Court: Supreme Court of Queensland, Court of Appeal
Case: Peterson Management Services Pty Ltd (PSM) -v- Chief Executive, Department of Justice and Attorney General (DJAG)
Different approaches to the interpretation of legislation continue with the latest expression of the Courts revealed in the decision of Peterson Management where the terms and conditions of appointments as letting agent and disclosure of commission, fees and charges and expenses were scrutinised.
This case is of significance to investors who own Lots in body corporate schemes as it highlights the importance of full and complete investigation of commissions and other money to be charged before appointing a letting agent.
It further highlights that broad statements about consumer protection in an Act of Parliament do not translate into enforceable obligations unless the Act in question is very clear about that in its operative provisions.
PSM was a licensed real estate agent conducting a caretaking and letting business at a resort. The form of written appointment did not provide a breakdown of the anticipated expenses to be incurred in providing the services.
DJAG took the view that this was a breach of the Property Agents and Motor Dealers Act 2000 (Qld) Now Repealed (PAMDA) and commenced disciplinary proceedings alleging four contraventions, three relating to provision of services (s141(6) PAMDA) and another regarding the calculation of commission on bookings through a third-party website (s139(2) PAMDA).
Section 141 makes it an offence to sue for, recover or retain, a reward or expense for the performance of an activity as a real estate agent that is more than the amount of the reward stated in the appointment. A ‘reward’ is defined by PAMDA as remuneration of any kind including any fee, commission or gain.
DJAG built its case on the practice of PSM to charge for services in excess of the cost incurred by PSM to provide those services. That practice was characterised as an undisclosed expense with a reward that was also undisclosed and unauthorised.
The Court of Appeal overturned the QCAT decision that the secret commissions (as described by Member Forbes) were caught by an extension of the consumer protection policy of the Act. In agreeing with the appellant that QCAT erred in law on the interpretation of “expenses”, the Court of Appeal found that expenses which the agent “is authorised to incur” should not be confused with the ‘costs’ they do incur in delivering a service:
“An Agent may seek to be remunerated (and thereby rewarded) for performing a service on the basis of a fixed sum, an hourly rate, a commission or some other stated basis. In doing so, it may hope to make a profit after absorbing expenses. An agent also may seek to make its client responsible for expense, for example, advertising and marketing expenses, rather than absorb those expense. If it does, then the appointment form must state the expenses it is authorised to incur in connection with the performance of the service.”
The Court of Appeal found that the re-characterisation of the reward to separate-out expenses was inconsistent with a proper interpretation of the language of the Act despite the attempt to give meaning to meet PAMDA’s stated purpose to protect consumers. Simply put, in the Court of Appeals view:
“The essential fact is that the client received the service it contracted for at the price it contracted to pay, being the fee or charge stated in the schedule to the appointment form for the “clean and service” of a unit and the monthly Foxtel services. The applicant did not seek to recover or retain more than the reward stated in the appointment form for providing those services.”
The problem with the Appeal Tribunal’s decision was thus:
“The Appeal Tribunal was required to decide a question of statutory interpretation in relation to s133 in the context of s140 and s141. The interpretation which it adopted was not supported by the text of those provisions in their context.”
How was PSM entitled to calculate commission? On the total amount charged by Wotif, the third-party website? Or on the net amount PSM collected?
This question hinged on the words “the amount collected” under section 139(2) of PAMDA.
The Court of Appeal found that “the amount collected” referred to the gross amount of rent, and not the net amount actually received by PSM after the Wotif fee had been deducted.
However, the Court did note the “related concern” about the double charging of commissions (that is, 10% by Wotif and 12% by the appellant) and the “possible argument” that the Wotif fee was an expense that should have been disclosed in the appointment form. Nevertheless, the court found:
“It is unnecessary to dwell on this issue because the applicant was not alleged to have contravened s140 or s141 by failing to state the 10 per cent Wotif fee as an authorised expense in the appointment form.”
So, where does this leave the investor? The short answer is “investor beware”!
No doubt investors feel disappointed that PAMDA and similar provisions of Property Occupations Act do not apparently do what they say on the label. This disappointment should however be tempered with a sense of greater responsibility for their investments going forward.
Owners engaging third parties should pay close attention to their service contracts. If you don’t like the provisions, don’t sign the contract. If you have practical difficulties in engaging substitute agents for the relevant complex and that concerns you considerably, don’t make that investment. The law will not save you from all matters you regard as adverse to your investment.
There remains a question mark over the charging of third-party commissions – should they be disclosed as a marketing expenses and therefore (arguably) authorised? It would seem more appropriate than not for agents to make this disclosure. Equally appropriate would be that the owner investor demand the disclosure and carry-out due diligence on the marketing techniques that may be used by the agent.
But is the larger issue the reliability of disclosure? What good is a disclosure document if the content doesn’t have to be accurate? In most cases, transparency goes some way to dissolving unmet expectations before they become matters of dispute.
That greater transparency is not mandated by relevant legislation that is stated to be for consumer protection is perhaps the greatest difficulty, but for investors assuming personal responsibility and understanding terms is an equal part of the bargain.
This article was first published at Byroms lawyers website