Baggott & Anor v Whafflm Pty Ltd & Anor [2000] QSC 167

5( 00/;67 SUPREME COURT OF QUEENSLAND CITATION: PARTIES: Baggott & Anor v Whafjlm PIL & Anor [2000] QSC PETER CHARLES BAGGOTT and LIETTE MAY BAGGOTT (applicants) V WHAFFLM PTY LTD (ACN 084 241 083) (first respondent) and LJ HOOKER NOOSA (a firm) (second respondent) FILE NO: 3897 of2000 DNISION: Trial Division DELIVERED ON: 9 June 2000 DELNERED AT: Brisbane HEARING DATE: 25 May 2000 JUDGE: White J ORDER: Dismiss the application. The second respondent to pay to the first respondent the sum of (a) $500 being the deposit held by the second respondent pursuant to the Management Rights Business Contract together with any accretions thereon; and (b) $19,000 being the deposit held by the second respondent pursuant to the unit contract together with any accretions thereon. The applicants pay the first respondent's costs of and incidental to the application to be assessed on the Supreme Court scale. CATCHWORDS: Contract for the sale of management rights business - standard REIQ contract - not an assignment - body corporate meeting - not 21 days notice - entitlement to terminate by purchaser. -- 1 of 8 -- COUNSEL: SOLICITORS: 2 C Wilson for the applicants B Clarke for the first respondent No appearance for the second respondent Sykes Pearson & Miller for the applicants RP McCormick & Co for the first respondent [1] WHITE J: This an application for declarations that the applicants/purchasers, Peter Charles Baggott and Liette May Baggott, have validly terminated contracts for the purchase of the management rights business and Unit 1 at the "Noosa River Palms Apartments". They also seek an order that the second respondent, the stakeholder, refund the deposits paid under those contracts. [2] The application is brought pursuant to s 70 of the Property Law Act 1974 and/or rule 1 l(a) of the Uniform Civil Procedure Rules 1999. While it may not be entirely appropriate to proceed under either of these provisions (particularly s 70 of the Property Law Act 1974, see Re McDonald [1989] 2 Qd R 29), the first respondent ("Whafflm") withdrew its objection to proceeding in this manner at the hearing of the application. There is just under $20,000 in issue and the parties, mindful of the costs involved, have been content to proceed without contesting any issues of fact appearing in the affidavits. [3] The "Noosa River Palms Apartments" owned by Whafflm underwent a complete redevelopment which was completed shortly after Christmas 1999. On Saturday 12 February 2000, Mrs Baggott contacted the second respondent in response to an advertisement concerning the sale of the management rights and the manager's unit. After inspecting the complex with the agent that afternoon, Mrs Baggott sought to enter into contracts to purchase the rights and the unit. Mrs Baggott and the agent attended at the offices of the solicitors for Whafflm. Whafflm then owned all of the lots save one which had been sold. Two contracts were drawn up, one in the REIQ Standard Form "Management Rights Business Sale" Contract with Samara Investments Pty Ltd (a company of which Mrs Baggott was a director) as purchaser for $80,000, the other an REIQ Standard Form Contract "For Lots in a Community Title scheme" with Mrs Baggott "and/or nominee" as purchaser for $385,000. Mrs Baggott paid deposits of $500 and $19,000 respectively for the two contracts. Before leaving, Mrs Baggott was given copies of the proposed "caretaking agreement" and "letting agreement" which together were to constitute the management rights business as referred to in Item R of the Schedule to the contract. [4] On 18 February Whafflm received a letter from the solicitors for the applicants, seeking replacement contracts for the purchase of the management rights business and the manager's unit in the names of the applicants. The replacement contracts were supplied on 25 February and executed on 28 February. It is these second contracts which are the subject of these proceedings. [5] The Management Rights Business Sale Contract ("the business contract") envisaged in its standard printed terms that there would be an assignment of the vendor's interest in the business to the purchaser and that the contract would be conditional upon the body corporate consenting to that assignment within 21 days from the date of the contract. The applicants submit that they have validly -- 2 of 8 -- 3 terminated the contracts because Whafflm was unable or unwilling to assign the management rights business to the applicants and the body corporate had not and could not lawfully consent to the incorporation of the terms of special condition 3 into the caretaking and letting agreements in time for settlement. Whafflm's position is that it could offer the applicants a management rights business contract directly with the body corporate incorporating special condition 3 in time for settlement and did so. [6] Time was of the essence and both contracts stood or fell together. [7] On 2 March, the solicitors for the applicants sought "copies of the executed caretaking agreement and letting agreement" from Whafflm's solicitors. On 6 March, they wrote of "the unreasonable and unacceptable level of noise" in the manager's unit from the units above. After receiving no response to the letter, further letters were sent on 13 and 14 March seeking the "executed" caretaking and letting agreements. A letter from Greg Gibbs, the architect of the redevelopment, was enclosed in the second letter concerning the noise complaint. The applicants' solicitors sent a second letter on 14 March enclosing the transfer documents. There was no response. By letter dated 22 March the applicants' solicitors raised several issues that needed resolution before settlement • the failure to provide the applicants with copies of the caretaking and letting agreements • the failure to notify if the body corporate had consented to the assignment of the caretaking and letting agreements or whether those agreements would be entered directly with the body corporate • the failure to notify progress on the approval of the body corporate required by special condition 3 of the business contract concerning the use of storage sheds and an indemnity for GST liability. [8] Whafflm's solicitors did not respond until 29 March and, after referring to several matters, stated "In respect of the Caretaking and Letting Agreements, we advise that same were provided to the original proposed purchasers of the Management Rights, and as this sale did not proceed, they were not returned. In the circumstances, we propose that fresh Caretaking and Letting Agreements be provided to the Body Corporate for its approval. We have amended the Caretaking Agreement to incorporate both an Occupation Authority and provision for Goods and Services Tax." The reference to the original proposed purchasers is a reference to a Mr and Mrs Denman who had been offered the management rights business but had not completed. Mrs Baggott had been informed of this in February. The reference to the "Occupation Authority" and "provision for Goods and Services Tax" is a reference to special condition 3. [9] The solicitors for the applicants responded that day terminating the contract on the grounds that -- 3 of 8 -- 4 • the body corporate had not consented to the assignment of the vendor's interest in the management rights business by 20 March 2000 as required by cl 26, and • the body corporate had not by special resolution at an extraordinary general meeting provided for an occupation authority and GST clause as required by special condition 3 and would be unable to do so as such a meeting had to be held at least 21 days after notice was given to lot owners; and • tender by a direct grant of the management rights other than by an assignment of existing rights was a variation to the contract to which the applicants had not agreed. [10] On 30 March, Whafflm's solicitors called for settlement at 3.30pm. Further correspondence passed between the parties on 30 March with the applicants maintaining they had validly terminated the contracts and Whafflm requiring the applicants to settle on that day. Whafflm then offered an extension of time to the following day. [11] At 4.30pm on 30 March, an extraordinary general meeting of the body corporate for "Noosa River Palms Apartments" was held. The owners of the lots unanimously consented to waiving the 21 day notice period required by s 41 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 and unanimously passed resolutions approving entry into caretaking and letting agreements including special condition 3 with the applicants. [12] On 31 March both parties sought to assert rights over the deposits. [13] At the hearing the applicants relied on a further ground for termination, the breach of cl 8 of the Standard Conditions of the business contract. By cl 8.1 (d) the vendor warrants that "the information in Item R is true and correct in every respect and that the documents referred to in Item R(b) are the only documents in existence in relation to the [business]". A breach of cl 8.1 gives a purchaser a right to terminate, cl 8.2(a). The applicants submit that the information in Item R was not true and correct nor were the documents referred to in Item R(b) the only documents in existence in relation to the management rights business. Item R provides "(a) The current Remuneration payable by Body Corporate pursuant to such Agreements is $16,500.00 per annum for the year ending 30th June 2000. (b) All documents relating to Agreements with the Body Corporate in relation to the Business are as listed hereunder:- (i) Approved Caretaking Agreement (ii) Approved Letting Agreement." [14] Whafflm submits that because of the circumstances surrounding the transaction the contract should not be read strictly but in accordance with the factual matrix surrounding the entry into the contracts. Clause 8 was not, if so understood, breached by Whafflm failing to be the owner of the management rights business because the applicants knew that such a business was being created for the first time and there was not, strictly, a transfer of an existing business. Likewise, cl 26 could not to the applicants' knowledge be complied with because there was no business in existence to be assigned. -- 4 of 8 -- 5 [15] Alternatively, Whafflm submits that if there were breaches of cll 26 and 8 the contract was voidable and not void. The applicants' conduct after it became aware of the breaches indicated that they had either waived the breaches or affirmed the contract. [16] Whafflm submits that the members of the body corporate may waive the 21 day notice requirement notwithstanding the mandatory language of the section so that the extraordinary general meeting held on 30 March validly approved the entry into a letting agreement and a caretaking agreement with the applicants varied in accordance with special condition 3. [17] Whafflm submits that by giving the purchaser what they bargained for, namely, the management rights business, but by direct grant rather than by assignment of existing rights no entitlement to terminate arises. Alternatively, Whafflm submits that the applicants affirmed the contract after they became aware of the proposal for a direct grant of the management rights by continuing to call on performance. [18] In construing a contract, the court's task is to ascertain the objective intentions of the parties by examining the terms of the agreement. Generally, evidence of the negotiations is not admissible. However evidence of the factual matrix surrounding the transaction is admissible. As Lord Wilberforce stated in Prenn v Simmonds [1971] 1 WLR 1381 at 1385 "In my opinion, then, evidence of negotiations, or of the parties' intentions . . . ought not to be received, and evidence should be restricted to the evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction." It was known by both parties that the "Noosa River Palms Apartments" did not have an existing management rights business. This is clear from Items K, M and 0 in the Items Schedule in the business contract. They concern verification of financial records (K), stock-in-trade (M) and apportionment of purchase price including goodwill (0). Against each is written "not applicable" or left blank. If this was the sale of an existing business, there would need to be verification of financial records, there would likely be some stock in trade and some apportionment of the purchase price. Mrs Baggott was handed unexecuted copies of a caretaking agreement and a letting agreement when she signed the original contracts on 12 February 2000. It is these documents that constitute the "Approved Caretaking Agreement" and the "Approved Letting Agreement" in Item R(b ). The "Approved Caretaking Agreement" provided for the "caretaker" to be paid $16,500 per annum in accordance with Item R(a). Mrs Baggott was shown through the building and its new state was quite apparent. She was told that a previous interested party in the management rights business had not completed. Accordingly, cl 8.l(d) was not breached because the information in Item R was "true and correct" and no documents were then in existence in relation to the management rights business because the management rights business was still to be created. [19] Similarly, the need for the body corporate to consent to the assignment of the management rights business by 20 March 2000 as required by cl 26 of the Standard Conditions and Item S is illusory because the circumstances show that both parties -- 5 of 8 -- 6 were aware that there was no business in existence which it was necessary to assign. [20] Special condition 3 requires the body corporate to approve a variation of the caretaking agreement by a special resolution at an extraordinary general meeting. Section 41 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 provides "A general meeting must be held at least 21 days after notice of the meeting is given to lot owners." The applicants' contention that on 29 March Whafflm could not comply with special condition 3 is supported by the use of imperative language. The submission that the notice period cannot be waived is reinforced by s 25 of the Body Corporate and Community Management (Small Schemes Module) Regulation 1997 which provides for a shortening of the notice period if the body corporate so resolves. A similar provision is not found in the Body Corporate and Community Management (Accommodation Module) Regulation 1997. However in relation to joint stock companies, it was held that a mandatory notice period could be waived by unanimous resolution of the stockholders, In re Oxted Motor Company Limited [1921] 3 KB 32 following In re Express Engineering Works Limited [1920] 1 Ch 466. By analogy, a body corporate can also waive the notice period by unanimous resolution. All the lot owners of the body corporate of "Noosa River Palms Apartments" consented to waiving the 21 day notice period for the extraordinary general meeting held on 30 March. Indeed all of the lots save one were held by Whafflm. Therefore, that meeting validly resolved to enter into a caretaking agreement and a letting agreement with the applicants including the terms required by special condition 3. The applicants' termination on 29 March 2000 for a purported breach of cl 3 of the special conditions was invalid. [21] The applicants contend that by procuring a direct grant of the management rights from the body corporate Whafflm is in breach of its obligations under the business contract. Essentially, the respondent will be in breach of cl 6.1 (b) because it will not have assigned an interest in the management rights. But the bargain under the contract is for the applicants to be vested with the caretaking and letting agreements mentioned in Item R. Provided Whafflm could procure the vesting of the rights under those agreements in the applicants at settlement it is not to the point that the vesting occurred by way of direct grant rather than assignment, Camberwell and South London Building Society v Holloway (1879) 13 Ch D 754 at 763. Mr C Wilson, for the applicants, suggested that there may have been some bargaining position foregone had the applicants known that they could have negotiated directly with the body corporate. This is without substance since Whafflm held all but one lot. [22] The applicants' submission that on this construction of the agreement the consideration moves from the body corporate rather than from Whafflm is ill-founded. The consideration is the effort by Whafflm to ensure that the management rights became vested in the applicants at settlement. Whafflm did this by convening the extraordinary general meeting of the body corporate and securing the body corporate's entry into the caretaking and letting agreements with the applicants. -- 6 of 8 -- 7 [23] In light of these findings it is not necessary to deal with the issue of waiver or affirmation but a few observations can be made. A party electing between alternative rights in respect of a contract - either to affirm or terminate - must know the facts which give rise to those rights, Immer (No 145) v The Uniting Church in Australia Property Trust (NSW) (1992-1993) 182 CLR 26 per Brennan J at 30. Mrs Baggott sought a letter from Mr Scott of Sound Body Corporate Management addressed to the Office of Fair Trading to support an application by her to that body to obtain the appropriate licence to operate the business at "Noosa River Palms Apartments". The letter was collected by Mrs Baggott some ten days later (Mrs Baggott suggests about a week later but nothing turns on the date). The letter which Mrs Baggott agrees she read states in its middle paragraph "It is the intention of the body corporate to enter into a Letting Agreement with [the applicants] ... " Mrs Baggott deposes that she read through the letter and sent it to the Office of Fair Trading but that she did not intend by so doing to vary the contract which provided for an assignment of the business management rights rather than a direct grant from the body corporate. Whether that was so cannot be decided but what can be readily inferred is that Mrs Baggott was in no way alarmed by the statement that there would be a direct agreement with the body corporate. [24] During the period from 3 March to termination considerable activity occurred between Mrs Baggott, Whafflm and the architect of the redevelopment. Mrs Baggott had certain concerns about noise from the units above the unit which she and her husband had contracted to buy. To accommodate these and other requirements Whafflm arranged to install a new ceiling to part of the unit. On 28 March Mrs Baggott met Mr Peter Flynn, a director of Whafflm, with whom she had had discussions previously, at the unit together with the painter, air conditioning contractor and a carpet layer. She had special requirements about the location of the air conditioning unit which were agreed. She required extra carpeting which was undertaken. She arranged to take delivery on site on 31 March, the day after settlement, of furnishings, white goods and kitchen equipment. At the end of the meeting when asked if she was now happy Mrs Baggott agrees that she said "Yes I am but your solicitor is not ready to settle you had better get on to him". Mrs Baggott deposes that this needs to be understood against the failure of Whafflm's solicitors to respond to letters from her solicitors. Still, there must be some further curiosity about this comment because on 11 March Mr Flynn deposes that Mrs Baggott observed, during a meeting on site with the architect, when asked if she would be ready for settlement, "Yes but my solicitor still has a trick up his sleeve!". When asked what that meant she replied that "it doesn't matter!". To be fair, Mrs Baggott deposes that there were certain aspects of Mr Flynn's affidavit with which she did not agree but had been advised that for the purpose of the application it was unnecessary to respond. [25] By 22 March the applicants' solicitors were expressing concerns at the delay and querying whether it was proposed that there be a direct contract for the caretaking and letting with the body corporate. However, without further exploration of these matters with Mrs Baggott in oral evidence it is not possible to be persuaded that Mrs Baggott by her conduct was affirming the contract and abandoning her right to terminate it for breach. Since I have concluded that the applicants were not entitled to terminate the contract there is no need to make a firm finding on this issue. -- 7 of 8 -- 8 [26] The declarations sought in the application are refused. [27] The application seeks such other order as the court sees fit. Should the first respondent make application for an order that the second respondent pay to it the two deposits I would be prepared to do so. [28] Unless there are submissions to the contrary costs should follow the event. -- 8 of 8 --