Body Corporate Broadbeach Motor Inn, Re [1998] QSC 297

IN THE SUPREME COURT OF QUEENSLAND Brisbane OS 10806 of 1998 Before the Hon. Mr Justice Mackenzie [re: Body Corporate “Broadbeach Motor Inn”] IN THE MATTER of a Deed of Consent to Security dated 3 July 1996 and the Body Corporate and Community Management Act and IN THE MATTER of the Body Corporate “Broadbeach Motor Inn” Community Titles Scheme 16849 (formerly BUP 102974) JUDGMENT - MACKENZIE J. Judgment delivered 23 December 1998 CATCHWORDS:CONTRACT - letting agreement with body corporate - whether termination of the contract was validly exercised - rights of “financier”. Body Corporate and Community Management Act 1997 ss.109(1), (4), 110(1), 288. Counsel: Mr J. Bell QC for the applicant Mr D. Mullins for the first and second respondents Mr J. Sweeney for the third respondent Mr C Carrigan for the fourth respondent Solicitors: Mallesons Stephen Jaques for the applicant Phillips Fox as town agent for Attwood Marshall for the first and second respondents Hickey Lawyers for the third respondent Hunt & Hunt as town agent for McDonald Balanda & Arcuri for the fourth respondent Hearing date: 7 December 1998 -- 1 of 9 -- IN THE SUPREME COURT OF QUEENSLAND Brisbane OS 10806 of 1998 Before the Hon. Mr Justice Mackenzie [re: Body Corporate “Broadbeach Motor Inn”] IN THE MATTER of a Deed of Consent to Security dated 3 July 1996 and the Body Corporate and Community Management Act and IN THE MATTER of the Body Corporate “Broadbeach Motor Inn” Community Titles Scheme 16849 (formerly BUP 102974) JUDGMENT - MACKENZIE J. Judgment delivered 23 December 1998 1 This is an application under O. 64 r.1 BB of the Rules of the Supreme Court. On 1 July 1996 the Body Corporate for Broadbeach Motor Inn entered into a letting agreement and a caretaking agreement with Golmont Pty Ltd, the effect of which was that Golmont was appointed letting agent and caretaker of the premises. On 3 July 1996 a deed of assignment of the agreements to which Golmont G & M Gooley Holdings Pty Ltd (Gooley) and the body corporate were parties was executed. 2 By the letting agreement the body corporate gave the letting agent the right to conduct from lot 1 the letting of lots in the building for such owners of units as required that service (cl.1.1). It was for a 5 year term with an option for a similar term (cl.6.1, cl.6.2). The letting agent’s obligation was to provide letting services to such proprietors as desired it and to carry out its obligations as letting agent diligently, competently and honestly (cl.1.2(d)). The proprietors were free to choose another letting agent if they wished (cl.1.3(c)). The letting agent was obliged to accept such a decision -- 2 of 9 -- 3 (cl.1.6). The body corporate undertook not to authorise another person to provide a letting service from within the parcel while the authorisation given by cl.1.1 was current (cl.1.4). The letting agent was not to take or seek any secret commission or bribes (including “undisclosed markups” or “kickbacks”). Whether the use of quotation marks around those terms implies that the words have a specialised meaning in the tourism industry and if so precisely what it is is not explained on the material before me. Further, ordinarily the notion of a secret commission or a bribe would imply that there were two parties to the transaction. The notion of a “kickback” in everyday language usually implies that there are two parties. The introduction of the notion of “undisclosed markups” suggests that it may have been in the mind of the person who drafted the clause that the prohibited conduct could include unilateral action on the part of the letting agent. 3 It may generally be commented that the agreement has not been particularly carefully drafted and it may well be thought that the difficulties that have arisen in this matter are largely attributable to that fact. To understand the nature of the problems it is necessary to refer to events which have given rise to the underlying dispute. 4 The material before me indicates that a person acting on behalf of a number of unit holders raised the question of the propriety of some of the actions of the letting agent and canvassed other unit holders about it. In the event a meeting was called on 20 March 1998 at which a clear division of opinion between unit holders emerged. All motions upon which votes were taken were carried by a margin of 42 votes to 20 and it is unusual that the chairman’s ruling on the three critical motions that they were invalid or out of order was overruled by the meeting. 5 The first motion carried was that the letting agreement in question be terminated pursuant to cl.7.3(c) on the basis that the letting agent had not complied with cl.1.6 of the letting agreement. The second was that that one John Hood be authorised to act as letting agent and to occupy part of the common property identified on a plan to enable him to operate as letting agent at Broadbeach Motor -- 3 of 9 -- 4 Inn. The third motion was that the same man be appointed as service contractor and be authorised to occupy part of the common property for that purpose. 6 The important clauses of the letting agreement are 1.1, 1.6, 7.2 and 7.3, which are quoted below: “1.1 The Body Corporate hereby grants to the Letting Agent the right, in its sole discretion, to conduct from Lot One, a letting agency for the letting of Lots on the Building Units Plan for such owners of Lots as shall require that service (“the Letting Service”). 1.6 The Letting Agent must:- (a) not discriminate between different Letting Owners; (b) accept the right of unit owners to use other letting services or let their Lots themselves; (c) not take or seek any secret commission or bribes. This includes any “undisclosed markups” or “kickbacks” 7.2 The Body Corporate may by summary written notice to the Letting Agent (specifying the breach) terminate the authority conferred by Clause 1.1 at any time after the Letting Agent breaches Clause 1 hereof and the Letting Agent has failed to rectify the breach within fourteen (14) days after the Body Corporate has given written notice to the Letting Agent specifying the breach which the Letting Agent has failed or neglected to carry out and requiring the Letting Agent to rectify the breach. 7.3 The Body Corporate may terminate this Contract if the Letting Agent:- (a) is convicted of an indictable offence involving fraud or dishonesty; (b) is convicted on indictment of an assault or an offence involving an assault; -- 4 of 9 -- 5 (c) engaged in misconduct or is grossly negligent in carrying out or failing to carry out the functions required under this Agreement; (d) fails to carry out contractual duties and persists in the failure for fourteen (14) days or more after the Body Corporate, by written notice, requires the Letting Agent to carry out the duties.” 7 Clause 7.2 is concerned only with termination of the authorisation in cl.1.1 for breach of cl.1. It is conceivable, at least in theory, that a breach of other provisions of the agreement might occur. The procedure in cl.7.3(d) is concerned with termination of the contract in certain events. An important issue is whether cl.7.3(c) can be employed independently of cl.7.2 where it is alleged that an example of conduct specifically referred to in cl.1 forms the basis of termination of the agreement, especially where it is incapable of rectification except in the sense that the person does not engage in proscribed conduct again. The thrust of arguments on behalf of some of the respondents was that in a situation where the letting agent had lost the confidence of the majority of unit holders a breach of the kind alleged, which included charging sums of money to unit holders which were not authorised, destroyed the relationship of trust which must exist in such a situation. 8 National Australia Bank Limited (NAB) agreed to lend money to Gooley on the security over the management agreement (which was defined as the letting agreement and the associated caretaking agreement). On 3 July 1996 a deed of consent to security was executed by NAB, Gooley and the body corporate. The “REASONS FOR THIS DEED” are as follows: “The Body Corporate has appointed the Manager to be the building manager for the Body Corporate under the terms of the Management Agreement. The Bank has agreed to loan money to the Manager and is taking Security over the Management Agreement. The Bank has asked the Body Corporate to consent to the Security so that the Bank’s rights under the Security can be enforced on a default and the Bank is given the opportunity to preserve the Management Agreement and so protect its security.” -- 5 of 9 -- 6 9 In cl.1 of the agreement the body corporate consented to the security. The principal argument in the matter before me turns on the effect of cl.3, the relevant portions of which are as follows: “3 BANK MAY REMEDY DEFAULTS 3.1 If the body corporate serves a notice on the manager requiring the manager to remedy defaults under the management agreement then a copy of that notice must be served on the bank at the same time. 3.2 The Body Corporate must not terminate the Management Agreement without giving the Bank at least 14 days further notice of its intention to do so. 3.3 The Bank may remedy any default of the Manager under the Management Agreement. If the Bank remedies a default then the Body Corporate may not terminate the Management Agreement because of the default. If the Bank does not remedy the default then the Body Corporate may terminate the Management Agreement at the end of the notice period in clause 3.2. 3.4 The Body Corporate may not terminate the Management Agreement if: (a) the Bank notifies the Body Corporate that the Bank is exercising its rights under clause 2.3; and (b) those rights are exercised within a reasonable time of the Bank being notified under clause 3.2." 10 The extremes of the positions put during argument are that the case was not one where the body corporate had served notice requiring defaults to be remedied, and that therefore the requirement of “at least 14 days further notice” to the bank was not required, on the one hand, and on the other, that the termination of the letting agreement was void because the requisite notice had not been given. It may be questioned whether the last mentioned proposition is correct if there is nothing else which impacts on the situation. The true situation may be that a failure to give notice would sound only in damages for breach of contract. 11 Part 2 of Division 4 of the Body Corporate and Community Management Act 1997 is concerned with the protection of a financier for contracts under which a person is engaged as a service contractor or appointed as a letting agent. Section 109(1) provides that a person is a -- 6 of 9 -- 7 “financier” for a contract if it and a person engaged as a service contractor or appointed as letting agent give written notice signed by both of them “to the body corporate under the contract” that the person is a financier for the contract. NAB is a financier (s.109(4)). Where a contract is subject to s.109 the requirement of s.109(1) as to notice is fulfilled if notice is given to the body corporate which entered into the contract. That is the meaning of the words “under the contract” in that context. Submissions were made that in its context it was necessary to look for some provision in the contract relating to notice. It is important to note that the phrase “under the contract” is used both as an adjectival phrase and an adverbial phrase in s.109. Where the former is the case it is merely a drafting usage identifying the body corporate to whom notice must be given. 12 It may be observed that the present form of the deed of consent to security to be executed by the body corporate (but not the one with which I am concerned) provides for execution with an acknowledgement by the body corporate that NAB is a financier for the purposes of s.109. It also mirrors s.110(1) with respect to the giving of notice to terminate the contract. Under s.110 the procedure to be followed is that notice must be given to the financier that the body corporate has a right to terminate the contract. There must also be in existence at the time that notice is given, a right to terminate the contract. Further, 21 days must have passed since notice was given before the termination can occur. 13 The difficulty about the proposition on NAB’s behalf that the letting agreement remains valid and enforceable is that ch.8 of the Body Corporate and Community Management Act 1997 makes a number of savings and transitional provisions which include division 6, special provisions for contracts. The contract in question would be a “body corporate contract” within the meaning of s.288. For the purpose of the division a provision relating to termination of a body corporate contract by the body corporate would be an “exempted provision”. Since the contract was entered into before the commencement of the Act, it is difficult to escape the conclusion that, by virtue of s.290, the -- 7 of 9 -- 8 provisions of ss.109 and 110 are exempted provisions and do not apply to the present contract with the consequence that the statutory requirement that notice be given does not apply. I was not directed to any other provision of law which required notice to be given in the circumstances to NAB. 14 Having said that, with the implication that any remedy that NAB has may only be contractual, there is still the underlying question whether the case is one where the body corporate had a basis either as a matter of construction or as a matter of evidence to summarily terminate the contract. It may be questioned, although it cannot be resolved on the material presently before me, whether in at least some cases the matters complained of fit the description of a “secret commission or bribe” even if an extended meaning is to be given to those terms in cl.1.6 of the letting agreement, or “misconduct ... in carrying out ... the functions required” under the agreement. It is difficult to see that a complaint that services may have been procured at a cheaper rate fits either category comfortably. It is, in the end, a factual question whether there existed at the date of the resolution a basis for terminating the contract. 15 In the latter stages of the correspondence the notion was advanced that because Gooley was still in occupation and performing the role of letting agent at least in respect of some unit owners the agreement had not been terminated. If that is the case and the implication is that there was been a waiver of the original resolution, the question is whether, in that event, the proceedings that are currently before a specialist adjudicator under the dispute resolution mechanisms of the Act are live issues. If they are not, presumably if the body corporate still wished to dispense with Gooley’s services the procedure would have to be commenced afresh. 16 It has been necessary to go into some detail with respect to the legislation and the issues to come to a conclusion whether the declarations sought by NAB ought to be granted. It is apparent from what has been said that they should not be given. However, in coming to that conclusion, an attempt has been made to make it plain that the underlying factual issues are important in determining -- 8 of 9 -- 9 the respective rights of the parties. No doubt those issues would be before the specialist adjudicator when the adjudication proceeds to hearing. The application of the termination provisions in the agreement having regard to the findings of fact is also within the province of the specialist adjudicator. If it turns out that the letting agreement remains valid and enforceable and that the purported termination of the letting agreement is invalid and of no effect, NAB’s position will have been vindicated. In the circumstances while I dismiss the summons, I will not make costs orders which operate immediately. The orders that will be made will take effect in consequence of the way in which the proceedings before the specialist adjudicator are determined. 17 The formal orders are: 1. The application is dismissed. 2. Each party shall have liberty to make written submissions as to costs, such submissions to be delivered to my Associate on or before 4 p.m. on Friday 5 February, 1999. -- 9 of 9 --