The cost of a boozy lunch

Written by Kristen Porter of O'NO Legal

Ever wondered if a handshake over a long lunch could land you in court?

That’s exactly what happened in the recent case of White Pointer Investments Pty Ltd v Creative Academy Group Pty Ltd [2023] NSWSC 817. This case serves as a critical lesson for businesses navigating licensing compliance, informal agreements, and the risks of verbal contracts.

The Background

In 2017, White Pointer Investments (White Pointer) and Creative Academy Group (CAG) entered into a verbal agreement during a social lunch. The arrangement? White Pointer’s director, Mr. Hilton Hedley, agreed to help CAG identify and lease sites for childcare centres in NSW and the ACT. In return, White Pointer would receive $2,000 (plus GST) per approved childcare placement. Despite acting as an “introducer” rather than a real estate agent, White Pointer later faced challenges over licensing compliance.

Fast forward to 2021, and White Pointer took legal action against CAG for unpaid fees amounting to approximately $800,000. CAG disputed the claim, arguing that the informal nature of the agreement, compounded by the influence of alcohol, rendered it unenforceable. Additionally, CAG contended that White Pointer had operated as a real estate agent without holding the necessary licence, further complicating the case.

The Legal Battle: Alcohol, Verbal Contracts, and Licensing

During the now-infamous lunch, CAG’s director inquired about Hedley’s fees, and upon hearing the proposed structure, responded, “If you source childcare centres for us, we will pay you those fees.” No formal documentation followed, yet payments were made for the initial transactions, reinforcing the existence of an agreement.

CAG’s primary defences included:

*       The argument that alcohol impaired the judgment of both parties, making the contract void.

*       The assertion that White Pointer was effectively performing the functions of a real estate agent without a licence, making any fee claim unenforceable.

The Court, however, found that while the lunch was undoubtedly “boozy and lengthy,” there was no tangible proof—such as receipts or witness accounts—suggesting that either party was so intoxicated they were incapable of forming a legal agreement.

Without strong evidence of impairment, the Court rejected this defence.

Regarding the licensing issue, the ruling varied by jurisdiction. In NSW, the Court confirmed that White Pointer needed to be licensed, meaning they could not claim their fees for deals completed in that State.

However, the situation in the ACT was less clear. Upon appeal, the Court examined White Pointer’s involvement in negotiations and determined that, in relation to four ACT sites, they had indeed acted as a real estate agent without a licence, rendering those fees unrecoverable.

The Importance of Conduct After Verbal Agreements

The Court placed significant emphasis on actions taken post-agreement. Despite the lack of written documentation, the following factors played a crucial role in validating White Pointer’s claim:

*       Emails and invoices: Correspondence referred to CAG as “my client” and included invoices for sourcing fees that were partially paid.

*       Consistent payments: CAG made payments for early deals, demonstrating an acknowledgment of the arrangement.

*       Long-term conduct: Over several years, both parties operated as if a contract existed, with no formal disputes arising until later.

As a result, the Court ruled in favour of White Pointer, awarding $747,650 in damages for unpaid fees. However, due to licensing non-compliance, fees related to four ACT sites were disallowed.

Key Lessons for Businesses

This case underscores the importance of clear, documented agreements and compliance with licensing requirements. To avoid similar legal challenges, businesses should consider the following:

1.      Put Agreements in Writing: While verbal contracts can be enforceable, written agreements remove ambiguity and provide clarity in case of disputes.

2.      Stay Professional in Negotiations: Avoid critical business discussions in informal settings, especially where alcohol is involved, to prevent misunderstandings.

3.      Follow Up with Documentation: If discussions occur verbally, send a confirmation email outlining the agreed terms to create a record.

4.      Ensure Proper Licensing: Understanding whether a licence is required for your activities can prevent enforceability issues and potential legal repercussions.

5.      Monitor Post-Agreement Conduct: Courts assess not just the initial contract but also subsequent actions, such as invoicing, payments, and communications, to determine intent and obligations.