Reported Decision : (2002) 56 NSWLR 27 New South Wales Supreme Court CITATION : Investmentsource v Knox [2002] NSWSC 710 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50049/02 HEARING DATE(S) : 26/07/02 JUDGMENT DATE : 15 August 2002 Investmentsource Corporation Pty Ltd - Plaintiff Knox Street Apartments Pty Ltd - First Defendant PARTIES : Kimberley Securities Ltd - Second Defendant Nati Stoliar (also known as Nathan Stoliar) - Third Defendant Gabriel Michael Lorentz - Fourth Defendant Roger Percival Flexman and Philippa Margaret Flexman - Fifth Defendants JUDGMENT OF : Barrett J Mr M R Aldridge SC/Mr C D Freeman - Plaintiff COUNSEL : Mr T G R Parker - First Defendant Mr B A J Coles QC/Mr M R Pesman - Second to Fourth Defendants Mr D A Smallbone - Fifth Defendants Purcell Lancione Cureton - Plaintiff SOLICITORS : Beswick Solicitors - First Defendant Landerer & Company - Second to Fourth Defendants Thurlow Fisher - Fifth Defendants CATCHWORDS : PROFESSIONS AND TRADES - auctioneers and agents - right to remuneration - statutory requirements - whether claim on quantum meruit is "remuneration" LEGISLATION CITED : Property, Stock and Business Agents Act 1941 Property, Stock and Business Agents (General) Regulation 1993 Attorney-General of Ceylon v De Livera [1963] AC 103 Australian Central Credit Union Ltd v CAC (1985) 157 CLR 201 Australian Softwood Forests Pty Ltd v Attorney-General (1981) 148 CLR 121 Barnard v Gorlin (1955) 95 CLR 35 Jacobs v Public Trustee (1963) 80 WN (NSW) 954 Multo Pty Ltd v Craddock (unreported, NSWSC, 11 March 1988) New South Wales Land and Housing Corporation v Toufic (1992) NSWConvR 59,554 A Norton Pty Ltd v Fowler (1966) 67 SR (NSW) 251 CASES CITED : Oades v Ewart (1960) 61 SR (NSW) 89 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 RL Time Realty Ltd v R & R Realty Pty Ltd (1996) 39 NSWLR 24 Raine & Horne Commercial Pty Ltd v Capital Concepts & Development Pty Ltd (unreported, FCA, 14 December 1993) Sindel v Georgiou (1984) 154 CLR 661 St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 Sutton v Zullo Enterprises Pty Ltd [2000] 2 QdR 196 Teresina Pty Ltd v Dawnfest Pty Ltd (unreported, NSWCA, 16 October 1998) Upjay Pty Ltd v MJK Pty Ltd (2001) 79 SASR 32 DECISION : Refer paragraph 87 - 30 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BARRETT J THURSDAY, 15 AUGUST 2002 50049/02 – INVESTMENTSOURCE CORPORATION PTY LIMITED v KNOX STREET APARTMENTS PTY LIMITED & 3 ORS JUDGMENT Background 1 The first defendant ("Knox") was, at material times, the owner of a home unit building in Knox Street Chippendale. The plaintiff ("IVS") performed certain services in relation to the marketing of the home units. The services were provided pursuant to an agreement in writing dated 24 May 2001 the parties to which were Knox, Milton Street Holdings Pty Ltd ("Milton"), Vilacon Corporation Pty Ltd and IVS. I shall refer to this as "the May 2000 agreement". 2 IVS, as plaintiff, seeks to recover from Knox a sum of $1,330,589, saying that, under the terms of the May 2000 agreement, Knox holds that sum upon trust for IVS and is under an equitable obligation to account to IVS. The other defendants are said by IVS to be under an obligation to account to IVS because of their knowing participation in the breach of trust committed by Knox. 3 Knox, for its part, resists the claims of IVS on bases which include an assertion that IVS's ability to rely on any right of recovery, whether arising under the May 2000 agreement or otherwise, in respect of the services performed by IVS is denied by provisions of the Property, Stock and Business Agents Act 1941. The other defendants take the same line. The separate questions 4 By the time this matter came before me on 26 July 2001, the parties had agreed in principle that certain questions were ripe for separate determination pursuant to Part 31 rule 2(a) of the Supreme Court Rules. Unfortunately, however, there had been no agreement on the form of the questions or, perhaps more significantly, the facts by reference to which they were to be addressed. Considerable time was spent settling the questions and identifying a combination of assumed facts and affidavit material that were to be the factual basis upon which the questions were approached. I shall refer to the totality of those facts as "the applicable facts". 5 It is sufficient, for present purposes, to say that the central issues to be determined are: 1. Whether performance by IVS under the 24 May 2001 agreement involved acts on its part within the purview of ss.42AA and 42A of the Property, Stock and Business Agents Act . 2. If the answer is "yes" in relation to either section, whether, in the particular circumstances, the disentitlement or disability imposed by the section operated. 3. If either statutory disentitlement or disability did operate, whether IVS may nevertheless recover from Knox sums calculated in accordance with the agreement or reasonable reward for services rendered, in either case without reliance on the agreement itself. I shall refer to the applicable facts as necessary in my discussion of these issues. It is appropriate to look first at the structure and terms of the May 2000 agreement. The May 2000 agreement 6 The background against which the May 2000 agreement was conceived and made is sketched by its recitals: "A. The Vendor [Knox] owns the Property. B. Investmentsource [IVS] is the holder of an estate agent's licence. C. The Purchaser [Milton] grants the Vendor an option to sell the Property to it. D. The Vendor enters this Agreement at the request of Vilacon who has agreed to guarantee the performance of the Purchaser's obligations under it. E. The Vendor has agreed to allow Investmentsource to market the Property exclusively. F. The Vendor has agreed to pay Investmentsource a marketing commission for the sale of the units. G. The parties record the terms of their agreement as set out below." 7 Clause 1 contains definitions some of which will have to be examined in due course. By clause 2, Milton conferred on Knox, for a consideration of $1.00, the right to require Milton to purchase all or any of the 31 units that at the date of the agreement constituted "the Property". These were the units for which Knox had, to that point, been unsuccessful in obtaining buyers. Subject to some points which may mean that Milton's obligation in this respect was attended by uncertainty, Knox thereby came to occupy a position where, if it chose to do so, Knox could require Milton to take any of the unsold units off its hands at a set price per unit, thus relieving Knox of the risks and uncertainties involved in marketing the units. Matters relating to the arrangements between Knox and Milton in this respect are set out not only in clause 1 but also in the four succeeding clauses. These clauses deal with matters of timing in a way I shall come to presently. 8 Clauses 6 and 7 then deal with the marketing role of IVS. Those provisions, it appears, were an adjunct to the main arrangement between Knox and Milton, since IVS's marketing function was accompanied by provisions requiring Knox to desist from using other selling agents during the subsistence of the clause 1 to 5 arrangement between Knox and Milton (clause 8.1), added to which Milton was to be given by Knox certain facilities related to selling the units (clause 8.2), and was allowed to change promotional materials with Knox's consent (clause 8.3). Knox was protected against the consequences of certain actions and representations by Milton in relation to purchasers (clause 9). 9 The general intent of the agreement is reasonably clear. Knox received from Milton the contractual certainty of being able to sell the 31 units at a set price and Milton, for its part, came to enjoy certain powers in relation to sales to outside parties, while IVS undertook, in relation to Knox, a defined marketing function. I shall come to that function in due course. The commercial reality of these relationships is better understood in the light of the fact that, according to the applicable facts, the person who is the sole shareholder and director of Milton is also the sole shareholder and one of the two directors of IVS, so that there is a strong commercial alignment between the interests of those two parties. 10 In substance, IVS was put by Knox into a contractual position where it had exclusive authority to market the units and to introduce third party purchasers to Knox. The terms of sale, apart from price, were fixed. The price for any particular unit was to be as set by Milton, subject to a stated minimum. Once a potential outside buyer for a unit was identified, Milton thus had a significant influence in deciding whether a sale was made to that potential buyer. Milton set the price to be paid by that buyer, but could not set a price lower than that applicable to the put option arrangement between Knox and Milton. If the most the buyer was willing to pay was less than the price applicable to the put arrangement, Knox could, in theory, elect to sell to that buyer but, in reality, would never do so because it could, by exercising the put option against Milton, obtain the higher agreed price applicable to the put option. Significantly, it was Knox that was the seller to any outside buyer, the functions of Milton being confined to setting the price at which the sale by Knox to the outside buyer was to proceed. 11 The financial arrangements applicable to a sale made by IVS for Knox are recorded in clause 7 entitled "Marketing Commission": "7.1 The Vendor agrees to pay Investmentsource a commission for each Unit the subject of a Unit Contract entered into in accordance with this Agreement (but not in respect of any such Unit Contract that shall be terminated or rescinded). 7.2 The marketing commission in respect of each Unit Contract is an amount equal to the Purchase Price to be paid by the Third Party Purchaser under the Unit Contract (taking into account any Concessional Rebate allowed under the Knox St Concessional Rebate Program if applicable) minus the Knox St Takeout Price for that Unit (as increased for Variations if any). 7.3 The Vendor must pay the marketing commission for each Unit to Investmentsource or as it directs upon settlement under each Unit Contract. 7.4 The Vendor hereby declares that it shall enter into, execute and hold the benefit of the Unit Contracts with Third Party Purchasers under this Agreement UPON TRUST FOR ITSELF AND Investmentsource as tenants in common in beneficial shares as follows: (1) The Vendor's share is the Knox St Takeout price (plus any Variations, if any) for that Unit Contract; and (2) Investmentsource's share is an amount equal to the marketing commission for that Unit. The Vendor agrees that its obligations as Trustee shall only be discharged upon payment to Investmentsource of the marketing commission duly payable hereunder. 7.5 For avoidance of doubt it is the intention of the parties that the Vendor is entitled to receive and retain on settlement under each Unit Contract an amount equal to the Knox St Takeout Price for that Unit (plus any increase for Variations, if any). The Purchaser warrants and agrees that the Knox St Concessional Rebate Program shall not reduce the amount the Vendor is entitled to receive as expressed in this clause." 12 The effect of these provisions was that Knox did not realise, in net terms, from any sale effected for it by IVS at a price fixed by Milton more than the price applicable to the particular property under the put option arrangement between Knox and Milton. Except in one respect, it therefore made no difference to Knox whether a sale was made to an outside buyer introduced by IVS or pursuant to exercise by Knox of its put option right as against Milton. The one respect in which there was, from Knox's perspective, a difference between these two courses was that of timing. Unless Milton otherwise agreed, the put option right was exercisable by Knox against Milton on one day and one day only, namely, the Option Expiry Date. This was the combined effect of clause 3.3 (which, except in case of contrary agreement by Milton, precluded exercise before the Option Expiry Date) and clause 3.1 (which caused that exercise to be constituted by various things done "before 5pm on the Option Expiry Date"). Sales to outside buyers under transactions in which Milton and IVS played the roles envisaged by the agreement would thus yield proceeds to Knox earlier than sales pursuant to exercise by Knox of its put option right as against Milton. 13 I should also refer to clause 3.6 which, as I read it, compelled Knox to exercise its put option right against Milton in respect of all units remaining unsold to outside buyers at the Option Expiry Date. This, coupled with the timing aspects to which I have just referred, undermined, to a substantial extent, the "option" nature of the arrangement between Knox and Milton. Although the words "right" and "option" were used, the real nature of the transaction was that Knox had both a right and an obligation to require Milton to purchase at a pre-agreed price every unit that Knox had not sold to another party by the single fixed date defined as the Option Expiry Date. The transaction was thus much more akin to a pre-arranged sale, by Knox to Milton, of all units that Knox, with the assistance of Milton and IVS, had not managed to sell to outside buyers before the Option Expiry Date. 14 In an economic sense, the effect of the agreement was to make it unimportant to Knox (except as to timing of receipts and in so far as it may be worried about the Milton credit risk) whether it sold a particular unit to Milton on the Option Expiry Date or to an outside buyer in a sale arranged by IVS at a price set by Milton. Milton, on the other hand, had some incentive to see Knox make sales through IVS to outside buyers, since that outcome in relation to a particular unit would mean that Milton did not have to become purchaser from Knox itself. Milton would no doubt set prices applicable to outside sales with these considerations in mind. The role of IVS 15 As between Knox and Milton, the May 2000 agreement had the operation and effect to which I have referred. Milton was, in effect, an underwriter of the sales of Knox's remaining units in such a way as would, either through sales to outside buyers at prices set by Milton above the agreed base price (with IVS taking, as its marketing commission, anything over and above the base price) or ultimate sale to Milton at the base price, see Knox eventually receive the base price. 16 IVS's task has already been outlined in general terms. Its precise nature and scope emerge from clause 6.1 of the May 2000 agreement: "Investmentsource may market the Property exclusively and introduce Third Party Purchasers to the Vendor [Knox] on the terms and conditions of the Unit Contract and at prices nominated by the Purchaser [Milton] (not to be less than the Knox St Takeout Price in relation to each Unit)". 17 It was for the performance of this function that IVS was to be paid by Knox the "marketing commission" referred to in clause 7. The effect of that clause, shortly stated, was to confer upon IVS an entitlement to a commission for each unit sold by it, the amount of the commission being, in essence, the amount by which the sale price exceeds the base price (or, as it is called in the agreement, "the Knox St Takeout Price"). 18 IVS's status as the holder of a real estate agent's licence was referred to in recital B. The applicable facts by reference to which the separate questions are to be approached confirm that, between 24 May 2000 and 21 May 2002, IVS held a real estate agent's licence issued under the Property, Stock and Business Agents Act and that none of the other parties to the agreement has ever held such a licence. Was IVS acting as a real estate agent? 19 The first matter to be considered in addressing the separate questions is whether IVS, in performing its role under the May 2000 agreement, was acting as a real estate agent. That issue arises because of the provisions of ss.42AA and 42A of the Property, Stock and Business Agents Act. Section 42AA says that a "licensee" (that is, according to the s.3(1) definition of that term, the holder of any licence issued under the Act) shall not be entitled to any remuneration for services performed by the licensee "in his or her capacity as licensee" unless certain conditions are satisfied. In similar vein, s.42A says that no proceedings shall be commenced by "any licensee" for the recovery of any remuneration "for services performed by such licensee in his or her capacity as such" unless certain other conditions are fulfilled. Satisfaction of the conditions referred to in both sections is disputed, with the result that it is necessary to decide whether sums receivable by IVS under clause 7 of the May 2000 agreement are remuneration for services performed by it in its "capacity as" the holder of a real estate agent's licence issued under the Act. 20 In this particular context, I think that the reference to services performed in the "capacity" as licensee is to be understood as referring, in the first instance, to services of a kind that may not be performed except by the holder of a licence of the relevant kind. Relevantly, for present purposes, s.20(3) says that a corporation "shall not act as or carry on or advertise, notify or state that it acts as or carries on or is willing to act as or carry on the business of a real estate agent" unless the corporation holds a particular kind of licence under the Act. The content of this prohibition takes its meaning from the definition of "real estate agent" in s.3(1): " Real estate agent means a person (whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business as an agent for: (a) inducing or attempting to induce or negotiating with a view to inducing any person: · to buy, sell, exchange, lease, assign or otherwise dispose of any land, or · to make an offer to buy, sell, exchange, lease, assign or otherwise dispose of any land, or · to accept an offer to buy, sell, exchange, lease, assign or otherwise dispose of any land, or · to enter into a contract for the buying, selling, exchanging, leasing, assigning or other disposal of land, or (b) buying, selling, exchanging, leasing, assigning or otherwise disposing of any land, whether or not an auction is involved, or (c) collecting rents payable in respect of any lease of land, or (d) compiling for publication or compiling and publishing any document that contains a list relating solely or substantially to the acquisition or disposal by any person of land, but does not include a person who carries on business as such an agent in respect of any parcel of land used for agricultural or pastoral purposes with an ara of more than 2.5 hectares." 21 It is clear, in my view, that IVS, in performing its role under clause 6 of the May 2000 agreement was, for reward (being the payments provided for in clause 7), carrying on a business as an agent for matters within paragraphs (a) and (b) of the definition of "real estate agent"; and that the concluding exception in that definition regarding agricultural or pastoral land was not operative. Particularly in light of recital B, performance under clause 6 was "attributable to" IVS's status as a licensee: cf Attorney-General of Ceylon v De Livera [1963] AC 103. That being so, performance by IVS entailed its acting in the "capacity" of a licensee, as referred to in each of ss.42AA and 42A. 22 I should only add that I do not accept the submission made on behalf of IVS that, in performing its selling role, IVS was not acting for Knox and that, because it was IVS which stood to gain profit over and above the stipulated base price for each unit, it was really selling for its own benefit and that of Milton (the benefit of Milton coming from the fact that a sale by IVS caused the potential of an enforced purchase by Milton to be removed). The fact is that the seller under a sale arranged by IVS was Knox; that so much of the proceeds of such a sale as did not exceed the base price went to Knox; and that, under clause 6.1 of the May 2000 agreement, it was the function of IVS to "introduce Third Party Purchasers to the Vendor [Knox]". Knox was thus the client or principal of IVS in the usual way and Knox was the seller of each unit sold to a buyer introduced by IVS. Section 42AA – Formation of the agreement 23 The conditions laid down by s.42AA are concerned with the agreement between the licensee and the person for whom the relevant services were performed – here, IVA and Knox. I shall come to the conditions presently. First, it is relevant to note the circumstances in which the relevant agreement was made. 24 The relevant agreement is, of course, the May 2000 agreement, the parties to which include Milton and Vilacon in addition to Knox and IVS. I did not understand it to be suggested that an agreement to which there are four parties could not be (or, at least, include) an agreement between the two of those parties who are relevant for s.42AA purposes. I am content to proceed on that basis. 25 Two parts of the May 2000 agreement were executed. One purports to be executed for Knox by an attorney (Mr Lorentz, whose authority as agent is said to derive from a joint venture agreement and is part of the applicable facts) and is not executed by any of the other parties. The other part is executed under common seal by each of Milton, Vilacon and IVS. It is accepted that both parts are in the same form, save that the second contains, in the space for execution by Knox (which is, of course, blank) a form of words appropriate for execution under common seal while the first (which is actually executed on Knox's behalf) contains a different form of words, being the form apt where there is to be execution by an attorney. It seems quite clear that the relevant page, as originally prepared and incorporated into the second part, carried the common seal wording and that a re-typed version incorporating the attorney wording was substituted before the first part was signed by Mr Lorentz. 26 The agreement was made by exchange of these two parts, it being part of the applicable facts for the purposes of my consideration of the separate questions that the person giving each part did so with the authority of the parties by which that part had been executed and that the person receiving each part also did so with appropriate authority. There was thus what is generally termed "exchange of contracts" which is, of course, a well-recognised method of contract formation, particularly in conveyancing transactions. 27 I am satisfied that the exchange process may be regarded as having brought a contract into existence in this case in accordance with principles discussed by members of the High Court in Sindel v Georgiou (1984) 154 CLR 661, and that the different execution clauses for Knox do not detract from that, particularly in light of the element of the applicable facts, that the giver and receiver of each part acted with due authority and may thus be presumed to have carried into effect his or her principals' intention to contract. I am also satisfied that the absence of a "counterparts clause" (ie, a provision expressly recognising that several parts may be executed and are together to make up the agreement) does not detract from the reality that a contract was formed by the exchange. Section 42AA(1)(c) – The need of an agreement in writing which is signed 28 I turn now to the conditions that must be shown to be satisfied to meet the requirements of s.42AA. The first, arising from s.42AA(1)(c), is that the agreement pursuant to which the services were performed is in writing and signed by or on behalf of the licensee and the person for whom the services were performed. There is no doubt in my mind that, on the applicable facts, this condition was satisfied. A contract came into existence when the parts to which I have referred were exchanged; and the method of execution – signing by an attorney in one case (ie, Knox) and execution under common seal in the other (IVS) - must be regarded as satisfying the requirement that the agreement formed by exchange of parts be "signed by or on behalf of" each party. Section 42AA(1)(d) – Content of the agreement 29 The second requirement arises from s.42AA(1)(d): the agreement must contain such terms (if any) as are prescribed. Various terms are prescribed by clause 9 of the Property, Stock and Business Agents (General) Regulation 1993. I shall deal with such of them as are relevant to this case. 30 Clause 9(1)(a) requires a term specifying the period of the duration of the agreement or, if there is no such period, the manner in which the agreement may be terminated by a party to the agreement. The May 2000 agreement contains no provision giving it a finite duration. There are, however, provisions in clause 11, as to its termination. There is no provision allowing termination by IVS. But there is a provision (clause 11.1) allowing termination by Knox. Clause 11.5 makes it clear that such a termination by Knox is effective as against all other parties, including IVS. Clause 9(1)(a) of the Regulation is therefore satisfied. 31 Clause 9(1)(b) of the Regulation requires a term specifying the circumstances in which the licensee is entitled to remuneration for services performed under the agreement and either the amount of the remuneration or the way in which it is to be calculated; also when it is due and payable. Clause 7 of the May 2000 agreement satisfies this requirement. 32 Clause 9(1)(c) of the Regulation applies where the agreement is for a particular type of service and requires that the agreement contain, immediately after the term fixing the licensee's remuneration, the following term: "THIS FEE HAS BEEN NEGOTIATED BETWEEN THE PARTIES TO THE AGREEMENT." (This appears in block letters, as above, in the Regulation.) 33 Since the May 2000 agreement does not contain this term, it is necessary to decide whether the service in question is of the kind which activates clause 9(1)(c), that is, a service other than any of three, being, first, a service relating to an arbitration, second, "a service relating to commercial land" (with "commercial land" having a meaning spelled out in the clause) and, third, a service relating to the sale of residential property under an agreement entered into before I March 1994. The effect of this provision is that if the service to be provided is wholly within one or more of the three particular descriptions, inclusion of the particular term is not required, but otherwise it is required. 34 The first and third exceptions are clearly not relevant but it was submitted by IVS that the second is. IVS says that the service provided by it under the May 2000 agreement was "a service relating to commercial land", being, in the words of the clause: "… land used or intended to be used solely or principally for commercial, business or industrial purposes, but not including land used or intended to be used solely or principally for agricultural or pastoral purposes". 35 This submission was advanced on behalf of IVS on the basis that, in the context of the May 2000 agreement, the units are made the subject of and turned to account in a commercial venture between, principally, Knox and Milton with the result that they are thereby "used" for commercial or business purposes. I do not accept that submission. The provision in question pays attention to the use or intended use of the land in the sense of the nature of the activity that is or will be conducted by those who occupy it. It is concerned with what Badgery-Parker J called, in New South Wales Land and Housing Corporation v Toufic (1992) NSW Conv R 59,554, "the character of the premises". The following observations of the High Court in Barnard v Gorlin (1955) 95 CLR 35 are also in point: "A person may lease premises as premises in which people may dwell, and the number of lettings and other attendant circumstances may suffice to indicate that he is engaged in a business of letting premises for that purpose. But the premises are nevertheless used solely as a 'dwelling house' where that is the sole use to which they are put by their occupants." 36 It is common ground that the Chippendale development was a residential development in that it involved the construction of home units so configured and fitted out as to be dwellings for human habitation, with kitchens, bathrooms and other rooms which one would expect to be used for living and sleeping. Although the applicable facts do not extend this far, I assume that the local government permitted use is for residential purposes. In these circumstances, the only correct conclusion as to the use or intended use of the property is that it was not solely or principally for commercial, business or industrial purposes. 37 I conclude, therefore, that the May 2000 agreement should have contained the term required by clause 9(1)(c) of the Regulation but did not, with the result that the requirement in s.42AA(1)(d) of the Act was not met. Section 42AA(1)(e) – Service of a copy of the agreement 38 The last requirement in s.42AA(1) is that imposed by paragraph (e), namely, that a copy of the agreement was served by the licensee on the person for whom the services were to be performed, such service being "within 48 hours of the agreement being signed for or on behalf of that person". 39 It was submitted on behalf of IVS that this requirement was satisfied by the exchange process by which the May 2000 agreement was brought into being; and that delivery, at that point, to the representative of Knox of the part executed under common seal by IVS (and also by Milton and Vilacon) constituted service on Knox of a copy of the agreement. As a matter of logic, this cannot be so. There was no agreement until the exchange occurred. As Mason, Murphy, Wilson, Brennan and Dawson JJ observed in Sindel v Georgiou (above),: "The ceremony of exchange constitutes a mutual acknowledgement that the bargain has been struck." 40 Unless and until "the bargain has been struck" in this way, there is no agreement and a fortiori no agreement of which there can be a copy. The part executed by one of the intended parties in advance of and in preparation for exchange is not "the agreement" even though it may be said to be "signed by" that intended party. And the handing over of that part on exchange is of the character of participation in the "ceremony" constituting the acknowledgement of the striking of the bargain. It is not of the character of the "service" of anything. Formation of the contract must be complete before the act said to constitute service is performed: Teresina Pty Ltd v Dawnfest Pty Ltd (unreported, NSWCA, 16 October 1998). 41 I find, therefore, that the condition referred to in s.42AA(1)(e) was not satisfied. I shall return in due course to the consequences of the deficiencies under ss.42AA(1)(d) and 42AA(1)(e). Section 42A – Was the statutory demand a complying statement? 42 Section 42A(1) declares that no action or other proceedings shall be commenced by a licensee for the recovery of remuneration by way of commission, fee, gain or reward for services performed by the licensee in the licensee's "capacity as such" until the expiration of 28 days after service on the person against whom the claim is made of "… a statement of claim in writing setting out the amount claimed and containing details of the services performed by such licensee in respect of which such commission, fee, gain [or] reward…" 43 Section 42A(4) goes on to state that a person served with such a "statement of claim" may, in accordance with s.6 of the Consumer Claims Act 1998, apply to the Consumer, Trader and Tenancy Tribunal for the determination of a "consumer claim" within the meaning of that Act in relation to the licensee's entitlement to the amount specified in the statement and whether the whole or any part of it is reasonable. Such a claim is apparently, by force of s.42(4), maintainable as a deemed "consumer claim" for the purposes of the Consumer Claims Act whether or not it fits within that Act's definition of "consumer claim". Section 42A(5) confers on the Tribunal jurisdiction to hear and determine such a claim despite the provisions of any contract between the licensee and the applicant and the amount being more or less than the maximum (if any) to which a licensee is entitled under the Property, Stock and Business Agents Act. 44 The purpose of s.42A is thus reasonable clear. The section is a means by which a licensee's claim for commission or other remuneration is so particularised as to be sufficiently clear to the other party to enable that party to consider whether or not to resort to the s.42A(4) "consumer claim" procedure. This is the purpose which was accepted in Oades v Ewart (1960) 61 SR (NSW) 89. Reference may also be made to the observation of Einfeld J in Raine & Horne Commercial Pty Ltd v Capital Concepts & Development Pty Ltd (unreported, FCA, 14 December 1993) made at a time when another body played the role now taken by the Consumer, Trader and Renancy Tribunal: "The purpose of s.42A is to provide a client or principal with an itemised bill of the commission claimed, so that an application for review of whether the commission is reasonable can be made to the Real Estate Services Council (the Council) within 28 days after service of the statement of the claim under s.42A(4)." 45 IVS says that this condition as to the service of a "statement of claim" was satisfied in the present case by its having served on Knox a statutory demand under s.459E of the Corporations Act 2001 (Cth). The statutory demand is dated 10 April 2002 and is in Form 509H prescribed by the Corporations Regulations 2001 (Cth). It requires payment of a debt of $1,330,589.00 described as: "The debts represent moneys owing by the company [ie, Knox] to the creditor [ie, IVS] in respect of commissions payable by the company to the creditor for the sale of units in a property located at Knox Street, Chippendale, New South Wales. The commissions are payable pursuant to a written agreement between the company, the creditor and others dated 24 May 2001. The amounts of the debts are set out in the annexure hereto." 46 In accordance with Form 509H, the demand said: "The creditor requires the company, within 21 days after service on the company of this demand: (a) to pay to the creditor the total of the amount of the debts; or (b) to secure or compound for the total of the amount of the debts to the creditor's reasonable satisfaction ." 47 The statutory demand was accompanied by an affidavit in accordance with s.459E(3) of the Corporations Act stating that the amount demanded was due and payable by the company. 48 The statutory demand cannot be regarded as a statement of the kind contemplated by s.42A(1). A statutory demand puts the recipient company on notice that failure to pay (or secure or compound) within 21 days may be relied upon as grounds for an application for a winding up order. The document thereby instils in the mind of the recipient a need to pay promptly and the understanding that adverse consequences will follow if the demand is not satisfactorily dealt with in a period of 21 days. Thos messages are quite at odds with the idea that no adverse consequence can arise for 28 days and that that time should be spent in deciding whether to resort to a particular tribunal in an attempt to avoid the requirement to pay. 49 There is, in any event, another reason why the statutory demand is not a statement of claim under s.42A. Section 42A(6) says that the regulations may make provision "for or with respect to requiring the inclusion, in the manner prescribed by the regulations, in statements of claim or itemised accounts referred to in this section, of a notice, in a form approved by the Director-General, containing advice concerning remedies available under the Consumer Claims Act 1998". Clause 16(1) of the Property, Stock and Business Agents (General) Regulation 1993 requires that there be included in or appended to a s.42A statement of claim: "a legible and conspicuous notice in a form approved by the Director-General for the purposes of this subclause." 50 Clause 16(3) says that a notice under clause 16(1) "is to contain advice concerning remedies available under the Consumer Claims Act 1998". Non-compliance with clause 16(1) carries a penalty of 20 penalty units in the case of a corporation and 10 penalty units in any other case. 51 Regulation 16 aims to ensure that, by means of a settled form of words included in or appended to a s.42A "statement of claim", the party served becomes aware of the opportunity to seek review by or relief from the Tribunal. The conveying of that message by means of the settled form of words is made by the Act a core function of the "statement of claim". 52 The statutory demand which IVS says should be regarded as the statement of claim called for by s.42A(1) did not, needless to say, include or have appended to it any notice complying with clauses 16(1) and 16(3) of the Regulation. The document therefore failed to exhibit a feature made essential by the legislation, being a feature that went to the very purpose of the document as a means of providing information about the availability of the review process. This caused the document not to be of the character required by the statute. Section 42A – Was the letter of 14 February 2002 a complying statement? 53 An alternative submission made on behalf of IVS is that the s.42A requirements with respect to a statement of claim were satisfied by a letter dated 14 February 2002 from IVS to Kimberley Securities Ltd. 54 That letter, like the later statutory demand, set out particulars of the amounts to which IVS considered itself entitled under clause 7.3 of the May 2000 agreement. There was an express reference to that clause and a listing of the calculation for each unit. It is clear that no particular formality is called for by s.42A and that letters may amount to a "statement of claim": Jacobs v Public Trustee (1963) 80 WN (NSW) 954; A Norton & Co Pty Ltd v Fowler (1966) 67 SR (NSW) 251. 55 But there are two problems. First, the letter is not addressed to Knox, being the party upon which a statement of claim would necessarily have been served. Second (and as in the case of the statutory demand), the letter did not contain and did not have appended to it the notice required by clause 16 of the Regulation and therefore failed to satisfy a fundamental requirement going to the purpose a "statement of claim" is intended to serve within the statutory scheme. Sections 42AA and 42A - The "public" aspect 56 It was emphasised, on behalf of IVS, that the May 2000 agreement represented the bargain of sophisticated property development parties and was in the nature of a "joint venture agreement", the venturers being Knox, on the one hand, and Milton, Vilacon and IVS on the other. Each brought a particular element to a venture involving the successful marketing of the units in the building that had been developed by Knox. These factors, it was said, mean that, even if there was not, in a literal sense, compliance with s.42AA or s.42A or both, IVS should not be subjected to the consequences arising from those provisions. 57 This submission was based on the judgment of Sperling J in R L Time Realty Ltd v R & R Realty Pty Ltd (1996) 39 NSWLR 24. His Honour there held that ss.42AA and 42A did not apply to commission sought to be recovered by one licensee from another where the first had entered into an agreement whereby it became the sub-agent of the other which, in turn, had been retained by prospective vendors to find a buyer for their property. After reviewing the provisions of the Act and the second reading speech in relation to the Bill which became the relevant amending Act in 1946, his Honour concluded that ss.42AA and 42A had a purpose and an object of providing further protection to the public in their dealings with real estate agents and therefore did not apply to commission claimed under an agreement between one agent and another. It was submitted on behalf of IVS that, in the context in which the May 2000 agreement was conceived and made, Knox was not to be regarded, as against IVS, as part of "the public" and that the limitation upon the operation of the Act to which Sperling J made reference should be regarded as applicable in this case also. 58 This argument by reference to "the public" and the question whether one person stands in such a relationship with another as to justify a conclusion that one is not to be regarded as part of "the public" vis a vis the other is reminiscent of the debates which were commonplace in relation to prospectuses and offers of securities for subscription before the abandonment in 1991 of criteria based on solicitation of "the public": see, for example, Australian Central Credit Union Ltd v Corporate Affairs Commission (1985) 157 CLR 201; Australian Softwood Forests Pty Ltd v Attorney-General (1981) 148 CLR 121. But it would be wrong to approach the present case in that way. In referring to "the public", Sperling J clearly did not intend to suggest that there should be an inquiry into the nature of any pre-existing or contemporaneous relationship or connection between the licensee and the person for whom the licensee performed services. The concern was rather with the identification of what might be termed generally "clients" and to distinguish them from co-professionals in the business of estate agency. 59 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 ss.42AA and 42A do not apply. These are protective provisions intended to safeguard clients by imposing certain standards of conduct upon licensees. It may be, as R L Realty suggests, that those standards do not apply where one licensee is dealing with another. But there is no nothing in the Act or in the parliamentary materials to which Sperling J referred suggesting that clients of the kind I have mentioned are deprived of the statutory protection or that that protection is not 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. Effect of ss.42AA and 42A in the contractual context 60 Having regard to the applicable facts by reference to which the separate questions are to be answered, it is clear, first, that the conditions necessary to preserve the entitlement otherwise taken away by s.42AA ("shall not be entitled to … any remuneration … unless …") were not satisfied in relation to the performance of services by IVS for Knox under the May 2000 agreement; and, second, that the commencement of proceedings by IVS to recover remuneration for such services is at present precluded by s.42A. 61 It follows that IVS is prevented by the Property, Stock and Business Agents Act from suing upon and recovering under the provisions of the May 2000 agreement conferring a right to the so-called "marketing commission". 62 That leads to the question whether IVS may nevertheless sue upon a quantum meruit in respect of the services rendered by it to Knox. Quantum meruit? 63 Questions about the ways in which statutory inhibitions affect transactions must always be approached in the manner described by Devlin J in St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267: "The determining factor is the true effect and meaning of the statute." This directs attention to the precise terms of the particular enactment. 64 The operative words of s.42AA(1) are: "A licensee shall not be entitled to … any remuneration by way of commission, fee, gain or reward for 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 …" 65 In the case of s.42A(1), the words are: "No action or other proceedings shall be commenced by any licensee for the recovery of … any remuneration by way of commission, fee, gain or reward for services performed by such licensee in his or her capacity as such … until the expiration of 28 days …" 66 These sections do not forbid the making of any contract. Nor do they render a contract void. There is no prohibition upon the rendering of agency services where the statutory conditions are not satisfied. There is nothing to stop a client or principal making voluntary payment for agency services rendered in such circumstances (although, in a s.42AA case, the recipient may encounter severe difficulties under sub-ss.(4) and (5) in retaining any such payment). One section deprives the licensee of the entitlement to "remuneration by way of commission, fee, gain or reward for services performed". The other rules out proceedings by the licensee "for the recover of … any remuneration by way of commission, fee, gain or reward for services performed". 67 In an action upon the contract between licensee and client (or principal) to recover the promised fee or commission, a defence based on either section would clearly succeed. The action would be one in which the licensee claimed an entitlement to the fee or commission. It would also be an action for the recovery of the fee or commission. 68 Whether an action based on restitutionary principles of the kind authoritatively established in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 would lead to any different result, so far as the impact of ss.42AA and 42A is concerned, depends on whether the fruits of the success of such an action would properly be regarded as "remuneration by way of commission, fee gain or reward for" the services rendered. If the fruits are of that character, s.42AA deprives the licensee of entitlement to them and s.42A precludes the recovery action. 69 In Pavey & Matthews, Deane J said: "There is no apparent reason in justice why a builder who is precluded from enforcing an agreement should also be deprived of the ordinary common law right to bring proceedings on a common indebitatus count to recover fair and reasonable remuneration for work which he has actually done and which has been accepted by the building owner." 70 The bases of the relevant common indebitatus count – "work done" – was described by A F Rath QC in "Principles and Precedents of Pleading", 1961, as follows: "Where no remuneration is fixed by the agreement the plaintiff may sue by this count for a reasonable remuneration." 71 It is no mere coincidence that these formulations refer to "reasonable remuneration". That is the essence of the restitutionary claim: where one person has done work which benefits another but a contractual right to be paid cannot be asserted, a right to "reasonable remuneration" arises by operation of law. 72 To characterise as "remuneration" in this way the proceeds of success in an action upon a quantum meruit for work done seems to me to lead inevitably to the conclusion that statutory provisions ousting entitlement to and the ability to sue for "remuneration by way of … gain or reward" operate in relation to the fruits of such an action. 73 Examination of decided cases involving other statutes and different, although analogous, words is of limited assistance in a context such as this. I should refer, however, to the two main cases that were relied upon in the course of submissions. 74 Sutton v Zullo Enterprises Pt Ltd [2000] 2 QdR 196 is a decision of the Queensland Court of Appeal concerning work done by an unlicensed builder The relevant statute prohibited the carrying out of building work by a person not holding a licence and stated that anyone carrying out work in contravention of that prohibition was "not entitled to any monetary or other consideration for doing so". This was held to preclude not only a claim in contract but also a restitutionary claim. McPherson JA said: "I consider that what the respondent is seeking to recover in this action is 'any monetary consideration' to which, because of his contravention of s.42(1), he is 'not entitled'. He is not entitled to it under the contract, and that is so whether his claim is laid in debt, or damages, or to recover the market value of his services under an agreement to pay him whatever his work was and is worth. Equally, however, and for the reasons given in more detail in Marshall v Marshall , he is not entitled to recover it outside the contract as a restitutionary compensation for the work he has done. In whatever form the claim is framed, the amount in question is a 'monetary consideration for' his doing or having done the work, and so falls within the exclusion in s.42(3) as being something to which a person carrying out building work in contravention of s.42(1) is 'not entitled' in the sense of his having in law no right or title to it. Monetary 'consideration' is what a person receives, or is entitled to receive, in return for his or her doing work in the expectation of being paid for it." 75 The crucial question there, of course, was as to the meaning of "consideration" in a context where the statute not only denied an entitlement to such "consideration" but also forbade the carrying out of the work itself. In Upjay Pty Ltd v MJK Pty Ltd (2001) 79 SASR 32, the Full Court of the Supreme Court of South Australia distinguished Sutton v Zullo because the Queensland statutory scheme was regarded as different from that embodied in the South Australian legislation which, as here, concerned the provision of real estate agency services. 76 The South Australian provision considered in Upjay said that, in the particular circumstances, the service provider "is not entitled to commission or other consideration for services as an agent". The judgment of Wicks J (with whom Doyle CJ and Williams J agreed) seems to proceed on the basis that someone deprived of an entitlement to "commission or other consideration" is denied only contractual quid pro quo and may therefore rely upon a quantum meruit: "As the contractual obligation for the payment of commission is unenforceable there is no agreement or request from which a promise to pay might be expressed or implied. Without a contractual obligation, the way is clear for the proceedings on a quantum meruit to apply and for the Court to determine fair and just remuneration to be recoverable having regard to the nature, value and extent of the services provided." 77 Sutton v Zullo was distinguished because the Queensland statute not only denied the entitlement to "monetary or other consideration" but also prohibited the doing of the work. I confess to difficulty in appreciating the full force of the distinction. 78 Neither of these cases provides any guidance here. The crucial words in the Property, Stock and Business Agents Act are, as I have said, "any remuneration by way of … gain or reward for services performed …". The proceeds of a claim upon a quantum meruit for work done seem to me unquestionably and of their very nature to be of that description. 79 This view is consistent with the approach taken by Bryson J in Multo Pty Ltd v Craddock (unreported, NSWSC, 11 March 1988), a case arising under s.42AA: "It is also to be observed that s.42AA deals not only with entitlement to remuneration under express or implied contracts, but deals also with any remuneration by way of gain or reward for services performed; it does not limit itself to disentitling parties from enforcing their contracts and the disentitlement which it enacts is irrespective of the legal basis of a claim for remuneration by way of or for services. Section 42AA goes to the substance of entitlement and speaks as law to annihilate what would otherwise be rights." 80 Bryson J also said: "There is, in this case, a pattern of interaction between the parties in which the plaintiff performed services for the benefit of the defendant and the defendant had the benefit of those services, to the extent that the defendant wishes to avail herself of them; however on my understanding of its meaning s.42AA makes illegal and has the effect of forbidding the enforcement of any equities arising in that manner just as it forbids the enforcement of the contract itself." 81 The equities to which Bryson J referred were those that might arise from part performance in a case within s.54A of the Conveyancing Act. It had been submitted that such equities could satisfy the need for writing arising from s.42AA. Although dealing with an approach distinct from that involved in a quantum meruit claim of the kind discussed in Pavey & Matthews Pty Ltd v Paul (above), his Honour's remarks lend support to the view that remuneration proceeding from a claim of that kind is of the description in s.42AA (and also s.42A). The clause 7.4 trust 82 I deal finally with an argument advanced on behalf of IVS that, because of the trust created (or purportedly created) by clause 7.4 of the May 2000 agreement, the case is not one in which the agreement itself entails remuneration for services of the kind referred to in ss.42AA and 42A. 83 The answer to this lies within clause 7.4 itself or, more particularly, its concluding sentence: "The Vendor [Knox] agrees that its obligations as Trustee shall only be discharged upon payment to Investmentsource of the marketing commission payable hereunder." 84 This makes it clear that clause 7.4 was intended to provide no more than a mechanism for making more secure the obligation of Knox to pay the "marketing commission". That commission represented, in terms of the contract, the remuneration for the services of IVS. Conclusion 85 The Property, Stock and Business Agents Act precludes recovery by IVS against Knox not only by way of claims based on the May 2000 agreement but also in the form of restitutionary claims. Each avenue involves an attempt to recover remuneration for services performed. 86 It may be thought that such a result is harsh in a case such as this involving apparently sophisticated property development parties dealing at arm's length in a straightforward, commercial way and in circumstances not involving any apparent need for consumer protection in the generally accepted sense. It certainly seems to me to be harsh. The result is nevertheless one dictated by statutory provisions of long standing and must be accepted by both the court and the parties. 87 The separate questions and the answers to them warranted by the applicable facts are as follows: Question 1: Whether, at all material times, the plaintiff held a real estate agent's licence under the Property, Stock and Business Agents Act 1941. Answer to Question 1: Yes. Question 2: Whether the Form of Agreement contained the terms prescribed as applicable to it by the Property, Stock and Business Agents (General) Regulation 1993. Answer to Question 2: No. Question 3: Whether the Form of Agreement was signed by or on behalf of the plaintiff and the first defendant. Answer to Question 3: Yes. Question 4: Whether a copy of the Form of Agreement was served on the first defendant within 48 hours of the agreement being signed by or on behalf of the first defendant. Answer to Question 4: No. Question 5: Whether the plaintiff is, by s42AA(1) of the Property, Stock and Business Agents Act 1941, not entitled to any of the amounts claimed by it from the first defendant in these proceedings. Answer to Question 5: Yes, the plaintiff is not entitled. Question 6: Whether, by reason of the plaintiff's having failed, more than 28 days before the commencement of these proceedings, to serve upon the first defendant a statement of claim in writing, the plaintiff is precluded by s.42A(1) of the Property, Stock and Business Agents Act 1941 from maintaining the proceedings against the first defendant. Answer to Question 6: Yes, the plaintiff is so precluded. ********** Last Modified: 08/15/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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