Coastalstyle Pty Ltd v The Proprietors 'Surf Regency' Building Units Plan No 4246 [1992] QCA 346

IN THE COURT OF APPEAL [1992] QCA 346 QUEENSLAND Appeal No. 25 of 1992 Before the Court of Appeal The President Mr. Justice Davies Mr. Justice Lee BETWEEN: COASTALSTYLE PTY. LTD. (Plaintiff) Respondent - and - THE PROPRIETORS, SURF REGENCY BUILDING UNITS PLAN 4246 (Defendant) Appellant REASONS FOR JUDGMENT OF THE COURT Delivered the twelfth day of October 1992 MINUTE OF ORDER: Appeal dismissed with costs. Parties are given liberty to apply. CATCHWORDS: Home and commercial units. Building Units and Group Titles Act. Management and letting agreements entered by body corporate and proprietor assigned to respondent - whether failure to have agreements approved in general meeting invalidated them - whether valid deed of assignment when respondent not a proprietor. Counsel: Mr R.R. Douglas Q.C. with him Mr G.J. Radcliff for the appellant Mr C.J.L. Brabazon with him Mr C.J. Carrigan for the respondent Solicitors: Messrs. Gilshenan and Luton, as t/a for Messrs. Robinson and Robinson, for the appellant Messrs. Goss Downey and Carne, as t/a for Messrs. Short, Punch and Greatorix, for the respondent Hearing date: 27th July, 1992 -- 1 of 16 -- 2 IN THE COURT OF APPEAL QUEENSLAND Appeal No. 25 of 1992 BETWEEN: COASTALSTYLE PTY. LTD. (Plaintiff) Respondent - and - THE PROPRIETORS, SURF REGENCY BUILDING UNITS PLAN 4246 (Defendant) Appellant REASONS FOR JUDGMENT OF THE COURT Delivered the twelfth day of October 1992 On 17 July 1981, Building Units Plan No.4246 was registered in the office of the Registrar of Titles in respect of a building "Surf Regency" situated in Laycock Street, Surfers Paradise. Upon registration of the plan, the proprietors of the units in the building became a body corporate in accordance with s.27 of the Building Units and Group Titles Act 1980-1990. That body corporate is the present appellant. The respondent, Coastalstyle Pty. Ltd., is a company associated with the family of Mr Reginald Joseph Lord, including his daughter Patricia Anne Lord. The first annual general meeting of the proprietors of the units took place on 20 July 1981, when a number of resolutions were passed including the following: "... 6. That the by-laws be amended in accordance with the annexure hereto. -- 2 of 16 -- 2 ... 9. That the Body Corporate enter into a Management Agreement and Letting Agreement with Taren Investments Pty. Ltd. as set out in the annexure hereto." One of the new by-laws, by-law 60, was in the following terms: "60. The proprietor or occupier of Lot 1 (Unit No.1 Ground Floor) in the Building may use such Lot both for residential purposes and for the purposes of letting and management of the building and for the sale and letting of Units in the building on behalf of the proprietors, and the rendering of such services to occupants of units in the building, and may without the consent of the Council of the Body Corporate display signs or notices for the purposes of offering for sale or for lease or for letting any unit in the building. For the purposes aforesaid the Body Corporate shall have power to grant to the proprietor of Lot 1 (Unit No.1 Ground Floor) in the building the right to carry on in the building the business of letting of Units in the building and for that purpose to enter into an appropriate agreement on such terms and conditions as the Body Corporate may deem fit." The new by-laws were not registered until 29 July and, in accordance with sub-s.30(3) of the Act, had no force or effect until that time. The Management Agreement and the Letting Agreement between the appellant and Taren Pty. Ltd. (which were referred to in the resolution numbered 9 passed on 20 July 1981) had been entered into prior to the registration of the new by-laws. Both agreements bear date 7 July 1981. However, the trial judge found that they were not executed by the appellant until on, or shortly after, 20 July. The finding was challenged by the appellant, but there was evidence available as a basis for his Honour's conclusion and no sufficient reason was shown why this Court should -- 3 of 16 -- 3 differ. The Management Agreement granted Taren management rights and duties in relation to the building for a period of ten years from the date of the first annual general meeting with an option of renewal for a further period of ten years, and made provision for Taren's remuneration. The Letting Agreement gave Taren the right to act as letting agent with respect to units in the building for a similar period and with a similar right of renewal. Although the unit owners were not obliged to use its services, Taren was given the sole right to conduct a letting agency in the building. Further, the Letting Agreement entitled Taren to place advertising signs in the common area, and provided that no other letting agent would be allowed to do so. Both agreements proceeded on the basis that the manager and the letting agent would operate from Unit No. 1 on the ground floor of the building. The Management Agreement was expressed to be conditional upon Taren purchasing and becoming registered proprietor of Unit No.1 and included a covenant by Taren "to ensure that the manager or its appointee resides at all reasonable times in Unit No.1 ... ". The Letting Agreement provided that "... the letting agent shall maintain and staff a reception desk located in Unit No.1 in the building for such times as are found to be necessary for the due provision of the proposed letting service" and that "the letting agent or its appointee shall reside in the said unit." As envisaged by the agreements, Taren became the -- 4 of 16 -- 4 registered proprietor of Unit No.1 and, from 1981 to 1983, acted as manager and letting agent and was paid in accordance with the agreements. Taren's interest under each agreement was assignable with the consent of the appellant. On the other hand, except with the consent of the appellant, Taren was not to sell or transfer Unit No.1 "... without at the same time selling or assigning" its interest "to the same person ...". In 1983, with the consent of the appellant, Taren assigned its interest under each agreement to Terrimal Pty. Ltd. and transferred Unit No.1 to the persons who controlled Terrimal. In 1987, with the consent of the appellant, Terrimal assigned its interest under each agreement to Brancove Pty. Ltd. and Unit No.1 was transferred to the persons who controlled Brancove. It seems that there may have been other managing agents between Terrimal and Brancove, but nothing turns on that. Brancove assigned its interest under each agreement to the respondent as from 1st February 1989. The assignment was effected by a Deed which the respondent signed on 14 December, 1988, and the transaction was approved at a meeting of the Council of the appellant at which Mr and Miss Lord were present on 19 December. The appellant was also a party to the Deed which it presumably executed after that meeting. The Deed is dated 16 February 1989. There was no general meeting of the appellant to authorise its execution. By clause 2 of the Deed, the respondent covenanted and -- 5 of 16 -- 5 agreed with the appellant and Brancove "to be bound by the conditions and covenants on the part of the Manager and Letting Agent to be observed and performed as contained in the such agreements on and from such date ... ". Further, clauses 4 and 6 of the Deed were in the following terms: "4. (a) In consideration of the covenants and agreements herein contained the Body Corporate hereby consents to the Assignment as aforesaid from the Assignor to the Assignee and further acknowledges and declares that the Body Corporate agrees to be bound by the provisions of the Management Agreement and Letting Agreement if the Assignee were originally named therein as Manager. (b) The Body Corporate acknowledges and agrees that the Option for Renewal contained in Clause 14 of the said Management Agreement and Clause 13 of the said Letting Agreement shall from the date of completion of this Assignment from the Assignor to the Assignee be personal to and exercisable by and shall be for the benefit of the Assignee in each case the said COASTALSTYLE PTY. LTD. ... ... 6. In consideration of the Assignee's covenants and Agreements the Body Corporate hereby consent to the Assignment of the said Agreements from the Assignor to the Assignee and the Body Corporate hereby covenants and agrees with the Assignee as follows:- (a) That the said Agreements are in full force and effect unforfeited and unsurrendered and the Body Corporate shall not rely upon any previous breach of the Assignor as a basis in any respect for forfeiture of the said Agreements; and (b) That the Body Corporate shall be bound by the provisions of the said Agreement as if the Assignee was the original Manager and Letting Agent therein named." Large sums of money were involved in the transactions. The sum of $240,000.00 was paid for Unit No.1 and the respondent paid $895,000.00 to Brancove for the assignment of Brancove's interest under the Management and Letting -- 6 of 16 -- 6 Agreements. After the Deed was executed, Unit No.1 was transferred to Miss Lord. The primary judge found that, had the appellant refused to assent to the proposal for ownership of Unit No. 1 by Miss Lord, the respondent "would itself have been prepared to acquire the unit. Indeed it is still willing to become the owner of it and it would seem that Miss Lord would be willing to transfer the unit to Coastal if anything turns upon this." His Honour's description of the subsequent events which gave rise to this litigation are as follows: "Thereafter Coastal, primarily through Mr Lord and Miss Lord, performed the duties of Letting Agent and Manager of the building. At some stage animosity seems to have developed on the part of at least some of the unit- owners toward Mr and Miss Lord. ... . From about September 1990 the Body Corporate commenced to assert that the agreements were invalid and that Coastal had no rights thereunder. Thereafter it has acted so as to repudiate any managing or letting rights on the part of Coastal under those agreements. It may be noted that an interim agreement for the management of the building by a third party pending trial has been made without prejudice to the rights of the parties." The orders made by the primary judge were in the following terms: "IT IS THIS DAY DECLARED pursuant to the Order of the said Mr Justice Thomas:- (a) That the Management Agreement dated 7th July, 1981 is valid and enforceable against the Defendant; (b) That the Letting Agreement dated 7th July, 1981 is valid and enforceable against the Defendant; (c) That the rights pursuant to the Management Agreement and the Letting Agreement have been assigned to the Plaintiff and are enforceable by it against the Defendant; (d) That the options to renew rights under the Management Agreement and the Letting Agreement have been validly exercised by the Plaintiff. -- 7 of 16 -- 7 AND IT IS FURTHER ORDERED that the Management Agreement and the Letting Agreement be specifically performed and carried into execution and it is adjudged the same accordingly; AND IT IS DIRECTED that the Defendant provide all necessary co-operation to permit the Plaintiff to exercise its rights under the Agreement and that it execute such further documents as may be required to give effect to the options contained in the said Agreement; AND IT IS FURTHER ORDERED that the Defendant take all such steps as are necessary to permit the Plaintiff to resume the enjoyment of its rights pursuant to the said agreement forthwith; and that all necessary accounts and enquiries be taken in relation to any period when the Plaintiff had been deprived of the opportunity to exercise such rights. AND IT IS FURTHER ORDERED that there be injunctions in accordance with those sought in paragraphs 29(d) and 29(e) of the statement of claim being an injunction, including interlocutory injunction, restraining the Defendant by itself, its servants or agents, until further order from:- (i) requiring Coastalstyle to cease performing any of; its duties required under the Management Agreement and the Letting Agreement and under the options for renewal of those agreements; (ii) preventing Coastalstyle from enjoying any benefit conferred on it by those agreements and their options for renewal; (iii) ceasing to pay the salary required by those renewed agreements; (iv) from appointing or continuing to authorise the appointment of any person or persons to carry out the tasks to be performed by Coastalstyle in performance of those renewed agreements; AND an order that the Defendant restore Coastalstyle to the positions of Manager and Letting Agent, as it held them up to 20th July, 1991. AND IT IS FURTHER ORDERED that there be an assessment and payment to the Plaintiff of equitable damages in addition to the decrees for specific performance. AND IT IS FURTHER ORDERED that the Defendant pay the Plaintiff's costs of and incidental to this action -- 8 of 16 -- 8 including reserved costs if any, to be taxed. Liberty to apply." The appellant has not directed its complaints to any specific aspect of those orders, but contends that no orders should have been made in favour of the respondent and that it should have been declared that the Management Agreement and Letting Agreement "are invalid and are unenforceable" against the appellant and that, "by virtue of the foregoing," the respondent "is not entitled to renew the aforesaid agreements." In Victorian Professional Group Management Pty. Ltd. v. The Proprietors "Surfers Aquarius" BUP No.3881 (1991) 1 Qd R. 487, the Full Court held that a materially comparable letting agreement in favour of the proprietor of a unit had not been validly entered into because there was no by-Law in accordance with sub-s.30(7) of the Building Units and Group Titles Act at the relevant time. Until by-law 60 became effective on 29 July 1981, there was no by-law permitting the appellant to grant exclusive use or enjoyment or special privileges in respect of any part of the common property. Hence, it was submitted for the appellant, the present Letting Agreement had not validly been entered into between the appellant and Taren before that date in July, 1981, and, since it is interdependent with the Letting Agreement, the Management Agreement was also not validly entered into. It was further argued for the appellant that, by virtue of s.46, the original agreements, or at least the Management Agreement, could only be authorised by a general meeting and -- 9 of 16 -- 9 that no such meeting had occurred. A further submission was made for the appellant that it could not ratify the original agreements or, alternatively, that it had not done so. Argument which was directed to the execution of the original agreements in 1981 and the asserted need for ratification of those agreements before the appellant could be contractually bound in favour of the respondent tended to complicate the matter unnecessarily. By the Deed dated 16 January 1989, the appellant did not merely consent to an assignment from Brancove to the respondent; it also directly contracted with the respondent in terms incorporating the provisions of the Management and Letting Agreements. The principal issues in the case therefore concerned (i) the power of the appellant to enter into the Deed when the respondent was not the proprietor of Unit No.1 and Miss Lord, not the respondent, subsequently became the proprietor of that unit; and (ii) the authority of the appellant to enter the Deed without the authority of a general meeting. Further questions of ratification, estoppel and severability might arise in relation to the Deed if issue (ii) were answered in favour of the appellant, at least if issue (i) were answered in favour of the respondent. The appellant's argument in relation to issue (ii) depends on s.46 of the Building Units and Group Titles Act which, so far as presently material, provides that a decision on any matter "which seeks to alter the rights, privileges or obligations of proprietors" may only be made by a general meeting, not the committee, of a body -- 10 of 16 -- 10 corporate. It was submitted for the appellant that, even if there was power for the appellant to enter into the Deed, the power was not exercisable without the authority of a general meeting of proprietors. The respondent protested that the appellant's reliance upon s.46 of the Act was a departure from the manner in which the case had been conducted in the Trial Division but, in any event, the point does not avail the appellant. If the appellant had power to enter into the Deed with the authority of a general meeting, it is bound by the Deed although a general meeting was not held. The Deed is regular on its face, it was not established that the respondent knew of any deficiency and there was nothing to put the respondent on inquiry. In such circumstances, the respondent is entitled to the protection of the "indoor management rule", which was recently discussed by the High Court in Northside Developments Pty. Ltd. v. Registrar- General (N.S.W.) (1990) 170 CLR 146. Issue (i) substantially turns on sub-s.30(7) of the Building Units and Groups Titles Act and by-law 60, which is set out above. Sub-s.30(7) of the Act provides: "(7) Without limiting the generality of any other provision of this section, a body corporate may, with the consent in writing of the proprietor of a lot, pursuant to a resolution without dissent make a by-law in respect of that lot conferring on that proprietor the exclusive use and enjoyment of, or special privileges in respect of, the common property or any part thereof upon such terms and conditions (including the proper maintaining and keeping in a state of good and serviceable repair of the common property or that part of the common property, as the case may be, and the payment of money by that proprietor to the body corporate) as may be specified in the by-law and may, -- 11 of 16 -- 11 in like manner, make a by-law amending, adding to or repealing any by-law made under this subsection." By-law 60, which is only concerned with the grant of exclusive use or enjoyment or special privileges in respect of the common property to the proprietor or occupier of Lot 1, did not authorise such a grant to the respondent. It was not suggested that any other by-law did so, or that a by-law which did so might be under sub-s.30(7). That sub-section is concerned only with a by-law which permits the proprietor or occupier of a lot to have the exclusive use and enjoyment of, or special privileges in respect of, common property. Although the appellant's case was not entirely static, its assertion that the Deed was invalid did not turn on the absence of a by-law which permitted such a transaction. Apart from the submission that the authority of a general meeting was needed, which has been dealt with above, the appellant's essential point on this aspect was that, on its proper construction, sub-s.30(7) prevents the grant of exclusive use or enjoyment, or special privileges, in respect of common property to a person who is not the proprietor of the lot. Part II of the Act, entitled "Division of Land", provides for the creation of common property when a plan is registered and, by sub-s.20(1), common property is not held by a body corporate but by the proprietors of the lots "as tenants in common in shares proportional to the lot entitlements of their respective lots". In such circumstances, it might reasonably be expected that the -- 12 of 16 -- 12 consent of the owners of the common property would be required before their proprietary rights are affected. Generally speaking, the Act gives broad effect to this by permitting a body corporate to deal with the common property only with the authority of either a unanimous resolution or a resolution without dissent at a general meeting of the body corporate. See, for example, s.10, 12, 21, 22, 23, 25, 37(2)(g) and 37A. The latter two sections are contained in part IV, entitled "Management", which extends the control of a body corporate over the common property. By sub-s.37(1)(a), a body corporate is required to "control, manage and administer the common property for the benefit of the proprietors" and, by sub-s. 27(3), it is required, subject to the Act, to "do all things reasonably necessary" for that purpose. These are extensive powers and, except where the Act otherwise expressly provides, there seems no reason to exclude from their ambit a power in the body corporate to grant exclusive use or enjoyment, or special privileges, in respect of the common property for the purpose of a business engaged in on behalf of the proprietors of the units in the building. Provided that the service provided by the business is available for the benefit of all proprietors, it seems unimportant that some may choose not to participate. This corresponds with the view of the primary judge, who also found support in sub-s.37(2)(d) which provides that a body corporate may enter into hiring agreements and leasing agreements. However, leases of common property are -- 13 of 16 -- 13 controlled by s.22. Other considerations aside, the power of a body corporate to grant exclusive use or enjoyment, or special privileges in respect of, the common property in connection with the body corporate's control, management and administration of the common property for the benefit of the proprietors would include a power to grant exclusive use or enjoyment, or special privilege in respect of, the common property to a proprietor of a lot as well as other persons. However, sub-s.51(1)(c) prohibits a proprietor of a lot from using or enjoying the common property in such a manner or for such a purpose as to interfere unreasonably with the use of enjoyment of the common property by the occupier or any other lot (whether that person is a proprietor or not) or by any other person entitled to the use and enjoyment of the common property. It is in that context that sub-s.30(7) falls for consideration. That sub-section permits exclusive use or enjoyment, or special privileges, in respect of the common property to be granted to a proprietor of a lot provided that there is an appropriate by-law which, consistently with the general notion that common property is owned by all proprietors, must be made "pursuant to a resolution without dissent." Sub-s.30(7) is not totally complementary to sub-s.51(1)(c) since sub-s.30(7) omits reference to mortgagees, lessees or occupiers who are also restricted by sub-s.51(1)(c). However, subject to that qualification, -- 14 of 16 -- 14 there is no need for a provision such as sub-s.30(7) in respect of other persons because there is no material restriction (such as sub-s.51(1)(c)) on the power of a body corporate under sub-s.37(1) which, as has been said, is wide enough to permit the grant by a body corporate of exclusive use or enjoyment, or special privileges, in respect of common property for the benefit of the proprietors. This conclusion is not inconsistent with Victorian Professional Group Management Pty. Ltd. v. The Proprietors "Surfers Aquarius" Building Units Plan No.3881, in which the relevant agreement was made between the body corporate and the proprietor of a unit. In the circumstances, it is unnecessary to consider the correctness of that decision, which was doubted by the primary judge who was a member of the Full Court which decided that case. In summary, the body corporate had power to enter the Deed dated 16 January 1989 with the approval of a general meeting and, for the reasons given above, the absence of a general meeting does not preclude the respondent relying upon the Deed against the appellant in the circumstances established. It follows that the appeal should be dismissed with costs. However, the reasons for this conclusion are somewhat different from those of the primary judge and some variation of the orders which he made may be required. The parties are given liberty to apply for that purpose. -- 15 of 16 -- IN THE COURT OF APPEAL QUEENSLAND Appeal No. 25 of 1992 BETWEEN: COASTALSTYLE PTY. LTD. (Plaintiff) Respondent - and - THE PROPRIETORS, SURF REGENCY BUILDING UNITS PLAN 4246 (Defendant) Appellant The President Mr Justice Davies Mr Justice Lee Judgment of the Court delivered on the twelfth day of October, 1992 APPEAL DISMISSED WITH COSTS. PARTIES ARE GIVEN LIBERTY TO APPLY. -- 16 of 16 --