Secretary to the Department of Justice and Regulation v Century 21 Australia Pty Ltd
[2016] VSC 590
•29 September 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CIVIL LIST
S CI 2015 03477
| SECRETARY TO THE DEPARTMENT OF JUSTICE & REGULATION & OTHERS (according to the attached Schedule) | Plaintiffs |
| v | |
| CENTURY 21 AUSTRALIA PTY LTD (ACN 159 923 743) | Defendant |
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JUDGE: | GINNANE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16-17 February 2016 |
DATE OF JUDGMENT: | 29 September 2016 |
CASE MAY BE CITED AS: | Secretary to the Department of Justice & Regulation v Century 21 Australia Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2016] VSC 590 |
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ESTATE AGENTS – Franchise agreement – Whether franchise agreement within statutory definition – Whether franchisee authorised to carry on business under name franchisor entitled to carry on business under – Legislative history of franchising regulation – Estate Agents Act 1980 s 43
ESTATE AGENTS – Compensation Fund for victims of estate agent’s defalcation – Payments out of Fund by Secretary to victims of defalcation - Joint and several liability of franchisor – Subrogation – Secretary’s right of subrogation against the franchisor – Whether claims under Pt VII of the Act – Estate Agents Act 1980 ss 73, 79, 80, 81, 82, 83, 85
STATUTES – Principles of interpretation – Legislative regulation of estate agency franchising – Relevance of legislative history – Beneficial and penal legislation – Estate Agents Act 1980 Parts IV and VII
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P J Hanks QC and Ms K E Foley | Solicitor to the Director of Consumer Affairs Victoria |
| For the Defendant | Mr C J Bevan and Mr L P Menzies | McKay Law as agent for Jemmeson & Fisher |
HIS HONOUR:
The principal issue in this case is whether the defendant, Century 21 Australia Pty Ltd (‘Century 21 Australia’) entered into a franchising agreement as defined by the Estate Agents Act 1980 (‘the Act’) with an estate agent, Victorian Realty Group Pty Ltd (‘VRG’). If it did, then it is jointly and severally liable for the defalcations of clients’ money committed by VRG between October 2011 and May 2012.
The clients, who are the second to the fourteenth plaintiffs, have been recompensed out of the Victorian Property Fund (‘the Fund’), which is established by the Act and administered by the Secretary of the Department of Justice and Regulation (‘the Secretary’). He sues to recover the amount paid out of the Fund to them as a result of the defalcations of $109,150.66 or, alternatively, damages in that amount, together with statutory interest. He claims to be subrogated to the clients’ rights to recover their losses from Century 21 Australia. The second issue is whether the Secretary does have the right of subrogation.
Century 21 Australia was a subfranchisor under an agreement with Century 21 Real Estate Corporation, which is a corporation incorporated in Delaware in the United States of America and which has its principal place of business in Irvine, California. In the head franchise agreement, Century 21 Real Estate Corporation is referred to as ‘CENTURY 21 International’ and I will adopt that term. The evidence suggest that CENTURY 21 International earns franchisee fees from real estate agents internationally through companies like Century 21 Australia entering into franchise agreements with businesses like VRG. VRG, which was a licensed estate agent carrying on business at Craigieburn, entered into an agreement, entitled a ‘franchise agreement’ with Century 21 Australia in 2009.
Century 21 Australia is not an estate agent. It conducts business as the subfranchisor and sublicensee in Australia of CENTURY 21 International and was entitled to license the use by franchisees of the ‘CENTURY 21 Marks’ and the ‘CENTURY 21 System’.
The evidence and submissions did not make it entirely clear why the second to fourteenth plaintiffs were parties, as they have already been recompensed from the Fund. Senior counsel for the Secretary described him as ‘the active plaintiff’.[1] However, nothing turns on that point.
[1]Transcript of Proceedings, Secretary Department of Justice & Regulation v Century 21 Australia Pty Ltd (Victorian Supreme Court SCI 2015 03477, Ginnane J, 16 February 2016) 15 (‘T’).
The issues for determination are:
(a) is the agreement between Century 21 Australia and VRG dated 12 June 2009 a ‘franchising agreement’ as defined in s 43(5) of the Act?
(b) does s 84 of the Act operate so as to subrogate the Secretary to the rights and remedies of the individual claimants in relation to the losses suffered by them as a result of the defalcations? [2]
[2]A further point that the Secretary could not claim the relief sought because Century 21 Australia is itself entitled to claim compensation from the Fund in respect of the loss, which is the subject of the Secretary’s claim, was not pursued.
In order for the Secretary to succeed, both issues must be answered affirmatively. I would answer the first question ‘no’ and, if the second question had arisen, I would have answered it ‘yes’.
The agreed facts
The parties agreed on the following facts, as set out in paragraphs 9 to 23.
The Parties
The Secretary is and was at all relevant times:
(a) a public official within the meaning of section 4 of the Public Administration Act 2004; and
(b) responsible for the administration of the Fund pursuant to section 72(2) of the Act.
The second to fourteenth plaintiffs (inclusive):
(a) suffered pecuniary loss by reason of defalcations committed by VRG from in or about October 2011 to on or about 14 May 2012;
(b) applied to recover his or her pecuniary loss, caused by the defalcations committed by VRG, from the Fund; and
(c) received payments from the Fund with respect to these claims.
Century 21 Australia is and was at all relevant times:
(a) a company duly incorporated pursuant to the Corporations Act 2001 (Cth); and
(b) a party to the franchise agreement.
Victorian Realty Group Pty Ltd (VRG)
VRG was at all relevant times:
(a) a company duly incorporated pursuant to the Corporations Act 2001 (Cth);
(b) a licensed real estate agent being the holder of a corporate real estate agents licence issued pursuant to the provisions of the Act;
(c) a party to the franchise agreement; and
(d) engaged in business as a real estate agent under the trading name, ‘CENTURY 21 Complete Properties’.
The franchise agreement
The franchise agreement was executed by Century 21 Australia and VRG on 12 June 2009.
Under the franchise agreement, Century 21 Australia granted a franchise to VRG to operate the business of an estate agent as franchisee of Century 21 Australia from 1 July 2009 until 30 June 2014.
The franchise agreement was terminated by Century 21 Australia with effect on 18 May 2012.
The defalcations
Between in or about October 2011 and on or about 14 May 2012, VRG committed defalcations, whereby the second to fourteenth plaintiffs (inclusive) suffered pecuniary loss, as set out in the table below:
Table A: Defalcations
Victim Defalcation Date Pecuniary Loss S Ahamed & S. Lubna 07-Feb-12 $25,000.00 J. Luciano Feb-Apr-12 $2,941.80 S & H Langdon Mar-May-12 $1,307.41 A&K Johnston 26-Apr-12 $36,995.00 V. Goel 08-May-12 $22,500.00 A. & O. Osman Jan-May-12 $1,388.68 V&K Cirona Jan-May-12 $1,430.00 K. Bunjamin Oct-11-May-12 $6,475.16 TOTAL $98,038.05
Each of those defalcations was a defalcation within the meaning of section 71 of the Act.
The defalcations were committed by VRG while VRG was:
(a) a licensed real estate agent; and
(b) carrying on business as an estate agent.
The claims against the Fund
By reason of the defalcations, each of the second to fourteenth plaintiffs (inclusive) made application to recover his or her pecuniary losses from the Fund pursuant to the provisions of Part VII of the Act.
Between April 2013 and May 2014, each of the Fund applications was determined in favour of each of the second to fourteenth Plaintiffs (inclusive) and each of the said plaintiffs received payments out of the Fund, pursuant to Part VII of the Act. Details of those payments are set out in the table below:
Table B: Payments from VPF to Second to Fourteenth Plaintiffs
Claimant Date Paid Amount S Ahamed & S. Lubna 12-Aug-13 $26,869.86 J. Luciano 24-Apr-14 $3,297.84 S & H Langdon 06-Mar-14 $1,422.39 A&K Johnston 03-Jan-13 $36,995.00 V. Goel 06-Aug-13 $31,149.38 A. & O. Osman 06-Mar-14 $1,510.43 V&K Cirona 23-May-13 $1,430.00 K. Bunjamin 30-Apr-13 $6,475.16 TOTAL $109,150.06
Request for payment
A written request was sent, on behalf of the Secretary, to Century 21 Australia on 19 November 2014. The request sought recovery of the amounts paid out of the Fund to the Second to Fourteenth Plaintiffs from Century 21 Australia on the basis that Century 21 Australia was jointly and severally liable for each of the defalcations.
The request sought a written undertaking that Century 21 Australia would forward a cheque in the sum of $108,150.06 payable to the Fund.
Century 21 Australia did not comply with the request.
The franchise agreement made between Century 21 Australia and VRG
The franchise agreement was made between Century 21 Australia[3] and VRG trading as ‘CENTURY 21 Complete Properties’.
[3]Referred to in the agreement as CENTURY 21 Regional (clause 1).
The recitals to the franchise agreement include that:
A. Century 21 Real Estate Corporation, a Delaware Corporation, (hereinafter called ‘CENTURY 21 International’) is the owner of certain trademarks and service marks, including the name CENTURY 21® which have been registered on the Principal Register of the United States Patents and Trademark Office, with other appropriate state agencies in the United States, the Registrar of Trade Marks in Australia and with governmental agencies of certain foreign countries (which marks, together with certain other trademarks and service marks which are not registered or which are pending registration, are hereinafter collectively called ‘CENTURY 21 Marks’);
B.CENTURY 21 International has developed a system for the promotion and assistance of independently owned and operated real estate offices, including policies, procedures and techniques designed to enable such offices to compete more effectively in the real estate sales market (which system is hereinafter called the ‘CENTURY 21 System’). The CENTURY 21 System includes, but is not limited to, common use and promotion of certain CENTURY 21 Marks, copyrights, trade secrets, centralized advertising programs, recruiting programs, referral programs and sales and management training programs. CENTURY 21 International has from time to time revised and updated the CENTURY 21 System and plans to continue to do so as required in its best judgment;
C.CENTURY 21 International has granted CENTURY 21 Regional the right to sub license certain CENTURY 21 Marks, and to franchise the CENTURY 21 System to licensed real estate agents whose offices are located within CENTURY 21 Regional’s designated territory (hereinafter called “Region”); and
D.Franchisee desires to obtain and CENTURY 21 Regional has agreed to grant a franchise to operate a real estate office under the terms and conditions hereinafter set forth.
The franchise agreement provided that:
1. GRANT OF FRANCHISE
CENTURY 21 Regional hereby grants to Franchisee, and Franchisee hereby accepts, the non-exclusive right:
(i)to use the CENTURY 21 System and certain CENTURY 21 Marks, as they are set forth in the CENTURY 21 Policy and Procedure Manual (hereinafter called the “P&P Manual”), as it may be revised and/or supplemented from time to time by CENTURY 21 International or CENTURY 21 Regional, and adapted for use in Australia and notified to Franchisee from time to time for the operation of a licensed real estate office upon the terms and conditions set forth in this Agreement (hereinafter called the “Franchise”).
(ii)to engage in the business of offering, selling or distributing services at the Franchisees approved location under a marketing plan or system developed by CENTURY 21 International.
The grant of this Franchise shall not be construed as granting Franchisee any right to purchase any additional franchises from CENTURY 21 Regional, or any right or priority as to the location of any additional franchise which may be granted by CENTURY 21 Regional. If CENTURY 21 Regional subsequently grants Franchisee any franchise (including any renewal franchise to be operated at Franchisee’s Approved Location as hereinafter set forth) said grant shall be on such terms as CENTURY 21 Regional shall prescribe.
Item D of the Schedule to the agreement authorised VRG to use the trading name ‘CENTURY 21 Complete Properties’. The approved location of the business was an address in the Craigieburn Shopping Centre. VRG agreed to pay Century 21 Australia a franchise or service fee, which was a percentage of ‘Gross Revenue’.
VRG acknowledged to Century 21 Australia that the business that it carried on must be capable of being identified by the public as being substantially associated with the Century 21® marks and that it would operate under the trade name ‘CENTURY 21 Complete Properties’ and would use no other name in connection with any operations conducted at or from its office location unless it received prior written approval. Those obligations were contained in the following clause:
4. NAME OF FRANCHISE
A. Franchisee acknowledges to CENTURY 21 Regional that the business to be carried on by the Franchisee must be capable of being identified by the public as being substantially associated with the CENTURY 21® marks as they are set forth in the P&P Manual.
B. Franchisee shall operate under the trade name set out in Item D of the Schedule (hereinafter called ‘Franchisee’s CENTURY 21 trade name’) and shall use no other name in connection with any operations conducted at or from the location specified in Paragraph 5 without the prior written approval of CENTURY 21 Regional. In every visual display in which the CENTURY 21 modern building logo is used the portion of franchisee’s CENTURY 21 trade name immediately following the words ‘CENTURY 21’, or other approved words, shall be in a five-to-one size relationship with the CENTURY 21 name and logo, as required in the P&P Manual, and the total appearance of Franchisee’s CENTURY 21 trade name and other identifying words must be approved in advance in writing by CENTURY 21 Regional. CENTURY 21 Regional reserves the right to review and require corrections of or modifications to any display by Franchisee of the CENTURY 21 name or marks. CENTURY 21 Regional’s failure to promptly require corrections of or modifications to Franchisee’s improper use of the name or marks shall not be deemed a waiver of CENTURY 21 Regional’s right to do so.
C. Franchisee shall display the aforementioned trade name for all purposes, including but not limited to, office signs, yard signs, stationery, business cards and advertising materials, in strict compliance with the requirements set forth in the P&P Manual.
D. Franchisee shall file and keep current, in the State or Territory in which Franchisee’s Approved Location is situated and at such other places as may be required by law, a “Business Name Registration Certificate”, or comparable instrument, with respect to Franchisee’s CENTURY 21 trade name under which Franchisee has been approved to operate by CENTURY 21 Regional. If Franchisee is a corporation, Franchisee shall not, without the prior written consent of CENTURY 21 Regional, include the words “CENTURY 21” as part of Franchisee’s corporate name. Prior to opening an office under said trade name, Franchisee shall supply evidence satisfactory to CENTURY 21 Regional that Franchisee has complied with all relevant laws regarding the use of fictitious or assumed names.
E. Franchisee shall use franchisee’s CENTURY 21 trade name and such other CENTURY 21 marks as Franchisee may be authorised to use from time to time exclusively for the purpose of promoting and operating a licensed real estate office, and for such other lawful business activities as may have been authorised previously in writing by CENTURY 21 Regional, provided; however, that CENTURY 21 Regional has no obligation to authorized any such additional business activities.
The effect of Clause 4B of the agreement was that VRG agreed to operate its real estate business only under the name ‘CENTURY 21 Complete Properties’, which was described in the franchise agreement as ‘Franchisee’s CENTURY 21 Trade name’. VRG also agreed that it ‘shall use no other name in connection with any operations conducted at or from [its approved location] without the prior written approval of Century 21 [Australia]’.
Clause 11, which is entitled ‘Additional Obligations of Franchisee’, is a lengthy clause. In part it states:
C (i) Use of Service Mark
Franchisee agrees that throughout the term of this Agreement it will operate exclusively under Franchisee’s CENTURY 21 trade name with respect to all advertising, promotions and communications, including, but not limited to, telephone answering, office sign(s), yard signs, business cards, bank accounts, stationery, promotional and advertising materials, real estate documents and all other materials used in any medium by Franchisee. Franchisee agrees to supervise all persons working with or under Franchisee in the franchised operation to assure compliance by such persons with all the terms of this Agreement and the P&P Manual.
Clause 14A is entitled ‘Relationship of Parties’ and provides:
Franchisee acknowledges and agrees that the effect of this Agreement and in particular, the general provisions of Paragraph 11 hereof permits and facilitates CENTURY 21 Regional exerting or having authority to exert a significant degree of control over the business of the Franchisee and it may reasonably be expected that in carrying on its business, Franchisee is or will be substantially dependent [on] services supplied by CENTURY 21 Regional or CENTURY 21 International. Notwithstanding Franchisee is and shall be an independent contractor and nothing herein contained shall be construed so as to create an agency relationship, a partnership or joint venture, either between CENTURY 21 Regional and Franchisee or between CENTURY 21 International and Franchisee. Neither CENTURY 21 Regional, CENTURY 21 International nor Franchisee shall act as agent or representative of the other. Neither CENTURY 21 Regional, CENTURY 21 International nor Franchisee shall guarantee the obligations of the other or in any way become obligated for the debts or expenses of the other unless specifically agreed upon in writing. Neither CENTURY 21 Regional nor CENTURY 21 International shall be entitled to share in any of the profits of the Franchisee or be required to share in the Franchisee’s losses; furthermore, neither CENTURY 21 Regional nor CENTURY 21 International shall have any ownership or equity interest in Franchisee. All employees or sales associates, as the case may be, hired or engaged by or working for Franchisee shall be the employees or sales associates of Franchisee and shall not by virtue of this Agreement be deemed employees, sales associates, agents or representatives of CENTURY 21 Regional or of CENTURY 21 International.
Century 21 Australia sent a standard form of letter to each franchisee granting its consent to register the business name ‘CENTURY 21 (Insert Trading Name)’ with the Australian Securities and Investments Commission. Each franchisee was required to register that name with ASIC.
The Policies and Procedures Manual
Under clause 11C(vi) of the franchise agreement, franchisees agreed to abide by the terms of the Policy and Procedure Manual (‘the Manual’). As appears below, the ‘Franchise Identification’ section in the Manual, required the franchisee to use its approved ‘CENTURY 21 Trade Name’ in accordance with the Franchisee Identity System section of the Manual for all business conducted by the Franchisee. This approved ‘Trade Name’ ‘must appear’ on all of the Franchisee’s official documents and signage.
The Manual defines ‘Trade Name’ as:
The Trade Name is the name under which the Franchisee operates and which is approved by the Region. The Trade name is comprised of the words ‘CENTURY 21” in conjunction with the individual Office Identification (Trading As) i.e. “CENTURY 21 Smith Realty”. “Trade Name” may also refer to the individual Office Identification applied with the Logo in a display consistent with the format on page 3.4
A Franchisee must always refer to itself by its full Trade Name. This rule extends to all references to your Office, including the greeting a Receptionist and Sales Associate use for incoming phone calls.
Under the heading ‘Franchise Identification’, the Manual states:
The Franchisee shall use its approved CENTURY 21 Trade Name in accordance with the Franchise Identity System section of this Manual for all business conducted by the Franchisee. This approved Trade Name must appear on all of the Franchisee’s official documents and signage, including but not limited to:
·Listing Forms
·Deposit Receipts
·Purchase Agreements and Offers to Purchase
·Contracts
·Cheques
·Newspaper and Telephone Directory Advertising.
·All other forms of Advertising or Promotion In Any Medium
·Office Signage
·Yard Signs
·Stationery and Business Cards
Except on signage (unless otherwise required by law), whenever the approved Company Name is used, the required disclaimer, “Each Office Is Independently Owned And Operated” must also be used. All exceptions must be approved in advance, and in writing, by International or the Region.
The Manual contained a ‘Telephone Policy’ as follows:
In answering the telephone, Office Personnel must always use the Franchisee’s full approved CENTURY 21 Trade Name, never just “CENTURY 21”, and never just the Office Identification.
The Manual contained the following description of the ‘CENTURY 21 System’
The ‘CENTURY 21 System’ is that system developed and owned by International for the promotion and assistance of Franchisees, including policies, procedures and techniques, designed to enable Franchisees to compete more effectively in the real estate sales market. The CENTURY 21 System includes, but is not limited to, common use and promotion of certain CENTURY 21 marks, copyrights, trade secrets, centralised advertising programs, recruiting programs, referral programs and sales and management training programs. Although International has from time to time revised and updated the CENTURY 21 System, and has reserved the right to do so as required in its best judgment, the CENTURY 21 System, for purposes of the Franchise Agreement and this Manual shall consist only of those marks, copyrights, trade secrets and programs referred to in the Franchise Agreement and in this Manual. In certain instances, when the context of this Manual requires, reference to the ‘CENTURY 21 System’ may also refer, collectively, to International, the CENTURY 21 Regions and the CENTURY 21 Franchisees.
The Manual also described ‘Trademarks’ and ‘Service Marks’. Under the heading ‘Trademark’, the Manual stated:
A Trademark is a word, name, device or any combination of these, used by a merchant to identify its goods and distinguish them from goods manufactured or sold by others. An example of a Trademark is outlined in the Style and Standards manual (which identifies the CENTURY 21 advertising manual) and the SELLER SERVICE PLEDGE Certificate.
The Pledge certificate refers to the trademark CENTURY 21®.
The Manual described the term ‘Service Mark’ as:
A Service Mark is a word, name, symbol, device or any combination of these, used by a manufacturer, service provider or merchant in the sale or advertising of services to distinguish its services from those of others. An example of a Service Mark is the Logo, which identifies CENTURY 21 services.
CENTURY 21 Signs included Office Signs and Yard Signs, which in the former case must be approved by the franchisor and in the latter case:
shall be produced and installed in accordance with the specifications which are set forth in Franchise Identity System portion of this Manual.
The Franchise Identity System in the Manual described ‘Signage Specifications’. These included the ‘Century 21 Icon Logo’ in which the height of the logo ‘Century 21’ was five units and the height of the ‘Office Identifier’, which in this case was ‘Complete Properties’, was one unit. The ‘Original CENTURY 21 Logo specifications’ were:
7. 5:1 ratio of CENTURY 21 height/Office identification height.
8. Office Identification to be in Trade Gothic LT Std Cn Bold (20).
9. Office Identification must not exceed width of ‘Century21’
The Signage Specifications contained rules about percentages for the contents of ‘Logo Bands’, ‘Tagline Signs’ and external signs displayed on the real estate agents’ premises and on their doors. Some external signs provided for in the specifications did not refer to the office identifier – for instance the windows/displays sign which stated:
CENTURY 21 AGENTS, SMARTER, BOLDER, FASTER.
Each office was to have on its door a ‘Disclaimer Decal’ stating:
Each CENTURY 21 Office
Is Independently Owned
and Operated
Century 21[4]
[4]The Signage Specifications adopted a stylised display format for the words ‘Century 21’.
The General Concepts for Office Signage were stated as:
Ensure each office includes the 6 basic CENTURY 21 components:
1. Main CENTURY 21 Logo (Often only included as part of a Logoband).
2. CENTURY 21 Logoband.
3. CENTURY 21 URL address: ‘century 21.com.au’.
4. Office Phone number.
5. CENTURY 21 Tagline ‘SMARTER, BOLDER, FASTER’.
These concepts were to be distributed ‘ideally, but not necessarily’, over six signage zones.
Under the heading ‘Office Appearance’ the Manual stated that:
Each Office shall have a clean, orderly and professional appearance that is inviting to the public and displays the proper CENTURY 21 identification…
An approved decal or sign stating ‘Each CENTURY 21 Office is Independently Owned and Operated’ must be displayed prominently on or near the front entrance of the Office.
The Manual provided for ‘Career Apparel’ including the ‘Gold Jacket’ which is stated to be a widely recognized symbol of the ‘CENTURY 21 System’.
The head franchise agreement
As previously mentioned, the head franchisor is CENTURY 21 International, a USA corporation.
The head franchise agreement, which is dated 22 June 1990, was in fact entitled the Century 21 Subfranchise Agreement and was made between CENTURY 21 Real Estate Corporation, which the agreement subsequently referred to as CENTURY 21 International and CENTURY 21 Australasia Pty Ltd, which by the time the franchise agreement with VRG was made was described as CENTURY 21 Australia Pty Ltd. The evidence did not explain the change of company name and it may have been due to a reallocation of territories, but nothing was said to turn on that change.
The recitals to that agreement stated that CENTURY 21 International had developed a plan for the establishment, development and operation of real estate brokerage offices to enable them to compete with larger chains. In order to advertise the trade name and facilitate the merchandising techniques utilized, it had designed and developed standardized signs, making use of a logo type insignia, cards, stationery, business forms, office procedure manuals, centralized advertising programs, sales training programs and personnel management and control systems for franchised real estate brokerage offices. It had developed a standard franchise agreement, sales tools and brochures and had developed a plan for the sublicense of franchises to licensed real estate brokers (which plan, policies, procedures, merchandising techniques, manual, forms and marketing programs, together with certain “CENTURY 21” marks, were collectively referred to as the “CENTURY 21 System”). The recitals also stated that CENTURY 21 believed that the ‘CENTURY 21 System’ was applicable to the real estate market in Australia ‘after appropriate allowance is made for local differences in language and commercial practice’.
Clause 6A provided that CENTURY 21 International granted to CENTURY 21 Australia the exclusive right to sublicense certain CENTURY 21 Marks and to grant CENTURY 21 franchises to licensed real estate brokers in the Territory granted under the agreement and to use the CENTURY 21 System on the terms and conditions set forth.
Clause 10 G of the head franchise agreement provided:
G. Subfranchisor shall operate under the trade name CENTURY 21 AUSTRALASIA, PTY LTD or such other trade name as may be approved in writing by CENTURY 21. Without the written consent of CENTURY 21, Subfranchisor shall not use the CENTURY 21 Marks and System for any purpose other than the sublicensing and servicing of real estate franchises to licensed real estate brokers. Subfranchisor shall not engage in any other collateral business (new business which is developed particularly for the sale of goods or services to or through its CENTURY 21 real estate franchisees) without the written consent of CENTURY 21. CENTURY 21 agrees that it will not withhold its consent unreasonably but may impose reasonable conditions. Subfranchisor shall not engage in any practices which would tend to give preference to or show commercial favouritism toward any more of its franchisees over other franchisees..
Clause 11D provided in part that:
CENTURY 21 agrees that, so long as this Agreement remains in effect, Subfranchisor shall have the exclusive right to sublicense the CENTURY 21 System and Marks, in accordance with the terms of this Agreement, in the Territory. CENTURY 21 covenants that it shall not license other entities or other persons to sublicense the CENTURY 21 System or Marks in the Territory nor disclose to any other entity or person operating in the Territory the information and materials covered by this Agreement which are not in the public domain, except as may be required by law.
Evidence at the trial
The evidence at trial consisted of the agreed statement of facts and the parts of the parties’ affidavits admitted into evidence.
The Secretary’s affidavit
The plaintiffs’ affidavit was sworn by Mr Blair Ussher, who is General Counsel for Consumer Affairs Victoria and the solicitor for the Secretary. He stated that he had requested production of agreements referred to in an affidavit sworn by Ms Catherine Vincent, a solicitor acting for Century 21 Australia. Ms Vincent had stated that each of the 27 Victorian Century 21 Australia estate agents carried on business under an agreement with Century 21 Australia similar to the agreement made between Century 21 Australia and VRG. In response to his request, he received 21 franchise agreements. He stated that 19 of them were standard form agreements and contained terms substantially similar, if not identical, to the printed terms of the agreement made between Century 21 Australia and VRG.
Mr Ussher exhibited a Registrar’s certificate certifying that five companies were recorded on the register of estate agents maintained by Business Licensing Victoria. The companies were: Stockdale & Leggo Pty Ltd; Hocking Stuart Pty Ltd; Ray White (Victoria) Pty Ltd; Century 21 (Australasia) Pty Ltd; and LJ Hooker Franchising Ltd.
Century 21 Australia’s affidavits
Mr Paul Mylott has been employed as the General Manager of Century 21 Australia since 2001. He stated that each of the Century 21 estate agents carried on business under an agreement with Century 21 Australia that had substantially the same terms as the Century 21 franchising agreement, except for items unique to the estate agents. There were approximately 250 Century 21 estate agents across Australia, including in 21 separate locations in Victoria. Their business names varied.
He stated that, based on his experience since 2001, a majority of the non-Century 21 franchisees in Victoria used and displayed their franchise name uniformly and did so in isolation from any specific identifier for the particular franchisee or office location. The franchise names of the non-Century 21 franchisees in Victoria which operated in that way included: L J Hooker; Ray White; Raine & Horne and Harcourts.
Mr Genc Kalaja, a solicitor, made an affidavit on behalf of Century 21 Australia stating that, on 8 October 2015, he attended real estate agencies under franchise agreements in Victoria with the franchisors mentioned in the previous paragraph at various addresses and photographed them. He obtained the business cards of some of them. Most of the photographs and business cards contained only the name of the head franchisor e.g. LJ Hooker, with in some cases the addition of the geographical location of the business.
The third affidavit relied on by Century 21 Australia was by Ms Catherine Vincent, a solicitor. She detailed her search of trademarks registered in Australia containing the word ‘Century’ and the numeral ‘21’ from a website operated by ‘IP Australia’ which is a Commonwealth government agency. Ms Vincent found seven such registered trademarks, six of which contained the words ‘CENTURY 21’ with particular images and one which was ‘CENTURY 21 REAL ESTATE’.
Ms Vincent exhibited to her affidavit the registered business name of Victorian Realty Group Pty Ltd. She also conducted a search of the business names entitled to be used by Century 21 Australia and the franchise names used by other real estate franchisees in Victoria, including the names LJ Hooker, which was used by 49 franchisees, Ray White, which was used by 84 franchisees, Raine & Horne, which was used by 35 franchisees and Harcourts, which was used by 54 franchisees.
The legislation
The case concerned the franchise provisions in the Estate Agents Act 1980 (Vic) (‘the Act’). The relevant provisions are:
43 Franchising agreements
(1)An estate agent who enters into a franchising agreement must give notice to the Authority of the agreement.
(2)A notice under subsection (1)—
(a)must be in a form approved by the Authority and contain the prescribed particulars; and
(b)must be given to the Authority within 30 days after the agreement is entered into.
(3)If an estate agent carries on business pursuant to a franchising agreement—
(a)each party to the agreement is jointly and severally liable for any defalcation by the estate agent; and
(b)each party to the agreement is jointly and severally liable for any liability incurred by the estate agent as a result of negligence by the estate agent or by an employee or servant of the estate agent in the performance of the duties of an estate agent; and
(c)each party to the agreement is jointly and severally liable for any costs or fines arising out of any proceedings instituted in respect of that defalcation or negligence.
(4)If an estate agent contravenes this section each party to the franchising agreement is guilty of an offence.
(5)In this section—
franchising agreement means an agreement whereby an estate agent is authorized to carry on business under any name in consideration of any other person entitled to carry on business under that name receiving any consideration whether by way of a share in the profits of the estate agent's business or otherwise;
defalcation has the same meaning as in Part VII.
The term ‘defalcation’ is defined in s 71 in Part VII as:
any theft embezzlement failure to account fraudulent misappropriation or other act punishable by imprisonment of or in relation to any money or other property.
The Act refers both to ‘franchising agreement’ in s 43 and ‘franchise agreement’ in s 33(3)(i), which is the document about which information must be recorded on the Register kept under the Act.
The history of the franchising provisions in the Estate Agents Act
The Estate Agents Act 1958 did not regulate franchising agreements.
The Estate Agents Act 1980 inserted s 43, which dealt with estate agents carrying on business pursuant to franchising agreements and provided that each party to the agreements should be jointly and severally liable for any defalcation by the estate agent. Section 43(7) defined ‘franchising agreement’ to mean:
an agreement whereby an estate agent is authorised to carry on business under any name, title or description in consideration of any other person entitled to carry on business under that name, title or description receiving any consideration whether by way of a share in the profits of the estate agent’s business or otherwise.
The feature of that definition, which is absent from the definition of franchising agreement in the present legislation, is the phrase ‘name, title or description’.
The parties referred to the speech of Mr B Chamberlain MLC in the Legislative Council debate about the 1980 Bill. Mr Chamberlain had played a role in preparing that Bill. He said:
One of the major problems that has arisen in recent years is that of licensing where an agent who is a licence lends his name to a number of businesses which purport to act as his sub-agents. There is no real control of the agencies which are run as independent organizations with some payment being made to the agent who is qualified.
…
I cannot give the illustration without giving the name of the major franchisor, which is L.J. Hooker. Recently I saw an advertisement in a suburban newspaper which said: ‘L.J. Hooker covers the eastern suburbs and the following properties have been sold by L.J. Hooker in the last month’. Those properties had not been sold by L.J. Hooker but by a series of independent businesses using the name of L.J. Hooker under a franchise agreement – perfectly legitimate and I make no complaint about it. The Bill will make it clear to the public that they are dealing with an independent person such as Bill Bloggs in Bentleigh who trades under the franchise name of L.J.Hooker
A theme in the Bill is to ensure that the public is not under any misapprehension as to who they are dealing with and there are proposals to ensure that any business conducted under other than the name of the agent should be printed on the advertising material- that is, on the display window, letterheads and receipts of the business.
The same situation applies with a franchise. The Bill will make it clear that persons dealing with any of the franchise names such as L.J. Hooker will know that they are not dealing with the large L.J. Hooker organization but with Bill Bloggs here or Bill Smith there. The Bill gives the Real Estate Agents Board power to regulate the type of advertising which applies in a franchising situation. It also makes the franchisor –that is the person making his or its name available for use by these various small businesses- bear some of the responsibilities because he is on a retainer, represented by a certain percentage of the commission generated by the business. [5]
[5]Victoria, Parliamentary Debates, Legislative Council, Hansard, 7 May 1980, 9286-7.
Mr Chamberlain’s comments were directed at situations where licensed agents lent their name to other estate agents. The business structure in the present case differed, in that Century 21 Australia which was, in a sense, an intermediary company, was not a real estate agent.
Next, were amendments made by the Estate Agents (Amendment) Act 1983 which narrowed the definition of ‘franchising agreement’. One change amended s 43(7) by substituting for the words ‘name, title or description’ (where twice occurring) the words ‘approved name’. The term ‘approved name’ was defined to mean a name approved by the Estate Agents Board under s 36.
Next, the Estate Agents (Amendment) Act 1994 amended s 36 by substituting a new provision, which removed the requirement that the name of an estate agency be an approved name and inserted a section that included:
(2) The Authority –
(a) may refuse to issue the person with an estate agent’s licence until the person chooses a name that is acceptable to the Authority;
(b) if the person already holds an estate agent’s licence, may require the person to change the name of the estate agency business.
The Explanatory Memorandum described the 1994 amendment as one of the ‘minor consequential amendments’ in the legislation. Century 21 Australia submitted that following the 1994 amendments, the statutory concept of ’name’ in the definition of ‘franchising agreement’ remained as narrow as it was before the amendment removed the requirement for an ‘approved name’.
The Consumer Affairs Legislation Amendment (Reform) Act 2010 repealed s 36.
Therefore, at relevant times for this proceeding, the Estate Agents Act 1980 did not require that the name of the estate agency be authorised by the regulatory authority, which by then was the Business Licensing Authority. The key provision of the Act dealing with franchising agreements was s 43, which has been set out above.
The first issue: was the franchise agreement made between Century 21 Australia and VRG a ‘franchising agreement’ as defined in s43(5)?
The Secretary’s submissions
The Secretary submitted that the purpose of s 43(3) was to extend legal protection to persons who were injured by an estate agent’s dishonest conduct or negligence. The costs of that protection were be shared by persons who authorised the estate agent to carry on business under a name they were also entitled to use and from the use of which they derived consideration. The public deserved such protection because the public mind would identify the franchisee with the franchisor. Section 43(3) also sought to encourage such franchisors to play an active part in maintaining the franchisee estate agents’ standard of behaviour.
The Secretary characterised the agreement between Century 21 Australia and VRG as an orthodox franchising agreement under which VRG paid fees to Century 21 Australia in return for VRG’s use of the ‘CENTURY 21’ name.
The Secretary submitted that the ‘name’ referred to in s 43(5) was the name that VRG was authorised to use and that was ‘Century 21’. The word ‘name’ in the definition of ‘franchising agreement’ should not be narrowly construed and should be read with ‘a degree of flexibility’. Such a reading would achieve the purposes of the legislation.[6] It was unnecessary that the names of the two parties referred to in s 43(5) be congruent.
[6]Lacey v Attorney-General of Queensland (2011) 242 CLR 573[44] and s 35(a) of the Interpretation of Legislation Act 1984.
In addition, a number of the policies and procedures that Century 21 Australia imposed on VRG, required it to use the name ‘Century 21’. The franchise agreement recited that CENTURY 21 International owned certain trademarks and service marks, ‘including the name ‘CENTURY 21®’. The identifying mark of the franchise was the name ‘CENTURY 21’. Clause 1 made plain that the grant of the franchise involved granting permission to use the ‘CENTURY 21 System’ and ‘certain CENTURY 21 Marks’. By clause 4A, VRG acknowledged that its business ‘must be capable of being identified by the public as being substantially associated with the CENTURY 21® marks’. Clause 4E referred to the franchisee’s use of its CENTURY 21 trade name as well as ‘such other CENTURY 21 Marks as [the] Franchisee may be authorised to use from time to time’.
Century 21 Australia authorised VRG to operate under a name that included the words ‘Century 21’. It sold VRG the right to use the name ‘CENTURY 21’ on condition that it be used in a certain way. It was evident that the ‘CENTURY 21‘ name was the identifying mark of the franchise and which VRG was authorised to use.
The concept of a trading name referred to in the ‘franchise agreement’ was not the same as the ‘name’ used in the statutory definition of ‘franchising agreement’. The former was a contractual matter, while the latter, being a statutory term, should, consistently with the purpose of s 43(3), be interpreted as a broader concept.
The authorisation given by the franchise agreement to use the name ‘CENTURY 21’ lay at the core of, and provided the distinctive value of, the franchise. It was the name from which Century 21 Australia, as franchisor, derived consideration by granting permission for its use.
The critical task in the application of the definition of ‘franchising agreement’ was to identify the name under which Century 21 Australia authorised VRG to carry on business. That question had to be posed and answered in a context in which the business names legislation prevented VRG from carrying on business under the same name as Century 21 Australia. Therefore, Parliament could not have intended that the definition of ‘franchising agreement’ in s43(5) required complete congruence between the franchisor’s name and the franchisee’s name as Century 21 Australia contended.
Under s 25(a) of the Business Names Registration Act 2011 (Cth), a business name is available to an entity: if the name is not identical or nearly identical to: a business name registered to another entity, or a name that is reserved or registered under the Corporations Act for another body, or a name that is registered to another entity on a notified State/Territory register or a name which did not fall within other categories, which do not appear relevant to the present circumstances.[7]
[7]See previously s 10A of the Business Names Act1962 and see Part 2 of the Business Names Registration (Availability of Names) Determination 2015 (Cth) ‘Rules for determining whether business names are identical or nearly identical to other names’.
Under s 147 of the Corporations Act 2001, a name is available to a company, if it is not identical to a name that is reserved or registered under that Act for another body, or identical to a name that is held or registered on the Business Names Register in respect of another individual or body who is not the person applying to have the name or unacceptable for registration under the regulations.
The Secretary also submitted that Century 21 Australia was entitled to carry on business under ‘that name’ that is ‘CENTURY 21. Under clause 6 of the head franchise agreement, Century 21 Australia was given the exclusive right to sublicence certain CENTURY 21 marks, which meant certain trademarks and service marks, including the name Century 21. The Secretary submitted that by that authority, Century 21 Australia sold to VRG the right to use the name ‘CENTURY 21’.
The Secretary submitted that the evidence of other business practices adopted under other real estate franchising arrangements in Victoria about the use of names was irrelevant to deciding whether Century 21 Australia and VRG had entered into a ‘franchising agreement’ as defined. But, the evidence suggested that other franchisees, in many instances, traded under a name, being their franchisor’s name together with another unique identifier such as a suburb or other location, or in a few cases additional identifiers such as ‘Property Management’.
Century 21 Australia’s submissions
Century 21 Australia submitted that the word ‘name’ in s 43(5), meant a name under which a franchisee was authorised to carry on business, by the binding terms of an agreement with the franchisor. The definition of ‘franchising agreement’ was satisfied only when a name, and not part of a name, under which the franchisee was contractually authorised to carry on business, was the same as a name under which the franchisor was entitled to carry on business. The correct question in the present circumstances was: what name did the franchise agreement authorise VRG to use in carrying on its business as an estate agent?
Century 21 Australia submitted that the purpose and meaning of the definition of ‘franchising agreement’ contained in s 43(5) of the Act were to be obtained by reading the words of the definition in the context of the objects of the legislation and all its provisions, as well as its history. It relied on the High Court decision in Independent Commission Against Corruption v Cunneen.[8]
[8](2015) 256 CLR 1 [31] - [42].
The history of the Act established the Parliamentary intention that in order for an agreement to be a franchising agreement, a complete coincidence must exist between the names of the franchisor and the franchisee. The references in the 1980 Parliamentary debates to the practical operation of the businesses run by LJ Hooker supported that conclusion. The amendment to the 1994 removed the adjective ‘approved’ as part of a new regime for licensing estate agents, but had no wider effect.
Section 43 was a penal provision because s 43(4) rendered any contravention of its provisions an offence. Therefore, if s 43(5) contained any ambiguity it was to be resolved in favour of the defendant.[9]
[9]Beckwith v R (1976) 135 CLR 569,576, DC Pearce and RS Geddes, Statutory Interpretation in Australia, (LexisNexis Butterworths 8th ed 2014) 367-70 (‘Pearce and Geddes’).
The affidavit evidence established that franchisees in other franchise networks did carry on business by sharing their franchisor’s name, but that Century 21 Australia’s franchisees did not. The CENTURY 21 system forbade franchisees from using ‘Century 21’ as a name under which they carried on business. ‘Century 21’ is only part of the name under which VRG was authorised to carry on business. Century 21 Australia’s franchise agreements required clear differentiation between the names of the franchisor and franchisees and as between franchisees inter se. They also required disclaimers to be displayed prominently on, or near, the front doors of franchisees stating that they were ‘independently owned and operated’.
The terms of the franchise agreement created a framework for a publicly recognisable association between CENTURY 21 International, which was the owner of the ‘CENTURY 21 Marks’ and VRG as its subfranchisee, rather than an identity of the two entities or a holding out, or representation, that the franchisee was part of the CENTURY 21 International corporate structure.
Century 21 Australia contended that it was entitled to carry on business under the name Century 21 Australasia and/or Century 21 Australia pursuant to clause 10G of the head franchise agreement and was not entitled to carry on business under the name ‘CENTURY 21’.
Century 21 Australia also relied on the provisions of the Trade Marks Act 1995 (Cth)[10] and submitted that the words, or word and numerals, ‘Century 21’ were a registered trademark and therefore could not be a ‘name’ within the definition of ‘franchising agreement’ in s 43(5). The Estate Agents Act could not regulate the use of a name which was a trademark. Such a name was not a business name registered under the Business Names Registration Act 2011(Cth), because that Act dealt with the registration of business names that were not registered trademarks. The Trade Marks Act 1995 operated in parallel with the Business Names Registration Act, and its State predecessors.[11] The franchise agreement contains no authority to use the registered trademark ‘Century 21’ and contained a blanket prohibition on the use of the trade mark containing that name.
[10]T 156.
[11]In Victoria, the Business Names Act1962.
The Trade Marks Act permitted the use of a name, which was a registered trade mark, by other businesses when the registered owner of the trade mark consented.[12] It is likely that other franchisors, who were referred to in the affidavit evidence, had given that consent to their franchisees. But, VRG was not authorised to carry on business using the trade mark ‘CENTURY 21’. It was only authorised to use its Century 21 trade name – ‘CENTURY 21 Complete Properties’.
[12]Sections 123(1) and (2).
Conclusion on issue one
In my opinion, the franchise agreement entered into between VRG and Century 21 Australia was not a ‘franchising agreement’ within the meaning of s 43(5) of the Act.
The definition of the term ‘franchising agreement’ in s 43(5) deals with two issues: the authorisation of the estate agent and the entitlement of the franchisor who granted the authorisation to the estate agent. Both issues must be considered.
The head franchise agreement between CENTURY 21 International and the franchise agreement between Century 21 Australia and VRG appear to have been drafted without regard to the statutory requirements of a ‘franchising agreement’ as defined by s 43(5) of the Act.
I will first consider those parts of the definition of ‘franchising agreement’ which the Secretary has to satisfy in respect of VRG. VRG was an estate agent and engaged in that business under the trading name ‘CENTURY 21 Complete Properties’. It entered into an agreement with Century 21 Australia.
The definition of ‘franchising agreement’ required that the estate agent had been ‘authorised to carry on business under any name’. The verb ‘authorised’ often refers to the conferral upon a person of a right to do something, which apart from the authorisation, the person did not possess.[13] The franchise agreement authorised VRG to do a number of things, including operating under the name ‘CENTURY 21 Complete Properties’.
[13]Ex parte Johnson; Re MacMillan (1946) 47 S.R. (NSW) 16,18 (Jordan CJ).
The phrase ‘carry on business’ means undertaking activities as a commercial enterprise in the nature of a going concern, that is activities engaged in for the purpose of profit on a continuous and repetitive basis.[14]
[14]Hope v Bathurst City Council (1980) 144 CLR 1, 8-9 (Mason J).
The word ‘under’ has many meanings depending on context, including:
beneath (a head, heading, or the like) as in classification.
as designated, indicated, or represented by: under a new name.
with the favour or aid of: under protection. [15]
[15]Susan Butler (ed) The Macquarie Dictionary (6th ed 2013, Macquarie Dictionary Publishers Pty Ltd) 1598 (‘Macquarie’).
The dictionary definition of ‘name‘ is of a word or a combination of words by which a person, place or thing, a body or class, or any object or thought, is designated or known.[16]
[16]Ibid, 975.
The second part of the definition of ‘franchising agreement’ contained a separate requirement: that the franchisor was ‘entitled’ to carry on business under ‘that name’, meaning the name under which the estate agent was authorised by the franchising agreement to carry on business. The verb ‘entitled’ means to give a person a title, right or claim to something.[17]
[17]Ibid, 493.
Neither party suggested that anything additional to the rights given by the franchise agreement and the Manual to which it referred, or the head franchise agreement, was relevant in determining whether the definition of ‘franchising agreement’ was satisfied in this case. It was not suggested that evidence of how VRG had actually carried on business was relevant.
‘Century 21’ is not a name under which any franchisee of Century 21 Australia is authorised to carry on business. The franchising agreement forbade them from doing so.
The term ‘that name’ to which s 43(5) refers was, in this instance, the name ‘CENTURY 21 Complete Properties’. VRG was authorized to carry on business under that trade name. Century 21 Australia was not entitled to carry on business under that name.
VRG was given the right to use the CENTURY 21 System and certain CENTURY 21 Marks as detailed in the sections of the Policy and Procedure Manual, which are set out above. And in every visual display, including the office sign and yard signs, the portion of the franchisee’s trade name immediately following the words ‘CENTURY 21’ or other approved words was to be in a five-to-one size relationship with the CENTURY 21 name and logo.
I accept the Secretary’s submission that VRG agreed to pay franchise fees to receive the benefit of the right to use the words ‘Century 21’. The existence of the many Century 21 franchise agreements suggests that the name ‘Century 21’, or a name associated with or comprising the words[18] ‘Century 21’, was of commercial benefit or potential benefit. Franchise arrangements are often founded on the value of the franchise name. Century 21 Australia sold to VRG the right to use that name in combination with other words that distinguished it from other franchisees. In that sense, it sold the use of that name subject to conditions as to its use. Those conditions included that the words ‘CENTURY 21’ had to be used in conjunction with the words ‘Complete Properties’. The words ‘Complete Properties’ are amorphous, but when joined with ‘CENTURY 21’ they form a distinct name ‘CENTURY 21 Complete Properties’.
[18]Strictly speaking they are words and numbers, but for ease of reference I will refer to them as words.
The franchise agreement did not authorise VRG to carry on business under the name ‘CENTURY 21’. It forbade it doing so. In my opinion, particular attention must be focused on the authority to carry on business that the franchise agreement gave VRG.
Clause 4 of the franchise agreement is particularly significant in that respect. Clause 4A stated that the business to be carried on by VRG must be capable of being identified by the public as being substantially associated with the CENTURY 21 marks as set forth in the Manual. I accept that the public would have associated ‘CENTURY 21 Complete Properties’ with the ‘Century 21’ network, not least because of the prominent use of the name ‘CENTURY 21’ with capitalised letters. But in my opinion, the requirement of, or fact of being ‘substantially associated with’, is not the same as ‘authorised to carry on business under’. The statutory definition of ‘franchising agreement’ is concerned with the authority and entitlement to carry on business under a particular name and not with other aspects of how businesses are carried on.
I have taken into account that the provisions of s 43, particularly subsection (3), are to be regarded as beneficial legislation, because they provide additional potential rights to clients of estate agents against franchisors. At the same time, s 43, because of subsection (4) is also a penal provision. Legislation that is both beneficial and penal should not be interpreted so as to deprive the beneficial features of the legislation of their purpose and effect.[19] Even in the case of beneficial legislation however, if the words of the legislation are clear, or admit of only one outcome, that must be the meaning attributed to them.[20]
[19]Pearce and Geddes, 365 and Waugh v Kippen (1986) 160 CLR 156, 164-5.
[20]Pearce and Geddes 359 and Minister Administering the Crown Lands Act v NSW Aboriginal Land Council (2008) 237 CLR 285, 301 [48].
Clause 4B required that VRG operate under the trade name ‘CENTURY 21 Complete Properties’ and shall ‘use no other name in connection with any operations conducted at or from the’ Craigieburn location. The verb ‘operate’ can apply to the activity of ‘carry[ing] on business’[21]. On the plain words of clause 4, I do not consider that VRG was authorised to carry on business under the name ‘CENTURY 21’ even if a wide definition of the word ‘under’ is adopted, such as ‘carrying on business with the favour or aid of the name ‘CENTURY 21’.
[21]Macquarie 1031 especially meanings 8-10.
Names create and give identity. Many names, both of persons and of businesses, are similar, but, unless they are precisely the same, they are different, although parts of them may overlap. The name ‘CENTURY 21 Complete Properties’ is different from the name ‘Century 21’, although it encompasses that name. When the statutory definition of ‘franchising agreement’ refers to ‘that name’, it refers to the same or identical name, as the name under which an estate agent is authorised to carry on business. It does not refer to part of the name, even if that part has significant commercial value.
The legislative history of the regulation of franchising agreements emphasises the importance of the particular name that the estate agent was authorised to use.
For those reasons, I do not consider that the rights given to VRG under the franchise agreement including to use the CENTURY 21 System and certain CENTURY 21 marks or, to operate under a marketing plan or system developed by CENTURY 21 International, resulted in VRG being authorised to carry on business under the name ‘Century 21’.
Similarly, I do not consider that the words ‘CENTURY 21’ which form part of the name ‘CENTURY 21 Complete Properties’, can be separated from that name and thereby treated as the ‘name’ for the purposes of s 43(5). The terms of the franchise agreement prohibited VRG, in the operation of its estate agency business at Craigieburn, from using any name other than ‘CENTURY 21 Complete Properties’. I do not accept the Secretary’s submission that it was sufficient that VRG was entitled to operate under a name which included the words ‘Century 21’.
I also do not agree with the Secretary’s submission about the significance of the business names legislation. I do not consider that the fact that the business names legislation prevented the use by another person of a name that was a registered business name assists in determining the legislative intention of the definition of ‘franchising agreement’. The interpretation that I prefer would not defeat the purpose of the statutory definition. Two businesses can use the same business name for example, when the registered owner of the name authorises another person, for instance a franchisee, to use that business name.[22] The definition of ‘franchising agreement’ would appear to be satisfied in such circumstances.
[22]See, s 31 of the Business Names Registration Act 2011 (Cth).
However, I do agree with the Secretary’s submission that a name that a name that is a trade mark can still be a ‘name’ for the purposes of the definition of ‘franchising agreement’.[23] A trade mark can be used by a licensee of a trade mark even if the licensee is not the registered owner and has not registered the name as a business name.[24]
[23]Trade Marks Act 1995 (Cth) ss 6 and 24.
[24]Trade Marks Act 1995 (Cth) ss 7 and 123 and Facton Ltd v Toast Sales Group Pty Ltd [2012] FCA 612.
The final matter to be considered in deciding whether the definition of ‘franchising agreement’ is satisfied is whether the Secretary has established that Century 21 Australia was entitled to carry on business under ‘that name’, that is, the name ‘CENTURY 21’. In my opinion, the Secretary has not established that it had that entitlement. The head franchise agreement did not create that entitlement. Rather, clause 10G of the head franchise stated ‘the subfranchisor shall operate under the trade name CENTURY 21 AUSTRALASIA PTY LTD or such other trade name as may be approved in writing by CENTURY 21.’
The affidavit evidence suggested that some franchisees of other real estate franchises who used the franchisors’ names may have been given permission by the franchisors to use them. The details of any such permissions or arrangements were not in evidence so this cannot be stated conclusively.
In my opinion, to adopt a flexible interpretation of the term ‘franchising agreement’ may create uncertainty about whether a particular agreement falls within that definition. Such an approach to the interpretation of the definition might require the parties, the regulator or the Court to assess evidence of how a franchisee operated its business, rather than focusing on the rights granted by the agreement to which attention is directed by s 43(5).
Issue 2: The Secretary’s right of subrogation
Century 21 Australia’s other defence is that the Secretary was not subrogated to the rights and remedies of the individual claimants in relation to their losses suffered as a result of the defalcations. Despite my conclusions on the ‘franchising agreement’ issue, I will express my views on this issue.
The key provision of the Act is s 84 which states:
Subrogation of Secretary to rights etc. of claimant upon payment from Fund
On payment out of the Fund of any moneys in respect of a claim under this Part, the Secretary shall be deemed to be subrogated to the extent of that payment to all the rights and remedies of the claimant in relation to the loss suffered by him from the defalcation including the right to benefit from any order made under section 86 of the Sentencing Act 1991.
The Act establishes the Victorian Property Fund (‘the Fund’).[25] Moneys are paid into the Fund from a variety of sources, including:
all moneys recovered by or on behalf of the Secretary in the exercise of any right of action conferred by this Part.[26]
[25]Section 72.
[26]Section 73(f).
Section 75 provides for payments out of the Fund, including:
(1)(a)any claim including costs allowed or established in respect of the Fund.
Section 79 provides that the Fund is to be held and applied for the purposes of compensating persons who suffer pecuniary loss by reason of a defalcation committed by an estate agent.[27]
[27]Section 79(1).
By s 80(1), every person who suffers pecuniary loss, as referred to in s 79, is entitled to claim compensation from the Fund. Section 80 (3) and (4) provide:
(3)Subject to this Part the amount that a claimant is entitled to claim as compensation from the Fund is the amount of the actual pecuniary loss suffered by him (including the reasonable costs of and disbursements incidental to the making and proof of his claim) less the amount or value of all moneys or other benefits received or receivable by him from a source other than the Fund in reduction of the loss.
(4)In addition to any compensation that is payable under this Part, interest is payable out of the Fund on the amount of the compensation, less any amount attributable to costs and disbursements, at the rate of five per cent per annum calculated from and including the day on which the pecuniary loss was suffered until the day on which the claim is satisfied.
Section 81 provides for claims for compensation from the Fund to be made. Section 81(2) authorises the Secretary to allow and settle any proper claim from the Fund at any time after the occurrence of the pecuniary loss in respect of which the claim arose.
Century 21 Australia’s submissions on the Secretary’s right of subrogation
Century 21 Australia submitted that s 84 of the Act did not confer upon the Secretary a right of action against it and that it only applied in respect of payments made pursuant to Part VII of the Act. Because s 43(3), which is the provision imposing joint and several liability on the franchisor for the estate agent’s defalcations, is within Part IV of the Act and not Part VII, the Secretary is not given any right of subrogation under s 84. The ‘rights and remedies’ to which s 84 refers do not include rights and remedies that exist only because of s 43 in Part IV.
Section 84 conferred rights of subrogation on the Secretary against VRG, but not against Century 21 Australia. Victims of defalcations by estate agents have three ways to seek recompense for their loss:
(a) they can sue the estate agent under the ordinary common law principles or under consumer protection legislation;
(b) they can sue the franchisor if the estate agent is a franchisee under a ‘franchising agreement’ within the definition in s 43 (5); or
(c) they can make a claim on the Fund and have their claim paid out of the Fund.
Section 43 confers a right of action on a member of the public who is a victim of defalcation, but it does not mention the Secretary. Section 43 is a penal provision and it would be contrary to principle to read it as rendering the franchisor liable to the Secretary. Instead, s 84 provides a means for the replenishment of the Fund when it recompenses clients who have suffered from defalcations, by the Secretary suing the delinquent estate agents.
The text of other sections, including ss 73(f), 74(1), 79(1), 80(1) 83 and 84 which contain the words ‘subject to this Part’, support the contention that any right of action upon the Secretary must be found in Part VII.
The Secretary’s submissions
The Secretary contended that s 84 applies when a payment has been made out of the Fund ‘of any moneys in respect of a claim under [Part VII]’. It then deems the Secretary to be subrogated to the extent of that payment to all the rights and remedies of the claimants in relation to the loss suffered by them from the defalcations.
Victims of defalcations received payment of their losses out of the Fund under s 80. The statement of agreed facts recorded that each of the second to fourteenth plaintiffs ‘made application to recover his or her pecuniary loss from the Fund pursuant to the provisions of Part VII of the Act’ and that payments had been made out of the Fund in respect of those claims.
The effect of s 84 was that ‘the Secretary is deemed to be subrogated to the extent of the payment to all the rights and remedies of the claimant in relation to the loss suffered by him from the defalcation.’ Those rights included the right to bring an action against Century 21 Australia, assuming that there is a franchising agreement, on the basis of its joint and several liability under s 43(3)(a)for VRG’s defalcations.
The reference in s 73(f) to a ‘right of action’ must include any right conferred on the Secretary by s 84 to commence litigation because of subrogation to the relevant rights and remedies of the claimant. Although, in this case, the former clients’ rights to sue Century 21 Australia were founded on s 43(3), which is contained in Part IV of the Act, the Secretary’s right to sue Century 21 Australia was founded on s 84, which was contained in Part VII. Section 84 refers to all the rights and remedies of the claimants. To read those words, as Century 21 Australia contended, as only extending to the claimants’ ‘existing common law and consumer protection’ rights and remedies, would be inconsistent with the purpose of s 43(3) of conferring on parties to franchise agreements joint and several liability for the defalcations by franchisees. Such an interpretation would also undermine the effectiveness of the Fund by limiting the Secretary’s ability to recovery moneys which would, in turn, replenish the Fund.
Each of the second to fourteenth plaintiffs could have commenced an action against Century 21 Australia to recover moneys lost by VRG’s defalcations. But moneys were paid to them out of the Fund in respect of those defalcations and the Secretary was exercising their rights in their place, consistently with the terms of s 84.
Conclusion on issue two
Section 84 applies where there has been ‘payment out of the Fund of any moneys in respect of a claim made under [Part VII]’. The second to fourteenth plaintiffs have been paid their losses out of the Fund after they ‘made application to recover his or her pecuniary losses from the VPF pursuant to the provisions of Part VII of the Act’. I accept the Secretary’s submissions that those payments have been made out of the Fund in respect of claims under Part VII.
Century 21 Australia’s interpretation of s 84 departs from its plain words. I see no reason why those plain words should be read down as contended. The words are clear and are words of amplitude: ‘all the rights and remedies of the claimant(s) in relation to the loss suffered by [them] from the defalcation’.
The final words of s 84 namely: ‘including the right to benefit from any order made under section 86 of the Sentencing Act 1991’, which latter section provides for compensation orders, do not diminish the width of the previous words ‘all the rights and remedies of the claimant’.
In my opinion, if contrary to my conclusion, a ‘franchising agreement’ did exist in this case, the Secretary would have had the right of subrogation on which he relies.
Conclusion
The plaintiffs have not established that the franchise agreement was a ‘franchising agreement’ within the definition in s 43(5) of the Act. Therefore, the joint and several liability provisions contained in s 43(3) do not apply and the defendant is not liable for VRG’s defalcations.
The proceeding is dismissed.
SCHEDULE OF PARTIES
| S CI 2015 03477 | |
| BETWEEN: | |
| SECRETARY TO THE DEPARTMENT OF JUSTICE AND REGULATION | First Plaintiff |
| SHAFEEQ AHAMED | Second Plaintiff |
| SADIYA LUBNA | Third Plaintiff |
| JOSIE LUCIANO | Fourth Plaintiff |
| STEPHEN LANGDON | Fifth Plaintiff |
| HEIKE LANGDON | Sixth Plaintiff |
| ALLAN JOHNSTON | Seventh Plaintiff |
| KAREN JOHNSTON | Eighth Plaintiff |
| VIPIN GOEL | Ninth Plaintiff |
| ALI OSMAN | Tenth Plaintiff |
| OLCAY OSMAN | Eleventh Plaintiff |
| VINCENT CIRONA | Twelfth Plaintiff |
| KARALEE CIRONA | Thirteenth Plaintiff |
| KLARA BUNJAMIN | Fourteenth Plaintiff |
| - and - | |
| CENTURY 21 AUSTRALIA PTY LTD (ACN 003 145 346) | Defendant |
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