HUDSON PROPERTY GROUP PTY LTD v COMMUNITY ASSOCIATION DP 270238 [2005] NSWCA 374 | Case summary

1 MASON P: Section 24 of the Community Land Management Act 1989 provides: Termination of certain agreements (1) This section applies to an agreement with a person (other than a public authority) for the continuing provision to an association, or to the members of an association, of services or recreational facilities. (2) If, during the initial period for a scheme, an association enters into an agreement to which this section applies, the agreement terminates at the end of the first annual general meeting of the association unless: (a) its effect was disclosed in the association's management statement before the transfer of any lots in the scheme, or (b) it is ratified at the meeting. (3) An association is guilty of an offence if: (a) during the initial period, it enters into an agreement to which this section applies, and (b) the agreement would terminate at the end of the first annual general meeting of the association unless ratified at the meeting, and (c) the association did not, before entering into the agreement, inform the other party, or each of the other parties, to the agreement that it would so terminate. Maximum penalty: 5 penalty units. (4) In this section: services does not include the services of a managing agent. 2 I am of the view that Bergin J was clearly correct in deciding that the effect of the Management Agreement in the present case was not disclosed in the Association's Community Management Statement (see Community Association D P 270238 v Hudson Property Group [2000] NSWSC 725). 3 Here, the Management Agreement was entered into on or about 2 December 2000, after the registration on 24 November 2000 of the Community Plan and the Community Management Statement. 4 The matters disclosed in the Community Management Statement included that the community association, "intends to enter into an agreement with a site manager". It did not disclose the identity of the intended party beyond stating that the site manager "may be a company associated with the developer". 5 Clause 45 of the Community Management Statement indicated the potential ambit of the Agreement in the following terms (emphasis added): Agreement with the Site Manager Initial period disclosure 45.1 The Community Association intends to enter into an agreement with the Site Manager during the initial period. The effect of the agreement is disclosed in this by-law for the purposes of section 24 of the Act. Parties to the agreement 45.2 In addition to its powers under the Act, the Community Association has the power for itself and for Owners Corporations (with agreement from the Owners Corporation) to appoint and enter into an agreement with the Site Manager to provide management and operational services for The Hudson. 45.3 If the Community Association enters into an agreement with the Site Manager on behalf of an Owners Corporation, the Owners Corporation must adopt the agreement at the first general meeting it holds after the agreement commences. 45.4 The term of the first agreement under this by-law may be up to ten years with two options of up to five years each. The agreement may have provisions about: (a) the rights of the Community Association and Site Manager to terminate the agreement early if the parties do not comply with their obligations under the agreement; and (b) the rights of the Site Manager to assign the agreement. 45.5 The remuneration of the Site Manager for the first year of the agreement must not exceed $200,000 . The remuneration of the Site Manager for subsequent years of the first agreement may be : (a) the market cost for performing the duties under the agreement; plus (b) up to (and including) 20% of the market cost. 45.6 The term and remuneration of the Site Manager for the second and all subsequent agreements under this by-law may be determined by the Community Association acting reasonably. Duties of the Site Manager 45.7 The duties of the Site Manager may include : (a) caretaking, cleaning and providing security services for Community Common Property, Restricted Common Property and Common Property; (b) supervising and servicing Community Property, Restricted Common Property and Common Property; (c) supervising the maintenance, renewal or replacement of Community Property, Restricted Common Property and Common Property; (d) providing services to the Community Association, Owners Corporations, owners and occupiers; (e) operating Security Key systems for Community Property, Common Property and Restricted Common Property, including the provision of Security Keys and the re-coding of Security Keys; (f) supervising, controlling and regulating employees and contractors of the Community Association and Owners Corporations; (g) supervising The Hudson, Carnegie Apartments, The Met, The Lincoln, Astoria and the Carpark generally; and (h) doing anything else the Community Association agrees is necessary for the operation and management of The Hudson. 6 Some weeks later, the Community Association, then under the control of the developer, entered into a detailed Site Management Agreement. This was during the "initial period" for the Scheme. 7 The appointed site manager was a company associated with the developer. The Site Management Agreement entered into was for the maximum term foreshadowed in cl 45.4. The remuneration for the first year was for the maximum foreshadowed in cl 45.5, and for subsequent years there is a detailed formula for assessing market cost plus the full 20 percent uplift over market cost contemplated as a possibility in cl 45.5. In addition, several of the duties that were foreshadowed as possible inclusions in cl 45.7 were not imposed on the manager in the Site Management Agreement; and for several of those duties that were imposed there was a rider that the Association bear the costs of providing the services. 8 Bergin J held that the Site Management Agreement terminated at the end of the first Annual General Meeting of the Community Association (see Community Association D P 270238 v Hudson Property Group [2000] NSWSC 725). This was because, according to Her Honour, the effect of the management agreement had not been disclosed (cf s24(2)(a)). There was no suggestion that that Agreement was presented for ratification at the Annual General Meeting (cf s24(2)(b)). 9 The key paragraphs of Her Honour's reasons were [24] to [28], which I set out: 24 What was disclosed in the Statement were in my view possibilities. The possibility that the contracting party may be related to the developer, the possibility that the agreement may be up to ten years with two options and the possibility that the Agreement may include certain terms. This would mean that a person searching that Statement would see disclosed that the Association had an intention to enter into an agreement with a person who might be a company associated with the developer but on the other hand might not be. The unidentified person might enter into an agreement possibly for one year with one option, or two years with no options, three years or four years with one option, and so on. The identity of the contracting party may be a very important matter for the person considering purchasing the lot, or it may not. But at least the person would be on notice that a particular person, if identified, was about to become a contracting party in a complex in which that person was about to purchase a lot. The words "before the transfer of any lots" in s 24(2)(a) give an indication that the legislation intends prospective purchasers to be on notice of the effect of the Agreement that is entered into in the initial period. 25 The reference to "may have provisions" in cl 45.4 of the Statement gives to the party about to enter into the agreement a range of options. It may have certain provisions in it, it may not. It does not seem to me that the legislature intended that the process would be to obtain the agreement that was entered into in the initial period, look at it and see whether it fitted in with any of the possibilities referred to in the by-laws. That would enable a developer or a proprietor to put ambit situations or circumstances in a Statement and thus get around the provision for ratification in s 24(2)(b). It seems to me, having regard to the consequences of compliance or non-compliance with s 24, that it is important to ensure that what is required in the disclosure of the effect of an agreement is in fact more precise than what has been disclosed in this instance. 26 The agreement is for ten years plus two options of up to five years each, but I am satisfied that it was not intended that a disclosure could be made of a range such as this as contained in 45.4. It seems to me that essential elements such as the identity of parties and the term of the agreement are of significance to its effect. 27 Clause 45.7 is another by-law relied upon by the plaintiff which includes the word "may". It gives an indication that the agreement might have certain provisions in it. Once again, I am of the view that the legislature did not intend that it is appropriate to look at the agreement that was entered into in the initial period, to see if the provisions included in the agreement are in fact in any of the options that were included in 45.7, and then to say well, yes, it was there as an option, therefore it must have been disclosed. That is a disclosure of what might be, not a disclosure of the effect of the agreement, that is, not a disclosure of "its effect". 28 Although minds might reasonably differ on this aspect of the matter I am satisfied that there was no disclosure of the Site Management Agreement's effect in the Statement before the transfer of any lots in the scheme. Thus, the answer to the question in the Pt 31 separate trial is yes, it terminated. 29 I make the following orders: 10 I am of the view that Her Honour was clearly correct in this conclusion on the facts of the particular case. This was a case that plainly illustrated the mischief to which s 24(2) of the Act is addressed. 11 I would reject the claimant's submission that the trial judge elided the two "gateways" in s 24(2) by failing to appreciate that s 24(2)(a) required only the disclosure of the effect of a Site Management Agreement. I would also reject the submission that Her Honour failed to appreciate the permissive nature of s 24(2)(a). On the contrary, the Judge applied that provision accurately, but adversely to the claimant on the facts. 12 It is sufficient to note, without deciding, the opponent's argument that disclosure of the effect of an agreement can never occur until that agreement has actually been entered into. Such an argument is adverted to by Bergin J at par [14] of her Reasons. The Site Management Agreement cannot be entered into before commencement of the scheme which, in turn, requires registration of a Community Management Statement. Disclosure of agreements entered into for provision of services or recreational facilities is not mandatory for a Community Management Statement (see Community Land Development Act 1989 Sch 3, cl 2. Cf cl 3(1)k), (2)). A management statement may be amended in most respects (cf Community Land Management Act 1989, s14), including, it would appear, by inserting a statement of the effect of a Site Management Agreement, by then actually entered into. 13 It is unnecessary to address that argument because in the present case the purport, that is the effect, of the Site Management Agreement was not disclosed. 14 For those reasons, I would grant leave to appeal, directing the claimant to file a Notice of Appeal within seven days. However, the appeal should be dismissed with costs. 15 HODGSON JA: I agree. 16 For the purposes of this appeal I am prepared to assume that s24(1)(a) of the Community Land Management Act 1989 can be complied with in relation to an agreement that has yet to be entered into, although there are arguments to the contrary. 17 However, in my opinion, in such a case what must be disclosed is the effect of the agreement which is to be entered into and, in my opinion, to disclose merely that such an agreement may include certain provisions is insufficient. 18 I do not have a concluded view as to whether it is necessary in all cases to disclose who are to be the parties to the agreement, but I am inclined to think that to disclose the effect of the agreement may at least in some cases, require the disclosure of who are to be the parties. 19 TOBIAS JA: I agree with the judgment of the President. 20 MASON P: The orders of the Court will be as I indicated. 21 (Discussion re application for a stay.) 22 MASON P: We are not disposed to grant a stay on that material. 23 (Further discussion.) 24 The existing stay extends for a further term of 14 days but no longer, with liberty to either party to apply to a Judge of the Equity Division to shorten or lengthen it. **********

HUDSON PROPERTY GROUP PTY LTD v COMMUNITY ASSOCIATION DP 270238

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Judgment (12 paragraphs)

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