(i) Consistency with/contravention of policy implicit in Strata Schemes Management Act
Construction of clause 13
43 Before turning to the particular contentions made in relation to clause 13, I consider the proper construction of that clause in the context in which it appears in the lease(s).
44 Mr Van Aalst contends that the rights or power granted under clause 13.2 is limited by both clauses 13.1 and 13.5. I agree. As far as clause 13.5 is concerned, while it does not strictly limit the power under clause 13.2, it provides a contractual limitation on the manner in which that power is exercised such that if a direction was given not in good faith by Quest, then while it might (if otherwise reasonable, assuming one could logically have a direction issued not in good faith but which was nevertheless reasonable) be a direction with which the Landlord has to comply, there might nevertheless be an issue as to whether Quest was in a position to exercise its power under 13.2 to enforce compliance with such a direction (as to the ability to have regard to the stated purpose of the contract when construing a clause, see Thiel v Federal Commissioner of Taxation (1988) 85 ALR 80, at 108, 119).
45 The first point to note in relation to the construction of clause 13 is that the opening words of clause 13.2 make it very clear that the purpose for which the appointment of Quest as the Landlords' attorney is being made is better to secure the performance by the Landlord of its obligations "under this clause".
46 The obligations "under this clause" as referred to in clause 13.2 must, it seems to me, encompass the Landlord's obligations contained in clause 13 as whole. Clause 13.2 does not itself contain any obligations on the part of the Landlord (unless it can be said that the words in parentheses impose an obligation on the Landlord to permit the Tenant the power therein referred to) rather than (as I think is the case) simply clarifying the scope of the power given by the appointment of the Tenant as the Landlord's attorney.
47 The reference to "under this clause" in clause 13.2 may be contrasted with the reference, in clause 13.5, to a particular sub-clause (clause 13.5 commencing "notwithstanding the provisions of clause 13.2"). Elsewhere in the lease (see, for example, in clause 14.2 and clause 8.1.1), where reference is made to a particular sub-clause, that sub-clause is identified. This suggests that, had clause 13.2 been limited to the securing of the performance of obligations under clause 13.2 alone, the reference would have been to clause 13.2 not to "this clause" more generally. In clause 11.3, rather than referring to a failure to comply with the provisions of "this clause", there is a specific reference to a failure to comply with the provisions of "this Clause 11.3".
48 Whether or not support can be drawn from the internal clause references as used by the parties, it seems to me that it is clear (from the absence of any stated obligation of the Landlord in 13.2) that the purpose of the power granted under clause 13.2 is to provide better security for the performance by the Landlord of its obligations under the whole of clause 13.
49 One of those obligations is the obligation under clause 13.1 of the Landlord (at all or any meetings of the Owners Corporation or of the Committee of the Owners Corporation held during the term) to vote in accordance with reasonable directions given by Quest. Indeed, that is the only obligation, as such, which can be discerned on the part of the Landlord within clause 13 (clause 13.3 itself simply being the ratification and confirmation of acts, deeds and things done by the Landlord's attorney whilst the power of attorney remains in full force and effect, and clause 13.5 imposing an obligation upon Quest, rather than the Landlord).
50 Accordingly, the nomination and appointment of Quest (and each director and officer of Quest) as the Landlord's attorney under clause 13.2, is better to secure the performance by the Landlord of its obligation to vote in accordance with reasonable directions given by the tenant. That makes sense insofar as it enables Quest, in the event that a Landlord does not physically attend a meeting, to exercise any vote which that Landlord would have been obliged under clause 13.1 to cast. (I consider in due course the position where a Landlord attends a meeting and purports to vote contrary to a reasonable direction given by Quest.)
51 The second point to note in construing clause 13 is that the Landlord's obligation (contained in clause 13.1) to cast its vote in any particular fashion is limited in the following ways. First, the obligation is only to vote in accordance with "reasonable directions" of Quest. Thus, if a direction is not objectively seen to be reasonable clause 13.1 does not oblige the Landlord to vote in accordance with it. Secondly, the Landlords' agreement is itself stated to be for the purposes, first, of allowing Quest "to better conduct the Tenant's business" and, secondly, "to ensure compliance with the Landlord's and the Owners Corporation's Covenants as contained in this Lease".
52 Pausing there, as noted by Mr Gray, the Owners Corporation is not a party to the lease. For it to be bound as a matter of contract by any covenants contained therein, it would need to have been joined as a party to the lease. Nevertheless, the lease appears to contain at least two covenants on the part of the Owners Corporation: clause 3.3, which purports to oblige the Owners Corporation in relation to insurance matters, and clause 10.2, which provides that the Owners Corporation will assign to Quest the benefit of any warranties applicable to or in respect of the common furnishings and fittings, to the extent required to enable Quest to fulfil its obligations pursuant to the lease.
53 In relation to clause 3.3, it could perhaps be read not as a covenant on the part of the Owners Corporation to do anything but an acknowledgment between Quest and the Landlord as to what was to fall within the sphere of insurance responsibility of the Owners Corporation (as opposed to what was within the sphere of responsibility of Quest or of the Landlord (clause 3.3.1)). I note that clause 3.3.1 itself obliges Quest and the Landlord to use their best endeavours to ensure that the Owners Corporation effects such insurances. Clause 10.2 is not so easily explained. In its terms, it appears to oblige the Owners Corporation itself to do certain things. However, it might perhaps be said that the purpose of the Landlords' agreement under clause 13.1 to vote in a particular way to ensure compliance by the Owners Corporation was simply a mechanism by which the Landlord might be required to procure the Owners Corporation to take steps (such as those in clauses 10.2) which it was not strictly bound to do (not being privy to the contract comprised by the lease).
54 As to the limitation arising from the reference to "reasonable" directions, as noted above this must have the effect that if no direction (or a direction which is not reasonable) is given by Quest, then the Landlords' ability to vote on any matter at Owners Corporation or executive committee meetings remains unaffected by clause 13. (What I do not accept is the proposition by Mr Van Aalst - T 31.15 - that clause 13.1 operates such that it only obliges a Landlord to vote in accordance with Quest's directions if the Landlord accepts that they are reasonable or is in agreement with them. That may be a practical consequence of the provision (since if there is disagreement as to whether the direction is reasonable Quest will not be certain whether the Landlord is obliged to vote in accordance with it and, hence, whether its power of attorney extends to it.)
55 Secondly, the obligation on the part of the Landlord to vote in accordance with reasonable directions given by Quest is also limited by the words "for the purposes of allowing the Tenant to better conduct [sic] the Tenant's business and to ensure compliance with the Landlord's and the Owners Corporation's covenants as contained in this lease". If Quest were to give directions for the Landlord to vote on a matter that was not necessary for either of those purposes, then in my view it would be open to the Landlord to refuse to vote in accordance with that direction, as it surely could not be said to be a reasonable direction if unconnected with either of those purposes.
56 One of the issues which has arisen in the present case is what is meant by the words "the Tenant's business". The "Tenant" is clearly defined in the lease as "Quest" (though in clause 1.1.27 the definition of "the Tenant" extends beyond the lessee referred to in item (f) of the coversheet to its executors, administrators, successors and permitted transferees and permitted assigns and (where not repugnant to the context) its employees, agents, contractors and invitees).
57 However, there is no definition of "Tenant's business". Light may be shed on this by reference to clause 8.2 which contains an acknowledgment by the Landlord that "the Tenant or a company (whose directors include directors of the Tenant or directors of Quest) to conduct a serviced apartment or similar business pursuant to a franchise agreement". What that acknowledgement clearly contemplates is that the serviced apartments business might be conducted either by the tenant (Quest) or by some other entity. However, if conducted by the latter, there is some doubt as to whether it can be said to be the "Tenant's business".
58 Here, as a matter of fact, it seems to be accepted that the business of operating a serviced apartment letting business from the Rosehill property is being conducted not by Quest at all, but rather by Mr Bailey (a director and shareholder of Quest) and by Food Concepts, together they being Quest NSW's franchisee. Leaving aside whether Mr Bailey might be (or be said to be) an employee or agent of Quest for the purposes of this definition, it is therefore by no means clear that a direction issued by Quest for a Landlord to vote in a particular way in order to enable Mr Bailey and Food Concepts, as franchisee, to conduct the Quest franchise from the premises could be said to be a direction for the purposes contemplated by clause 13.1 (and thus within the ambit of the power granted under clause 13.2), since that would not seemingly be for the better conduct of the "Tenant's business".
59 While it may well be, as a practical matter that Quest's "business" encompasses the provision of its rented premises for use by the Quest franchisee(s) for the purpose of the latter's business in carrying on serviced apartment lettings, that is not the "business" seemingly contemplated in the lease (either in the definition of permitted user or in the clause 8.2 acknowledgement).
60 The 18 October 2004 franchise agreement (as indeed, does Quest's amended pleading) in my view makes it clear that the relevant franchisee was the Food Concepts and Mr Bailey jointly. Mr Van Aalst submits that Quest was to be the tenant company referred to in the Franchise Agreement and that while the operators of the business on the face of the Franchise Agreement were the franchisees, there was a nexus between the franchisees and the actual premises in the form of Quest, since Quest had the exclusive right to possession pursuant to the leases. Thus, Mr Van Aalst appears to suggest that by a combination of references to the Franchise Agreement and the acknowledgement in clause 8.2 of the lease the term "Tenant's business" can be construed as meaning the serviced apartments letting business currently carried on by entities other than Quest.
61 It was said by Mr Gray in response that Quest is not a party of the Franchise Agreement, although it had executed it. Quest executed that agreement under the attestation clause for the "tenant co". Clause 1.1.67 somewhat circuitously defined the tenant co as having the meaning ascribed to it in clause 7.5.3.
62 Clause 7.5.3 referred to the situation where a company (tenant company) had been established for the sole or principal purpose of holding all or part of the leases and the tenant company was owned by a franchisee or an associate of the franchisee. In those circumstances there was an obligation on the part of the franchisee to provide various things to the sub-franchisor. Clause 7.12 provided that, for the purposes of clause 7 or any material that makes reference to clause 7, a reference to the term "franchisee" was to include "tenant co". The submission by Mr Van Aalst was that Quest was the "tenant co" referred to in the franchise agreement and thus included in the reference to franchisee.
63 That, however, does not mean that in practical terms the present serviced apartments letting business is that of Quest.
64 I consider that the term "Tenant's business" in clause 13.1 of the lease is to be construed as meaning the business conducted or permitted to be conducted Quest ("the Tenant") from the premises - i.e., a shorthand way of referring to the permitted use by Quest of the premises. If consent was given by the Landlord to the conduct by Quest of a different business from the premises, then that would be the business to which reference is made in clause 13.1. I do not think the expression in clause 13.1 is apt to encompass the serviced apartments letting business (or any other business) conducted from the premises by a company other than Quest even if related to Quest. That is because the opening words of clause 13.1 refer to the purpose of allowing "the Tenant" (i.e. Quest not someone else) better to conduct the said business.
65 I can see an argument that the effect of this acknowledgment, read in the light of 13.15 to preclude the Landlord not only from objecting if someone else carries on the serviced letting business while Quest remains as lessee, but also from denying that it is obliged under 13.1 to follow voting directions for the better conduct of that business as well. However, clause 13.1 (and the lease itself) operate in a meaningful fashion without so extending the meaning of clause 13.1. Therefore, I am inclined to Mr Gray's view that the better conduct by the Tenant of "Tenant's business" for the purposes of voting directions, does not permit Quest to issue directions solely for the purpose of enabling its related entities to carry on the serviced apartments business.
66 For the reasons set out below, however, I do not consider that much turns on this issue.
Is the power of attorney irrevocable?
67 I turn then to the question whether the power of attorney so granted was irrevocable. This question arises in the context of Mr Gray's submission that the power granted under clause 13.2, if irrevocable, is contrary to public policy (as evidenced by the Strata Schemes Management Act) and unjust for the purposes of the Contracts Review Act by reference to the fact that the donee of an irrevocable power is not as a matter of law required to act in the interests of (and owes no fiduciary duties to) the donor. (Alternatively, it is said that if the power of attorney is not properly characterised as irrevocable then it can be revoked by the Landlords without breach of the contract, a submission which would seem at most to go to whether some of the declaratory relief sought by Quest should be granted even if it were otherwise successful in defending the cross-claim.)