Body Corporate for the Reserve v Trojan Resorts Pty Ltd [2017] QCATA 53

CITATION: Body Corporate for the Reserve CTS 31561 v Trojan Resorts Pty Ltd [2017] QCATA 53 PARTIES: Body Corporate for the Reserve CTS 31561 (Appellant) v Trojan Resorts Pty Ltd (Respondent) APPLICATION NUMBER: APL403-15 MATTER TYPE: Appeals HEARING DATE: 28 February 2017 HEARD AT: Brisbane DECISION OF: Senior Member Stilgoe OAM Member Collins DELIVERED ON: 2 May 2017 DELIVERED AT: Brisbane ORDERS MADE: 1. Leave to appeal is refused. 2. The appeal is dismissed. CATCHWORDS: APPEALS – LEAVE TO APPEAL – STATUTES – ACTS OF PARLIAMENT – INTERPRETATION – PARTICULAR WORDS AND PHRASES – interpretation of s 94(2) of the Body Corporate and Community Management Act 1997 (Qld) – body corporate’s duty to act reasonably – whether duty to act reasonably applies to transactions with third parties – interpretation of duty to act reasonably – whether tribunal erred in applying s 94(2) duty to act reasonably to body corporate’s decision to terminate and subsequent actions – whether grounds for leave to appeal APPEALS – LEAVE TO APPEAL – REAL PROPERTY – STRATA AND RELATED TITLES – MANAGEMENT AND CONTROL – BODY CORPORATE: POWERS, DUTIES AND LIABILITIES – whether body corporate acted reasonably in terminating management and letting agreements – whether body corporate -- 1 of 10 -- 2 should have put decision to terminate agreements before committee as ordinary resolution – whether tribunal erred in finding that body corporate acted unreasonably in terminating agreements without putting decision to terminate before committee – whether grounds for leave to appeal Body Corporate and Community Management Act 1997 (Qld) ss 2, 4(a), 94, 95, 126 Body Corporate and Community Management (Accommodation Module) Regulation 2008 (Qld) s 127 Queensland Civil and Administrative Tribunal 2009 (Qld) s 142(3)(b) Ainsworth v Albrecht [2016] HCA 40 Body Corporate for Beaches Surfers Paradise v Backshall [2016] QCATA 177 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 McColl v Body Corporate for Lakeview Park Community Titles Scheme 20751 [2004] 2 Qd R 401 Pickering v McArthur [2005] QCA 294 Trojan Resorts Pty Ltd v BC for the Reserve CTS 31561 [2015] QCAT 337 APPEARANCES and REPRESENTATION: APPLICANT: R Bain of Queens Counsel, M J Batty with him RESPONDENT: SW Couper of Queens Counsel, G Handran with him REASONS FOR DECISION Background [1] By a Deed of Assignment dated 6 December 2012, Trojan Resorts Pty Ltd was appointed the caretaker and letting agent of the Body Corporate for The Reserve CTS 31561. Through the deed, Trojan assumed the rights and responsibilities contained in a management agreement and letting agreement, both dated 12 August 2003. [2] Robyn Cole and Les Knipe were the directors of Trojan at the time of execution of the deed. Under the deed, Mr Knipe and Leanne Knipe were appointed to carry out the management and letting duties. Ms Cole had no direct, active involvement. -- 2 of 10 -- 3 [3] On 12 February 2013, the Australian Securities and Investment Commission (ASIC) received notification of Ms Cole’s resignation as a director of Trojan. [4] On 8 July 2014, Reserve, through its lawyers, sent a letter to Trojan’s lawyers advising that Ms Cole’s resignation was a deemed assignment that triggered a right to terminate. In particular, Reserve: …reserves its rights under clause 11.2 [and 9.2] of the agreements and s 120 of the Body Corporate and Community Management (Accommodation Module) Regulation 2008. [5] Almost immediately, Trojan took steps to rectify the position and re-appoint Ms Cole as a director. Ms Cole’s re-appointment was noted by ASIC on 30 July 2014. [6] In the period between Ms Cole’s resignation and her re-appointment, she stayed on as a ‘silent partner’. Mr Knipe continued to perform the obligations under the management and letting agreements. [7] Notwithstanding the re-appointment of Ms Cole as a director, on 6 August 2014, Reserve issued a notice to Trojan’s financier, pursuant to s 126(1) of the Body Corporate and Community Management Act 1997 (Qld) (‘BCCM Act’). The notice asserted that the Ms Cole’s re-appointment on 30 July 2014 amounted to a change to the directors and was in breach of the agreements. [8] On 30 September 2014, at its Annual General Meeting, Reserve resolved to terminate the agreements. [9] Trojan applied to the tribunal for orders restraining Reserve from acting on the resolution to terminate, a declaration that the notice under s 126 was void, unlawful or of no effect, and a declaration that Reserve had no right to terminate the agreements. The tribunal ordered accordingly. [10] Reserve has appealed that decision. It says the tribunal erred by proceeding on the basis that the requirements of s 94(2) of the BCCM Act applied to the decision to terminate the management and letting agreement. It says the tribunal erred in finding that Reserve had not acted reasonably for the purpose of s 94 by issuing the s 126 notice and passing a resolution to terminate the agreements. Leave to appeal or appeal? [11] If a party wants to appeal a question of fact, or mixed fact and law, it must first seek the appeal tribunal’s leave.1 Whether or not s 94(2) applies to the Body Corporate’s decision to terminate the agreements is a question of law for which leave is not required. However, whether Reserve acted reasonably involves a question of fact. Therefore, leave is necessary. 1 Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 142(3)(b). -- 3 of 10 -- 4 [12] Leave to appeal will usually be granted where there is a reasonable argument that the decision is attended by error, and an appeal is necessary to correct a substantial injustice to the applicant caused by that error.2 Does section 94(2) of the BCCM Act apply to the termination of a management and letting agreement by a Body Corporate? [13] Section 94 states: 94 Body corporate's general functions (1) The body corporate for a community titles scheme must— (a) administer the common property and body corporate assets for the benefit of the owners of the lots included in the scheme; and (b) enforce the community management statement (including enforcing any by-laws for the scheme in the way provided (c) carry out the other functions given to the body corporate under this Act and the community management statement. (2) The body corporate must act reasonably in anything it does under subsection (1) including making, or not making, a decision for the subsection. [14] Mr Bain of Queens Counsel, for Reserve, submitted that the requirement to ‘act reasonably’ under s 94(2) of the Act does not apply to the termination of an agreement entered into by a body corporate with a third party because such agreements have no connection with the functions of a body corporate.3 Therefore, he submits that a decision to terminate an agreement was not a ’decision’ under s 94(1) which was within the ambit of s 94(2). [15] In support of this proposition, Reserve drew our attention to McColl v Body Corporate for Lakeview Park Community Titles Scheme 20751.4 In relation to an identical provision to s 94(2) of the current Act, Davies JA held that: …it is concerned with the body corporate’s general management functions. It is not, it seems to be concerned to regulate decisions made at meetings of the body corporate.5 [16] The question asked of the Court of Appeal was whether a body corporate was required to act reasonably in giving consent to the recording of a new community management statement, an action that required a resolution without dissent. Davies JA observed: 2 Pickering v McArthur [2005] QCA 294 at [3]. 3 Applicant’s submissions dated 21 December 2015 at [11]. See also transcript page 1-18, line 33. 4 [2004] 2 Qd R 401. See also transcript page 1-18, line 38. 5 McColl v Body Corporate for Lakeview Park Community Titles Scheme 20751 [2004] 2 Qd R 401 at [25]. -- 4 of 10 -- 5 Had the applicants contended before the adjudicator that in passing motion 3 the body corporate was required to act reasonably and did not do so the adjudicator may have been required to investigate the factual aspects…6 [17] The High Court in Ainsworth v Albrecht also considered whether parties were required to act reasonably in voting on a motion that required a resolution without dissent. It, too, held that s 94(2) did not apply.7 It held that, while s 94(2) applies to the decision-making body to reach a reasonable decision taking into account competing concerns, a lot owner is not a decision-making body and, therefore, not subject to the requirements of s 94.8 [18] The decisions in Ainsworth and McColl are consistent and instructive. Section 94(2) cannot impose a requirement of reasonableness on the individual lot owners when they cast their votes for, or against, a motion. It does, however, operate in relation to a decision by the body corporate as a decision-maker fulfilling its functions. [19] Reserve submitted that, in purporting to terminate the agreements, it was not carrying out one of its functions under s 94(1); rather, it was exercising a private contractual right. It was submitted that the exercise of the private contractual right was not subject to a duty of reasonableness. [20] A body corporate is a creature of statute. It can only operate within the statutory framework. The concept of a ‘private contractual right’ cannot exist without acknowledging that the contract must be an exercise of the body corporate’s functions or powers. [21] Reserve says there is a clear distinction between a body corporate’s functions, which are subject to a duty of reasonableness, and its powers, set out in s 95, which are not. [22] The distinction between the functions given to the body corporate under s 94, which are subject to the requirement of reasonableness, and the powers given to the body corporate under s 95, which are not specifically subject to the requirement of reasonableness, is an artificial one. Section 95 states that the body corporate has all the powers necessary for carrying out its functions. If a body corporate must perform its functions reasonably, and it exercises its power to perform those functions, then it stands to reason that the powers must also be exercised reasonably. [23] Reserve submitted that imposing an obligation to act reasonably requires a body corporate to consider the interests of the manager. That was said to be an unreasonable fetter on the exercise of the body corporate’s powers, as the focus of the BCCM Act is on a flexible regime to ensure the rights of the lot owners are protected. 6 Ibid at [35]. 7 [2016] HCA 40 at [47]. 8 Ibid at [51]. -- 5 of 10 -- 6 [24] The High Court in Ainsworth v Albrecht recognised that the s 94(2) requirement to act reasonably involves a balance of competing interests.9 A decision-maker must look at all of the circumstances objectively. That may include a consideration of the manager/letting agent’s position, as objectively determined by the decision-maker, if the interests of the body corporate and the lot owners are aligned. It may require consideration of the manager/letting agent’s position if that person has rights to use the common property. It may include consideration of the manager/letting agent’s position if, as here, the body corporate has to give notice to a financier. If, ultimately, the body corporate must make its decision for the benefit of the lot owners, we do not see how an objective examination of all of the circumstances operates to fetter the exercise of the body corporate’s action. [25] It was submitted that the general law of contract protected Trojan in its dealings with Reserve and the legislation discloses no intention to deem a body corporate’s dealings with third parties unreasonable if they are otherwise sound at law. [26] We agree that the legislation discloses no intention to deem a body corporate’s dealings with third parties unreasonable if they are otherwise sound at law. Whether or not the body corporate’s dealings are sound at law can, and in our view does, include a requirement to act reasonably for the benefit of the lot owners. If a body corporate does not comply with s 94(2), then it is subject to legal challenge. [27] Reserve submitted that s 94(2) cannot be construed as giving a basis for judicial review of a body corporate’s decision to terminate a contract with a third party, which review goes beyond normal contractual principles. [28] This submission is misconceived. Section 94(2) does not give a basis for judicial review which goes beyond normal contractual principles. Section 94(2) imposes a requirement to act reasonably. It is the body corporate’s actions that may be the subject of the review. Normal contractual principles will, obviously, be part of that review but it is not correct to say that the review goes beyond those principles. [29] Reserve submitted that the BCCM Act is beneficial legislation that must be construed in favour of those it is designed to protect: the lot owners living in a scheme managed by the body corporate. It says the tribunal should adopt a purposive approach to interpretation of the BCCM Act. It says the BCCM Act cannot be construed in favour of a commercial counterpart to supervene a bargain struck with a third party. It would be a startling omission, according to Reserve, to impose a unilateral obligation of reasonableness on the body corporate but not on the contractor. [30] The BCCM Act’s principle object is to provide for flexible and contemporary communally based arrangements for the use of freehold land.10 The Act’s 9 Ibid at [49]. 10 Body Corporate and Community Management Act 1997 (Qld), s 2. -- 6 of 10 -- 7 secondary objects do not include the protection of lot owners. On the contrary, the Act is intended to balance the rights of individuals with the responsibility of self-management.11 The obligation to act for the benefit of the lot owners is embedded into s 94(1). The lot owner’s protection is linked to the body corporate’s functions and is to be exercised subject to the requirement to act reasonably, set out in s 94. We do not agree that a requirement that the body corporate act reasonably in the execution of its functions is construing the BCCM Act in favour of commercial counterpart. That may be an unintended, but unlikely, consequence of the application of the requirement to act reasonably. [31] Reserve submits that the legislation cannot remove a recognised or enforceable right (to terminate a contract) without clear words. [32] We agree that the BCCM Act cannot remove a recognised right to terminate the contract. But that is not what the application of s 94 purports to do. The right exists, but the body corporate must act reasonably in deciding to exercise that right, in its administration of the common property and body corporate assets for the benefit of the lot owners. It might be said, for example, that a decision to terminate a contract on a technicality, where the caretaking duties were being carried out appropriately, which resulted in an erosion of the body corporate assets through litigation, might not be a reasonable decision. [33] Reserve submitted that the BCCM Act and the Accommodation Module prescribe the way in which an agreement between the body corporate and a managing/letting agent may be terminated and that includes ‘under the engagement or authorisation’. Reserve submitted that a termination ‘under the engagement or authorisation’ was not subject to the requirement of reasonableness in s 94(1). [34] Section 127(1) of the Accommodation Module states that the body corporate may terminate a management/letting contract: under the Act; by agreement; or under the engagement or authorisation. A body corporate may only act to terminate a contract if the termination is approved by an ordinary resolution of the body corporate. Reserve submitted that s 127 was a deliberate legislative constraint that excluded the operation of s 94 in a way that benefited contractors. [35] We accept that Reserve could terminate the agreements by reference to the terms of those agreements. Both the Management Agreement and the Letting Agreement had clauses about termination. Clause 11.1 of the Management Agreement sets out the events which constitute a default under the agreement. Under clause 11.1(b), the manager is in default if it transfers or assigns an interest in the agreement, or attempts to do so, in breach of clause 9.2. Clause 11.3 states that any right of termination is exercisable subject to any restrictions, modifications or requirements imposed by the Act. 11 Ibid s 4(a). -- 7 of 10 -- 8 [36] Clause 9.2 provides that the manager may only transfer or assign its interest with the prior written consent of Reserve, which consent must not be unreasonably withheld. Like cl 11.3, cl 9.3 states that cl 9.2 applies subject to any restrictions, modifications or requirements that may be imposed under the Act. [37] Even the termination provisions, without the assistance of s 94, impose an obligation on Reserve to act reasonably. Even if Reserve decides to terminate for breach of contract, it must do so only after approval by ordinary resolution. The decision of the lot owners at the meeting which considers the resolution is not subject to the requirement of reasonableness but the body corporate decision to initiate the termination, to issue notices, and to place the resolution before the lot owners is, in our view, subject to s 94. Did the Body Corporate act reasonably in the termination of agreements pursuant to s 94(2) when it issued the s 126 Notice and then subsequently passed the resolution to terminate the agreements? [38] Reserve accepts that the tribunal correctly identified the need to have regard to all of the circumstances of the case in determining reasonableness pursuant to s 94(2). However, Reserve says that the tribunal erred in restricting itself to the events which occurred after ASIC recorded Ms Cole’s resignation. [39] The tribunal’s reasons for decision do, in fact, state that its consideration of ‘all of the circumstances’ was limited to matters after ASIC recorded Ms Cole’s resignation.12 [40] Reserve says that, if there is an obligation on a body corporate to act reasonably, the relevant factors were: that the body corporate outsourced some of its functions under s 94(1); the agreements were arm’s length commercial transactions; Trojan was not constrained by any obligation to act reasonably; and the fact of the breach and a subsequent breach. [41] It is obvious from the tribunal’s reasons that it found the outsourcing of duties was a relevant circumstance, because it noted there was evidence that the management of Reserve’s affairs effectively remained unchanged.13 [42] Reserve does not explain why the fact that the agreement between Trojan and Reserve was an arm’s length commercial transaction affects the obligation to act reasonably. We have already found that the nature of the transaction does not operate to remove the obligation to act reasonably. The tribunal found that Trojan was performing the terms of the agreement; presumably, Reserve was receiving the services it had paid for. 12 Trojan Resorts Pty Ltd v BC for The Reserve [2015] QCAT 337 at [46]. 13 Ibid at [52] - [53]. -- 8 of 10 -- 9 [43] Trojan was constrained by the terms of the agreement. Trojan was engaged to undertake caretaking duties. It was engaged to undertake letting duties. While there was no written obligation for Trojan to act reasonably in performing those duties, it is likely that acting unreasonably would have been a breach of its primary obligations under the agreements. [44] The fact of the breach was the trigger for Reserve’s actions. The subsequent breach was a factor that the tribunal considered.14 [45] Reserve further submits that the tribunal’s finding has the effect that something that is reasonable as between Reserve and the lot owners is not reasonable as between Reserve and Trojan. [46] We disagree. The tribunal focussed its consideration on the effect of the breach on the performance of the duties and whether Reserve suffered any loss or damage as a result of the breach.15 The tribunal did not, at any time, consider whether the decision to terminate affected Trojan’s position. It did not consider the financial implications for Trojan. There was no suggestion before the tribunal that Trojan acted unreasonably in respect of either agreement. There is no evidence to support Reserve’s submissions that the tribunal preferred Trojan’s interests over those of the lot owner. [47] Reserve then submits that the effect of the tribunal’s decision was that a conflict should be resolved in favour of the third party at the expense of the lot owners. [48] Again, we disagree. The body corporate must act reasonably to protect the interests of the lot owners. It may be that, in coming to that decision, the body corporate may objectively consider the interests of the third party but, as the tribunal’s decision makes clear, it is effect of the breach on the lot owners’ interests that is the primary focus. [49] Reserve submits that fettering a body corporate’s contractual dealings with third parties would see an unnecessary liability accrue to the lot owners. That cannot be a correct proposition. The duty to act reasonably is already constrained by the duty to administer the common property for the benefit of the lot owners. If, in exercising its functions, the body corporate creates a liability to the lot owners then it was probably not acting reasonably in the exercise of its powers. As Carmody J observed: …the body corporate and committee are subject to mandatory general law duties in addition to the BCCM obligation to act reasonably. These include the duty to act in good faith, to make fully considered, rational and reasonable decisions that are not conflicted, arbitrary, patently absurd or plainly unjust.16 14 Ibid at [46]. 15 Ibid at [51]. 16 Body Corporate for Beaches Surfers Paradise v Backshall [2016] QCATA 177 at [34]. -- 9 of 10 -- 10 [50] Further, Carmody J held that a determination of whether a decision by a body corporate was made reasonably: …”involves an evaluation of the known facts, circumstances and considerations” that tend to have a rational bearing on the issue at hand including predictable future possibilities and risks. In practice, this requires that all relevant matters be taken into consideration and irrelevant ones left out. It is a question to be determined when the decision in issue was made.17 [51] Therefore, we do not agree that the ‘true position’ is that if the termination as valid as a matter of law, there is no logical pretext for deeming it unreasonable. The question of reasonable extends beyond whether or not Reserve was entitled to terminate. It extends beyond the bargain that was struck. It requires the body corporate to look at whether taking the action was in the interests of the lot owners. [52] Reserve says that it did sustain a loss. It sustained the loss of a commercial opportunity to secure a commercial advantage in negotiating other agreements with other entities.18 [53] But there was no evidence before the tribunal that Reserve had taken any steps to negotiate with other third parties. In fact, the time frame was so short, it had done nothing.19 While Reserve might now argue that the loss of a commercial opportunity is a loss, it is only a loss if ‘…the loss of the prospect … was within the reasonable contemplation of the parties as a probable result of the breach’.20 Orders [54] Leave to appeal is refused. The appeal is dismissed. 17 Ibid at [42] (citations omitted). 18 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at [92], [102] – [104], [118] – [199]. 19 Transcript page 1-15, lines 20 – 27. 20 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at [92] per Mason CJ and Dawson J. -- 10 of 10 --