Ocean Sound [2005] QBCCMCmr 529 (26 September 2005)

Last Updated: 19 July 2006

Office of the Commissioner for Body Corporate and Community Management SPECIALIST ADJUDICATION (Caretaking Service Contractor Dispute) Number: 0380-2005

Applicant: JANET YENDEL



Respondent: BODY CORPORATE FOR OCEAN SOUND

COMMUNITY TITLES SCHEME 14898

ORDER
26 September 2005

ORDER that the application is dismissed.

G. F. Bugden
Specialist Adjudicator

Office of the Commissioner for Body Corporate and
Community Management

SPECIALIST ADJUDICATION
(Caretaking Service Contractor Dispute)

Number: 0380-2005

Applicant: JANET YENDEL



Respondent: BODY CORPORATE FOR OCEAN SOUND

COMMUNITY TITLES SCHEME 14898

FINAL DETERMINATION
26 September 2005

Application

1. This is an application by Mrs Janet Yendel, who is also frequently referred to in the evidence as Janet Yendle, ("Applicant") for an order about a contractual matter between the Applicant and the body corporate for Ocean Sound community titles scheme 14898 ("Body Corporate"). The Applicant makes this application in her capacity as a caretaking service contractor but she also acts as a letting agent for the scheme.
2. The Applicant originally sought –

(a)	an interim order restraining the Body Corporate from taking possession of the manager’s office and terminating a management agreement dated 30 June 1998;
(b)	declarations as to the validity of that management agreement and a deed of assignment to the Applicant; and
(c)	declarations that neither the management agreement nor the deed of assignment are liable to forfeiture.

3. On 6 June 2005 I made an ex parte interim order restraining the Body Corporate from taking possession of both the office premises in the foyer of the subject building and any business or other property of the Applicant kept on those premises. Following that order the Commissioner called for submissions on the application and referred the matter back to me for final determination.
4. Both the Applicant and Body Corporate made formal submissions to the Commissioner. In essence, the Body Corporate maintains that there has never been a valid management agreement and, as alternatives, if there was it was not validly assigned to the Applicant and if it was validly assigned, it was validly terminated. Furthermore, the Applicant’s position has changed in that she now treats the Body Corporate’s purported termination of the management agreement as a repudiation of that agreement and seeks an order for damages for breach.

Jurisdiction

5. Section 265(1) of the Act provides –

"(1) The adjudication of a dispute must be specialist adjudication if -

(a) the dispute is about a claimed or anticipated contractual matter about:

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

(ii) the authorization of a person as a letting agent for a community titles scheme; or

(b) the dispute is about the transfer, under chapter 3, part 2, division 8, of a letting agent’s management rights; or

(c) another provision of this Act requires the adjudication to be specialist adjudication."

6. I am satisfied that this dispute is covered by section 265(1)(a) of the Act in so far as the question of validity of the management agreement and its assignment are concerned and that I have jurisdiction to determine those aspects of the matter. The Body Corporate’s solicitor has questioned whether I have jurisdiction to order damages in the event that I form the view that the Body Corporate has repudiated the management agreement. As it turns out, it will not be necessary for me to determine this jurisdictional question.

Evidence

7. Community titles scheme 14898 relates to a building known as "Ocean Sound" which comprises 21 residential apartments and is situated at 1 Phillip Street, Broadbeach. The scheme is regulated by the Body Corporate and Community Management (Standard Module) Regulation 1997 ("Standard Module").
8. I have before me copies of 3 documents –

(a)	a management agreement dated 30 June 1998 between the Body Corporate and Donald Cameron Parry Brown ("Mr Brown"), as manager, (being the management agreement which I have previously referred to and which I will now refer to as the "Management Agreement");
(b)	a deed of assignment of management rights undated but bearing the year 2000, the parties to which are Mr Brown (as Assignor) and the Applicant (as Assignee), which I will refer to as the "First Assignment Deed"); and
(c)	a deed of assignment of a management agreement undated but bearing the year 2003, the parties to which are the Body Corporate, Mr Brown (as Assignor) and the Applicant (as Assignee), which I will refer to as the "Second Assignment Deed".

The Management Agreement
9. The Management Agreement is for a term of 5 years from 30 June 1998 with an option for a further 5 years. It relates to 21 home units "situated Old Burleigh Road Broadbeach" and I assume there is a logical explanation why this address is different to the Phillip Street address in the application. The manager ( Mr Brown) has the right to assign the Management Agreement with the consent in writing of the council of the body corporate provided the assignee simultaneously purchases unit 14. The copy of the Management Agreement that I have is signed by Mr Brown but, despite being prepared for execution under common seal by the Body Corporate (as "Owner"), it is neither sealed nor signed by or on behalf of the Body Corporate. There is another copy of the same agreement on the Commissioner’s file, but it is both undated and unsigned by either party.
10. The following provisions of the Management Agreement are significant:

• Clause 2(a) which requires the manager "to keep and maintain the records of the Council of the Body Corporate and of all meetings thereof and general meetings of the Body Corporate and including the performance of the duties of bookkeeper and secretarial duties including the task of forwarding accounts for maintenance levies banking same and generally to attend to all administrative matters on behalf of the Body Corporate PROVIDED HOWEVER that the Owner will bear the cost of all stationery, postage, telephone charges and other similar outlays incurred in the course of the performance of such duties".
• Clause 2(h) which confers authority on the manager "to evict or deal with any persons creating a nuisance or annoyance on the said property or committing any breach of the Bylaws of the Owner to the same extent as that exercisable by the Owner itself to the intent that the Manager shall take all reasonable steps to ensure quiet and peaceful enjoyment of the living units by all lawful occupiers".
• Clause 2(i) which requires the manager "to account promptly and faithfully to the Owners or to unit holders as the case may be for all of its or their funds or other property (if any) coming to their hands or custody".
• Clause 3(a) which provides for remuneration of the manager and also allows the manager, as part of that consideration, a reduction of the weekly maintenance levy applicable to the "living unit" (i.e. unit 14).
• Clause 10, which grants the manager a licence to maintain an office in the building on common property, but not so as to confer the right of exclusive occupation.

11. There is no severance clause in the Management Agreement.
The First Assignment Deed
12. The First Assignment Deed recites a management agreement between the Body Corporate and Mr Brown dated 1 February 1998, being for a term of 5 years. The First Assignment Deed assigns the management agreement to the Applicant "Pursuant to a Deed of Separation entered into between the Assignee and the Assignor and dated the 6^th day of March 2000". It is signed by both parties, although Mr Brown’s signature is not witnessed. It was expressed to be subject to the consent of the Body Corporate.
The Second Assignment Deed
13. The Second Assignment Deed relates to the assignment of a management agreement dated 29 May 1998 between the Body Corporate and Mr Brown, being for a term of 5 years commencing on 30 June 1998. The Second Assignment Deed assigns that agreement, "including any option for renewal or extension" to the Applicant and the Body Corporate consents to that assignment. In doing so the Body Corporate (vide clause 6 of the deed):

"(a) consents to the assignment;

(b) agrees with the Assignee that to the best of its knowledge:

(i)	that it is empowered to enter into the Agreement;
(ii)	there is no existing breach by the Assignor of the Agreement;
(iii)	the interest of the Assignor under the Agreement is not liable to forfeiture or surrender; and

(c) agrees to be bound by the provisions of the Agreement as if the Assignee were the manager originally named in it; and
(d) in every respect confirms the provisions of the Agreement for the balance of its term including the right of the Assignee to exercise the remaining options (if any) in the Agreement."

14. The Second Assignment Deed is signed by Mr Brown and the Applicant and their signatures have been witnessed by Justices of the Peace. Although it was prepared for execution under seal by the Body Corporate it is merely signed by a "David Schupp", as Chairman of the Body Corporate.
Management rights history
15. The minutes of the 30^th Annual General Meeting of the Body Corporate held on 1 June 1997 record the following:

"Mr Murray being the manager appointed since 10^th December 1978 (19 years) wished to transfer the agreement to Mr Brown and Mr Murray’s daughter Janet as Mr Brown now owner of Unit 14, wished to purchase the Management Rights. Mr Brown is well credentialed and has a certified Unit Manager’s certificate and a very good resume. He is now employed by Proctor and Gamble as Customer Business Development Manager Retail Australasia. Janet has hands on experience as she has looked after the business while Mr Murray had his annual leave. Mr Murray will remain in residence in No 20 as Mr Brown will be in residence of No 14 and office. The phone number will remain the same as Mr Murray will transfer this number to Mr Brown. The agreement between the Body Corporate and Mr Brown and Janet will be a 5 x 5 years as against the 3 x 3 years held by Mr Murray. This is in accordance with the second draft of legislation just released for public comment and expected to be passed in the near future.

Proposed: Mr Rissman (No 1)

Seconded: Mr French (No 8)

Passed Unanimously."

16. The same minutes record that the office, having been built and paid for by Mr Murray who was not reimbursed by the Body Corporate, "may be part of the agreement of contract for the existing managers and any future managers".
17. In or about May 1998 Mr Murray instructed Mr Clinton Smith, Solicitor, to prepare a management rights agreement in favour of Mr Brown pursuant to the resolution of 1 June 1997. The agreement prepared by Mr Smith was the Management Agreement. At about the same time Mr Smith prepared certain security documents in relation to the Management Agreement to secure a loan from Mr Murray to Mr Brown. Mr Smith has by statutory declaration stated that at the time of the loan he sighted and retained a signed original of the Management Agreement which was executed by all parties.
18. There does not appear to be any other evidence that there was in existence a duly executed copy of the Management Agreement. Mr Jack French, who was present at the meeting on 31 May 1998, was said by the Applicant to have seen the agreement executed under seal by the Body corporate. However, in a statutory declaration dated 4 July 2005 Mr French says that he was at the meeting but effectively denies that he saw the Body Corporate execute the Management Agreement.
19. Mr Murray’s daughter, the Applicant, and Mr Brown were in a de facto relationship that terminated in January 2000. They entered into a separation agreement dated 6 March 2000, which was ratified by the District Court on 9 June 2000, under which the management rights for Ocean Sound were to be assigned to the Applicant. That assignment was purportedly effected by the First Assignment Deed.
20. By letter dated 1 March 2000 Mr Brown gave notice of the assignment to the Body Corporate and effectively sought its consent to the assignment. Because the Applicant did not qualify for the requisite licence to operate the management rights at that time Mr Brown agreed to continue to manage the building until her licence came through.
21. The minutes of the 35^th annual general meeting of the Body Corporate state that it was held on "Sunday 1^st June 2002". However, it is clear:

(a)	if the 30th annual general meeting was in 1997, then the 35th annual general meeting should have been held in 2003;
(b)	1 June 2002 was a Saturday, whereas 1 June 2003 was a Sunday.
(c)	the minutes themselves refer to a financial statement for the "year end 30th April 2003" which post dates 1 June 2002; and
(d)	there is a hand written notation on the copy minutes that suggests the year should be "2003".

I am therefore satisfied that the date on the minutes is incorrect and that the 35^th annual general meeting was held on 1 June 2003.
22. At that meeting the Management Agreement was discussed and the minutes record:

"Mrs Janet Yendle will be taking over the sole management of "Ocean Sound" owners to be advised as to her contract after legal advise (sic) is sought. Mrs Yendle was accepted at the 30^th Annual General Meeting with Mr D Brown. Mr Brown no longer has an interest in the business. Mr Jack French requested that a letter of thank you be sent to Mr Brown as he still prepares the financial statements and for the work he has done."

23. By letter dated 2 July 2003 from the Chairman of the Body Corporate, Mr David Schupp, to the Applicant headed "Transfer of Management Rights" Mr Schupp said:

"I herewith acknowledge and recommend the transfer of the Ocean Sound Management rights from a joint management agreement to a single management agreement under the name of Janet Murray."

24. On 3 July 2003 Sandra Johnson, "an Executive of Ocean Sound Body Corp.", signed a document on Ocean Sound letterhead that reads as follows:

"Hereby do agree that the Management Rights that are currently in the name of Donald Cameron Parry Brown and Janet Yendle to be assigned solely to Janet Yendle."

25. Apart from the evidence I have summarized, there is no direct evidence of body corporate approval of the assignment to the Applicant and authorization of the Body Corporate’s entry into the Second Assignment Deed.
26. There are various other matters in dispute between the parties, but it will not be necessary for me to deal with them in order to determine the application. The circumstances surrounding the First Assignment Deed and the Second Assignment Deed will also not be directly relevant to my determination of the matter. I have described them merely to allow a better understanding of how this application has come about and the difficulties confronting the Applicant.

Threshold issue

27. The threshold issue in this matter is whether the Management Agreement was validly entered into by the parties. Relevant to this is the nature of the agreement being entered into. What is the legal category of the Management Agreement?
28. The Management Agreement was purportedly executed by the Body Corporate on or about 30 June 1998. The Management Agreement was therefore entered into on or about that date when the Body Corporate was regulated by the Body Corporate and Community Management Act 1997 ("BCCM Act") and the Standard Module.
29. It is significant that the Management Agreement:

(a)	requires the manager to:

(i) keep and maintain the records of the Body Corporate and of meetings;
(ii) perform the duties of bookkeeper;
(iii) perform the duties of the secretary;
(iv) forward accounts for maintenance levies;
(v) bank maintenance levies;
(vi) attend to administrative matters;
(vii) enforce the by-laws and deal with matters of nuisance or annoyance; and
(viii) account for Body Corporate funds;

(b)	partly remunerates the manager by allowing a credit against the maintenance levies otherwise payable in respect of the manager’s unit;
(c)	does not contain a severance clause that might allow the severance of any clauses that are illegal or otherwise invalid; and
(d)	does not seek to apply restrictions on, or Body Corporate supervision or approval processes to, the execution of most of the manager’s authorities and duties.

30. In Thomas & Ors v. Regal West Pty Ltd; Regal Holdings v. Regal West Pty Ltd (1991) NSW Titles Cases |P80-010, Brownie J. held that a retirement village management agreement was void for illegality because it delegated powers of a body corporate to the manager when the manager was not qualified as a strata managing agent to receive that delegation under the Strata Schemes Management Act 1996 (NSW).
31. In Gillett v. Halwood Corporation Ltd & Ors (1995) NSW Titles Cases |P80-035, the New South Wales Court of Appeal held that a management agreement executed by a body corporate under authority of a resolution of its council was void because some of the duties imposed on the manager were in the nature of the duties performed by a strata managing agent under delegation and the appointment and delegation of a strata managing agent required the authority of a resolution of a general meeting. Subsequently, in The Owners – Strata Plan No 51487 v. Broadsand Pty Ltd [2002] NSWSC 770, Hamilton J in the New South Wales Supreme Court held that a management and letting agreement was void for illegality because the agreement appointed a strata managing agent and effectively delegated at least some of the powers, authorities, duties and functions of the body corporate to that agent. Such appointment and delegation was illegal because the appointee was not qualified to be appointed and receive the delegation under the Strata Schemes Management Act 1996 (NSW) and provisions in that Act as to timing of the appointment were not observed.
32. In The Owners – Strata Plan No 56443 v. Regis Towers Real Estate Pty Ltd [2003] NSWCA 274; (2003) 58 NSWLR 78, the New South Wales Court of Appeal, in holding that a management agreement did not contravene the relevant provisions of the New South Wales legislation, applied the test of the extent to which a body corporate has given over decision making and control in relation to the duties of the manager. In that case the management agreement retained significant rights of direction and approval that do not appear in the Management Agreement under consideration in this application.
33. I am satisfied that a number of the provisions of the Management Agreement are in the nature of the duties normally undertaken by a body corporate manager under an engagement and delegation under section 78 of the Standard Module as in force in 1998. The Management Agreement should therefore be categorized as an agreement for engagement of a body corporate manager.
34. In 1998 section 87 of the Standard Module provided as follows:

"(1) The body corporate may engage a person as a body corporate manager or service contractor, or authorise a person as a letting agent, only if--

(a) the engagement or authorisation is approved by ordinary resolution of the body corporate; and
(b) the terms of the engagement or authorisation are included in the material forwarded to members of the body corporate for the general meeting that considers the motion to approve the engagement or authorisation.

(2) If subsection (1) is not complied with, the engagement or authorisation is void.

(3) A body corporate may agree to the amendment of an engagement or authorisation mentioned in subsection (1) only if the amendment is approved by ordinary resolution of the body corporate.

(4) If subsection (3) is not complied with, the amendment of the engagement or authorisation is void."

35. The next question for me to consider is whether the resolution of the Body Corporate passed unanimously on 1 June 1997 satisfies section 87(1)(a) of the Standard Module. The mere fact that the resolution was a unanimous resolution and not an ordinary resolution is not, in my view, material. However, unexecuted resolutions passed under the former legislation (the Building Units and Group Titles Act 1980) are not expressly preserved by the transitional provisions in the BCCM Act and there is an argument that the resolution of 1 June 1997 was ineffective to authorize entry into and execution of the Management Agreement.
36. Even if the resolution of 1 June 1997 was still effective in June 1988 there may be other problems for the Applicant. First; because Mr Smith was not instructed to prepare the Management Agreement until May 1998 it is clear that the terms of the engagement (i.e. the Management Agreement) were not included in the material forwarded to members of the Body Corporate for the general meeting of 1 June 1997. Therefore, section 87(1)(b) of the Standard Module was not complied with and, vide section 87(2), the Management Agreement was void.
37. Second; in 1998 section 80(1) of the Standard Module prohibited the term of the engagement of a person as a body corporate manager (after allowing for any rights or options of extension or renewal) from being longer than 3 years. Section 80(2) provided that a term purporting to be longer than 3 years "is taken to be 3 years". The Management Agreement would have commenced on 30 June 1998 and although it purported to be for a period of 5 years, expiring on 29 June 2003, the effect of section 80(2) would be to reduce the term to 3 years, so that the Management Agreement would have expired on 29 June 2001 without the option for renewal taking effect.
38. Third; in 1998 section 95(5) of the Standard Module required contributions levied on lot owners to be proportionate to the contribution schedule lot entitlements of their lots. The remuneration arrangements for the manager in clause 3(a) of the Management Agreement were arguably in breach of that sub-section and illegal. Because of a lack of a severance clause in the agreement there is no reasonable prospect of having that clause severed and as a consequence the entire Management Agreement may fail. See Humphries & Anor v. The Proprietors "Surfers Palms North" Group Titles Plan 1955 (1998) LQCS |P90-100.

Findings

39. In relation to the application I find:

(a)	on the balance of probabilities Mr Brown and the Body Corporate purportedly entered into and executed the Management Agreement on or about 30 June 1998;
(b)	while Management Agreement was intended to be a service contractor agreement (within the meaning of the Standard Module) it was also in the nature of an engagement of Mr Brown as a body corporate manager;
(c)	section 87(1) of the Standard Module applied to the Body Corporate’s entry into the Management Agreement;
(d)	that sub-section was not satisfied; and
(e)	by virtue of section 87(2) of the Standard Module, the Management Agreement is and was at all times void.

40. The Applicant’s solicitor in his submissions has raised 3 other points. First; whether the Body Corporate is estopped from denying the existence of the Management Agreement. I do not believe the Applicant has made out a case for either estoppel or waver. Section 80(2) of the Standard Module exists for the protection of the members of the Body Corporate, not merely for the benefit of one or both of the parties to this dispute. It therefore seems clear to me that an estoppel cannot be availed of in the face of the provisions of section 80(2). See Holman v. Johnson (1775) 1 Cowp 341; Kok Hoong v. Leong Cheong Kweng Mines Limited [1994] AC 993; Barilla v. James (1964) 81 WN (Pt 1) (NSW) 457; Pratten v. Warringah Shire Council (1969) WN (Pt 1) 134; Thomas v. Regal West (supra); The Owners - Strata Plan No 51467 v. Broadsand Pty Ltd (supra).
41. Second; whether the parties ratified the Management Agreement by the Second Assignment Deed, given that such deed expressly "ratified and confirmed" the terms and conditions of the Management Agreement and the Body Corporate and the Applicant agreed to be bound by those terms and conditions. Putting aside the question of whether the deed is enforceable (which the Body Corporate maintains it is not), as there was no Management Agreement to ratify, the purported ratification and confirmation could, at best, be nothing more than entry into a new agreement in the same terms as the Management Agreement. That being the case the new agreement would suffer the same fate as the original one in that section 87(1)(b) was not complied with and therefore the new agreement would be void.
42. Third; whether the Applicant qualified for relief against forfeiture. Of course, as there is no Management Agreement and never was one, there is no forfeiture and therefore such relief does not apply.

Order

43. I therefore propose to make an order dismissing the application.

G. F. Bugden
Specialist Adjudicator