In brief - Lend Lease succeeds in recovering bid inclusion fee from Charter Hall
A recent decision handed down on 30 December 2011 in the matter of Lend Lease Real Estate Investments Limited v Charter Hall Retail Management Ltd showed that Lend Lease was entitled to a fee for the inclusion of Charter Hall in a Lend Lease bid for all of the commercial property portfolio being offered by ING Group.
Lend Lease seeks 1% fee from Charter Hall for inclusion in bid
Charter Hall was only interested in two specific properties and effectively joined in the Lend Lease bid on the understanding that it would have transferred to it the two properties it was interested in if the Lend Lease bid was successful.
Effectively, Lend Lease was seeking a 1% fee from Charter Hall for the inclusion of Charter Hall in its successful bid for all of the ING commercial property portfolio, which led to Charter Hall acquiring the two properties it was particularly interested in.
Substance of discussions disputed
The arrangement for the fee was not clearly set out and Lend Lease was relying on references to gross and net prices in emails as well as a few conversations between the parties (and, not surprisingly, Charter Hall disputed the content of those discussions).
Effectively, the court found that the principal staff member of Lend Lease who gave evidence was more believable than the Charter Hall parties.
Was there a legally enforceable agreement?
The court had to look to see whether there was a legally enforceable agreement and whether the conversations and emails gave rise to a binding legal obligation on Charter Hall to pay certain fees.
This was determined by looking at the facts and circumstances on an objective basis and also by examining the commercial circumstances in which the parties exchanged their communications, as well as the conduct of the parties after the alleged agreement had been entered into (to cast light on the meaning of the communications).
On the evidence, the court held that Lend Lease had discharged the onus of establishing that a binding contract had been entered into.
Confusion over contracting entity does not alter judgment
There was some confusion about which party was the contracting party on behalf of Lend Lease, as the party that sent the tax invoice for the fee to Charter Hall was different to the Lend Lease entity which had entered into the confidentiality agreement with ING for dealing with the commercial property portfolio and also had entered into Heads of Agreement with Charter Hall.
However, the court had no trouble finding that Lend Lease was still entitled to the fee, even though the wrong company had issued the tax invoice.
Court rejects argument that Lend Lease acted as a real estate agent
Charter Hall raised a number of interesting defences, none of which were successful. The most interesting one, from a property law perspective, was that Lend Lease was not entitled to recover the fee because it breached section 9 of the Property, Stock and Business Agents Act in that Lend Lease was performing the services of an agent and did not have a real estate licence.
The court rejected this argument on a number of bases, including:
- Lend Lease was not acting as an agent for ING (the vendor).
- The reward was a fee for including Charter Hall in the overall bid for all of the assets of ING.
- The only "service" that Lend Lease performed for which the fee was payable was including Charter Hall as part of the bidding group. This service did not fit within the notion of services of a real estate agent.
- It was Charter Hall which approached Lend Lease to seek to be included in the bid, not the other way around.
- Lend Lease not "inducing" Charter Hall to enter into a real estate contract
The court doubted whether the service provided by Lend Lease would fit within the terms of inducing a person to make an offer to enter into a real estate contract. Whilst this may literally be the case, the fact that the Property, Stock and Business Agents Act states that such conduct amounts to a criminal offence means that the legislation could not have been intended to cover the circumstances before the court.
The court mentioned that if you apply this as a literal meaning, then a solicitor who negotiates a contract on behalf of either a vendor or a purchaser could be viewed as inducing that party to enter into a contract for sale, be in breach of the Act and therefore be liable for a penalty under section 9. This could not have been the intention of the legislation.
Lend Lease not carrying on the business of a real estate agent
The court did not feel that the acts undertaken by Lend Lease constituted the carrying on of a business of a real estate agent. The court stated that whether the transaction was an isolated case, or even fitted within the provisions of the Act, it did not satisfy the "carrying on of a business" test and therefore would not be caught by this section.
The carrying on of a business supports the notion of some formal system, repetition and continuity.
You should specify when the Property, Stock and Business Agents Act does not apply
Ultimately, Lend Lease succeeded in recovering its fee of $705,000 plus interest and costs.
However, where such large amounts are at stake, it is obviously prudent to have an appropriate introduction arrangement in place. This should acknowledge facts and circumstances under which the provisions of the Property, Stock and Business Agents Act are not applicable.
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