Lee & Anor v Surfers Paradise Beach Resort P/L

[1] Wilson J: The applicants agreed to purchase a residential apartment in a proposed community titles scheme. Asserting that the respondent seller had not fulfilled its disclosure obligation under relevant legislation, the applicants did not complete the contract on the date for settlement. Subsequently the respondent terminated the contract, and resold the property. In this proceeding the applicants seek a declaration that the termination was invalid.

[2] The primary object of the Body Corporate and Community Management Act 1997 (Qld) ("the BCCM Act") is -

"to provide for flexible and contemporary communally based arrangements for the use of freehold land, having regard to the secondary objects."[1]

"(a) to balance the rights of individuals with the responsibility for self management as an inherent aspect of community titles schemes;

(b) to promote economic development by establishing sufficiently flexible administrative and management arrangements for community titles schemes;

(c) to provide a legislative framework accommodating future trends in community titling;

(d) to ensure that bodies corporate for community titles schemes have control of the common property and body corporate assets they are responsible for managing on behalf of owners of lots included in the schemes;

(e) to provide bodies corporate with the flexibility they need in their operations and dealings to accommodate changing circumstances within community titles schemes;

(f) to provide an appropriate level of consumer protection for owners and intending buyers of lots included in community titles schemes;

(g) to ensure accessibility to information about community titles scheme issues;

(h) to provide an efficient and effective dispute resolution process."[2]

These objects should be borne in mind when construing the Act, as the interpretation which best achieves its purpose is to be preferred to any other.[3]

[3] The BCCM Act draws a distinction between sales of existing lots and sales of proposed lots (that is, sales "off the plan").[4] Under s 213, before a contract for the sale of a proposed lot is made, the seller must give the buyer a statement disclosing various matters reasonably expected or proposed to be in place when the community titles scheme is established (the "first statement"). Under s 214 it must give the buyer a "further statement" if, before settlement of the contract, it becomes aware that information in the first statement was inaccurate at the date of the contract or if the first statement would not be accurate if now given. The first statement and the further statement are part of the contract (s 215) and the buyer may rely on them as if the seller had warranted their accuracy (s 216). The buyer has certain rights to "cancel" the contract in the event of the vendor's non-compliance with these obligations or inaccuracy in the statements.[5]

[4] Section 213 provides -

"213 Statement to be given by seller to buyer

(1) Before a contract (the contract) is entered into by a person (the seller) with another person (the buyer) for the sale to the buyer of a lot (the proposed lot) intended to come into existence as a lot included in a community titles scheme when the scheme is established or changed, the seller must give the buyer a statement (the first statement) complying with subsections (2) to (4).

(2) The first statement--

(a) must state the amount of annual contributions reasonably expected to be payable to the body corporate by the owner of the proposed lot; and

(b) must include, for any engagement of a person as a body corporate manager or service contractor for the scheme proposed to be entered into after the establishment of the scheme, or proposed to be continued or entered into after the scheme is changed--

(i) the terms of the engagement, other than any provisions of the code of conduct that are taken to be included in the terms under section 118; and

(ii) the estimated cost of the engagement to the body corporate; and

(iii) the proportion of the cost to be borne by the owner of the proposed lot; and

(c) must include, for any authorisation of a person as a letting agent for the scheme proposed to be given after the establishment of the scheme, or proposed to be continued or given after the scheme is changed, the terms of the authorisation; and

(d) must include details of all body corporate assets proposed to be acquired by the body corporate after the establishment or change of the scheme; and

(e) must be accompanied by--

(i) the proposed community management statement; and

(ii) if the scheme to be established or changed is proposed to be established as a subsidiary scheme--the existing or proposed community management statement of each scheme of which the proposed subsidiary scheme is proposed to be a subsidiary; and

"214 Variation of first statement by further statement

(1) This section applies if the contract has not been settled, and--

(a) the seller becomes aware that information contained in the first statement was inaccurate as at the day the contract was entered into; or

(b) the first statement would not be accurate if now given as a first statement.

(2) The seller must, within 14 days (or a longer period agreed between the buyer and seller) after subsection (1) starts to apply, give the buyer a further statement (the further statement) rectifying the inaccuracies in the first statement.

(3) The further statement must be endorsed with a date (the further statement date), and must be signed, by the seller or a person authorised by the seller.

(4) The buyer may cancel the contract if --

(a) it has not already been settled; and

(b) the buyer would be materially prejudiced if compelled to complete the contract, given the extent to which the first statement was, or has become, inaccurate; and

(c) the cancellation is effected by written notice given to the seller within 14 days, or a longer period agreed between the buyer and seller, after the seller gives the buyer the further statement.

(5) Subsections (1) to (4) continue to apply after the further statement is given, on the basis that the first statement is taken to be constituted by the first statement and any further statement, and the first statement date is taken to be the most recent further statement date."

[6] There is a residential, commercial and retail complex at Surfers Paradise known as "Q1". It was developed by a joint venture between the respondent which owned the land on the one hand and Sunland Group Limited ("SGL") and Camryville Pty Limited (a wholly owned subsidiary of SGL) on the other. The residential tower has been subdivided to create a community titles scheme pursuant to the BCCM Act.

[7] While the complex was still under construction, and before the creation of the community titles scheme for the residential tower, the applicants agreed to purchase one of the residential apartments (described as lot 3703) "off the plan" for $940,000. On executing the contract on 8 February 2003 they received two bound books of documents required to be given to them under various statutes. Of present relevance were -

(i) Disclosure statement under the Corporations Act 2001 (Cth) made by the respondent on 19 July 2002;

(ii) Disclosure statement under the BCCM Act made by the respondent on 19 July 2002;

(iii) Pro forma Caretaking and Letting Agreement "Q Tower" between the Body Corporate for Q Tower CTS # and an unnamed Resident Caretaker;

They paid an initial cash deposit of $1,000 and subsequently provided a bank guarantee for the balance deposit of $93,000.[7]

[8] In June 2003 the respondent sold the caretaking and letting rights for the residential tower to Sunland Hotels and Resorts Pty Ltd ("SH & R"), a wholly owned subsidiary of SGL. When the community titles scheme was established more than 15 months later, a Caretaking and Letting Agreement between the Body Corporate for Q1 CTS 34498 and SH & R was executed on 30 September 2005.

[9] Meanwhile, SH & R sent the applicants two pages each dated 16 September 2004 and headed "Q1 FURNITURE & HOMEWARE PACKAGE" and "JOINING THE LETTING POOL" respectively.[8] The first page included the following statement -

"If you are intending to place your apartment into our Q1 Letting Pool, the Q1 Furniture & Homeware Package is a pre-requisite to ensure all apartments made available for resort holiday rental are offering our guests a consistent look and feel."[9]

The second page began with an invitation to join the Q1 Letting Pool and continued -

"Important points for your consideration in regards to joining our Q1 Letting Pool:

 If you are intending to place your apartment into our Q1 Letting Pool, the purchase of the Q1 Homeware and Furniture Package is a pre-requisite to ensure all apartments made available for resort holiday rental are offering our guests a consistent look and feel. Please refer to the section entitled 'Q1 Furniture and Homeware Package'.

 All apartments in our Q1 Letting Pool will need to be fitted with the prescribed 'Electronic Card Lock' on the main entry door. Please refer to the Furniture & Homeware Package Folder regarding supply and installation.

 Please read carefully the contents of the 'QI Apartment Management Agreement Folder'

 Please note:

• The decision to join the Q1 Letting Pool does not mean you have purchased the Q1 Furniture & Homeware Package. To purchase the Q1 Furniture & Homeware Package you will have to review, sign and return two (2) copies of the Q1 Furniture & Homeware Package 'Supply Agreement'. Please refer to the section of this letter titled 'Q1 Furniture & Homeware Package' for specific details and instructions.

To join our Ql Letting Pool:

• Read the Product Disclosure Statement.

• Review and sign both copies of the PAMD Form 20A and the Q1 Apartment Management Agreement and return them in the reply paid envelope provided.

Product Disclosure Statement

As required by law, a copy of the Q1 'Product Disclosure Statement' has also been included in this kit for you to read prior to completing the PAMD form 20A and Q1 Apartment Management Agreement."[10]

[10] Under cover of a letter dated 23 September 2004 SH & R supplied the applicants with an "information kit" containing (inter alia)[11] -

(i) Product Disclosure Statement - Q1 Letting Pool made by SH & R on 17 September 2004 pursuant to an obligation under the Corporations Act;

(ii) Pro forma Agreement for the Sale and Purchase of a Q1 Furniture and Homeware Package between SH & R and an unnamed purchaser;

(iii) Pro forma Appointment of Agent - Letting and Property Management in form 20a under the Property Agents and Motor Dealers Act 2000;

(iv) Pro forma Apartment Management Agreement between SH & R and the owner of a lot in Q1 described as the "client";

(v) Tax invoice issued by SH & R to the applicants for $49,900 for the purchase of a Q1 Furniture Package for lot 3703.

[11] I accept that when the applicants signed the contract in February 2003 they were unaware of any requirement to purchase a furniture package from the resident caretaker if they wanted to holiday let the apartment through the proposed letting pool. I am satisfied that at that time it was their intention to holiday let the apartment. The female applicant deposed that that was so in two affidavits, one dated 11 November 2005[12] and the other dated 15 June 2006;[13] insofar as she gave oral testimony that they were undecided whether to let it on a long term or a short term basis, I do not accept her evidence.

[12] The date for completion of the purchase of the apartment was fixed by reference to the establishment of the community titles scheme. In the event it was 14 October 2005.

[13] Between receipt of the documents from SH & R and the date for completion the applicants considered on-selling the apartment. On 23 February 2005 they retained a real estate agent Century 21 in Paradise, listing the property for sale for $1.1 million. The agent took at least one party of potential purchasers to inspect the apartment (construction of which was still not complete). No sale was effected.

[14] By facsimile dated 30 September 2005 the solicitors for the respondent advised the solicitors for the applicants that completion was due on 14 October 2005. In the course of unfruitful negotiations for an extension of time until 21 October 2005, on 14 October 2005 the solicitors for the applicants raised their clients' concern about the requirement to purchase a furniture package, and asserted that the respondent was obliged to provide an amended disclosure statement under the BCCM Act. This was the first time that concern had been voiced to the respondent, and there is no evidence that it had ever been raised with SH & R. I shall discuss the legal basis of that concern shortly. The respondent's solicitors refuted the suggestion of an obligation to provide an amended disclosure statement, and called on the applicants "to settle today". Suffice it to say at this point that completion did not take place on 14 October 2005 or at all.

[15] On 8 December 2005 the respondent purported to terminate the contract. It resold the apartment for $956,000, completion of the resale occurring on 1 August 2006.

[16] In the present case the first statement[14] included the following -

"7. Letting contract: Details of the terms of any proposed authorisation of a person as a letting agent for the scheme proposed to be given after the establishment of the scheme - see Caretaking and Letting Agreement in Annexure 2."

The Caretaking and Letting Agreement[15] between the proposed body corporate and the then unidentified resident caretaker included the following -

"1. Interpretation

1.1 In this Agreement unless the context otherwise requires the following expressions have the following meanings:

...

(g) Scheme means the Q Tower CTS [#] being the development at Corner Northcliffe Terrace, Hamilton Avenue, Clifford Street and Gold Coast Highway, Surfers Paradise, in Queensland.

...

(x) Term means the period of 15 years commencing from _________ and expiring on ___________.

...

9. Letting Business

9.1 The Resident Caretaker may carry on from the Resident Caretaker's Unit (or such other location as the Committee approves of from time to time) the business of:

(a) letting lots in the Scheme; and

(b) all associated services commonly rendered in connection with letting lots in developments similar to that comprising the Scheme.

The Resident Caretaker must not provide food and beverages by means of vending machines without the consent of the Committee of the Body Corporate.

9.2 The Resident Caretaker may provide such letting service for such owners of lots in the Scheme as require that service. However the owners are free to choose whether or not to use the letting services of the Resident Caretaker to be provided under this Agreement.

9.3 If the Resident Caretaker decides to provide the services referred to in this clause, then:

(a) It must be on the Scheme Land for such times as are found to be necessary to provide the proposed letting service; and

(b) It will supervise the standard of tenants of all such lettings arranged by it and ensure, so far as practicable, that no nuisance is created on the Scheme Land and that the Scheme and lots in it are not brought into disrepute.

9.4 In so far as it is lawful, the Resident Caretaker may erect signs reasonably necessary in or about the Scheme Land for the purpose of promoting and fostering the letting business. Such signs must be temporary and moveable.

9.5 The Resident Caretaker must comply with all laws in conducting the letting business.

[17] The applicants do not contend that the first statement was in any way inaccurate as at the date of the contract.

[18] Between the date of the contract and the date for completion -

(a) the identity of the proposed resident caretaker (SH & R) was established - when the relevant rights were sold in June 2003; and

(b) the terms upon which owners of individual lots might join the Q1 Letting Pool were disclosed - when SH & R made the Product Disclosure Statement in September 2004.[16]

[19] The Q1 Letting Pool was to be a "management rights system", and what that meant was explained in the Product Disclosure Statement (clause 1.2). It was made clear in that statement -

(a) that participation in the Q1 Letting Pool would be open only to those lot owners wishing to let their apartments for holiday letting;[17]

(b) that participation in the Q1 Letting Pool was one of a number of options available to lot owners, including appointing SH & R to let out their apartments on a long term basis (when they would not be part of the Q1 Letting Pool), appointing some other agent to let their apartments whether on a long term or a holiday basis, and letting the apartments themselves either on a long term or a holiday basis;[18]

(c) that an individual lot owner who opted to participate in the Q1 Letting Pool needed to do five things, namely -

"(a) Read this PDS, which explains how the Q1 Letting Pool works.

(b) Purchase an Apartment at Q1.

(c) Purchase a Q1 Furniture and Homeware Package for your Apartment (see section 3.3 for more details).

(d) Purchase an 'electronic card lock' for your Apartment (see section 3.3 for more details).

(e) Enter into an Appointment of Agent (which includes the Apartment Management Agreement) with the Operator, allowing the Operator to incorporate your Apartment in the Q1 Letting Pool."[19]

(d) that purchase of a standard Q1 Furniture and Homeware Package for the apartment was a prerequisite for joining the Q1 Letting Pool.[20]

(a) that had the first statement been given at the time the Product Disclosure Statement was made, it would have been inaccurate because it did not disclose a term of the authorisation of the letting agent for the scheme - namely, that purchase of a Q1 Furniture and Homeware Package was a prerequisite for joining the Q1 Letting Pool;

(b) that the respondent should have given a further statement rectifying that inaccuracy;

(c) that given the extent of the inaccuracy, the applicants would have been materially prejudiced if compelled to complete the contract - because the furniture and homewares in the package were unnecessarily expensive and not to their taste.

[21] The first point for consideration is the scope of a seller's obligation under s 213(2)(c). Counsel for the applicants submitted that on its proper construction the provision refers both to the authorisation of the body corporate and to that of the owner of an individual lot, while counsel for the respondent submitted that it refers only to the authorisation of the body corporate.

[22] In my view, on the proper construction of s 213(2)(c), the respondent's obligation was only to disclose the terms on which the body corporate proposed granting an authorisation to a letting agent. There are several reasons for this.

(a) "Authorisation" is not defined in the BCCM Act, but it has its ordinary meaning of giving a formal approval, warrant or permission.[21]

(b) Section 16 provides -

"16 Meaning of letting agent and letting agent business

(1) A person is a letting agent for a community titles scheme if the person is authorised by the body corporate to conduct a letting agent business for the scheme.

(2) A person conducts a letting agent business for a community titles scheme if the person conducts, subject to the Property Agents and Motor Dealers Act 2000, the business of acting as the agent of owners of lots included in the scheme who choose to use the person's services for securing, negotiating or enforcing (including collecting rents or tariffs for) leases or other occupancies of lots included in the scheme.

(3) For subsection (2), a reference to a lot does not include a reference to a community titles scheme.

(4) It is not relevant to the identification of a person as a letting agent under this section that the person also conducts an ancillary business or other activity.

Examples of ancillary businesses or activities--

1. Video hire.

2. Linen hire.

3. Agency for tour operator."

(c) The respondent's obligation under s 213(2)(c) was to state the terms of the "authorisation of a person as a letting agent for the scheme". Only the body corporate can authorise a letting agent to conduct a letting agent business "for the scheme".[22] The capacity of owners of individual lots does not extend beyond "authorisation" for their respective lots - they cannot "authorise for the scheme".

(d) The terms of an authorisation by a body corporate of a person to conduct a letting agent business for a scheme would necessarily be different from the terms of an "authorisation" (ie an appointment) of a letting agent by the owner of an individual lot to let the particular lot;

(e) The BCCM Act regulates the body corporate's authorisation of a person as letting agent for a scheme.[23] There is a separate legislative scheme regulating the appointment of an agent for letting and managing residential property, which deals with the rights and obligations of the owner of an individual lot and the agent.[24]

[23] In Celik Developments Pty Ltd v Mayes[25] the respondents Mr and Mrs Mayes purchased a residential apartment in the Q1 complex "off the plan", and while construction was still incomplete, resold it to the applicant Celik Developments Pty Ltd. White J held that the applicant was entitled to terminate the contract under which it had agreed to purchase because the respondents had not complied with s 213(5), pursuant to which an information sheet was to be placed immediately beneath a warning statement required to be attached as the first or top sheet of the contract pursuant to the Property Agents and Motor Dealers Act.[26] Her Honour went on to consider a further submission that the applicant was entitled to terminate pursuant to s 217 of the BCCM Act. The applicant had received disclosure statement documentation including a draft caretaking and letting agreement which met the requirements of s 213(2)(c). Subsequently it received material from the developer's agent similar to the documents issued by SH & R in September 2004 in the present case - that is, notice that it would have to purchase a furniture package if it wished to be part of the letting pool. Her Honour accepted the applicant's submissions that the product disclosure statement constituted a further statement within the meaning of s 217, that the information disclosed in the first statement under s 213 as rectified by the further statement was inaccurate, and that it would be materially prejudiced if compelled to complete the contract. Her Honour concluded that there had been a breach of of the .

[24] In the present case, the applicant's contention was not that the product disclosure statement was itself a "further statement", but rather that it contained information of which the respondent was aware rendering information in the first statement inaccurate, and so obliging it to issue a "further statement".[27]

[25] In my view the contents of neither the product disclosure statement nor the Apartment Management Agreement related to the terms of the authorisation of the letting agent for the scheme, because they did not relate to the terms on which the body corporate proposed to authorised someone as the letting agent for the scheme - but rather to the terms upon which SH & R would accept an appointment from an individual lot owner to let an apartment. The first statement was not rendered inaccurate by the contents of either of those documents, and so the respondent was not obliged to provide a further statement under s 214.

[26] I respectfully decline to follow White J's approach. Her Honour had already decided that the applicant was entitled to terminate the contract for breach of s 213(5) - and so what she said about breach of s 217 was not necessary to decide the case. Further, Her Honour's attention was apparently not drawn to s 16 or the other matters I have taken into account in considering the meaning of "authorisation of a person as a letting agent for a scheme" in s 213(2)(c).

[27] In paragraphs 14 and 15 of their points of claim the applicants raised a number of differences between the draft caretaking and letting agreement and the executed agreement and alleged that they constituted inaccuracies - for example, the identity of the proposed letting agent was not inserted in the draft, nor were the dates between which the agreement was to run (although it was stated to be for a 15 year term). "Inaccuracy" ordinarily connotes error, rather than incompleteness the result of matters not yet being capable of ascertainment. In the context of legislation which aims to provide only "an appropriate level" of consumer protection, these differences were not "inaccuracies" for the purpose of s 214(2), and the respondent was not obliged to provide a further statement because of them.

[28] It follows that the question whether the applicant would be materially prejudiced if compelled to complete the contract does not arise.

[29] The applicants were obliged to complete the contract on 14 October 2005. They failed to do so. The respondent's termination on 8 December 2005 was lawful under the general law and pursuant to clause 7.1 of the contract of sale.

[30] 1. That the amended originating application filed by the applicants on 19 February 2007 be dismissed.

2. Declare that on 8 December 2005 the respondent validly terminated the contract of sale dated 8 February 2003.

3. Declare that the respondent is entitled to forfeit the deposit paid pursuant to the contract of sale dated 8 February 2003, together with any accrued interest.

4. That the applicants pay the respondent's costs of and incidental to the proceedings (including the counter-claim), to be assessed on the standard basis.

[1] s 2.

[2] s 3.

[3] Acts Interpretation Act 1954 (Qld) s 14A(1); Nguyen v Taylor (1992) 27 NSWLR 48, 52-53.

[4] At the time the contract was executed, the applicable version of the BCCM Act was Reprint 1G. The version at the time the community titles scheme came into existence was Reprint 3A. Amending legislation which came into effect in the interim (Body Corporate and Community Management and Other Legislation Amendment Act 2003 (Qld), Act No 6 of 2003; Tourism, Fair Trading and Wine Industry Development (Miscellaneous Provisions) Act 2005 (Qld), Act No 14 of 2005) did not alter the provisions relevant to the present dispute, apart from renumbering them. I shall use the section numbering as it appears in Reprint 3A.

[5] The time within which notice of cancellation for inaccuracy must be given by the buyer was altered by amending legislation with effect from 4 March 2003, but the change is not material to matters in dispute in this proceeding. See s 174(d) in Reprint 1G and s 217(d) in Reprint 3A.

[6] Emphasis added (by underlining); cross-reference removed.

[7] Exhibit DFP3 to affidavit of Danny Francis Pennicott, sworn 9 December 2005.

[8] Exhibit COLL7 to affidavit of Chin Ok Lee-Lim, sworn 11 November 2005.

[11] Exhibit COLL8 to affidavit of Chin Ok Lee-Lim, sworn 11 November 2005.

[14] Document (ii) in [7] above; Exhibit COLL1.2 to affidavit of Chin Ok Lee-Lim, sworn 11 November 2005.

[15] Document (iii) in [7] above; Exhibit COLL1.4 to affidavit of Chin Ok Lee-Lim, sworn 11 November 2005.

[16] Document (i) in [10] above; Exhibit COLL8 affidavit of Chin Ok Lee-Lim, sworn 11 November 2005.

[21] The New Shorter Oxford Dictionary (1993); The Macquarie Dictionary (2nd revised ed, 1987).

[23] Reprint 1G ss 102-105, 107; Reprint 3A ss 112-117, 122.

[24] Property Agents and Motor Dealers Act 2000 - note particularly ss 114, 133.

[25] [2005] QSC 224.

[26] Celik [2005] QSC 224., [30].