3143 Victoria Street Doncaster Pty Ltd v Retirement Services Australia

[2012] HCATrans 351

[2012] HCATrans 351

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne       No M68 of 2012

B e t w e e n -

3143 VICTORIA STREET DONCASTER PTY LTD (ACN 091 532 320)

Applicant

and

RETIREMENT SERVICES AUSTRALIA (RSA) PTY LTD (ACN 078 287 402)

Respondent

Application for special leave to appeal

HAYNE J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 14 DECEMBER 2012, AT 12.01 PM

Copyright in the High Court of Australia

MR C.L. PANNAM, QC:   If the Court please, I appear with MR C.E. SHAW on behalf on the applicant.  (instructed by Gadens Lawyers)

MR P.W. COLLINSON, SC:   If the Court pleases, I appear with MR R.M. PETERS for the respondent.  (instructed by Minter Ellison Lawyers)

HAYNE J:   Yes.

MR PANNAM:   If your Honours please, the facts giving rise to the questions in respect of which special leave is sought can be rather briefly stated.  They are these.  The applicant is the proprietor of a retirement village facility in Doncaster.  The respondent, Retirement Services Australia Pty Ltd, was the manager of that facility who had been appointed under the terms of a management agreement.

What happened after the management agreement was entered into was there was a reshuffling in the ownership of the various entities of which the retirement village in question which was called the “Domaine” as one, and under the terms of those elaborate arrangements, what happened in respect of Retirement Services Australia Pty Ltd was that the two shares that were owned in it by a company called Diandale were sold to Macquarie Bank and FKP under the terms of a very complex arrangement, that was half of them.  The directors of RSA as part of the sale of the nursing home, under the terms of which these arrangements were put in place, the directors resigned and the purchasers appointed directors of their own, so that you had a complete change both in the ownership of the shareholding and in the directorship of Retirement Services Australia Pty Ltd.  Now, under the terms of the management agreement, if your Honours turn to page 85 of the application book, there was a clause, clause 23, that, as your Honours will see, provided that:

“No party will sell –

and the collocation is important, for present purposes –

transfer, assign, licence, franchise –

and then the critical words –

or otherwise part with possession of –

and then leave out the next words –

any right or obligation under this Agreement –

The question that was agitated both at trial and on appeal was that clause 23 had been engaged by the events that had happened, that is to say, the complete change of control, in another matter I will come to in a moment, of the management company.  Can I refer to that other matter ‑ ‑ ‑

HAYNE J:   Who relevantly is encompassed by the expression “no party”?

MR PANNAM:   No party here – well, the parties to the management agreement.

HAYNE J:   Namely, the corporation?

MR PANNAM:   Yes, just so.  If I can take your Honours just to one – I know there have been two rather lengthy documents, which you will pleased I am not going to go to in any detail, filed in the Court – can I take your Honours just to one clause of the document headed “Australian Property Services Agreement”, and can I take your Honours to in that document, page 17 – bottom right-hand corner, the pagination – to clause 2.1(a).  Your Honours will see there, although the terms are used – I will read them and then explain them:

Each Stapled Entity exclusively appoints FKP to perform the Property Services for the Term in respect of each of that Stapled Entity’s Villages, and FKP accepts these appointments subject to the terms and upon the conditions of this agreement.

If your Honours would just bear with me, without taking you on a tortuous tour through the various definitional provisions, that means that one of the stapled entities had a village, and the village relevantly to these proceedings was the Domaine – namely the village in question – so that what this reads is, is that the village appoints FKP to perform the property services for the term in respect of that stapled entity’s villages, and FKP accepts these appointments.  So there is an exclusive appointment of another manager to the village.

Against that background, can I take your Honours to – and there are just three paragraphs in the trial judge’s reasons and three paragraphs in the Court of Appeal’s reasons, so it will not take long to identify the difference between the two approaches.  At paragraphs 15 and on in the trial judge’s reasons at pages 11 and 12 of the application book, your Honours will see there that at line 10, the point is made that:

The fact, however, is that RSA –

That is, the respondent –

exists only as a bare corporate shell and in all other respects undertakes no activity on its own account or through its officers or agents.  RSA is not formally a party to any of the arrangements by which effective control and management of the Domaine has moved to FKP and been assumed by FKP.

Then, two agreements were tendered in evidence.  One was the securities sale agreement.  Another one was also a property services agreement, and it was noted that RSA was not party to either, but then at the fourth‑last line on the page –

An effect of these agreements, however, is that RSA has effectively no independent existence or control in any practical way beyond the barest of the legal entitlement or obligation in respect of the business which it had agreed with Darnley to conduct.

Then, it goes on ‑ ‑ ‑

HAYNE J:   All the work in that proposition is done by the epithets, is it not?

MR PANNAM:   Yes, it is.  I agree with that, your Honour, but nevertheless notwithstanding the epithets, the independent existence, or rather, the “practical way beyond the barest of the legal entitlement” is an accurate expression, as we will see.  Can we then go over to page 12 of the application book?  The learned judge noted that:

it was a specific term of the Securities Sale Agreement that the vendors do all things necessary to transfer the securities, effectively including RSA, to the purchaser and that the purchaser be placed in effective control of each of the sale entities –

That was done, and then –

It was correctly conceded by counsel for RSA that the day to day tasks of operating the Domaine Retirement Village fall not to the account of people employed by RSA but to people employed by FKP.  It was also correctly conceded by counsel that I could infer (and I do infer) that RSA had agreed to, and consented to, the appointment of FKP to conduct the business previously conducted by RSA.

Then his Honour goes on to make an observation about what clause 23, the form it might have taken but did not, and then about eight lines down is the critical passage –

However, in my view clause 23 is sufficient in its terms, as contended by Darnley, to prevent a party from parting with possession of the right to conduct the business.  Whether that has or has not occurred is not to be answered by formal legal analysis but by the facts –

and your Honours will see a reference to Ace Property Holdings, the decision of the Court of Appeal of Queensland.  Then his Honour said –

The plain fact is that RSA cannot in any meaningful sense be considered to be in possession of the business or of any right to conduct the business.  It, through its directors, has permitted the arrangements by which it, its servants and agents, no longer conduct the business.  There is no meaningful or practical sense in which RSA continued to be the party managing the business after the transactions in 2006 in which FKP has secured, amongst other things, the business conducted at the Domaine.

That was brief, just as brief as the reference to the matter in the Court of Appeal.  If I can take you to pages 74 and 75, even briefer.  At page 75, paragraph 141, after introducing the question, then there is a mysterious sentence that begins:

There is a difficulty in principle in matching the disposition of the rights of one contracting party with any damage to the other.  But damage is not a necessary element in an action for breach of contract, so that consideration may be put to one side –

whatever that may mean –

The real difficulty for Darnley –

Darnley was the name used for the present applicant –

is that nothing has changed in the catalogue of duties owed to, and rights enforceable against, either party to these contracts.  As the trial judge observed, the rights created by the management agreement ‘still belong to RSA as a legal entity’ –

and then it says –

The change is in the ownership of RSA, and the corresponding change in the identity of the employer of many employees who work at The Domaine –

although they are really essentially the same thing –

But all Darnley’s rights as against RSA are retained, as are all the obligations each party owes to the other –

and then –

As for the fact that different entities are carrying out different duties at The Domaine, that merely reflects the right RSA always had to contract out, or delegate, the provision of its services – meals are a prime example.  In short, RSA’s principal obligation under the management agreement – to conduct, manage and administer The Domaine as a retirement village – does not prohibit RSA from doing so vicariously –

and then it notes that 7(k) indeed provides for that.  Then the passage at 143, the last of the passages –

Despite the changes in its ownership, RSA remains obliged by its contractual arrangements with Darnley to supervise and be responsible for the performance of those tasks.  As the evidence established, RSA is the relevantly ultimate source of funds for the provision of the management services, RSA engages contractors, and RSA maintains the bank accounts . . . from the residents . . . RSA also receives moneys paid by Darnley pursuant to Darnley’s contractual obligations.

In our respectful submission, the first point is that the approach of the trial judge is a factual approach.  What his Honour did was to say the question is whether there was a parting of possession of the right – and I will come to what the right was in a moment – that is a question of fact to be determined by looking at everything that happened, and in that he followed a decision of the Court of Appeal of Queensland where the Court of Appeal so held in the context of a covenant against parting of possession in the context of a landlord and tenant relationship.  So his Honour came to the conclusion as a matter of fact that there had been a parting of possession.

The Court of Appeal, it is respectfully submitted in these passages, approached it from an entirely different matter.  Forget the facts – in fact, the court was not even interested in those documents, including the one under which the exclusive management rights were conferred upon FKP because at page 56 of the application book, it is said it was not even necessary to look at those documents.

But putting that to one side, the reasoning of the Court of Appeal appears to be the contract is the same, there is the owner, there is the manager, there are the rights and duties all set out in that contract, nothing has changed.  Therefore, that is the initial and significant hurdle that is in the path of the argument.  They do not deal with the question of whether that is a question of fact or a question of law.  It is not dealt with.  The Queensland decision is not cited, let alone analysed, and that seems to be the approach.

The facts that are referred to are facts which are really consistent with what we say is involved in the transfer of the rights, and can I – without any Hohfeldian analysis of rights and obligations, our submission is that the relevant right here was the right of RSA to supervise the implementation of the provisions of the management agreement.  That was its right.

The mere fact that it may have subcontracted some of those obligations to people to provide meals, gardeners to look after the surrounds, cleaners to clean the establishments, that is nothing to the point.  It had the right to supervise the way in which all of those duties were carried out, whether by themselves directly, by employees or by independent contractors retained for those purposes.

Afterwards, as the judge found, there was nothing left.  There is no evidence to suggest, and everything to the contrary, that FKP remained simply as a shell.  The court then seized upon some evidence that had been given below in that paragraph I last read, and say “Hang on a minute, there was a bank account, and fees were paid in and paid out”.  But there is no evidence at all that the management company, RSA, played any part in that.  It was an inert vehicle that FKP, the manager, used for its purposes, one of those purposes being for certain purposes – no doubt because contracts were in particular names – to pass through an account in the name of RSA various transactions.  In our respectful submission, that is a relevant fact, but it was only one of the relevant facts to be put in the balance.  The court seems to treat it as being determinative of illustrating the fact that there had been no parting of possession.

So the important points that, in our respectful submission, arise are these.  The first is, on the proper interpretation of clause 23, what is the meaning of the concept of “parting with possession” when that phrase is used in collocation with “it is not a transfer”, “it is not an assignment”, “it is not a license”?  Those are dealt with separately.  It is dealt with as a catch‑all or otherwise part with possession.  In our respectful submission, that means possession in the sense of being able to control the exercise of the right that it had as manager, so that there is first of all a question of interpretation, and it is a question of interpretation that arises against the conflict between two intermediate Courts of Appeal, in our respectful submission.

The Court of Appeal of Queensland, albeit in a landlord and tenant situation – but in our respectful submission, the distinction does not matter for present purposes because one can just as well possess a piece of land as to possess a right – it says question of fact, a trial judge adopts that and says “Yes, I look at the facts and find there has been a parting”.  The Court of Appeal, on the other hand, without any reference to the trial judge’s analysis or the analysis of the Court of Appeal of Queensland says, “No, that is simply a legal question.  You look to see where the rights are, there they are, they are set out in the contract of the management agreement.  They are there.  Your rights are only one against the other, and that is the end of the question.  There cannot be a parting of possession when you have no attempt to move the relevant right”.

In our respectful submission, that gives the phrase no meaning at all within clause 23 because it has already dealt with the concepts of sale transfer assignment or license or franchising of the right.  Meaning has to be given to what the phrase “otherwise part with possession” means, and there is a conflict between two intermediate Courts of Appeal as to how you go about that, in our respectful submission, that this Court should resolve.

The other question is, is that looked at in terms of the justice of the particular case, here you have an owner of a property who held a judgment below with a reasoned approach to clause 23 that suddenly found itself after the appeal with that finding taken away from it, with really no analysis of the approach of the trial judge.  In other words, there was just an assertion – and all of this is a question of law, that is the end of the matter, full stop, and anyhow by way of an allonge there was some movements in and out of an account, or accounts, without going to the evidence and without evaluating all of the other facts.  So that here, the failure of the intermediate Court of Appeal to provide any effective and rational analysis as to why it rejected the approach of the primary judge is in itself, in the justice of this particular case, another reason why, interrelated with the first point, the Court should grant special leave.  If your Honours please, they are the submissions.

HAYNE J:   Thank you very much.  We will not trouble you, Mr Collinson.

The issues which the applicant seeks to agitate in this Court turn upon the application of a particular contractual provision of the facts and circumstances of the case.  We are not persuaded that any disputed question of general principle would fall for consideration if leave to appeal were granted, or that it is arguable that the interests of justice in the particular case, or more generally, require a grant of special leave to appeal.  Special leave is refused.  It must be refused with costs.

AT 12.21 PM THE MATTER WAS CONCLUDED