price AJA agreeing). After referring to Fitzgerald v Masters, his Honour stated:

20. [35]

    On the application of those principles, for the reasons I have given above the parenthetical words do not require the supplementation for which Southwell contended. Further, and in any event, it is not clear that the parties would have intended that the parenthetical words should be read in the way that Southwell submitted they should be. That is not least because reading the parenthetical words as contemplating the exercise of an option after the expiry of the Exclusive Agency Period is not readily reconcilable with the clear focus of cl 3.1(a) upon an event occurring “during the Exclusive Agency Period”.

Conclusion

1. [36]

   I do not accept the construction of cl 3.1(a) of the agency agreement on which Southwell’s case depended. It follows that the summons should be dismissed. Mr Topple sought his costs, which Southwell should pay in accordance with the ordinary rule.

2. [37]

   Accordingly, I make the following order:

   1. (1)

      The summons is dismissed with costs.