Aqua Vista Management Pty Ltd v Whitsunday Waters Resort [2007] QDC 64

DISTRICT COURT OF QUEENSLAND CITATION: Aqua Vista Management Pty Ltd v ‘Whitsunday Waters Resort’ Community Titles Scheme 24733 [2007] QDC 064 PARTIES: AQUA VISTA MANAGEMENT PTY LTD (Applicant) V “WHITSUNDAY WATERS RESORT” COMMUNITY TITLES SCHEME 24733 (Respondent) FILE NO/S: 130/2006 DIVISION: Civil PROCEEDING: Appeal ORIGINATING COURT: District Court, Southport DELIVERED ON: 13 April 2007 DELIVERED AT: Beenleigh HEARING DATE: 17 and 18 October 2006 JUDGE: Dearden DCJ ORDER: CATCHWORDS: Contract – Body Corporate – Service Agent –Letting agent - Transfer fee - Contract Date – Whether transfer fee applies from original contract date or from subsequent transfer dates - Costs Body Corporate and Community Management (Accommodation Module Regulation) 1997 ss 80, 82, 82 (1), (2), (3), (6), 82 (6) (b), 83, 83 (3), (4), (5) (c) (6) Body Corporate and Community Management Act 1997 ss 113, 122, 122 (1) (c), 122 (3), 289 (2), 289 (3) Cases cited: Cooper Brookes (Woollongong) Pty Ltd v FCT (1981) 147 CLR 297 COUNSEL: Mr C. Carrigan for the applicant -- 1 of 12 -- 2 Mr B. Porter for the respondent SOLICITORS: Short Punch and Greatorix for the applicant Bernard Ponting and Co for the respondent Introduction [1] The issue in this appeal is whether the reference to “the date” (“contract date”) on which an engagement or authorisation was “entered into” in s 83 of the Body Corporate and Community Management (Accommodation Module Regulation) 1997 (“Accommodation Module”), refers only to the original date on which the original parties (one being a body corporate) entered into a contract engaging a person as a service contractor or authorising a person as letting agent, or to both the original date and the date or dates upon which a subsequent person or persons take a transfer of the rights and undertake the obligations under those contracts.1 [2] There is a further issue, in respect of the application of s 82(6)(b) of the Accommodation Module, as to whether the respondent body corporate’s costs in taking advice as to the construction of s 83 of the Accommodation Module were costs reasonably incurred in relation to the application for the respondent’s approval of a transfer of the rights under the agreements to which the appellant was a party. There is a further related issue as to whether the appeal in respect of costs raises a question of law under s 289(2) of the Body Corporate and Community Management Act 1997 (“the Act”).2 Background [3] On 7 March 2003, the body corporate for ‘Whitsunday Waters Resort’ Community Titles Scheme 24733 (“the Body Corporate”) entered into a Caretaking Agreement and Letting Agreement (“the Agreements”) with Mission -- 2 of 12 -- 3 Prosperity Pty Ltd as trustee and MM Whitsunday Investments Pty Ltd as trustee (“the original Service Contractor”). The terms of these agreements was for 15 years from 7 March 2003 ending on 6 March 2018. [4] Subsequently, the original Service Contractor entered into a contract to sell its rights and interest in the Caretaking Agreement and Letting Agreement to the appellant. On 15 October 2004, the rights and interest in the Caretaking Agreement and Letting Agreement were assigned to the appellant, with the consent of the Body Corporate. [5] By a Deed of Covenant between the Body Corporate, the appellant and the original Service Contractor (“the Deed of Covenant”): (a) Pursuant to clause 5, the appellant covenanted with the Body Corporate to “faithfully perform, carry out, and attend to all the obligations of” the caretaker and letting agent under the agreements from the assignment date, and bound itself to those agreements as if they were fully set out (absent some such covenant, there would be no legal obligation owed by the appellant to the Body Corporate). (b) Pursuant to clause 6, neither the assignment nor the consent was to affect the obligations and liability of the original service contractor under the agreements. [6] On 25 July 2005, the appellant entered into a contract to sell its rights and interest in the Agreements to Whiteside Pty Ltd as trustee and Brownhill Pty Ltd as trustee. Approval was sought from the Body Corporate by the appellant to assign those rights and interest to the new purchasers. On 9 September 2005 the 1 See Respondent’s outline of argument para [1], Appellant’s outline of argument para [1]. 2 See Respondent’s outline of argument para [2], Appellant’s outline of argument para [1.2]. -- 3 of 12 -- 4 committee of the Body Corporate approved the transfer of those rights subject to the appellant paying (to the Body Corporate) a transfer fee of $18,750 pursuant to s 83 of the Accommodation Module, and the Body Corporate’s costs and its solicitors fees of $8,169.54 pursuant to s 82(6) of the Accommodation Module. That transfer fee was calculated by the Body Corporate from 15 October 2004, which is the date the agreements were assigned to the appellant. The appellant asserts that the correct date for calculation of the transfer fee is not 15 October 2004, but rather 7 March 2003, being the date when the Body Corporate and the original Service Contractor entered into the Agreements. [7] On 15 September 2005, the appellant, the respondent and the third party taking a transfer of the appellant’s rights under the agreement, entered into a Deed of Consent (“the Deed of Consent”). By clause 8(a), the transferee covenanted with the Body Corporate, in the same terms as clause 5 of the Deed of Covenant. Clause 10 was in equivalent terms to clause 6 of the Deed of Covenant.3 [8] Also on 15 September, 2005, the appellant lodged an application for resolving these disputes with the Commissioner of Body Corporate and Community Services. On 17 February 2006, a departmental adjudicator made orders dismissing the appellant’s application.4 These proceedings in the District Court constitute an appeal from the departmental adjudicator’s decision.5 Statutory framework 3 Respondent’s outline of argument paras [4] and [5]. 4 Appeal Record pp.185-190 5 This outline of the factual basis of the appeal draws on the material contained in the appellant’s outline of argument at paras [2.1]-[2.7], supplemented by the material set out in the respondent’s outline of argument paras [4] and [5]. -- 4 of 12 -- 5 [9] The entitlement (if any) for a body corporate to impose a charge for the transfer of an engagement or authorisation arises under s 83 of the Accommodation Module, which provides: “(1) This section applies to an engagement of a person as a service contractor, or the authorisation of a person as a letting agent, if— (a) section 122(3) of the Act applies to the engagement or authorisation; and (b) the engagement or authorisation is not the result of the exercise of an option by the service contractor or letting agent under the terms of the engagement of the person as a service contractor, or the authorisation of the person as a letting agent, contained in a previous engagement or authorisation for the scheme; and (c) the approval of the body corporate is sought to the transfer of a person’s rights under the engagement or authorisation. (2) The body corporate may require, as a condition of approving the transfer, that the transferor under the transfer pay the body corporate an amount (the relevant amount). (3) The body corporate may require the payment of the relevant amount only if the date (the approval date) on which the body corporate approves the transfer is not more than 3 years after the date (the contract date) on which the engagement or authorisation was entered into, or on which the term of the engagement or authorisation was extended. (4) The relevant amount is the relevant percentage of the amount representing fair market value for the transfer. (5) The relevant percentage is— (a) if the approval date is not more than 1 year after the contract date—3%; or (b) if the approval date is more than 1 year, but not more than 2 years, after the contract date—2%; or (c) if the approval date is more than 2 years, but not more than 3 years, after the contract date—1%. (6) The body corporate may not require the payment of the relevant amount if— -- 5 of 12 -- 6 (a) the transferor is a financier under section 123 of the Act who is acting under the provisions of the financier’s charge over the engagement or authorisation; or (b) the transferor is seeking approval to the transfer on the basis of genuine hardship not reasonably foreseeable by the transferor at the contract date. (7) The relevant amount must be paid into the body corporate’s sinking fund.” [10] The authority for subordinate legislation (including the Accommodation Module) under the Act, is to be found at s 122, which provides: (1) The regulation module applying to a community titles scheme may prescribe all or any of the following things about the engagement of a person as a body corporate manager or service contractor, or the authorisation of a person as a letting agent, for the scheme— (a) requirements with which the engagement or authorisation must comply, including, for example, the term of the engagement or authorisation; (b) consequences of not complying with the requirements mentioned in paragraph (a); (c) extending or renewing the engagement or authorisation; (d) particular circumstances under which the engagement or authorisation may or may not be terminated or transferred, despite anything in the engagement or authorisation or in another agreement or arrangement; (e) disclosure requirements; (f) provisions about the occupation of common property for the engagement or authorisation, including whether the provisions are the only way in which the occupation may be authorised; (g) matters about a service contractor’s right of access over common property for performing obligations, other than an obligation to supply utility services, under the engagement. (2) Subsection (3) applies to an engagement or authorisation if section 113 has previously applied to— (a) the engagement or authorisation; or (b) the extension of the term of the engagement or authorisation. (3) The regulation module applying to a community title scheme may also provide for the payment of an amount to the body corporate by the service contractor or letting agent under the engagement or authorisation if any rights under the engagement or authorisation are transferred to another entity within a period prescribed under the regulation module. [11] The entitlement to impose a transfer charge arises as an exception to the provisions of s 113 of the Act, which provides: -- 6 of 12 -- 7 “(1) The body corporate for a community titles scheme must not seek or accept the payment of an amount, or the conferral of a benefit, for— (a) the engagement of a person as a service contractor for the scheme (including a replacement or renewal of an engagement of the person as a service contractor); or (b) the authorisation of a person as a letting agent for the scheme (including a replacement or renewal of an authorisation of the person as a letting agent); or (c) extending the term of— (i) an engagement of a person as a service contractor for the scheme; or (ii) an authorisation of a person as a letting agent for the scheme. (2) Subsection (1)(b) does not apply to the first authorisation given after the original owner control period ends if— (a) the amount or benefit sought or accepted for the authorisation represents fair market value for the authorisation; and (b) no authorisation was given during the original owner control period. (3) If an amount is paid to, or a benefit is accepted by, the body corporate in contravention of subsection (1), the person who paid the amount or conferred the benefit may recover the amount, or the value of the benefit, as a debt.” [12] The transfer of engagements and authorisations is specifically dealt with at s 82 of the Accommodation Module which provides: “(1) A person’s rights under an engagement as a body corporate manager or service contractor, or under an authorisation as a letting agent, may be transferred only if the body corporate under the engagement or authorisation approves the transfer. (2) To avoid doubt, it is declared that the approval may be given by resolution of the committee (unless the decision on the approval is a decision on a restricted issue for the committee) or by ordinary resolution of the body corporate. (3) In deciding whether to approve a proposed transfer, the body corporate may have regard to— (a) the character of the proposed transferee and related persons of the proposed transferee; and (b) the financial standing of the proposed transferee; and (c) the proposed terms of the transfer; and (d) the competence, qualifications and experience of the proposed transferee and any related persons of the proposed transferee, and the extent to which the transferee -- 7 of 12 -- 8 and any related persons have received or are likely to receive training; and (e) matters to which, under the engagement or authorisation, the body corporate may have regard. (4) The body corporate must decide whether to approve a proposed transfer within 30 days after it receives the information reasonably necessary to decide the application for approval. (5) The approval may be given on condition that the transferee enters into a deed of covenant to comply with the terms of the engagement or authorisation. (6) The body corporate must not— (a) unreasonably withhold approval to the transfer; or (b) require or receive a fee or other consideration for approving the transfer (other than reimbursement for expenses reasonably incurred by the body corporate in relation to the application for its approval). (7) Subsection (6) applies subject to section 83. (8) In this section— related persons, of a proposed transferee, means— (a) if the proposed transferee is a corporation—the corporation’s directors, substantial shareholders and principal staff; or (b) if the proposed transferee is in partnership—the partners and principal staff of the partnership.” Transfer fees [13] The Act and Accommodation Module both refer in various provisions to the “engagement” of a “service contractor” and the “authorisation” of a “letting agent”, but (rather unhelpfully) the terms “engagement” and “authorisation” are not defined in either the Act or the Accommodation Module.6 [14] The starting premise is that the body corporate cannot seek payment of a fee or benefit upon conferring an engagement or authorisation of a service agent or letting agent7 . [15] The Act then establishes an exception if s. 113 has previously applied to:- (a) The engagement or authorisation; or (b) The extension of the term of the engagement or authorisation8 . 6 See the Act ss.113, 122(2)&(3); Accommodation Module ss.75B-85 7 Body Corporate and Community Management Act 1997 s. 113 8 Body Corporate and Community Management Act s. 122(2). -- 8 of 12 -- 9 [16] The precise mechanism by which any entitlement for a transfer fee arises is specified in the Accommodation Module, which is subordinate legislation relevantly authorised by s.122(1)(c) of the Act, and the concept of a transfer fee is more specifically contemplated by s. 122(3) of the Act. [17] The issue which then falls to this court to decide is the construction of s. 82(3) of the Accommodation Module, which provides: “The Body Corporate may require the payment of the relevant amount only if the date (the “approval date”) on which the body corporate approves the transfer is not more than three years after the date (the “contract date”) on which the engagement or authorisation was entered into, or on which the term of the engagement or authorisation was extended.” [18] The Accommodation Module s. 83(4)&(5) then sets out a sliding scale basis for the calculation of the “relevant amount”, being 3% of the fair market value of the transfer if the approval date is not more than one year after the contract date, 2% of the approval date is more than one year but not more than two years after the contract date, and 1% if the approval date is more than two years but not more than three years after the contract date. [19] The term “contract date” is not defined in the Schedule Dictionary of the Accommodation Module, and therefore falls to be construed based on its usage in Accommodation Module s. 83(3). In short, the question is whether the three year sliding scale referred to in Accommodation Module s.83(4) and (5) applies from the date of the original contract, or conversely whether that scale is effectively renewed and applied afresh each time there is a transfer of the contract. -- 9 of 12 -- 10 [20] Contracts are limited to a maximum term of 25 years (after allowing for any rights or options of extension or renewal)9 . Transfer of the rights under an engagement or authorisation requires the approval of the body corporate10 by resolution of the committee or by ordinary resolution of the body corporate. 11 [21] The starting point then is to construe the words used, in the context of a particular section, in accordance with their ordinary meanings (in the absence of any specific statutory definitions contained within the relevant legislation). [22] In my view the use of the term “the date … on which the engagement or authorisation was entered into” ( which is then defined as “the contract date”12 ) is most apt to describe the original contract date for the relevant engagement or authorisation. The term “entered into”, although undefined in the Accommodation Module, is in my view a reference to the original contract, particularly in the light of a scheme which contemplates by its language that what may follow is a “transfer” of that engagement or authorisation.13 [23] Such a construction is sensible, logical, does not offend the scheme of the Accommodation Module, does not lead to an absurd result, and (critically in my opinion) does not require the court to imply words into the legislation14 . There is nothing in the Act which would compel a view contrary to that interpretation of Accommodation Module s. 83(3). Application to this appeal 9 See Accommodation Module s. 85 (re service contractor); Accommodation Module s. 80 (re letting agent). 10 Accommodation Module s. 82(1) 11 Accommodation Module s.82(2). 12 Accommodation Module s.83(3 13 Accommodation Module ss. 82 & 83 14 See Cooper Brookes (Woollongong) Pty Ltd v FCT (1981) 147 CLR 297. -- 10 of 12 -- 11 [24] In the context of this appeal, it then becomes clear that the departmental adjudicator erred in law15 in considering that the words “or on which it was assigned” should have been included after the words “entered into” on the second last line of Accommodation Module s.83(3)16 , then concluding that the “contract date” for the purposes of accommodation module s.83(4) and (5) should be 15 October 2004 (the date of the assignment to the appellant) rather than 7 March 2003 (the date of the original contract). [25] Based on my conclusion as to the appropriate interpretation of Accommodation Module s. 83(3), the applicable transfer fee should be only 1% of the sale price17 , an amount of $6,250.00. Body Corporate Legal Costs [26] The second issue on this appeal is the question of the Body Corporate’s costs which were incurred in seeking advice as to the construction of Accommodation Module s. 83(3). There is, I consider, no doubt that the appellant is entitled to appeal against the adjudicator’s decision in respect of these costs if there is an error of law involved18 . [27] Given my conclusion as to the proper construction of Accommodation Module s. 83(3) it could not in my view be argued that the Body Corporate “reasonably incurred”19 . the legal costs for which it sought reimbursement given that these costs appear to relate to advice sought on the interpretation of Accommodation Module s. 83(3). Such advice, assuming it was accepted and followed by the Body Corporate, was incorrect. These legal costs could not in these 15 Body Corporate and Community Management Act s. 289(3) 16 Appeal record P.189 17 Accommodation Module s. 83(5)(c) -- 11 of 12 -- 12 circumstances .therefore be considered to be “reasonably incurred” and consequently become the responsibility of the appellant. [28] Accordingly I find that the adjudicator erred in law in dismissing the appeal in respect of the Body Corporate’s legal costs. Form of orders [29] I will hear the parties on the form of orders required to give effect to these reasons for judgment, and on the issue of the costs of this appeal. 18 Body Corporate and Community Management Act s. 289(2) 19 Accommodation Module s. 83(6) -- 12 of 12 --