Birstar v Ocean Breeze [1996] QCA 110

In the present case there were some differences from the situation which had prevailed in Humphries. Here, following the original appointment of a managing agent under the agreement entered into with Salrey (Arretons) providing for payment to the manager of a single sum in return for the performance of specified duties which included the provision of letting services for individual proprietors, certain action had been taken to amend the form in which the consideration under the agreement was declared to be payable.

It was accepted that prior to 10 April 1990 there was no relevant difference between the by-laws of the body corporate here and those that were apparently in place in Humphries: in particular there was no by-law which authorised payment out of the corporate fund in return for services to be provided for individual unit owners. However, on 10 April 1990 the body corporate resolved by its by-law 38 that a particular unit, Lot 72, might be used for the purposes of management of the block of units and that letting functions might be carried out with the written approval of the body corporate, which might include approved services to individual proprietors. This was followed on 17 September 1993 by the body corporate in general meeting resolving that no part of the manager's salary paid under the management agreement (by clause 2), should be regarded as paid in return for the letting services which the manager was obliged to provide. Within the management agreement the principal sources of the obligation of the manager in respect of letting services were clauses 3.1.26 and 6. The resolution of 17 September 1993 provided for amendment of the Management Agreement by adding to 3.1.26 the following:

"In respect of the provision of letting agency services referred to in this subclause and Clause 6, it is acknowledged and agreed by the parties that the Manager has not and shall not receive any of the remuneration referred to in Clause 2 (the clause providing generally for remuneration of the manager for performance of his duties) for the conduct of such letting agency services, and that the requirement that the Manager conduct the letting agency services is only for the purpose of the body corporate ensuring that the Manager shall provide a letting agency service for such of the members of the body corporate as may wish to avail themselves of such service."

The management agreement was duly amended in accordance with this plan. The terms of the amendment were picked up and restated in the subsequent Deed of Assignment from Arretons to the appellant.

Some features of the Statute by-laws and background documents should now be referred to in a little more detail.

By s. 27(3) of the Act, a body corporate is, subject to the Act, to have "the powers, authorities, duties and functions" which the Act or the by-laws provide for. In particular, it is obliged to control, manage and administer the common property.

Under s. 30(2) a body corporate has a general power to make by-laws by special resolution for the "use or enjoyment of the lots and common property".

On the face of things, the two provisions referred to appear to open the way for a body corporate to be clothed with powers dealing with the use or enjoyment of the lots including a power to enter into agreements for the provision of letting services for individual proprietors and, in association therewith, to pay out of the corporate funds for the provision of those services. In the present case, no arguments were addressed against the possibility of a body corporate acquiring powers of this kind through enactment of by-laws in appropriate form. However there was no such by-law here in place and hence no empowerment of the body corporate to pay a contractor out of the corporate fund for the provision of letting services for individual proprietors.

The Management Agreement which was to run for a specified number of years came into being on 10 April 1990. Clause 2.1 provided for the payment to the manager of a sum calculated according to a scheduled formula ($67,600 monthly for the first twelve months) in consideration of the performance by the Manager of the duties (presumably all of the duties) set out in the agreement. By clause 1.2 the agreement itself was made conditional on the manager's purchasing lot 72. An extensive statement of the manager's duties appears in clause 3 and a number of those duties relate to the care and control of the common property. There is included 3.1.26 as follows:

"To provide letting agency services (either by the Manager or other authorised person) for the letting of lots in the Building for such lot owners as shall require that service provided that all commissions and other fees or expenses shall be payable to the Manager or his appointee who shall not be liable to account therefor to the Body Corporate."

Clause 6 of the Management Agreement deals with the topic "Letting Agreement" and 6.1 authorises the conduct by the Manager of a business of letting the lots. However, clause 6.1.1 goes further than mere authorisation and imposes an obligation on the Manager which is expressed in this fashion:

"The Manager shall carry on in the Building the business of letting the Lots for such of the owners thereof as shall require the Manager to perform that service and provide to such owners all services commonly rendered in connection with the letting of apartments."

Clause 6.1.2 of the Agreement deals with subsidiary matters involved in supervising the standards of tenants and their behaviour. Clause 6.1.3 obliges the Manager to expend moneys of his own in promoting the lots and their letting. Substantial sums are involved in this obligation - not less than $40,000 in the first year increasing yearly by not less than ten per cent over the expenditure of the year before.

Clause 6.1.8 deals with other businesses that the Manager is authorised to conduct. The provision of TV sets, cots, and the like, carwashing, cleaning and travel agency are referred to.

Assignment of the Manager's interest under the agreement is permitted by clause 7 but only with the prior written approval of the body corporate, that approval not to be unreasonably withheld. Any proposed assignee is obliged to execute in favour of the body corporate a Deed of Covenant to perform and observe the terms and conditions which bind the Manager. Clause 15 provides for the possibility of severance of provisions and does so in the following terms:

"15.1. All rights, duties or obligations given or imposed by virtue of this Agreement are so given and/or deemed to the extent that they are lawful and to the extent that the right, duty or obligation contained in any provision of this Agreement contravenes the provisions of any statute was otherwise unlawful the said provision shall be severed from this Agreement which shall otherwise remain in full force and effect."

On 27 November 1993 the appellant entered into agreements with the then manager, Arretons, to buy the management rights for $900,000, to buy Lot 72 for $100,000 and to buy Lot 26 for $250,000.

There followed certain meetings between the representatives of the appellant and the respondent body corporate leading to the resolution of the body corporate on 27 January 1994 to approve the assignment. The Deed of Assignment was executed on 1 February 1994 by the body corporate, the vendor Manager, the individual controllers of the vendor company and by the appellant. The consent of the Body Corporate to the assignment appears amongst the recitals. There are a number of further clauses which will have to be referred to later in connection with the appellant's alternative claim for relief under the principle of estoppel but two clauses should be referred to at this point. Clause 15.1 of the Deed amended the management agreement by the insertion of an additional clause as follows:

"The Agreement is amended by the addition of the following clause in accordance with a Resolution passed at a General Meeting of the Owner on September 17, 1993.

'3.1.26 In respect of the provision of letting agency services referred to in this subclause and Clause 6, it is acknowledged and agreed by the parties that the Manager has not and shall not receive any of the remuneration referred to in Clause 2 for the conduct of such letting agency services, and that the requirement that the Manager conduct the letting agency services is only for the purpose of the Body Corporate ensuring that the Manager shall provide a letting agency service for such of the members of the Body Corporate as may wish to avail themselves of such service.'"

The Deed, by clause 12, contained a provision for severance in case any of its provisions should be held to be invalid. That clause is in the following terms:

"12.1 In the event that any term or provision of this Deed for any reason whatsoever be acknowledged by the parties hereto, or be adjudged by a Court of competent jurisdiction or be held or rendered by any competent Government authority to be invalid, illegal or unenforceable, such term or provision shall be severed from the remainder of the terms and provisions of this Deed and shall be deemed never to have been part of this Deed and the remainder of the terms and provisions of this Deed shall subsist and remain in full force and effect unless the basic purposes of this Deed would thereby be defeated."

On 4 February 1994 the appellant, by paying what was overall a substantial sum, completed all three of its contracts of purchase.

On 8 July 1994, quite soon after the decision of the High Court was handed down in Humphries, the body corporate in obvious reliance upon the effect of the decision asserted that the Management Agreement was wholly invalid and the present litigation then resulted.

The Judge below held that the Agreement was subject to the same objection as had applied in Humphries and in particular that its validity was not assisted by the attempted amendment to the Management Agreement which declared that none of the remuneration payable under the Agreement was for the conduct of the letting services. He considered, in effect, that this was a gloss which did not affect the true position which had been earlier agreed for payment by the Body Corporate. He proceeded to deal with a number of other matters holding, in the end, that as in Humphries it was not possible to save the agreement by severance.

In the appellant's argument on appeal, some matters which had been raised earlier were not persisted with. The contention that, in the circumstances that prevailed, the Body Corporate had, by the terms of the Deed of Assignment, given a warranty of validity of the Management Agreement was no longer advanced and neither were arguments raised before us on the terms of the Fair Trading Act. Further, it was conceded that if the Management Agreement had not been amended by the addition of clause 3.1.26 it would have been subject to the objection which in Humphries proved fatal, namely that it involved the expenditure of corporate funds for the unauthorised purpose of providing services for individual lot holders. Here, as in Humphries, the agreement provided for a lump sum payment which was not apportioned but was to be paid partly in return for management services and partly for letting services. While there was, in the present case, a by-law which authorised approval of the carrying on of letting functions, there was no by-law that authorised expenditure out of corporate funds for the provision of that service for unit holders. The result was that the particular by-law referred to did not, of its own force, save the agreement from the invalidity declared in Humphries. However, it was said that the addition which was made to clause 3.1.26 did have the effect that thereafter all payment by the Body Corporate of the manager's monthly salary was in return for permitted management purposes and not at all for the provision of letting services to individual lot holders.

In the alternative, it was said that if clause 3.1.26 did not remove the invalidity, then any provision which had the effect of introducing invalidity should be severed. Clause 15 which recorded the agreement of the parties to sever to remove invalidities was relied on. To fortify the argument for severance, reference was also made to clause 3.1.26 as demonstrating the parties' intention that the agreement should operate independently of any requirement to pay for the provision of letting services. In other words, it was said there was a severance which would remove the obligation to pay for the letting services even if clause 3.1.26 did not of its own force achieve that result in a direct contractual fashion. In the further alternative, it was said that if that consequence could not be achieved either by the purported contractual amendment alone or by it in conjunction with the severance clause which bolstered what was the apparent intention of the parties, it would be achieved by a more extensive severance which would have the effect of eliminating the obligation to provide the letting services themselves together with the obligation to pay for them. This would then leave the rest of the agreement intact in accordance with an intention that was said to be sufficiently indicated. If all of these arguments were rejected, then additional submissions based on estoppel were relied on to achieve a somewhat similar result.

The first of these propositions which should now be considered is the assertion that the undistributed obligation of the Body Corporate to make payments under the Management Agreement had been confined in its operation by the subsequent agreement to add clause 3.1.26. The appellant's argument is the simple one that there was an agreed variation to the original contract and it should be given effect to. The relevant provisions have already been referred to.

There are difficulties in the way of accepting the appellant's arguments on this point. The underlying obligations of the parties were not altered by the so-called variation. The Body Corporate remained obliged to pay the periodic sums calculated at the same level while the Manager remained obliged to continue to provide the same letting services. In essence what clause 3.1.26 constituted was an attempted declaration of the construction of the contract without altering the obligations under it. Yet in purporting to declare that none of the unapportioned consideration should be allocated to the obligation to provide the letting services the parties have retained the obligation. In a sense, they have emphasised its importance to them by their apparent determination to preserve it.

There would be no reason to doubt the legal effectiveness of a variation which simply removed the obligation to provide the letting services perhaps, at the same time, making some adjustment of the amount of the single overall consideration payable under the agreement. But the parties have not attempted to achieve the removal of the obligation. As it is, the interpretation which the parties have attempted to declare by clause 3.1.26 has no obvious reality as a declaration of the true position and the addition made by the clause has no acceptable claim to be treated as a legally valid variation of the Management Agreement. An example discussed in the course of argument on the appeal may, in a simplified form, helpfully concentrate attention upon the core proposition that is asserted. There is justification for setting it out again.

Suppose that in a single contract of purchase a vendor is to sell a house and land and also one specified item of furniture, say a chair, for an unapportioned sum of $1m while a later clause of the contract declares that all of the sum is accepted by the parties as being paid for the chair alone. Should it be accepted that the vendor's obligation to transfer the house and land is unsupported by any payment? Whatever effect as between the parties such a declaration of apportionment might have, if some wider issue arose requiring a court to consider the effect of what the parties had achieved by their contract, it can hardly be supposed that it would be accepted that no payment had been made for the house and land. In the present case the retention of the obligation to provide the letting services is fatal to the appellant's claim that a contractual variation is in place effectual to preserve the arrangement from the cause of invalidity declared in Humphries. At the same time, clause 3.1.26 will not assist the appellant's severance arguments essentially for the reason already adverted to, namely the incidental emphasis which the clause confers upon the continuing obligation of the manager to provide the letting services. It does this by failing to remove that particular obligation from the agreement when it was so obviously open to the parties to do so when they were turning their minds to the problem which was perceived as arising from Humphries. In deciding whether any illegal provision in a contract should be severed leaving the balance to stand as an enforceable agreement rather than, on the other hand, declaring the whole of it invalid, a court is likely to apply certain tests which can assist in supplying the answer. It has been said that to decide whether a severance of an invalid part of a contract will be declared requires considering whether what would then remain will constitute a different sort of contract, Whitlock v. Brew [1968] HCA 71; (1968) 118 CLR 445 per Kitto J. at 457. More generally, it has been said that what the intention of the parties is will appear from the contract into which they have entered: per Taylor, Menzies and Owen JJ in the same case at 461. Also, the reasons of the Victorian Full Court in Brew v Whitlock [No. 2] [1967] VicRp 102; [1967] VR 803 when consulted will be seen to prescribe a helpful approach. No authority was cited to us to demonstrate that a different result will be achieved if there is present a clause declaring it to be the parties' intention that there will be severance if an invalid provision is discovered within their agreement: that is that a clause of that kind will induce a significantly greater willingness in the court to find for a severance.

In the present case, the parties' apparent intention to preserve the manager's obligation to provide letting services even though, as has been decided, there remained an unapportioned obligation to pay from the corporate funds, is a factor which stands in the way of a conclusion that the parties intended the same sum to be paid even if the manager was freed of its obligation to provide the service. It is true that under the present agreement the manager is to retain for itself the profits of the letting service without accounting to the proprietor for them but hand in hand with this feature goes the apparently deliberate insistence upon the retention of the obligation to provide the service. It should be held that severance on the grounds so far discussed will not be available to save the agreement from invalidity: cf. the conclusion of McHugh J, and the reasons for it in Humphries at 618 - 623.

This now leaves for consideration the arguments based on an alleged estoppel. To determine this further question, it will be necessary to notice the effect of some of the evidence led and, as well, certain of the provisions of the Deed of Assignment not so far made the subject of particular attention.

It is clear enough from the evidence that before formal consent was given to the Deed of Assignment the respondent and its solicitor Mr Cartwright, had formed the view that the Management Agreement was void. That remained their view. They did not, however, communicate their opinion to the appellant's solicitor, Mr Blennerhassett. Cartwright was aware of the Court of Appeal decision given in Humphries and was well aware of its significance for the present agreement's validity. Even though the High Court decision in Humphries was awaited, Cartwright's opinion was that the decision when given would confirm the invalidity of the Management Agreement for the reason that it provided for payments to be made to the manager which were partly in return for an obligation to provide letting services for individual proprietors. Although Cartwright dealt in depth with Blennerhassett he did not refer him to the Humphries decision or indicate his view that the Management Agreement was void.

The solicitor Teys acting for the vendor Arretons did know of the decision in Humphries but Cartwright was aware that he, Teys had not drawn from it the relevant conclusion namely that the vulnerability of the agreement came from the way in which the consideration for the manager was structured and that it was not likely to be saved by the device of proclaiming that none of the manager's remuneration was paid in return for the letting services.

No one, therefore, informed Blennerhassett of the basis on which it could be concluded that the agreement was void and no one referred him to the case which suggested that conclusion. He did not discover the case for himself. The evidence indicated that Cartwright actually advised his client, the Body Corporate and its members, that they should refrain from enlightening the appellant of his opinion of the agreement's invalidity because of some obligation as he saw it to adopt a neutral position in the sale as between Arretons and the appellant.

Blennerhassett in his evidence described his involvement and understanding of the issues at relevant times. He had been retained in about October 1993 to act in the matter of the sale from Arretons and its controllers. There were a number of matters of concern which although of no particular relevance for present purposes occupied his attention for a time - the need to investigate the manner in which the business being sold had been conducted, the arrangements which would be necessary for finance and the matter of the licence which had to be issued under the Auctioneers and Agents Act.

Having attended to these matters Blennerhassett spoke to Cartwright on 5 January 1994 and learned from him that some of the unit holders wished the Body Corporate to take steps to terminate the Management Agreement with Arretons because of Arretons' actions in carrying out, improperly as it was contended, the manager's duties under the Management Agreement. The opinion expressed by Cartwright to the Body Corporate was that these actions did not constitute sufficient reason to terminate the agreement. In his conversation with Blennerhassett on 5 January Cartwright did make certain suggestions concerning matters to which Blennerhassett should turn his attention. He advised Blennerhassett to make an inspection of the Body Corporate's records and he advised him also that on the purchase of the business the appellant should insist upon a covenant against the carrying on of a competing business by the vendor.

On the following day, Richards, the secretary of the Body Corporate, told the appellant's officer Coote there was a view that the Management Agreement was defective and there was some "High Court" authority which supported this proposition. Coote passed on this information to Blennerhassett but Blennerhassett was not informed of and did not discover for himself the particular legal authority which was referred to or hinted at in Richards' communication to Coote. Richards would have had his information from Cartwright's advice to the Body Corporate and in making even the limited disclosure that he did, he would not have been following Cartwright's suggestion that the advice to the board should be kept confidential.

Blennerhassett subsequently spoke to Cartwright on 7 January but Cartwright did not then comment on any High Court authority or mention any case by name but he did make the general observation that Blennerhassett should examine the situation carefully. The result was that Blennerhassett went to the Supreme Court Library and undertook certain research and he became concerned about a matter which, however, is of no significance for present purposes. He had some worry that the by-law which permitted the conduct by the manager of a letting business had not been recorded in the Titles Office at the time the Management Agreement was signed. He communicated then with the vendor's solicitors. In the end, he formed the conclusion that a sufficient ratification in the Deed of Assignment would cover the matter of his concern and he became persuaded of the effectiveness of the deed to deal with the matter. At no time did he identify the issue which renders the Management Agreement void. On 14 January he wrote to the Body Corporate confirming that the matter should proceed as planned.

Cartwright's evidence did not dispute the version given by Blennerhassett of the communications between Blennerhassett and himself. By early November 1992 Cartwright had become aware of the Court of Appeal decision in Humphries. He agreed that in January 1994 he was aware of the resolution adopted by the Body Corporate in an apparent attempt to deal with the problem arising in Humphries.

Cartwright remained of the view, correctly as is now determined, that the resolution did not answer the problem. He considered the duty of the Body Corporate in the situation that had arisen and his own duty as its solicitor. He said he thought that the Body Corporate was "between a rock and a hard place". If it suggested the Management Agreement was void he considered it was likely to be sued by Arretons and if it failed to bring its concerns to the attention of the appellant it was liable to be sued by that party. He thought that one way or another the Body Corporate would be involved in litigation and that to best preserve its position it should attempt to adopt a neutral position and make no disclosure to either side of its belief concerning the agreement's invalidity. He himself was strongly of the view that the agreement was void even though the High Court's decision was still awaited and he was aware that the solicitor for the appellant was misunderstanding the problem but still he provided no enlightenment. On his advice the respondent became a party to the Deed of Assignment in the terms in which it is drawn. The disadvantage to the appellant in settling its contracts with the vendors as a result of the respondent's consent to the assignment is manifest.

The question which now arises is whether the way in which the respondent and its solicitor acted provides a basis for the appellant's claim in estoppel. It may be mentioned that there are some grounds for thinking that there could be a financial advantage for the respondent in having the agreement declared void. It would then be in a position of being able to renegotiate a new Management Agreement. Notwithstanding this Cartwright's evidence gives no support to the view that such a consideration influenced the respondent in its consenting to the assignment while at the same time maintaining a discreet silence upon the issue of validity. Cartwright seemed to say that in his view the respondent could not legitimately refrain from giving its consent to the assignment. It is possible that he could mention this only on the presumption that the agreement was valid.

In deciding that no estoppel was available to assist the appellant the trial Judge was influenced by the fact that Coote was acting on legal advice in the way he arranged for the appellant to act and he found no unconscionable conduct on the part of the Body Corporate. He considered that there was no evidence that the appellant had been encouraged by the respondent to act to its detriment.

In recent years there have been two authoritative pronouncements by the High Court dealing with what used to be categorised as promissory or equitable estoppel: Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387 and The Commonwealth of Australia v. Verwayen (1990) 170 CLR 394. There is some reason for thinking now that the old division of estoppel into categories should not be as rigidly insisted upon. However that may be, from the majority judgments in these two cases a number of propositions emerge which assist in the resolution of the estoppel claim raised here. Even in the minority judgments, there is a degree of broad assent to some or all of the propositions. They may be stated as follows:

1. There need not be a preexisting contractual relationship between the parties to ground an estoppel;

2. The estoppel may relate to an indication given concerning future conduct and not just an existing state of affairs. This conclusion would bypass the need to make a distinction between two categories which is often difficult to draw and it would render irrelevant the point sometimes made that indications of conduct to be undertaken in the future will often involve representations of existing matters of fact, e.g. in the simplest case by amounting to a representation as to what is a party's present intention. (cf. the often repeated observation of Bowen LJ in Edgington v. Fitzmaurice (1885) 29 Ch D 459 at 483 that "the state of a man's mind is as much a fact as the state of his digestion");

3. To grant the estoppel there must exist some encouragement of the assumption on which the party acting relies and this encouragement must be apparent to the party inducing the assumption;

4. The party making reliance must suffer detriment as a result of its assumption;

5. Encouragement of the assumption may be the result of silence but in that case it must be in circumstances in which the party providing the encouragement should have spoken;

6. It must in the circumstances be unconscionable to allow the representing party to depart from the assumption conveyed by it;

7. The relief which will be granted will be determined by the requirements of equity as it operates in the particular situation. The relief will not exceed what is necessary to avoid the resulting detriment and will not always guarantee to the representee the whole of the benefits of the assumption on which it acted.

The Deed of Assignment here contained a number of clauses which could be expected to influence the thinking and actions of the appellant and its agents. The contractual arrangements entered into by the appellant were subject to and conditional upon the Body Corporate's consenting to the assignment of the vendor's entitlements under the Management Agreement and the assignment of the business being conducted within the building. The Deed included recital E: "The Owner acknowledges that the Assignor is the Manager of 'Ocean Breeze' pursuant to the Agreement and has agreed to grant its consent to the Assignment conditionally upon execution of this Deed". Particular clauses then follow.

"In consideration of the purchase price paid by the Assignee to the Assignor in respect of the sale by the Assignor to the Assignee of the rights of the Assignor under the Agreement, the Assignor does hereby transfer and assign to the Assignee and the Assignee hereby accepts the assignment from the Assignor from the Assignment Date all the Assignor's right, title, estate and interest as Manager in, to and under the Agreement".

"The Assignee hereby covenants and agrees to observe fulfil and perform and keep all the covenants and conditions and restrictions contained in the Agreement and on the part of the Manager thereunder to be observed and performed and fulfilled . . .".

"The Assignor warrants that the Agreement is at the date of execution hereof in full force and effect, unforfeited, unsurrendered and has in no way become void or voidable . . .".

Under clause 6 (headed "Consent of Owner") the following appears:

"6.1 The Owner hereby consents to the Assignment from the Assignor to the Assignee of the Assignor's right, title, estate and interest in, to and under the Agreement and covenants and agrees with the Assignee that there is no existing breach by the Assignor of the Agreement and that the Assignor's interest under the Agreement is not liable to forfeiture or surrender".

By clauses 7 and 8 under headings "Covenant by Owner" and "Covenants by Assignee and Owner" the following appears:

"7.1 The Owner agrees to be bound by the provisions of the Agreement as if the Assignee were the Manager originally named therein and in every respect confirms the provisions of the Agreement for the balance of the term thereof".

"8.1 The Owner and the Assignee hereby ratify and confirm each and every of the terms, covenants, conditions, provisions and restrictions contained in the Agreement and agree to be bound thereby".

The significant involvement of the respondent and its solicitor with the other parties prior to the execution of the Deed of Assignment on 1 February 1994 has already been noted.

Cartwright as solicitor for the respondent may have felt constrained by his view of his professional obligation to his client to say no more than he did to the appellant and the appellant's solicitor and in certain critical respects to remain silent in the face of the appellant's obvious misapprehension. However even if he felt largely or wholly constrained by his professional situation the Court must independently decide whether his view was correct or whether, on the other hand, he should have been more forthcoming in his dealings with Blennerhassett or told his own client that it should make the necessary disclosures to the appellant.

The precise question is whether the respondent or its solicitor should have said that the management agreement as things stood was in their view invalid and that the respondent was refraining from giving any assurance that it would not subsequently assert that invalidity. For the respondent and its solicitor to have failed to make those disclosures should be held to amount to unconscionability in the circumstances. They were involved in direct negotiations with the appellant and its agents; the respondent was prepared to become a party to the Deed of Assignment although it contained the positive assurances which have been quoted above the effect of which individually and collectively would have been to convey positive encouragement to the appellant to think that the Management Agreement was, as the respondent viewed it, valid; they gave what amounted to an indication that the respondent was prepared to act upon it as a valid agreement; they gave encouragement to the appellant and its solicitor to view the Management Agreement as valid and binding and this encouragement would have been increased rather than reduced by the fact that earlier veiled hints had been given by Cartwright to Blennerhassett which were not subsequently returned to but on the contrary were followed by an apparent willingness to accept the agreement as valid as indicated by the respondents becoming a party to the deed which contained provisions of the strength noted. A case bearing some resemblance in its circumstances to the present is Crabb v. Arun District Council [1976] Ch 179. It is not as though Cartwright entertained mere doubts on the validity issue or it appeared that the appellant was conveying that as a business decision it was prepared to settle in a situation where it perceived the risk. It should be held that the respondent is bound by a relevant estoppel as contended by the appellant.

The result is that the appeal should be allowed and the question that then arises is what relief should be granted.

One possibility is that it might be declared that the respondent is estopped from asserting any ground of invalidity that is based on the requirement that the manager is to provide letting services under the agreement which obliges the Body Corporate to make payment out of its corporate fund for that and other services. There would be difficulties in declaring in this fashion. The Body Corporate would for the future remain obliged to pay the manager out of its corporate fund and this would be in the absence of a by-law authorising the payment. The Court would have no direct means of ensuring the passage of such a by-law. The individual unit-holders are not parties to the proceedings. There might be difficulty seen in the fact of the Body Corporate's remaining obliged to maintain its payment under the agreement notwithstanding the apparent invalidity of that course. Further, a solution in this simple form although broadly asked for by the appellant was not supported by a submission which effectively confronted that apparent difficulty. An alternative way of providing relief would be to declare the validity of the agreement with the following clauses deemed as between the parties to be excluded: clause 3.1.26, clause 6.1.1 and clause 6.1.3.

It must be recognised that to grant relief in the fashion indicated would leave the manager free to conduct a letting business in the building including one for the individual unit-holders while removing the obligation to conduct it for them yet leaving in place the Body Corporate's obligation to pay unreduced the full amount of the manager's salary. This objection is however on examination not likely to be more than theoretical and the declaration is not likely in practice to bring any substantial disadvantage to the Body Corporate or to the individual proprietors. Relieved of an obligation to conduct a service for the unit-holders, it seems likely that the manager would continue nevertheless to conduct it because every indication is that it is profitable and the manager is declared free to retain the proceeds. If, contrary to the expectation here stated, the manager were, in fact, to cease to provide this service for individual proprietors, the proprietors would, without too great disadvantage, be able to arrange for some other agent to conduct it or, by passing an appropriate by-law, arrange for the Body Corporate to contract for the service with any necessary payment for the service coming from the corporate fund. The persuasive considerations which favour declaring the agreement valid as between the appellant and the respondent with the nominated clauses deleted but with the manager's salary unreduced is what equity demands in the present situation. The Body Corporate must be held responsible for the situation which has come about and any lesser form of relief would be inequitable to the appellant.

The result is that I would allow the appeal and set aside the orders made below and order and declare as follows:

There is a binding agreement in force between the appellant and the respondent and the respondent is bound in its dealings with the appellant and with any other person to whom or to which the benefit of the management agreement dated 10 April 1990 is assigned as if clauses 3.1.26, 6.1.1. and 6.1.3 were deleted from the said management agreement.

The respondent should pay the appellant's costs of the action and of the appeal to be taxed.

The history of the dispute is set out in the reasons of the Chief Justice.

It is my opinion that the management agreement is saved from invalidity by severance. Humphries v. The Proprietors (Surfers Palms North) Group Titles Plan 1955 of 1994, 179 C.L.R. 297, establishes that under the relevant Act, a body corporate may not, at least if its by-laws do not contain an appropriate provision, pay money or agree to pay money to a person for conducting a letting agency for lot owners. In Humphries case, the managers were entitled to $60,000 per year for performing their duties under the management agreement, including the letting. I note that it was held in this Court, although with some doubt, that the managers had to conduct the letting agency for no fee other than this annual payment.

In the present case the structure of the management agreement is different. Clause 3.1.26 requires the manager to provide letting agency services for the letting of lots in the building and entitles the manager to the commissions; it was, as it seems to me, contemplated that at least the primary remuneration for the letting services would be the commissions. Apart from that positive requirement that the manager provide a letting agency service, the agreement by cl. 6.1 entitles the manager to conduct the business of letting lots on certain terms and conditions, including the expenditure of specified sums on promotion and advertising. At first sight it seems a little odd that the agreement deals with the matter in this way: by providing in one clause that the manager shall provide letting agency services and in another that he shall be entitled to do so. The explanation for the latter provision is, I think, that here there is (as there was not in Humphries) a relevant provision in the by-laws. Clause 38 of the by-laws of the body corporate says that where the proprietor of lot 72 (that is the manager's lot) has the written approval of the body corporate, the lot may be used for, among other things, the sale and letting of lots. It appears likely that the inclusion in the management agreement of conditional permission to conduct letting services was prompted by the presence of this by-law.

Further, unlike, according to the view expressed in this Court, (Appeal No. 105 of 1992, 29 October 1992) the agreement in Humphries, here the manager's performance of letting services is to be remunerated by commissions. That fact makes the amendment agreed upon in 1993 more comprehensible. That amendment was to cl. 3.1.26; it was agreed that the manager was not to receive any of the remuneration provided for in the agreement for the conduct of the letting services. The intention was that the remuneration for letting services should be the commissions only.

The question of severance was dealt with in Humphries by Brennan J. (as his Honour then was) and Toohey J. as depending on the impossibility of dividing the agreed remuneration between the lawful and unlawful purposes (606) and the same approach was taken by Deane and Gaudron JJ. (609). To that McHugh J. added that if the clause which required the manager to conduct a letting agency "was severed from the Agreement, the Manager would be receiving the same remuneration for less work" (619). That is not so here. In the present case the parties both provided that the manager was to receive commissions for the letting work and agreed in effect that the annual payment was not to be for the letting work. The latter provision effectively meets the argument that severance is impossible because if the obligation to conduct a letting agency is removed then the managers get the same remuneration for less work. The parties have agreed to apportion the remuneration under the agreement to the non-letting work; the letting work is adequately remunerated by the commissions. That agreed apportionment cannot directly defeat the invalidating effect of the statute, but is relevant to severance, as refuting any notion that it is unfair to let the managers receive the whole of the agreed remuneration for the non-letting work only, that being a result the parties expressly contemplated.

Another difference between the documents at issue in Humphries' case and those we have to consider is the severance clause in the deed of assignment, cl. 12.1. Its effect is that if any term of the deed is invalid, illegal or unenforceable, that term is to be severed unless the basic purposes of the deed would thereby be defeated. A question arises as to the effect of that clause on the management agreement. Clause 8.1 of the deed of assignment is as follows:-

"The Owner and the Assignee hereby ratify and confirm each of the terms, covenants, conditions, provisions and restrictions contained in the Agreement and agree to be bound thereby".

The "Agreement" referred to is the management agreement. The effect of cl. 8.1 is that the assignee, which is the appellant, is entitled to rely upon its rights under cl. 8.1 as against the owner (the respondent); it can enforce the terms of the agreement under cl. 8.1 of the deed, under which the appellant and respondent agree to be bound "thereby" - i.e. by "each and every of the terms, conditions, provisions and restrictions contained in the Agreement". Clause 8.1 in effect incorporates all the terms of the management agreement, in my view, and makes them binding upon the appellant and the respondent, by its own force. That conclusion affects the construction of the severance clause 12.1, which I set out in full:

"In the event that any term or provision of this Deed for any reason whatsoever be acknowledged by the parties hereto, or be adjudged by a Court of competent jurisdiction or be held or rendered by any competent Government authority to be invalid, illegal or unenforceable, such term or provision shall be severed from the remainder of the terms and provisions of this Deed and shall be deemed never to have been part of this Deed and the remainder of the terms and provisions of this Deed shall subsist and remain in full force and effect unless the basic purposes of this Deed would thereby be defeated." (emphasis added)

I think that the agreement in cl. 8.1, to be bound by "each and every" of the terms of the management agreement, makes cl. 12.1 applicable to those terms, although they are not set out at length in the deed. The result is that cl. 12 provides a test for determining the severability, as between the appellant and respondent, of any of those terms which is unlawful.

It follows, in my opinion, that cl. 3.1.26, the obligation to provide letting agency services, may be severed; that severance clearly would not defeat the "basic purposes" of the deed. But even if the view I have expressed, that the severance clause of the deed applies to "each and every of the terms" of the management agreement which are in effect incorporated in it, were incorrect, still in my opinion cl. 3.1.26 would be severable. To adopt the test used by McHugh J. in Humphries, "the elimination of the invalid promises changes the extent only, but not the kind of the contract" (618, 619). The kind of contract is not changed by the removal from it of the obligation to provide a letting service, leaving the manager with a right to provide such a service, having the incentive of the commissions which letting agents ordinarily receive - and leaving the manager, also, with all the other obligations the agreement creates.

In view of my conclusion on this point, I find it unnecessary to discuss the question of estoppel; it must, however, follow from the views I have expressed above that no estoppel could be based on a failure to express the (in my respectful opinion, erroneous) opinion that the management agreement is invalid.

The appeal is allowed, the orders made below are set aside and in lieu:

1. Declare that cl. 3.1 of the management agreement dated 10 April 1990 and subsequently amended is, but only insofar as (by cl. 3.1.26) it obliges the manager to provide letting agency services, invalid, but that the said agreement is otherwise valid.

2. Order that the case be remitted to the Trial Division for the making of such further orders as the Court thinks appropriate.

3. Order that at any further hearing the Court may receive further evidence, if it thinks fit.

4. Order that the respondent pay the appellant's costs to date of the proceedings below and pay the costs of the appeal, to be taxed.

I have the advantage of having read the Reasons of the Chief Justice and of Pincus JA. Their Honours would respectively allow the appeal on different grounds, and the different grounds would require different orders to be made.

On the question of validity of the management agreement I agree with Pincus JA that there is a relevant distinction between provisions which merely entitle a manager to conduct the business of letting lots (with no obligation upon the body corporate to pay for such a service), and one that actually requires the manager to provide a letting agency service. The point in the end is a rather narrow point of construction based essentially upon the first three sub-clauses of clause 6.1, and clause 3.1.26 (as amended by the 1993 resolution). It is desirable that these be set out:

"6.1 During the term of this Agreement and any extension or renewal thereof the Manager shall be entitled to conduct the business of letting the Lots in the Plan on the following terms and conditions:-

6.1.1 The Manager shall carry on in the Building the business of letting the Lots for such of the owners thereof as shall require the Manager to perform that service and provide to such owners all services commonly rendered in connection with the letting of apartments.

6.1.2 The Manager shall supervise the standard of tenants of the Lots which have been let by the Manager and ensure that no nuisance is created in the Building by those tenants or by their guests or invitees.

6.1.3 The Manager shall use its best endeavours to improve and expand the demand for the letting of the Lots and shall expend from its own funds:-

(i) during the first year of the term of this Agreement, an amount not less than $40,000; and

(ii) during each subsequent year of the term of this Agreement an amount not less than the aggregate of the amount to be expended by the Manager pursuant to this Clause 6.1.3 in the immediately preceding year and ten (10%) percent of such amount

in respect of the promotion and advertising of the Building and the letting of the Lots."

"3.1.26 To provide letting agency services (either by the Manager or other authorised person) for the letting of lots in the Building for such lot owners as shall require that service provided that all commissions and other fees or expenses shall be payable to the Manager or his appointee who shall not be liable to account therefor to the Body Corporate."

The following was added to clause 3.1.26 pursuant to the 1993 resolution:

"In respect of the provision of letting agency services referred to in this subclause and Clause 6, it is acknowledged and agreed by the parties that the Manager has not and shall not receive any of the remuneration referred to in Clause 2 (the clause providing generally for remuneration of the manager for performance of his duties) for the conduct of such letting agency services, and that the requirement that the Manager conduct the letting agency services is only for the purpose of the body corporate ensuring that the Manager shall provide a letting agency service for such of the members of the body corporate as may wish to avail themselves of such service."

The submission for the respondent was that in order to validate the management agreement it was necessary to delete entirely the obligation to provide a letting service and to confer on the appellant the mere right to run such a business without any obligation being undertaken by the body corporate in respect of the appellant's performance of such services.

Clause 6.1 is the grant of an entitlement to conduct a letting business, but the grant is upon conditions, some of which are invalid under Humphries & Anor v. The Proprietors Surfers Palms North Group Titles Plan 1955 [1994] HCA 21; (1994) 179 CLR 597. The question is whether this approval can survive without those conditions, or putting it another way, can the invalid conditions be severed so as to leave the approval intact? In my view the 1993 amendment to clause 3.1.26 shows a clear intent to delete the invalid conditions and to permit the appellant to provide a letting service at the premises. Of course those who drew the resolution should have expressly deleted the inappropriate obligation in the original clause 3.1.26 "to provide the letting agency services" and similar residues in other parts of the agreement. This failure has provided the main difficulty in construction. However reading the matter as a whole I agree with Pincus JA that the intention has been made clear that the only remuneration for letting services should be commissions which the appellant obtains from others. I also agree that the remaining parts of the agreement which contain obligations inconsistent with that intention (i.e. those which express an obligation of the manager to provide letting services) should be treated as having been severed.

I agree with the orders proposed by Pincus JA, noting that the appellant's claim included specific performance and other relief, and that a declaration in the above terms may not finally dispose of the issues between the parties.

If my preferred construction is incorrect, I would agree with what the Chief Justice has written on the question of estoppel. On the footing that the management agreement is invalid I would be prepared to declare the agreement valid as between the appellant and the respondent and to further declare that the respondent is bound in its dealings with the appellant as if clauses 3.1.26, 6.1.1 and 6.1.3 were deleted from the management contract.

In the result I agree with the orders proposed by Pincus JA.