Waves on Currumbin [2004] QBCCMCmr 612 (3 December 2004)

Last Updated: 30 September 2005

Office of the Commissioner for Body Corporate and Community Management SPECIALIST ADJUDICATION (Service Contractor and Letting Agent’s Contractual Dispute) Number: 0391-2004

Applicant: BERNARD DALTON


Respondent: BODY CORPORATE FOR WAVES ON CURRUMBIN

COMMUNITY TITLES SCHEME 27983

ORDER

The application in this matter is dismissed.

Dated: 3 December 2004



Gary Bugden
Specialist Adjudicator

Office of the Commissioner for Body Corporate and
Community Management

SPECIALIST ADJUDICATION
(Service Contractor and Letting Agent’s Contractual Dispute)

Number: 0391-2004

Applicant: BERNARD DALTON


Respondent: BODY CORPORATE FOR WAVES ON CURRUMBIN

COMMUNITY TITLES SCHEME 27983

DETERMINATION
3 December 2004

Application

1. This is an application under section 239 of the Body Corporate and Community Management Act 1997 ("Act") for orders relating to the purported termination by the respondent ("body corporate") of a Caretaking Agreement dated 26 May 2000 and a Letting Deed dated 26 May 2000 to each of which the applicant was a party as an assignee.
2. Initially the applicant sought an interim order under section 279 of the Act. The application for an interim order was referred to me by the Commissioner and on 28 September 2004 I declined to make such an order on the basis of my published reasons.
3. It now remains for me to determine the final orders in the matter. The applicant seeks orders confirming that the grounds for the purported termination of the Caretaking Agreement and Letting Deed "are without merit and are not proper grounds for the purported termination". In effect, the applicant seeks to establish that the Caretaking Agreement and Letting Deed are still on foot.
4. I held a preliminary meeting of the parties on 14 October 2004 to determine how this matter should proceed to final determination. The process agreed at that meeting was as follows:

(a) The respondent would distribute submissions, supported by evidence in the form of statutory declarations and other materials, by 29 October 2004.
(b) The applicant would respond to those submissions and evidence by distributing his own submissions, supported by evidence in the form of statutory declarations and other materials, by 12 November 2004.
(c) The solicitors for the parties would consult on or before 17 November 2004 with a view to determining:

(i) agreed facts and facts in dispute; and

(ii) what evidence (if any) needed to be tested at a further meeting of the parties.

(d) The results of those consultations would be communicated to me on or immediately after 17 November 2004.
(e) A further meeting of the parties would be held on 23 November 2004, unless it was considered un-necessary, to test any evidence in dispute and to receive final submissions from the parties.

5. That process was substantially followed, although the parties were not particularly successful in limiting the issues in dispute. Consequently, apart from the material in the Commissioner’s file evidence has been submitted by both parties in the form of statutory declarations and certain verbal evidence was provided at the second meeting of the parties held on 23 November 2004. A view of the common property was carried out on 23 November 2004 and the parties made their final written submissions on 26 November 2004.

Caretaking Agreement

6. The original parties to the Caretaking Agreement were the body corporate, of the one part, and BLF Pty Ltd and Resort Capricorn Australia Pty Ltd, jointly of the other part. By Deed of Assignment and Variation dated 4 August 2000 ("Assignment Deed") between those parties and the applicant the Caretaking Agreement was assigned to the applicant and amended in a number of respects.
7. Clause 1 of the Caretaking Agreement provides for a term of 10 years with 2 rights of renewal, the first for a further 10 years and the second for a further 5 years, giving the agreement a potential life of 25 years from 26 May 2000. Clause 3 provides for a remuneration of $18,000 per annum in the first year with yearly CPI reviews. The current annual remuneration is a little over $20,000.
8. The applicant’s duties under the Caretaking Agreement (defined as "Caretaking Duties") are listed in clause 2. They are lengthy and comprehensive. Those of relevance to this matter are in clause 2.1 (e), (f), (g), (h) and (l), which are in the following terms:

"2. CARETAKING DUTIES

2.1 Duties

The Caretaker shall administer the Common Property to ensure the Common Property is able to be fully used and enjoyed by the Owners and is properly maintained and kept in good repair and the Caretaker shall specifically:

............

(e)	Reports of Body Corporate:

Promptly and faithfully report and account to the Body Corporate for:

(i) matters requiring repair or creating a hazard or danger that involve expenditure of money in excess of that permitted by the Caretaker;

(ii) use of all Body Corporate funds or other property in carrying out the Caretaking Duties.

(f)

By-Laws:

Monitor compliance with the By-laws and advise the Body Corporate of any serious or persistent breaches of the By-laws, and monitor and administer the use of the recreational areas including swimming pool.

(g)	Compliance with Laws:

Advise the Body Corporate on compliance with all relevant laws concerning the maintenance and operation of the Common Property and notify the Body Corporate of any lack of compliance and notify all Owners of the fire safety requirements.

(h)

Security:

Keep order and safeguard the Property against unlawful entry and arrange security contracts at the expense of the Body Corporate, as required by the Body Corporate.

................

(l)

Keys:

Maintain possession of all keys for any Common Property areas and keys of Owners who provide their keys to the Body Corporate."

9. Clause 7.1 of the Caretaking Agreement relates to termination by the body corporate and is in the following terms:

"7. TERMINATION

7.1 TERMINATION BY BODY CORPORATE

This Agreement may be terminated by the Body Corporate delivering a notice in writing to the Caretaker if:

(a) the Caretaker is convicted of an indictable offence involving fraud or dishonesty;

(b) the Caretaker is guilty of gross misconduct or gross negligence in performing the Caretaking Duties;

(c) the Caretaker (if a company) is placed into liquidation or is placed under the control of a receiver or official manager or (if being an individual) is bankrupt or makes any assignment for the benefit of creditors or enters into any composition or scheme of arrangement.

(d) the Caretaker is in breach of this Agreement and that breach continues the end of thirty (30) days after notice in writing delivered by the Body Corporate to the Caretaker requiring that breach to be remedied."

10. Clause 9 in the original form of the Caretaking Agreement was a cross-default clause which had the effect of making a default under the Caretaking Agreement a default under the Letting Deed, as well as causing the Letting Deed to expire or terminate contemporaneously with an expiry or termination of the Caretaking Agreement. However, that clause was deleted by the Assignment Deed.

Letting Deed

11. The original parties to the Letting Deed were the same as for the Caretaking Agreement. By the Assignment Deed the Letting Deed was assigned to the applicant and amended in a number of respects.
12. Clause 1 of the Letting Deed provides for a term of 10 years with 2 rights of renewal, the first for a further 10 years and the second for a further 5 years, giving the agreement a potential life of 25 years from 26 May 2000, which is effectively the same term as the Caretaking Agreement. Clause 4 provides that no remuneration is payable in respect of the Letting Deed, other than commissions and charges negotiated with owners who require letting services.
13. Clause 2 (a) and (b) of the Letting Deed deal with the duties of the applicant under the Letting Deed. They are in the following terms:

"2. RIGHTS AND OBLIGATIONS OF LETTING AGENT

(a) PERFORMANCE

The Letting Agent shall perform the Letting Agent’s Duties personally or by staff engaged at the cost of the Letting Agent.

(b)	DUTIES OF LETTING AGENT

The Letting Agent:

(i)	may conduct, from the Management Unit, or from any other place outside the Property that the Letting Agent deems appropriate, the Letting Business for the Owners that require that service;

(ii) shall supervise the standard of tenants of all lettings and ensure no nuisance is created;

(iii)

shall use its best endeavours to improve and expand the Letting business and increase the goodwill and to act at all times to further the interests of the Body Corporate and the Owners;

(iv)	may erect or procure the erection of signs on the Property to promote and foster the Letting Business with the size type design and the location of the signs to be approved by the Body Corporate;

(v)	shall obtain all necessary permits, consents or licences required to conduct the Letting Business;

(vi)	shall act fairly and lawfully and ensure that it does not discriminate between Owners;

(vii)

shall keep proper records and books of all tenancies; and

(viii)

shall not seek or obtain or retain any secret commissions, bribes, markups or kick-backs or any other secret reward."

14. Clause 8 in the original form of the Letting Deed was a cross-default clause similar to clause 9 in the Caretaking Agreement mentioned above. Again, that clause was deleted by the Assignment Deed. As a consequence, the Caretaking Agreement and the Letting Deed must be separately considered to determine whether they have been validly terminated. Termination of one does not automatically bring about termination of the other.
15. Clause 7(a) of the Letting Deed is in substantially the same terms as the termination clause (clause 7.1 quoted above) in the Caretaking Agreement.

Default notices

16. On 11 February 2004 the body corporate manager for the body corporate, Stewart Silver King and Burns, issued a "default notice" under the Caretaking Agreement ("First Default Notice") which specified a number of matters requiring rectification. The body corporate does not seek to rely on that notice, having effectively waived it by letter from its solicitor, Peter Burton, dated 19 March 2004.
17. That letter dated 19 March 2004, plus a follow-up letter of the same date advising of an omission from the earlier letter, served as a fresh notice ("Second Default Notice") under clause 7.1(d) of the Caretaking Agreement. In addition to alleging breaches of the Caretaking Agreement it alleged breaches of the Code of Conduct in Schedule 2 of the Act ("Code of Conduct").
18. Subsequently, by letter dated 1 April 2004, Mr Burton on instructions from the body corporate gave to the applicant a "remedial action notice" ("Third Default Notice") under section 84C(3) (a) of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 ("Accommodation Module"), being the regulatory module that applied to community titles scheme 27983. Although this notice foreshadows termination of the applicant’s "authorization as a letting agent under the Letting Deed dated 26 May 2000" it focuses mainly on the Caretaking Agreement and the Code of Conduct.
19. The provisions of the Accommodation Module relevant to the Third Default Notice are:

"84C Termination for failure to comply with remedial action notice
[SM, s 86C]

(1) The body corporate may terminate a person’s engagement as a body corporate manager or service contractor if the person (including, if the person is a corporation, a director of the corporation)--

(a) engages in misconduct, or is grossly negligent, in failing to carry out functions required under the engagement; or
(b) fails to carry out duties under the engagement; or
(c) contravenes the code of conduct for body corporate managers and caretaking service contractors or, for a caretaking service contractor, the code of conduct for letting agents; or
(d) fails to comply with section 86(2), 87(2) or 88(2);32 or
(e) for a body corporate manager--

(i) fails to comply with section 98A(2);33 or

(ii) if the body corporate manager is acting under a part 3, division 10 engagement--fails to give a report as required under section 35E.34

(2) Also, the body corporate may terminate a person’s authorisation as a letting agent if the person (including, if the person is a corporation, a director of the corporation)--

(a) engages in misconduct, or is grossly negligent, in failing to carry out obligations, if any, under the authorisation; or
(b) fails to carry out duties under the authorisation; or
(c) contravenes the code of conduct for letting agents or, for a caretaking service contractor, the code of conduct for body corporate managers and caretaking service contractors; or
(d) for a caretaking service contractor--fails to comply with section 86(2), 87(2) or 88(2).

Section 86 (Associate supplying goods or services), 87 (Disclosure of associate contract) or 88 (Disclosure of commission or other benefit)

(3) The body corporate may act under subsection (1) or (2) only if--

(a) the body corporate has given the person a remedial action notice in accordance with subsection (4); and
(b) the person fails to comply with the remedial action notice within the period stated in the notice; and
(c) the termination is approved by ordinary resolution of the body corporate; and
(d) for the termination of a person’s engagement as a service contractor if the person is a caretaking service contractor, or the termination of a person’s authorisation as a letting agent--the motion to approve the termination is decided by secret ballot.

(4) For subsection (3), a remedial action notice is a written notice stating each of the following--

(a) that the body corporate believes the person has acted--

(i) for a body corporate manager or a service contractor--in a way mentioned in subsection (1)(a) to (e); or

(ii) for a letting agent--in a way mentioned in subsection (2)(a) to (d);

(b) details of the action sufficient to identify--

(i) the misconduct or gross negligence the body corporate believes has occurred; or

(ii) the duties the body corporate believes have not been carried out; or

(iii) the provision of the code of conduct or this regulation the body corporate believes has been contravened;

(c) that the person must, within the period stated in the notice but not less than 14 days after the notice is given to the person--

(i) remedy the misconduct or gross negligence; or

(ii) carry out the duties; or

(iii) remedy the contravention;

(d) that if the person does not comply with the notice in the period stated, the body corporate may terminate the engagement or authorisation.

(5) Despite subsection (3)(a), if the person is a body corporate manager acting under a part 3, division 10 engagement, the owners of at least one-half of the lots included in the scheme may, on behalf of the body corporate, give the person a remedial action notice."

20. When I sought clarification from Mr Burton at the meeting on 23 November 2004 he confirmed that:

(a) In relation to the Caretaking Agreement, the body corporate –

(i) relied upon clause 7.1(d) of that agreement and the Second Default Notice; and
(ii) did not rely upon section 84C(1) of the Accommodation Module.

(b) In relation to the Letting Deed, the body corporate –

(i) did not rely upon clause 7 (a) (iv) of that deed (which is in similar terms to clause 7.1(d) of the Caretaking Agreement); and
(ii) did rely upon section 84C(2) of the Accommodation Module and the Third Default Notice.

Second Default Notice

21. As previously mentioned, the Second Default Notice was given "pursuant to clause 7.1(d) of the Caretaking Agreement – including the Code of Conduct in Schedule 2 of the Act which is now deemed to be included in the terms of that Agreement".
22. Section 118 of the Act provides:

"118 Code of conduct

(1) The code of conduct in schedule 2 applies to--

(a) a body corporate manager in performing obligations under the person’s engagement as the body corporate manager; and

(b) a caretaking service contractor in performing obligations under the person’s engagement as a service contractor.

(2) The provisions of the code are taken to be included in the terms of the contract providing for the person’s engagement.

(3) If there is an inconsistency between a provision of the code and another term of the contract, the provision of the code prevails.

(4) If the contract was in force immediately before the commencement of this section, this section applies only for things done or omitted to be done by the person after the commencement."

23. The Second Default Notice set out a long list of alleged defaults under the Caretaking Agreement, including a number of defaults listed in a 6 page typewritten memo dated 4 March 2004 from Nola Hawkins to the applicant, Mrs Hawkins being the person nominated by the body corporate as its communications nominee under the Caretaking Agreement.
24. I note the following about the Second Default Notice:

(a) It is expressed to bring "to your client’s notice and requires his attention or response to the following matters:". The matters are then identified with reference to Mrs Hawkins’ memo and the First Default Notice and a number of matters mentioned in Mrs Hawkins’ memo are cited in paragraph 2 by way of example. After citing the examples it says "your client is invited to respond to this position and present any contrary view of the matters set forth in this paragraph, for the Body Corporate’s consideration".
(b) It raises in paragraph 3 the question of GST being charged on the applicant’s invoices after he ceased to be registered for GST purposes. It then says before the body corporate "takes the matter any further it invites your client’s response and demands an immediate accounting for (including a statement of all such amounts) and repayment in full by your client of all such sums paid by the Body Corporate as GST to your client".
(c) It raises in paragraph 4 a matter concerning a surf ski allegedly "stolen" by the applicant from the basement of the building. It then "invites your client to offer any response and explanation before the Body Corporate takes a position on the matter".
(d) It raises in paragraph 5 an e-mail sent by the applicant to the body corporate manager which was said to be "offensive, abusive, argumentative and overbearing", as well as other matters of conduct on the part of the applicant. It then says "The Body Corporate invites any response or explanation from your client for his extraordinary behavior before it makes a final decision on any appropriate action".
(e) Finally, it raises in paragraph 6 an issue involving an old unregistered van that was parked in the basement of the building some time prior to the date of the Second Default Notice, as well as certain conversations and events associated with that van. These matters were said to amount to a failure to:

(iii) keep order and safeguard the property against unlawful entry (within the meaning of clause 2.1(h) of the Caretaking Agreement);
(iv) advise the body corporate about a serious breach of the by-laws (as required by clause 2.1(g) of the Caretaking Agreement); and
(v) act in the best interests of the body corporate (as required by clause 4 of the Code of Conduct).

(f) On page 4 the following paragraphs appear:

"The position of the Body Corporate is that most of the matters listed in Mrs Hawkins’ memo of 4 March to your client and most of the specific examples of your client’s endemic neglect in paragraph 2 above are capable of being remedied and this letter should be taken as notice pursuant to clause 7.1(d) of the Caretaking Agreement requiring your client to remedy them within thirty (30) days from the date of this letter, failing which the body corporate may exercise its rights under the agreement, without further notice to your client.

The position of the Body Corporate in relation to the "course of conduct" as a whole described in paragraph 2 above, and (in the absence of any satisfactory explanations your client may be able to give) the matters referred to in paragraphs 3, 4, 5 and 6 above is that they would be breaches of a kind which, if substantiated, would be incapable of being remedied. Further, it would view most seriously any failures of honesty and trust on the part of your client and to avoid any possible misunderstanding nothing in this letter should be interpreted as indicating that the Body Corporate would be willing to waive any such fundamental breaches of trust. In the circumstances, your client is invited to offer any explanations of any of those matters which he considers the Body Corporate should properly take into account before it reaches firm conclusions as to either the facts or the consequences in relation to those matters. For simplicity, the Body Corporate will allow the same thirty (30) days for any such response whereafter it may exercise its rights under the agreement, without further notice to your client."

25. It seems clear to me that the Second Default Notice raises the following matters of default and requires them to be rectified:

(a) the matters listed in Mrs Hawkins’ memo; and
(b) "most" of the specific examples in paragraph 2 of the Second Default Notice.

In addition, it says that, in the absence of a satisfactory explanation from the applicant, the matters in paragraphs 3, 4, 5 and 6 (being matters incapable of being remedied) may result in the body corporate terminating the Caretaking Agreement. The explanation is sought within the same time as that allowed by the Second Default Notice.
26. The first matter that I need to consider is whether the Code of Conduct is taken to be included in the terms of the Caretaking Agreement, which was entered into before 4 March 2003 when that section commenced. It seems to me that section 118(4) makes it clear that the Code of Conduct is taken to be included, although it only applies to things done or omitted to be done after that commencement. These matters occurred after commencement. Therefore, I must consider the alleged breaches of the Code of Conduct as potential breaches of the Caretaking Agreement.
27. There is a long and well documented history of complaint by the body corporate to the applicant regarding the applicant’s performance under the Caretaking Agreement. Arguably, at times the body corporate had unreasonable expectations of what was required of the applicant under the Caretaking Agreement. On the other hand, the applicant on occasions was anything but responsive to the reasonable requirements of the body corporate and the performance of his duties was not up to scratch. The combined effect was a breakdown in the relationship between the applicant and the body corporate. There is no doubt that this breakdown contributed to the applicant’s conducts that lead to the body corporate’s decision to terminate the Caretaking Agreement and Letting Deed.
28. However, I am satisfied that many of the alleged defaults referred to in the Second Default Notice existed immediately prior to it being served on the applicant and that the Second Default Notice was a valid notice under clause 7.1(d) of the Caretaking Agreement. That being so I would normally proceed to consider whether those defaults were rectified by the applicant before the 30 day period allowed by the notice expired. Before doing that I will consider whether any of the matters in paragraphs 3, 4, 5 and 6 of the Second Default Notice entitle the body corporate to terminate the Caretaking Agreement under any of the other provisions in clause 7.1.
29. All of the matters referred to in paragraphs 3, 4, 5 and 6 of the Second Default Notice occurred after 4 March 2003, being the date on which the Code of Conduct took effect. Therefore, the Code of Conduct provisions are taken to be included in the terms of the Caretaking Agreement and will apply to those matters.
30. As regards paragraph 3 of the Second Default Notice, while the applicant satisfactorily explained how the GST was mistakenly included on his earlier invoices, namely, he got the CPI adjusted figure from the body corporate manager who was probably unaware at the time that he had since been de-registered for GST. However, I note that:

(a) the applicant originally denied that the gross amount on his invoices was wrong; and
(b) despite requests from the body corporate and a promise from the applicant, the applicant has not refunded the GST amounts paid incorrectly.

31. Clause 2 of the Code of Conduct provides:

"2 A body corporate manager or caretaking service contractor must act honestly, fairly and professionally in performing the person’s functions under the person’s engagement."

GST and tax invoices are dealt with in clause 3.6 of the Caretakers Agreement. They relate to the performing of a function under the Caretakers Agreement (engagement). Therefore there is an issue about whether the applicant acted honestly, fairly and professionally in performing that function. The circumstances surrounding the GST claims are indeed suspicious. However, the applicant appeared to me to be a simple person who I am sure is not very skilled in matters of business and GST in particular. He explained how the mistake occurred in the first place; he admitted to making another mistake that led to him paying income tax on the GST when it was not properly payable and he was already in dispute over his Caretaking Agreement at the point in time when he should otherwise have repaid the GST amount. On balance I am not satisfied that the applicant failed to act honestly, fairly and professionally in relation to the GST.
32. As regards paragraph 4 of the Second Default Notice, there are circumstances surrounding the surf ski that raise substantial doubt in my mind that the applicant dealt honestly with the body corporate. Despite the fact that the police declined to take any action, that, in my view, is not conclusive as to the honesty of the applicant in the matter. The initial denials by the applicant; the date on the receipt for the surf ski; conflict regarding the timing of the production of the receipt; the receipt being in the handwriting of the applicant; the failure of the original owner of the surf ski to back the applicant’s claims and the suggestion to the police that there was a dispute regarding ownership of the surf ski (which they took to be a "claim of right") all sit uncomfortably with me. On balance, I am satisfied that the applicant did not act honestly, fairly and professionally in his dealings with the body corporate about the surf ski.
33. As regards paragraph 5 of the Second Default Notice, the body corporate alleged:

(a) an e-mail of 8 March 2004 from the applicant to the body corporate manager was "offensive, abusive, argumentative, and overbearing";
(b) on one occasion the applicant suggested to one of the owners, Mr Winship, that he might shove a mop up a particular part of Mr Winship’s anatomy;
(c) the applicant ordered Mr Winship from the basement of the building;
(d) the applicant was unwilling to discuss repairs to the garage door with Mrs Hawkins (the designated body corporate representative) because he had already spoken to the body corporate manager about them; and
(e) the body corporate manager subsequently denied that the applicant had spoken to her about the repairs.

The applicant denied the threat about the mop and that he ordered Mr Winship from the basement. However, he did not respond in substance about the other accusations, other than by his solicitor who explained that the applicant was "most upset and outraged at the accusations leveled against him that he had stolen the surf ski, he had not, and a receipt had been produced". The surf ski incident had occurred in October 2003. I am satisfied that the combined effect of (a) (d) and (e) above amounted to unprofessional conduct (verging on dishonesty as regards (d)) within the meaning of Clause 2 of the Code of Conduct.
34. As regards paragraph 6 of the Second Default Notice, the body corporate alleged:

(a) the applicant, when asked about the van, initially indicated that he understood it belonged to people somehow associated with the New Zealand owners of unit 303;
(b) the applicant subsequently denied having said that and indeed denied all knowledge of the van;
(c) the van disappeared minutes after the police removed the unregistered plates from it; and
(d) when further questioned after the van was removed the applicant was quite belligerent, stating "Its gone – why are you pursuing it?"

35. The applicant made no substantial response to those allegations although in his statutory declaration he stated merely that the van belonged to a friend who helped with maintenance work at the building. I am therefore satisfied that the applicant did not act honestly nor frankly in his dealings with the body corporate about this van.
36. Having found against the applicant in relation to the matters in paragraphs 4, 5 and 6 of the Second Default Notice, it remains for me to consider whether the applicant’s conduct was sufficient to justify termination of the Caretaking Agreement. Because the conduct was not capable of being remedied, clause 7.1(d) of the Caretaking Agreement did not apply. Indeed, the only clause that could apply is clause 7.1(b) which relates to "gross misconduct or gross negligence in performing the Caretaking Duties".
37. The concept of "gross misconduct" is commonly associated with employment contracts and has been the subject of numerous cases. Using those cases as a guide, mere misconduct is not sufficient to establish gross misconduct. It must be of a serious nature and constitute a repudiation of the contract or one of its essential terms. See, for example, Bruce v. AWB Ltd (2000) FCA 594 and Wright v. Mount Isa Mines Ltd (2002) 172 QGIG 82.
38. The conduct we are concerned with involves dishonesty and a failure to deal frankly with the body corporate. Honesty and frankness are essential qualities for the discharge of the duties in clause 2.1 (e), (f), (g), (h) and (l) of the Caretaking Agreement. The applicant was charged with the safety and security of the building and its occupants. When those qualities were compromised by the applicant it was tantamount to him repudiating the duties that are dependant upon trust and openness. This compromise was compounded by the applicant’s attitude towards Mrs Hawkins, the body corporate’s nominated representative, as is partly evidenced by his e-mail to the body corporate manager on 8 March 2004.
39. I am satisfied that the conduct of the applicant was related to performing the "Caretaking Duties", as defined in the Caretaking Agreement and that such conduct was gross misconduct. Therefore, subject to the body corporate following the proper procedures it was after 18 April 2004, at the latest, entitled to regard the applicant’s explanations as unsatisfactory and proceed to terminate the Caretaking Agreement. On 7 May 2004 the body corporate resolved in general meeting to terminate that agreement and on the same date it served notice on the applicant effectively terminating the agreement.
40. The conclusion I have already reached means that it is un-necessary for me to consider whether the defaults specified in the Second Default Notice were rectified before the 30 day rectification period expired. However, I should say that, on the basis of the materials before me, I have doubts about whether all of the alleged defaults were rectified by the applicant as required by the Second Default Notice. This may well have led me to conclude that the Caretaking Agreement was validly terminated under clause 7.1(d) of that agreement in any event.

Third Default Notice

41. It now remains for me to consider the Letting Deed. This Deed needs to be considered in the context of section 84C of the Accommodation Module. The Third Default Notice was served under that section. The Third Default Notice:

(a) substantially repeated the breaches alleged in the Second Default Notice;
(b) sought remedy of the contraventions where this was possible and satisfactory explanations where remedy was not possible;
(c) allowed 30 days for this to occur; and
(d) alleged breaches of clause 2 and 3 the Code of Conduct.

42. Clause 2 of the Code of Conduct is reproduced above. Clause 3 provides:

"3 A body corporate manager or caretaking service contractor must exercise reasonable skill, care and diligence in performing the person’s function under the person’s engagement."

43. I have already held that clause 2 of the Code of Conduct has been contravened by the applicant. In relation to clause 3, I am satisfied that the applicant did not exercise reasonable diligence in performing his functions under his engagement and thereby contravened clause 3 of the Code of Conduct.
44. However, this does not necessarily mean that the body corporate had the right to terminate the Letting Deed. That right is dependant upon it being established (so far as relates to this matter) that:

(a) one of the following applied –

(i) the applicant engaged in misconduct, or was grossly negligent, in failing to carry out obligations, if any, under his authorization (i.e. the Letting Deed); or
(ii) the applicant failed to carry out duties under the authorization; or
(iii) the applicant contravened the code of conduct for letting agents or, for a caretaking service contractor, the Code of Conduct (as defined earlier).

(b) the body corporate gave a valid remedial action notice;
(c) the applicant failed to comply with that notice;
(d) termination of the authorization is authorized by resolution of a general meeting of the body corporate passed by secret ballot; and
(e) a valid notice terminating the authorization was served on the applicant pursuant to that resolution.

45. An examination of the applicant’s duties under the Letting Deed leads me to conclude that (a)(i) above is not satisfied because any misconduct did not relate to the applicant’s "obligations ... under the authorization". For the same reason (a)(ii) is not satisfied.
46. The position in relation to (a)(iii) is not as straight forward. The Third Default Notice only alleges contravention of the Code of Conduct (i.e. the code in Schedule 2 that applied to the applicant as a caretaking service contractor). As I have said, I am satisfied that the applicant contravened that code, but is that sufficient to satisfy (a)(ii) above, or must the contravention relate to the code in Schedule 3 of the Act (i.e. the code that applied to the applicant as a letting agent)? In other words, are the 2 codes stated in section 84C(2)(c) intended to be read in the alternative?
47. Mr Burton for the body corporate submitted that the letting agent’s code was additional to the Code of Conduct and not in the alternative and he explained this as a type of "cross-default" provision intentionally included by the legislature. Given that the same provision appears in section 84C(1)(c) of the Act I have difficulty giving the words a meaning other than their natural meaning, so I determine that the contravention of the Code of Conduct by the applicant satisfies (a)(iii) above.
48. I am also satisfied as to items (b), (c) and (d) above which leads me to conclude that the Letting Deed was validly terminated by the body corporate on 7 May 2004.
49. That brings me to the question of what type of order is appropriate in the matter. Mr Dimitric for the applicant has submitted that I should take into account the financial consequences to his client and whether they are disproportionate to any failings by his client. He reminds me that his client has a purchaser for the management rights who has the potential to settle the purchase once the necessary real estate agent’s license is obtained. He referred me to section 276 of the Act which provides, so far as is relevant to this application:

"276 Orders of adjudicators

(1) An adjudicator to whom the application is referred may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute, in the context of a community titles scheme, about -

.......
(c) a claimed or anticipated contractual matter about -

(i) the engagement of a person as a body corporate manager or service contractor for a community titles scheme; or

(ii) the authorization of a person as a letting agent for a community titles scheme."

50. That section clearly introduces a degree of discretion for an adjudicator. Furthermore, I am satisfied that the applicant will suffer financial hardship on the loss of his management rights. However, I do not consider that the discretion I have allows me to deprive the body corporate of the benefit of its legal rights in the absence of some serious misconduct or failure on its part (such as undue delay). There has been no such misconduct or failure and the appropriate course for me is to dismiss the application.
51. Section 280(2) of the Act says that the applicant is responsible for the costs of the adjudication, unless the adjudicator otherwise orders. There is no basis on which I could make such an order.

Dated: 3 December 2004



Gary Bugden
Specialist Adjudicator