Quest Rose Hill Pty Ltd v White - [2010] NSWSC 939

NEW SOUTH WALES SUPREME COURT

CITATION:
Quest Rose Hill Pty Ltd v White [2010] NSWSC 939
This decision has been amended. Please see the end of the judgment for a list of the amendments.

JURISDICTION:
Equity

FILE NUMBER(S):
2009/288819

HEARING DATE(S):
21 June 2010

JUDGMENT DATE:
24 August 2010

PARTIES:
Quest Rose Hill Pty Ltd (Plaintiff)
Bernard Keith White (First Defendant)
Stuart Gerald Maile (Second Defendant)
Tracey Alison Maile (Third Defendant)
Boban Kocoski (Fourth Defendant)
Davone Inthachanh (Fifth Defendant)
Peter Nicholas Viler (Sixth Defendant)
Frederick Charles Naylor (Seventh Defendant)
Lynette Gail Naylor (Eighth Defendant)

JUDGMENT OF:
Ward J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable

COUNSEL:
J Van Aalst (Plaintiff)
P W Gray SC with P Koroknay (First to Eighth Defendants)

SOLICITORS:
Lodhia Lawyers (Plaintiff)
David Le Page Solicitor (First to Eighth Defendants)

CATCHWORDS:
STRATA SCHEMES MANAGEMENT ACT
validity of irrevocable power of attorney granted to lessee
lease required lot owners to vote in accordance with reasonable directions of lessee and granted lessee an irrevocable power of attorney
lessee under obligation to exercise power of attorney with good faith
HELD
power of attorney not void for illegality nor contrary to public policy
does not constitute an abandonment or abdication of voting rights inconsistent with the Strata Schemes Management Act 1996
CONTRACTS REVIEW ACT
whether terms of lease unjust for purposes of the Contracts Review Act 1980
HELD
s 7 of the Contracts Review Act not enlivened
distinction to be drawn between a contract which amounts to an abuse of rights or process and one which could if exercised in a particular way amount to an abuse of rights or process

LEGISLATION CITED:
Contracts Review Act 1980 (NSW)
Conveyancing Act 1919 (NSW)
Corporations Act (2001) (Cth)
Home Building Act 1989 (NSW)
Powers of Attorney Act 2003 (NSW)
Strata Schemes Management Act 1996 (NSW)
Strata Schemes Management Regulation 2005 (NSW)
Strata Management Legislation Amendments Act 2008 (NSW)
Strata Management Legislation Amendments Bill 2008 (NSW)

CASES CITED:
Agricultural and Rural Finance Pty Ltd & Anor v John Edward Atkinson & Ors [2010] NSWSC 635
Ainsworth v Criminal Justice Commn (Qld) [1992] HCA 10; (1992) 175 CLR 564
Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242
Clerk v Laurie (1857) 2 H&N 199; 157 ER 83
Commonwealth of Australia v BIS Cleanaway Limited [2007] NSWSC 1075
Cordiant Communications (Australia) Pty Ltd v The Communications Group
Dwyer v Herman (1881) 2 LR (NSW) L 280
Easy Buy International Pty Ltd v Macquarie Goodman Property Services Pty Ltd [2006] NSWSC 148; (2006) 13 BPR 24,655
Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296
Eventang Development (Pyrmont) Pty Ltd v Owners Strata Plan 51573 [2001] NSWSC 452
Frith v Frith [1906] AC 254
Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421
Gaussen v Morton (1830) 10 B & C 731; 109 ER 622
Gill v Wright [1964-5] NSWR 1500
Hanson v Radcliffe UDC [1922] 2 Ch 490
Holdings Pty Ltd [2005] NSWSC 1005
Ibeneweka v Egbuna [1964] 1 WLR 219
In re Savile Settled Estates; Savile v Savile [1931] 2 Ch 210
Integrated Lighting & Ceilings Pty Limited v Phillips Electrical Pty Limited (1969) 90 WN (Pt 1) (NSW) 693
James v Nesbitt (1954) 28 ALR 482
Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55
Midland Bank Ltd v Reckitt [1933] AC 1
Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41
Perpetual Trustee Co Ltd v Aroney (1944) 44 SR (NSW) 313
Re Hannan’s Empress Gold Mining and Development Co [1896] 2 Ch 643
Re Judiciary and Navigation Acts (Advisory Opinions Case) [1921] HCA 20; (1921) 29 CLR 257
Re Olympic Fire and General Reinsurance Co Ltd [1920] 2 Ch 341
Re Steel & ors v The Conveyancing Strata Titles Act 1961 (1968) 88 WN Pt 1 467
Riz v Perpetual Trustee Australia Ltd (2008) NSW ConvR 56-198; [2007] NSWSC 1153
Saard v Doumeny Holdings Pty Ltd [2005] NSWSC 893
Smart v Sandars (1848) 5 CB 895; 136 ER 1132
Spina v Permanent Custodians Ltd (2009) 14 BPR 26,923
Thiel v Federal Commissioner of Taxation (1988) 85 ALR 80
Tingley v Müller [1917] 2 Ch 144
Walsh v Whitcomb (1797) 2 Esp 565; 170 ER 456
West v AGC (Advances) Ltd (1986) 5 NSWLR 610
White v Cariste Pty Ltd [2004] NSWCA 460; [2005] ANZ Conv R 30

TEXTS CITED:
Bowstead and Reynolds on Agency, 18th ed, Sweet & Maxwell, 2006
Collier B. and Lindsay S., Powers of Attorney in Australia and New Zealand, Federation Press, 1992
Dal Pont G. E., Law of Agency, Butterworths, 2001
Young, Annotated Conveyancing and Real Property Legislation (NSW) 3RD ed, Butterworths
Legislation Review Digest of the Legislation Review Committee (No 7 of 2008, 2 June 2008)
Meagher R., Heydon D., and Leeming M., Meagher Gummow and Lehane’s Equity: Doctrines and Remedies, 4th edn, Butterworths, 2002

DECISION:
Finding that power of attorney clause not illegal or void for public policy. Contract not unjust within meaning of Contracts Review Act. Limited declarations to be granted. Amended Statement of Claim and Cross-claim otherwise dismissed. Submissions to be heard on costs and form of declarations.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WARD J

24 AUGUST 2010

09/288819 QUEST ROSEHILL PTY LTD V BERNARD KEITH WHITE

JUDGMENT

HER HONOUR: In this matter declaratory and other consequential relief has been sought by Quest Rosehill Pty Ltd (Quest) in relation to the construction of a clause contained in various registered leases entered into by it on 22 December 2000 as lessee in identical terms in respect of six lots in an apartment building at Rosehill from which the business of letting serviced apartments under a ‘Quest’ franchise is operated. The clause in question, in its terms, irrevocably appoints Quest as the attorney of the lessor (to the exclusion of the lessor) for certain purposes. The building was converted into apartments and a strata plan was registered in respect of the building by a developer, Roseprop Pty Limited, which entered into each of the said leases as lessor. (Although copies of not all of the building leases were in evidence, it does not seem to be disputed that Quest is, and has been at the relevant times, the lessee of all of the residential lots in the building.)
Other than the third defendant/cross-claimant (who acquired from her husband her interest in a lot now co-owned by her with her husband), each of the defendants/cross-claimants (to whom I will refer collectively as the Landlords) purchased his or her interest in the respective lots in the strata plan from Roseprop (some on 22 December 2000 and others on 27 March 2001) subject to the terms of Quest’s registered lease in respect of that lot. The Landlords are some (but not all) of the owners of the residential lots within the building. Roseprop is now deregistered.
The Owners Corporation was established in February 2001. It granted a lease of the common property to Quest for a term of 5 years expiring on 22 February 2006. That lease has not been renewed. (The term of the initial leases granted by Roseprop to Quest in respect of each of the Landlords’ lots has also expired and, other than in the case of the sixth defendant/cross-claimant (Mr Viler), those leases have not yet been renewed notwithstanding that Quest had an option to renew the leases for a further five year term (and has 4 such options in all); Quest presently occupies the Landlords’ lots (other than that of Mr Viler) on a holding over basis on the terms of the expired leases in accordance with clause 7.2 of those leases. (The lease in respect of Mr Viler’s lot was renewed in 2006 and will expire in 2011.)
Although copies of not all of the sale contracts entered into by the Landlords with Roseprop were in evidence, it appears that when the Landlords acquired their respective lots in the building there was annexed to the sale contract not only a copy of the relevant registered lease (containing the power of attorney clause) but also a copy of a Deed of Covenant on Disposal of Freehold (which was to be entered into by the purchasers) as between Roseprop, Quest and the purchaser(s) under which the latter covenanted (on any subsequent disposal of the property) to cause the purchaser to enter into a similar Deed of Covenant agreeing to be bound by the terms of the lease.
Mrs Maile gave evidence that in 2008 she acquired her 1/100^th share in the lot owned by her husband in 2008 because she and her husband had some “concerns” about the property (as summarised in her affidavit in the proceedings) and felt she needed to be a part owner of the property (T 8.27; 8.31; 8.28). In apparent breach of clause 14.1 of the Deed of Covenant, Mr Maile did not procure Mrs Maile’s entry into a corresponding Deed of Covenant at the time.
I note that it seems to be accepted that each of the Owners acquired his or her respective units in the building for investment purposes and that none has occupied the serviced apartments at any time. Evidence was given by way of affidavit by some of the Landlords as to the circumstances in which they acquired their interest in the building (and particularly as to the advice given to them, or otherwise as the case may be, at the time).
The nub of the dispute between the parties relates to the validity (and, if valid, operation) of clause 13 of the relevant leases (and particularly clause 13.2 by which Quest is appointed the attorney of the Landlords on the terms therein set out,) and a corresponding provision in clause 4 of the Deeds of Covenant.
Issues as to the ability of Quest to rely upon its appointment as attorney for the Landlords (and to act, attend and vote at all meetings of the Owners Corporation and its committee, to the exclusion of each of the Landlords even if present at such meetings) seem to have come to a head in March 2009 when Quest demanded that each Landlord give notice to the Owners Corporation under s 118 of the Strata Schemes Management Act 1996 (NSW) as to the conferral (under clause 13 of the lease) on Quest of a right to vote at meetings of the Owners Corporation and duly to appoint Quest and its directors as the Landlords’ proxy. Not surprisingly, given the stance taken by them in the present proceedings, the Landlords did not do so.
In these proceedings, Quest seeks various declarations as to the proper construction of clause 13.2 of the respective leases; as to the intention of the Landlords as evidenced from clause 13 of the leases; as to certain alleged implied conditions of the leases; as to the condition to which it is said the Landlords’ right to vote at meetings of the Owners Corporation or executive committee is subject; and that the Landlords are estopped from denying the limitation on their personal right to vote on any matter (namely that such a right is subject to exercising their vote in accordance with the reasonable directions of Quest). Consequential orders are sought to require the Landlords to take certain steps in relation to the appointment of Quest as their proxy.
It does not seem to be disputed that, in the past, Quest has not given any directions (reasonable or otherwise) in relation to the manner in which the Landlords, or any of them, should exercise their right to vote. Rather (and this seems to be at least part of the cause of the present dispute), it appears that a somewhat high-handed attitude has been taken by or on behalf of Quest as to the ability of Quest to act as it wishes in relation to the Owners Corporation or executive committee meetings, which attitude appears to have been met with an equally robust response from the Landlords who deny the validity of clause 13 for all purposes, (i.e. whether or not the exercise of rights as attorney would be limited to circumstances this would be in aid of a reasonable direction given for the purposes set out in clause 13.1 and given in good faith as required under clause 13.5).
The Landlords have cross-claimed seeking declarations that clause 13 of each of the leases is illegal and contrary to public policy and/or is void and/or unenforceable; and a declaration that, notwithstanding the terms of clause 13 (and notwithstanding the attendance and/or voting by Quest purportedly on behalf of the Landlords at any meeting of the Owners Corporation and/or any meeting of the executive committee), they are entitled to vote at meetings of the Owners Corporation and, if elected, to vote at meetings of the executive committee. (Similar declarations are sought in relation to clause 4 of the Deed of Covenant).
Further, declarations are sought that clause 13 of the leases (and, similarly, clause 4 of the Deeds of Covenant) is unjust in the circumstances relating to those documents at the time they were entered into by the parties (pursuant to s 7 of the Contracts Review Act 1980 (NSW)) as well as an order requiring that an instrument in registrable form be executed deleting clause 13 from each of the leases.
In the alternative, a declaration is sought that Quest, its directors and officers, in exercising the powers given to Quest under clause 13 of the leases or under clause 4 of the deeds of covenant, has not acted in good faith and has otherwise not complied with its obligations under those clauses to each of the Landlords. (The allegation as to lack of good faith appears to be based on some or all of the allegations made in paragraphs 24 to 30 of the Cross-Claim and, in particular, to matters occurring both beforehand and at each of the 2007, 2008 and 2009 Annual General Meetings of the Owners Corporation.)
At the commencement of the hearing on 21 June 2010, I gave leave to Quest to file in court an Amended Statement of Claim (which, relevantly, added various paragraphs pleading in more detail to the franchise arrangements in existence between the various entities for the operation of the serviced apartment business) and I gave corresponding leave for the Landlords to file in court their Defence to the Amended Statement of Claim.
In essence, as submitted by Counsel for Quest (Mr Van Aalst), the real issues for determination are those as to the validity of clause 13 of the leases (and clause 4 of the Deed of Covenant), as raised by the Landlords in their cross-claim, which form the basis of their defence to the claims for relief by Quest.
It was submitted at the outset of the hearing by Mr Van Aalst that the powers given to Quest under clause 13.2 of the leases are limited by reference to clause 13.1 and clause 13.5 (and hence it would seem that Quest no longer maintains any stance it may formerly have adopted that it has, in effect, carte blanche to do what it likes in relation to matters the subject of a vote at Owners Corporation or executive committee meetings). It is contended by Mr Van Aalst that clause 13.2 is in aid of the right of Quest to conduct the serviced apartments business (albeit that it is not the franchisee and does not presently conduct such a business) and the obligations of the Owners as expressed in clause 13.1 and that it is subject to 13.5. It is submitted that because the power of attorney is so limited, it can only be exercised in circumstances where an Owner fails or refuses to vote in accordance with the reasonable directions of Quest or, if the Owner consents to vote in accordance with such directions, it nevertheless fails to attend the meeting to do so. (I would agree with that construction of clause 13 – it seems to me that it is only where a Landlord refuses or fails to comply with a reasonable direction under clause 13.1 that the power under clause 13.2 is enlivened.)
For the Landlords, it is submitted by Mr Gray SC, among other things, that clause 13.2 in its terms is absolute and unqualified and that the irrevocable grant of power purportedly given by that clause (and there was a debate as to whether, as a matter of law, this would amount to an irrevocable power) both contravenes the Strata Schemes Management Act and is unjust for the purposes of the Contracts Review Act.

Issues

Broadly speaking, the principal issues for determination can be grouped as follows:
(i)Does clause 13 of the leases (or clause 4 of the Deeds of Covenant) contravene the Strata Schemes Management Act or is it otherwise contrary to public policy?
(ii)Are the said clauses unjust within the meaning of s 7 of the Contracts Review Act, having regard to the circumstances relating to the contracts at the time they were made?
(iii)What relief, if any, should be granted on the claim/cross-claim in light of the findings on the above?
Somewhat peripheral issues relating to the above (to which little argument was addressed during the hearing before me) are:
(iv)Whether the Landlords are estopped from denying the validity of clause 13 of the leases (or clause 4 of the Deeds of Covenant).
(v)Whether Quest is in breach of an obligation of good faith in the exercise of its powers under the said clauses or has not otherwise complied with those clauses.
For the reasons set out later in this judgment, I am of the view that:
(i)Clause 13 of the leases and clause 4 of the Deeds of Covenant are not inconsistent with, and do not contravene, the Strata Schemes Management Act. The clauses are not contrary to public policy nor are they void or unenforceable.
(ii)Nor are the clauses in question “unjust” within the meaning of s 7 of the Contracts Review Act.
(iii)By reason of the above findings, the substantive claim for relief made in the Landlords’ cross-claim should be dismissed. That said, insofar as Quest (or its director) appears in the past to have asserted that clause 13 confers some form of unconditional and unqualified right on the part of Quest to do whatever it likes (a proposition now emphatically disavowed by Quest’s Counsel), it seems to me that there is some utility in the making of declarations as to the proper construction of clause 13 of the kind I set out later in these reasons.
(iv)As to the alleged estoppel, it is not necessary for me (in light of my earlier findings) to deal with this. Suffice it to note that, in the absence of evidence of detrimental reliance on any representation of this kind contended arising solely out of the execution of the Deeds of Covenant (by those of the Landlords who did so), I have difficulty seeing how any estoppel claim is made out.
(v)As to the Landlords’ claim that there has been a breach of good faith on the part of Quest, I am similarly not satisfied that the evidence permits such a finding. A misguided (and erroneous) assertion of rights (however forcefully made) does not of itself evidence a lack of good faith.

Background

I have set out briefly in the introduction to the reasons the background to the present dispute and do not repeat that here.
By way of additional background, I should, however, note the role of two others (not yet mentioned) in relation to this dispute, namely that of Mr Spencer Bailey and a company of which he is the sole director and shareholder, Food Concepts Pty Ltd. Mr Bailey, who swore an affidavit for Quest in the proceedings, became the director and secretary of Quest in 2004, at which time Food Concepts became the sole shareholder of Quest.
On 18 October 2004, Mr Bailey and Food Concepts (the latter as trustee for the Bailey Family Trust) entered into a Franchise Agreement with Quest NSW Pty Ltd (a separate entity to Quest), which agreement was also executed by Quest, pursuant to which Quest NSW, as sub-franchisor, granted to Mr Bailey and Food Concepts, jointly as franchisee, the right to establish and operate a “Quest Franchise” within the “Territory” as defined. The relevance of the franchise arrangements goes to the effect of the introductory words in clause 13.1 of the leases, to which I will refer shortly, insofar as they refer to the purpose of the Landlord’s obligation in clause 13.1 being to allow the “Tenant” better to conduct the “Tenant’s business”. Suffice it for present purposes to note that although in its initial contentions Quest submitted it was the franchisee (and the relevant clause was in aid of its right as franchisee to conduct the serviced apartment business), in the Amended Statement of Claim Quest now pleads that Mr Bailey and Food Concepts are the franchisees of the business of operating the serviced apartments at the Rosehill property and that each lot is a serviced apartment “managed” by Food Concepts (paras 4(a) and 3(b) respectively). Quest’s role, in relation to the serviced apartments business (if any), at present (other than as a conduit for the use of the serviced apartments for letting by Quest NSW) is not clear.

After Mr Bailey and his company took over the operation of the Quest franchise at Rosehill, it seems that concerns arose on the part of at least some of the owners of lots in the building as to the management of the property (and, in particular, as to the operation of the administrative fund and sinking fund maintained by the Owners Corporation). (Up until that time there seems no suggestion that clause 13.2 operated unjustly vis a vis the Landlords.) Those concerns relate to matters alleged in the cross-claim (para 25) and referred to in various of the affidavits served on behalf of the Landlords. There seems little doubt that there has been a degree of contention between Mr Bailey and one or more of the Landlords in recent years in relation to the conduct, inter alia, of matters in annual general meetings of the Owners Corporation.
It is alleged in paragraph 25 of the Cross-claim that, since at least 2007, the administration and management of the strata scheme and of the Owners Corporation (and in particular, of the sinking and administrative funds of the Owners Corporation) “have demonstrated” certain facts (by reference to the particulars, those facts as asserted are the reduction in the budget for the administrative fund; insufficiency of funds in the Owners Corporation’s administrative funds to pay property insurance or moneys owing for Fire Compliance in January 2007; failure to pursue recovery of amounts due and outstanding to the administrative fund; amounts properly payable from the administrative fund being paid out of the sinking fund; moneys so paid not being repaid or recovered; unresolved disputes about who was or should be responsible for determining the priorities for which funds in the sinking fund should be used; unresolved disputes about the appointment and role of an executive committee; and unresolved disputes about whether proper and accurate accounts and records have been kept for the strata scheme).
Evidence was given by some of the Landlords as to the manner in which Mr Bailey had responded to issues raised by them in relation to those matters. The cross-claim makes allegations as to Mr Bailey’s refusal initially to consent to the instigation of an executive committee; the fact that no executive committee meeting was convened in the six months after the 2007 annual general meeting notwithstanding an alleged agreement by Mr Bailey to do so for a “trial” period; assertions by Mr Bailey at the 2008 annual general meeting that lot owners did not have the right at the 2008 annual general meeting to vote either in person or by proxy; and conduct in relation to the 2009 annual general meeting.
The Landlords point in particular to the attitude exhibited by Mr Bailey to the power of attorney contained in clause 13.2 of the leases, by reference to assertions made by or on his behalf that he had “100% proxy voting rights” (for example, the email in CB Volume 2, 639 from Sharon Howard to the wife of the second defendant and the evidence of Tracey Maile in her affidavit of 11 December 2009 as to Mr Bailey’s conduct at the 2008 Annual General Meeting, in which he is reported to have said that he did not accept the validity of Mrs Maile’s proxy and intended to exercise proxy votes as specified in the leases, and, at a meeting of the executive committee on 16 October 2008, when it is said that Mr Bailey said it did not matter what had happened at the Annual General Meeting as he had power of attorney and would dismiss all the executive committee).
As noted earlier, the question of Quest’s ability to control the exercise of votes at meetings, seems to have come to a head in March 2009, when lawyers acting for Quest wrote to the lawyers acting for the Landlords (some or all of which had apparently been concerned with the manner in which the business was being conducted) stating that Quest was seeking to formalise Quest’s “lawful right to attend and vote at all meetings of both the Owners Corporation and its executive committee during the term of the lease”. The Landlords were served with a notice requiring formal notification to the Owners Corporation (under s 118 of the Strata Schemes Management Act) as to the conferral of rights or appointment as proxy of Quest under clause 13 of the leases.
On 18 March 2009, Quest’s lawyers confirmed that it was Quest’s contention that Quest was entitled, under the powers of attorney granted by each lot owner in the leases to Quest, to attend and vote as their attorney at all meetings of the Owners Corporation and at the meetings of its executive committee and that, under the powers of attorney, Quest had the power to appoint and/or dismiss the Owners Corporation’s strata manager.
Mr Bailey deposed in his affidavit of 14 May 2009 that as a business owner, on behalf of Quest he required to be able to direct the Owners Corporation and the strata manager on matters relating to the management and capital expenditure. Again, this was emphasised in a letter dated 14 May 2009 from Quest’s lawyers.

Lease provisions

The terms on which Quest initially took its leasehold interest in the building lots from Roseprop are seemingly in the same form for each of the lots in the strata plan. During the hearing, reference was made to the particular terms of the lease governing the lot acquired by the first defendant/cross-claimant, Mr Bernard White, but it is not suggested that there was any material difference between those terms and the terms pertaining to the other Landlords.
Roseprop, as lessor, granted to Quest, as lessee, a lease for a five-year term commencing on 23 February 2001 (with an option to renew for four further terms of five years each).
The permitted use provided for under the lease (by reference to clause 4.1 and item 2 of the First Schedule) was use as “Serviced Apartments or other long or short term lettings”. Pursuant to clause 4.1, Quest covenanted with the Landlord(s) not to use or permit the lot or any part thereof to be used for any purpose other than that specified in item 2 of the First Schedule (other than with the consent of the Landlord(s)).
Reliance was placed by Mr Van Aalst on the acknowledgement contained in clause 8.2.1 (on the part of the Landlord(s)) that:
… the Tenant [defined as Quest] or a company (whose directors include directors of the Tenant or directors of Quest):
(a)intends to conduct a serviced apartment or other similar business from the Premises and the Estate pursuant to a franchise agreement or arrangement with an entity associated with the Quest Group; and
(b) may sell the said business and assign this Lease and/or transfer the Shares in the Tenant to a person who will conduct the said business pursuant to a franchise agreement or arrangement with the Quest Group.
Thus the Landlords were on notice that it might not be the Tenant (Quest) who conducted the serviced apartments letting business as franchisee from Quest NSW. Nevertheless, insofar as the expression “Tenant’s business” is used in clause 13.1, it might be thought that this could only be referring back to the business which the Landlords had acknowledged that the “Tenant” or a related company intended to conduct from the premises.
Relevantly, perhaps, in light of the potential outcome of the current proceedings, clause 8.3 provided that “In order to better protect [sic] the rights of the Quest Group” the Landlords will also enter into the Deed (annexed and marked with the letter “A1”) (which Deed, among other things made provision for circumstances in which, notwithstanding that the Tenant may have failed or become ineligible to exercise the option for renewal of the term of the lease the Franchisor (Quest NSW) would be entitled to take steps to become the Tenant as if it were an original tenant who had validly exercised the option for a further term. Thus, it remains open to Quest NSW to step in and take over the leasehold interest in certain circumstances.
Pausing there, it must therefore have been apparent to a person acquiring a lot in the building and having regard to the terms of the registered lease by which her or she was to be bound, that the apartment to which that person obtained rights under the strata plan might be used as a serviced apartment by the Tenant (Quest) and/or the franchisor (Quest NSW) for up to 25 years in all. (The Landlords, however, seem to have paid little regard to other terms of the leases, therefore it is a moot point whether they paid attention to this fact.)
The registered lease contains various covenants (described as the Landlord’s General Covenants) on the part of the Landlords, such as clause 6.1.1 (the usual covenant by a landlord for quiet enjoyment) and clause 6.1.3 (a covenant not to interfere with the Tenant’s business conducted at the Estate (as defined in clause 1.1.8, which included among other things all lots and common property on the strata plan)); as well as a covenant in relation to the repair and maintenance of the premises (clause 6.2.1, which makes reference to maintenance of the premises and the Estate to the high standard of other properties constructed for or used by the Quest Group).
Clause 13, the subject of the present dispute, provides as follows:
13 ATTORNEY
13.1The Landlord agrees that for the purposes of allowing the Tenant [defined as the Lessee referred to in Item (E) of the coversheet [i.e. Quest] and, inter alios, the executors administrators successors and permitted transferees and permitted assigns] to better conduct the Tenant’s business and to ensure compliance with the Landlord’s and the Owners Corporation’s Covenants as contained in this Lease, the Landlord will at all or any meetings of the Owners Corporation or of the committee of the Owners Corporation held during the Term, vote in accordance with the reasonable directions given by the Tenant. (my emphasis)
13.2To better secure the performance by the Landlord of the obligations under this clause the Landlord irrevocably nominates and appoints the Tenant and each director and officer of the Tenant from time to time jointly and severally to be the attorney of the Landlord and to act, attend and vote as attorney in the Tenant’s absolute discretion on behalf of the Landlord (including to allow the Tenant the power to appoint and dismiss the Owners Corporation manager and to grant to the Tenant any leases or licences in respect of the Common Property that are reasonably required for the operation of the Tenant’s Business) at all or any meetings of the Owners Corporation or of the committee of the Owners Corporation to the exclusion of the Landlord if present at such but this appointment must not be used to vote on a motion to raise a Owners Corporation levy for capital charges or require a contribution to a capital Sinking Fund over an amount of One Thousand Dollars ($1,000.00) per annum in each year of the Term PROVIDED THAT a Sinking Fund will not be required to be established during the first two terms of the Lease although the Landlord may be required to make contributions in respect of specific Owners Corporation capital works as required from time to time. (my emphasis)
13.3The Landlord hereby ratifies and confirms all acts, deeds and things done by the Landlord’s Attorney hereby constituted or by any of them at all or any of the meetings referred to in this clause held while this Power of Attorney remains in full force and effect.
13.4Without limitation, the terms “Attorney” used in this clause will include a “proxy” for the purposes of the Act and the by-laws from time to time of the Owners Corporation.
13.5Notwithstanding the provisions of Clause 13.2, the Tenant hereby agrees that in exercising the powers hereunder either solely or through an attorney, the Tenant will act in good faith and provide the Landlord with details of all proposals to be dealt with by the Owners Corporation and will allow the Landlord the opportunity to attend all meetings of the Owners Corporation of which reasonable notice together with the agenda will be given the Landlord.
Clause 14, relevantly, provided as follows:
14.1If the Landlord wishes to dispose of the Premises or any interest therein the Landlord will obtain from the proposed purchaser, prior to the disposal, a duly executed Deed of Covenant in the form of Annexure “A3” to this Lease in favour of the Tenant.

Clause 4 of the said Deed of Covenant (to be entered into by any proposed purchaser) provided as follows:
4In accordance with Clause 13 of the Lease, the Purchaser irrevocably nominates and appoints the Tenant and each director and officer of the Tenant from time to time jointly and severally to be the attorney of the Purchaser. (my emphasis)

In opening submissions, Mr Van Aalst noted that Quest contends that the purpose of clause 13.2 is to ensure that it can operate “its” business efficiently and can rely upon the Landlords complying with their covenants as landlords and that it is restricted by a combination of clauses 13.1 and 13.5. Mr Gray maintains that clause 13.2 is unconditional and not qualified by reference to the remaining sub-clauses of clause 13 and emphasises (as is in effect conceded by the amendments to the Statement of Claim) that the serviced apartments business is not currently that of Quest at all but rather that of Mr Bailey and Food Concepts. Quest is said to be no more than a “conduit” for the provision of premises through which Mr Bailey and Food Concepts are able to carry out that business. The arrangements between those entities (other than the Franchise Agreement itself) were not the subject of debate.

Issues

(i)Consistency with/contravention of policy implicit in Strata Schemes Management Act

Construction of clause 13

Before turning to the particular contentions made in relation to clause 13, I consider the proper construction of that clause in the context in which it appears in the lease(s).
Mr Van Aalst contends that the rights or power granted under clause 13.2 is limited by both clauses 13.1 and 13.5. I agree. As far as clause 13.5 is concerned, while it does not strictly limit the power under clause 13.2, it provides a contractual limitation on the manner in which that power is exercised such that if a direction was given not in good faith by Quest, then while it might (if otherwise reasonable, assuming one could logically have a direction issued not in good faith but which was nevertheless reasonable) be a direction with which the Landlord has to comply, there might nevertheless be an issue as to whether Quest was in a position to exercise its power under 13.2 to enforce compliance with such a direction (as to the ability to have regard to the stated purpose of the contract when construing a clause, see Thiel v Federal Commissioner of Taxation (1988) 85 ALR 80, at 108, 119).
The first point to note in relation to the construction of clause 13 is that the opening words of clause 13.2 make it very clear that the purpose for which the appointment of Quest as the Landlords’ attorney is being made is better to secure the performance by the Landlord of its obligations “under this clause”.
The obligations “under this clause” as referred to in clause 13.2 must, it seems to me, encompass the Landlord’s obligations contained in clause 13 as whole. Clause 13.2 does not itself contain any obligations on the part of the Landlord (unless it can be said that the words in parentheses impose an obligation on the Landlord to permit the Tenant the power therein referred to) rather than (as I think is the case) simply clarifying the scope of the power given by the appointment of the Tenant as the Landlord’s attorney.
The reference to “under this clause” in clause 13.2 may be contrasted with the reference, in clause 13.5, to a particular sub-clause (clause 13.5 commencing “notwithstanding the provisions of clause 13.2”). Elsewhere in the lease (see, for example, in clause 14.2 and clause 8.1.1), where reference is made to a particular sub-clause, that sub-clause is identified. This suggests that, had clause 13.2 been limited to the securing of the performance of obligations under clause 13.2 alone, the reference would have been to clause 13.2 not to “this clause” more generally. In clause 11.3, rather than referring to a failure to comply with the provisions of “this clause”, there is a specific reference to a failure to comply with the provisions of “this Clause 11.3”.
Whether or not support can be drawn from the internal clause references as used by the parties, it seems to me that it is clear (from the absence of any stated obligation of the Landlord in 13.2) that the purpose of the power granted under clause 13.2 is to provide better security for the performance by the Landlord of its obligations under the whole of clause 13.
One of those obligations is the obligation under clause 13.1 of the Landlord (at all or any meetings of the Owners Corporation or of the Committee of the Owners Corporation held during the term) to vote in accordance with reasonable directions given by Quest. Indeed, that is the only obligation, as such, which can be discerned on the part of the Landlord within clause 13 (clause 13.3 itself simply being the ratification and confirmation of acts, deeds and things done by the Landlord’s attorney whilst the power of attorney remains in full force and effect, and clause 13.5 imposing an obligation upon Quest, rather than the Landlord).
Accordingly, the nomination and appointment of Quest (and each director and officer of Quest) as the Landlord’s attorney under clause 13.2, is better to secure the performance by the Landlord of its obligation to vote in accordance with reasonable directions given by the tenant. That makes sense insofar as it enables Quest, in the event that a Landlord does not physically attend a meeting, to exercise any vote which that Landlord would have been obliged under clause 13.1 to cast. (I consider in due course the position where a Landlord attends a meeting and purports to vote contrary to a reasonable direction given by Quest.)
The second point to note in construing clause 13 is that the Landlord’s obligation (contained in clause 13.1) to cast its vote in any particular fashion is limited in the following ways. First, the obligation is only to vote in accordance with “reasonable directions” of Quest. Thus, if a direction is not objectively seen to be reasonable clause 13.1 does not oblige the Landlord to vote in accordance with it. Secondly, the Landlords’ agreement is itself stated to be for the purposes, first, of allowing Quest “to better conduct the Tenant’s business” and, secondly, “to ensure compliance with the Landlord’s and the Owners Corporation’s Covenants as contained in this Lease”.
Pausing there, as noted by Mr Gray, the Owners Corporation is not a party to the lease. For it to be bound as a matter of contract by any covenants contained therein, it would need to have been joined as a party to the lease. Nevertheless, the lease appears to contain at least two covenants on the part of the Owners Corporation: clause 3.3, which purports to oblige the Owners Corporation in relation to insurance matters, and clause 10.2, which provides that the Owners Corporation will assign to Quest the benefit of any warranties applicable to or in respect of the common furnishings and fittings, to the extent required to enable Quest to fulfil its obligations pursuant to the lease.
In relation to clause 3.3, it could perhaps be read not as a covenant on the part of the Owners Corporation to do anything but an acknowledgment between Quest and the Landlord as to what was to fall within the sphere of insurance responsibility of the Owners Corporation (as opposed to what was within the sphere of responsibility of Quest or of the Landlord (clause 3.3.1)). I note that clause 3.3.1 itself obliges Quest and the Landlord to use their best endeavours to ensure that the Owners Corporation effects such insurances. Clause 10.2 is not so easily explained. In its terms, it appears to oblige the Owners Corporation itself to do certain things. However, it might perhaps be said that the purpose of the Landlords’ agreement under clause 13.1 to vote in a particular way to ensure compliance by the Owners Corporation was simply a mechanism by which the Landlord might be required to procure the Owners Corporation to take steps (such as those in clauses 10.2) which it was not strictly bound to do (not being privy to the contract comprised by the lease).

As to the limitation arising from the reference to “reasonable” directions, as noted above this must have the effect that if no direction (or a direction which is not reasonable) is given by Quest, then the Landlords’ ability to vote on any matter at Owners Corporation or executive committee meetings remains unaffected by clause 13. (What I do not accept is the proposition by Mr Van Aalst – T 31.15 - that clause 13.1 operates such that it only obliges a Landlord to vote in accordance with Quest’s directions if the Landlord accepts that they are reasonable or is in agreement with them. That may be a practical consequence of the provision (since if there is disagreement as to whether the direction is reasonable Quest will not be certain whether the Landlord is obliged to vote in accordance with it and, hence, whether its power of attorney extends to it.)
Secondly, the obligation on the part of the Landlord to vote in accordance with reasonable directions given by Quest is also limited by the words “for the purposes of allowing the Tenant to better conduct [sic] the Tenant’s business and to ensure compliance with the Landlord’s and the Owners Corporation’s covenants as contained in this lease”. If Quest were to give directions for the Landlord to vote on a matter that was not necessary for either of those purposes, then in my view it would be open to the Landlord to refuse to vote in accordance with that direction, as it surely could not be said to be a reasonable direction if unconnected with either of those purposes.
One of the issues which has arisen in the present case is what is meant by the words “the Tenant’s business”. The “Tenant” is clearly defined in the lease as “Quest“ (though in clause 1.1.27 the definition of “the Tenant” extends beyond the lessee referred to in item (f) of the coversheet to its executors, administrators, successors and permitted transferees and permitted assigns and (where not repugnant to the context) its employees, agents, contractors and invitees).
However, there is no definition of “Tenant’s business”. Light may be shed on this by reference to clause 8.2 which contains an acknowledgment by the Landlord that “the Tenant or a company (whose directors include directors of the Tenant or directors of Quest) to conduct a serviced apartment or similar business pursuant to a franchise agreement”. What that acknowledgement clearly contemplates is that the serviced apartments business might be conducted either by the tenant (Quest) or by some other entity. However, if conducted by the latter, there is some doubt as to whether it can be said to be the “Tenant’s business”.
Here, as a matter of fact, it seems to be accepted that the business of operating a serviced apartment letting business from the Rosehill property is being conducted not by Quest at all, but rather by Mr Bailey (a director and shareholder of Quest) and by Food Concepts, together they being Quest NSW’s franchisee. Leaving aside whether Mr Bailey might be (or be said to be) an employee or agent of Quest for the purposes of this definition, it is therefore by no means clear that a direction issued by Quest for a Landlord to vote in a particular way in order to enable Mr Bailey and Food Concepts, as franchisee, to conduct the Quest franchise from the premises could be said to be a direction for the purposes contemplated by clause 13.1 (and thus within the ambit of the power granted under clause 13.2), since that would not seemingly be for the better conduct of the “Tenant’s business”.
While it may well be, as a practical matter that Quest’s “business” encompasses the provision of its rented premises for use by the Quest franchisee(s) for the purpose of the latter’s business in carrying on serviced apartment lettings, that is not the “business” seemingly contemplated in the lease (either in the definition of permitted user or in the clause 8.2 acknowledgement).
The 18 October 2004 franchise agreement (as indeed, does Quest’s amended pleading) in my view makes it clear that the relevant franchisee was the Food Concepts and Mr Bailey jointly. Mr Van Aalst submits that Quest was to be the tenant company referred to in the Franchise Agreement and that while the operators of the business on the face of the Franchise Agreement were the franchisees, there was a nexus between the franchisees and the actual premises in the form of Quest, since Quest had the exclusive right to possession pursuant to the leases. Thus, Mr Van Aalst appears to suggest that by a combination of references to the Franchise Agreement and the acknowledgement in clause 8.2 of the lease the term “Tenant’s business” can be construed as meaning the serviced apartments letting business currently carried on by entities other than Quest.
It was said by Mr Gray in response that Quest is not a party of the Franchise Agreement, although it had executed it. Quest executed that agreement under the attestation clause for the “tenant co”. Clause 1.1.67 somewhat circuitously defined the tenant co as having the meaning ascribed to it in clause 7.5.3.
Clause 7.5.3 referred to the situation where a company (tenant company) had been established for the sole or principal purpose of holding all or part of the leases and the tenant company was owned by a franchisee or an associate of the franchisee. In those circumstances there was an obligation on the part of the franchisee to provide various things to the sub-franchisor. Clause 7.12 provided that, for the purposes of clause 7 or any material that makes reference to clause 7, a reference to the term “franchisee” was to include “tenant co”. The submission by Mr Van Aalst was that Quest was the “tenant co” referred to in the franchise agreement and thus included in the reference to franchisee.
That, however, does not mean that in practical terms the present serviced apartments letting business is that of Quest.
I consider that the term “Tenant’s business” in clause 13.1 of the lease is to be construed as meaning the business conducted or permitted to be conducted Quest (“the Tenant”) from the premises – i.e., a shorthand way of referring to the permitted use by Quest of the premises. If consent was given by the Landlord to the conduct by Quest of a different business from the premises, then that would be the business to which reference is made in clause 13.1. I do not think the expression in clause 13.1 is apt to encompass the serviced apartments letting business (or any other business) conducted from the premises by a company other than Quest even if related to Quest. That is because the opening words of clause 13.1 refer to the purpose of allowing “the Tenant” (i.e. Quest not someone else) better to conduct the said business.
I can see an argument that the effect of this acknowledgment, read in the light of 13.15 to preclude the Landlord not only from objecting if someone else carries on the serviced letting business while Quest remains as lessee, but also from denying that it is obliged under 13.1 to follow voting directions for the better conduct of that business as well. However, clause 13.1 (and the lease itself) operate in a meaningful fashion without so extending the meaning of clause 13.1. Therefore, I am inclined to Mr Gray’s view that the better conduct by the Tenant of “Tenant’s business” for the purposes of voting directions, does not permit Quest to issue directions solely for the purpose of enabling its related entities to carry on the serviced apartments business.
For the reasons set out below, however, I do not consider that much turns on this issue.
Is the power of attorney irrevocable?
I turn then to the question whether the power of attorney so granted was irrevocable. This question arises in the context of Mr Gray’s submission that the power granted under clause 13.2, if irrevocable, is contrary to public policy (as evidenced by the Strata Schemes Management Act) and unjust for the purposes of the Contracts Review Act by reference to the fact that the donee of an irrevocable power is not as a matter of law required to act in the interests of (and owes no fiduciary duties to) the donor. (Alternatively, it is said that if the power of attorney is not properly characterised as irrevocable then it can be revoked by the Landlords without breach of the contract, a submission which would seem at most to go to whether some of the declaratory relief sought by Quest should be granted even if it were otherwise successful in defending the cross-claim.)

The distinction at common law between a revocable power of attorney and an irrevocable power of attorney, as noted by Young JA, writing extra-curially in Annotated Conveyancing and Real Property Legislation (NSW) 3^RD ed, Butterworths, at [33410.5], is that the holder of the latter owes no fiduciary duty to the donor and may act independently of and contrary to the directions and wishes of the donor. The rationale of such a power is that it secures the interest of the donee against the donor (and it would seem that a sufficient interest is an interest in the performance of obligations under a contract between the parties, at least where that involves a proprietary interest (James v Nesbitt (1954) 28 ALR 482)).
Warrington LJ in Tingley v Müller [1917] 2 Ch 144, at 165, saidTingley’s case:
Again, a recognised mode of dealing with land is through an attorney acting under a power of attorney. If such a power is made irrevocable, as is the case with that of May 20, 1915, then, in favour of a purchaser, not only can it not be revoked in the ordinary sense, that any act done by the donee within the limits of the authority conferred by the power will be as valid as if anything done by the donor of the power without the concurrence of the donee had not been done: Conveyancing Act, 1882, s 9.

The attorney under such a power is not like an ordinary agent. As between him and a purchaser he is, so long as he does not exceed his authority, absolutely independent of the principal. He has no occasion to consult or confer with him, and he need pay no attention to any directions he may give. The attorney in fact, when dealing with a purchaser, is exclusively clothed with all the capacities of the principal in reference to the subject-matter.

Lord Justice Warrington’s explanation of the effect of the grant of an irrevocable power of attorney was quoted by Palmer J in Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005, at [156]), in the context of a provision in a company’s constitution permitting voting by the appointment of an attorney. His Honour noted on to say(at [152]) that statute had long recognised the irrevocable power of attorney as a special creature which, although constituting the donee as the donor’s agent, does not fasten upon the donee the usual fiduciary obligations of an agent (referring to ss 15 and 16 of the Powers of Attorney Act 2003 (NSW) and precursors). His Honour accepted that an irrevocable power of attorney by its very nature was very different from an ir revocable power of attorney “whereunder the donee is constituted the agent of the donor and has fiduciary duties of loyalty to the donor” (there citing: see eg Midland Bank Ltd v Reckitt [1933] AC 1, at 14; Saard v Doumeny Holdings Pty Ltd [2005] NSWSC 893, at [24]).
Under s 160 of the Conveyancing Act 1919 (NSW) (now s 15 of the Power of Attorney Act 2003 (NSW), which was in force at the time the leases were entered into, a power of attorney which is expressed as being irrevocable and given for valuable consideration will constitute an “irrevocable power of attorney” for the purposes of the Act. Pursuant to that section (and s 16 of the present Act), the power conferred by an irrevocable power of attorney is not revoked or otherwise terminated by and remains effective despite the occurrence of anything done by the principal without concurrence of the attorney.
Accordingly, whether or not the power of attorney granted was one which met the common law requirements of being coupled with an interest, if it met the statutory requirement of irrevocability, ie being expressed to be irrevocable and given for valuable consideration, it would for the purposes of the statute be irrevocable.

However, and significantly in the present case, it also seems to be recognised that irrespective of whether or not the power so granted is irrevocable (and hence whether it would ordinarily cast no fiduciary obligations on the donee), it would be open to the parties to agree to a regime under which the donee of an irrevocable power does owe obligations to the donor in relation to the way in which the power is to be exercised. Thus, in Cordiant, Palmer J, having referred to what was said by Nicholas CJ in Eq in Perpetual Trustee Co Ltd v Aroney (1944) 44 SR (NSW) 313 (after regarding the independence of a principal once an irrevocable attorney was granted), at [157]), said (at [158]):
In my opinion, it should now be accepted that, subject to any contractual provision to the contrary, as between donor and donee an irrevocable power of attorney confers on the donee the right to act within the terms of the authority conferred independently of, and even contrary to, the directions of the donor … (my emphasis)
The relevance of this is that if, as I consider to be the case, the exercise by Quest of the power of attorney granted under clause 13.2 is subject to the obligation of good faith in clause 13.5, and can only be exercised to secure compliance with voting directions reasonably given then much (if not indeed all) of the force of Mr Gray’s submission as to the potential injustice flowing from the purported irrevocability of the appointment of Quest as the Landlords’ attorney seems to me to fall away.
In other words, whatever may have been the case had the clause (properly construed) given to Quest an unqualified right to do what it wanted in the exercise of the power so granted (without reference to the Landlords and with no duties owed to them in that respect), that is not the position here. By contract, Quest is bound to exercise its rights under clause 13 in a particular manner (that indicated in clause 13.1) and in good faith (by reason of clause 13.5).
The power of attorney, insofar as it is for the purpose of securing performance of the Landlords’ obligation in clause 13.1 to comply with reasonable directions as to how to vote as given by Quest, contains within it the practical limitation that there must have been a reasonable direction in the first place.
The possibility of the existence of a contractual restriction on the exercise of an irrevocable power of attorney was acknowledged by Palmer J in Cordiant, at [158]). Therefore, in light of the restriction arising from the purpose specified in clause 13.1 and the obligation of good faith under clause 13.5, I cannot accept the proposition that clause 13.2 is absolute or unqualified (or, to use the card-playing analogy used by Mr Gray, that clause 13.2 always trumps clause 13.1).
The suggestion by Mr Gray that, if irrevocable, the power was one which did not carry with it any duties to the Landlords seems to ignore both the effect of clause 13.5 of the leases, which clearly imposes an obligation on Quest to act in good faith in relation to the exercise of its rights under clause 13, and the contractual restriction on its exercise deriving from clause 13.1.
(As to the alternative argument, even if on the proper construction of the clause, the power is to be regarded at common law as not irrevocable, the question whether or not the Landlords would be in breach of contract if they were now to revoke the appointment of Quest as their attorney pursuant to clause 13.2, this does not seem to me to go to the questions presently in issue before me (other than, as noted earlier, insofar as it may be relevant to the exercise of discretion in relation to the grant of some of the declaratory relief which has been sought).
Therefore, it does not seem to me that for the purposes of the issues which are before me anything really turns on whether this power of attorney would, at common law, have been construed as an irrevocable power. That question having been argued, however, I will briefly deal with it.
Powers of attorney are instruments that have traditionally been strictly construed (Collier B. vand Lindsay S., Powers of Attorney in Australia and New Zealand, Federation Press, 1992, at 48-53; Dal Pont G. E., Law of Agency, Butterworths, 2001, at [25.20]7.7ff, p 165ff; Bowstead and Reynolds on Agency, 18^th ed, Sweet & Maxwell, 2006, at [3-010]). The fact that a power of attorney is declared to be irrevocable is not conclusive as to whether, at common law, it is so (Collier vand Lindsay, at 238; Dal Pont, at [25.230], 748; Bowstead vand Reynolds at [10-007]). In Cordiant, Palmer J noted that:
A power of attorney, to be irrevocable at common law, must be coupled with an interest so that it is given for the better securing of that interest as against the donor.
Thus, for a power of attorney to be irrevocable at common law, it is necessary that the grant of power be supported by consideration and that it be coupled with an interest (Cordiant, at [152]; Dal Pont, at [25.20], there citing Walsh v Whitcomb (1797) 2 Esp 565; 170 ER 456; Gaussen v Morton (1830) 10 B & C 731, at 734; 109 ER 622, at 623; Smart v Sandars (1848) 5 CB 895; 136 ER 1132; Dwyer v Herman (1881) 2 LR (NSW) L 280; Re Olympic Fire and General Reinsurance Co Ltd [1920] 2 Ch 341).
In Dal Pont, the example given of an authority being coupled with an interest focuses on the purpose for which the power or authority is granted, reference there being made to the situation ‘where an agreement is entered into for sufficient consideration, whereby an authority is given for the purpose of securing some benefit to the donee of the authority’, such an authority being irrevocable (Dal Pont, at [25.20], there citing Re Hannan’s Empress Gold Mining and Development Co [1896] 2 Ch 643; Clerk v Laurie (1857) 2 H&N 199, at 200; 157 ER 83, at 83; Frith v Frith [1906] AC 254, at 259-260).
Lindley LJ in Re Hannan’s Empress Gold Mining and Development, in considering a power of attorney given in the context of an agreement to apply for shares in a company and stated to be irrevocable, explained that:
It is part of the bargain by which, for valuable consideration, [C] agrees to take certain shares, and that is for the benefit of [P] as [C] knows, and in order to enable [P] the better to secure the performance of the contract, [C] authorises [P] to apply for the shares in his name, and agrees not to revoke that authority even if he could do it without such a clause. (my emphasis)Mr Gray notes that at common law the requirements for an irrevocable power of attorney are, first, that it be given for sufficient consideration or be created by deed and secondly, that it be given for the purpose of securing some benefit to the donee.
The distinction at common law between a revocable power of attorney and an irrevocable power of attorney, reflected in s 160 of the Conveyancing Act 1919 (repealed by the Powers of Attorney Act 2003, but relevantly applicable to the power of attorney created prior to February 2004) is that the holder of the latter owes no fiduciary duty to the donor and may act independently of and contrary to the directions and wishes of the donor ; the power being one whose rationale is to secure the interest of the donee against that of the donor.
The requirements for a power of attorney to be irrevocable at common law are demonstrated by reference to the facts in James vNesbitt, where a lessee had granted a power of attorney to a financier (who had lent money to finance, and which was secured against, the lease). The power was expressed in the lease to be irrevocable and for the purpose of enabling the financier (in the event of default by the mortgagors) to assign the lease to such persons as they thought fit, and the power to give notice of determination of the lease and surrender the same. In circumstances where such a grant of authority was to “strengthen the security over the goodwill and chattels of the mortgagors” (at 484) given by the lessee in consideration for the provision of finance, the repayment of which was secured against the leased property, the grant was seen to be coupled with an interest and the power irrevocable.

The fact that Mr Bailey appears to have misconceived (and been highhanded in asserting) the rights to which clause 13 of the leases or clause 4 of the deeds of covenant give to Quest is not the point in this regard; nor is it the point that there may have been deficiencies in the manner in which Quest has, through exercise of its powers of attorney to date, managed the sinking/administrative funds of the Owners Corporation. Remedy for those defects lies elsewhere.
Accordingly I do not conclude that clause 13.2 of the Quest leases or clause 4 of the deeds of covenant are void for illegality or contrary to public policy. I consider those provisions to be enforceable.
As to the Contracts Review Act claim, I consider that there is a distinction to be drawn between a contract or provision which of itself amounts to an abuse of rights or process and one which could if invoked in a particular fashion or exercised in a particular fashion amount to such an abuse. This is the latter. In fact, in its terms clause 13.2 is subject to significant limitations, it must be for the purposes provided in clause 13.2 which, by reference to clause 13.1 require it to have been exercised in support of a reasonable direction given by Quest for the purposes of securing performance of the Landlord’s obligations and in the overall interest of enabling the tenant’s business to be conducted. I accept that the tenant for this purpose is Quest and that is not the franchisee and that there is an argument that directions given to facilitate the operation of the business of the franchisee are not directions given for the purposes of facilitating the business of the tenant. Nevertheless, Quest has an interest in securing the compliance by the Landlord with its obligations and being in a position where, if it wished, it could assume the running of the business. Nevertheless it remains open under the lease for the tenant to conduct its In any event, it does not in my view lead to the clause being unjust simply because at a particular time in the term of the lease the clause may not be reasonably necessary for the immediate enjoyment of the rights of the tenant. There has been no unconscionable conduct suggested in relation to the entry into the documentation by which the Landlords subjected themselves to this regime and it seems to have been their decision not to take more complete advice in relation to the operation of the power of attorney arrangements under the leases.
I do not consider that s 7 of the Contracts Review Act is enlivened.
Relief
The court has a wide discretion to grant declaratory relief (Hanson v Radcliffe UDC [1922] 2 Ch 490, at 507; Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421, at 438; Ibeneweka v Egbuna [1964] 1 WLR 219, at 225; Re Judiciary and Navigation Acts (Advisory Opinions Case) [1921] HCA 20; (1921) 29 CLR 257; Ainsworth v Criminal Justice Commn (Qld) [1992] HCA 10; (1992) 175 CLR 564, at 581, per Mason CJ, Dawson, Toohey and Gaudron JJ; Forster v Jododex Australia Pty Ltd). Having said that, it is necessary, that there be a question before the court that is a real and not a theoretical question; the person raising it must have a real interest to raise it and there must be someone presently existing who has a true interest to oppose the declaration sought as judicial pronouncements ought not to be issued unless there are circumstances that call for their making (Forster v Jododex, at 435-436).
In relation to the utility of the declaration, this can be measured in terms of the effectiveness of the declaration in quelling the dispute between the parties and preventing further litigation. That is, it is considered it is generally inappropriate to grant declaratory relief if it will be inconclusive, in the sense that the proposed declaration would leave unresolved issues, with the parties still in dispute as to the consequences so that further litigation would be required to resolve the controversy (Commonwealth of Australia v BIS Cleanaway Limited [2007] NSWSC 1075, at [28], Brereton J). However, and as recognised in Meagher, Gummow and Lehane (4^th ed), the fact that a declaration might not finally conclude the dispute between the parties can hardly ever be, of itself, a proper ground for not making a declaration. The authors (citing Hope J in Integrated Lighting & Ceilings Pty Limited v Phillips Electrical Pty Limited (1969) 90 WN (Pt 1) (NSW) 693) state that the likelihood of further litigation is something which should affect, but does not determine, the exercise of the court’s discretion.
In the event, the declarations sought by the Landlords as to the illegality and/or unenforceability of the relevant clauses and the like are not open on the findings I have made. Other than in respect of the prefatory words there was no resistance by Quest to the making of a declaration in the terms claimed in paragraph C or F of the Cross-Claim and in light of the disputes which have arisen in the past there may be some utility in granting such declarations.
As to the declarations that have been sought by Quest, to the extent that they simply restate the relevant provisions I see little utility in making such declarations. Further, to the extent that they purport to address the position of any renewed term I do not consider it appropriate (in light of what I have said earlier) to make such declarations. I consider that it would be sufficient to make declarations in a more limited compass to address the disputes which have emerged as to the limitations on the exercise of the relevant powers (which largely do not seem to have been disputed by Mr Van Aalst) and to reflect the above reasoning. I set out below the declarations which I propose to make and will hear submissions from Counsel as to their terms and as to any further orders which should be made, including as to costs.
Accordingly, the declarations I propose to make are as follows:
1.A declaration that upon a proper construction of clause 13 in each of the registered leases entered into between Roseprop as lessor and Quest as lessee (identified in the schedule to the Amended Statement of Claim):
(i)in the exercise of the power of attorney granted to it Quest is obliged to act in accordance with the obligations imposed by clause 13.5;
(ii)Quest’s right to exercise the said power is limited by the restriction that it be for the purposes of securing the performance by the Landlord under clause 13 (namely, that the Landlord vote in accordance at any particular Owners Corporation meeting or meeting of a committee of the Owners Corporation in accordance with a reasonable direction given by Quest);
(iii)that a reasonable direction for the purposes of clause 13.1 is one which is for either of the purposes specified in that clause (namely that it be for the purpose of allowing Quest or others within the classes identified in that clause better to conduct such business as Quest may be conducting in the premises in accordance with the lease from time to time or that to ensure compliance with the Landlord’s covenants under the lease); and
(iv)in any event, any exercise by Quest of the said power must be in compliance with the requirements from time to time of the Strata Schemes Management Act 1996 (NSW) or other applicable legislation.
2.A declaration that, notwithstanding anything to the contrary in clause 13 of the said leases or clause 4 if the Deeds of Covenant entered into by the Landlords, the Landlords are entitled to attend and vote at any meeting of the Owners Corporation and/or of the executive committee of the Owners Corporation, and if elected to the latter to vote at meetings of the latter (though it is noted that the manner in which that vote may be cast may be the subject of a valid direction pursuant to clause 13.1 of the leases).
3.A declaration that there is an implied obligation on the Landlords, for so long as the power of attorney granted under clause 13 of the leases is operative and binding to take reasonable steps in order to ensure that there is compliance with any requirements on voting imposed by the Strata Schemes Management Act so as to permit Quest to have the benefit of the rights granted under that clause.
Save as above I think the appropriate relief is to dismiss the remaining claims made in both the cross-claim and the amended statement of claim. I will hear the parties as to costs.
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AMENDMENTS:

15/10/2010 - In para 111 reference to clause 13 has been amended to read clause 13.2.
In para 199, the word "However" at the start of the second sentence has been replaced with the words "Other than in respect of the prefatory words" - Paragraph(s) 111, 199

LAST UPDATED:
15 October 2010