AUSTCORP HOTELS PTY LTD v 179 ELIZABETH STREET PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MEAGHER, HANDLEY and SHELLER JJA 9 December 1993, 16 December 1993 [1993] NSWCA 9 REAL PROPERTY — HOTEL MANAGERIAL AGREEMENT- WHETHER INTEREST IN LAND The appellant lodged a caveat on the title to the Park Lane Hotel at 179 Elizabeth Street, Sydney claiming an estate in interest in the land under a managerial agreement with the owner. Brownie J ordered the removal of the caveat. Held: (1) The Court was not inclined to recognise a novel interest in land which is "akin to a lease" without actually being one; (2) The managerial agreement was neither a lease nor an agreement for lease because (a) the operator had no right to exclusive possession as it was bound to act solely as agent for the owner, (b) the owner was entitled to the rents and profits, and (c) the staff in the hotel were employees of the owner. Meagher JA I agree with Handley JA. Handley JA This was an appeal as of right from the decision of Brownie J to order the removal of a caveat lodged by the appellant on the title to the Park Lane Hotel at 179 Elizabeth Street Sydney. The caveat was holding up the registration of a mortgage which the Court was informed secured a sum in excess of $600,000,000. Because of the potential risks involved in the appellant's undertaking as to damages which secured a stay of the order for the removal of the caveat the appeal was expedited and brought on for final hearing as a matter of urgency. It raises for determination the single question whether a so-called managerial agreement dated 14 June 1989 between the parties conferred on the appellant described in that agreement as the operator an estate or interest in the land on which the hotel is situated. Brownie J held that it did not. At times Mr Taylor SC for the appellant seemed to be inviting the Court to find that the agreement created a novel interest in land which was "akin to a lease" without actually being one. However after the Court made it clear that it was not inclined to recognise any novel interests in land he submitted that the agreement operated either as a lease or as an agreement for a lease. Mr Taylor's submissions were clearly and attractively presented. The Court understands the commercial and forensic motivation for the lodgment of the caveat and for the appellant's resistance to its removal. Nevertheless the principles which the Court must apply are clear and the terms of the agreement itself are all too clear. At the conclusion of the argument for the appellant the Court called briefly on Mr McDougall QC for the respondent and then ordered that the appeal be dismissed with costs, dissolved the stay of Brownie J's order for the removal of the caveat and reserved its reasons. The managerial agreement was professionally and well drafted. It contains no demise and in terms confers no right of exclusive possession on the operator. The operator undertook no contractual obligation under the agreement to pay any money to the owner periodically or otherwise, let alone rent described as such. In fact it was entitled to receive payments from the owner. 2 UNREPORTED JUDGMENTS The agreement provides that the operator shall "manage and operate" the hotel during the operating term (Article I CL4) which is fifteen years subject to options for renewal for further terms aggregating fifteen years (Article II CL1). The operator shall have "complete control and discretion in the operation of the hotel" which is to include the use of the hotel for all customary purposes (Article III CL2). The "management services" it is bound to provide are exhaustively defined (Article III CL4). However the rents and the profits of the hotel belong to the owner and are to be paid into bank accounts in its name (Article HI CL5). The operator is authorised to operate on these accounts for limited purposes (Article III CLS). It is required to conduct the business solely as agent for the owner (Article III CL9) and to enter into necessary contracts either in the name of the owner or in its own name as agent for the owner (Article III CL7). The owner is to be the employer of all hotel staff (Article III CL10). Leases and concessions which are customary in comparable hotels may be negotiated by the operator but shall be granted by the owner (Article III CL3). The parties agreed that the operator should fulfil its obligations to-operate and manage the hotel under the agreement by designating the general manager to be employed by the owner (Article III CL11). It is entitled to receive for its services under the agreement a basic management fee equal to three per cent of the gross revenues of the hotel not exceeding $600,000 and a further incentive fee as defined. It is clear therefore that the managerial agreement is neither a lease nor an agreement for lease of the hotel to the operator. The operator is authorised and bound to act solely as agent for the owner. As such it can have no right to exclusive possession against its own principal. The rents and profits of the hotel belong to the owner. Indeed it is perfectly clear that the operator does not even have de facto exclusive possession under the agreement since the general manager himself and all other staff in the hotel are employees of the owner. Accordingly on settled principles the agreement did not create a lease or an agreement for a lease. See Radaich v Smith (1959) 101 CLR 209. In fact the managerial agreement embodied a contract for the performance of personal services by the operator for the owner. Compare Dudgeon v Chie (1955) 92 CLR 342. Accordingly, the appeal was dismissed with costs. Shelley JA I agree with Handley JA. Appeal dismissed with costs. Counsel: Appellant: P W TAYLOR SC with N L McCALLUM Respondent R C McDOUGALL QC with J V NICHOLAS Solicitors: Appellant: CORRS CHAMBERS WESTGARTH Respondent GADENS RIDGEWAY