Agent gives wrong keys after settlement; buyer 7 yrs in wrong home

Little did the agent know that when he mistakenly handed over the keys of a residence that adjoined and was identical to the one a buyer had actually acquired,  he had triggered a legal storm that would erupt six years later.

Nawaz Sohtra purchased the property at 54 O’Reilly Road, Tarneit on the western outskirts of Melbourne in February 2013. He then subdivided it and built two identical homes on each of the two lots.

His intention was to retain No 54A on Lot 2 as a passive investment and to sell off No 54B on Lot 1.

It wasn’t long before Mukesh Kumar of Reliance Real Estate found a buyer who – in June 2016 – settled on the buy of Lot 1 with vacant possession for the sum of $285,000.

Shortly after settlement Mamatha Peddi and her husband arrived at Reliance’s office and were handed the keys.

Sohtra also engaged Reliance to rent out the other property for him which it did successfully up until 2020.

In February that year Sohtra listed No 54A with Mr Kumar’s agency for sale only to discover it had been occupied since August 2016 by Ms Peddi and then later by her tenants.

He asked Kumar to contact Ms Peddi to arrange a meeting so that the matter could be discussed and resolved amicably by way of a home swap.

When that plan failed, he engaged lawyers who in March 2021 also offered an amicable resolution by allowing her possession of No 54B in return for her yielding up No 54A.

Her response was to claim that she was occupying the property that she had inspected prior to the purchase which – she contended – must have been misrepresented to her as the one she had signed up to buy.

Sohtra persisted with his demand through his lawyers and in October 2021, changed the locks on the front door to the premises only to learn that Peddi subsequently engaged another locksmith to change them again.

Notwithstanding the demands she refused to give up possession of the property.

When Sohtra called on Kumar to provide an affidavit as to how the confusion about delivery of the keys after settlement arose – for use in evidence – he went to ground.

Proceedings were filed by Sohtra in the Supreme Court of Victoria in October 2022 to recover possession of No 54A on the basis that as he was the registered proprietor, Peddi’s occupation was a trespass that denied him the use and enjoyment of the property.

Associate Justice Derham observed – in a hearing at which Mrs & Mrs Peddi did not appear and were not legally represented – that the sale contract was not invalidated by any “omission or mistake in the description or area of the land” and that “the purchaser cannot make any objection or claim for compensation for any misdescription” following settlement.

He also noted that the tort of trespass “is concerned with protecting the right to exclusive possession of land, rather than ownership….however the party with immediate right to possession may often be, and in this case is, the owner”.

Peddi was – he ruled – a mere licensee under an implied licence having been let into possession by Kumar as agent of the owner by mistake.

But because from at least March 2021 she knew that any implied license to occupy the premises must have elapsed, her subsequent “interference with the land” had been unauthorised.

“It is clear that an order should be made for the plaintiff to recover possession of the Subject Property….. including possession of the rents and profits arising from the property,” he declared.

He also ruled that Peddi should pay the owners legal costs on an indemnity basis given that she had refused “very reasonable offers to resolve the situation and properly advised, should have known she had no means of successfully defending the claim”.

There is no mention in the judgement of any fallout concerning the real estate agent Mr Kumar or whether Peddi was able to recover the rents received by Sohtra on her property – No 54B – over the same period.

Sohtra v Peddi [2023] VSC 262 Derham AsJ, 18 May 2023

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UFC fitness franchisees misled; win $6 mil from franchisor

The Australian distributor of UFC gym franchises has been dealt a blow by a court ruling that voids the sale of three locations and requires it to pay a $6,000,000 damages award.

Ultimate Franchising Group Pty Ltd signed up operators for locations at Balcatta in Perth and Blacktown and Castle Hill in Sydney following a marketing campaign in early 2016.

The first cab off the rank – Balcatta – came to fruition after a lengthy period of negotiation starting with a PowerPoint presentation at Perth’s Hyatt Regency Hotel in January 2016.

Maz Hagemrad – UFG’s founder and one of its directors – represented in his presentation that the start-up cost was likely to be in the range of $500,000 to $800,000, depending on the floor area of the gym, inclusive of the $60,000 franchise fee.

That included – he said – fit out and all equipment which of themselves were costed at between $250,000 and $350,000.

Similar representations were separately made to the prospective franchisees for the other two locations albeit in different sums reflecting each locations circumstances.

It turned out however the establishment costs representation was in each case, incorrect because each franchisee would be required to pay in addition for equipment and fixtures.

In the case of Castle Hill, Hagemrad also convinced the franchisee that membership would likely grow by between 71 and 150 new members each month to 1272 members within 10 months of opening. A similar statement – that they would likely have 1550 members after 12 months – was made to the prospective Blacktown franchisee.

Assurances were given to the Castle Hill operator that the existing UFC gyms already open were profitable when in fact both the Balcatta franchise and Blacktown franchises were anything but.

Hagemrad also convinced his prospects that they would benefit from numerous “preferential arrangements” he had and was continuing to negotiate with suppliers.

The franchisees – who had no other connection with each other – sued in the same action in the Federal Court for rescission of their agreements and for losses incurred during their conduct of the ill-fated operations.

UFG contended when the matter came before Justice Tom Thawley in Sydney that it should be exculpated for the franchisees misunderstanding that fit out and equipment costs were included in the total set up figure.

Notwithstanding the inclusion of those figures as a separate line item in the franchisor’s projection template, the judge ruled that Hagemrad had stated “the equipment is already accounted for in the initial cost estimate”.

“On no occasion were they expressly told that the amount of $500,000 to $800,000 which had been discussed did not include the Life Fitness equipment,” he observedin concluding the establishment costs representations were misleading and deceptive.

His intimation of “preferential agreements” was also found to be in the same category.

The only arrangement in place was one with fitness equipment supplier – Life Fitness – who offered a 10% discount to UFG so it could on-sell the equipment to the franchisees at full price.

“This was more in the nature of profiteering from franchisees than securing preferential agreements for them with suppliers,” Justice Thawley noted.

Everything supplied to franchisees was in fact substantially marked up in price. For example, a dumbbell set cleared by customs on entry “for home consumption” had a delivered cost of $9,500 but was on sold at $27,250, a nearly 300% mark-up.

Hagemrad and his wife even had an interest in another company – not disclosed to franchisees – that disguised the substantial mark-ups he was passing on. And his brother operated another company that conducted the gym fit outs and had an unsubstantiated charge of $106k that the Balcatta franchisee claimed was a kickback to Hagemrad.

Suffice it to say such arrangements could not be regarded as “preferential” to franchisees.

Notwithstanding they had stated in the documentation they were not relying on any franchisor representations, the court was satisfied they did rely on all the representations that were conveyed.

UFG did not take any submissions pursuant to ACL s4(2) that there were reasonable grounds for making the representations that they did in relation to future matters. Even if they had, the court would have in any event concluded that there were no reasonable grounds for the representations made.

The court appointed a referee to determine the losses of each franchisee by valuing them at the date of entry into the relevant franchise and determining their trading losses.

His Honour declared – after a seven-day trial – each of the three franchise agreements void by reason of the franchisor’s misleading and deceptive conduct.

In the case of Balcatta, damages were awarded in accordance with the referee’s calculations for start-up costs of $1,399,184; net operating losses of $423,045; borrowing costs of: $ 97,067, less the value of plant and equipment at liquidation sale ($174,480) resulting in total damages of $1,744,816.

For Blacktown the total damages came to $1,906,783 and for Castle Hill, $2,352,066 using the same methodology.

The case also contains some cautionary observations about the presentation of affidavit evidence from multiple parties with the same cause of action and relating to similar factual circumstances.

Girchow Enterprises v Ultimate Franchising Group [2023] FCA 420, Thawley J, 5 May 2023

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Non-refundable deposit instalment contract: buyer drops $365k deposit

A buyer who failed to settle the purchase of what was claimed to be an instalment contract has lost its bid to recover a $365,000 deposit.

Newlander Development Pty Ltd signed up for the buy of a luxury residence at Pallara in May 2021 with a long settlement.

The initial $30,000 deposit it paid on signing was expressed to be “non-refundable after 48-hours from the contract date” and the balance – which was payable upon the contract becoming unconditional – “non-refundable after satisfaction of due diligence”.

The balance deposit was paid promptly when it became due in      but when settlement date arrived in September 2022, the buyer failed to present at settlement to pay the purchase price which resulted in the seller terminating the contract the following day and forfeiting the deposit on the basis of that failure.

Newlander lodged a caveat and filed proceedings seeking specific performance, contending that the termination was unlawful in the context of an instalment contract in the absence of 30 days prior notice from the seller of its intention so to do.

It argued that – given the deposits were “non-refundable” – they were payments of the type contemplated by s 71 of the Property Law Act as the buyer did not become entitled to receive a conveyance in exchange.

That was particularly so – it submitted – because the “non-refundable” special condition did not include words to the effect “except in the case of the seller’s default”

Sellers Jung Kyun Han and Gyu Young Chae asserted that not to be the case by operation of standard conditions 2.4 and 9.5 of the REIQ format contract.

Those clauses, they argued, preserved the buyers right to sue the seller for a refund of the deposit should they have terminated the contract as a result of a seller breach.

Chief Justice Helen Bowskill agreed.

Because the contract had not removed Newland’s capacity to sue for recovery of the deposit in those circumstances it was not truly “non-refundable” but rather, retained the character of a deposit that was liable to be forfeited by the seller in the event of the buyer’s default.

The absence of words in the special condition to the effect “except in the case of the seller’s default” did not alter that conclusion.

Only if standard conditions 2.4 and 9.5 had also been modified with explanation that the deposits or one of the we not to be refundable under any circumstances whatsoever, could a deposit have the character contended for by the buyer.

Chief Justice Bowskill ordered in favour of the Seller that summary judgement  be entered against the buyer that its deposit be forfeited.

Newlander Development Pty Ltd v Jung Kyun Han and Anor [2023] QSC 94 Bowskill CJ 4 May 2023

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Agent sues seller for commission over false higher offer claim

A sales agent with an open listing who was denied commission on a $10 mil property when it was sold by a competitor has sued the seller for falsely stating he had received a far higher offer.

Freedom Development held call options to acquire two adjoining Sydney properties entitling it to introduce a third party to exercise it and proceed to settlement.

It obtained development approval for the Randwick site in September 2019 for the construction of a boarding house and engaged a number of real estate agencies to on-sell the properties.

The two-year option was to expire in December 2019 but was extended for a further three-month period.

With no buyers to be found it reduced its price expectations from around $14 mil to $11.5 mil and listed it widely among agents.

One of the agencies to whom it provided an open listing – requiring it to pay commission if the agent “effectively introduced” a purchaser – was D’Ettorre Properties (DRE).

In December 2019 Mr D’Ettorre introduced Ben Ingram and his company IFM which agreed on a $10.2 mil price and then to increase its offer to $10.33 mil to cover Freedom’s cost of extending the exercise period.

The holiday period intervened and delayed the preparation and completion of paperwork for the deal.

It was then that Mr Fernon of Freedom notified D’Ettorre that he had an offer from a Chinese buyer who was prepared to pay $11.33 million. The agent tried to secure a matching offer from IFM and when that didn’t occur, gave up.

In February 2020 a second agent – Steffan Ippolito – conveyed a $10.35 million offer to Freedom’s Mr Fernon from Ben Ingram’s nephew John.

Fernon accepted the offer – which when put on paper was from WRR Pty Ltd of which both John and Ben were directors – on the basis that Ippolito accept a reduced commission.

The deal was signed up with John and Ben both providing personal guarantees to secure WRR’s performance.

When D’Ettorre learned of the sale, he contacted Fernon to enquire of the identity of the buyer and was told it had been “Johnny”.

When it discovered Ben’s connection to the company, DRE filed a lawsuit claiming the commission under its agency agreement on the basis that DRE had “effectively introduced” WRR to the property via Ben Ingram.

DRE also claimed damages against Freedom pursuant to ACL s 18 by reason of its misleading and deceptive statements firstly that there had been an offer from a Chinese buyer at $11.3 million and secondly that the ultimate sale had been to “Johnny”.

The question of whether DRE had effectively introduced the actual purchaser was key to the case.

The judge at first instance agreed that DRE had – by introducing Ben to the property – established its entitlement to the $154,000 commission. Her Honour also concluded there had been no offer from the Chinese buyer at the time Fernon had claimed to have received one.

Freedom and Fernon appealed.

The appeal judges found that DRE had not effectively introduced the purchaser and reversed the ruling that it was entitled to commission.

“Merely acquainting a director of a company with the property was an insufficient causal nexus to the ultimate sale in February 2020”, they ruled.

An introduction to an individual could not – so thought the judges – amount to an introduction to a different company in its capacity as a trustee.

The fact that Ben Ingham was a director of the actual purchaser and gave a guarantee was “not commensurate with him having an ownership interest directly or indirectly in the actual purchaser”.

They concluded that the first representation concerning the supposed offer from the Chinese buyer was false and that it had a tendency to mislead Mr D’Ettorre into error in believing he would need to have got his buyer to substantially increase its offer to secure the property.

Unfortunately though, DRE’s case was incorrectly pleaded and it did not allege that it had been denied – by reason of such misleading and deceptive conduct – the opportunity to conclude a deal with IFM.

Unable to prove any loss as a result of having been misled, no damages were awarded for Fernon’s false statement concerning the Chinese buyer’s offer.

Fernon’s response to Mr D’Ettorre’s enquiry as to the identity of the buyer by saying “it was Johnny” – was not in the circumstances – misleading.

Freedom Development Group Pty Limited v D’Ettorre Properties Pty Limited T/as D’Ettorre Real Estate [2023] NSWCA 81 Gleeson JA Leeming JA Kirk JA, 26 April 2023 Read case

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