Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd

On 3 June 2016, I made orders the effect of which was to permit the first defendant, The Property Investors Alliance Pty Ltd (PIA), and second defendant, Mr Wang, to raise an argument in both their Amended List Response and Amended Cross Claim that PIA, in connection with the sale of certain home units in Ryde, did not seek to recover “commission or expenses” for the performance of services “in the capacity of licensee” as those terms are defined in the Property, Stock and Business Agents Act 2002 (NSW) (the Act) for and on behalf of the plaintiff, Ryde Developments, with the result that PIA was not disentitled by s 55 of the Act from claiming amounts said to be due to it by Ryde Developments. These are my reasons for making those orders.

The orders I made are relevant both to the List Response and the Cross-Claim. However, the two documents do not raise substantially different issues and it will be convenient to explain my conclusions by reference to the List Response and the Reply filed to that List Response.

Ryde Developments was the developer of a mixed commercial and residential development in Ryde (the Development). On 15 May 2012, it entered into an agreement described as “Deed of Exclusive Agency Agreement” with PIA (the First Agreement) by which it granted PIA “an exclusive agency agreement” on the sale of 16 one bedroom units in the Development. On the same date, Ryde Developments, PIA and Mr Wang, as guarantor, entered into a Deed of Option Agreement by which PIA granted an option to Ryde Developments to sell each of the units to PIA for a price specified in the agreement.

On 22 November 2013, Ryde Developments entered into a second Deed of Exclusive Agency Agreement with PIA (the Second Agreement) substantially in the same terms as the first by which it granted PIA an exclusive agency agreement on the sale of a further 51 units in the Development. On the same date, the parties entered into a Put Option Agreement in respect of those units.

Most of the units the subject of the agreements have been sold and PIA claims amounts said to be due to it under the First Agreement and Second Agreement totalling in excess of $5,000,000.

Ryde Developments commenced these proceedings on 25 March 2015. It originally sought declarations to the effect that PIA was not entitled to any commission under s 55 of the Act under the two agreements together with relief under s 236 of the Australian Consumer Law restraining PIA from recovering commission. Section 55(1) of the Act relevantly provides:

“Licensee” is defined in s 3 of the Act to mean “the holder of a licence under this Act”. Other definitions are relevant to the resolution of the issues in this case, but it is not necessary to refer to them for present purposes.

Ryde Developments contends in the proceedings that the First Agreement and the Second Agreement do not comply with the requirements of the regulations. As part of that contention, it pleads in its List Statement, among other things, that:

By their List Response filed on 22 April 2015, the defendants admitted the allegations in (a) and (b). In relation to the allegation in (c), the List Response pleaded:

On 16 October 2015, Ryde Developments was granted leave to file an Amended Summons and an Amended Commercial List Statement. Consequential orders were made for the filing of documents in response to the amended claim. The Amended Summons and Amended Commercial List Statement raised a number of additional claims including allegations of breach of fiduciary duty, misrepresentation and breach of statutory duties. The Amended Summons also sought a declaration that each of the First Agreement and the Second Agreement was void and unenforceable, damages, equitable compensation and equitable damages.

On 4 November 2015, the defendants filed a Commercial List Response to the Amended Commercial List Statement. That document continued to admit the allegation referred to in para 8(a) above. However, instead of admitting the allegation referred to in para 8(b) above, it pleaded that:

In response to the allegation referred to in para 8(c) above, the List Response pleaded:

On 4 December 2015, the defendants, with leave, filed an Amended List Response correcting a number of typographical errors.

On 11 April 2016, Ryde Developments filed a Reply to the Amended Second List Response. In paragraphs 1 to 9 of that Reply, Ryde Developments make complaints about the defendants unilaterally withdrawing admissions without the leave of the court.

By a Notice of Motion filed on 14 April 2016, the defendants sought to strike out the paragraphs of Ryde Developments’ Reply to Commercial List Response which raise the issue of withdrawal of admissions without the leave of the court. They also sought to strike out the paragraphs of the Commercial List Cross Claim Response which sought to raise the same issues. In the alternative, the defendants sought leave to withdraw the admissions they are said to have made.

On 16 May 2016, the Ryde Developments filed a Notice of Motion seeking orders that the defendants acted in breach of Uniform Civil Procedure Rule 2005 (NSW) (UCPR) r 12.6(2) in withdrawing admissions without leave of the court by filing the Defence to Amended Commercial List Statement and the Amended Cross Claim Statement and orders striking out the relevant paragraphs of those documents.

It is those two motions that gave rise to the issues with which this judgment is concerned.

Ryde Developments advanced two principal and overlapping contentions for the orders it sought. First, it contended that the defendants offered no explanation for how they came to make the admissions they now sought to withdraw and why they should be permitted to change their minds now. Second, Ryde Developments contended that it was not reasonably arguable that s 55 of the Act did not apply in this case. In its submission, it is clear on the face of the First Agreement and the Second Agreement that PIA was appointed the exclusive real estate agent to market and sell the units the subject of those agreements. It submitted that the defendants should not be permitted to withdraw an admission that was properly made and to put Ryde Developments to the expense of proving what is obvious.

Although on the documents filed by the parties the issue is framed in terms of whether PIA was appointed Ryde Developments exclusive real estate agent to market and sell the relevant units, the ultimate question to be determined by the court is whether PIA performed the services it did in the capacity of a “licensee” as defined in the Act and whether it was paid a “commission” for those services within the meaning of the Act.

It is true that on the documents as they originally stood, the defendants appeared to make admissions that were consistent with a contention that s 55 applied. However, the pleadings are not framed in terms that are necessarily decisive of that question. As I have said, the question for the court is whether the amounts sought to be recovered by PIA can be characterised as “commission or expenses … for or in connection with services performed by [PIA] in the capacity of licensee for or on behalf of [Ryde Developments]”; and there may be questions concerning the significance of allegations and admissions about exclusive agency generally to the answer to that question.

Moreover, the admissions made by the defendants were not complete even in their original form, since the defendants made allegations in relation to the features of the commission which they now seek to rely on for the allegation that the amounts earned by PIA under the First Agreement and the Second Agreement are not properly characterised as commission for the purposes of the Act.

In addition, the answer to the question whether s 55 applies turns on whether PIA did particular things as licensee; and that question in turn raises issues concerning the correct characterisation of the relationship between the parties and the correct interpretation of the Act. It involves a complicated mixed question of law and fact which is not so much something within the knowledge of PIA as a matter for submission and legal interpretation.

In those circumstances, in my opinion, it was not particularly helpful to characterise what the defendants sought to do as the withdrawal of an admission and to look for the rules applicable to the withdrawal of the admissions to determine whether they should be permitted to do so or not. Rather, in my view, it was preferable to view what the defendants sought to do as raising a defence which they had not raised or at least not raised properly before filing their Amended Commercial List Response. The question was whether they should be permitted to do so at this stage of the proceedings.

In any event, it was not disputed that the court had a discretion to permit a party to withdraw an admission made in a pleading. Nor was it disputed that that discretion had to be exercised in accordance with the principles stated in ss 56-60 of the Civil Procedure Act 2005 (NSW). To the extent that some early authorities may impose different or additional requirements on the exercise of the court’s discretion, they need to be treated with some caution.

No explanation was given for why the defendants did not raise the defence earlier despite the fact that it must have been aware of the issue. But it may be inferred that they now believe that the defence has some merit whereas previously it did not; and it is doubtful that much would have been gained by an examination of the circumstances that caused them to change their mind. Consequently, the absence of an explanation was not critical in this case.

In my opinion, there were no case management principles that prevented the defendants from raising the defence now. Ryde Developments has been on notice of the fact that the defendants proposed to raise the defence since November last year. No hearing date has yet been fixed. Ryde Developments could not point to any relevant prejudice it would suffer if the amendments were allowed. It is true that the amendments would require PIA to give additional discovery. But additional discovery was also sought by the defendants from Ryde Developments which is unrelated to the amendments in question. Consequently, there was likely to be some additional delay in bringing the case to trial whether or not the amendments were allowed. It was not suggested that the amendments would add substantially to the length of the hearing.

In my opinion, it followed that the question whether the defendants should be permitted to raise the defence turned on the question whether the defence was reasonably arguable.

Ryde Developments submitted that it was not. It pointed to the terms of the Agency Agreements, which clearly provide for the appointment of PIA as Ryde Development’s exclusive real estate agent.

In response to that contention, the defendants pointed out correctly that the language of the agreements cannot be definitive in relation to the character of the relationship between the parties for the purposes of the Act. Here, the defendants pointed to the fact that, as a result of the Put Options, and the way the commission was calculated, Ryde Developments bore no risk that the units would not be sold and bore no risk in relation to the purchase price. As a result, the defendants submitted that the relationship between the parties was not one properly characterised as that of a licensee acting as a licensee for the purpose of s 55 and the amount payable to PIA was not properly characterised as a commission for the purpose of s 55.

Ryde Developments submitted that those arguments had been considered and rejected by the court in Investmentsource Corporation Pty Ltd v Knox Street Apartments Pty Ltd [2002] 56 NSWLR 27. In that case, Barrett J said at [22]:

However, it is not clear from that decision whether the argument was raised in that case that the amount paid was not “commission” within the meaning of the Act having regard to its purpose. Moreover, the decision in Investmentsource was a decision of a first instance judge in different circumstances. In my opinion, the point raised by the defendants is at least arguable, and it was not appropriate to determine the matter on a summary basis relying on a first instance decision.

It was for those reasons that I made the orders I did.