Mahoneys secure massive win for managements rights industry

Contributed by MAHONEY LAWYERS – 24 August 2017

Mahoneys secure massive win for managements rights industry

A recent decision by the Queensland Court of Appeal has clarified the way in which management rights operators can charge their clients for services performed pursuant to their appointment.

Mahoneys ran the appeal for Peterson Management Services Pty Ltd against the Office of Fair Trading before the Queensland Court of Appeal which handed down its decision on 12 May. Whilst the decision concerned the now repealed Property Agents and Motor Dealers Act (PAMDA) the findings will apply to the current Property Occupations Act 2014 (Qld) (POA),which replaced PAMDA and which contains near identical provisions on the relevant point.

Petersons owns the management rights at a popular Gold Coast resort. Letting appointments with owners specified single sum amounts for certain fees or charges payable for services the manager provided.

The OFT took the view that the practice (which is commonplace) did not meet the requirements of PAMDA and commenced proceedings against the manager in four respects claiming:

1. Despite the appointment specifying a fee for cleaning an apartment, the manager could only charge an owner the actual (and significantly lower) amount paid to the contractor engaged by the manager to carry out the cleaning;

2. Fees charged for the provision of Foxtel services were limited to the actual cost to the manager of the service, despite the appointment clearly stating the (higher) fee to be charged to owners;

3. Commission could only be charged on the actual net amount received by the manager from bookings placed through Wotif – not on the amount Wotif actually received; and

4. Fees charged in respect of window cleaning services without any authority in the appointment were improper.

The OFT maintained in relation to cleaning and Foxtel charges that such items were really “expenses” the manager was incurring on behalf of the owners and unless any mark-up was disclosed the manager could not charge more than the actual cost.

The manager argued that the charges were for overall services the manager was providing – which service involved not just incurring some expenditure (on the manager’s own behalf – not the owner’s) and substantial time, effort and resources in acquiring, organising, prioritising, supervising and generally managing the services. The manager did not contest the fourth point.

Whilst the manager was successful in the original QCAT hearing, OFT successfully appealed to QCAT Appeal who found in favour of the OFT. In reading that decision it is almost as though the appeal tribunal was saying that even though PAMDA does not contain an express provision like OFT contended, it should! Mahoneys and the manager successfully appealed to the Court of Appeal.

It was common ground between the parties at the appeal that the manager’s appointment stated the fees or charges payable for services performed. It was also agreed that the manager had performed the services it had been engaged to provide, and had only charged the price stated in the appointment.

OFT however argued that these fees were really “expenses” which the manager was authorised to incur on behalf of the owners and required full disclosure of any profit or mark-up - as distinct from costs” which a manager may incur in performing a service, which ordinarily are of no concern to the owner.

Indeed OFT argued that PAMDA required the disclosure of any expense incurred by the agent in connection with the provision of services to the lot owner.

The Court of Appeal rejected that argument finding that it is only expenses which a manager is authorised to incur on behalf of an owner that requires full disclosure but where, as here, a manager provides a service and incurs expenses in doing so, disclosure is not required.

The following extracts from the court are relevant: “The present case is not about the recovery of such an authorised expense. It is about a reward for service. The [Appellant’s] appointment stated, by reference to a Schedule, the fixed dollar amount it was to be remunerated for providing the relevant service. The appointment form did not authorise the applicant to incur expenses in connection with the provision of the cleaning service. The nature and expense of the labour, materials and other things the applicant obtained to provide the service was a matter for it to arrange. Unit owners were not ‘billed’ … for cleaning expenses which the agent incurred. Unit owners were not ‘charged’ … with those expenses. The agent was rewarded by a fixed dollar amount.”

“The essential fact in this case is that the client received the service it contracted for at the price it was contract to pay, being the fee or charge stated in the schedule to the appointment form for the ‘clean and service’ of a unit and the monthly Foxtel services. The applicant did not seek to recover or retain more than the reward stated in the appointment form for providing those services”.

In relation to Wotif, the entire amount for the booking would be received by Wotif who would then take a 10% commission from the gross amount and pay the net amount to the manager.

Under PAMDA the manager was entitled to charge commission on “the amount collected”? Was this the amount Wotif initially received or the amount Wotif emitted to the manager?

The manager successfully argued that Wotif acted as the agent of the manager, who in turn acted as the agent of the owner. On that basis, the gross amount collected by Wotif was in fact collected by the manager at the same time.

The Court of Appeal effectively found that there was nothing in PAMDA to indicate that the section is concerned with whether rent is collected by the manager personally or by an agent appointed by the manager. So the manager was entitled to charge and retain commission on the gross amount collected by Wotif.

Conclusion

The decision of the Court of Appeal should be seen as a huge relief for the management rights industry. Provided the appointment deals with fees and charges properly, there is no reason to be concerned about providing a detailed breakdown how those fees and charges are arrived at.

This judgment also re-establishes what was currently accepted without question, that a manager (much the same as any other business) is entitled to seek to maximise its business profits by seeking to outsource work when it is profitable to do so.

However managers should be careful to ensure that they properly describe their fees and charges in their letting appointments and not improperly describe any such fees or charges in the POA form 6 as “expenses”.

Mahoney Lawyers