Birstar Pty Ltd v The Proprietors "Ocean Breeze" Building Units Plan No 4745 [1995] QSC 248

- State Reporting B~;;au TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) ! R ---- i EVISED C'np,r=..-- ,,--.~, - . i l .,. ... ,~0 :-::,:..::,,.;,_~ ' ! State Rcpcrtina B· 'r""'u i 1 '<J .._. \,,,,,U } LDate.,W; Jo I f:C j (' SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION ----, DEMACK J ( i ' . No 1084 of 1994 BIRSTAR PTY LTD and THE PROPRIETORS "OCEAN BREEZE" BUILDING UNITS PLAN NO 4745 BRISBANE .. DATE 04/ 1 0/95 JUDGMENT Plaintiff Defendant 1 4th Floor. The Law Courts, George Street, Brisbane. Q. 4000 Telephone: (07) 227 4360. Facsimile: (01) 227 5532 -- 1 of 29 -- V .. j,,.,r 041095 dfc (Demack J) HIS HONOUR: In this action I have reduced my reasons to writing which I now publish. I declare that the management agreement dated 10 April 1990 is void from the date of its execution, otherwise the plaintiff's claim is dismissed. I order the plaintiff pay the defendant's costs of and incidental to the action to be taxed. JUDGMENT 2 10 20 30 40 50 60 -- 2 of 29 -- l_b!:Sl .. , IN IBE SUPREME COURT OF QUEENSLAND Brisbane No. 1084 of 1994 Before the Hon. Justice Demack [Birstar Pty Ltd v. Ocean Breeze] BE1WEEN: BIRSTAR PTY LTD IBE PROPRIETORS "OCEAN BREEZE'" BUILDING UNITS PLAN NO.4745 JUDGMENT - DEMACK J. Plaintiff Defendant Judgment delivered 04/10/1995 CATCHWORDS: Corporations - powers - body corporate empowered to manage common property - management agreement - duties of manager - conduct of letting agency for owners - ultra vires - severance clause - whether severable. Building Units & Group Titles Act (1980) ss. 27(3), 37 - Humphries & Anor v. The Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 C.L.R. 597. Corporations - by-laws - building units and group titles - scope of body corporate's power to make by-laws - control of lots permitted - Building Units & Group Titles Act (1980) s,27(3), 30(6). Re The Proprietors of the Hastings Group Title Plan No. 1154 (1994) Unit and Group Titles law and practice, court decisions 70, 321, not followed. Estoppel - parties entering into agreement to assign management rights to building units - all advised by solicitors - purchasers solicitors unaware agreement might be void because of Court of Appeal decision then under appeal to the High Court - whether body corporate's silence raises an estoppel - duty of solicitor. Commonwealth of Australia& Ors v. Newcrest Mining (W.A.) Ltd & Ors (1995) 130 A.L.R. 193 followed. Contract - assignment of management agreement & building units - agreement identical to one held void by Court of Appeal - assignment of interest - whether body corporate warranted validity of agreement. Dynevor Pty Ltd v. The Proprietors Centrepoint Building Units Plan No. 4327 (AP. 138 of 1994) unreported 12/5/1995 applied. -- 3 of 29 -- Counsel: Solicitors: Hearing date: C.J. Brabazon Q.C. with him C. Carringan for plaintiff K.D. Dorney Q.C. for defendant Short Punch & Greatoriz for Plaintiff Cartwright Richardson & Stringer for defendant 18, 19, 20, 21 & 22 September 1995 (·· \ ( -- 4 of 29 -- r-· .. r ; \._ __ ~/ IN IBE SUPREME COURT OF QUEENSLAND Brisbane Before the Hon. Justice Demack [Birstar Pty Ltd v. Ocean Breeze] BE1WEEN: BIRSTAR P1Y LID mE PROPRIETORS ''OCEAN BREEZE" BUILDING UNITS PLAN N0.4745 JUDGMENT - DEMACK J. Judgment Delivered 4 October 1995 No. 1084 of 1994 Plaintiff Defendant This action concerns the validity of a management agreement between the body corporate of Ocean Breeze and the plaintiffs. Background The defendant is the body corporate ("body corporate") for the building units named Ocean Breeze ("Ocean Breeze"), a strata title building in Hastings Street, Noosa, Queensland. The body corporate was constituted upon registration of the Building Units Plan number 4745 of 2 March 1982. On or about 10 April 1990, it entered into a written management agreement with Salrey Investments Pty Ltd ("Salrey"), later called Arreton Management Pty Ltd ("Arreton"). That management agreement was varied in May 1990. The body corporate amended its by-laws on 10 April 1990. The plaintiff ("Birstar") entered into three contracts on or about 27 November 1993. One contract provided for the purchase of the management rights to Ocean Breeze from Arreton for a sum of $900,000. Birstar also purchased Lot 72 in Ocean Breeze from Arreton for $100,000, and Lot 26 from a Mr and Mrs Godsell who were the principals of Arreton. -- 5 of 29 -- 2 Birstar, Arreton and the body corporate executed a deed assigning the management agreement on 1 February 1994. The contracts were settled on 4 February 1994. On 29 October 1992, the Court of Appeal delivered judgment m the case of Humphries & Anor v. The Proprietors Surfers Palms North Group Titles Plan 1955. That decision was to the effect that a management agreement which included in it an obligation on the part of the manager to provide a letting service for unit owners was beyond the power of the body corporate. This decision became the subject of an appeal to the High Court which was heard in Brisbane on 29 June 1993. This situation led to the body corporate of Ocean Breeze attempting to split the obligations in respect of the management of the common property of Ocean Breeze from the obligations in relation to the letting of units in Ocean Breeze. A resolution to this effect was passed at a general meeting held on 17 September 1993. It was not until 4 May 1994 that the High Court decision in Humphries was handed down. The appeal was dismissed. The response of the body corporate was to assert that the management agreement in respect of Ocean Breeze was void. This was communicated to the Birstar and the salary payable under the agreement was reduced on 8 July 1994. Birstar issued its writ on 22 July 1994. The Effect of the Humphries Decision The first issue that has to be considered is the effect of Humphries & Anor v. The Proprietors "Surfers Palms North" Group Titles Plan 1955 (1994) 179 C.L.R. 597 ("Humphries"). It is apparent from the judgments that Humphries involves the application of a long established principle that a statutory corporation created by act of Parliament for a particular purpose is limited, as to all its powers, by the purposes of its incorporation as defined in that Act, (at 604). The High Court decision is found in three judgments, those of Brennan and Toohey JJ., of Deane and Gaudron JJ. and of McHugh J. Each of those (, ~.•• -- 6 of 29 -- lJ 3 judgments refers to the way in which the powers of the body corporate are defined in the Building Units and Group Titles A et ("the Act"). At p.604, in a judgment of Brennan and Toohey JJ. it is said:- "The powers of a body corporate are confined chiefly to management and control of common property, and expenditure of the funds of the body corporate on the provision of services for individual proprietors is not sanctioned merely because the services are available to all proprietors who wish to use them." At p.608, in the joint judgment of Deane and Gaudron JJ. it is said:- "By s.37(1)(a) of the Act, a body corporate is required to 'control, manage and administer the common property for the benefit of the proprietors'. Section 27(3) empowers a body corporate to 'do all things reasonably necessary' for that purpose. Wide though these powers of control, management and administration may be, they are confined to the common property." In the judgment of McHugh J. at p.614 it is said:- "Unquestionably s.37(l){a) and (c) authorise a body corporate to enter into a contract to maintain and administer the common property. But nothing in those paragraphs confers any authority on a body corporate to enter into an agreement to pay money to a person in consideration of that person providing a letting service for the benefit of unit proprietors. They confer power in relation to the common property. They do not confer power to enter into an agreement with a third party which effects the lots of other individuals as well as the common property." In Humphries there was no relevant by-law that enlarged the powers given to the body ( J corporate by the Act. However, by s.30(2) of the Act, the body corporate can make by-laws'---~-- that add to or repeal the by-laws in the Third Schedule to the Act. Section 27(3) of the Act gives the body corporate the powers, authorities, duties and functions conferred or imposed on it by or under the Act or the by-laws. Here the body corporate has made by-laws in substitution of the Third Schedule by-laws. It was submitted that these by-laws give the body corporate significantly wider powers than those possessed by the defendant in Humphries. The High Court did not have to decide the extent of by-law making power. However, the members of the Court referred to the by-law making power in the context of the issues of that case. At p.603, in the joint judgment of Brennan and Toohey JJ., it is said:- -- 7 of 29 -- 4 "The appellants seek to uphold the management agreement by pointing to the by-law making power conferred on a body corporate by s.30. That section authorises the amendment of the pro forma by-laws contained in the Third Schedule 'for the purpose of the control, management, administration, use or enjoyment of the lots and common property the subject of the plan.' (s.30(2)). Whatever the scope of that power may be it does not avail the appellants in this case." Their Honours also at p.604 said:- "In our opinion there was no statutory power authorising, and there was no by- law which might have authorised the respondent to conduct a letting agency for the benefit of those proprietors of lots who might require that service or to procure another person to conduct such a letting agency.'' (---, __ It would seem to me that the phrase in that sentence "there was no by-law which \ might have authorised" is not to be taken as an indication that their Honours believed that such a by-law could in fact have been made. It seems to me that their Honours specifically ( kept open that question. At p.608, in the joint judgment of Deane and Gaudron JJ. the general tenor of the judgment would support the view that the by-laws are to be essentially concerned with the common property. That is not expressly stated but seems to be implicit. At p.316, in a judgment of McHugh J., there is some discussion of the by-law making power. His Honour at that stage was concerned with the question of giving exclusive use of common property to a proprietor of a lot. He quoted s.30(2) of the Act and said:- "That subsection indicates that the body corporate can interfere with the rights of proprietors in respect of their lots only by means of by-laws passed in accordance with the act." The relevant words in s.30(2) are "for the purpose of the control, management, administration, use or enjoyment of the lots and common property the subject of the plan.'' It would seem to me that those words are capable of extending the responsibilities of the body corporate to the control, management, administration, use or enjoyment of the lots and consequently to permit by-laws that go beyond the common property. They are in contrast to the words in s.27(3) which authorise the body corporate to do things only in respect of the common property. -- 8 of 29 -- 5 If this is so then there is power to make a by-law which enables the body corporate to enter into a management agreement that includes the conduct of a letting agency for proprietors of the units. This is consistent with the view expressed by the New South Wales Court of Appeal in Sydney Diagnostic Services Pty Ltd v. Hamlena Pty Ltd, (1991) Units.and Group Titles Law and Practice, Court Decisions, 70, 203. Re. The Proprietors of The Hastings Group Title Plan No. 1154, (1994) Unit and Group Titles Law and Practice, Court Decisions 70, 321 ("The Hastings") contains an observation by Dowsett J., at 70, 331 that "the 1 ---... power conferred by subs.30(2) is not to make by-laws controlling the use of the lots, but to \ c-\ make by-laws to facilitate that use." This runs counter to the words of the subsection, which clearly speak of "control" "of the lots". Mr Dorney QC, for the body corporate, relied on The Hastings, and Mr Brabazon QC, for Birstar, submitted there were flaws in the reasoning. It is necessary to make some brief reference to the reasons for the decision. The decision was that by-laws which purported to give the body corporate the power to enter into an agreement relating to the caretaking and management of units, including the provision of letting services for individual proprietors, were in conflict with ss.50 and 30(7) of the Act. At p.70, 330, his Honour expressed the opm1on that an agreement of the kind contemplated in the by-law would constitute an appointment of a body corporate manager under s.50. The words "body corporate manager" were substituted for the words "managing agent" by the 1988 Amendment of the Act (no. 23 of 1988). That amendment also added a definition of "body corporate manager" - "a person appointed under section 50 or 94 for the time being a body corporate manager of a body corporate and includes a person who immediately prior to the commencement of s.6 of the Building Units and Group Titles A et Amendment Act 1988 (3 October 1988) is a managing agent for so long as his appointment continues". -- 9 of 29 -- 6 The Auctioneers and Agents Act Amendment Act 1988 (no.22 of 1988) established a system of licensing and controlling the accounts of body corporate managers (Division 4A of Part V and Division IA of Part VI). This produced some amendments to the Act, specifically in respect of the audit of accounts of a body corporate (s.29B). So a body corporate whose body corporate manager is a licensed body corporate manager may resolve to operate under Division 1A of Part VI of the A uctioneers and A gents A et. This shows that when an appointment ofa body corporate manager is made under s.50, the person appointed does not have to be a licensed body corporate manager. No doubt the size and purpose of the particular building units will have a bearing on what happens. The 1988 Amendment did not alter the provisions of s.28(3) which entitles the body corporate manager (formerly managing agent) to have custody of the common seal of the body corporate and to affix it to any instrument. By s.28(4) such affixing is deemed to be authorised. This indicates that the person appointed under s.50 becomes a kind of statutory officer of the body corporate. It also points up the importance that s.50 attaches to the authorisations given to the body corporate manager. Section 42(6) allows the body corporate to appoint a person as secretary and treasurer of the committee who has not been elected to the committee. The body corporate of Ocean Breeze has in fact appointed its body corporate manager to those positions (ex.20). From- these provisions it is apparent that in most instances a person appointed as manager/caretaker will not be the same person as the person appointed as body corporate manager. Two distinct functions are involved and it is unlikely that someone who is qualified to discharge the obligations of body corporate manager will also be willing to clean the pool and hose down the pathways each day before 7.am. I accept that if by-laws purported to achieve such a hybrid office those by-laws would need to comply with s.50, but this would seem to be most unlikely circumstance. c, C -- 10 of 29 -- ( 7 In respect of s.30(7), upon which Dowsett J. relied, it is sufficient to note that it is no longer in the form his Honour considered, having been amended in 1988. The new form of words came into operation on 1 April 1992. Subsections 7A and 7B also now qualify subs.7. These provisions must be complied with, but do not need to be considered here. The By-Laws of Ocean Breeze The relevant by-laws made on 10 April 1990 are, first of all:- "2. Subject to these By-laws each lot shall be used for residential purposes only excepting lot 72 which may be used as a managers office ... " By-law 4 requires each proprietor to be responsible for the proper maintenance and decoration of his lot. By-law 26 provides details of the management and security of the common property. It reads:- "The committee may take all reasonable steps to ensure the security and proper management of the parcel, the body corporate's personal property, the common property and to ensure the observance of these By-laws and without limiting the generality of the forgoing may - 26.1 enclose or close off any part of the common property not required for ingress or egress to a lot, carparking space or other facility for the common use of proprietors or occupiers either on a temporary or permanent basis or otherwise restrict the access to or use by proprietors of any such part of the common property. 26.2 permit access to any housekeeper's office, linen room or any other similar room or area to be provided only to a caretaker or manager appointed by the,Body Corporate. 26.3 Permit any part of the common property designated by the Committee (other than those parts over which exclusive use to a proprietor has been granted) to be used (to the exclusion of proprietors and occupiers generally) by any party providing security services to the Body Corporate or by any party providing caretaking or management services to the Body Corporate to the extent reasonably necessary to allow the monitoring of the security and general safety of the parcel or the general caretaking and management of the parcel. 26.4 obtain, install and maintain locks, alarms, gates, communication systems and other security devices and to issue to proprietors or occupiers keys and other operating systems on such reasonable conditions as the Committee determines which conditions shall be complied with by proprietors and -- 11 of 29 -- 8 occupiers." This by-law envisages an active role for the manager which goes beyond simply the cleaning and care of the common property. It refers to "the parcel" which means all the land referred to in the registered building units plan. In this way it concerns the control, management, administration and use of lots. By-law 35 requires a copy of the by-laws to be exhibited in a prominent place in any lot made available for letting. The by-law which is of specific relevance is by-law 38 which provides:- "During such time as the proprietor of lot 72 in the building units plan has the written approval of the body corporate and any necessary licenses, registrations or other permits to lawfully carry out management, caretaking and letting functions in respect of the parcel, then the said lot may be used for the management of the parcel, the sale and letting of lots in the building units plan and the rendering of such services to the proprietors and occupants as may be approved in writing by the body corporate from time to time." This by-law gives the body corporate the power to permit the proprietor of lot 72 to carry out management, caretaking and letting functions. No such by-law existed in the Humphries case. The critical question is whether this by-law significantly enlarges the power of the body corporate in the areas that were relevant in Humphries. It will be recalled that the principle on which the Humphries case turned was not just the scope of the things that the body corporate could do but also the limits that were placed on the body corporate's capacity to s.pend money from the administrative fund that the body corporate was required to keep. Management Agreement The management agreement made on 10 April 1990 between the body corporate and Salrey provided in cl.2:- "2. l. In consideration of the performance by the Manager of the duties set out in this agreement, the Body Corporate shall pay the Manager a sum calculated and payable in the manner set out in the Schedule." Clause 3 sets out the duties of the manager. Relevantly it says:- C ( -- 12 of 29 -- (': CJ 9 "3 .1 The manager shall during the term of this Agreement perform or procure the performance of the tasks and duties consistent with the position of manager and caretaker of a unit complex, many of the units in which are intended to be let by owners to members of the public from time to time and without limiting the generality of this provision, the Manager undertakes to:- 3.1.24 To be in attendance at the building personally or by its duly qualified nominee from 8.am to 5.pm Monday to Friday and 8.am to 11.30am Saturday - PROVIDED however that the manager or its nominees shall be available outside such hours in the event of an emergency. 3.1.26 To provide letting agency services (either by the Manager or other authorised person) for the letting of lots in the building for such lot owners as shall require that service provided that all commissions and other fees or expenses shall be payable to the Manager or his appointee who shall not be liable to account therefore to the Body Corporate. 3 .1.27 Retain the ownership and possession of the Managers Lot." Clause 6 is headed "Letting Agreement". It relevantly provides'.- "6.1 During the term of this Agreement and any extension or renewal thereof the Manager shall be entitled to conduct the business of letting the Lots in the Plan on the following terms and conditions:- 6.1.1 The manager shall carry on in the Building the business of letting the Lots for such of the owners thereof as shall require the Manager to perform that service and provide to such owners all services commonly rendered in connection of the letting of apartments." Thereafter there is a series of more detailed obligations which include requiring the manager to spend during the first year from its own funds an amount of $40,000 in respect of the promotion and advertising of the building and the letting of the lots. There is also the obligation to provide for the hiring of such things as television sets, bedding and other chattels, for the washing of cars, the cleaning of apartments and the provision of a travel agency. Clause 7 allows the manager to assign its interests under the management agreement subject to the consent of the body corporate which shall not be unreasonably or capriciously withheld. The remaining clause in the agreement that is relevant is cl.15:- -- 13 of 29 -- 10 "15.1 All rights duties or obligations given or imposed by virtue of this Agreement are so given and/or deemed to the extent that they are lawful and to the extent that the right, duty or obligation contained in any provision of this Agreement contravenes the provisions of any statute was otherwise unlawful, the said provision shall be severed from this Agreement which shall otherwise remain in full force and effect." (It is suggested by counsel that the underlined "was" should read "or is"). If the by-laws are ignored for the time being, the combined effect of clauses 2 and 3 is identical to that in the management agreement in Humphries. The body corporate purports to expend its funds to secure the services of a manager who has a number of obligations, including the provision of the letting agency. There is no apportionment of the remuneration which is fixed by the schedule at $67,700 per year. Ignoring the by-law there is no authority under the Act for such. an expenditure. The question then is whether the by-laws, particularly by-law 38, increase the powers of the body corporate so that this management agreement is within the powers of the body corporate. It seems to me that the answer has to. be in the negative. By-law 3 8 allows the body corporate to apprnve of the manager carrying out a "letting function" in unit 72. Clause 6 of the management agreement purports to do that, but it is, in my opinion, a clause that is descriptive of the duties cast upon the manager in cl.3 .1.26. By-law 3 8 does not authorise the payment of the manager for carrying out a letting function. It is in respect of all of the duties in cl.3 that the manager rec.eives his remuneration. Those duties include the letting function and an undisclosed part of the remuneration found in cl.2 is paid for the performance of this duty. The Deed of Assignment By a deed dated 1 February 1994, to which the parties were the body corporate, Arreton, Birstar and Mr and Mrs Godsell, who were the principals of Arreton, the rights of Arreton under the management agreement were assigned to Birstar. It will be necessary to refer to this document in more detail in due course. At present it is sufficient to refer to C ( C ( \. -- 14 of 29 -- 11 clause 15, which reads, (ex 3, p.102):- "15.l The Agreement is amended by the addition of the following clause in accordance with a Resolution passed at a General Meeting of the Owner on September 17, 1993. 3 .1.26 In respect of the provision of letting agency services referred to in this sub-clause and Clause 6, it is acknowledged and agreed by the parties that the Manager has not and shall not receive any of the remuneration referred to in Clause 2 for the conduct of such letting agency services, and that the requirement that the Manager conduct the letting agency services is only for the purpose of the Body Corporate ensuring that the Manager shall provide a letting agency service for such of the members of the Body Corporate as may wish to avail themselves of such service." This clause is obviously a response to Humphries. However, it does not address the basic issue that has been referred to in these reasons for judgment. Clause 2 provides that the manager is to be paid for performing the specified duties. Clause 3 says that those duties are ones "consistent with the position of manager and caretaker to a unit complex many of the units in which are intended to be let by owners to members of the public." Among those duties is the provision of letting agency services (3 .1.26), but the performance of many of the other duties in respect of the common property also enhances the letting potential of the units. (__) For example, having the office open six days a week (3.1.24) is a way of attracting casual guests, and indeed some of the debate in the evidence suggested that Birstar took the view (_ that extending the hours during which the office was open was a method of promoting the units. Under cl.6.1.3, (which had been varied on 18 May 1990 (ex 3, p.67)), $40,000 was to be spent on promotion and advertising the building. There was apparently some dispute between Birstar and the committee of the body corporate about this, but, in the end, no issue was raised for resolution in this action. It does, however, highlight the complex interaction between the duties for which Birstar is paid from the administrative fund and the letting of units for the benefit of individual proprietors. In my opinion, the additional cl.3.1.26 attempts to contradict the plain words of cls.2 and 3, and, in effect; purports to impose a duty on Birstar - "ensuring that the manager shall -- 15 of 29 -- 12 provide" - for which Birstar is to receive no remuneration. If that is so, it is an obligation for which there is no consideration. It does not alter the effect of cls. 2 and 3. Severance· I have already quoted cl.15 which is said to indicate a desire of the parties to sustain the contract even if some part should be void. In Humphries, McHugh J. referred to Brew v. Whitlock (no.2) (1967) V.R. 803. At p.812, in the judgment of the Full Court, the following summary appears:- "In McFarlane v. Daniell (1938), 38 S.R. (N.S.W.) 337, at p. 345; 55 W.N. (N.S.W.) 132, at p.134, it was said by Jordan , C.J.: 'When valid promises supported by legal consideration are associated with, but separate in form from, invalid proQlises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature: Horwood v. Millar's Timber & Trading Co. Ltd., [1917] 1 K.B. 305, at p.315; [1916-17] All E.R. Rep. 847. If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable: Putsman v. Taylor. [1927] 1 K.B. 637, at pp. 640-1; [1927] All E.R. Rep. 356.' (This test was treated as applicable to another class of case where the particular provision was illegal and not merely void, in Thomas Brown & Sons Ltd. v. Fazal Deen (1962), 108 C.L.R. 391, at p.411; [1963] A.L.R. 378, at p.381.) But the difficulty lies in determining when the nature of the contract is changed. The question has been said to be 'one of degree depending on the terms of each contract and on the circumstances of each case': Treite/, Law of Contract, at pp. 317-8. It seems to us that once the conclusion is reached that the invalid promise is so material and important a provision in the whole bargain that there should be inferred an intention not to make a contract which would operate without it, but to make a contract which is conditional upon the operation of the promise, then it must be treated· as forming with the other valid promises an indivisible whole which cannot be taken to pieces without altering its nature, and as not being capable of elimination without changing the kind of the contract. In other words the tests, differently expressed, come to the same thing." As I have previously indicated, cl.3.1 asserts that the owners intend to let units. In the preamble to the agreement, cl.B speaks of the caretaking, management, control, use and enjoyment of the building area and of the common property. To sever the obligation in cl.3.1.26 would remove one of the significant parts of the agreement. Indeed, cl.3.1 suggests C c/ -- 16 of 29 -- l; 13 that the need to have a well run letting and managing agency in Ocean Breeze was uppermost in the body corporate's collective mind. The only provisions that cause some hesitation are in the latter part of cl.3.1.26 and in the requirement that the manager spend $40,000 of "its own funds" in promotion and advertising. The latter part of cl.3.1.26 provides "that all commissions and other fees or expenses shall be payable to the Manager or his appointee who shall not be liable to account therefor to the Body Corporate." This hints at a separate letting business which is, in a sense, separate from the management of the common property. The payment for promotion and advertising supports this. I do not think that these two matters outweigh the clearly expressed intention in the preamble and in cls. 2 and 3.1 that agreement was to embrace not only the .common areas but the individual units. The severance of cls.3.1.26 and cl.6.1.3 could still leave an agreement where an unidentified part of the money paid to Birstar from the administrative fund would go to the provision of services to the proprietors. In my opinion, the provisions of cl.15 do not assist Birstar in this case. The invalid part of the agreement is "so material and important a provision in the whole bargain that there should be inferred an intention: not to make a contract which would operate without it", (Brews v. Whitlock (No.2), at p.813). The Resolution of 17 September 1993 On 17. September 1993, at the Annual General Meeting of the body corporate, the following resolution was passed:- "RESOLVED that the body corporate enter into a Deed with Arreton Management Pty Ltd further amending the Body Corporate Management Agreement between the parties dated April I O I 990 (amended by Deed executed by Arreton Management Pty Ltd on May 22, 1990) by adding to Clause 3.1.26 the following: 'In respect of the provision of letting agency services referred to in this sub-clause and Clause 6, it is acknowledged and agreed by the parties that the Manager has not and shall not receive any of the remuneration referred to in Clause 2 for the conduct of such letting agency services, -- 17 of 29 -- 14 arid that the requirement that the Manager conduct the letting agency services is only for the purpose of the body corporate ensuring that the Manager shall provide a'letting agency service for such of the members of the body corporate as may wish to avail themselves of such service."' The words are the same as those contained in the deed of assignment of which I have referred. For the reasons I have already given I do not think this resolution alters the clear words of the agreement. Effect of the Deed of Assignment The deed of assignment contained several provisions which need to be considered. "Whereas:- E. ·. The.Owner acknowledges that the Assignor is the Manager of 'Ocean Breeze' pursuant to. the Agreement and has agreed to grant its consent to the Assignment conditionally upon execution of this Deed. 3. ASSIGNMENT OF THE AGREEMENT 3.1 In consideration of the purchase price paid by the Assignee to the Assignor in respect of the sale by the Assignor to the Assignee of the rights of the Assignor under the Agreement, the Assignor does hereby transfer and assign to the Assignee and the Assignee hereby accepts the assignment from the Assignorfrom theAssignmentDate all the Assignor's right, title, estate and interest as Manager in, to and under the Agreement. 4. COVENANT BY ASSIGNEE 4.1 The Assignee hereby covenants and agrees to observe fulfil and perform and keep all the covenants and conditions and restrictions contained in the Agreement and on the part of the Manager thereunder to be observed and performed and fulfilled as from the Assignment Date a:s if he had originally been named as Manager therein and the Assignee indemnifies the Assignor against any loss suffered by the Assignor by reason of·any breach after the Assignment Date of any of the covenants and conditions contained in the Agreement. 5. WARRANTY BY ASSIGNOR 5.1 The Assignor warrants that the Agreement is at the date of execution hereof in full force and effect, unforfeited, unsurrendered and has in no way become .void or voidable and that all of the covenants, conditions and restrictions contained in or implied in the Agreement and on the part of the Assignor to be observed and performed have been observed and performed up to the Assignment Date. ( C -- 18 of 29 -- ( (/ 15 6. CONSENT OF OWNER 6.1 The Owner hereby consents to the Assignment from the Assignor to the Assignee of the Assignor's right, title, estate and interest in, to and under the Agreement and covenants and agrees with the Assignee that there is no existing breach of the Assignor of the Agreement and that the Assignor's interest under the Agreement is not liable to forfeiture or surrender. 7. COVENANT BY OWNER 7.1 The Owner agrees to be bound by the provisions of the Agreement as if the Assignee were the Manager originally named therein and in every respect confirms the provisions of the Agreement for the balance of the term thereof. 8. COVENANTS BY ASSIGNEE AND OWNER 8.1 The Owner and the Assignee hereby ratify and confirm each and every of the terms, covenants, conditions, provisions and restrictions contained in the Agreement and agree to be bound thereby. 12. SEVERANCE 12.1 In the event that any term or provision of this Deed for any reason whatsoever by acknowledged by the parties hereto, or be adjudged by a Court of competent jurisdiction or be held or rendered by any competent Government authority to be invalid, illegal or unenforceable, such term or provision shall be severed from the remainder of the terms and provisions of this Deed and shall be deemed never to have been part of this Deed and the remainder of the terms and provisions of this Deed shall subsist and remain in full force and effect unless the basic purposes of this Deed would thereby be defeated." It was submitted that the combined effect of cls.6, 7 and 8, read together with the rest of the deed, ar:nounts to a warranty by the body corporate that the assignor is giving Birstar a valid management agreement. Both counsel referred to the following passage in the judgment of Pincus JA in Dynevor Pty Ltd v. The Proprietors, Centrepoint Building Units Plan No. 4327 (App. 138 of 1994) (unreported - delivered 12/5/1995), at p.10:- "There is no universal rule that a payment for an assignment of rights under a document necessarily involves a warranty, or otherwise imports, that the document is valid. For example, an agreement for sale of a patent does not necessarily imply a warranty of validity: Smith v. Neale (1857) 265 L.J.C.P. 143, Hall v. Conder (1857) 26 L.J.C.P. 138; see also Cockburn C.J. in Smith v. Buckingham (1870) 18 W.R. 314. Then there is Couturier v. Hastie 155 -- 19 of 29 -- 16 E.;R.. 1250, 156 E.R. 43, 10 E.R. 1065 in which, on a sale of cargo, the question whether the contract was enforceable although the cargo had been spoiled and sold before the contract sued on was made was treated as depending on :whether .what was sold was (a) a cargo or (b) shipping documents; also see McRae v. Commonwealth Disposals Commission 1951) 84 C.L.R. 377 at 405 which was a case concerning the sale of a non-existent tanker. In both these cases the question was "What did the promisor really promise? (McRae at 407)." Smith v. Neale and Hall v. Conder are reprinted in 140 E.R. at 337 and 318 respectively. The following passage from the judgment of the court in Hall v. Conder is apposite (1857) 2 C.B. (N.S.) 23, 41:140 E.R., 318, 327:- "But, did the plaintiff profess to sell and the defendant to buy a good and indefeasible patent right? or, was the contract merely to place the defendant in the same situation as the plaintiff was in with reference to the alleged patent? - in which case, his position would :be similar to that of the plaintiff in Kintrea v. Perston, 1 HurlsL & Norm. 357. The plaintiff professed to have invented a method for the prevention of boiler explosions. It is not alleged that he was guilty of any fraud. He must, therefore, have been an inventor; for, if he was not, he must have known it, and would have been guilty of fraud in pretending to have invented. Whether he was the true and first inventor within the meaning of the statute of James, is another question. The first material allegation in the plea is, that the alleged invention was wholly worthless, and of no utility to the public. Now, that was a matter as much within the [42] · knowledge of the defendants as of the plaintiff. The next allegation, viz. that it was not Iiew as to the public use thereof in England, and that the plaintiff was not the first and true inventor, was also a matter as much within the knowledge of the defendants as of .the plaintiff. They had the same means of inquiring into the fact, and of learning whether it had been in use, or the invention had been previously made known in England. Why, therefore, should we assume that the plaintiff meant to assert that the patent was indefeasible, and that the defendants purchased on that understanding, rather than that, each knowing what the invention was, and having equal means of ascertaining its value, they contracted for the patent such as it was, each acting on his on judgement? We think that the latter was the true nature of the con:tract." The situation with patents is analogous to the situation here. The law in respect of management agreements entered into by bodies corporate was as readily ascertained by Birstar as by Arreton and the body corporate. What was not so readily ascertainable by Birstar was whether Arreton was in breach of its obligations so as to entitle the body corporate to terminate the agreement. The warranty in cl.5 and the covenant in cl. 7 cover that situation. ( ( -- 20 of 29 -- ( 17 They assure Birstar, that, as between the parties to the management agreement, there is nothing that would render the agreement valueless or unenforceable. The provisions of the deed do not provide a warranty that, in entering into the management agreement, the body corporate was acting within its powers. Certainly, in cl.I 5, it was attempting to comply with an understanding of the effect of Humphries. A solicitor holds himself out to his clients as having adequate skill and knowledge properly to conduct all business that is undertaken whether contentious or non-contentious: Halsbury's Laws of England, 4th ed. vol. 44, para 135. A failure to use proper care can render the solicitor liable for damages. However, in Godfrey v. Dalton (18~0) 6 Bing 460: 130 E.R. 1357, Tindal CJ, said at 468, 1361:- "On the other hand, he is not answerable for error in judgment upon points of new occurrence or of nice or doubtful construction, or of such as are usually in trusted to men in the higher branch of the profession of the law." While the legal profession may not be so clearly divided now, it would still seem to be correct that advice about the outcome of an appeal will not involve a breach of care if the outcome of the appeal is contrary to the advice. The obvious reason for this is that when the advice is given, the outcome is not known. It may be different if the advice is given without proper research. In any case, any liability in a solicitor is found either in negligence or in breach of the contract of retainer. It does not arise from any warranty that the advice is correct. Even more so, a party to an agreement, acting on legal advice, cannot be said to give a warranty that that advice is correct. I am unable to accept the plaintiffs contention that, in the deed of assignment, the body corporate warranted that Arreton was transferring Birstar a valid management agreement. The purpose was to place Birstar in the same situation as Arreton (cf. Hall v. Conder (above)). -- 21 of 29 -- 18 It was further submitted that the deed of assignment created a new management agreement which was warranted to be valid. This, in my opinion, cannot be sustained for the reasons I have already -given. Estoppel To consider the issue of estoppel it will be necessary to consider some of the evidence. It is helpful to indicate first the nature of the claim. In effect, it is alleged that the body corporate, largely by the silence of its solicitor, but also by the terms of the deed of assignment, raised in Birstar expectations that it was receiving a valid management/letting agency agreement. Relying on the decisions of Waltons Stores (Interstate) Ltd v. Maher (1988) 164 C.L.R. 387 and The Commonwealth of Australia v. Verwayen (1990) 170 C.L.R. 394, it is submitted that the court will make orders which give Birstar what it expected because it would be unconscionable for the body corporate to frustrate the expectations it has raised. Mr Coote has a controlling interest in Birstar and Mr Black has a 20% interest. Both were involved in the initial negotiations with Arreton, but from then on, the day to day involvement of Birstar was through Mr Coote. On 25 October Mr Coote retained a solicitor to act in relation to the acquisition of the management rights. The contract for the purchase of Arreton's interest in the management agreement was in the form of an REIQ business contract, with nine additional typed pages. Included in those pages was a warranty by Arreton that the management agreement would be current at the date of possession and not liable to forfeiture (cl.33(a)). The agreement was subject to finance (cl.40), and subject to an accountant verifying that Arreton's net operating profit for the year ended 3 0 June 1993 was not less than $300,000. The contracts were signed on 27 November 1993. Up to that time the committee of the body corporate had not been approached for its consent. ( C ( "·· . -- 22 of 29 -- ( ~ .J 19 In about September 1993, some proprietors became concerned about aspects of Arreton's performance of its obligations under the management agreement. This had apparently influenced the election of the committee at the Annual General Meeting on 17 September 1993 (transcript p.250 and ex.3, p.120). Advice was sought from solicitors and that advice was communicated in a letter dated 8 October 1993 (ex.3, p.104). At the Annual General Meeting Mr Downing was elected as chairman of the committee. He had discussions with Mr Coote on 23 and 24 December 1993 and there was no mention that the management agreement might be invalid. On 4 January 1994, Mr Richards, the body corporate manager for Ocean Breeze, wrote to a solicitor seeking advice about the response the body carp.orate should make to the allegations against Arreton, in the light of the letter of 8 October 1993, which was from a different firm of solicitors. The advice given in January 1994 was that Arreton's management agreement should not be terminated, but that it might be void because of Humphries. This seems to have been communicated verbally before it was put in a letter dated 10 January 1994 (ex.3, p.123). Mr Richards mentioned the possibility of the agreement being void in a conversation with Mr Coote on or about 6 or 7 January 1994. Birstar's solicitor did some research but failed to locate the Court of Appeal decision in Humphries. However, he came upon another matter he perceived to be a possible problem, and raised it with Arreton's solicitors, wh9 were finally aware of Humphries. They took the view that the management agreement was valid, but did not apparently refer Birstar's solicitor to Humphries. Neither did the body corporate's solicitor mention Humphries directly to Birstar's solicitor. Mr Coote was seeking finance through Westpac, and that bank's solicitors advised that there should be some recognition by the body corporate that the management agreement and the letting agreement were separate. Westpac seems to have accepted that the resolution of 19 September 1993 achieved that. Other demands by Westpac to protect its security became -- 23 of 29 -- 20 more pressing and Arreton's solicitors drew attention to a simpler form used by the National Australia Bank. All of the paper work was completed and the contracts were settled on 4 February 1994. Of the four• firms of solicitors involved in the transactions, only Birstar's solicitor remained unaware of Humphries. The body corporate's solicitor advised it that it should not raise the question of invalidity because it was a matter for Arreton and Birstar which were selling and buying the rights under the agreement. It is now asserted that the solicitor should have disclosed the effect of Humphries, or, at least, given a reference to it. An analogous situation arose in Commonwealth of Australia & Ors v. Newcrest Mining (W.A.) Ltd & Ors (1995) 130 A.L.R. 193, where the validity of mining leases was in question. A majority of the Full Court of the Federal Court held that the silence of Commonwealth Officials on the question could not be construed by the respondents as a representation by the Commonwealth that the lease to be valid. The relevant passage from the judgment of Black CJ and Foster J, at p.215 reads:- "The joint venture had a legal opinion indicating that the leases were valid. We consider, however, having regard to the fact that they were leases granted by the Northern Territory Administration and purportedly renewed after self- government in respect of land which had become Commonwealth land, a certain uneasiness existed as to the legality of the situation. Certainly, it would appear, that the issue of the legality of the leases, and its acceptance by the Commonwealth, was avoided. No direct request to the Commonwealth appears to have been made,prior to 1988, that it acknowledge the absence of any problem in relation to the leases. Indeed, Mr Carter remarked in evidence that, although the mining leases could have been worked, 'we were really dependent on the goodwill of the Commonwealth to be able to do anything there and if we had gone straight in and started to mine - setting aside the fact that it was impractical in the relatively small area we had - we would have really been cocking our noses at the government and we would have done that at our peril.' We are quite unable to accept that, in these circumstances, the silence of the Commonwealth officials and ministers on the question of validity was, or was capable of being, construed by the joint venture as a representation that the Commonwealth regarded the leases as, in all relevant respects, valid. No estoppel through representational conduct could, in our view, therefore arise." C ( -- 24 of 29 -- \ 21 Here Mr Coote sought legal advice and acted on that. There is no basis for finding that he acted on any other understanding of the validity of the management agreement. I have already discussed the deed of assignment, and in my opinion there is nothing in that which would be a basis for an equity arising from estoppel. Arreton was acting on legal advice that it was selling a valid agreement, particularly in view of the resolution of 19 September 1993 which its solicitor had asked the Annual General Meeting to pass. Birstar had investigated the accounts and the terms of the documents and acted on the results of those investigations. In those circumstances, I am unable to see any other course that the body corporate would follow than to approve this assignment of Arreton's rights to Birstar. In my opinion, it has not been shown that the body corporate is estopped from denying ··• the validity of the management agreement and it has not been shown that the body corporate has engaged in unconscionable conduct which has created in Birstar an equity of expectation that can only be satisfied by the court ordering a new valid management agreement. Mr Brabazon QC relied on the subsequent tensions between Mr Downing and Mr Coote to demonstrate unconscionable conduct. I do not accept that. Within a month of taking over the management. obligations, Mr Coote discovered that he had a different understanding of cl.3 .1.22 from Mr Downing. That subclause requires the manager to perform certain work "at the manager's cost". It is in contrast to cl.3.1.4 when the manager is to arrange, on behalf of the body corporate~ the performance of certain work. It is not at all easy to reconcile the two provisions, and significant sums of money became involved. This arose before the High Court decision in Humphries was delivered. Certainly, by the Annual General Meeting in October 1994, Mr Downing was talking of the windows of opportunity which the High Court decision had opened. However, in my opinion, that simply expressed the dissatisfaction that had developed with Birstar's performance. It did not indicate that, having encouraged Birstar to act to its detriment by -- 25 of 29 -- 22 entering into a contract which the body corporate's solicitor believed was for the sale of a void agreement, it was then unconscionably refusing to give Birstar what Birstar believed it had bought. Of course, I have already held there is no evidence that it encouraged Birstar to act to its detriment. Fair Trading Act One of the allegations Birstar make is that the body corporate's conduct which I have referred to constituted to contravention of s.41 of the Fair Trading A et which reads:- "41. A person shall not, in relation to employment that is to be, or may be, offered by the person or by another person, engage in conduct that is liable to mislead persons seeking the employment as to the availability, nature, terms or conditions of, or any other matter relating to, the employment." I am unable to understand how it can be asserted in this case that the body corporate offered employment to anyone. It had an existing agreement with Arreton, in which the nature, terms and conditions of any employment were spelled out in detail. All of this was available to Birstar and Birstar purchased the rights that agreement contains. I am unable to find any contravention of s.41 by the body corporate. The Construction Point I have mentioned that a dispute arose between Birstar and the body corporate about the meaning of cl.3 .1.22, which reads:- "3.1.22 To fully and faithfully m good and workmanlike manner at the Manager's cost:- (i) carry out the necessary hosing of walkways, paved areas and access areas at appropriate times; (ii) sweep, dust and clean all common areas of the building other than the lots and (without limiting the generality of the foregoing) all foyer areas, stairways, lifts and passage ways and basement of the Building at such times and from time to time as to keep such areas at a high standard of cleanliness; (iii) carry out the necessary cleaning of glass and windows in all common areas where required (excluding the inside and outside of unit owner's windows); C ( C C -- 26 of 29 -- (, 23 (iv) comply with and carry out all reasonable directions from time to time given by the Body Corporate to the Manager in and about the performance of the cleaning duties hereunder or in relation to matters and things reasonably incidental thereto; (v) provide at all times at the expense of the Body Corporate good quality cleaning fluids, cleaning rags, vacuum cleaner and all other equipment and materials are necessary to permit the Manager to carry out and perform his duties hereunder; (vi) to keep any equipment as aforesaid in good working order and repair." On its own it would seem to mean what it says, but cl.3.1.4 provides:- "3.1.4 Arrange for the appointment, on behalf of the Body Corporate, and supervision of contractors in respect of maintenance services including services in respect of the pool, spa, incinerators, service lifts, air conditioning equipment, security systems, fire alarm system, elevators, plant, preventative maintenance servicing and testing of diesel generator, pest control, cleaning of common areas, window cleaning, landscaping, plumbing, electrical and general building maintenance and other services or such of them as the Manager shall deem advisable PROVIDED THAT contracts reduced to writing shall be subject to the prior approval of the Committee of the Body Corporate." I have tried to find a pattern in the intervening subclauses, but without success and so I shall not set them out in full. Doing the best I can with a difficult question of interpretation, I have come to the conclusion that, until the committee of the body corporate gives the necessary prior approval in respect of maintenance services, the obligations expressed in cl.3.1.22 fall upon the manager at the manager's cost. I can see no basis for saying that cl.3.1.22 only refers to "emergency situations". Clause 3.1.4 refers to "cleaning of common areas" and "window cleaning" and those two areas of responsibility are stated more fully in cl.3.1.22. By cl.3.1.4 all the matters in cl.3.1.22 can be the subject of cl.3.1.4 contracts, with the committee's prior approval. It is for a dispute such as this that the arbitration provisions embodied in cl.13 were designed. As I regard the agreement as void, it is unnecessary to make any orders on the construction point. -- 27 of 29 -- \ 24 Damages My reasons to this point lead to the dismissal of the plaintiff's claim, and it is usual in such circumstances to make findings about damages to assist an appellate court. In this case that is very difficult because damages may be assessed on different bases depending upon the nature of the successful claim. Also at the beginning of the trial, I left the issues raised by the defendant's amended plea of mitigation to be determined after the question of the validity of the management agreement had been determined (t.p.72). That was done because the issue was raised very late and the parties were anxious to have the basic question determined. Of the two accountants, I preferred the evidence of Mr Cash. He was not in conflict with Mr Calabro at many points. The chief conflict between them concerned the question whether in the calculation of loss of profits the purchase price of the management rights should be amortised. I accept Mr Cash's opinion. The concept in question involves the loss of profits over the remaining period of the management agreement including the extension. In such a case, at the end of the period, the rights under the agreement cease and so have no value. Thus the cost of acquiring those rights initially must be deducted if the lost profits are to be calculated. The purchase price may be recovered in other circumstances, but when the issue is loss of profits, in my opinion, the purchase price must be deducted. I do n_ot believe there are any other areas of significant dispute where the observations of the trial judge would assist. Conclusion From what I have said, I am of the opinion that the management agreement dated I 0 April 1990 is void because the body corporate has no power to expend money from the administration fund to engage the services of Arreton to provide a letting service. There is no request for accounts to be ·taken because the parties in this action have maintained a C ( -- 28 of 29 -- ( C 25 commercial relationship with mutual benefits as if the agreement were valid. The only orders necessary are:- 1. Declare that the management agreement dated I O April 1990 is void from the date of its execution. 2. Otherwise the plaintiffs claim is dismissed. 3. Order that plaintiff pay the defendant's costs of and incidental to the action to be taxed. -- 29 of 29 --