Regis Towers Real Estate P/L v CSS Holdings P/L & 2Ors

Supreme Court of NSW|2001-03-02|Before: Real Estate P, Holdings P, Kelly Flooring P, Santow J

INTRODUCTION 1 This case is essentially about whether under Strata Title by-laws the Plaintiff could prevent a number of strata title owners bypassing the Plaintiff in order to appoint their own selling agent. 2 The Plaintiff is the Manager/Caretaker of the building and relies upon the by-laws and building management agreement for its claimed exclusivity. The owners say the exclusivity goes no further than to preclude their direct participation in or conduct of the various specified services in their units or in the common property. They say that this does not preclude them engaging third party real estate agents (or their counterparts in the other specified services), though they act for the owner by entering upon the premises with prospective purchasers, or by conducting an auction on site within the unit. The Plaintiff disputes that, contending that any such engagement would also breach the by-laws and building management agreement. 3 In the interests of a "just, quick and cheap" resolution of that dispute, all parties sensibly agreed to my answering the following question as a separate one. This was with the agreed result that, if answered against the Plaintiff, its claim to exclusivity under the Strata by-laws and management Agreement must fail. Accordingly, I made these following orders by consent. 1. Pursuant to Pt 31 r2 and 4 of SCR, the question below shall be decided separately from any other question, such to be the initial question for decision and if decided against the Plaintiff the agreed result is that the Plaintiff's summons in each of the above matters is dismissed. "Whether pursuant to the special By-laws (PX1) or otherwise having regard to PX2, the Plaintiffs have the exclusive rights described in paragraph 3 of the Plaintiff's Summons in each of the above matters."

RESOLUTION OF SEPARATE QUESTION 5 Special by-law 4 sets out the constraint primarily relied upon by the Plaintiff as precluding any owner from appointing a sales agent for the sale of that owner's strata lot who is not the Plaintiff. That constraint confers a degree of exclusivity upon the Plaintiff as "the caretaker-manager" of the building. This is in carrying out functions as caretaker-manager as elaborated in the management agreement (PX2). By-law 4 is in the following terms: "1. The owner or occupier of any lot must not in his lot or on the common property, except with the written consent of the owners of Lots 149, 454, 488 and 650, conduct or participate in the conduct of a business which provides services in the nature of:- a. the business of a letting agent; or b. The business of a pooled rent agency; or c. The business of on-site caretaker, security, cleaner; or d. any other business activity that is either:- i. An activity identical or substantially identical with any of the services relating to the management, control and administration of the parcel referred to in Special By-Law 1 and/or the Caretaker-Manager Agreement; and/or ii. An activity identical or substantially identical with any of the services provided to owners and occupiers of lots referred to in Special By-Law 1, and/or the Caretaker-Manager Agreement; and/or iii. Any activity identical or substantially identical with any of the services relating to the letting of lots referred to in Special By-Law 1, and/or the Caretaker-Manager Agreement." e. Any of the following businesses:- 1. Supply of linen; 2. Housekeeping and cleaning; 3. Catering, insofar as it consists in the delivery of foodstuffs and beverages to lots within the strata scheme; 4. Butler and valet; 5. Porterage; 6. Dry cleaning and laundry; 7. Vehicle, taxi and limousine hire; 8. Entertainment, restaurant and tour reservations; 9. Purposes permitted by Special By-Law No. 1. ….. " [emphasis added]

6 The emphasised portion contains the preclusion invoked by the Plaintiff, though the rest of the clause bears upon its construction. 7 By-law 4 then refers to Special By-law 1. Para 2 d of by-law 1 provides that the Caretaker-Manager's duty "may" include … "providing a letting property management and sales service ….". This the Plaintiff does. 8 The Management Agreement to which the by-laws refer is dated 6 August 1999. Clause 4 is relevant: "4. The Caretaker may provide the following services as agent for owners of lots in the building, at their request and subject to the settlement between the Caretaker and the owners of the terms on which the services are to be provided: 1. Buying, selling, leasing, assigning or otherwise disposing of lots within the strata scheme; and 2. Collecting rents payable in respect of any lease of lots within the strata scheme. The consideration for the Owners Corporation granting the Caretaker the right to conduct the services is the Caretaker conducting the activities associated and incidental to these services if the Caretaker elects to do so. In no circumstances shall the Owners Corporation be liable to pay the Caretaker remuneration for these services, or to reimburse for it any expenses incurred in providing these services."

9 Clause 6 of the Management Agreement is also invoked by the Plaintiff as precluding real estate agents engaged by an owner going on to the premises to sell the owner's unit. It is in the following terms: "6. The Owners Corporation must not permit the use of the common property or any of the other Lots for the provision of these services, except according to the terms of this Agreement."

10 The Management Agreement is only for an initial term of 10 years. There are then three 5 year options to renew vested only in the Caretaker-Manager. Clause 18 makes clear that the services that Caretaker-Manager provides are not wholly exclusive because the Caretaker is free to provide them to other persons who are not owners. But there is no reciprocal provision to the effect that owners must use only the Caretaker-Manager in the Management Agreement. That is contrary to what one would expect, if the by-laws were to have the restrictive interpretation contended for by the Plaintiff. Moreover the by-laws are unlimited as to time, whereas the associated management agreement might cease after 10 years. That leaves the owner, on the Plaintiff's interpretation, precluded from taking a wide range of services by persons temporarily in the premises to provide them. This would include not only real estate agency services but also the numerous other services stipulated. That constraint would operate even in circumstances where there was no agreement providing for the Plaintiff to offer them or where only on offer on exorbitant terms. The Management Agreement makes no provision for the costs to be charged for the relevant estate agency and other services to be provided exclusively by the Caretaker-Manager. That is contrary to what one would expect if owners were bound to take those services exclusively from the Manager/Plaintiff when their provision brought the service provider on to the premises, albeit only in a transient sense. 11 Nonetheless, despite these onerous consequences, the Plaintiff contends that any owner who uses an outside agent rather than the Caretaker-Manager to sell his unit infringes special by-law 4, unless consent were first obtained. (There is no suggestion of consent being forthcoming in the present cases). This is said to be because the owner, either directly or through the agent, would in the words of the by-law thereby "conduct or participate in the conduct of a business which provides services in the nature of" the "sales service" provided to owners and occupiers of the relevant lots. The Plaintiff relies on the judgment of Bryson J in Regis Towers Real Estate Pty Ltd v Kin Fung & Ors [2000] NSWSC 438 unreported 25 May 2000. But that case is directed to an actual underlease of a unit to a real estate agent. That is a wholly different set of circumstances to the present, where none of the service provider comes on to the premises save in a transient sense, as for example to confer with the owner or bring in a potential purchaser. 12 The anomalous and onerous consequences of such an interpretation point strongly against it. They include that the owner, though refused that specified service by the Caretaker or offered it on onerous terms or in circumstances where the agent had a conflict, would nonetheless be in breach of the prohibition if the owner used an outside agent. This the Plaintiff tried to answer by suggesting that the caretaker would then be precluded from withholding its consent to the owner using an outside agent. That is said to be an implied term attaching to the capacity to give or withhold consent. 13 But such a term would not be implied if the agreement, interpreted less restrictively, could have business efficacy without it. There is indeed an interpretation of the clause which avoids that anomaly arising in the first place. This is simply to construe the constraint in a less strained and expansive way; by interpreting the constraint as merely precluding the owner from direct participation in, or conduct of, the relevant activities. In that way the owner remains free to appoint agents, selling or otherwise, so long as they do not involve participation by the owner in the agent's business. 14 There is a further powerful argument against the Plaintiff's construction. An agreement having the onerous consequences that I have identified would operate as an unreasonable restraint of trade, offending the common law prohibition on such restraints. J D Heydon, QC (as he then was) writing in "A Restraint of Trade Doctrine" 2nd ed (Butterworths 1999) at 115 explains how the rules of construction applicable to restraints can often assist in holding covenants valid, by narrowing their scope: "The rules of construction already discussed will often assist in holding covenants valid by narrowing their scope. Thus where an employee agreed that he would not, after leaving his employer's service, deal with 'any of the customers who shall at any time be served by the employer … in the said business', the Court of Appeal held that these words referred only to the employer's business at the time of the agreement, and not to any business started elsewhere thereafter. As Lord Esher MR said, 'It is an ordinary canon of construction that the meaning of words in an agreement which, taken by themselves, are quite general may be confined to a particular subject-matter with which the parties were dealing. Here, I think the parties to the agreement were dealing with the business then carried on by the plaintiff in Whitechapel and St George's in the East, and the scope of this agreement must be limited by reference to that locality. Dubowski & Sons v Goldstein [1896] 1 QB 478 at 481; [1895-99] All ER Rep 1959 at 1961."

15 The Plaintiff contended that use of the common property or any of the lots merely to permit prospective purchasers to come onto the premises was prohibited by clause 6 of the Management Agreement. That introduces yet further absurdity. It would mean that a frail owner who arranged for a limousine driver to enter the common property to assist him or her to the hire car would thereby invoke the prohibition in clause 6. Yet that is another of the numerous services the subject of constraint in by-law 4. An interpretation that avoids such absurdity is obviously to be preferred. Thus, consistently with the earlier preferred interpretation of by-law 4, one would read clause 6 as simply prohibiting the common property to be used for the provision of the relevant services where these were being offered from within the building. There would be no need to extend that constraint to preventing an owner, in transient fashion, using such a service when not so offered from within the building. 16 The Plaintiff's argument is that by-law 4 constrains the owner in two distinct ways. First, the owner may not directly conduct or participate in the conduct of the relevant business within the building. He or she would do so it is said even by permitting the agent on to the building with a prospective purchaser, or by conducting an auction of the owner's flat in the flat. But that is not the natural meaning of the words "conduct or participate in". If one comes as a client to a real estate agent, one does not conduct or participate in that business. 17 Moreover the relevant clause refers to the conduct of a business meaning the agent's business. Clearly enough the owner who engages a sales agent to sell his or her lot is not engaging in agency business. He or she as owner does no more than co-operate in the selling process by making title available and receiving payment, having earlier permitted prospective purchasers on to the premises. To be engaged in the sales agent business, there must on the owner's part in any event be system and continuity in carrying out that business. It has been put in the comparable context of carrying on the business of a money lender by Dr Pannam in "the Law of Money Lenders" LBC 1965 at 36: "The result of the preceding authorities would seem to be that in order for a person to come within the primary definition of money lender it must be shown that he has systematically or regularly lent money.21 The precise volume of lending which must be proved in order to make that showing cannot be captured in a legal formula. It is a question that can only be decided by a court having regard to the facts of each particular case. As McCardie J said, in the passage set out above: 'It is ever a question of degree.' The only legal proposition that can be stated with any certainty in determining the question is that a single loan,22 or several isolated loans,23 cannot constitute the carrying on of a 'business' for the purpose of this part of the definition. 21 "I apprehend that to establish that a man is a money-lender the relevant evidence is evidence to prove that he has done such a succession of acts of such a character as that the judge ultimately says, Having ascertained all those facts as to the acts which he did, the times and dates when he did them, the terms which he imposed and so on, the result is that, looking at this Act of Parliament which defines what a money-lender is, I as a matter of law hold him to be a money-lender": Nash v Layton [1911] 2 Ch 71, at p.83, per Buckley LJ.

22 Newman v Oughton [1911] 1 KB 792. "If a man lends money to a friend on one occasion, even at interest, he is not carrying on a 'business' …": Shaw v Benson (1883) 11 QBD 563, at p. 570, per Brett MR. This proposition is also supported by all of the cases cited in the discussion of ad hoc money lenders, infra , pp. 49-51.

23 Litchfield v Dreyfus [1906] 1 KB 584, at pp. 589-590; Newton v Pyke (1908) 25 TLR 127; Lapin v Heavener (1992) 29 SR(NSW) 514, at p. 523, per Long Innes J, affd. 29 SR(NSW) 525 (Full Court), affd. (Isaacs J dubitante ) (1930) 44 CLR 166 (High Court), affd. (1934) 51 CLR 58, at p. 74 (Privy Council).

18 A similar approach is to be found in the trade practices context, as mostly recently Fasold v Roberts (1997) 70 FCR 489 per Sackville J. But even were the owner himself or herself to be engaged in the business of trading in strata title units, he or she would not be engaged in the business of a "sales service". That is the provision of a service for others, not for oneself. 19 The second way in which the Plaintiff contends that by-law 4 constrains the owner is in precluding the owner carrying on the business of sales service through the agency of the estate agent. This is said to occur by referring the owner's business to the agent, who thereby acts on the owner's behalf. That presupposes that an estate agent is not in reality an independent contractor. But that supposition does not fully describe the owner's relationship with a real estate agent. While the agent acts for the owner in selling, it is more accurate to describe the relationship as usually one of client to independent contractor. One may equally say a solicitor acts on behalf of a client. But the solicitor is not an agent either. But even if the real estate agent is properly described as truly acting as an agent, the language does not compel the result that the Plaintiff contends for. The more natural meaning of the words used is that they preclude the owner actually conducting the business through an agent, as for example by permitting the agent to set up business in the owner's unit or on the common property. The fallacy in the Plaintiff's argument is to equate the owner's piece of business referred to the agent, with the agent's business overall, and then attribute that business to the owner. All that the agent, if a true agent, is doing on behalf of the owner is to sell that owner's lot. 20 The Plaintiff points to a number of advantages for the building from the Plaintiff's more expansive view of its exclusivity clause. However, those advantages are balanced by some severe disadvantages; for example in forcing owners to employ no agent, if the Plaintiff were unable to perform, or performed inadequately or at exorbitant cost. But in any event those advantages need not depend upon extending the constraint beyond its more reasonable ambit. That ambit still gives the Caretaker/Manager the advantage of exclusivity in being alone permanently on the premises conducting the relevant businesses and totally familiar with the building; this confers major convenience in attracting clients. If the Plaintiff thereby attracts the bulk of the business, those claimed commercial advantages for the building would follow. If it does not attract the bulk of the business it is because owners clearly value competing services more highly than having those advantages, or having them in full measure. 21 Finally, it is important to note that the Management Agreement will terminate after ten years unless extended by the Caretaker for up to a further fifteen years. If by-law 4 were to have the restrictive interpretation pressed by the Plaintiff, one would have the absurdity that the very mechanism for providing the sales service would no longer be available once the Agreement terminated unless the Caretaker chose to make it available. Yet the constraint would still preclude the use of outside services in the absence of consent. Moreover those services are not just selling, but also a wide range of other services, such as letting. And as I have said there are no price terms laid down in the Management Agreement for their provision. All these factors reinforce the gross unreasonableness and intrusiveness of the exclusivity contended for by the Plaintiff and the absurdity of any interpretation which purported to impose such exclusivity. There is also much to be said for the view that such an all-encompassing selling exclusivity, with no requirement for availability and reasonable terms from the monopolist selling agent, if it did apply, would so constrain the selling of units as to enliven the statutory preclusion in s49 of the Strata Schemes Management Act 1996 (NSW). It provides, relevantly, that "No by-law is capable of operating to prohibit or restrict … a transfer, lease, mortgage or other dealing relating to a lot". When the exercise or enjoyment of that right of sale is constrained to such a degree, it may amount to a restriction on transfer, though that will depend on the onerousness of the exclusivity in the overall context of no reciprocal obligation on the Caretaker/Manager. An interpretation which avoids that result and that of an unreasonable restraint of trade is open and clearly should be adopted as the more natural.

CONCLUSION AND ORDERS 22 The separate question should be answered "No". It follows that the Plaintiff fails altogether in accordance with the agreed result. 23 I order that the Plaintiff's summons be dismissed in each case. 24 Costs should follow the event and accordingly the Plaintiff should pay each of the three Defendants' costs in each action. This is subject in the case of the Third Defendant in each matter providing evidence to the Plaintiff in the first instance of their respective retainer, with leave to apply on the Plaintiff's part if there is to be any further challenge to that retainer.

Last Modified: 03/12/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Strata Schemes Management Act 1996(NSW)

CITATION : Regis Towers Real Estate P/L v CSS Holdings P/L & 2Ors (1611/01); Regis Towers Real Estate P/L v Peter Kelly Flooring P/L & 2 Ors (1612/01) [2001] NSWSC 139 revised - 9/03/2001 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1611/01; 1612/01 HEARING DATE(S) : 02/03/2001 JUDGMENT DATE : 2 March 2001

1611/01: Broun Abrahams (Plaintiff) Pigott Stinson Ratner Thom (First Defendant) SOLICITORS : Blessington Judd (Third Defendant) 1612/01: Broun Abrahams (Plaintiff) Murray Stewart & Fogarty (Second Defendant) Blessington Judd (Third Defendant) CATCHWORDS : CONVEYANCING - Strata Titles Act - By-laws purporting to give exclusivity to caretaker manager - Did they extend to preclude use of selling agents when no reciprocal obligation to provide the service or do so on reasonable terms - Principles of construction - Unreasonable restraint of trade - Constraint on transfer of units. LEGISLATION CITED : Strata Schemes Management Act 1996 (NSW) s49(1) CASES CITED : Fasold v Roberts (1997) 70 FCR 489 Regis Towers Real Estate Pty Ltd v Kin Fung & Ors [2000] NSWSC 438 unreported 25 May 2000 DECISION : Summons dismissed.

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