Chan & Anor v McGrath Property Management P/L

PARTIES : Hing Lung Pty Limited (ACN 001 552 496) (Second Plaintiff)

McGrath Property Management Pty Ltd (ACN 089 592 969) t/as McGrath Partners (Defendant) FILE NUMBER(S) : SC 11276/2004 Mr M Gorrick (Plaintiffs) COUNSEL : Mr D Hammerschlag SC with Mr D Gasic (Defendant) Ms R Cronin, Bracks & Co (Plaintiffs) SOLICITORS : Mr B Spinks, Robinson Legal (Defendant)

LOWER COURT Local Court JURISDICTION : LOWER COURT 2256/2003 FILE NUMBER(S) : LOWER COURT Mr Maloney LCM JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11276/2004 - BENEDICT CHAN & ANOR v McGRATH PROPERTY MANAGEMENT PTY LTD (ACN 089 592 969) t/as McGRATH PARTNERS

JUDGMENT (Appeal decision of Local Court Magistrate - s 42AA Property Stock & Business Agents Act 1941 (NSW)) 1 MASTER: By summons filed 3 May 2004 the plaintiffs seek firstly, an order setting aside the judgment or orders made on 7 April 2004 by Local Court Magistrate, His Honour Mr Maloney and in lieu thereof an order that there be judgment and verdict for the plaintiff (or either of them) for the full amount claimed in the amended statement of claim; secondly, in the alternative, an order setting aside the judgment or orders appealed from and remitting the matter to the Local Court; and thirdly, an order that the defendant pay the plaintiffs' costs of the Local Court and of this appeal. The first plaintiff is Benedict Chan (Chan). The second plaintiff is Hing Lung Pty Limited (ACN 001 552 496) (Hing Lung). The defendant is McGrath Property Management Pty Ltd (ACN 089 592 969) t/as McGrath Partners (McGrath). 2 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 69(2) of the Local Courts (Civil Claims) Act 1970 (NSW) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156 and two more recent cases, namely Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082. It cannot be said that the Tribunal member acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. Section 69(4) of the Act provides that the court may determine an appeal by either (a) setting the judgment or order aside or (b) by varying the terms of the judgment or order or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the court's directions or (d) by dismissing the appeal.

Grounds of appeal 3 The plaintiffs appeal from the whole of the decision of His Honour Magistrate Maloney made on 7 April 2004 in proceedings 2256/2003. The grounds of appeal are that the Magistrate erred in law or made an error of mixed fact and law in firstly, neglecting to make a finding that the defendant managed the plaintiffs' properties at all relevant times; secondly, neglecting to make a finding that the defendant invoiced the plaintiff for the services it provided to the plaintiffs in managing their properties; thirdly, neglecting to make a finding that the defendant retained from rents it collected for and on behalf of the plaintiffs, monies in consideration for the services it provided and/or duties it performed for the plaintiffs; fourthly, finding that the agreement between the defendant and TP Carroll Realty Pty Ltd (TP) was an agreement to which the provisions of s 39B of the Act applied; fifthly, finding that a written agency agreement existed between the plaintiffs and TP at all relevant times; sixthly, following on from the previous finding to hold that the existence of a written agency agreement between the plaintiffs and TP governed the property management services rendered to the plaintiff during the period January 2000 to August 2001; seventhly, holding contrary to the plaintiffs' claims, that a written agency agreement of the kind contemplated by s 42AA of the Act did exist during the period January 2000 to August 2001; eighthly, holding that the parties to a written agency agreement of the kind contemplated by s 42AA of the Act during the period January 2000 to August 2001 were the plaintiffs and TP; and ninthly, holding (in the alternative) that the defence of waiver was available to a statutory cause of action based upon s 42AA of the Act. At the hearing, by leave, the plaintiffs added the following grounds of appeal, tenthly, holding that the first plaintiff has treated the unsigned management agency agreement as binding upon the plaintiffs; eleventhly, holding that the first plaintiff, at all relevant times, knew what s 42AA of the 1941 Act was all about; and twelfthly, holding that the above findings of fact constituted a waiver by the plaintiffs of any rights under any statutes for the recovery of monies from the defendant for the services provided by it to the plaintiffs.

Local Court proceedings 4 In the Local Court Chan claimed that he had an entitlement pursuant to s 42AA of the Property Stock & Business Agents Act 1941 (NSW) (repealed) (the Act) to reimbursement as a debt of commissions and other fees deducted by the defendant in the course of its management of properties owned by himself and Hing Lung. The cause of action was assigned to Chan as a director and shareholder of Hing Lung. The Magistrate dismissed the plaintiffs' statement of claim on two bases, firstly, that there was an earlier agreement; and secondly, that Chan had waived his statutory right under s 42AA(4) of the Act.

The pleadings 5 In the Local Court, the plaintiff Chan put his case on the basis that there was a wrongful breach of s 42AA of the Act in that there was no written agreement between Chan and McGrath in respect of the services allegedly performed by the defendant during the period 1 January 2000 until 31 August 2001. The defendant admitted that it had retained from the rent of certain properties various amounts totalling $39,268.98 (see Defence, para 2).

The Act 6 The 1941 Act was replaced by the Property Stock and Business Agents Act 2002 (NSW), which came into effect on 1 September 2003. It was common ground in the hearing below that the applicable statute was the 1941 Act. 7 Section 42AA of the 1941 Act read: "Agency agreements to be in writing (1) A licensee shall not be entitled to: (a) any remuneration by way of commission, fee, gain or reward for services performed by the licensee in his or her capacity as licensee, or

(b) any sum or reimbursement for expenses or charges incurred in connection with services performed by the licensee in his or her capacity as licensee, from the person for whom or on whose behalf those services were performed unless: (c) the agreement pursuant to which those services were performed is in writing and signed by or on behalf of: (i) the licensee, and (ii) that person, (d) the agreement contains such terms (if any) as may be prescribed, and

(e) a copy of the agreement was served by the licensee on that person within 48 hours of the agreement being signed by or on behalf of that person.

(2) Subsection (1) does not apply to a prescribed agreement, transaction, circumstance or person or an agreement, transaction, circumstance or person of a prescribed class or description.

(3) Any provision in, or applying to, an agreement referred to in subsection (1) and purporting to exclude or restrict the operation of the terms (if any) required to be contained in that agreement has no force or effect.

(4) Where a licensee has recovered or retained from a person any remuneration or sum to which the licensee is not entitled by virtue of subsection (1), the person who would be entitled to the remuneration or sum so recovered or retained by the licensee had that remuneration or sum not been so recovered or retained may bring proceedings in any court of competent jurisdiction for the recovery of that remuneration or sum, or both, as a debt.

(5) A licensee who recovers or retains any remuneration or sum to which the licensee is not entitled by virtue of subsection (1) is guilty of an offence against this Act." 8 In Investment Source Corporation Pty Ltd v Knox Street Apartments Pty Ltd & Ors (2002) 56 NSWLR 27; [2002] NSWSC 710 Barrett J at [59] commented that: "It cannot be suggested, on the basis of R L Time Realty or otherwise, that the fact that a 'client' is commercially sophisticated or that there exists some commercial connection between licensee and client or that the remuneration arrangements depart from the usual percentage commission and involve some element of profit sharing leads to a conclusion that s 42AA and s 42A do not apply." 9 These His Honour notes are protective provisions intended to safeguard clients by imposing certain standards of conduct upon licensees and this protection is intended to exist for the benefit of all members of the community who entrust business to real estate agents, however commercially astute or commercially naïve they may be. 10 Section 42AA of the Act was criticised by Windeyer J in Terry Pfeiffer Real Estate Pty Ltd v Connors [2000] NSWSC 452 at [18]. His Honour referred to the reason s 42AA was introduced as being because parliament decided that vendors should be protected from improper claims of unscrupulous agents and that there should be certainty of agency terms. But it works both ways. As Windeyer J stated, reasonable agents should also be protected from unconscionable claims by vendors. Hence, His Honour recommended an amendment to this section so that a reasonable balance between the rights of honest agents and the requirement to protect vendors from improper claims for commission by agents is brought about. Section 42AA of the Act has since been amended.

The Magistrate's findings 11 Prior to 1990, Chan and/or Hing Lung engaged Carroll as managing agent for the properties pursuant to a written agency agreement. Chan's evidence was that some time before 1990, Carroll was engaged as the managing agent for the properties pursuant to an agreement between Carroll and Chan or Hing Lung but he had not been able to locate a copy of that agreement or agreements. Walker gave evidence that Carroll had shown him a management agreement between Mr Chan and/or Hing Lung Pty Limited with T P Carroll Realty Pty Limited. The Magistrate found that there was a written agreement between Carroll and Chan and/or Hing Lung (J 26.9; 32.9). The Magistrate found that this agency agreement existed and continued from 1999 until the time Chan elected to go elsewhere in August 2001 (J 32.3; 33.4) (the earlier agency agreement). 12 In about November 1999 Carroll entered into a written agreement for the sale and purchase of his business by McGrath (J 29.2-30.1; 32.5-32.9). TP Carroll Realty Pty Limited (the vendor) was the operator and owner of a rent roll, property management and property sales business known as T P Carroll Realty Pty Limited. The purchaser was McGrath Portfolio Management Pty Limited t/as McGrath Partners. The vendor agreed to sell and the purchaser agreed to purchase the business on the terms and conditions of the deed. 13 Relevantly, clause 4.6 of that deed provided that "On and from completion the Purchasers on behalf of the Vendor will continue to manage each and every property on the Residential Rent Roll in respect of which the proprietor thereof has not signed a Management Agency Agreement in accordance with Part 4.4." 14 In November 1999 Chan received from Carroll a letter stating that Carroll's business was to be amalgamated with McGrath. Together with the letter was a copy of a new residential agency agreement between McGrath Portfolio Management (McGrath Partners) and Chan. (J 27.1-27.9). The evidence established that Chan never signed this later agreement. McGrath submitted that as Chan had not signed a management agreement, in accordance with Clause 3.4 McGrath collected the rent as sub-agent for Carroll. The Magistrate held that having regard to the terms of the sale of business agreement between Carroll and McGrath the moneys were collected by McGrath in effect as sub-agent and the lack of compliance with s 42AA(1) was irrelevant (the agency agreement).

The agency agreement 15 Chan submitted that the Magistrate did not and could not have made findings that the earlier agreement was signed and that it complied with the regulations. Therefore, according to the plaintiff, the earlier agreement was not one that complied with s 42AA of the Act and the Magistrate erred in law. 16 On the evidence it was open to the Magistrate to find that there was an earlier agency agreement between Carroll and Chan or Hing Lung. The adequacy of this earlier agreement was not in issue in the proceedings before the Magistrate because that agreement was not one between the same parties. T P Carroll Realty Pty Limited was party to the earlier agreement but was not a party to the proceedings before the Magistrate. Likewise, McGrath was never a party to the earlier agreement. The Magistrate did not err in law. This submission fails.

The sub-agency agreement 17 Chan submitted that the defendant's reliance on the existence of a sub-agency agreement offended the purpose of the legislation and the relevant principles of statutory interpretation. According to Chan, the Magistrate appeared to have been confused by the position put by the defendant in relation to the "sub-agency" agreement in that he failed to define the meaning of such an agreement before finding that it existed and then confused this finding with a finding about the existence of an agreement between the plaintiff and Carroll. Chan further submitted that the Magistrate's reasoning on this point was not sufficiently transparent to be able to properly identify the errors inherent in the reasons and this in and of itself is an error of law. 18 R L Time Realty Ltd v R & R Realty Pty Ltd (1996) 39 NSWLR 24 is instructive. In Time Realty Sperling J considered whether a sub-agency agreement between real estate agents was caught by s 42AA of the Act. The facts in that case were that Mr and Mrs Hampton engaged J A Gilmour as agents for the sale of their property. There was a sub-agency agreement between J R Time Realty and J A Gilmour, both real estate agency businesses. The sub-agency agreement provided that the agent would share in the commission arising from the sale of the property to a purchaser introduced by Time Realty on a 50/50 basis. Time Realty sought payment of its share of the commission in the Local Court. It was the interpretation of s 42A that was in issue before the Magistrate. The Magistrate decided that s 42A on its proper construction, applied to a claim for payment of a share of commission under a sub-agency agreement. 19 Sperling J in R & R Realty disagreed. His Honour held that the phrase in s 42A "services performed by such licensee in his capacity as such" is, to be construed to mean services rendered by a licensed real estate agent to a member of the public, rather than to a fellow licensee. It must be construed in order to limit the operation of the section to its intended ambit. His Honour reproduced s 39B and s 42A. [It is not necessary to reproduce s 42A]. 20 Section 39B of the Act read: "Subagency agreements etc to be in writing

(1) An agreement between licensees (not being licensees who are in partnership with one another or in the relationship of employer and employee with one another) to share any commission, fee, gain or reward paid or payable to a licensee in respect of any services performed by him or her as a licensee is unenforceable unless the agreement is in writing, is signed by the licensees and contains such terms (if any) as may be prescribed.

(2) Subsection (1) does not apply to a prescribed agreement, transaction, circumstance or person or an agreement, transaction, circumstance or person of a prescribed class or description.

(3) Any provision in, or applying to, an agreement referred to in subsection (1) and purporting to exclude or restrict the operation of the terms (if any) required to be contained in that agreement has no force or effect.

(4) A licensee who enters into an agreement that is, by virtue of subsection (1), unenforceable is guilty of an offence against this Act." 21 More relevantly, Sperling J then turned his attention to s 42AA and continued: "It may be noticed that there are similarities and differences between these two s 42AA and s 39B. · Subsection (1) is different in that, in the case of s 42AA, the claimant licensee is 'not entitled' to payment unless the requirements of the subsection are met; whereas, in the case of s 39B, the entitlement is merely unenforceable. · Consequentially, subs (4) of s 42AA provides for recovery of anything paid in contravention of subs (1), whereas s 39B contains no such provision. · Subsection (1) of s 42AA contains a requirement for service of a copy of the written agreement and for that to be done within a specified time. There is no such requirement in s 39B. · Subsection (2) and subs (3) are in the same terms as between the two sections. · The sections prescribe different offences: s 42AA (5) for retaining any payment to which the receiving licensee is not entitled; s 39B(4) for entering into an agreement which is not enforceable under subs (1). Now if the phrase 'services performed by him in his capacity as a licensee' in s 42AA - which is materially identical with the corresponding phraseology a licensee under a sub-agency agreement, certain things would follow: · Section 39B(1), (2) and (3) would be nugatory. Their work would be done by s 42AA(1), (2) and (3) in the case of a sub-agency agreement as well as in the case of an agreement with a member of the public. · Section 42AA(1) would require service of a copy of the agreement, which the legislature, by distinction, did not think apposite in the case of dealings between licensees. · A licensee, paid under an infringing sub-agency agreement, would be required by s 42AA(4) to repay the principal under penalty of a criminal sanction pursuant to s 42AA(5), notwithstanding that the legislature in s 39B(1) intended that an infringing agreement between licensees would be merely unenforceable rather than void. · The only effect of s 39B would be to prescribe an additional penalty in the case of a sub-agency agreement, namely, a penalty for entering into an infringing agreement (s 39B(4))." 22 Sperling J concluded: "Plainly, the legislature did not intend s 42AA to apply to a sub-agency agreement and the section must be construed as I have indicated to avoid that consequence" 23 It is debatable that the agreement between McGrath and Carroll is one to which s 39B applies. In any event, if the agreement between McGrath and Carroll is in writing and if it is considered a sub-agency agreement as referred to in s 39B then according to Time Realty, s 42AA does not apply to it. The agreement between McGrath and Carroll was an agreement for the sale of Carroll's business including his rent rolls. In any event clause 4.6 of that agreement provided that Carroll would continue to manage Chang and Hing Lung's properties, as they had not signed a management agency agreement. Carroll, Chan and Hing Lung continued to operate under the earlier agreement. In effect the Magistrate found that McGrath collected moneys as a sub-agent for Carroll. 24 There was evidence at T37.4 that Mr Walters of McGrath admitted that the commissions were deducted from the rents collected and retained by McGrath and at T35.3 Mr Walker said that after McGrath's falling out with Carroll, McGrath offered to refund all the fees it retained but Carroll refused. In these circumstances, it was open for the Magistrate to decide that having regard to the terms of the sale of business agreement between Carroll and McGrath the moneys were collected by McGrath in effect as sub-agent. The Magistrate's reasons are clear and adequate.

Waiver 25 The plaintiff made two submissions on this issue. Firstly, the plaintiff submitted that wavier had not been specifically pleaded and therefore the Magistrate erred in determining this issue. But waiver was argued and the parties chose to deal with it before the Magistrate. That being so, the parties cannot now complain about it - see Banque Commerciale SA, En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279. Pleadings ensure that procedural fairness is met by giving a party an opportunity to know the case that they have to meet and incidentally to define the issues for decision. The circumstances in which a case may be decided on a basis different from that disclosed by pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. 26 As stated in Banque Commerciale, ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted. It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference. This is what happened in the case before the Magistrate. There is no error of law. 27 In relation to waiver, the Magistrate found that Chan did not sign the new agreement but treated it as being binding. The Magistrate also made findings that Chan accepted the services under it, received invoices on a monthly basis between November 1999 and August 2001; knew what was happening; and knew what s 42AA of the Act was about (J 33.8-34.4). The Magistrate held that Chan "elected to waive any rights under the statute for the recovery of money" (J 33.9). 28 But can there be waiver of the compliance of s 42AA? A person may, by his or her conduct waive a provision of an Act of Parliament intended for his or her benefit - see Sandringham Corporation v Rayment (1928) 40 CLR 510 at 527. Under s 42AA(3), an agreement that purports to exclude or restrict the operation of terms that are required to be contained in the agreement has no force or effect. However, if the licensee retains moneys, the person entitled to the remuneration may seek recovery of that remuneration as a debt (s 42AA(4)). 29 In Terry Pfeiffer Real Estate Windeyer J when deciding whether the vendors waived their entitlement to recover a debt (under s 42AA(4)) by electing to treat the agreement as binding stated: "Assuming for the moment that the right to refuse to pay commission and the right to affirm the agreement to pay commission in accordance with the agency agreement are inconsistent rights or positions bringing the doctrine of waiver through election into play, it seems to me that knowledge of entitlement to be served with a signed copy of the agency agreement within 48 hours is a material fact, without knowledge of which there can be no waiver of the right to refuse to pay commission by election to pay or by paying commission. The magistrate accepted that Mr Connors had no knowledge of the existence of s42AA(1)(e) of the Act and if that is so, his conclusion that election could not be made out was correct. The position may be different in a case of waiver of contractual rights by election; in such a case a party to the contract has knowledge of the terms and thus knowledge of a breach. The position is quite different where the obligation arises under a statute and unknown breach of such statutory obligation is concerned. In such a case those obligations are material facts, although knowledge of loss of the right to commission might not be required for waiver: see Sargent v ASL Developments Limited per Stephen J at 645. In these circumstances it is not necessary to consider whether or not the statutory right of recovery is one which can be subject to waiver." 30 In this appeal, the Magistrate made findings that Mr Chan knew of the material facts and statutory rights and by accepting payment of the rentals waived his rights to obtain the retained moneys. Thus in the present case, the elements of waiver were established. It is not necessary to consider whether or not the statutory right of recovery is one which can be subject to waiver here, as Chan failed in relation to the first limb of the Magistrate's decision. 31 The appeal is dismissed. The decision of Magistrate Maloney dated 7 April 2004 is affirmed. The summons filed 3 May 2004 is dismissed. 32 Costs are discretionary. Costs usually follow the event. The plaintiffs are to pay the defendant's costs as agreed or assessed.

(2) The decision of Magistrate Maloney dated 7 April 2004 is affirmed.

(4) The plaintiffs are to pay the defendant's costs as agreed or assessed. **********

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