Filaria Pty Limited v Proprietors of Units Plan 932 [2002] ACTSC 8

4. Thus when the case came on for hearing on 4 February 2002 it began by Mr Erskine, who appeared for the plaintiff, properly drawing to the Court's attention the provisions of the 2001 legislation and applying for leave to discontinue in this Court on the ground that this Court had been deprived of the power to appoint an administrator of a body corporate under the Units Titles Act 1970, and so that the plaintiff could recommence in the Magistrates Court in accordance with s 142 of the Unit Titles Act 2001.

5. Mr Whitelaw, for the defendant, opposed leave to discontinue being granted and submitted that the Supreme Court had not been deprived of jurisdiction to determine the proceedings. I formed the view that Mr Whitelaw's submission was correct, in view of the provisions of the Legislation Act 2001 (the Legislation Act) which themselves came into force on 12 September 2001. Sections 83 and 84 provide as follows:

"83 Consequences of amendment of statutory instrument by Act (SLA s 8A)

If an Act amends a statutory instrument, the instrument may be amended or repealed as if the amendment had been made by another statutory instrument of that kind.

84 Saving of operation of repealed and amended laws (IA s 41)

(1) The repeal or amendment of a law does not-

(a) revive anything not in force or existing when the repeal or amendment takes effect; or

(b) affect the previous operation of the law or anything done, begun or suffered under the law; or

(c) affect an existing right, privilege or liability acquired, accrued or incurred under the law.

(2) An investigation, proceeding or remedy in relation to an existing right, privilege or liability under the law may be begun, exercised, continued or completed, and the right, privilege or liability may be enforced and any penalty imposed, as if the repeal or amendment had not happened.

(3) Without limiting subsections (1) and (2), the repeal or amendment of a law does not affect-

(a) the proof of anything that has happened; or

(b) any right, privilege or liability saved by the law.

(4) This section does not limit any other provision of this chapter and is in addition to any provision of the law by which the repeal or amendment is made.

(5) In this section:

liability includes liability to penalty for an offence against the law.

penalty includes punishment and forfeiture.

privilege includes immunity.

right includes capacity, interest, status and title."

6. These provisions are for present and practical purposes identical with s 40 of the Interpretation Act 1967 (the Interpretation Act 1967) (also repealed by the Legislation Act) and are similar to those of s 8 of the Acts Interpretation Act 1901 (Cth). No authorities under these statutes were cited. However, I concluded that it did not matter whether the question of the effect of the Unit Titles Act 2001 on rights accrued under the Unit Titles Act 1970 is to be determined having regard to the Legislation Act 2001 or the Interpretation Act 1967. On either approach, the plaintiff was seeking to establish an existing right accrued or incurred under the Unit Titles Act 1970 within s 84(1)(c) of the Legislation Act 2001 or alternatively under s 41(1)(e) of the Interpretation Act 1967. The matter before the Court is a proceeding in relation to an existing right under the Unit Titles Act 1970 which the plaintiff was entitled to continue or complete under s 84(2) of the Legislation Act as if the repeal had not happened. Further, I considered that if there were jurisdiction in the Magistrates Court under s 142 of the Unit Titles Act 2001 concurrent with that of this Court under the repealed Unit Titles Act 1970, leave should not be given to discontinue in this Court in order to enable fresh proceedings in the Magistrates Court because that course would simply add to cost and delay without being in the interests of justice.

"Appointment of administrator

92. (1) A corporation, a creditor of a corporation, a person having an estate or interest in a unit or the Minister may apply to the Court for the appointment as administrator of the corporation of a person who has consented to act in that capacity.

(2) On an application made under subsection (1), the Court may, in its discretion and on cause shown, by order appoint the person named in the application to be administrator of the corporation on such terms and conditions as to remuneration or otherwise as it thinks fit.

(3) The remuneration of an administrator of a corporation and the expenses incurred by him or her in the performance of his or her duties and functions and the exercise of his or her powers as an administrator shall be deemed to be expenditure incurred by the corporation."

8. There is no express guidance in this section or elsewhere in the Unit Titles Act 1970 about how the discretion to grant or refuse the appointment of an administrator is to be exercised. Nor is there any guidance on what constitutes "cause shown". However, general equitable principles applied by the Court under s 25, s 26 and s 31 of the Supreme Court Act as well as similar principles applied by Australian courts exercising jurisdiction to appoint receivers and managers under the Corporations Law seem to me to be appropriate, and counsel for the parties accepted such an approach. The facts relevant to the exercise of the discretion therefore need to be determined.

9. The evidence was presented in oral form, although no formal order appears to have been made pursuant to s 55(2) of the Supreme Court Act. However, as the parties were agreeable to evidence being given in that manner, it may be that no formal order is necessary: see Supreme Court Act, s 54. As counsel pointed out, the Rules which deal with affidavit evidence are, as well as incomplete, inconsistent with s 54 and s 55 and with each other. I commend the attention of the Rules Committee to this situation. A possible difficulty arose at the hearing because of the unavailability for cross-examination of two deponents of affidavits, but in the end I do not think that there is any conflict of significance between the evidence given on behalf of the opposing parties on matters of significance.

10. The case arises from a dispute over the ownership and management of interests in lands and buildings on Northbourne Avenue, Dickson, on which there is conducted a hotel business or businesses formerly known as the Canberra International Hotel. The remainder of the headlease of the land was purchased by the plaintiff on or about 25 May 1993. It appears that the Canberra International Hotel had already been in operation at that place for some time. It was the intention of the plaintiff to convert the hotel rooms to unit title under the Unit Titles Act 1970 and to sell the units or some of them to investors. It was also the intention of the plaintiff that the hotel business should continue under its control. The long term intention of the plaintiff and its relationship to the hotel business is less clear.

11. Units Plan No 932 was registered on 26 October 1993. Most of the units were approved by the relevant authorities for use as motel suites or serviced apartments or both. The plaintiff sold 114 units to purchasers. The plaintiff retained 42 units. In addition, six units (units 157, 158, 159, 160 and one double unit, 161 - 162) provided space for what were called ROF units. The ROF units provided space for and were approved for use as restaurant and kitchen, bar, reception and office, retail shop and conference facility respectively.

12. Under a written hotel management agreement (the only copy in evidence is undated) the proprietors of Units Plan No 932, constituted under s 29 of the Unit Titles Act 1970 (the body corporate), appointed Jaywood Pty Limited (Jaywood) to manage the hotel business for a period of five years.

13. The plaintiff and Jaywood were closely associated. Ms Millie Phillips was a director of both companies and appears to have been the controlling force in both as well as the controlling force in a group of companies called the Castle Group. The evidence suggests that the Castle Group has widespread interests in the Australian hotel industry, including an interest in the Canberra Rex Hotel, also on Northbourne Avenue, Dickson, but closer to the Canberra city centre.

14. The Units Plan provided that the term of the leases of the units from the Commonwealth to the unit holders and of the lease of the common property was to expire on 30 April 2082.

15. It appears to be common ground that at about the same time as the body corporate and Jaywood entered into the management agreement, all unit holders (with the possible exception of the plaintiff) "leased back" their units to Jaywood for a term of 5 years, or, perhaps, for a term equal to the period of management: see affidavit of Millie Phillips sworn 4 September 2000, [4]. None of the leases to the unit holders to Jaywood (which are more precisely termed subleases, since the head leases are from the Commonwealth to the unit holders) is in evidence.

16. The provisions of the management agreement are of some significance. They include the following:

"RECITALS

A. The Body Corporate is the body corporate constituted on registration of Units Plan No 932 in respect of Block 6 Section 1 Division of Dickson in the Australian Capital Territory on which the Canberra International Hotel is situated.

B. The Manager has, amongst its officers, experience in the conduct and management of hotel businesses.

C. The Manager occupies the ROF Units as licensee pursuant to a deed dated 16 August 1993 between Filaria Pty Limited, Jacup Pty Limited, Millie Phillips and itself.

D. The Body Corporate has requested the Manager to conduct and run the Business.

E. Certain owners of Units in the Units Plan have leased their Units to the Manager for use as a hotel or motel unit and/or serviced apartment in the conduct of the Business.

F. This agreement records the terms and conditions upon which the Body Corporate has granted the Manager a special privilege pursuant to Section 46 of the Act, to use the Common Property for the conduct of the Business and on which the Manager has agreed to conduct the Business.

...

Definitions

1.1 ...

"Business" means the hotel and/or serviced apartment business conducted on the Land under the name and style "Canberra International Hotel" and includes the operation of the telephone system.

...

Assign, Transfer or Sublet

5.1 The Manager may not assign its interest under this Agreement without the consent of the Body Corporate whose consent shall not be unreasonably withheld in the case of a proposed assignee who is a respectable, responsible, solvent, fit and proper person capable of adequately carrying on the Business whilst performing and observing the terms and conditions of this Agreement and who is entitled for the time being to occupy the ROF Units as manager of the Business.

Licensing

5.2 The Manager may allow any person to occupy the Building and/or the Common Property provided that permission is given in the ordinary course of the Business or the Manager notifies the Body Corporate in writing of that occupation or the purpose of it.

...

Quiet Enjoyment

7.1 Provided that the Manager duly performs and observes the terms and conditions of this Agreement the Manager may exercise the rights granted hereunder and conduct and run the Business on the Land and retain the profits from the Business for its own benefit."

17. The deed dated 16 August 1993 referred to in Recital C contains a declaration by the plaintiff that, upon the completion of purchase of the lease from the Commonwealth, it would hold the ROF units on trust for its financier, Jacup Pty Limited, for an initial period of five years and after the initial period, so long as Jaywood had been appointed and continued to act as manager of a sufficient number of the units required to exercise 67 per cent of the voting power of the unit holders. However, if after the initial period Jaywood ceased to act as manager of the minimum number of units, the plaintiff was to hold the ROF units in trust for all the unit holders.

18. It appears that from the time of the sale of each of the 114 units until about September 1998, that is until close to the expiry of the subleases from the unit holders to Jaywood, Jaywood occupied the units and managed the hotel without controversy, the unit holders receiving from Jaywood the periodical payments of rent reserved by the subleases. Jaywood, in accordance with the management agreement, ran the business of the Canberra International Hotel, paid rent to the unit holders and retained whatever profits there were. It may assist in understanding the practical effect of these arrangements to observe that (with the possible exception of the plaintiff) each of the unit holders gave up any entitlement to reside in or occupy their respective units during the term of the relevant sublease to Jaywood.

19. However, beginning in about September 1998, concerns arose over the future of the management of the hotel and of the returns to the unit holders on their investments via the payment of rent by Jaywood. Ms Phillips proposed that, due to an unexpected downturn in tourist activity in Canberra, unit holders be offered a share in the profits of the hotel instead of the payment of rent on their subleases yet to be renewed.

20. Between 22 November 1998 and 24 February 1999 a number of meetings were held attended by unit holders and representatives of Jaywood, but no agreement was reached. By the latter date the terms of the subleases, or most of them, had expired, but Jaywood appears to have remained in possession of all units, claiming the right to do so on a monthly tenancy in accordance with holding over the provisions in the subleases. A particularly acrimonious meeting was held on 24 February 1999. Ms Phillips, on behalf of the plaintiff or Jaywood or both, recommended an arrangement whereby the unit holders would renew their subleases to Jaywood in return for a right to share in the hotel profits but without the right to receive rent. The proposal provoked a hostile reaction.

21. In March 1999 Jaywood gave notice to the unit holders that it would quit the units which were subject to the subleases. This had the effect of terminating all the subleases from the unit holders to Jaywood (although it is not clear whether any subleases to the plaintiff were terminated).

22. Following a meeting on 29 April 1999, the number of units under the management of Jaywood fell to below 67 per cent of the whole. The nature of the meeting (like many others) and whether it was a purported meeting of the body corporate or a less formal meeting of unit holders is not clear. How the management of any particular unit was terminated does not emerge. However nothing seems to turn on it. In any event, as a consequence of the meeting and in accordance with the provisions of the trust deed, Jaywood ceased to be entitled to occupy the ROF units pursuant to the licence granted by the plaintiff under the trust deed. Further, according to the provisions of the trust deed, the plaintiff thenceforth held the ROF units on trust for all the unit holders. In practical terms the management agreement between Jaywood and the body corporate came to an end.

23. At the same meeting on 25 April 1999, a majority of the unit holders passed a resolution appointing "the Premier Group" as manager of the hotel. But the plaintiff dissented from that appointment, and, as far as its 42 units were concerned, declined to accept the management by the Premier Group. Instead, from about that time, the plaintiff began operating what is in effect a separate hotel on the same premises under the name Budget International Hotel. The Premier Group began managing the remaining units for the other respective unit holders. The exact arrangements are not clear.

24. One of the units formerly used for accommodation is now used by the plaintiff as an office. The Premier Group continues to manage the remaining residential units under the name of Pavillion on Northbourne. It appears that the body corporate has appointed the Premier Group to manage the common property. This is also unclear. The ROF units, although owned by the plaintiff, appear to be under the management of the Premier Group. This is not clear, but would appear to be consistent with the declaration of trust made by the plaintiff.

25. On 21 May 1999 the plaintiff retired as trustee of the ROF units and was replaced by Mr Henry Kazar in that role. The plaintiff claims that Mr Kazar does not permit it to use the ROF units for the purposes of the Budget International Hotel.

26. It is also not clear whether the business of the Budget International Hotel is managed by the plaintiff or by Jaywood.

27. The plaintiff has made no allegation that the Premier Group occupies the common property to the exclusion of the plaintiff or to the exclusion of the customers and staff of the Budget International Hotel.

28. Thus there are, and have been since about late April 1999, in effect two hotels in competition with each other, operating in and from different parts of what was originally the same hotel premises. This situation has inevitably led to inconvenience and disputes. Some of the disputes are such that the plaintiff claims that the ordinary governance of a building subject to units title has become impossible and that the body corporate, or at least the committee of the body corporate, is in a conflict of interests and unable properly to administer the affairs of the unit holders, including the plaintiff. Further, the plaintiff says that the substratum of common interests understanding and confidence upon which the scheme for owning and running the original Canberra International Hotel was dependant was destroyed without hope of regeneration. Accordingly, so it is submitted on behalf of the plaintiff, the time is ripe for appointment of an administrator under s 92 of the Unit Titles Act 1970.

29. The defendant's case is simply that, whilst the situation is not ideal, the unit holders, represented by the body corporate, should not be denied the right to control their own affairs and the body corporate should not have to incur the expense of an administrator from elsewhere. Counsel for the defendant, Mr Whitelaw, stressed that the body corporate is not in the business of running the hotel and that, as a matter of law, it is precluded from carrying on any function at all except those authorised by s 35 and s 36 of the Unit Titles Act 1970. Those sections provide:

"General provisions

35. (1) A corporation shall perform the duties, may exercise the powers, and may perform the functions, imposed or conferred on it by this Act.

(2) A corporation may do such things as are incidental or ancillary to the performance of its duties or functions or to the exercise of its powers.

General duties

36. (1) Subject to this section, a corporation shall-

(a) be responsible for the enforcement of its articles and the control, management and administration of the common property;

(b) keep in a state of good repair and properly maintain the common property and all chattels in its possession, custody or control;

(c) maintain in good repair and proper working order and, if renewal is reasonably necessary, renew, all pipes, wires, cables, ducts, and apparatus and equipment of any kind used, or intended, adapted or designed for use, in the provision of services in respect of which easements are created by section 27; and

(d) comply with any requirement made by or under any law in force in the Territory.

(2) Where the lease of a unit or the common property is subject to a covenant whereby the lessee is required to carry out any works on the land included in the lease or on unleased land adjacent to the land included in the lease, paragraphs (1)(b) and (c) shall not apply to the corporation until the issue by the Minister in respect of that covenant, and in respect of any similar covenant to which any other of the leases, in accordance with the units plan, is subject, of a certificate issued under section 179 of the Land Act."

"No business for profit

41. (1) Except in the course of, and for the purpose of, exercising its powers and performing its functions and duties, a corporation shall not carry on business.

(2) If default has been made by a corporation in complying with subsection (1), each person who was, at the time when the default occurred, a committee-man of the corporation is, unless he or she proves that he or she took reasonable steps to ensure that the default did not occur or proves that the default occurred without his or her knowledge, guilty of an offence and is punishable, on conviction, by a fine not exceeding 50 penalty units."

31. However, whilst the submission appears to be correct as a matter of law, it does not appear to have represented the view of either the plaintiff or the body corporate when they entered into the management agreement by which the plaintiff agreed to manage the hotel business on behalf of the body corporate. Ms Phillips states in her affidavit sworn 4 September 2000 that the body corporate entered into an agreement with Jaywood to "manage the business of the Hotel on its behalf", indicating an understanding that the body corporate had been running the business or at least was entitled to do so. It is possible, perhaps, to regard the management agreement as entered into by the body corporate, not on its own behalf, that is to say not by the body corporate appointing the plaintiff to manage a hotel business which belonged to the body corporate, but as the agent for the members of the unit holders who collectively owned the business of the hotel. Even on that convoluted approach, there are difficulties, but, having regard to the pleadings and the way in which the case was conducted, they will be ignored except to the extent that they are reflected in one of the major submissions of Mr Erskine.

32. It was submitted that the affairs of the body corporate were based upon the substratum of fact which it had been assumed by all concerned would continue but which had been destroyed. The assumption was that the units were all part of a single hotel enterprise operating out of the buildings comprised by the units and the common property, and that that single hotel enterprise would continue so to operate. The assumption is no longer valid because there is no longer a single hotel. On the contrary there are two hotels operating out of the same building in competition with each other, one serving the interests of the majority unit holders, the other serving the interests of the plaintiff. Reliance was placed upon Re Co-operative Development Funds of Australia Ltd (No 3) (1977 -78) 3 ACLR at 437, a decision of Sangster J in the Supreme Court of South Australia. In that case an order was made to wind up a company on the "just and equitable" ground which, so it was submitted, was found to be in similar circumstances to those of the body corporate in the present case. The failure of the substratum of a company was discussed at 469 - 475. On this issue it is sufficient to say that the present case is not one in which there is anything comparable to a company prospectus. The evidence is insufficiently clear to establish a "main and independent" object of the unit holders to be the operation of the Canberra International Hotel. In any event there is one distinguishing factor which stands in the way of the appointment of an administrator.

33. The present circumstances arising from the conversion of the buildings from one hotel into two hotels are essentially of the plaintiff's making. Neither the other unit holders nor the body corporate asked the plaintiff to set up the Budget International Hotel. The evidence suggests that they have been against it from the start. Whilst it was the majority unit holders and the body corporate who took the decision to oust Jaywood from the position of manager, the departure of Jaywood did not affect the rights of the plaintiff as a unit holder and member of the body corporate. The plaintiff could put an end to the situation which it finds intolerable or which it claims to find intolerable by allowing the present manager to manage its units on its behalf as part of the Pavillion on Northbourne. However, far from taking that course, the plaintiff has withheld payment of levies imposed on unit holders by the body corporate. Apparently the plaintiff is disputing its liability to pay that contribution. I note that Higgins J set aside a statutory demand made under the Corporations Law by the body corporate against the plaintiff in respect of the amount claimed and it is accordingly not a matter which I take into account adversely to the plaintiff. However it does not explain the plaintiff's decision not to allow the Premier Group to manage its units.

34. Not much emerges from the evidence about the present manager, known only as the Premier Group. It is suggested, as I understand it, by Ms Phillips that the Premier Group manages or has interests in the Dickson Motel, which is in the vicinity and is a rival or potential rival. Thus it is suggested that the Premier Group is in a conflict of interest which stands in the way of proper management. There is a suggestion to the contrary in the evidence that the Premier Group has particular expertise and knowledge of the local hospitality market and can also bring some economies of scale to its management of the Northbourne International Hotel. However none of this was pressed by counsel as being of particular importance and it seems to me to have little to do with the administration of the body corporate or, ultimately, with the resolution of the issues in the case.

35. There is also the submission of Mr Erskine that in general the affairs of the unit holders are now such that the body corporate must find itself in a conflict of interests and that with the two competing hotels in the same building, the administration of the common property cannot be properly carried out by a body corporate which is controlled by unit holders whose interests are adverse to those of the plaintiff as far as running the two hotels is concerned.

36. The difficulty with this submission is that on the evidence it has not been shown to my satisfaction that the body corporate has taken any decisions or done or authorised any act in which the suggested conflict has resulted in anything adverse to the plaintiff in its position as a unit holder. The dismissal of Jaywood as manager was not an act taken against the plaintiff and did not affect its interests as unit holder. There has not been demonstrated any threat of the body corporate acting in such a way as to favour improperly the interest of the majority unit holders over those of the plaintiff.

37. Furthermore, the existence of a conflict of interests is not of itself necessarily sufficient to disqualify a person from office of a fiduciary nature. It was conceded that directors of companies are commonly shareholders in that company. They are entrusted with making decisions, as directors, in the interests of the company as a whole. It is not unless they are shown to be favouring their own interests over those of a company as a whole that any question arises as to their removal from office because of their conflict of interest.

38. In my view, nothing has been shown on the evidence to constitute anything like improper conduct on the part of the body corporate or of any of the members of the committee. Whilst the exercise of the discretion under s 92 appears to be very wide, the application, by analogy, of the principles of equity and the law of corporations does not furnish any reason as far as the conduct of the body corporate is concerned to justify its replacement by an administrator. The administration of the units and the common property do not require the appointment of an administrator. The majority unit holders are, on the face of it, entitled to conduct the affairs of the body corporate. The body corporate should not have to have an administrator appointed to carry out that task unless the circumstances warrant taking responsibility from the body corporate and placing it in the hands of some other party. The circumstances, in my view, do not require the appointment of an administrator.

39. The plaintiff's claim is dismissed with costs.

I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Miles