The Property Investors Alliance Pty Ltd v C88 Project Pty Ltd

These proceedings

1. On 25 January 2021, the agent commenced these proceedings. On 22 March 2021, Hammerschlag J afforded C88 further time to file its Commercial List Response by 23 April 2021. On 30 April 2021, Hammerschlag J extended time for C88 to file its Commercial List Response to 7 May 2021, granting leave to the agent to file an application for judgment if the pleading was not filed. No Commercial List Response was filed and, on 10 May 2021, the agent filed a motion seeking summary judgment. Directions made in respect of the motion were extended and stood over from time to time, at the request of the parties. Throughout this period, the agent continued to progressively withdraw its caveat over lots in The Somerset, presumably on completion of the sale of the apartment and payment of the agent's commission in respect of each apartment.
2. On 13 September 2021, Hammerschlag J heard the motion for summary judgment. His Honour observed that, although C88 had filed no defence "in breach of directions", it appeared that the hearing of the motion. C88's solicitor informed the Court that the parties had reached an advanced stage in settlement negotiations, maintained that there was agreement in principle on major terms and enquired whether the Court would consider ordering the parties to mediation: The Property Investors Alliance Pty Ltd v C88 Project Pty Ltd [2021] NSWSC 1175 at [10]. The agent did not embrace this suggestion and proceeded on its motion. Hammerschlag J gave judgment in favour of the agent against C88 for $18,055,076.20 together with interest. On 8 November 2021, the agent issued a statutory demand to C88 for the judgment sum plus interest and, on 25 November 2021, C88 filed an originating process seeking to set aside the statutory demand under section 459G of the Corporations Act 2001 (Cth): In the matter of C88 Project Pty Ltd [2022] NSWSC 126 at [1] (per Williams J).
3. On 9 December 2021, C88 filed a Commercial List Response, albeit the pleading was not particularly responsive. As to the agent's contention that it was entitled to an equitable charge, C88 disclaimed that the Sole Agency Agreement gave rise to such a charge, noting that a contractual entitlement to lodge a caveat does not by implication convey an intention to grant an equitable charge, citing Ta Lee at [97]-[98], [104]. As to the rectification suit, C88 relied on the entire agreement clause (clause 22) and denied any common intention that the agent would be entitled to lodge a caveat to secure pre-Sole Agency Agreement commission.
4. Also on 9 December 2021, Ball J made directions for the filing of evidence, including by the defendants on 25 February 2022. On 31 January 2022, this timetable was extended by Hammerschlag J, including for the defendants to file and serve any evidence by 28 March 2022. On 17 February 2022, Williams J dismissed C88's application to set aside the agent's statutory demand: In the matter of C88 Project Pty Ltd. On 25 March 2022, C88's solicitor filed a notice of ceasing to act. On 8 April 2022, Ball J fixed the remaining matters for final hearing on 23 June 2022. On 14 April 2022, administrators were appointed to C88. On 31 May 2022, C88 went into liquidation. The agent obtained leave under section 500(2) of the Corporations Act to proceed against C88.
5. As at the final hearing, the agent had not received any payment towards the judgment sum but maintained caveats over 27 apartments in The Somerset of which five were "Additional" Agency Lots the subject of the fourth Supplementary Agency Agreement. Mr Davis had valued the 24 of these caveated apartments; C88 did not permit access to the remaining apartments.

RECTIFICATION

1. Before construing the Sole Agency Agreement and determining whether it gives rise to an equitable charge, it is necessary to ascertain precisely what the terms of the agreement are, where the agent also seeks rectification of its terms.
2. The agent sought rectification on the basis of a mutual mistake in the drafting of clauses 12.9, 12.10 and 12.11 of the Sole Agency Agreement. It was said to be the common intention of the parties that the protection afforded by these clauses would extend to commissions payable to the agent for effecting the sale of properties in The Somerset prior to 20 April 2018. The agent sought rectification of the Sole Agency Agreement to amend the definition of Commission as follows: (changes indicated) "Commission" or "commission entitlement" or "agent commission" means the commission plus interest for any late payment of the commission in accordance with this Agreement, which the Owner has agreed to pay to that is agreed between the Owner and the Agent for the sale of each Agency Lot, and for any lot in the Development which the Agent has already caused the sale of for the benefit of the Owner prior to the date of this Sole Agency Agreement. I assume that the deletion of the entitlement to interest in an error on the agent's part.
3. There is no dispute as to the principles. As Gageler, Nettle and Gordon JJ explained in Simic v New South Wales Land and Housing Corp (2016) 260 CLR 85; [2016] HCA 47 at [103]-[104]: 103 Rectification is an equitable remedy, the purpose of which is to make a written instrument "conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately". For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an "agreement" between the parties in the sense that the parties had a "common intention", and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the "agreement" because of a common mistake. Unless those elements are established, the "hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties" cannot be displaced. 104 The issue may be approached by asking - what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties' actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party.

Submissions

1. The agent submitted that the conversations between Mr Wang and Mr Fayad made clear that the intention of both was that the agent should be secured in respect of commissions earned by past sales; this was the whole point of the agent's request to be able to lodge a caveat. Mr Wang's evidence as to the terms of his conversations with Mr Fayad stood as evidence of C88's intention at the time and was unchallenged. There was no evidence to indicate a change in C88's intention since. The context in which these discussions took place was that the agent was already owed a lot of money and was asked to forebear on requiring payment of outstanding commission as and when it fell due on completion of these sales. The agent submitted that the Court should infer that Mr Fayad's evidence, if given, would not have assisted C88. For reasons earlier given, I decline to draw such an inference but note that Mr Wang's evidence was unchallenged and I found him to be a credible witness.
2. The liquidator submitted that the evidence did not support a finding that C88 and the agent had a common intention that the agent would be entitled to lodge a caveat to secure the payment of all commissions owing to it by C88 for sales made prior to 20 April 2018. Further, the proposed rectification of the contract would result in an outcome other than what was specifically discussed. As rectified, the agent would have a right to lodge caveats immediately from the date of the Sole Agency Agreement, as C88 was then in default of its obligations to make payment of earlier commissions; this was plainly not what the parties intended. To this, the agent submitted in reply that it did not oppose such a condition being imposed on the rectified document, although nothing turned on this as the conditions had since been satisfied.

Conclusion

1. Accepting Mr Wang's evidence as to the terms of the conversations with Mr Fayad, the words indicate the intention of each party. The Court may also have regard to the parties' conduct and draw inferences in order to ascertain the actual intentions of both parties: Simic at [42]-[43] per Kiefel J.
2. The conversations between Mr Wang and Mr Fayad reveal a range of proposals to pay the agent's outstanding commission. First, as described at [28], the deal was that the agent would not receive all of its commission in respect of the sale of apartments in Stage 1, Stage 2 and Stage 3 on completion of the sale of those apartments but would receive any unpaid commissions from the deposits on apartments in Stage 4. It is not entirely clear whether Mr Fayad's agreement, at the time, to the lodgment of caveats depended upon it becoming clear that the deposits for Stage 4 would not be enough to pay unpaid commission from Stage 1, Stage 2 and Stage 3. In any event, Mr Fayad's consent to the lodgment of caveats appears to have been qualified: "please make sure your caveat will not affect our sale and settlement."
3. Next, in discussions between Mr Wang and Mr Fayad concerning commission owed by Dyldam in respect of several developments, described at [30], Mr Fayad said that the agent would be "fully paid when North building settles". It is unclear whether Mr Fayad had in mind that the agent would be paid all outstanding commissions in respect of The Somerset when the North building sold, or whether this means of payment extended to commissions owing to the agent in respect of other developments.
4. Mr Wang and Mr Fayad then re-negotiated the terms of the agency agreement in respect of The Somerset. Mr Wang said he needed "some security for the significant amounts owing to PIA in Somerset." When asked what security he wanted, Mr Wang said he wished to add caveat clauses to the agency agreement, and did so. Where it was the agent seeking "security", it is reasonable to think that Mr Fayad awaited the draft Sole Agency Agreement to see the precise detail of the security sought before considering whether the form of security was acceptable to C88.
5. As to preparation of the caveat clauses, Mr Wang could not recall whether he drafted the Sole Agency Agreement or whether one of his staff did so on his instructions. (Certainly, Mr Cheung was not involved in preparing the document.) In particular, adding caveat clauses was not the sort of thing Mr Wang would have asked Mr Cheung to help with; Mr Cheung would assist "for something we not very confident - this one very straightforward". Nor is it clear whether Mr Wang specifically reviewed the caveat clauses before the Sole Agency Agreement was sent to C88. Mr Wang said that he looked at the caveat clauses, "Yes, we pay attention, yes." He later said, "I cannot say I read. Definitely I will … ask my staff where is the caveat clause … for the commission." Mr Wang also said, "I think like even I read it is probably I have confidence we are protected for my English and for my understanding." Finally: We definitely remember this agreement before we send out contained clause for caveat because that's most important for me to continue … the sale for the project and not take any step to claim, to ask for pay the outstanding commission, otherwise I cannot sell any more because it too big, because continue to say to me, brother, don't worry … we got plenty property left after to pay off the bank. You no worry, you can put a caveat, you got right to buy the property, you know, as crew [security?]. This what give me confidence to continue the sale.

EQUITABLE CHARGE

1. The next question is whether the Sole Agency Agreement created an equitable charge. An equitable charge was succinctly explained by Giles JA in Cinema Plus Ltd v Australia and New Zealand Banking Group Ltd (2000) 49 NSWLR 513; [2000] NSWCA 195 at [144]: (emphasis added) A charge involves a proprietary interest held by way of security. It may arise in consequence of contractual rights, as in an equitable charge, but the objectively ascertained contractual intention must be to confer a proprietary interest as security for a present or future debt.
2. A more detailed explanation is given by Bathurst CJ (with whom Beazley JA and Tobias AJA agreed) in Roberts v Investwell Pty Ltd (in liq) [2012] NSWCA 134; (2012) 88 ACSR 689; what is necessary for an equitable charge is "that property of the chargor is appropriated to the chargee for payment of a debt and the chargee has a present right to have it made available for the payment of its debt. The availability of equitable remedies to enforce that right gives the chargee a proprietary interest by way of security in the property charged": at [26]. The Chief Justice, at [27], adopted Buckley LJ's explanation in Swiss Bank Corporation v Lloyd's Bank Limited [1982] AC 584 at 594: an equitable charge is "created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale": at 594. Further, Buckley LJ observed at 595: It follows that whether a particular transaction gives rise to an equitable charge of this nature must depend upon the intention of the parties ascertained from what they have done in the then existing circumstances. The intention may be expressed or it may be inferred.
3. The Chief Justice also adopted the description by Atkin LJ in National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 449-450: … where in a transaction for value both parties evince an intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge, even though the present legal right which is contemplated can only be enforced at some future date, and though the creditor gets no legal right of property … or any legal right to possession, but only gets a right to have the security made available by an order of the Court.

Right to lodge a caveat

1. Determining whether there is an equitable charge has caused some complexity where the charge is said to have been created by a registered proprietor's agreement to permit another to lodge a caveat over their property. An early consideration of this subject was in Murphy v Wright [1992] NSWCA 168; [1992] NSW ConvR 55-652; (1992) 5 BPR 11,734, where a deed of guarantee provided: (emphasis added) In the event of default by the Borrowers … then the Lender shall … be entitled to attach the debt due to any of the assets of the Guarantor or Guarantors whether such assets be real or personal and further the parties hereto agree that in the event of such default the Lender may register a caveat against any property registered in the name or any or all of the Guarantors until the Moneys Secured are repaid.
2. Handley JA (with whom Priestley JA agreed, Sheller JA dissenting) considered that the contractual right to lodge a caveat suggested that the lender was intended to have an equitable charge to support the caveat: at 5. Attaching a debt to property involved charging it with the debt: at 6. By lodging the caveat, the lender exercised its option to attach its subject to the property and created an equitable charge over the property: at 7. Of this conclusion, Bryson AJ later observed in Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562 that the intention to create an equitable charge "must appear clearly" from the document; while the the clause in Murphy v Wright made a strong case for implication of an intention to create an equitable charge, "[the] implication was not made readily, and the difference of opinion shows the difficulties of the subject. The implication must exist in reality; it cannot be spun out of no more than reference to a caveat": at [50], [54].
3. Less clear, in Troncone v Aliperti (1994) 6 BPR 97,455, a loan agreement provided: (emphasis added) The Debtor authorises the Creditors to lodge a Caveat on any property owned by the Debtors to protect his interests.
4. Mahoney JA (with whom Priestley and Meagher JJA agreed) observed at 13,292: It is a fundamental principle of construction that "Whoever grants a thing is deemed also to grant that without which the grant itself would be of no effect. … A caveat cannot be entered against land unless the caveator has the relevant proprietary interest in the land [being] "a legal or equitable estate or interest in the land" … Therefore, unless there be evident an intention to the contrary, the grant to the creditors of an authority to lodge a caveat on the relevant property carried with it by implication such an estate or interest in land as was necessary to enable the authority to be exercised. There was, in the present case, no intention to the contrary. … … it is not necessary to determine what is the precise nature of the interest in the land which, by this implied grant, was passed to the creditors. It is, in my opinion, sufficient to conclude that it was an interest which, within the Real Property Act 1900 would support the lodgement of the caveat.

Submissions

1. The agent submitted that, whilst the Sole Agency Agreement did not use the word "charge", it clearly created one. The surrounding circumstances in which the Sole Agency Agreement was executed included discussions with Mr Fayad that C88 and related Dyldam entities were in default and that PIA required security to agree to Mr Fayad's request to receive part-payments of commissions owing to it. The fact that Mr Wang and Mr Fayad had a number of conversations as to security, at or around the time the Sole Agency Agreement was entered into, was important in determining whether an equitable charge should be found have been granted by implication: Aged Care Services Pty. The agent submitted that the right to lodge a caveat conferred by clause 12.9, and given further content by clauses 12.10 and 12.11, supported a conclusion that the parties intended to create a charge in favour of the agent to "protect", that is, secure the agent's interest in clause 12.10. The charge arose on execution of the Sole Agency Agreement, save for the Agency Lots which did not then exist as the strata plan for Stage 4 and Stage 5 had not been registered. The charge in respect of those lots arose when the strata plans were registered, as C88 had then performed the step necessary to bring the property into existence. "Additional" Agency Lots became subject to the equitable charge when the fourth Supplementary Agency Agreement was executed.
2. Whilst the agent's Commercial List Statement made no reference to sub-clauses 12.15 and 12.16 in support of the contention that it had an equitable charge, the agent also relied on these sub-clauses at trial. The agent submitted that Agency Lots were made liable for the payment of the agent's commission, where clause 12.16(b) expressly provided that the sale price shall be applied against the commission. That is a charge by another name, where the Agency Lots have been expressly made liable for the discharge of a debt owed by the Owner to the Agent: Charnley at 449-450 (per Atkin LJ); In the matter of Swan Services Pty Limited (in liq) [2016] NSWSC 1724; (2016) 12 BFRA 224 at [281]-[284] (per Black J); Morris Finance Ltd v Free [2017] NSWSC 1417; (2017) 18 BPR 37,223 at [30]. There is an immediate right of recourse to identifiable property: Roberts v Investwell at [29] (per Bathurst CJ, with whom Beazley JA and Tobias AJA agreed).
3. The agent also sought, in reply, a declaration to give effect to a concession said to have been made by the liquidator's counsel that the agent can still exercise its right under clause 12.15(b) notwithstanding that C88 is now in liquidation. Orally, the agent's senior counsel sought to amend the summons to the extent necessary to seek that declaration. I was unable to identify the concession relied upon but, in any event, no proposed amended pleading was submitted to the Court and I am not minded to grant declaratory relief 'on the run'.

Conclusion

1. As the authorities make plain, in determining whether a party has an equitable charge, the focus remains on the objectively ascertained contractual intention of the parties to confer a proprietary interest as security for a present or future debt, accompanied by a present right to have the property made available for payment of that debt. The right to lodge a caveat over the debtor's property may or may not give rise to the implication of an equitable charge depending on the terms of the contract, construed as a whole, and having regard to the particular facts of the case. The intention to create an equitable charge must exist in reality and appear clearly, it being the implication of an interest in real property.
2. Here, the agent relied on a wide range of discussions and contracts, occurring before, during and after execution of the Sole Agency Agreement. Post-contractual conduct can be put to one side, where such conduct is admissible on the question of whether a contract was formed but not on the question of what a contract means: Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]-[26] (per Mason P). Post-contractual conduct can be availed of to find the terms of a contract not wholly in writing: Lym International Pty Limited v Marcolongo [2011] NSWCA 303; (2011) 15 BPR 29,465 at [125] (per Campbell JA, with whom Basten JA and Sackar J agreed). Here, there is no doubt that a contract was formed and in writing. Indeed, as an interest in land, an equitable charge may only be created by writing: section 23C, Conveyancing Act 1919 (NSW).
3. Turning then to the facts of the case which, together with the contract, may give rise to the implication of an equitable charge, under the first and second agency agreements the agent was entitled to an initial part-payment of its commission following receipt of a deposit, with the balance on completion of the sale of the apartment, albeit the agent's right to payment of the balance could be delayed by reason of the requirements of the secured lender in some circumstances. In the second agency agreement, the agent also had the option of taking an apartment in lieu of unpaid commission. Mr Wang and Mr Fayad then discussed a range of proposals to pay the agent's outstanding commission, as summarised at [79]-[81]. In short, the agent agreed to take only 3.3% of the sale price on completion, again, due to the secured lender's requirements, and to look to the deposits paid on apartments in Stage 4 for the balance owing. The agent and C88 re-negotiated commission such that the agent received a fixed percentage of the sale price, rather than the excess of the price above MUP.

ILLEGALITY

1. If I am wrong and the Sole Agency Agreement does in fact give rise to an equitable charge, then the question is whether such a charge is unenforceable for illegality. In this eventuality, I consider that the "Additional" 67 lots in the fourth Supplementary Agency Agreement were added to the 34 units in the Agency Lot Schedule to the Sole Agency Agreement, contrary to the liquidator's submission: see [54]. If I am also wrong about rectification, then further lots will also need to be added.
2. Division 4 of Part 3 of the Property and Stock Agents Act is entitled "Conflicts of interest". Within this division, section 49(1) of the Property and Stock Agents Act provides: A real estate agent who is retained by a person (the client) as an agent for the sale of property must not obtain or be in any way concerned in obtaining a beneficial interest in the property. Maximum penalty--200 penalty units or imprisonment for 2 years, or both.
3. Examples of when such an interest may be obtained are provided in section 49(5): (5) Without limiting this section, each of the following is considered to constitute the obtaining of a beneficial interest in property - (a) purchasing property, (b) obtaining an option to purchase property, (c) being granted a general power of appointment in respect of property. Obviously, an equitable charge is a beneficial interest in property.
4. Section 49(3) provides that there is no offence in specified circumstances: (3) A person does not contravene this section by obtaining a beneficial interest in property if - (a) before the person obtains the interest, the client consents in writing in a form approved by the Secretary to the person obtaining the interest, and (b) the person acts fairly and reasonably in relation to the obtaining of the interest, and (c) no commission or other reward is payable to the person in relation to the transaction by which the interest is obtained, unless the client consents in writing in a form approved by the Secretary to the commission or other reward being paid.
5. The form approved by the Secretary is a three-page document which sets out, in plain English, the import of section 49. The form requires the client and the agent to provide their details, together with details of the property. The form contains a table in which the parties are to record the nature of the beneficial interest which it is proposed that the agent will obtain. A further table calls for details of any commission or other reward which the agent is to receive in addition to the beneficial interest. The form then requires execution by the agent and the client. Before the client's consent appears the following warning: AGENT TO OBTAIN CLIENT CONSENT BEFORE OBTAINING A BENEFICIAL INTEREST IN PROPERTY This form must be given to you before the real estate agent/assistant real estate agent obtains a beneficial interest in the above property e.g. the agent or assistant agent purchases or obtains an option to purchase it. If this form is given to you afterwards you should not sign below. A real estate agent retained by a client to sell property or an assistant real estate agent employed by that agent must not obtain an interest in that property or be remunerated in relation to the transaction by which the interest is obtained. However, the agent or assistant agent may do so, if the client consents in writing in this form. Agents who have their client's consent in obtaining an interest in the property may not receive a commission or any other reward in relation to that transaction, unless the client consents in writing in this form.

1. Section 49(1), together with the ability to avoid a contravention of the sub-section by obtaining the informed consent of the client, reflects equitable principles concerning fiduciaries. A real estate agent is in a fiduciary position vis a vis their client: Pedersen v Larcombe [2008] NSWSC 1362 at [48]-[49] (per Palmer J). An agent as fiduciary has a duty not to promote their personal interests by making or pursuing a gain in circumstances where there was a conflict or a real or substantial possibility of a conflict between those personal interests and the interests of their client (the "no conflict" rule). An agent as fiduciary has a duty not to obtain any unauthorised benefits or profits from their position (the "no profit" rule): Chan v Zacharia (1984) 154 CLR 178 at 198-199 (per Deane J, Brennan and Dawson JJ agreeing); Clay v Clay (2001) 202 CLR 410; [2001] HCA 9 at [56] (per Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ); Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31; Breen v Williams (1996) 186 CLR 71; [1996] HCA 57.
2. A fiduciary may overcome the operation of the "no profit" rule by making a full and frank disclosure of their material interest in the outcome of the relationship subject to that duty and seeking the active consent of the other party: Parker v McKenna (1874) LR 10 Ch App 96. Absent full disclosure by the agent and the client's consent, the agent must account to the client for any benefit received as a consequence of breach of duty: Pedersen v Larcombe at [49]. Section 49 and the form approved by the Secretary formalises these principles and provides a simple way for agents to make full disclosure and for clients to give consent.
3. The intent of the legislation is to protect consumers, as confirmed in the second reading speech by the Minister for Fair Trading: NSW Legislative Assembly, Parliamentary Debates (Hansard), 9 May 2002 at 1964-1970. Further, the Minister explained at 1967-1968: Calls for full disclosure of any conflict between an agent's duty to a client and any beneficial interest held by the agent have also been taken seriously in the development of the bill. Clearly, consumers expect their agent to undertake his or her duties fairly and openly to achieve the best result for them. Generally, the bill prohibits real estate agents and their sales employees from obtaining or being connected to the obtaining of a beneficial interest in the sale of a property. The client's agreement will need to be obtained where the agent wishes to retain entitlement to these benefits.

Submissions

1. The liquidator submitted any equitable charge was either created by the Sole Agency Agreement was unenforceable by reason of the contravention of section 49(1). There was no reason to refuse to take this path, having regard to the considerations in Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215; [1997] HCA 17, Gynch v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23 or Nelson v Nelson (1995) 184 CLR 538; [1995] HCA 25. Here, the agent was not ignorant of the factual circumstances giving rise to the contravention. The agent was aware of section 49. The agent was not a member of the class benefited by section 49. The contravention was not induced by anything that the client did. The illegal purpose was carried into effect. Further, the liquidator submitted that clause 1.2(h) of the Sole Agency Agreement provides that, in these circumstances, the caveat clauses should be "read, interpreted and construed beneficially to and for the benefit of the Agent so as not to be repugnant or contrary to law and where this is not possible, the term or provision shall be deemed to be excised and not form part of the Agreement." As such, the clauses conferring an equitable charge ought to be excised from the contract.
2. The agent submitted that section 49 did not apply. The mischief which section 49 was designed to prevent was agents acting in conflict of interest in the performance of their role. As such, section 49 should be interpreted and applied to prevent conduct of an agent which would be inconsistent with the fiduciary duties that agent owes a client. Such duties arise after the agent is retained. In order for a contravention to arise, section 49 requires that the act of "obtaining" be committed by a person who "is retained" as agent for sale. That is, there must be a retainer in existence before the beneficial interest is obtained. As such, the creation of a security interest by the agreement that creates the retainer does not give rise to a contravention. The agent does not owe fiduciary duties to the client in relation to the negotiation of the retainer: the fiduciary duties and the potential for conflict of interest arise once the retainer is made.
3. The agent submitted that, on entry into the Sole Agency Agreement, it obtained an equitable charge over lots in Stage 2, being the only (relevant) strata plan registered before execution of the agreement. The agent obtained a charge over lots in Stage 3 on registration of that strata plan on 16 August 2018. The agent obtained a charge over lots in Stage 4 on entry into the fourth Supplementary Agency Agreement in August 2019, which added the lots to the Agency Lot Schedule. As such, the agent submitted that, in respect of the Agency Lots which formed part of Stage 2 and Stage 4, any illegality did not arise after the agent was retained to sell the Agency Lots as annexed to the Sole Agency Agreement, but arose at the time of the agent was retained, where the granting of the charge being simultaneous with the entry into the agreement. The temporal element of section 49(1), being that a retained agent must not obtain a beneficial interest, was not satisfied. In relation to the Agency Lots which formed part of Stage 3, the act or omission which granted the charge was C88 registering the strata plan, rather than any act or omission of the agent. Accordingly, it was said that there was no act or omission of the agent when retained, which resulted in the agent obtaining a beneficial interest in these properties.

Conclusion

1. I do not accept the agent's submissions regarding the proper construction of section 49(1), that is, that the section is not contravened so long as the agent obtained the beneficial interest in property before or by execution of the agency agreement itself. The purpose of the Act is to protect the interests of consumers of real estate agency services: Guan v Lui [2021] NSWCA 65 at [34] (per Meagher JA, with whom Bell P and Basten JA agreed), citing Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 4) [2017] NSWSC 436 at [90] (per Ball J); Parliamentary Debates, 9 May 2002 at 1965. The point at which an agent's remuneration is most likely to be documented - whether that be commission, a beneficial interest in property or other reward - will be the agency agreement. Were the agent's construction to be accepted, the consumer protection sought to be conferred by section 49 would be largely eroded.
2. Nor is such a construction warranted by the language of the statute. Section 49(1) is agnostic as to whether an agent obtains a beneficial interest in the property when entering into an agency agreement or beforehand or subsequently. The section is directed to whether the agent has obtained the client's written consent before obtaining the beneficial interest. As much is confirmed by the form approved by the Secretary, which warns the client, "This form must be given to you before the real estate agent … obtains a beneficial interest in the above property … If this form is given to you afterwards you should not sign …" As such, were it necessary to decide, I would conclude that the agent contravened section 49 by obtaining a beneficial interest in the client's property without complying with section 49(3). (Of course, the agent has not been charged with this offence and any such charge would need to be determined to a different standard of proof).
3. The penalties prescribed by section 49(1) do not include rendering the agency agreement void. As to whether contravention of section 49 has the consequence that any associated agency agreement is void, in Gnych v Polish Club at [47], French CJ, Kiefel, Keane and Nettle JJ embraced Mason J's observation in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 423: There is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of commission of the offence is thereby diminished.

ORDERS

1. For these reasons, I make the following order: 1. Dismiss Prayers 1, 1A and 2 of the Amended Summons filed on 26 October 2021, with costs.

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. Decision last updated: 12 August 2022