Australia City Properties Management Pty Ltd v The Owners - Strata Plan No 65111

Foran v Wight (1989) 168 CLR 385; [1989] HCA 51 Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 Gooley v Westpac Banking Corporation (1995) 129 ALR 628 Hall v Busst (1960) 104 CLR 206; [1960] HCA 84 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23 Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32 Moschi v Lep Air Services Ltd [1973] AC 331 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 NM Superannuation Pty Ltd v Hughes (1992) 27 NSWLR 26 North v Television Corporation Ltd (1976) 11 ALR 599 Owners of the Ship Borvigilant v Owners of the Ship Romina G [2003] EWCA Civ 935 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14 R v A2 [2019] HCA 35; 373 ALR 214 Rankin v Marine Power International Pty Ltd [2001] VSC 150; 107 IR 117 Robinson Helicopter Company Inc v McDermott [2016] HCA 22; 331 ALR 550 Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR 632 Victoria v Tatts Group Ltd [2016] HCA 5; 90 ALJR 392 Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corporation SP 71632 [2010] NSWCA 226 Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381 Texts Cited: Nil Category: Principal judgment Parties: Australia City Properties Management Pty Limited (ACN 093 915 738) (Appellant/Cross-Respondent) The Owners - Strata Plan No 65111 (Respondent/Cross-Appellant) Representation: Counsel: NJ Kidd SC with SR Meehan (Appellant/Cross-Respondent) SJ Free SC with OR Jones and C Coventry (Respondent/Cross-Appellant)

Solicitors: Harris Freidman Lawyers (Appellant/Cross-Respondent) Barry Nilsson Lawyers (Respondent/Cross-Appellant) File Number(s): 2020/335290 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Division Citation: [2020] NSWSC 1505 Date of Decision: 28 October 2020 Before: Darke J File Number(s): 2019/257962

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, Australia City Properties Management (ACPM) was the Caretaker of an apartment building in the Sydney CBD. The respondent, the Owners of Strata Plan No 65111 (the OC), was the Owners Corporation of that building. In March 2001, ACPM had entered into an Agreement to perform caretaking services in the building. The term of the Agreement was ten years (to March 2011), with three options to renew of five years each, which would extend the Agreement to March 2026. In 2010, a Deed of Variation was entered into which included a ratchet clause and granted two further options of five years, which would extend the Agreement to March 2036. Another Deed of Variation was entered into in 2015, which provided for one further option of five years and would extend the Agreement to March 2041. ACPM was the owner of a lot in the building (Lot 179), from which it carried out a number of activities, including its obligations under the Agreement. Lot 179 was located on the ground floor of the building and contained a reception desk, surveillance equipment and an air-conditioning system which provided air conditioning to the common areas. Various clauses of the Agreement were of particular importance. Clause 9 set out how the OC could terminate the Agreement, including for gross negligence or gross misconduct by ACPM (cl 9.3(iv)). Clause 10 set out a procedure that had to be followed if the OC terminated under cl 9, including granting ACPM the right to sell its interest in the Agreement and Lot 179 (cl 10.2). Clause 18.2 provided that directors and shareholders of ACPM were not to nominate themselves for election to the Strata Committee of the OC. On 17 August 2019, the OC served ACPM with a Notice of Termination, which alleged that ACPM was guilty of gross misconduct and/or gross negligence in performing its duties. The OC then took possession of Lot 179 and appointed an interim caretaker; however, it did not follow the required procedure under cl 10 of the Agreement, and it asserted that ACPM had no further rights under the Agreement. On 26 August 2019, ACPM purported to accept a repudiation of the Agreement by the OC (and therefore terminate the agreement), on the basis that the OC was in breach of its obligations under cl 10. ACPM sought loss of bargain damages in the Equity Division of the Court. The primary judge held that ACPM was guilty of gross misconduct or gross negligence in two respects. The first was that ACPM had breached an implied term of the Agreement by not paying for the electricity consumed on Lot 179 ("the electricity breach"), in the context where Mr Wang, a director of ACPM, had also been deliberately deceitful about who was paying for the electricity. The second was that ACPM had breached the Agreement by failing to properly inform the Strata Committee of problems with the fire alarm system in the building ("the fire safety breach"). However, the primary judge held that even though ACPM breached cl 18.2 by allowing two of its directors to nominate themselves for election to the Strata Committee, this was not gross negligence or gross misconduct, as the OC had tolerated the breach ("the cl 18.2 issue"). The primary judge therefore held that the OC was validly able to terminate the Agreement under cl 9 for gross negligence or gross misconduct. The primary judge held that ACPM was entitled to possession of Lot 179 and awarded damages for the period it had been out of possession. However, although the OC did not follow the process upon termination under cl 10, the primary judge held that its conduct, whilst a breach of cl 10, did not amount to a repudiation of the Agreement. The primary judge would not have awarded ACPM any loss of bargain damages. Various pieces of legislation had been introduced in NSW after ACPM first entered into the Agreement in 2001, which had the effect of limiting new caretaker agreements to a term of 10 years (although that term could be renewed). One issue was whether the 2010 Deed and 2015 Deed were mere variations of the 2001 Agreement (which the legislation did not apply to), or whether they caused a new Agreement to come into existence, the term of which would be limited to 10 years. This was relevant in determining the amount of damages that ACPM would be entitled to. ACPM appealed from the primary judge's decision, including against the findings of gross negligence and gross misconduct. The OC cross-appealed, including against the finding that the breach of cl 18.2 did not constitute gross negligence or gross misconduct. The OC also submitted that, in any event, it was entitled to terminate at general law (outside of cll 9 and 10) for ACPM's wrongful repudiation of the Agreement. The Court allowed ACPM's appeal and dismissed the OC's cross-appeal. The electricity breach i) Having regard to the well-established principles around construction of commercial contracts, there was no right under the Agreement for ACPM to charge the OC for electricity consumed at Lot 179: [88]-[94] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37; Victoria v Tatts Group Ltd [2016] HCA 5; 90 ALJR 392; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47, referred to. ii) There was an implied term of the Agreement that ACPM not use its position to obtain an unauthorised benefit from the OC. ACPM breached this implied term: [95]-[98] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corporation SP 71632 [2010] NSWCA 226; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, considered. iii) ACPM's conduct in using electricity at Lot 179 without reimbursing the OC amounted to gross misconduct. The breach must be considered in the context of Mr Wang's deliberate deception. It was not open to the Court to set aside the primary judge's findings about Mr Wang, which were based at least in part on his assessment of Mr Wang's credibility: [99]-[107] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381; North v Television Corporation Ltd (1976) 11 ALR 599, considered. Fox v Percy (2003) 214 CLR 118; [2003] HCA 22; Lee v Lee (2019) 266 CLR 129; [2019] HCA 28; Robinson Helicopter Company Inc v McDermott [2016] HCA 22; 331 ALR 550, referred to. The fire safety breach i) Per Bathurst CJ and Payne JA, McCallum JA dissenting on this point (at [361]): Despite the fact that ACPM breached the Agreement by failing to inform the Strata Committee promptly that the fire alarm system was faulty, the breach did not constitute gross misconduct or gross negligence. This was in circumstances where the fault was ultimately reported and ACPM relied on the conclusions of fire safety testing contractors: [161]-[165] (Bathurst CJ); [360] (Payne JA). Gooley v Westpac Banking Corporation (1995) 129 ALR 628; Rankin v Marine Power International Pty Ltd [2001] VSC 150; 107 IR 117, referred to. The cl 18.2 issue i) The primary judge was correct to find that ACPM did not engage in gross misconduct through its breaches of cl 18.2. Whilst there was no waiver by the OC of ACPM's breaches of cl 18.2, the primary judge was not in error to conclude that the OC tolerated the breaches. In those circumstances the breaches did not constitute gross misconduct: [217]-[220] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). Repudiation and the consequences of termination i) Although the electricity breach amounted to a repudiation of the Agreement by ACPM, the OC was not entitled to terminate the Agreement outside of cll 9 and 10. This was in circumstances where cl 9.3 was very wide, and it would be difficult to see how repudiatory conduct would fall outside the category of gross misconduct. Clause 9.3 covered not only all breaches but also repudiatory conduct: [285]-[291], [295] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61, referred to. ii) Although cll 9 and 10 were unusual, where there is no ambiguity the Court must give effect to the language, notwithstanding the consequences. Further, following cl 10 would not have an arbitrary or capricious result: [292]-[294] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36, referred to. iii) ACPM was not entitled to terminate on the basis of any wrongful repudiation by the OC, including because ACPM itself was in breach of a fundamental obligation and unwilling to perform its obligations in accordance with the terms of the Agreement: [303] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12; Foran v Wight (1989) 168 CLR 385; [1989] HCA 51, referred to. iv) The primary judge was correct in concluding that the OC's conduct following termination was not repudiatory, as it was not established that the OC would not be willing to comply with the terms of cl 10 once the correct interpretation of that clause was established. However, ACPM nonetheless is entitled to damages for the value of its interest under the Agreement, as the OC's failure to follow the cl 10 procedure caused ACPM to lose the value of this interest: [305]-[308] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). The Duration of the Agreement and Damages i) The determination of issues around the duration of the Agreement depends on the construction of the relevant pieces of legislation, which should be considered having regard to their text, context and purpose and the mischief they are intended to remedy: [330]-[333], [349] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27; [2009] HCA 41; R v A2 [2019] HCA 35; 373 ALR 214, referred to. ii) Even if the Deeds were a variation of the Agreement, that did not mean that a new and different contract did not come into existence. The 2010 Deed and 2015 Deed were "caretaker agreements" under the legislation and limited to a term of 10 years. The term of the Agreement was extended up to 29 April 2025: [334]-[335], [348] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA). Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35; Concut Pty Ltd v Worrell [2000] HCA 64; 75 ALJR 312, referred to. iii) ACPM is entitled to damages in accordance with the calculations by the primary judge, based on the assumption that the Agreement expired on 29 April 2025: [350]-[355] (Bathurst CJ); [360] (Payne JA); [361] (McCallum JA).

Judgment

1. BATHURST CJ: This is an appeal and cross-appeal from a decision of a judge of the Equity Division of the Court concerning the termination of an Agreement between the appellant, Australia City Properties Management Pty Ltd (ACPM or the Caretaker) and Guihua Lu of the one part, and the respondent/cross-appellant, the Owners of Strata Plan No 65111 (the Owners Corporation or OC) of the other part, whereby ACPM agreed to provide caretaking services for the OC at premises at 569 George Street, Sydney (the Premises).
2. The Agreement (the Caretaker Agreement or the Agreement) was entered into on 30 March 2001 for an initial term of ten years with three options to renew, each of five years' duration. The Agreement was varied by a Deed of Variation entered into on 23 March 2010 (the 2010 Deed) which, amongst other provisions, granted ACPM two further options of five years, thus extending the total term (including options) to 30 March 2036. A further Deed of Variation was entered into on 29 April 2015 (the 2015 Deed), which granted a further option expiring on 30 March 2041.
3. The primary judge held that having regard to the statutory regime which existed on 23 March 2010, the effect of the 2010 Deed was to limit the total term of the Caretaker Agreement (including options) to a period expiring on 23 March 2020. However, his Honour stated that the effect of the 2015 Deed was to extend the total period to 29 April 2025. Each of ACPM and the OC has appealed against this conclusion. ACPM contended that both the 2010 Deed and the 2015 Deed should be given their full effect, whilst the OC contended that the effect of the statutory regime was to limit the Caretaker Agreement to a period of ten years expiring on 23 March 2020. This is the subject of Issue 21 referred to below. As will be seen, the term of the Agreement is important in determining the extent of any relief to which ACPM may be entitled.
4. On 17 August 2019, the OC served ACPM with a Notice of Termination of the Caretaker Agreement. Of relevance are the following paragraphs in that letter: "The new strata committee of the Owners Corporation … noticed there are major defects in the active fire management system that raise serious safety concerns. The strata committee found that this is a result of insufficient funds has [sic] been allocated towards the upgrade and regular maintenance of equipment due to your lack of guidance to the previous strata committee. In addition, there has been no fire evacuation plan drawn up, no assembly points assigned and no exit strategy plan for all occupants including people with disability. Your company has been the Building Manager for in excess of 18 years. The residents and the building have been placed at risk with potential loss of life should there be a fire situation. The strata committee must point out that under the caretaker agreement, Schedule 2 Clause 1(n), you are responsible to obtain sufficient fire safety and operational training in order to competently provide proper and professional guidance to the strata committee past or present. The Committee has since discovered you have been billing the Owners Corporation for Cleaning Contractors and Security Contractors the costs for which are contained in your Caretaker Services Agreement. … Given the 18 years your company has been managing the Building, its current state of disrepair, the current health, safety and fire issues and the complete lack of proper management, the strata committee has formed the opinion the Caretaker has been guilty of gross misconduct and/or gross negligence in performing its responsibilities. … As per the terms of the caretaker's agreement 10.5 the owners corporation is IRREVOKABLY appointed attorney for the caretakers lots, being lot 179 of SP65111 which consists of the reception and office room behind. Accordingly, entry upon lot 179 will be a trespass. Your company, its employees, contractors and agents are no longer permitted to enter Lot 179 and any plant room. Entry upon lot 179 or any restricted plant room area will be a trespass."

The Caretaker Agreement

1. As I indicated, the Caretaker Agreement was entered into on 30 March 2001. Clause 1 of the Agreement provided that the Caretaker was engaged to perform the duties referred to in Sch 2 of the Agreement in a conscientious and workmanlike manner so as to permit the building to be enjoyed to a standard appropriate to a residential development.
2. Schedule 2 set out the obligations of ACPM in detail. Clause 1 of Sch 2 set out what were described as general duties. They included where the Caretaker is a corporation, ensuring that the principal person performing the duties of Caretaker resides in a lot in the building and permitting its substitute from time to time to reside in that unit (cl 1(d) of Sch 2). ACPM acquired Lot 162 in the Strata Plan for this purpose. The right to this unit on termination has not arisen on the appeal.
3. Clauses 1(f), 1(h), 1(n) and 1(s) of Sch 2 are of relevance in the appeal. They were in the following terms: "1. GENERAL DUTIES The Caretaker shall by its employees, contractors or agents: … (f) Report promptly on all things requiring repair and on all matters creating a hazard or danger of which the Caretaker has notice and take remedial action where practicable. … (h) So far as this duty may be consistent with the intentions of the parties to this Agreement, and subject to the approval of the Owners Corporation from time to time, make contracts at the expense of the Owners Corporation for water, electricity, gas, fuel, telephone and other necessary services or such of them as the Owners Corporation deems advisable for the Owners Corporation and place orders for such materials and supplies as are necessary to properly maintain the Complex and all machinery and appurtenances thereto at the expense of the Owners Corporation and the Caretaker shall be under a duty to secure for and credit to the Owners Corporation any discounts, commissions or rebates obtained as a result of such purchases. … (n) Undertake and complete all relevant fire safety and operational training courses, regularly inspect the fire fighting equipment installed within the Complex, arrange for the inspection of such equipment by the Chief Fire Officer at least once in every period of twelve (12) months and arrange for any maintenance or other works with a view to keeping such equipment in efficient working condition in accordance with the Fire Safety Act 1984 provided however that the charges relative to such inspection and out-of-pocket expenses required to keep the said equipment in order shall be borne by the Owners Corporation. … (s) If the Owners Corporation chooses to operate an energy management system for the common areas, the Caretaker shall read all Owners Corporation electricity meters and forward details to the Owners Corporation for processing."

The 2010 Variation

1. There were in fact two Deeds of Variation entered into on 23 March 2010. The first could be described as clarifying that the substantive parties to the Agreement were the OC and ACPM, not Guihua Lu who was referred to in the Caretaker Agreement as a party. That deed also made it clear that the Caretaker Lots were Lots 162 and 179. It also acknowledged that the remuneration payable to the Caretaker at that time was $609,250 per annum plus GST.
2. The second Deed of Variation, which I have described as the 2010 Deed, granted two additional options bringing the total term out to 30 March 2036. It also varied the market review provisions in cl 3.3 by providing that on any review the remuneration should not be less than that received by the Caretaker in the previous year (the ratchet clause). It should be noted that the 2010 Deed provided that the OC and the Caretaker ratified and confirmed the terms of the Caretaker Agreement as varied by the 2010 Deed.

The 2015 Deed

1. As I indicated, the 2015 Deed provided for an additional option term. It also ratified and confirmed the terms of the Caretaker Agreement as varied by the 2015 Deed.

The statutory context

1. The strata scheme at the time of entering into the Caretaker Agreement was governed by the provisions of the Strata Schemes Management Act 1996 (NSW) (the 1996 Act). Part 4A of Ch 2 of the 1996 Act was introduced by the provisions of the Strata Schemes Management Amendment Act 2002 (NSW) (the 2002 Amending Act) which took effect on 10 February 2003 (the 2002 Amendments). The 1996 Act, among other matters, sought to regulate caretaker agreements. Section 40A of the 1996 Act defined a caretaker in the following terms: "40A Who is a caretaker? (1) A caretaker is a person who is entitled to exclusive possession (whether or not jointly with another person or other persons) of a lot or common property and assists in exercising any one or more of the following functions of the owners corporation for the strata scheme concerned: (a) managing common property, (b) controlling the use of common property by persons other than the owners and occupiers of lots, (c) maintaining and repairing common property. (2) However, a person is not a caretaker if the person exercises those functions only on a voluntary or casual basis or as a member of the executive committee. (3) A person may be both a caretaker and an on-site residential property manager."
2. Section 40B of the 1996 Act dealt with the appointment of a caretaker. Of relevance are ss 40B(1) and (2), which were in the following terms: "40B How is a caretaker appointed? (1) A caretaker is required to be appointed by an instrument in writing (a caretaker agreement) executed before or after the strata scheme commenced by the caretaker and: (a) by the original owner, if executed before the strata scheme commenced, or (b) under the authority of a resolution passed at a general meeting of the owners corporation of the strata scheme concerned, if executed after the strata scheme commenced. (2) Unless it expires or otherwise ceases to have effect earlier, a caretaker agreement (including any additional term under any option to renew it) expires: (a) at the conclusion of the first annual general meeting of the owners corporation, if the agreement was executed by the original owner, or (b) when 10 years have expired after it commenced to authorise the caretaker to act under it, in any other case."
3. Section 183A is also relevant. It provided as follows: "(1) The Tribunal may make an order with respect to a caretaker agreement: (a) terminating the agreement, or (b) requiring the payment of compensation by a party to the agreement, or (c) varying the term or varying or declaring void any of the conditions of the agreement, or (d) confirming the term or any of the conditions of the agreement, or (e) dismissing the application. (2) An order under this section may be made only on an application made by the owners corporation for the strata scheme concerned on one or more of the following grounds: (a) that the caretaker has refused or failed to perform the agreement or has performed it unsatisfactorily, (b) that charges payable by the owners corporation under the agreement for the services of the caretaker are unfair, (c) that the agreement is, in the circumstances of the case, otherwise harsh, oppressive, unconscionable or unreasonable. (3) Any amount ordered to be paid under this section may be recovered as a debt."

The electricity breach

1. The matters raised by the parties in respect of the electricity breach comprised Issues 1 to 5 of the agreed issues. They are as follows: "1 Was the learned trial judge wrong to find that there was an implied term of the Caretaker Agreement that the Appellant (ACPM) not benefit itself by incurring substantial debts payable by the Respondent (OC) through the use of electricity provided to the common property, at least without disclosing this and obtaining consent and/or taking reasonable steps to indemnify the OC? Appeal ground 1(a) 2 If there was such an implied term, was the learned trial judge wrong to find that it was breached by ACPM? Appeal ground 1(b) 3 Was the learned judge wrong to have regard to the statement that had been made by Mr Wang in November 2016 regarding payment for electricity, and was the learned judge wrong to find that Mr Wang had made a dishonest and false statement about who was paying for electricity? Appeal ground 1(c) 4 If ACPM breached the implied term, was the learned trial judge wrong to find that this conduct amount [sic] to gross misconduct in performing its responsibilities within the meaning of clause 9.3(iv) of the Caretaker Agreement? Appeal ground 1(c) 5 Did ACPM's use of electricity also constitute a repudiatory breach of the Caretaker Agreement? Cross appeal ground 4(a)"
2. It is convenient to deal with Issues 1 to 4 together and then deal with Issue 5 after the other alleged breaches have been dealt with.

The primary judgment

1. The primary judge stated that ACPM had never paid for any electricity supplied to Lot 179 and that there was no separate meter in respect of that supply. He concluded that the cost of such electricity over an 18 year period "may be presumed to be substantial" having regard to the fulltime nature of the Caretaker's obligations and the electrical appliances used in Lot 179 which included computer equipment and an air conditioning unit.
2. The primary judge referred to the evidence of Mr Robin Wang (Mr Wang), a director of ACPM who was responsible for the management of the obligations of ACPM under the Caretaker Agreement since 2005. Mr Wang's evidence was to the effect that he knew ACPM was not paying for electricity used in Lot 179. The primary judge noted that Mr Wang was not prepared to concede that he knew the OC was paying for it, although his evidence subsequently indicated that he knew of that fact.
3. The primary judge also referred to an exchange of emails between Mr Wang and a Ms Amy Wang of November 2016. Mr Wang emailed Ms Wang on 2 November 2016 requesting an increase in payment for some additional security services. The email was in the following terms: "I also forgot to mention in my last email that the Security Royal Corp also uses our offie [sic] facilities during the hours of their work. This includes uses of water, printing costs; electricity and gas since they're in the reception during the hours of their work. The prices of utility has also gone up in the past few years. All these costs which we're currently paying for and have not been factored in the second security and overcrowding security rate."
4. Ms Wang, who at the time was a member of the Strata Committee of the OC, responded to Mr Wang on 3 November making the following inquiry: "Just a dumb question who owns the space in the reception area (i assume it's common property) and how and who are we recovering the occupancy costs from currently?"
5. Mr Wang replied in the following terms: "My Amy [sic] owns the reception space which is lot 179 and is currently paying strata levees [sic] and all associated utility costs on it."
6. It was accepted that "My Amy" was intended to be read "My company".
7. The primary judge stated that he regarded the evidence of Mr Wang on this topic as "unimpressive". He reached the following conclusions: "[162] The evidence given by Mr Wang on this topic was unimpressive. He deposed that he had an understanding that the Caretaker was not required to pay for electricity for Lot 179 'due to the presence of the air-conditioning unit within Lot 179 and due to ACPM providing caretaking services from Lot 179'. However, there is no apparent basis for such an understanding, and in the witness box he did not seek to uphold it. I do not accept that Mr Wang ever had an understanding that for any particular reason (including the terms of the Agreement), the Caretaker was not required to pay for the electricity supplied to Lot 179. Neither do I accept that he ever assumed that the Caretaker was paying for the electricity. I consider that not only did Mr Wang assume that the Owners Corporation was paying for the electricity, he must have thought that it was almost certain that was in fact the case. I think that in these circumstances Mr Wang was content to stay silent and continue to accept the benefit of the free electricity, even though he did not understand that the Caretaker had an entitlement to the benefit. It no doubt suited Mr Wang that no one from the Owners Corporation ever raised the issue. Moreover, when eventually faced with Ms Wang's query in November 2016, Mr Wang did not respond in a truthful manner but instead stated, falsely, that the Caretaker was paying 'all associated utility costs' on Lot 179. The earlier email sent by Mr Wang makes it clear that the utilities under discussion included electricity. That email itself suggests that the Caretaker was paying for electricity supplied to the office (i.e. Lot 179). [163] I think that when Mr Wang sent his email on 3 November 2016 in response to Ms Wang he must have known that he was hiding the true position in relation to electricity."

Issue 1

1. Issue one was whether the primary judge was wrong to find that there was an implied term of the Caretaker Agreement that ACPM not benefit itself by incurring substantial debts payable by the OC through the use of electricity provided to the common property, at least without disclosing this and obtaining consent and/or taking reasonable steps to indemnify the OC. In its written submissions, ACPM submitted the conditions necessary to ground the implication of a term were not satisfied: 1. the term was not reasonable and equitable, because it required that ACPM either pay for or not use electricity supplied to Lot 179 to power an air-conditioning unit which provided air-conditioning to the common property entrance lobby, foyer and lift lobby areas of the ground floor in circumstances where the provision of such air-conditioning was for the benefit of the OC and lot owners and did not form part of the services required to be provided by ACPM under the Caretaker Agreement; 2. it was not necessary to give business efficacy to the contract. The Caretaker Agreement was said to effective without the term. ACPM argued that, having regard to the purposes for which electricity was to be used at Lot 179 (each of which conferred a benefit on the OC and the lot owners), it would be reasonable for the OC to bear the burden of paying for the electricity supplied to Lot 179; 3. it was not so obvious that it goes without saying, given that the contemplated services to be powered by electricity at Lot 179 were all beneficial to the OC and the lot owners (and the air-conditioning was only or primarily beneficial to the OC and lot owners and was not beneficial to ACPM in any material way); and 4. it was not capable of clear expression because it did not draw any distinction between the electricity supplied to Lot 179 to power the air-conditioning provided to the common property (a service benefitting the OC but not required to be provided by ACPM under the Caretaker Agreement), electricity supplied to Lot 179 for the purpose of powering the equipment used in the provision of the caretaker services, and electricity supplied to Lot 179 for the purpose of powering equipment used in any leasing and sales agency business.
2. ACPM also pointed to the vagueness of the concept of "incurring substantial debts" and submitted there was no basis for assuming that ACPM at the time of the entry into the Caretaker Agreement had any knowledge about who would be liable to pay for the electricity supply.

Issue 2

1. If there was such an implied term, Issue two was whether the trial judge was wrong to find that it was breached by ACPM.
2. The primary judge found that the electricity supplied to Lot 179 must have been "substantial" having regard to the evidence of electrical appliances used in Lot 179 "which included computer equipment and an air-conditioning unit" (PJ [151], [167]; see [44] above).
3. In oral submissions, senior counsel for ACPM submitted that apart from the air conditioner, there was not much left that would consume a great deal of electricity.
4. In written submissions, the OC submitted that the unchallenged evidence demonstrated that ACPM had been using electricity for its business in Lot 179 for almost 20 years. Electricity was used for many things within Lot 179 including lighting, kitchen appliances and a wide array of electronic equipment including computers, monitors and communications systems. The lot was used on a fulltime basis, including on weekends. The OC submitted that the trial judge was correct to conclude that this would be a "substantial" amount of electricity, which would cost a "substantial" amount of money.
5. In oral submissions, senior counsel for the OC submitted that there was no sound basis to overturn the finding by the primary judge that the amount of electricity consumed was "substantial".
6. In oral submissions in reply, senior counsel for ACPM submitted that the OC had conceded that ACPM using electricity in Lot 179 for the air conditioning would not be a breach of the implied term. He also submitted that this concession removed the basis for the primary judge's finding that the amount of electricity consumed was "substantial", as this conclusion was based on the inclusion of the electricity used for the air conditioner in Lot 179.
7. Senior counsel for ACPM in reply also contended that the evidence of other electrical appliances in the lot did not provide a proper foundation for an inference that "substantial" electricity debts were incurred, and that in any event, those electrical appliances were for the mutual benefit of ACPM and the OC.

Issue 3

1. Issue three was whether the primary judge was wrong to have regard to the statement that had been made by Mr Wang in November 2016 regarding payment for electricity, and whether the primary judge was wrong to find that Mr Wang had made a dishonest and false statement about who was paying for electricity. The false statement comprised an email from Mr Wang to a member of the Strata Committee asserting that ACPM in fact paid for electricity to Lot 179 (see [48] above).
2. The primary judge found that ACPM's breach of the implied term was compounded in November 2016 by Mr Wang's false statement that ACPM was paying "all associated utility costs" on Lot 179. ACPM submitted that the claim pleaded by the OC relied upon alleged breach of the Caretaker Agreement by using electricity without the consent of the OC, and did not include any claim that ACPM engaged in gross misconduct by making a false statement that it was paying electricity costs for Lot 179. Nor did the primary judge make a finding, it was submitted, that the false statement was a basis for a finding of gross misconduct or gross negligence, independently of the implied term.
3. Senior counsel for ACPM also submitted that if the implied term was not to be implied into the Agreement, and there was therefore no breach, no compounding of breach would arise from Mr Wang's conduct.
4. Senior counsel for ACPM also stated in oral submissions that there was never any pleaded reliance on a false statement as a basis for termination.
5. The OC submitted that Mr Wang's conduct was directly relevant to the OC's pleading that ACPM's improper use of electricity constituted gross misconduct and/or gross negligence.
6. ACPM submitted that, in any event, the primary judge's characterisation of Mr Wang's false statement as "deliberate deception" as opposed to a mistake based on an incorrect assumption was unjustified, having regard to the terms of the email and the "ample basis" for an understanding by Mr Wang that ACPM was not required to pay for electricity. It was submitted that the finding against Mr Wang was based on the erroneous assumption by the primary judge that there was no basis for Mr Wang's understanding, when in fact the basis for this included the fact that the air conditioning unit in Lot 179 provided air conditioning to the common property owned by the OC.

Issue 4

1. Issue four was whether, if ACPM breached the implied term, the primary judge was wrong to find that this conduct amounted to gross misconduct in performing its responsibilities within the meaning of cl 9.3(iv) of the Caretaker Agreement.
2. ACPM submitted (and the OC agreed) that for "gross negligence" and "gross misconduct", conduct that is repugnant to the continuation of the relationship is required. It submitted that termination under cl 9.3(iv) is available only where there is serious and flagrant improper conduct or negligence by ACPM in the performance of its responsibilities under the Caretaker Agreement which a reasonable person would regard as justifying the OC no longer being bound to continue with the long-term Agreement without first issuing a default notice under cl 9.3(i).
3. In oral submissions, senior counsel for the OC submitted that if there was an implied term, it was breached, and that "if his Honour's finding as to the substantial character of that breach is upheld, that alone would justify a finding of gross misconduct". He submitted that Mr Wang's deception of the Strata Committee exacerbated this "in a significant way".

Consideration

1. Before dealing with the implied term it is necessary to consider if the Caretaker Agreement conferred a right on ACPM to charge the OC for electricity consumed at Lot 179.
2. Clause 4 of the Agreement makes it clear in my opinion that there is no obligation on the OC to reimburse ACPM for expenses incurred in providing the leasing and sales agency services referred to in that clause (see [22] above). This would in my opinion include the cost of utilities including electricity.
3. Expenses are dealt with in cl 11. That clause refers to both leasing and caretaking responsibilities (see [29] above). Caretaking responsibilities include matters which would inevitably involve the use of electricity such as cleaning the common property (Sch 2 cl 1(a)) and vacuuming the lifts and entry areas (Sch 2 cl 2(a) and (b)). It should be noted that Sch 2 cl 2(j) provides that all equipment, other than consumables, required to perform cleaning duties are to be purchased by the Caretaker at the Caretaker's expense.
4. The principles surrounding the construction of commercial contracts are well established. The contract is to be construed by what a reasonable person would understand it to mean. This requires consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or object to be served by the contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd at [46]-[52]; Victoria v Tatts Group Ltd [2016] HCA 5; 90 ALJR 392 at [51]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] and [78].
5. Viewed in context, I do not think the expression "products" in cl 11 encompasses electricity. It is difficult to describe electricity as a product, and its inclusion as an expense in cl 11 would lead to unusual results including the calculation and levying as a separate charge on the Caretaker for electricity consumed in vacuuming the lift area and the common property or other associated activities on the common property requiring the use of electricity. Such a result in my opinion was not what the clause was intending to encompass.
6. That does not mean that the OC is required to pay for electricity associated with the use of Lot 179. There are a number of matters which compel the conclusion that it is not required to do so. First, there is nothing in the Caretaker Agreement which requires it. Second, it must be borne in mind that Lot 179 is a separate lot in the strata scheme, owned by ACPM. In the normal course it would be expected that the owner of the lot would pay for electricity consumed at the lot for the purpose of lighting, kitchen appliances, computer equipment or other appliances. Third, in respect of an activity carried out for the Caretaker's own commercial benefit, namely, the provision of leasing and sales agency services, cl 4 makes it clear that the OC is not liable for expenses incurred in connection with the carrying out of those activities.

The fire safety breach

1. The fire safety issues concern the alleged failure by ACPM to promptly and formally report perceived defects in the Premises' fire alarm system, referred to as the Emergency Warning and Intercommunication System (EWIS).
2. This aspect of the appeal and cross-appeal involve the following agreed issues: "6 Was the learned trial judge wrong to find that ACPM's employees had concluded that there was an unresolved issue concerning faults in the EWIS between May 2017 and July 2018? Appeal ground 2(a) 7 Was the learned trial judge wrong to find that ACPM did not report to the strata committee about issues with the EWIS until after the July 2018 testing? Appeal ground 2(a), Notice of Contention ground 2 8 Was ACPM also required by any of: (a) clause 1(f) of Sch 2 of the Caretaker Agreement; (b) clauses 1(a), (j), (k), (l), (n), and/or (ad) of Sch 2 of the Caretaker Agreement and/or in the performance of its responsibilities pursuant to the Caretaker Agreement; to report the issues with the EWIS to the strata committee? Appeal ground 2(b), Notice of Contention ground 2(b) 9 Was the learned trial judge wrong to find that ACPM's failure to report unresolved issues with the EWIS amounted to gross misconduct or gross negligence within the meaning of cl 9.3(iv) of the Caretaker Agreement? Appeal ground 2(b) 10 Did ACPM's conduct in relation to the EWIS constitute a repudiatory breach of the Caretaker Agreement by ACPM? Cross-appeal ground 4(b)"
3. As with the electricity issues, it is convenient to deal with Issues 6 to 9 together and then to deal separately with Issue 10.

The primary judgment

1. The primary judge described the essence of the complaint as "that despite becoming aware in the course of the annual fire safety inspections in May 2017 and July 2018 of faults in the EWIS, the Caretaker failed to take any action or inform the Owners Corporation of the existence of the problems".
2. The primary judge recorded that on about 29 May 2017, Mr Ching-Yu Hsueh (Mr Hsueh, who was the primary ACPM employee tasked with carrying out caretaking services at the Premises) accompanied personnel of Integrated Fire Solutions Pty Ltd (IFS) who carried out annual testing of the fire safety system including the EWIS. He observed instances of malfunction. The primary judge noted that Mr Hsueh gave evidence that he was told that the system was "not responding as it is supposed to do" and that "the alarm isn't going off and the PA isn't working". The primary judge noted that Mr Hsueh gave evidence that shortly thereafter Mr Papadimitriou, a director of IFS, said to him, "It seems to be doing what it is supposed to do. Let's get the test done and we will need to look into maintenance of the EWIS system".
3. The primary judge noted that in cross-examination, Mr Hsueh agreed that after witnessing the faults in May 2017 he had concerns that the EWIS was not operating reliably and that it was an important matter to look into. He referred to the evidence of Mr Hsueh that he spoke to the Strata Committee about the faults.
4. The primary judge also noted that a Mr Tsiprin-Reznik, a director of ACPM, was present for some of the 2017 testing and recalled one of the IFS personnel saying that the system was "not responding". He noted that Mr Tsiprin-Reznik's evidence in cross-examination was that he did not do anything about it because IFS had "cleared the fault".
5. The primary judge noted that on 23 June 2017, Mr Hsueh sent an email to members of the Strata Committee referring to the fire safety inspection. He noted that no reference was made to any faults with the EWIS and that it was not mentioned in any subsequent Caretaker reports to the Strata Committee.
6. The primary judge referred to the evidence of Mr Hsueh that between May 2017 and November 2018 he had conversations with Mr Papadimitriou, who told him that IFS was unable to find a fault in the EWIS, that it did not seem to be playing up regularly and that IFS needed to continue to monitor it to determine the cause of the fault.

Issues 6 and 8

1. Issues six and eight raise overlapping issues. In written submissions ACPM submitted that cl 1(f) of Sch 2 of the Agreement did not require a report of matters the Caretaker believed required repair or created a hazard or danger, but which did not in fact require repair or create such a hazard or danger.
2. ACPM referred to the fact that IFS issued fire safety certificates certifying that the EWIS has been found to be properly implemented and capable of performing to the specified standards. The submissions noted that after Mr Hsueh requested IFS check the system, IFS stated it was unable to find a fault.
3. The submissions also pointed to the fact that in 2019 the OC appointed a new fire safety contractor who determined the EWIS had no faults, as a consequence of which the contract for its replacement was cancelled. It submitted that in these circumstances there was no breach of cl 1(f).
4. At the hearing, senior counsel for ACPM referred to the fact that in March 2019 quotes were arranged by ACPM for the replacement of the EWIS. He referred in particular to a quotation dated 13 March 2019 for $77,456 to replace the system and another submitted by IFS on 20 March 2019 for a slightly lesser amount which was accepted by ACPM.
5. Senior counsel for ACPM referred to the fact that subsequently on 11 September 2019 another fire safety consultant retained by the OC stated that the EWIS was in "good working order with no faults". He noted that on 17 September 2019 the Senior Strata Manager for the OC emailed Mr Papadimitriou at IFS, stating that no faults were found in the equipment and the OC would not be paying for a replacement. Mr Papadimitriou's response, rejecting the findings and stating that for the past two years the system had been "temperamental and inoperable at times", apparently was not acted upon.
6. Senior counsel for ACPM also submitted that the relevant clause said to have been breached required that there be something which constitutes a hazard or danger and that the OC had the onus of proving such a matter. He stated that in considering the issue, the primary judge ignored the evidence that the EWIS was in fact in good working order, and that there was no basis for finding that there were clearly problems with it.
7. In written submissions, the OC submitted that cl 1(f) of Sch 2 of the Caretaker Agreement applies to "hazards" or "dangers", which includes a perceived situation of risk. It submitted that ACPM's construction of the provision makes nonsense of the Caretaker's duties to the extent that it would mean a Caretaker who honestly perceives that there is a serious hazard or danger is not obliged to report it until it is objectively verified. It submitted that the point of the provision was that the OC could trust the Caretaker to make a judgment about what should or should not be done to protect residents from dangers and hazards.

Issue 7

1. The next issue related to the timing of the report. ACPM contended that the primary judge was in error in concluding Mr Hsueh first orally reported the apparent fault after the 2018 fire safety report rather than in 2017 (see [122] above).
2. In both its written submissions and orally ACPM relied upon the following evidence of Mr Hsueh in support of its contention that an oral report was provided to the OC in 2017: "Q. Given how important an emergency warning system is and an intercommunication system is within a large building like this, you must have thought that that was a very important matter to look into? A. True. Q. Did you raise it immediately with the strata committee? A. I have verbally spoken to the strata committee about faults occurred. I have sent emails after I have confirmed the faults being continued and, yes, I have report this to the committee. … Q. Do you accept that during 2017 you didn't do anything to bring to the attention of the strata committee that you had witnessed these malfunction tests in May 2017? A. No, I don't accept. Q. You say that's because you gave some verbal indication? A. I have and by ways of formality reported the occurrence to the strata committee. I have reported the incident through other emails and the building management report."
3. The submission noted that Mr Hsueh was accepted as an "honest and impressive witness" and that there was in those circumstances no factual basis for concluding it was likely that Mr Hsueh would have been content to wait until July 2018 to see if anything came from the monitoring of the system. It was also submitted that cl 1(f) of Sch 2 of the Agreement did not mandate a written report.
4. Senior counsel for ACPM referred to that portion of the cross-examination of Mr Hsueh to which I have referred at [139] above. He submitted that Mr Hsueh did not accept he failed to report in 2017. He accepted, however, that Mr Hsueh did not report the fault formally, but reiterated that cl 1(f) did not require formal reporting. He accepted that in an email of 23 June 2017 Mr Hsueh informed the Strata Committee of matters that needed to be rectified as a result of the fire safety inspection and that the email contained no reference to the EWIS.
5. The OC submitted that if Mr Hsueh had given an oral report to the Strata Committee in 2017, "one would expect to see some documents referring to it". Its submissions referred in that context to the email of 23 June 2017 relating to the fire safety inspection which made no mention of the problem with the EWIS. The submission also referred to the absence of any reference to an oral report in the minutes of the Strata Committee.

Issue 9

1. The next issue was whether the conduct which occurred constituted gross misconduct or gross negligence. ACPM submitted that even if the failure to report constituted a breach of cl 1(f) of Sch 2, it did not fall within cl 9.3(iv) of the Caretaker Agreement as being gross misconduct or gross negligence.
2. ACPM referred to the apparent acceptance by the primary judge of the evidence of Mr Hsueh that he did not have enough knowledge about what had happened during the testing of the EWIS and that he was reliant on the direction of IFS (PJ [205]).
3. In that context, ACPM referred to the evidence of Mr Hsueh to the effect that he was relying on the fire safety contractor's direction as to what should be done, and that if the contractor had deemed it was urgent he (Mr Hsueh) would have treated it as urgent.
4. ACPM also referred to the fact that by the time the Agreement was terminated in August 2019 there was a contract to replace the EWIS in place.
5. It was submitted in that context that a failure to report the Caretaker's suspicions could not be characterised as gross negligence. It was submitted that gross negligence referred to "serious and flagrant improper conduct or negligence which a reasonable person would regard as justifying the OC no longer being bound to continue with the long-term Agreement".
6. At the hearing, senior counsel for ACPM emphasised that by the time there was an exercise of the right of termination the conduct had been rectified and that there was only a limited failure (if any) to report the matter.
7. The OC noted that gross negligence has been described as "negligence to an extreme degree", and gross misconduct in an employment context as "conduct that is so seriously in breach of the contract that by standards of fairness and justice the employer should not be bound to continue the employment".
8. The OC submitted that the evidence of Mr Hsueh was clear that he had perceived serious problems with the EWIS, and that Mr Tsiprin-Reznik had also concluded the system was not reliable, something which was deeply concerning.
9. The OC submitted that if Mr Hsueh and Mr Tsiprin-Reznik did not understand what was going on, they should not have been involved in fire safety issues at all. It submitted that the fact that IFS was prepared to sign the fire safety certificates whilst maintaining there was a problem exacerbated the position. It submitted that the OC had not waived the breach.

Consideration

1. I agree with the submissions of the OC that it is not correct to say that the obligation in cl 1(f) is only enlivened when, as a matter of objective fact, the issue in respect of which reporting is required is in fact a hazard or a danger. One of the reasons for the obligation to report is to enable matters perceived by the Caretaker to be a hazard or a danger to be investigated and ameliorated to the extent necessary.
2. Further, irrespective of the conclusion reached by the incoming Strata Committee not to replace the system, the fact remains that for a period in excess of a year the EWIS was operating in a manner which could fairly be described as unsatisfactory. The remarks of Mr Papadimitriou to which I have referred at [129] above are telling on this issue. A fire warning system which for two years had been "temperamental and inoperable at times" does present a hazard or a danger.
3. Whether or not a report is required to be in writing in order to comply with cl 1(f), it must in my view be sufficient to alert the OC to the particular hazard or danger. Irrespective of the time Mr Hsueh raised the issue with the Strata Committee, in the absence of any evidence of the content of the report and the vagueness of its timing it was not a report which could be said to meet the requirements of cl 1(f). It is not necessary in reaching that conclusion to decide whether the report was made in 2017 or 2018.
4. Nor is it relevant in considering whether there was a breach that a new fire safety consultant engaged by the OC apparently determined that the EWIS worked satisfactorily and that ultimately it was not replaced. As I indicated, the need for such a warning was to ensure that such an investigation took place and any failures identified be rectified.
5. It follows that the failure to warn the OC until November 2018, when Mr Tsiprin-Reznik informed the Strata Committee by email of 8 November that the fire control panel was playing up and needed to be replaced, constituted a breach of cl 1(f) of the Caretaker Agreement.
6. The question remains whether it was gross misconduct or gross negligence. In dealing with the electricity issues I have set out the approach of the courts in employment cases to circumstances where misconduct is of sufficient seriousness to justify summary dismissal. For conduct to constitute gross negligence in the context of the termination provisions, it seems to me that it would have to amount to an act or omission which was inimical to the contractual relationship as demonstrating an inability to exercise the judgment necessary to carry out important functions conferred on the employee or, as in this case, the Caretaker: see Gooley v Westpac Banking Corporation (1995) 129 ALR 628 at 636-637, 645. Generally speaking, it would amount to more than ill-advised conduct or an omission to act as a result of an error of judgment: see Rankin v Marine Power International Pty Ltd [2001] VSC 150; 107 IR 117 at [264].

The cl 18.2 issue

1. This matter was the subject of Issues 11 to 14. The issues are as follows: "11 Was the learned trial judge wrong to find that ACPM's breaches of clause 18.2 of the Caretaker Agreement did not constitute gross misconduct and/or gross negligence for the purposes of cl 9.3(iv) of the Caretaker Agreement? Notice of Contention ground 1 12 Did ACPM's breaches of clause 18.2 of the Caretaker Agreement constitute a repudiatory breach of the Caretaker Agreement? Cross appeal ground 4(c) 13 Were ACPM's breaches of clause 18.2 of the Caretaker Agreement inconsequential or immaterial because nominating for election to the Executive Committee did not cause Mr Wang or Mr Tsiprin-Reznik to be elected? Notice of Contention ground 1, cross appeal ground 4(c) 14 Was the learned trial judge wrong to find that entry into the April 2015 Deed of Variation, which provided a sixth option extending the term of the Caretaker Agreement (if exercised) between 2036 and 2041 was not caused by ACPM's breach of clause 18.2 of the Caretaker Agreement? Cross appeal ground 5(d)"
2. As with the issues with which I have already dealt, I will deal with the question of repudiation (Issue 12) separately.

The primary judgment

1. The primary judge stated there was no doubt that ACPM had breached cl 18.2. He identified that the difference between the parties as to the extent of the breaches related to the meaning of "office bearer" in cl 18.2. He noted the OC submitted that the expression referred to persons who offered themselves for election to the Strata Committee, whilst ACPM submitted it referred only to persons who offered themselves as chairperson, treasurer or secretary of that Committee.
2. The primary judge concluded that viewed in its contractual and statutory context, reasonable businesspersons in the position of the parties would understand the words to mean a member of the Strata Committee rather than only a chairperson, secretary or treasurer. He stated that whilst it was natural to think of those persons as office bearers, they are not in fact elected to those positions. He stated it was also natural to think of members of the Strata Committee as office holders or office bearers. He stated that this was supported by cl 1(al) of Sch 2, which required the Caretaker to be available to attend and report to the Strata Committee meetings. He stated that the evident purpose of cl 18.2 was to restrict the involvement of the Caretaker on the Strata Committee.
3. In these circumstances, the primary judge concluded that the conduct of Mr Wang in offering himself for election to the Strata Committee every year from 2005 to 2018 and the conduct of Mr Tsiprin-Reznik in offering himself for election in 2017 and 2018 contravened cl 18.2.
4. The primary judge, however, rejected the proposition that what occurred amounted to gross misconduct. He reached the following conclusion: "[128] Whilst these breaches should be regarded as amounting to misconduct on the part of the Caretaker, I would not conclude that they amount to gross misconduct such as would entitle the Owners Corporation on 17 August 2019 to terminate the Agreement pursuant to cl 9.3(iv). The expression 'gross misconduct' within cl 9.3(iv) should be construed in accordance with the ordinary meanings of the words used. A breach or breaches of the Agreement can be readily regarded as improper or wrongful conduct; if sufficiently serious and flagrant, the conduct may also be described as gross. However, the overall circumstances must be considered at the time the right to terminate is sought to be exercised. Here, the Owners Corporation must be taken to know of the conduct of Mr Wang and Mr Tsiprin-Reznik in offering themselves for election to the Executive Committee. The Owners Corporation was at the very least aware from March 2010, when the Deeds of Variation were executed, that Mr Wang was a director of the Caretaker. The Owners Corporation does not appear to have taken any action in response to Mr Wang's continued involvement as a member of the Executive Committee. It can be said that the Owners Corporation tolerated the situation over many years. In these circumstances, the seriousness and scale of the breaches, viewed as at 17 August 2019, does not in my view rise to the level of 'gross misconduct' within the meaning of cl 9.3(iv) of the Agreement."

Issue 11

1. Issue 11 was whether the trial judge was wrong to find that ACPM's breaches of cl 18.2 of the Caretaker Agreement did not constitute gross misconduct and/or gross negligence for the purposes of cl 9.3(iv) of the Caretaker Agreement.
2. The OC submitted that the commercial rationale and importance of cl 18.2 includes the fact that the Strata Committee, representing the OC, oversees the work of the Caretaker. It pointed out that ACPM regularly sought authorisation from the Strata Committee for further payments to be made to it including for building management and security services. The OC submitted that the capacity of the Strata Committee to oversee the activities of ACPM "is significantly impaired, if not rendered impossible, where individuals who have an interest in ACPM or are acting otherwise on its behalf, form part of the [Strata] Committee".
3. The OC submitted that the matters referred to in [128] of the primary judgment, particularly the statement that the OC had "tolerated" the breaches, did not lead to the conclusion that the breaches did not constitute gross misconduct.
4. The OC pointed to the following circumstances in support of this contention: 1. ACPM had no case at trial that the OC had waived the breaches; 2. There was no evidence from anyone at trial on behalf of the OC that they "tolerated" any breach, or that they knowingly consented to it; 3. The very fact of the breach of cl 18.2 meant that ACPM had undermined the ability of the Strata Committee to act in the best interests of the OC. It submitted it could be inferred that this was part of the reason for a lack of complaints about the breach. In particular, the OC submitted that the appointments to the Strata Committee of Mr Wang, Mr Di Bitetto and Ms Liu impeded the Committee from objectively assessing the legitimacy of ACPM's conduct. Mr Di Bitetto and Ms Liu were employees of ACPM. However, the primary judge's finding that their election to the Strata Committee was not in breach of cl 18.2 has not been challenged on the appeal.
5. The OC also submitted that "a repudiatory breach of contract, or gross negligence and/or gross misconduct, does not lack character as such because it is not the subject of contemporaneous complaint". That is correct, but in considering whether the conduct was repudiatory it is necessary to have regard to the right of termination for breach contained in cll 9.3(i) and 9.3(ii).

Issue 13

1. It was contended by ACPM that any breaches of cl 18.2 of the Caretaker Agreement were inconsequential or immaterial because nominating for election to the Strata Committee did not cause Mr Wang or Mr Tsiprin-Reznik to be elected.
2. In written submissions (on the cross-appeal), ACPM submitted that "the mere offering oneself for election to the [Strata] Committee does not result in a person being elected", and that voting by the lot owners at the Annual General Meetings was the "common sense cause" of Mr Wang's and Mr Tsiprin-Reznik's election. It submitted that therefore, "the breaches of clause 18.2 were not the effective cause of anything and can properly be characterised as breaches of the Caretaker Agreement with little consequence." It submitted that the relevant event "was the decision of the general meeting to elect Mr Wang and Mr Tsiprin-Reznik", and that this was an act of the OC itself or at least of the general meeting of the OC, not an act of ACPM.
3. In written submissions in reply, the OC submitted that this argument was "flawed" for the following reasons: 1. The breach of cl 18.2 (offering ACPM's directors for election) was a necessary cause of them being elected to the Strata Committee. It is not necessary to show that nomination alone was the sole or dominant cause of the loss; it is enough that its default was a cause of the loss; 2. The breaches of cl 18.2 were not of "little consequence" as without the nominations, election to the Strata Committee would have been impossible; and 3. ACPM's argument would render the contractual prohibition pointless and uncommercial. The very purpose of cl 18.2 was to ensure that ACPM's shareholders and directors were precluded from sitting on the Committee, particularly in circumstances where members of the OC were unaware of the fact that such nomination was prohibited. This issue would be compounded if representatives of ACPM were already members of the Committee, as this would impair the ability of the Committee to provide objective advice to the general meeting of the OC on this question.
4. Senior counsel for the OC stated that ACPM's submission on this point was "a somewhat perverse causation argument", and that "[p]utting yourself up for election is obviously a cause of you becoming a member but, in any event, becoming a member isn't the breach. The breach is putting yourself up for election".

Issue 14

1. This issue concerned whether the primary judge was wrong to find that entry into the April 2015 Deed of Variation, which provided a sixth option extending the term of the Caretaker Agreement (if exercised) between 2036 and 2041 was not caused by ACPM's breach of cl 18.2 of the Caretaker Agreement.
2. The OC contended that the 2015 Deed was only entered into as a result of a breach by ACPM of cl 18.2, as a result of which Mr Wang was a member of the Strata Committee. It submitted that if the OC had any liability to ACPM arising from the 2015 Deed, that liability would be offset by a claim by the OC for like amount for ACPM's breach of cl 18.2.
3. The OC submitted that the primary judge's finding (that the evidence did not establish the Strata Committee's precise role in putting forward the 2015 Deed for approval at the OC general meeting) overlooked ACPM's admission that the motion to approve that Deed was put forward by the Strata Committee.
4. The OC further submitted that the primary judge should have found that the Strata Committee would not have proposed the motion if Mr Wang was not a member. It stated that the request for the extension came from ACPM, and that the 2015 Deed only benefitted ACPM.
5. In oral submissions, senior counsel for the OC stated that at the time the resolution was proposed, Mr Wang and Mr Di Bitetto were members of the Strata Committee. He pointed to ACPM's admission that the Strata Committee put forward the resolution. He submitted that the variation made in the 2015 Deed was entirely in ACPM's favour, and that the Court could infer that that was a result of Mr Wang being on the Strata Committee.
6. Senior counsel for the OC submitted that if the Court accepted his argument that the entry into the 2015 Deed of Variation was caused by the breach of cl 18.2, the consequence would be that any liability of the OC from the extension would be offset by damages on the cross-claim.
7. In written submissions, ACPM argued that the OC's contention on this point should be rejected. It submitted that ACPM, as a lot owner, was entitled to require inclusion of a motion to vary the Caretaker Agreement in the agenda for the April 2015 Annual General Meeting (pursuant to cl 36 of Sch 2 of the 1996 Act). It submitted that the Strata Committee was therefore required to include the motion on the agenda for the Annual General Meeting because it had been requisitioned to do so by ACPM. As such, it stated that the OC's contention that the resolution would not have been proposed but for ACPM's breach of cl 18.2 was not supported by the evidence.

Consideration

1. Issues 11 and 13 are related. On the one hand, the OC contends that the primary judge erred in concluding that ACPM did not engage in gross misconduct in nominating its directors for election to the Strata Committee (Issue 11). On the other hand, ACPM contends that the breach was inconsequential because nomination for election to the Strata Committee did not cause Mr Wang or Mr Tsiprin-Reznik to be elected (Issue 13). It is convenient to deal with both these issues first.
2. Clause 18.2 prohibited any shareholder or director of ACPM from offering himself (or herself) for election to the Strata Committee. It is a necessary pre-condition to such election that a person nominate himself or herself for election. If ACPM's contention was correct it would follow that any breach would be inconsequential.
3. Further, the clause must be read in the context of the Caretaker Agreement as a whole, and in particular cl 18.1. It is evident that the purpose of this clause was to ensure that instruction to and supervision of the Caretaker's activities be conducted by persons independent of ACPM. That purpose is undermined if persons associated with ACPM are able to sit on the Strata Committee.
4. In those circumstances I do not think the breach could be described as inconsequential.
5. So far as Issue 11 was concerned, although there was no waiver of breaches of cl 18.2 there can be little doubt that both the Strata Committee members and the representative of the Strata Manager who attended Annual General Meetings at which Mr Wang was nominated were aware of his position with ACPM. Although Mr Wang only said at Annual General Meetings that he was a representative of ACPM and did not state he was a director, the fact of such disclosure is relevant to the issue of whether what occurred constituted gross misconduct.
6. Further, although it is true Mr Wang did not abstain from voting on some matters affecting the interests of ACPM, the only allegations of misuse of power were the misuse of his position as a member of the Strata Committee in propounding the 2015 Deed and misuse of proxies, each of which were rejected by the primary judge (PJ [129], [135]-[139]). His findings in respect of the misuse of proxies was not challenged and I have concluded that there was no misuse of position in respect of the entry into the 2015 Deed (see [209]-[210] above and [222] below). Thus there was no finding that Mr Wang or Mr Tsiprin-Reznik used their position on the Strata Committee to obtain an improper advantage for themselves or ACPM.

Repudiation, ratification and the consequences of termination

1. These matters concern Issues 5, 10 and 12 which I have set out respectively at [42], [109] and [166] above. The additional issues are Issues 15 to 18 and 20 which are in the following terms: "15 Even if the OC had a right to terminate the Caretaker Agreement because of ACPM's gross misconduct or gross negligence, or repudiatory breach of contract, did the OC itself repudiate the Caretaker Agreement by failing to nominate a person to purchase 'the Caretaker-Management Rights' for fair market value, pursuant to clause 10 of the Caretaker Agreement? Appeal ground 3(a), cross appeal ground 2 16 Is it open to ACPM to contend on appeal that it had an entitlement under cl. 10 of the Caretaker Agreement to have a nominee purchase the Caretaker-Management Rights for value, having regard to ACPM's pleadings and case at trial? Appeal ground 3(a) 17 Even if the OC had a right to terminate the Caretaker Agreement because of ACPM's gross misconduct or gross negligence, or repudiatory breach of contract, did the Executive Committee of the OC itself repudiate the Caretaker Agreement by issuing a notice of termination and/or taking steps prior to the General Meeting of the OC approving of the termination? Appeal ground 3(b) 18 Did the OC validly ratify the termination of the Caretaker Agreement on 17 August 2019 by obtaining general meeting authorisation on 31 January 2020? Appeal ground 4, Notice of Contention ground 4 … 20 Does the Caretaker Agreement contain an implied term that, if the agreement is terminated for any reason or if the OC accepts a repudiatory breach of the agreement by ACPM, ACPM is to sell lot 179 to a person nominated by the OC on reasonable terms, to be determined by reference to the process in cl 10.2 of the Caretaker Agreement? Cross appeal ground 3"

The grounds of appeal

1. Although the issues provide a useful mechanism to consider the matters raised, to understand the full extent of those issues it is necessary to have regard to the relevant grounds of appeal, notice of contention and grounds of cross-appeal.
2. Grounds of appeal 3, 4 and 5 are relevant to this issue. They are in the following terms: "3 The trial judge erred (at J[231]-[240]) in: (a) failing to hold that clause 10 of the Caretaker Agreement: (i) required the respondent within a 90 day nomination period to nominate a person or persons to purchase the Caretaker Lots together with the appellant's rights under the Caretaker Agreement; (ii) provided that if no such nomination(s) are made within the nomination period or if the nominee does not within 14 days of being nominated exercise the right to purchase the Caretaker Lots together with the appellant's rights under the Caretaker Agreement, then the appellant shall be a [sic] liberty to affirm the Caretaker Agreement and retain the Caretaker Lots and the appellant's rights under the Caretaker Agreement or to sell those assets; (iii) required that the appellant and respondent must continue to perform and fulfill their obligations pursuant to the Caretaker Agreement during the nomination period; and. (b) holding that the conduct of the respondent set out at J[233] did not amount to repudiation of the Caretaker Agreement, such that the appellant did not validly terminate the Caretaker Agreement on 26 August 2019 and did not acquire a right to loss of bargain damages. 4 In the alternative to ground 3, the trial judge erred in holding (at J[236]) that the conduct of the respondent set out at J[233] was purportedly taken in furtherance of the exercise of a right of termination under clause 9.3 that had already occurred, in circumstances where the exercise of a right of termination required authorisation by a resolution at a general meeting of the respondent but no such authorisation existed. 5 The trial judge erred (at J[241]-[242]) in holding that the parties are bound to follow the process laid down by clause 10 of the Caretaker Agreement."
3. Ground 4 of the Notice of Contention is also relevant. It is in the following terms: "4 If and to the extent that the trial judge held (at J[231]-[239]) that it would not have been possible for the respondent to validly ratify the termination of the Caretaker Agreement on 17 August 2019 if the appellant had a vested right to loss of bargain damages, the trial judge erred."

The primary judgment

1. The primary judge, having concluded that the conduct of ACPM in respect to the electricity issue and the fire safety issue constituted gross negligence or gross misconduct, found it unnecessary to determine whether the conduct also amounted to a repudiation of the Agreement (PJ [172], [217]).
2. In dealing with the validity of the purported termination by the OC, the primary judge pointed to the fact that the letter of 17 August 2019 purporting to terminate the Agreement was served the day after the Strata Committee resolved to terminate the Agreement. He stated that the Agreement was a "building manager agreement" for the purposes of the 2015 Act (see the relevant provisions of the Act and the transitional provisions at [40]-[41] above), and referred to s 68(3) of the 2015 Act which provided that "[t]he appointment of a building manager may be terminated in accordance with the building manager agreement, if authorised by a general meeting of the owners corporation". As will be seen, I have concluded that the Caretaker Agreement was not a building manager agreement within the meaning of that expression in the 2015 Act.
3. The primary judge stated that it followed that the Agreement could only be terminated if authorised by a resolution of a general meeting of the OC. He noted that such resolution was not passed until 31 January 2020.
4. The primary judge noted the OC's submission that it could ratify the termination by a resolution at a general meeting and thereby satisfy the requirements of s 68(3) of the 2015 Act. He noted that whilst ACPM accepted that there could be ratification, it submitted that prior to the purported ratification it (ACPM) had terminated the Agreement on the ground of the OC's repudiation and had thus acquired a vested right to loss of bargain damages.
5. The primary judge rejected this argument by ACPM. He concluded that to have that right, the Caretaker would need to have validly terminated the Agreement as the innocent party for breach or repudiation by the OC. He stated that the OC had the right to terminate on 17 August and purported to exercise that right.
6. The primary judge also referred to the conduct of the OC associated with the purported termination, including demanding and taking possession of Lot 179, nominating itself as the purchaser of Lots 179 and 162 pursuant to cl 10.2 of the Caretaker Agreement and appointing an interim Caretaker. He stated that the conduct must be considered in light of cl 10. He stated that cl 10 presupposes that termination has occurred, yet provides that in the 90 day period thereafter the parties must continue to perform their obligations.

a ACPM

1. ACPM in its written submissions in support of ground 3 of the grounds of appeal submitted that even if the cl 9.3 Notice of Termination was justified, the OC nevertheless repudiated the Agreement.
2. It submitted that the regime in cl 10 gave the OC the right to nominate a new Caretaker who would have the right to purchase both the Caretaker Lots and ACPM's interest in the Caretaker Agreement for fair market value, by which mechanism ACPM would be replaced by a new Caretaker who would continue to perform the obligations under the Caretaker Agreement. It noted that in the event that a new Caretaker did not acquire the lots or the interest under the Agreement, ACPM could affirm the Caretaker Agreement and retain the lots or sell its interests to a third party.
3. It was submitted in those circumstances that the consequence of the OC exercising its rights under cl 9.3 was not the termination of the Caretaker Agreement in the sense of discharging the parties from future performance, but rather the enlivening of the cl 10 procedure. It submitted that the OC's taking of possession of Lot 179, nominating itself to purchase the Caretaker Lots, appointing a new Caretaker and circulating a newsletter stating that the Caretaker Agreement had been terminated amounted to a repudiation of the Caretaker Agreement by the OC, which ACPM accepted on 26 August 2019.
4. Senior counsel for ACPM submitted that cl 10.3 applied regardless of the seriousness of the breach, even if it showed that the Caretaker was incapable of fulfilling its obligations. He accepted that was an unusual result but pointed out that that was what the clause said.
5. He also submitted that the OC could not terminate for wrongful repudiation outside the regime in cll 9 and 10. He submitted that cl 9 of the Agreement exhaustively stated the circumstances in which the OC may terminate. He submitted that if this was incorrect there was no process for the sale of the lot or the management rights. He also submitted that the Notice of Termination sought to invoke the provisions of cl 10.
6. ACPM submitted that the primary judge overlooked ACPM's right to be paid fair market value for its interests under the Caretaker Agreement and that the conduct of the OC was wholly inconsistent with that right. It submitted that the conduct of the OC thus constituted a repudiation of the Caretaker Agreement, having the effect of destroying the entitlement of ACPM to recover fair value for the Caretaker management rights.

b The OC

1. In its written submissions on these grounds, the OC submitted that the matters raised by ground 3 of the grounds of appeal were not raised at the trial and in any event were commercially untenable.
2. It was submitted that the construction contended for was "inherently unlikely" and that it "would be bizarre" if the only options available to the OC were to have the Caretaker continue in its post or to embrace a new Caretaker nominated by the outgoing Caretaker.
3. In that context, the OC submitted that the Caretaker management rights constituted the Caretaker's interest in the Agreement which, after termination for gross misconduct or gross negligence, ceased to exist. It submitted, however, that cl 10.3 may have some work to do if the Agreement was terminated pursuant to cl 9.3(v) for default by the Caretaker under the Deed of Sale of the Caretaker management rights.
4. Senior counsel for the OC submitted that there was no allegation at the trial that the OC repudiated the Agreement for the failure to nominate a purchaser of the management rights. He referred in that context first, to the manner that ACPM pleaded its case (see [28] and [29] of the further amended statement of claim), pleading repudiation by virtue of the fact that ACPM had not engaged in gross misconduct or gross negligence and that the termination was without the authority of a resolution of the general meeting. That submission overlooks the fact that the unauthorised occupation of Lot 179, including the installation of a temporary caretaker, was also alleged to amount to repudiatory conduct (Further Amended Statement of Claim [20]-[28]). He also submitted that ACPM in its submissions only relied on its contention that there was no gross misconduct or gross negligence in asserting the termination was repudiatory. He submitted it was not alleged that for there to be a valid invocation of rights to terminate it was necessary to nominate a purchaser of the Caretaker Agreement.
5. He also contended that ACPM did not submit in the Court below that "termination" in cl 9.3 did not really mean termination, but that the Agreement should continue for its entire term regardless of the breach.
6. In dealing with the substance of the submission, senior counsel for the OC stated it was "nonsensical" in the context of a Caretaker arrangement which involved the OC placing its trust in the skill and integrity of the Caretaker. He also submitted that cl 10 could not operate in the context of termination for winding-up under cl 9.3(iii) or failure to hold a requisite business licence under cl 9.3(vii). He submitted that the only provision in respect of which cl 10 could have sensible operation was termination at the request of the Developer under cl 9.3(v). Senior counsel for the OC submitted that it could not have been intended that the Caretaker would continue to perform its obligations where it was guilty of gross misconduct or gross negligence. He also submitted there was a right to terminate for wrongful repudiation outside the cl 10 regime and that notwithstanding the reference to cl 10 in the Notice of Termination, that was what in fact occurred. He also submitted that after termination of the Caretaker Agreement there were no Caretaker management rights to be sold. He submitted in these circumstances that cl 10 could have no work to do in that particular context. He submitted that the alternative construction would put the OC in an entirely uncommercial position.

Did ACPM's conduct constitute a repudiation of the Agreement?

1. Having regard to my conclusion on the electricity issue, the OC was entitled to exercise its power under cl 9 to terminate the Agreement. However, the OC also submitted it was entitled to terminate for ACPM's wrongful repudiation of the Caretaker Agreement. The primary judge found it unnecessary to decide this issue.
2. This issue raises the question of whether the conduct of ACPM in not paying for the electricity it consumed and seeking to conceal that fact from the OC amounted to repudiatory conduct which, irrespective of the specific termination provision, gave the OC the right to terminate at general law.
3. A contracting party repudiates (or renunciates) a contract when he or she evinces an intention no longer to be bound by that contract or to fulfil it only in a manner substantially inconsistent with that party's obligations. The test is whether the conduct of one party is such as to convey to a reasonable person in the position of the other party renunciation either of the contract as a whole or a fundamental obligation under it: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 647; [1989] HCA 23; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44].
4. I have set out the nature of the breach at [105] above in dealing with the question of whether it constituted gross misconduct. It is important to bear in mind the finding of the primary judge that it was almost certain that Mr Wang knew the OC was paying for the electricity and that he did not understand that the Caretaker had an entitlement to that benefit (PJ [162]). The primary judge's finding that Mr Wang was falsely hiding the position is also of relevance. In these circumstances, the conduct complained of was essentially taking a benefit which was not only unauthorised but known by ACPM to be unauthorised. Where the true position was deliberately concealed from the OC, it seems to me that the conduct amounted to repudiation or renunciation of the contract. The conduct amounted to a persistent refusal to perform a fundamental obligation under the contract, namely, not to take an unauthorised benefit.

The consequences of the wrongful repudiation

1. Two matters arise under this heading. First, was the OC entitled to terminate for wrongful repudiation without using the mechanism in cll 9 and 10? Second, if so, was there an implied term to the effect contended for by the OC, namely, that ACPM was required to sell Lot 179 to the OC on terms similar to those in cl 10.3 of the Caretaker Agreement?
2. In considering this issue, it is first necessary to note the width of cl 9.3. Clauses 9.3(i) and 9.3(ii) would apply, in my view, to any breach of the Caretaker Agreement, whether it be a breach of an essential term or condition (see Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR 632 at 641-642) or warranties or other non-essential terms. There is no reason to limit cl 9.3(i) to non-essential terms. To adopt what was said by this Court in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 at [118], the clause is quite specific. If there is a breach capable of remedy it applies. Further, the clause in my view would apply to any breach capable of remedy in the sense of putting the matter right for the future: see L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Batson v de Carvalho (1948) 48 SR (NSW) 417 at 427.
3. However, cll 9.3(i) and 9.3(ii) do not apply to gross misconduct and gross negligence. In an agreement of the nature of the Caretaker Agreement, it is difficult to see what conduct which would be classified as repudiatory would fall outside the category of gross misconduct. As was pointed out by Gillard J in Rankin v Marine Power International at [250], in a passage cited with approval by Macfarlan JA in Willis Australia Group Services Pty Ltd v Mitchell-Innes (see [99] above), gross misconduct involves repudiation of essential obligations under the contract or conduct which is repugnant to the relationship. Even in the case of anticipatory breach, a refusal to perform the contract or to perform fundamental obligations under it in the future would constitute gross misconduct.
4. It follows that cll 9.3(i), 9.3(ii) and 9.3(iv) cover not only all breaches but also repudiatory conduct. What cl 9.3 seeks to do is to provide an orderly mechanism for dealing with the parties' rights in the event of termination by the OC for breach. It also recognises the fact that the Caretaker Agreement may have some value. Although no evidence was led of the background leading up to the entry into the Caretaker Agreement, that can be seen from the fact that the Caretaker Agreement was assignable (cl 21) and from the fact that cl 4 in conjunction with bylaw 32 gives the Caretaker the exclusive right to carry out real estate agency and rent collection services at the Premises. This is a right which on its face has value.

The events following the Notice of Termination

1. As I indicated above, following the Notice of Termination of 17 August the OC wrote to ACPM on 22 August 2019 nominating itself as purchaser of the Caretaker Lots, which it said would be made available to the incoming building Caretaker, whilst on 26 August 2019, ACPM sent a notice to the OC purporting to terminate the Caretaker Agreement. That notice was not before the Court.
2. By its pleading ACPM contended first, that the OC was not entitled to terminate the Agreement because ACPM had not been guilty of gross misconduct or gross negligence. It contended that the termination was not authorised by a general meeting of the OC. In addition, it pleaded that the appointment of the new Caretaker as an interim Caretaker constituted repudiatory conduct. It also pleaded that the following events which occurred after termination constituted repudiatory conduct: "21. On the afternoon of 17 August 2019, members of the Strata Committee of Strata Plan 6511 [sic], without notice to, or authority or consent from, ACPM: (a) attended upon Lot 179; (b) demanded possession of Lot 179 from ACPM; (c) demanded that ACPM deliver up keys and security devices to them; (d) served a notice terminating the Caretaker Agreement (the 'Termination Notice'). Particulars Members of the Committee included; Ian Douglas Fung Har Rossana Mak Neville Henry" "24. On 17 August 2019, the defendant whilst in occupation of Lot 179, without ACPM's authority: (a) caused the locks on Lot 179 to be changed; (b) caused the security camera to be disabled; (c) caused access to ACPM's computer server to be disrupted; (d) accessed ACPM's client files; (e) took photographs of ACPM's client files; (f) accessed ACPM's computers; (g) installed a temporary building caretaker and manager in Lot 179; and (h) informed ACPM staff that they were trespassing on Lot 179."
3. Finally, it pleaded that the nomination by the OC of itself as purchaser of the Caretaker Lots constituted repudiatory conduct.
4. Senior counsel for the OC contended at the hearing that it was not specifically pleaded by ACPM that a failure to nominate a purchaser for the Caretaker management rights constituted repudiatory conduct, nor was it expressly pleaded that in purporting to exercise the power under cll 9 and 10, the OC repudiated the Agreement by not following the provisions in cl 10.2 which, as I have determined, preserved ACPM's interest in the Caretaker Agreement.

The Duration of the Agreement

1. Although I have concluded that the OC did validly exercise its power under cl 9.3 to terminate the Caretaker Agreement, I have concluded that ACPM is entitled to damages for the failure by the OC to comply with its obligations under cl 10.2. In these circumstances the issues under this head are relevant. They are as follows: "21 In the event that it is held that the OC did not validly terminate the Caretaker Agreement and ACPM is entitled to damages for breach of contract, are those damages to be assessed on the basis that: (a) The Caretaker Agreement would have ended on 31 January 2020, being the date when the OC ratified the termination, on the basis that the OC would have authorised termination at that time? Cross appeal ground 5(a) (b) The Caretaker Agreement would have ended on 23 March 2020, being 10 years from the 2010 Deed of Variation, by the operation of s. 28(2)(b) of Strata Schemes Management Act 2015? Cross appeal ground 5(b) (c) The Caretaker Agreement would have ended on 29 April 2025, being 10 years from the April 2015 Deed of Variation, by the operation of s. 28(2)(b) of Strata Schemes Management Act 2015? Appeal ground 6 (d) The Caretaker Agreement would have ended on 30 March 2041 but damages should not be allowed for the period after 30 March 2036 on the basis that entry into the 2015 Deed of Variation to add a sixth option to the Caretaker Agreement was caused by ACPM's breach of clause 18.2? Cross appeal ground 5(d) (e) The Caretaker Agreement would have ended on 30 March 2041? Appeal ground 6 (f) There was, as the judge found, a 20% prospect that the Caretaker Agreement would have been terminated as a result of an application made under section 72 of the Strata Schemes Management Act 2015, with a commensurate discount to be applied to the damages? Appeal ground 7 (g) There was, contrary to the Judge's determination, an 80% prospect that the Caretaker Agreement would have been terminated as a result of an application made under section 72 of the Strata Schemes Management Act 2015, with a commensurate discount to be applied to the damages? Cross appeal ground 5(c)"
2. I have already rejected the contention in par 21(d) of the issues the subject of ground 5(d) of the cross-appeal (see [221]-[223] above). The other issues depend upon the provisions of the 1996 Act as amended by the 2002 Amending Act and the 2015 Act, including in each case the transitional provisions.

The primary judgment

1. In dealing with the 2010 Deed, the primary judge accepted that the parties did not intend to rescind the then existing Caretaker Agreement and replace it with a new one. He stated that the crucial question was whether the Caretaker Agreement as varied was "such an agreement" under cl 12(2)(b) of the transitional provisions (PJ [48]).
2. The primary judge stated that for an agreement to fall within cl 12(2)(b) it must be an agreement which fell within cl 12(1), namely, an agreement which was in force immediately before the commencement of the 2002 Amendments. He accepted it might be said that an agreement as varied was in force at that time when the unamended agreement remained in force. He stated, however, that that conclusion depended on the nature and extent of the variations and the relevant statutory provisions (PJ [49]).
3. The primary judge stated that the subject matter in s 40B(2) and cl 12(2)(b) was the duration of the caretaker agreement. He stated that viewing the statutory provisions as a whole, it was difficult to discern a legislative intention that when an agreement is varied to increase its duration it should nonetheless be protected from the provisions of s 40B(2). In these circumstances the primary judge reached the following conclusion: "[52] The second Deed of Variation [the 2010 Deed] is an instrument in writing, executed under the authority of a resolution passed at a general meeting of the strata scheme, pursuant to which the Caretaker is appointed for a different duration. Instead of a term expiring on 30 March 2011 with options to renew extending to 30 March 2026, there would henceforth be a term expiring on 30 March 2011 with options to renew extending to 30 March 2036. The Caretaker submitted that it would be an absurd result if in these circumstances the legislative provisions operated so that the agreement could not go beyond 23 March 2020. I do not agree. I think it would be an absurd result if the legislative provisions operated so that parties to 'such an agreement' within cl 12(2) could vary the agreement by adding decades to its term, and yet retain the benefit of cll 12(2)(b) and 12(2)(c). If that were so, not only would the extended term be valid and protected from challenge under s 183A, it would remain open to the parties to agree to further extensions. I cannot accept that parliament had that intention when Part 4A was introduced into the 1996 Act."

a ACPM

1. In its written submissions, ACPM contended that the primary judge erred in concluding that the 2010 Deed was a caretaker agreement within the meaning of s 40B of the 1996 Act. It submitted that the 2010 Deed did not vary cl 1 of the Caretaker Agreement by which the Caretaker was stated to be engaged, but only provided for additional options on the same terms and conditions as those contained in the original Agreement. It submitted that the same process of reasoning applied to the 2015 Deed.
2. In its submissions in reply, ACPM pointed out that there was no term in the 2010 Deed which could be characterised as effecting an appointment or reappointment of the Caretaker. It contended the OC's submission that the 2002 Amendment Act effectively gave a Caretaker a choice between relying on accrued rights or seeking to amend or augment those rights was contrary to the clear words of cl 12(2)(b), which provides that s 40B(2) does not apply to such an agreement. It was submitted the Caretaker Agreement never failed to meet the description of an "agreement that was in force immediately before the commencement of Part 4A" of Ch 2 the 1996 Act.
3. At the hearing, senior counsel for ACPM submitted that the 2010 Deed did not appoint the Caretaker as it started from the premise that the Caretaker had already been appointed. He pointed to the recital in the 2010 Deed that the Caretaker was the Caretaker "under the Agreement", which was defined as the Caretaker Agreement.

b The OC

1. The OC submitted that on its proper construction, cl 12(2)(b) of the transitional provisions related to existing agreements as they stood at the time of commencement of the amendments to the legislation. It submitted that the legislature had identified a significant vice in the long-term agreements negotiated between potential caretakers and developers, submitting that a construction that an agreement could stand outside the regime regardless of how it was varied or extended was perverse. It submitted that the construction for which it contended was supported by the provisions of cl 12(2)(c), which provided that an application under s 183A of the 1996 Act could not be made in respect of a pre-existing agreement on the grounds that the period for which it was in force was harsh, oppressive, unconscionable or unreasonable. It pointed to the fact that the provision was expressly directed to the period for which the agreement was already in force.
2. The OC pointed to what it described as significant amendments to the Caretaker Agreement contained in the 2010 Deed. First, it submitted that the 2010 Deed significantly increased the remuneration payable and contained a ratchet provision. It also pointed out that it extended the term of the Agreement by 10 years.
3. It submitted in those circumstances that the legislature presented the Caretaker with a choice of either accepting rights under the pre-existing Agreement which would remain in force for the entirety of its term, or seeking to augment those rights which would lead to the Agreement being subject to the new regime. It also submitted that by contrast to the 2010 Deed, the 2015 Deed simply purported to add a sixth option. It submitted that was not a fresh appointment nor the appointment of ACPM as Caretaker for the next 10 years. Rather, it purported to give a new right, namely, an option to be caretaker between 2036 and 2041.
4. At the hearing, senior counsel for the OC referred to the Second Reading Speech, the relevant portion of which I have set out at [39] above, which he submitted supported the conclusion of the primary judge in respect of the 2010 Deed. He submitted that the 2015 Deed could not be described as a new agreement, as in effect it said, "I am appointing you for the years 2036 to 2041", something which could not be done under the legislation. In written submissions, the OC contended that the 2015 Deed was unlike the 2010 Deed which it submitted involved "a fundamental change in the relationship".

Consideration

1. The determination of these issues depends on the construction of s 40B(2) of the 1996 Act and cl 12(2) of the transitional provisions. These provisions, like any other statutory provisions, are to be considered having regard to their text, context and purpose and the mischief they are intended to remedy. The principle was stated by the plurality in SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 at [14] in the following terms: "[14] The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected." (footnotes omitted) See also Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27; [2009] HCA 41 at [47]; R v A2 [2019] HCA 35; 373 ALR 214 at [32]-[37], [124].
2. In the present case, the object of the provision emerges clearly from the extract of the Second Reading Speech which I have set out at [39] above. It was plainly to limit the extent that lot owners in a strata scheme could be bound by a long-term contract entered into between the developer and Caretaker providing lucrative returns to the Caretaker, the sale of which conferred a significant financial benefit on the developer.
3. The purpose of the exception in the transitional provisions was to protect caretakers who had already entered into such agreements, and not retrospectively deprive them of rights which they had acquired sometimes for substantial payment. That is also made clear by the exclusion of such contracts from the provisions of s 183A of the 1996 Act, which conferred on the Tribunal the power to make an order terminating or varying a caretaker agreement on the grounds that its duration was harsh, oppressive, unconscionable or unreasonable.

Damages

1. The primary judge concluded that if ACPM was entitled to damages for the loss of the benefit of the Caretaker Agreement up to 29 April 2025, the damages should be assessed in an amount of $975,000 after making a discount of 20 per cent to take into account the possibility of the OC making a successful application under s 72 of the 2015 Act to vary the term of the Agreement, to declare void any of the conditions or to terminate the Agreement. In its cross-appeal the OC did not challenge the method of calculation of damages adopted by the primary judge, but rather challenged the extent of the discount, saying that there was an 80 per cent prospect of the Caretaker Agreement being terminated or alternatively a prospect above 20 per cent.
2. In support of this submission, senior counsel for the OC pointed to, first, the cumulative effect of the two breaches found by the primary judge to constitute serious misconduct and the breach of cl 18.2, irrespective of whether that breach was gross misconduct. He also pointed to what he described as the "self-serving" ratchet clause. However, no evidence was adduced to show that clause had in fact operated to the detriment of the OC.
3. Senior counsel for the OC also pointed to what was alleged in the Court below to be overcharging, in particular a payment of $593,000 for an Assistant Building Manager, $1.9 million for security services and $210,000 for additional cleaning services. He accepted that the primary judge found that this was not overcharging, but submitted that at the very least it would have been open to the OC to submit to the Tribunal that the OC, as well as paying ACPM handsomely under the Caretaker Agreement, was paying an Assistant Building Manager substantial sums to do things that were already covered by the Agreement. However, that must be considered in the context of his Honour's findings in relation to that matter to the following effect: "[82] The context in which approval was given to the ABM [Assistant Building Manager] involved an assertion on the part of the Caretaker that it was undertaking tasks in relation to the Meriton litigation that it had no obligation to perform under the Agreement, and that this was causing difficulty for the Caretaker. A suggestion was made that an ABM be retained as a solution to the problem. It was explained that the appointment of an ABM, at the cost of the Owners Corporation, would assist by performing duties both outside the scope of the Agreement and within the scope of the Agreement. I accept that Mr Wang, in making the statements about the ABM, was advancing views genuinely held by him. There was, at least initially, some resistance to what Mr Wang was proposing. [83] Under the proposal for the engagement of an ABM, the Caretaker was promising that it would, with the assistance of the ABM, undertake tasks including some which it hitherto claimed it was not bound to undertake. The agreement reached when the proposal was later accepted is in the nature of a genuine compromise or settlement of the issue raised by the Caretaker. It falls within the important qualification to the general principle as identified by Mason J in Wigan v Edwards (supra) at 512. I accept the submissions made by the Caretaker to this effect. It follows that I do not accept that the agreement approving the appointment of the ABM is void for want of consideration."

Summary of conclusions

1. It is convenient at this point to summarise the conclusions I have reached on the issues raised in the appeal. 1. The primary judge was correct in concluding that the conduct of ACPM in its unauthorised consumption of electricity at the expense of the OC was gross misconduct. 2. The failure to report to the Strata Committee on the hazard created by the failure in the EWIS system was not gross misconduct or gross negligence. 3. The contravention of cl 18.2 of the Caretaker Agreement was not gross misconduct. 4. The OC was entitled to terminate the Caretaker Agreement under cl 9.3(iv) of that Agreement. 5. Although the conduct of ACPM in respect of the electricity issue amounted to a repudiation of its obligations under the Caretaker Agreement, the OC was not entitled to terminate outside the procedure laid down in cll 9 and 10 of the Caretaker Agreement. Allied to that conclusion, it was not an implied term that if termination by the OC took place outside the machinery provisions in cll 9 and 10 ACPM was obliged sell Lot 179 to the OC. 6. ACPM was not entitled to terminate the Caretaker Agreement for wrongful repudiation by the OC. 7. The OC, by taking steps to deprive ACPM of the residual rights it had in respect of the Caretaker Agreement by virtue of cl 10.2, breached the Agreement and ACPM is entitled to damages in respect of the loss it has sustained as a result. 8. The primary judge was correct in awarding compensation of $24,600 pursuant to the undertaking as to damages as a result of ACPM being restrained from occupying Lot 179. 9. The primary judge was correct in concluding that ACPM was entitled to damages of $7,840 and interest of $456.13 for lost profits between 17 August and 25 August 2019. 10. Having regard to the 2015 Deed of Variation, the effective expiry date of the Caretaker Agreement was 29 April 2025. 11. The primary judge did not err in concluding that if damages were to be awarded to ACPM for loss of its rights under cl 10.2 of the Caretaker Agreement, a discount of 20 per cent should be applied to take account of the possibility that the NSW Civil and Administrative Tribunal might terminate or vary the Agreement pursuant to s 72 of the 2015 Act. 12. ACPM should be awarded damages in the sum of $975,000.

An issue not decided

1. There remains a question of whether in the events which have happened, ACPM is required to sell Lot 179 to the OC. That question should be remitted to the primary judge for consideration.

Costs

1. As ACPM had significant success in the appeal the OC should be ordered to pay its costs.

Orders

1. I would make the following orders: 1. Appeal allowed. 2. Cross-appeal dismissed. 3. Set aside Order (8) of the orders of the primary judge made on 28 October 2020 and lieu thereof make the following order: 1. Declare that the defendant in failing to comply with the procedure set out in cl 10.2 of the Caretaker Agreement breached its obligations under that provision and as a consequence the plaintiff is entitled to damages for such breach. 2. Order that judgment be entered for the first plaintiff against the defendant in the sum of $1,007,896.13. 1. Remit to the primary judge the question of whether, in the events which have happened, the appellant is required to sell Lot 179 in the strata scheme to the respondent. 2. Order that the respondent pay the appellant's costs of the appeal and cross-appeal and have a certificate under the Suitors' Fund Act 1951 (NSW) if eligible.
2. PAYNE JA: I agree with Bathurst CJ.
3. McCALLUM JA: I have had the benefit of reading the Chief Justice's judgment in draft. Subject to one matter, which does not affect the outcome of the appeal, I agree with his Honour. The issue on which I have reached a different conclusion is whether the fire safety breach amounted to gross misconduct or gross negligence. As this issue is not dispositive, it is not necessary to say more than that, in my respectful opinion, the primary judge was right to find that the failure to report that the fire control panel was playing up and needed to be replaced amounted to gross misconduct or gross negligence, primarily for the reasons his Honour stated and particularly having regard to the potentially catastrophic consequences of a failure to act on such information.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 August 2021