Meriton Apartments Pty Limited v The Owners Strata Plan No. 72381 - [2015] NSWSC 202 - NSWSC 2013 case summary — Zoe

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Meriton Apartments Pty Limited v The Owners Strata Plan No. 72381

[2015] NSWSC 202

Supreme Court of NSW|2013-10-15|Before: Slattery J

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Source facts

Court

Supreme Court of NSW

Decision date

2013-10-15

Before

Slattery J

Source

Original judgment source is linked above.

Judgment (42 paragraphs)

[1]

Apriaden Pty Ltd v Seacrest Pty Ltd (2005) 12 VR 319 Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488 Balog & Stait v Independent Commission Against Corruption (ICAC) (1990) 169 CLR 625 Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24 Bropho v State of Western Australia (1990) 171 CLR 1; Bolwell Fibreglass Pty Ltd v Foley [1984] VR 97 Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1999] 1 AC 266 Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 Bray v Ford [1896] AC 44 Breen v Williams (1996) 186 CLR 71 Clayton's Case (Devagnes v Noble) 1 Mer 572 Clea Shipping Corp v Bulk Oil International Ltd (No. 2) (The Alaskan Trader) (1984) 1 All ER 129 Coco v R (1994) 179 CLR 427 Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Community Association DP No 270180 v Arrow Asset Management Pty Ltd [2007] NSWSC 527 Concut Pty Ltd v Worrell (2000) 176 ALR 693 Directors of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 Emma Silver Mining Co Ltd v Lewis & Son (1879) 4 CPD 396 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Erlanger v New Sombrero Phosphate Co. (1878) 3 App. Cas. 1218 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 Fitzwood Pty Limited v Unique Goal Pty Ltd (in liquidation) (2001) 188 ALR 566 Green v Sommerville (1979) 141 CLR 594 Heyman v Darwins Ltd [1942] AC 356 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Hospital Products v USSC (1984) 156 CLR 41 Howard v Pickford Tool Co Limited [1951] 1 KB 417 Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-676 Johnstone v Milling (1886) 16 Qbd 460 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115 Kyren Pty Ltd v Wunda Projects Australia Pty Ltd [2012] SASCFC 23 Ledger v Cleveland Nominees Pty Ltd [2001] WASCA 269 Lee v NSW Crime Commission (2013) 251 CLR 196 LMI Australasia Pty Limited v Baulderstone Hornibrook Pty Ltd (2001) 53 NSWLR 31 Lockland Builders Ltd v Rickwood (1995) 77 BLR 38 MacLeod v Proprietors of Strata Plan No 6544 [1980] 2 NSWLR 691 Maguire v Makaronis (1997) 188 CLR 449 Measures Bros Ltd v Measures [1910] 2 Ch 248 Meriton Apartments Pty Ltd v Owners of the Strata Plan No 72381 [2013] NSWSC 1037 North Sydney Leagues Club Ltd v Synergy Protection Agency Pty Ltd (2012) 83 NSWLR 710 Owners of Strata Plan 50276 v Thoo [2013] NSWCA 270 Pilmer & Ors v Duke Group Ltd (in liquidation) & Ors (2001) 207 CLR 165 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Queensland Mines Ltd v Hudson (1978) 18 ALR 1 Radford v The Owners of Miami Apartments, Kings Park Strata Plan 45236 [2007] WASC 250 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Re Footman Bower & Co Ltd [1961] Ch 443 Re Leeds and Hanley Theatres of Varieties Ltd [1902] 2 Ch 809 Re Steel and the Conveyancing (Strata Titles) Act 1961 (1968) 88 WN (Pt 1) (NSW) 467 Santos Coffee Co Pty Ltd v Director Freight Express Pty Ltd [2010] NSWCA 14 Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 Showcase Video Pty Ltd v Tambarle Pty Ltd (Court of Appeal (NSW), 28 April 1987, unrep) Tracy v Mandalay Pty Ltd (1953) 88 CLR 215 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Walden Properties Ltd v Beaver Properties Ltd (1973) 2 NSWLR 815 Waldorf Apartment Hotel The Entrance Pty Ltd v Owners Corp SP 71623 [2009] NSWSC 882 Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 [2010] NSWCA 226 Wiley v Eastern Elevators Pty Ltd (2003) 175 FLR 344 Warman International Ltd v Dwyer (1995) 182 CLR 544 Western Export Services v Jireh International Pty Ltd (2011) 282 ALR 604 White & Carter (Councils) Ltd v McGregor [1962] AC 413 Texts Cited: JW Carter, Carter's Breach of Contract, (1st ed 2011, LexisNexis, Butterworths) JD Heydon, MJ Leeming & PE Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies, (5th ed 2014, LexisNexis, Butterworths). Category: Principal judgment Parties: First Plaintiff: Meriton Apartments Pty Ltd Second Plaintiff: Meriton Properties Pty Ltd (ACN 000 698 626) Defendant: The Owners Strata Plan No. 72381 Representation: Counsel: Plaintiffs: M.G. Rudge SC; M.R. Hall Defendant: G.A. Sirtes SC; J.P. Knackstredt

[3]

Judgment

The World Tower building in Sydney's Central Business District is divided into three parts. The building faces north on Liverpool Street and covers much of the northern end of the city block bound by George, Liverpool and Pitt Streets. Meriton Apartments Pty Limited ("Apartments") developed the building into one commercial and two residential portions which, as their respective names suggest, segment the structure vertically into low-rise, mid-rise and high-rise sections.
The developer reserved the mid-rise and high-rise sections for residential units and the low-rise section for commercial occupation. But it only created two strata schemes in World Tower: one for the commercial low-rise section and the other for the residential mid-rise section. Each strata scheme facilitated the planned sale to third parties of units in these two sections of World Tower. Apartments kept the remaining high-rise section of the building as one single undivided stratum lot which was not planned to be sold but rather to be retained by a related entity, Meriton Properties Pty Limited ("Properties") for use as serviced apartments.
In February 2004 during World Tower's development, Apartments, Properties, and the respective owners Corporations for the other two parts of the building all entered into a single form of Caretaker Agreement ("Caretaker Agreement") for World Tower under the Strata Schemes Management Act 1996 ("the Management Act"), Part 4A. In these reasons, references to Parts of the Management Act are references to Chapter 2 of that Act. At about the same time Apartments as the developer registered a Strata Management Statement for the building under the Strata Schemes (Freehold Development) Act 1973, Part 2, Division 2B ("the Freehold Act"). This Caretaker Agreement appointed Apartments as a caretaker to provide caretaker services to the three other parties to the agreement: the Owners SP 72381, the mid-rise body corporate (called for convenience in these reasons "Mid Rise"); the Owners SP 71067, the low-rise body corporate (called for convenience in these reasons "Low-Rise"); and Properties, a related entity of Apartments and the registered proprietor of the remaining high-rise single stratum.
The parties to the February 2004 Caretaker Agreement took steps to renew it at an extraordinary general meeting of Mid Rise held on 11 October 2004. It is common ground that from October 2004 Apartments provided caretaker services to the three other parties to the Caretaker Agreement for almost eight years through until July 2012, when Mid Rise claims to have ended it using its termination provisions.
Apartments brings these proceedings. It alleges as plaintiff that Mid Rise breached the Caretaker Agreement: (1) by its ineffective attempt to terminate the agreement; and (2) by not paying the fees and performing the obligations due under the agreement. The other parties to the Caretaker Agreement, Properties and Low-Rise are also parties to the proceedings but Apartments seeks no relief against them. In other claimed relief Apartments: seeks declarations that the Caretaker Agreement remains on foot despite Mid Rise's acts of termination; and contends that Mid Rise has breached the Strata Management Statement registered on 17 September 2003 for the World Tower building. Apartments has the benefit of interlocutory orders made by consent and without admissions restraining Mid Rise from breaching the Caretaker Agreement until further order.
Apartments also commenced separate proceedings in the Local Court to recover unpaid contributions from Mid Rise under the Caretaker Agreement. Once the present proceedings were commenced, the Local Court proceedings were transferred into this Court, so all proceedings by and against Mid Rise are being heard and determined together.
Mid Rise contests Apartments' contentions and defends its July 2012 termination of the Caretaker Agreement at several levels. At the primary level Mid Rise assumes the validity of the Caretaker Agreement but contends that it was entitled to utilise the agreement's termination clause to bring it to an end. And it seeks to excuse any proven breaches of the Strata Management Statement by saying that other parties have also failed to observe aspects of that instrument.
The issues joined in Apartments' case against Mid Rise raise the following questions: 1. Whether the Caretaker Agreement was validly made on 4 February 2004, and/or validly continued after 11 October 2004? 2. Whether Apartments breached the Caretaker Agreement as Mid Rise alleges? 3. Whether any breach of the Caretakers Agreement, was a "serious, persistent and continuing" breach and therefore sufficient to found a notice of termination issued under that agreement? 4. Whether Mid Rise was entitled to act unilaterally to terminate the Caretaker Agreement for breach? 5. Whether Mid Rise has complied with the procedural requirements of the Caretaker Agreement, for termination?
Mid Rise has also cross claimed. Its Cross Claim challenges the basis of the Caretaker Agreement at a more fundamental level: alleging that its February 2004 making and its October 2004 continuation were each voidable in equity, because Apartments breached fiduciary duties it then owed to Mid Rise. And Mid Rise further alleges that Apartments took advantage of its control over Mid Rise at the time, so that Mid Rise can now set aside the Caretaker Agreement against Apartments.
Mid Rise's Cross Claim raises the following issues: 1. Whether at the time of making the Caretaker Agreement in 2004 Apartments owed fiduciary duties to Mid Rise, whether before or after that entity came into existence? 2. What was the content of any fiduciary duty Apartments owed to Mid Rise in relation to the making or continuation of the Caretaker Agreement? 3. Whether Apartments breached any fiduciary duty owed to Mid Rise in relation to the making of the Caretaker Agreement, and if so, to what relief is Mid Rise entitled?
Mr M.G. Rudge SC and Mr M.R. Hall appeared on behalf of Apartments and Mr G. Sirtes SC and Mr J. Knackstredt appeared on behalf of Mid Rise. The hearing proceedings took place over the following days in 8, 9, 10, 11, 14 & 15 October 2013. At the conclusion of the hearing the Court made further directions permitting the parties to advance supplementary written submissions. The program of written submissions concluded on 4 April 2014, when the Court reserved judgment.
Throughout these reasons the area of World Tower for which Mid Rise holds the common property is referred to as "mid-rise" and the area for which Low-Rise holds the common property is referred to as "low-rise". The top portion of the World Tower comprising the single stratum that Properties owns is called "high-rise" in these reasons.

[5]

The Caretaker Agreement - February to October 2004

Apartments began selling lots off-the-plan in the mid-rise and low-rise sections of the World Tower building as those sections were being constructed during 2003. The building was close to completion when in June 2003 Apartments was actively selling units off-the-plan, well before the first deposited plan for World Tower had been registered.
The form of contract for sale of these early off-the-plan sales became part of a wider contest about the form of the Caretaker Agreement to which each of the lot owners had bound themselves: an issue relevant to the legal effect of the October 2004 general meeting of Mid Rise. One of these early purchasers, Mr Kim Ong, who became a long term mid-rise owner, acquired his lot off-the-plan on 27 June 2003. The form of the Caretaker Agreement annexed to his contract with Apartments is examined later in these reasons. Suffice it to say for present purposes that Mr Ong's sale contract contained a draft Caretaker Agreement that was different in material respects from the one that Mid Rise and Apartments ultimately contended was in effect between them.
The strata plan of the World Tower developed in two phases. On 10 September 2003 Apartments first lodged a deposited plan (Deposited Plan 1057924) in respect of all of the land known as "World Tower" as a high-rise, mixed-use, commercial, residential and serviced apartment development. That original deposited plan comprised only three lots: Lot 801, the lot which Apartments ultimately transferred to Properties for use as serviced apartments in the high-rise section of the building; Lot 802 of which Mid Rise subsequently became the owner of the common property and comprised the mid-rise section of the building; and Lot 803, of which Low Rise subsequently became the registered proprietor of the common property and which comprised the low-rise section of the building.
The strata plan for the low-rise section of the building came into existence in September 2003, over six months before the strata plan for the mid-rise section in April 2004. On 17 September 2003 Apartments lodged SP 71067 creating a strata plan over the low-rise area (the old Lot 803) and bringing Low Rise into existence as its body corporate. The low-rise section of the building comprises carparking on levels 2 and 3, a loading dock on level 8, the street entry foyer on level 10, commercial offices on levels 8 to 17, and some residential apartments on levels 18 to 36 of the building. Thus Low Rise comprises a mixture of carparking, commercial and residential lots.
The Freehold Act, s 28R prohibits the Registrar General from registering a strata plan creating any strata parcel unless a strata management statement is also registered for the building and site concerned. As the strata plan that created Low Rise on 17 September 2003 was the first strata parcel created for this site, it was necessary for Apartments to lodge a section 28R strata management statement by that date. So on the same day, 17 September 2003, World Tower's Strata Management Statement was registered. It created the World Tower Committee, comprising representatives from Low Rise and the two other stratum lots in SP 71067 that subsequently became the mid-rise and high-rise sections of the building. The Strata Management Statement also made the World Tower Committee responsible for the maintenance, repair and operation of certain identified "shared services" comprising various items of plant and equipment located throughout the building and which were shared by occupants of each of the low-rise, mid-rise and high-rise areas of the building. This statement was generally in conformity with the policy purpose of Freehold Act, Division 2B - Strata Management Statement. The detail of the World Tower Strata Management Statement will be considered later.
The low-rise section of the building was further developed into sections for commercial and residential use and for this purpose was subdivided on 6 November 2003, when Apartments registered Strata Plan SP 71357.
As a result of these events, by February 2004 Low Rise had been brought into existence, with control over the common property of the old Lot 803 in DP 1057924. But Apartments itself still held the other two lots in that deposited plan, Lots 801 and 802. The February 2004 Caretaker Agreement was executed against this background. On 4 February 2004 Apartments entered into a form of Caretaker Agreement with itself in various capacities (as caretaker and in respect of the mid-rise and high-rise sections of the building that it still owed) and with Low Rise. In February 2004 the Caretaker Agreement principally provided: 1. Low Rise and the bodies corporate that would in the future become incorporated as Mid Rise and Properties must for the ten year term of the agreement pay an annual fee to Apartments commencing at a base rate of $1.58 million per annum exclusive of GST in the first year indexed to the consumer price index (a figure set by Apartments), with the yet-to-be-incorporated Mid Rise being responsible for 33 per cent of that fee: Caretaker Agreement, clause 1, 2, and Schedule 1. 2. Apartments would perform duties as caretaker and building manager of the World Tower building for Low Rise and for the yet-to-be-incorporated Mid Rise and for Properties: Caretaker Agreement, Schedule 2. 3. Apartments had the benefit of termination clauses without penalty in a wide variety of circumstances, including where neither party under the Caretaker Agreement was in breach: Caretaker Agreement, clauses 5.1 and 5.2. 4. Low Rise and the yet-to-be-incorporated Mid Rise and Properties had rights of termination under the Caretaker Agreement but only in limited circumstances where Apartments had engaged in "serious persistent and continuing breach of the terms of the Agreement": Caretaker Agreement, clause 5.3.
On 25 March 2004 an additional lot was created within the low-rise part of the building upon lodgement of another strata plan, SP 72262. The mid-rise section of the building became ready for occupation and then the creation of a strata plan in April 2004. On 2 April 2004 an interim occupation certificate was issued in respect of World Tower levels 39 to 50 and 61. At this stage no occupation certificate had yet been issued in respect of levels 51 to 60.
On 20 April 2004 Apartments lodged the strata plan for the mid-rise section of the building, SP 72381, which on registration brought Mid Rise into existence. Mid Rise thereby became the registered proprietor of the common property in respect of the following parts of the World Tower building, the storage areas on levels 4, 5, and 6, the residential apartments on levels 38 to 59 and parts of the plant and equipment rooms on levels 60 and 61. Upon coming into existence it became bound by the Caretaker Agreement which provided (in clause 12.4) that upon Mid Rise "coming into being" that it would "automatically become bound by this Agreement" as if it were an original executing party.
In June 2004 an occupation certificate was issued for levels 51 to 59, the remaining part of the mid-rise section of World Tower. On 23 June 2004 a development lot within mid-rise was created by further subdivision upon lodgement of another strata plan, SP 72843. No other matters of significance occurred between June 2004 and Mid Rise's inaugural annual general meeting held in October 2004.

[6]

Mid Rise's 2004 AGM - October 2004

The February 2004 Caretaker Agreement was replaced with a further Caretaker Agreement on 11 October 2004, the day of the first annual general meeting of the newly formed Mid Rise. Management Act s 40B(2) provides that a caretaker agreement comes to an end when the first annual general meeting of a newly formed owners corporation takes place. An extraordinary general meeting held immediately after the Mid Rise annual general meeting passed a resolution affirming the Caretaker Agreement.
To the extent that it is necessary for these reasons to distinguish between the Caretaker Agreements before and after 11 October 2004, the form of the Caretaker Agreement that was made in February 2004 and existed until October 2004 is called in these reasons the "February 2004 Caretaker Agreement". And the form of Caretaker Agreement that operated after October 2004 is called in these reasons the "October 2004 Caretaker Agreement".
A representative of Apartments, Mr Ray McDowell, attended Mid Rise's first annual general meeting. He held proxies for Apartments in respect of 7,395 Mid Rise unit entitlements. He voted those unit entitlements on behalf of Apartments. Mr McDowell also attended the 11 October 2004 extraordinary general meeting, and voted the proxies on behalf of Apartments for a majority of the unit entitlements. The extraordinary general meeting resolved to appoint Apartments as its Building Manager, as the resolution in question states on "the terms and conditions marked Exhibit 'A' tabled at the meeting…". No document marked 'A' was attached to or was with the minutes of that meeting. The parties accept that a form of the Caretaker Agreement was before this meeting even though none was ever executed on behalf of Mid Rise. But they are at issue as to the precise form of the terms and conditions that Mid Rise adopted at this meeting.
It is claimed by Mid Rise that no one signed the Caretaker Agreement on behalf of Mid Rise after 11 October 2004. But Mid Rise accepts that it became bound by the essential elements of the Caretaker Agreement as a result of the course of dealings between the parties over a long period between October 2004 and July 2012. But Mid Rise says that it did not become bound by all the terms of the Caretaker Agreement and especially the terms providing: (1) that it was to operate for 10 years (clause 4.1); and (2) that right to termination was restricted (clause 5.3).

[7]

Operation of the Caretaker Agreement - October 2004 to July 2012

But the parties put strongly competing contentions about the course of events during the period October 2004 to July 2012. But a brief overview of relevant events during that period is necessary.
Apartments contends that it and the other parties to the Caretaker Agreement, Low Rise, Mid Rise and Properties, acted at all times between October 2004 and July 2012 as though they were each bound by the Caretaker Agreement and that Mid Rise also exercised rights during this period granted under the Caretaker Agreement, namely rights to issue notices, to demand access to documents and records, to make and receive payments, and ultimately to seek to terminate the Caretaker Agreement according to its terms. Apartments says that as a result it is now too late for Mid Rise to be granted relief avoiding that agreement.
Much of what Apartments says about delay in challenging the Caretaker Agreement can be accepted. Mid Rise's first intimation that the October 2004 Caretaker Agreement should be set aside came in Mid Rise's Cross Claim filed in these proceedings.
World Tower was completed during 2005. On 4 January Apartments, then still the owner of the high-rise section of the building, transferred it to Properties. The high-rise section of the building was every part of the World Tower building not controlled by either Low Rise or Mid Rise, namely levels 6, 7 and 10 and 61 to 79.
On 5 August 2005 the City of Sydney Council issued a final occupation certificate in respect of levels 2 to 38 of World Tower. On 31 August 2005 Advance Building approvals issued a final occupation certificate in respect of levels 39 to 85 of World Tower.
Between 2004 and 2010 Apartments performance of the Caretaker Agreement was reasonably uncontentious. In 2010 the first Apartments - Mid Rise tensions appeared, tensions that ultimately led to the termination of the Caretaker Agreement in July 2012. The mid-rise lot owner Mr Ong, who gave evidence for Mid Rise says, and I accept that relations between Mid Rise and Apartments "significantly deteriorated" from about April 2010 to the point where the relationship as at July 2012 was completely paralysed and dysfunctional.
This standoff is evident at the World Tower reception (the Liverpool ground level) of the building. Since about mid 2012 Apartments has displayed a sign at the desk on Level 10 that states Mid Rise's residents are to direct any inquiries to Mid Rise's office on Level 38. The two parties now mostly communicate through their lawyers. The particular allegations of breach of the Caretaker Agreement during this period are best considered when individual breaches of the Caretaker Agreement are being analysed, later in these reasons rather than as part of this general chronology. But some particular events are still relevant.
On 15 April 2011 Mid Rise commenced related proceedings in this Court against Apartments and another Meriton company alleging defects in the construction of the World Tower building.
On 13 December 2011 Apartments commenced these proceedings by summons and notice of motion seeking urgent interlocutory relief in relation to Mid Rise's alleged breaches of the Caretaker Agreement and the Strata Management Statement. The application for interlocutory relief was ultimately resolved through consent orders entered without admission.
On 18 May 2012 the World Tower Committee constituted under the Strata Management Statement met for the first time.
On 12 July 2012 Mid Rise resolved at its annual general meeting to terminate the Caretaker Agreement. On 13 July 2012 Mid Rise served a notice of termination upon Apartments.
Since then there has been a legal stand-off. Apartments has continued to treat Mid Rise's termination as a wrongful repudiation of the Caretaker Agreement and has affirmed the Caretaker Agreement by continuing to offer to perform services under the agreement. But Mid Rise has refused to accept those offered services and has communicated that it considers its termination to be valid and that it will no longer accept Apartments services under the Caretaker Agreement.
On 30 May 2013 Mid Rise engaged building services provider, Moreton & Moreton to assist it in building management of its common property.

[8]

The Legislative Framework

The Management Act governs the making and operation of the Caretaker Agreement. The Management Act provides for the management of strata schemes created under the related Strata Schemes (Freehold Development) Act 1973: Management Act, s 3. After registration of a strata plan the body corporate of a newly created strata scheme has principal responsibility for the management of the scheme: Management Act, s 8. But the body corporate may be assisted in carrying out its management functions by an executive committee, established in accordance with Management Act, Part 3, by a strata management agent appointed in accordance with Management Act, Part 4, and by a caretaker appointed in accordance with Management Act, Part 4A: Management Act, s 9. On registration of the strata plan for a strata scheme Management Act, Part 5 provides for a set of by-laws to be applied to the strata scheme: Management Act, s 10.
These reasons deal later with the interrelationship of aspects of the Management Act: namely Management Act, Part 2 - The Principal Manager - the Owners Corporation, with Part 3 - Others Involved in Management - the Executive Committee, with Part 4 - Others Involved in Management - Strata Managing Agents, and with Part 4A - Others Assisting in Management - Caretakers.
Of principal significance to the present dispute is Management Act, Part 4A, which was introduced into the Management Act by the Strata Schemes Management Amendment Act ("the 2002 Amendment Act") 2002 . Part 4A provides who may be a caretaker to a strata scheme, how a caretaker is appointed and the specific owners corporation functions in which the caretaker is permitted to assist. Caretakers have a special exclusive relationship with a lot or common property in the strata scheme, as Management Act, s 40A provides: "40A Who is a caretaker? (1) A caretaker is a person who is entitled to exclusive possession (whether or not jointly with another person or other persons) of a lot or common property and assists in exercising any one or more of the following functions of the owners corporation for the strata scheme concerned: (a) managing common property, (b) controlling the use of common property by persons other than the owners and occupiers of lots, (c) maintaining and repairing common property. (2) However, a person is not a caretaker if the person exercises those functions only on a voluntary or casual basis or as a member of the executive committee. (3) A person may be both a caretaker and an on-site residential property manager. (4) For the purposes of this Act, a person is taken to be a caretaker for a strata scheme if the person meets the description of a caretaker set out in this section, regardless of whether the title given to the person's position is caretaker, building manager, resident manager or any other title."
Caretakers must be appointed by a written caretaker agreement that has been created and continues in operation in accordance with provisions of Management Act, s 40B: "40B How is a caretaker appointed? (1) A caretaker is required to be appointed by an instrument in writing (a caretaker agreement) executed before or after the strata scheme commenced by the caretaker and: (a) by the original owner, if executed before the strata scheme commenced, or (b) under the authority of a resolution passed at a general meeting of the owners corporation of the strata scheme concerned, if executed after the strata scheme commenced. (2) Unless it expires or otherwise ceases to have effect earlier, a caretaker agreement (including any additional term under any option to renew it) expires: (a) at the conclusion of the first annual general meeting of the owners corporation, if the agreement was executed by the original owner, or (b) when 10 years have expired after it commenced to authorise the caretaker to act under it, in any other case. (3) The functions of a caretaker under a caretaker agreement may be transferred to another person only with the approval of the owners corporation. A person to whom those functions are transferred is taken to be appointed as a caretaker by the caretaker agreement. (4) An owners corporation may terminate a caretaker agreement in accordance with its terms, and may approve a transfer of the functions of a caretaker, if authorised by a resolution at a general meeting of the owners corporation."
Management Act, s 40B makes clear a caretaker agreement may be made before a strata plan is registered, and thus before an owners corporation which is proposed to be a party to that agreement has come into existence. Apartments submits that Management Act, Part 4A sets out a comprehensive scheme dealing with the making of caretaker agreements for strata schemes and therefore leaves no room for the operation of equitable doctrines relating to promoters. Mid Rise contests this submission and submits that Apartments owes fiduciary duties as a promoter of Mid Rise.
A caretaker may only assist with defined functions of an owners corporation: those related to the maintenance and repair of common property. Management Act, s 40C provides: "40C With which functions of an owners corporation can a caretaker assist? (1) A caretaker may, in accordance with the caretaker agreement appointing the caretaker, assist in exercising one or more of the functions of the owners corporation of managing and controlling the use of common property (otherwise than by the owners or occupiers of lots) and of maintaining and repairing common property. (2) However, the owners corporation may continue to exercise all or any of those functions, subject to the caretaker agreement. (3) A person is not a strata managing agent for the purposes of this or any other Act only because the person is a caretaker acting in accordance with a caretaker agreement."
The 2002 Amendment Act also amended Management Act: (1) to include caretaker agreements in the documents that owners (and persons authorised by Owners, such as prospective purchasers) may inspect among the records of the Owners Corporation (s 108); and (2) to include caretaker agreements among the information in relation to a strata scheme that may be the subject of a certificate to be provided on request by an Owners Corporation.
Finally, the 2002 Amendment Act conferred jurisdiction on the Consumer Trader and Tenancy Tribunal to make a range of orders in relation to the caretaker agreements: s 183A. These provisions will be discussed in more detail later in these reasons.
The February 2004 Caretaker Agreement was drafted within this legislative framework.

[9]

The Terms of the February 2004 Caretaker Agreement

In the February 2004 Caretaker Agreement Low Rise then described as The Owners Strata Plan 71067 was called the "Lot 803 Owner", and Meriton in its capacity as owner of the mid-rise section of World Tower was called the "Lot 802 Owner" and in its capacity as owner of high-rise section was called the "Lot 801 Owner".
The 4 February 2004 Caretaker Agreement set out the following relevant definition of particular terms: "'Common Property' (a) has the meaning given in the Act if the stratum lot is or will be subdivided by a strata plan of subdivision; (b) means all areas of a stratum lot in common use if the stratum lot has not or will not be subdivided by a strata plan of subdivision; and (c) the World Tower Shared Facilities. 'Complex' means the building known as 'World Tower', 85-95 Liverpool Street, Sydney, New South Wales. 'Duties' means the duties in Schedule 2. 'Lot's Representative' means the representative of each of the Lots appointed under clause 16.3. 'Occupation Certificate' means a certificate issued by a Council pursuant to Part 4A of the Environment Planning and Assessment Act 1979. 'Owners' means the Lot 801 Owner, the Lot 802 Owner and the Lot 803 Owner. 'Owners Representative' means the representative of the Owners appointed under clause 16.2. 'Remuneration' means the sum specified in Item 1 of Schedule 1 subject to clause 2. 'Term' means a term of 10 years commencing on the date of this Agreement and expiring 10 years from the date of this Agreement. 'World Tower Committee' means the management committee established under Section 2 of the Strata Management Statement in relation to the Complex. 'World Tower Shared Facilities' has the meaning given in the Strata Management Statement. … A2. In this Agreement unless the context requires another meaning: (a) a reference: (i) to the singular includes the plural and vice versa; … (b) Where a word or phrase is defined, its other grammatical forms have a corresponding meaning."
Clause 1 provides for the appointment of the Caretaker: "1. Appointment of Caretaker 1.1 The Owners engage the Caretaker to assist the Owners to manage the Common Property, to control the use of the Common Property by visitors and to maintain and repair the Common Property by performing the Duties in a conscientious, expeditious and workmanlike manner and to assist the Owners to secure, clean and maintain the Complex and to permit the Complex to be enjoyed as a high class residential development. 1.2 The Caretaker accepts the engagement under clause 1.1 upon the terms and conditions of this Agreement. 1.3 In consideration for the performance by the Caretaker of the Duties, the Owners must pay the Caretaker the Remuneration. The Owners must pay their proportion of the Remuneration in accordance with Item 2 of Schedule 1 of this Agreement subject to clause 1.6. The Owners acknowledge that the Owner's proportion of the Remuneration is payable whether or not the Duties are performed in respect of their Lot or the World Tower Shared Facilities. 1.4 The Owners must pay their share of the Remuneration: (a) by equal fortnightly instalments in advance, each payment being one-twenty sixth of the Remuneration then due as fixed or varied under this Agreement; (b) upon demand by the Caretaker and without deduction or set-off; (c) by any method required by the Caretaker, including by direct debit into an account as directed by the Caretaker, by cash, by cheque, or by banker's order on the Caretaker's bank; and (d) as reasonably directed by the Caretaker. 1.5 If an instalment of Remuneration is for a period of less than 14 days, then that instalment is the Remuneration divided by 365, multiplied by the number of days remaining in that period. 1.6 Despite anything to the contrary in this agreement, an Owner is not liable to pay its proportion of the Remuneration unless and until the following: (a) In respect of Lot 803: (i) As to the sum of $200,000.00 per annum - on and from the date an Occupation Certificate for Stage 1 of Lot 803 has been granted by Council. (ii) As to the sum of $447,800.00 per annum - on and from the date an Occupation Certificate for Stage 2 of Lot 803 has been granted by Council. (b) In respect of Lot 802: (iii) As to the sum of $300,000 per annum - on and from the date an Occupation Certificate for Stage 1 of Lot 802 (including the pool) has been granted by Council. (iv) As to the sum of $221,400.00 per annum - on and from the date an Occupation Certificate for Stage 2 of Lot 802 has been granted by Council. (c) In respect of Lot 801: As to the sum calculated in accordance with the following formula - on and from the date an Occupation Certificate has been granted by Council for each stage of Lot 801: $410,800.00 per annum x (A/B) Where: A is the number of Units in that stage of Lot 801 that has been granted an Occupation Certificate by Council. B is the total number of Units in Lot 801. For the avoidance of any doubt, the amounts referred to in clause 1.6 are with respect to the Remuneration for the first year of the Term only."
Clause 2 provides for review of the "Remuneration" as defined from a Review Date which is the anniversary of the Agreement, so that there is a consumer price index (CPI) review each year and then after six years a review to market on the "market review date" although these reviews cannot reduce the Caretaker's Remuneration.
The Caretaker is permitted to undertake functions of the buying, selling, leasing, assigning or disposal of strata lots in the complex and to perform property management services including rent collection for the lease of strata lots in the complex. These are defined as "agents and services", which are regulated by clause 3, that provides: "3. Agency Services 3.1 The Caretaker may provide the Agency Services to the registered proprietors of Units in the Complex, at their request and subject to agreement between the Caretaker and the registered proprietors of the terms on which the Agency Services are to be provided. 3.2 Under no circumstances will the Owners be liable to pay the Caretaker any consideration for the Agency Services or to reimburse the Caretaker for any expenses incurred in providing the Agency Services."
Clause 4 fixes the ten year term of the agreement defined as the Term but subject to termination provisions in clause 5. Clause 5 provides for a procedure for termination of the Caretaker Agreement in certain defined circumstances: "5. Termination 5.1 In addition to the termination rights under clause 5.2, the Caretaker may terminate this Agreement without penalty to the Caretaker: (a) at any time and for any reason by giving to the Owners not less than three months' notice in writing; and (b) if the Lot has been subdivided by a plan of strata subdivision, at any time by giving not less than 14 days notice in writing to the Owners should the By-Laws be varied or repealed without the consent of the Caretaker. 5.2 The Caretaker may terminate this Agreement at any time by notice in writing to the Owners if any of the following occur: (a) any serious, persistent and confirming breach by any one or more of the Owners of their obligations under this Agreement and such a breach is not remedied by the relevant Owner or Owners in breach within 30 days after written notice has been given to that Owner specifying the breach; or (b) an order is made for the Owners or any one of them to be wound up, or any one or more of the Owners enters into a deed of arrangement or a receiver or receiver/manager is appointed to any one or more of the Owners. The Owners covenant to compensate the Caretaker for the loss or damage suffered by the Caretaker as a consequence of the breach, whether or not this Agreement is terminated for the breach or on any other ground. 5.3 The Owners may terminate this Agreement at any time by notice in writing to the Caretaker if any of the following occur: (a) any serious, persistent and continuing breach by the Caretaker of its obligations under this Agreement and such a breach is not remedied by the Caretaker within 30 days after written notice has been given to the Caretaker by the Owners specifying the breach; or (b) an order is made for the Caretaker to be wound up, or the Caretaker enters into a deed of arrangement or a receiver or receiver/manager is appointed to the Caretaker. The Caretaker covenants to compensate the Owners for the loss or damage suffered by the Owners as a consequence of the breach, whether or not this Agreement is terminated for the breach or on any other ground."
Clause 6 provides for certain consequences of either the expiration of the Term or of termination: "6. In the event of the expiration of earlier termination of this Agreement under clause 5, the Caretaker must: (a) remove: (i) alterations, additions, fixtures, partitions and fittings made or installed by the Caretaker in the Complex and the Caretaker's plant, equipment and other articles or items belonging to the Caretaker in the Complex; (ii) all signs and notices erected or affixed by the Caretaker to the Complex; (iii) all nails and screws inserted by the Caretaker into any part of the Complex; (b) reinstate the Complex to their condition before any alterations, additions, installations and partitions were made or installed by the Caretaker; and (c) make good, in a proper and workmanlike manner, any damage caused to the Complex by the installations and their removal.
The Caretaker is required to effect all necessary insurance required by law (clause 7) and to indemnify the owners from liability or loss occasioned by the Caretaker's negligence (clause 8).
Clause 9 defines the level and standard of services required from the Caretakers Employees and of the equipment that will be provided under the contract: "9. Caretaker's employees and Equipment: 9.1 The Caretaker must use its best endeavours to hire employees, contractors and agents that are competent, appropriately trained and have the proper skills, qualifications and licences to perform the Duties under this Agreement including at least the following: (a) two security guards for 24 hours per day 7 days per week; (b) one general manger for 54 hours per week; (c) one maintenance manager for 54 hours per week; (d) one assistant manager for 40 hours per week; and (e) one concierge for 105 hours per week. 9.2 The Caretaker must ensure that its employees, contractors and agents have adequate training, instructions and supervision so as to permit the performance of the Duties to the appropriate standard. 9.3 The Caretaker must appoint the Caretaker's Representative to liaise with the Owners' Representative and the Lot's Representative."
Several provisions define the nature of the Owners - Caretaker relationship. It is non-exclusive (clause 10) and is not one of partnership, employer and employee, or principal and agent (clause 11).
The Caretaker may assign the Caretaker Agreement with the consent of the owners by means of the procedures described in clauses 12.1, 12.2 and 12.3. Clauses 12.4 and 12.9 provide for the Owners Corporation coming into being: "12.4 On the date the Owners Corporation comes into being, the Owners Corporation automatically becomes bound by this Agreement. From that date, the Owners Corporation is entitled to the rights and is bound by the obligations of an Owner under this Agreement as if the Owners Corporation was one of the original Owners who executed this Agreement … 12.9 Each Owner must take all steps, execute all documents and do all things necessary to give effect to the intent of this clause 12 including passing a resolution to ratify this Agreement at a meeting of the Owners Corporation where the Lot has been subdivided by a plan of strata subdivision."
Clause 14.1 provides a mechanism for dispute resolution: "14.1 If there is a dispute in respect of this Agreement, any party to this Agreement (or parties if the dispute is common to two or more of the parties) may serve upon the other parties a notice ('Dispute Notice') setting out: (i) what that party considers is in dispute; and (ii) what that party requires to be done to resolve the dispute and the grounds it has for those requirements."
The Caretaker Agreement contains a severance clause (clause 15) allowing illegal, invalid, unenforceable or void provisions to be ignored, read down or severed to preserve the essence of the bargain between the parties.
The Agreement deals with a number of other subsidiary issues: it is acknowledged that the Caretaker is not appointed as a Strata Managing Agent or to have any functions of the owners delegated to it under Management Act, s 28 (clause 17); or prices under the agreement are exclusive of GST (clause 18); the Caretaker may use the benefit of the Agreement for security for the financing (clause 19); the Caretaker has a right of exclusive use of the Caretaker's area to carry out the Duties and Agents and Services.
Finally, the parties acknowledge the incomplete state of the complex at the time the agreement was signed in clause 21: "21. Complex not yet completed 21.1 Despite anything to the contrary in this Agreement, the Owners acknowledge and agree that as at the date of this Agreement, the Complex is not yet fully completed and fully occupied. The Owners agree that the Caretaker will perform the Duties that are reasonably appropriate and at the frequency reasonably necessary having regard to the stage of completion of the Complex, the number of occupants in the Complex and the monies available from the budgets of the Lots. 21.2 Without limiting clause 21.1, the Caretaker's obligations under clause 9.1 are subject to clause 21.1"
In such a complex, the parties contemplated that the most efficient way for the parties to the Caretaker Agreement to communicate with one another was through designated representatives, who could liaise with and meet one another. To that end clause 16 provides: "16. Duties of the Owners 16.1 The Owners must do all acts and attend to all matters and generally do all things as are reasonably required to facilitate the carrying out by the Caretaker of the Duties including assisting the Caretaker in obtaining appropriate notices, consents or licences from any person, company, statutory authority or other body. 16.2 The World Tower Committee must appoint the Owners' Representative to liaise with the Caretaker on behalf of the Owners in respect of the World Tower Shared Facilities. 16.3 The Executive Committee for each of the Lots must appoint a Lot's Representative to liaise with the Caretaker on behalf of each Lot in respect of the Common Property of Lot 801, Lot 802 and Lot 803 that does not comprise World Tower Shared Facilities. 16.4 The Caretaker is not required to comply with any direction in respect of the Duties from any person, other than the Owner's Representative and the Lot's Representative and not to follow any direction that is inconsistent with the rights of any of the Owners."
Caretaker Agreement, Schedule 1, identifies as "Item 1" Remuneration of $1,580,000 per annum (exclusive of GST) subject to Clause 2, the clause providing a review mechanism for the Remuneration linked to the Consumer Price Index.
Schedule 2 provides for the duties of the Caretaker. The parties contested Apartments' performance of a number of these duties in Mid Rise's breach of contract case. Clauses 1, 2, 3, 5, 8, 9, 16, 17, 23, 24, 26, 27, 30, 33, 34, 38, 39 and 41, were the subject of or relevant to these contests. "GENERAL DUTIES The Caretaker will by its employees, contractors or agents at the cost of the Owners in all respects: 1. Attend to the security, cleaning and maintenance of the Common Property and any improvements thereon and in so doing it will use its best endeavours to maintain the Common Property in a good state of repair (fair wear and tear excepted). 2. Report on any breaches of security, the by-laws or rules made by the Owners in respect of each Lot by the proprietors or occupiers of a Unit and their invitees. If directed by the Owners' Representative or the Lot's Representative, the Caretaker must serve notices on the same in relation to the breaches and must record all breaches for future references. 3. At the request of the Owners' Representative and the Lot's Representative advise them concerning the performance of the Duties by the Caretaker and provide other advice that they request in respect of the maintenance, security and care of the Common Property. … 5. Report promptly on all things requiring repair and on all matters creating a hazard or danger of which the Caretaker has notice and take remedial action where practicable. … 8. Comply with and carry out all reasonable directions from time to time given by the Owners' Representative and the Lot's Representative to the Caretaker in and about the security, maintenance and care of the Common Property. 9. At all times ascertain and use its best endeavours to be aware of the general condition of the Complex and all machinery thereon and appurtenances thereto so that at all times the Caretaker is able to keep informed the Owners' Representative and the Lot's Representative in respect therof. … 16. Regularly inspect or cause to be inspected the lifts and electric or electronic security or other systems in the Complex and recommend to the Owners quotes for acceptance by the Owners and supervise the maintenance or other works necessary to keep them in efficient working condition at the expense of the Owners. 17. Use its best endeavours to ensure that all common electrical apparatus including lighting is kept fully functional throughout the Complex and recommend to the Owners quotes for acceptance by the Owners and supervise the maintenance or other works necessary to keep such apparatus in efficient working condition by a duly qualified person provided however that the cost of any light globes, tubes, fuses and maintenance and other works will be borne by the Owners. … 23. Inspect all maintenance matters raised by registered owners and occupiers of Units relating to the Common Property within the Complex prior to referral of such maintenance matters to the Owners. 24. Account promptly and faithfully to the Owners and to the occupiers and registered proprietors of Units, as the case may be, for all their funds or other property (if any) in the possession or custody of the Caretaker. … 26. Be in attendance at the reception areas of the Complex between the hours of: Monday to Friday inclusive 8.00am - 6.00pm Saturday 9.00am - 1.00pm 27. Keep and maintain the reception areas of the Complex at all times in a clean and tidy condition. … 30. Be available to attend the World Tower Committee meetings and meetings of the Executive Committee of the Lots to provide progress reports and general information regarding the operation of the Complex along with recommendations for improvements if required. … 33. Be observant to trespassers and any improper use of the Common Property of the Complex, including visitor parking by non-visitors. Keep a log of offenders to be used by the Strata Managing Agent. Contact law enforcement or local authorities for assistance where appropriate. 34. Establish rapport with firms and individuals to improve services for the cohesive performance of the Complex. … 38. Keep maintenance and service records for all work carried out to the Common Property and fixtures and fittings of the Complex. Develop proactive schedules from this information to assist in budgeting for the World Tower Committee and the Executive Committees for the Lots. 39. Organise, schedule and co-ordinate all people moving in or out of the Complex to minimise damage and inconvenience to residents. … 41. Records all purchases made by or directed by the World Tower Committee and the Executive Committee for the Lots and maintain supporting documentation."

[10]

Apartments' Claims on the Caretaker Agreement and the Strata Statement

Apartments originally pleaded its claim for money and answered some of Mid Rise's allegations of breach of the Caretaker Agreement, through the terms of the Strata Management Statement, registered in respect of the World Tower building on 17 September 2003.
This registration occurred at the same time that Low Rise's Strata plan was created. Strata management statements are compulsory where more than one strata plan or stratum parcel is to subsist in the same building or on the same site: Freehold Act s 28R(1). Under Freehold Act s 28W a strata management statement takes effect as an agreement under seal and by which the relevant Owners Corporation covenants with each other party to carry out its obligations under the statement.
Apartments originally contended that the obligations that bound Mid Rise under the Strata Management Statement obliged Mid Rise to pay a proportion of the costs of the World Tower Shared Facilities (as such costs are defined in the Strata Management Statement, Part 2) and to permit nominated contractors to access those facilities, if the facilities are located on a particular lot (clause 3.6). Apartments says that Mid Rise has failed to pay its proportion of the costs of the World Tower shared facilities and has refused access to those shared facilities in breach of clause 3.6.
Ultimately Apartments abandoned any positive case it had pleaded based on the Strata Management Statement. But Apartments nevertheless continued to deploy the instrument as an aid to construction of the Caretaker Agreement. Some background to the Strata Management Statement for the World Tower is therefore useful.
Mid Rise originally contended that no action on the Strata Management Statement for a proportion of the World Tower shared facilities was maintainable against it, because Apartments has not observed certain other requirements of the Strata Management Statement, such as with respect to the holding of meetings. Apartments contended that it had in fact observed these requirements of the Strata Management Statement. Apartments also contended that: (1) as a document registered against the title of Mid Rise the Strata Management Statement has statutory force as an integral part of the regulation of this complex development established under the legislation; and (2) its own compliance with the Strata Management Statement is not a precondition to it enforcing the statutory obligations the same statement creates.
The parties abandoned their Strata Management Statement contest in the course of the hearing. Apartments made clear in final submissions that it was no longer pressing for relief against Mid Rise in connection with the Strata Management Statement. This came as no surprise, as very little had been said about Strata Management Statement related claims on either side during the hearing. The money relief Apartments claimed under the Strata Management Statement was a little over $10,000. The whole argument was overshadowed by the far higher value issues at stake under the Caretaker Agreement.
This eliminates a number of issues that occupied the parties' time in the proceedings. Low Rise had been joined in the proceedings after passing a resolution under Management Act, s 80D. The resolution was qualified with requirement that Apartments supply the Executive Committee of Low Rise with written legal advice and that Apartments indemnify Low Rise with respect to the proceedings. Mid Rise called for access to that legal advice. That advice was produced to the Court which ruled against Mid Rise's application for access to it. Mid Rise sought in final submissions to re-visit that ruling, in accordance with a liberty the Court granted for that purpose.
The abandonment of this part of the proceedings will still require orders to finalise the position of the parties. In April 2013 Windeyer AJ granted an injunction to prevent work being performed on Mid Rise's common property by Apartments without Apartments' prior consent. Mid Rise contends this injunction should be made permanent. In light of the detailed findings in these reasons the injunction may no longer be necessary. But if it is thought to be necessary, that can be debated at the time final relief is granted.
The abandonment of this part of the case also means that the World Tower Committee with representatives of Low Rise, Mid Rise and Properties should continue to operate in accordance with the Strata Management Statement, unaffected by any part of these proceedings. Such future problems as may arise with respect to the operation of the Strata Management Statement can be dealt with under the Freehold Act, s 28U(1)(b).

[11]

Overview of the Termination Issues

Apartments contests Mid Rise's claim that it validly terminated the Caretaker Agreement in July 2012 either under its express termination provision (clause 5.3) or at common law.
Apartments disputes Mid Rise's claims on three main bases. Apartments says that: (1) the precondition for the exercise of the termination clause, that the caretaker was in "serious, persistent and continuing" breach of the agreement, had not been met; (2) there is no unilateral right for a single party to the Caretaker Agreement to terminate it but that properly construed the termination clause requires joint action of the three owners together to effect valid termination; and (3) Mid Rise failed to comply with the notice provisions of the Caretaker's Agreement and denied Apartments the opportunity to remedy any breach that had allegedly occurred. These reasons deal with each of these contentions in turn. Apartments' first contention requires detailed analysis of Mid Rise's individual allegations of breach. Apartments' second and third contentions deal together with all Mid Rise's allegations of breach.
On the issue of Mid Rise's unilateral termination, Apartments contends that, properly construed, the Caretaker Agreement, clause 5.3 does not provide a unilateral right of termination for any single owner. The Caretaker Agreement defined the term "Owners" to mean all three owners of different stratum lots, reducing the scope to interpret the word to include each owner alone. Moreover, Apartments says that interpretation is not attractive in a building of complex interrelated service systems such as World Tower, where common fire control, building security, and other systems service the three parts of the building, low-rise, mid-rise and high-rise. Mid Rise says it may terminate the agreement unilaterally, as any other construction of clause 5.3 would be oppressive to it.
On the issue of contractual notice of breach, Apartments alleges that: (1) Mid Rise has failed to comply with the Caretaker Agreement notice of breach provisions as any notice that Mid Rise gave neither identified a breach nor provided a period for any such breach to be remedied; (2) Mid Rises's failure to comply with these notice provisions is demonstrated by Mid Rise's inability to identify and give particulars in these proceedings of the precise notices of breach on which it relies; and (3) Mid Rise cannot avail itself of the Caretaker Agreement's termination provisions without strictly conforming to the procedural mechanisms that the clause requires preceding termination. As a result Apartments says that it is entitled to declarations that the Mid Rise attempted termination was ineffective, that the agreement remains on foot and that Apartments is now entitled to judgment against Mid Rise for the unpaid contributions
Mid Rise contests these claims but says in the alternative that Apartments' breaches of the Caretaker Agreement were breaches of an essential term or were sufficiently serious breaches of an innominate term as will permit Mid Rise to terminate the Caretaker Agreement at common law: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115, 136-139. The serious breaches Mid Rise relies on are Apartments: (1) failure to account for monies received by it on behalf of Mid Rise (Caretaker Agreement Schedule 2 clauses 1.1 and 24); (2) demanding the wrong amount of remuneration as due to it under the Caretaker Agreement (clauses 1.3 and 1.4); and (3) a refusal to accept instructions from Mid Rise's contractually nominated representative (clauses 1.6, 16.3 and 16.4 and Schedule 2 clause 8).
It is necessary to examine Mid Rise's individual allegations of breach. But first there are differences between the parties about the scope of the Caretaker Agreement and in particular whether or not it includes a termination clause.

[12]

The Scope of the Caretaker Agreement

The parties are at issue as to which terms of the written form of Caretaker Agreement are binding between them; an issue arising because in October 2004 there is no proof that Mid Rise executed the Caretaker Agreement. It is unclear whether Mid Rise did execute the agreement. Apartments contends that all the written terms of the Caretaker Agreement are binding on its parties, Apartments, Low Rise, Mid Rise and Properties. But Mid Rise contends that it never became bound by all the terms in the written form of the agreement.
Mid Rise does accept that it became bound by parts (only the essential elements), of the Caretaker Agreement as a result of both its conduct between February and October 2004 and of the course of dealing between Mid Rise and Apartments over a lengthy period of time after October 2004: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, at 534-535 (McHugh JA, Samuels JA agreeing) and Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 at 525 (Allsop J, Drummond and Mansell JJ concurring).
But Mid Rise contends that Caretaker Agreement clause 4.1 (the 10 year term of the Agreement) and clause 5.3 (Mid Rise's right of termination) did not bind it. Mid Rise further contends that Mid Rise and Apartments did not reach "mutual assent" in relation to those two particular terms of the Caretaker Agreement, because they were not essential elements of the bargain between the parties: Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 at 525.
Put simply Mid Rise's contention is that its conduct in accepting the benefit of the caretaking services that Apartments was providing and in its paying for those services signifies little more than its assent to those services being provided in turn for that payment. It does not signify assent to all the written forms of the Caretaker Agreement. But in my view Mid Rise's conduct which relies on aspects of the Caretaker Agreement over such a lengthy period after the resolutions passed on 11 October 2004, is quite inconsistent with any conclusion that Mid Rise is only bound by parts of the Caretaker Agreement. It was bound by the whole agreement.
Leave aside for the moment the consequences of the parties not being bound by clause 4.1, Mid Rise contends that as it was not bound by clause 5.3, it was entitled to terminate the Caretaker Agreement at common law, untrammeled by any restrictions clause 5.3 might infer for those common law rights. That question will be briefly considered separately. Although it is not strictly necessary to decide it, as the Court later finds in these reasons that Apartments has not breached the Caretaker Agreement, so as to permit Mid Rise to terminate at common law.
Mid Rise further contends even if it were bound by clause 5.3, that the clause does not purport to exclude Mid Rise's common law rights to terminate in any event. This is said to flow from the language of clause 5.3 itself. Again, the Court's later findings make clear that Mid Rise cannot exercise any common law rights to terminate this Caretaker Agreement. So it is also not strictly necessary to decide this question. But as the parties argued it thoroughly the Court's conclusions are briefly recorded here.
Mid Rise argues the following on this issue. First, clause 5.3 provides that the Owners "may" terminate pursuant to those provisions, importing thereby the idea that the Owners may terminate otherwise than pursuant to its provisions. Secondly, the Caretaker Agreement expressly contemplates that it might be terminable by the Owners on grounds other than those in clause 5.3 itself. The concluding words of clause 5.3 contain this indication: "The Caretaker covenants to compensate the Owners for the loss or damage suffered by the Owners as a consequence of the breach, whether or not this Agreement is terminated for the breach or on any other ground". [emphasis added]
Thirdly, in the absence of express indication to the contrary, common law rights of termination would continue to subsist: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 29-30, ("Progressive Mailing"), Apriaden Pty Ltd v Seacrest Pty Ltd (2005) 12 VR 319; [2005] VSCA 139; [32] - [50] and [74] ("Apriaden") and Concut Pty Ltd v Worrell (2000) 176 ALR 693, 699-700; [2000] HCA 64 ("Concuts"); and see also Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 715623 [2009] NSWSC 882 at [45].
Apartments submits that clause 5.3 comprehensively regulates the rights of Mid Rise to terminate the Caretaker Agreement and that giving a notice of termination without following that mechanism renders the purported termination invalid. Apartments relies upon Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527; 92 ALR 601 ("Amann Aviation") and Lockland Builders Ltd v Rickwood (1995) 77 BLR 38 ("Rickwood"). Apartments puts this argument the following way.
Apartments contends that clause 5.3 is a complete code for the termination of the Caretaker Agreement and displaces any common law rights of termination that would otherwise exist and that failure to comply with the notice provisions of the clause renders a purported termination ineffective. Apartments says that JW Carter, Carter's Breach of Contract, (1st ed 2011, LexisNexis, Butterworths), [10-16], p 455 accurately states the applicable law: "It is, of course, easy to understand why an express right should not displace a right to terminate on the basis of repudiation of obligation in the form of an express refusal to perform, including a wrongful termination. It is less easy to accept that, in addition to rights expressly conferred, all common law rights of termination remain available to a promisee. From a commercial perspective, express rights are designed to provide certainty. Parties to commercial contracts do not agree on such regimes merely to supplement common law rights. The commercial intention is to replace those rights. If an event within the express clause occurs, there is no commercial justification for permitting parties to second-guess their agreed regime. The starting and finishing point in relation to such clauses ought to be that the parties have spoken. An express right of termination is not analogous to an exclusion clause. The better conclusion, therefore, is that the express provision deals exhaustively with bases for termination which activate the clause. For example, an express provision dealing with notice to complete a sale of land contract must displace the common law procedure applicable following delay in performance. Only an express refusal to perform should stand on a different footing."
Apartments submits that it has not expressly refused to perform and has not wrongfully terminated the Caretaker Agreement: thus the balance of Professor Carter's statement of principles is applicable.
Apartments relies on two cases as practical applications of the principle stated by Professor Carter. The first is the decision of the Full Court of the Federal Court of Australia in Amann Aviation But Amann Aviation has partly informed Professor Carter's analysis above.
Apartments also relies on Rickwood, a decision of the English Court of Appeal. In Rickwood the clause in question, contained machinery for termination of the agreement in case of certain events and was not expressed to be without prejudice to the parties' common law rights. The Court held that the contractual machinery and common law rights could only co-exist where the contractor displayed a clear intention not to be bound by its contract. In the absence of such circumstances the termination clause created in Rickwood the only effective way to terminate the contract. Apartments argues that Rickwood is an example of a clause, such as clause 5.3 in the Caretaker Agreement, that does not express itself as "without prejudice to other rights and remedies". In Rickwood that meant that common law remedies were found not to co-exist except where the other party displayed a clear intention not to be bound by the contract.
Moreover, Apartments relies upon surrounding circumstances said to be known to both parties at contract as justifying why clause 5.3 should be read as a code governing all Mid Rise's rights of termination: the extreme impracticality of having multiple systems in the three parts of the World Tower Building, for example for fire alarms and building security passes. Apartments says this is the only way "that the three separate parts of the building for which the Caretaker Agreement must cater can be properly managed". To give certainty to the parties' arrangements Apartments says that it is necessary to construe the termination clause as exclusively regulating the basis upon which Mid Rise may terminate.
But another construction of clause 5.3 is open. The clause may only apply to breaches that affect all three owners. It does not in my view apply to breaches that relate only to one of the Owners, such as Mid Rise in this case. If clause 5.3 does not cover the situation of a breach relevant only to one owner then common law rights of termination are still open in respect of such a breach.
Such a construction would give proper effect to the language of clause 5.3, using "Owners" in the plural in relation to a single "breach" of the agreement. The clause would make commercial sense so construed. This construction avoids the strange consequence flowing from Apartments' Construction: that all three Owners are required to join in giving a notice to remedy and a notice of termination. Why would all three Owners Corporations be interested and even remotely likely to co-operate to remedy a minor breach occurring on the property of only one of them. And a construction that gives another Meriton entity Properties (or indeed any third party) an effective veto over Mid Rise's right of termination for breaches in the mid-rise area of the building does not present as a very commercial construction of clause 5.3.
And Apartments' surrounding circumstances argument based on the impracticality of only one of the three owners corporations terminating, is not persuasive. The consequences of Mid Rise's July 2012 termination did not turn out to be devastating for the interoperability of the three common areas. This factor is unlikely to have been a commonly understood surrounding circumstance at the time of contracting.

[13]

Grounds for Mid Rise's Termination - Individual Allegations of Breach

Mid Rise alleges eight breaches by Apartments in its role as caretaker under the Caretaker Agreement. Mid Rise says that each one of these eight breaches is a sufficient ground for termination of the Caretaker Agreement. Apartments answers that many of the alleged breaches were trivial and could never trigger a termination, even if established. Apartments says that it remedied any alleged breaches.
Mid Rise alleges a range of breaches against Apartments, which may conveniently be expressed as questions, as follows: 1. Whether Apartments appropriately accounted to Mid Rise for security deposits collected for the issue of security "swipe" cards to operate doors and lifts at the World Tower. 2. Whether Apartments denied access to contractors to the mid-rise common property in World Tower. 3. Whether Apartments used the store room on World Tower, level 5 to provide maintenance services, beyond its occupation entitlements under the Caretaker Agreement. 4. Whether Apartments has failed properly to manage lift bookings for owners and tenants moving into and out of apartments in the mid-rise section of the building. 5. Whether staff operating under Apartments' direction have misused security swipe cards. 6. Whether Apartments has levied charges on Mid Rise over and above the fees to which Apartments is properly entitled under the Caretaker Agreement. 7. Whether Apartments replaced the locks to the plant room on World Tower building, level 61, thereby denying Mid Rise access to that room. 8. Whether Apartments excluded Mid Rise representatives from World Tower building committee meetings.
These alleged breaches range from the serious to the less serious, and are now briefly introduced.
(a) Breach Allegation - Accounting for Security Deposits. Mid Rise alleges that Apartments has not paid it all the amounts that Apartments collected on account of security deposits for the issue of security "swipe" cards to operate World Tower's doors and lifts. Apartments disputes there was any failure to account. It says it has been difficult to extract historical data from the security access system and that once all necessary data was provided, there was no foundation for any claim of improper withholding of money. Apartments further claims that any difficulties in accessing historical data are a result of Mid Rise's unilateral removal and replacement of the mid-rise security access system. Moreover, Apartments says that on Mid Rise's best case, if there were any other payment due from it to Mid Rise on this account, the amount of that payment is uncertain.
(b) Breach Allegation - Access for Contractors. Mid Rise claims that Apartments did not give a fire control service provider, Guardian Fire Services, access to shared facilities in the mid-rise common property. But Apartments says that Mid Rise itself retained Guardian Fire Services and was at all times responsible for its access to the shared infrastructure facilities for the three building sectors.
(c) Breach Allegation - The Level 5 Storeroom. It is common ground that Apartment's maintenance manager used a storeroom on World Tower, Level 5 (part of the mid-rise common property) as a base for providing maintenance services throughout the whole World Tower building. But Apartments says: that this was well known to Mid Rise representatives, who regularly attended meetings between 2004 and 2012 at that location; and that Mid Rise accepted and benefited from the services that Apartments provided from that location in the building and is now estopped from alleging that using this storeroom was a breach of the Caretaker Agreement.
(d) Breach Allegation - Lift Bookings for Owners and Tenants. Mid Rise says that Apartments did not provide exclusive access to a lift to allow owners and tenants to move in and out of the various apartments in the mid-rise section of the building. Apartments says that the evidence demonstrates only a single instance of denial of exclusive access to the mid-rise area and that that particular incident arose because Mid Rise unilaterally imposed unreasonable conditions on the use of the lifts, which conditions Apartments' caretakers and security staff could not immediately meet. Apartments says that it could not provide exclusive access to the lift in that single instance because Mr Chen had some days earlier cancelled all access to the mid-rise lift system for Apartment's staff.
(e) Breach Allegation - Misuse of Security Swipe Cards. Mid Rise alleges that Apartments and its security staff gained unauthorised access to the mid-rise area of the building. Apartments responds that Mr Chen sought to impose a condition that only Mr Chen himself could personally authorise access for persons to inspect vacant apartments, such as contractors carrying out work on mid-rise common property, cleaners engaged by unit holder in mid-rise, and for real estate agents conducting potential mid-rise tenants. Apartments further contends that Mr Chen's self-imposed condition lacked any legal foundation in the Caretaker Agreement or the Management Act and was impractical. Apartments also says that when individual cleaners and estate agents actually entered the mid-rise common property to conduct their ordinary business, contrary to Mr Chen's self-imposed condition, Mr Chen retaliated and overreacted by cancelling all the swipe cards issued to Apartments staff and contractors.
(f) Breach Allegation - Overcharging under the Caretakers Agreement. Mid Rise's allegation that Apartments overcharged beyond the Caretaker Agreement was the most complex dispute in these proceedings. Both sides gave detailed accounting evidence on this issue. Apartments contends that the dispute really turns on two questions: first, at what point Apartments became legally entitled to begin charging the fee provided for in the Caretaker Agreement; and secondly, whether Mid Rise significantly underpaid Apartments prior to 2006, such that any earlier underpayments can now be "netted off" against any overpayments after 2006.
Mid Rise says that the correction of any early charging errors in its favour is now barred by the statute of limitations and that Apartments cannot recover them from Mid Rise, which can therefore keep the benefit of those errors in its favour. But Mid Rise alleges that it can still seek repayment for any later errors that disadvantaged it.
Apartments contests this approach. It argues that the fees paid under the Caretaker Agreement were in the nature of a running account and that the correct approach now is as follows: to look back six years prior to commencement of the proceedings; to start the accounting with the running balance at that moment, which was either in favour or against one or other of the parties; and to adjust all subsequent payments of invoices to move that running balance from time to time either for or against one or other party.
Mid Rise's expert called on the overpayment issue concludes that Apartments was overpaid by $20,000. Apartments' expert concludes that Mid Rise has underpaid by $150,000. But Apartments contends that even if Mid Rise were correct, an overcharge of $20,000 in Apartment's favour in the circumstances of this agreement is not a serious breach entitling Mid Rise to terminate. But rather it is just an "accumulation of minor accounting differences in a complex and extensive set of accounts".
(g) Breach Allegation - The Keys to the Level 61 Plant Room. The World Tower, Level 61 plant room contains equipment that services various parts of the building in the low-rise, mid-rise and high-rise sections. The caretaker and its contractors have maintained and repaired this equipment over time. Mid Rise replaced the locks of the Level 61 plant room and locked out Apartments' personnel and its contractors. Apartments complained. The plant room locks were replaced with fresh locks to which all parties had a key.
But about six months later Apartments replaced the locks once again, apparently without notifying Mid Rise and without providing representatives of Mid Rise with a key. But when Mid Rise pointed out this denial of access to Apartments, less than four hours later the lock was changed and access restored. Apartments contends that this was a minor breach and not one that was "serious persistent and continued".
(h) Breach Allegation - Exclusion from World Tower Committee Meetings. The contest about Mid Rise's exclusion from World Tower building Committee meetings is overlaid with personality issues. Apartments contends it did not exclude Mid Rise from these meetings. Apartments says all that happened was that Mr Chen behaved so badly at these meetings that Apartments asked that he be excluded. Apartments contends that it never either barred or intimated that it would bar other well-behaved Mid Rise representatives from attending these World Tower meetings.
Resolution of this allegation of breach requires the Court: to assess the effects of Mr Chen's behaviour on the Apartments staff attended these meetings and who gave evidence; and, to determine whether there was sufficient opportunity afforded to Mid Rise to present delegates other than Mr Chen to the World Tower building committee meetings.
It is necessary first to deal with the alleged more serious breaches, (a), (f) and (h).

[14]

(a) Failure to account for swipe card monies

Introduction. As part of its duties as Caretaker Apartments issued swipe security cards to owners and tenants of the mid-rise section of the building. It received deposits for the issue of these cards. Mid Rise's first serious allegation of breach arises from Mid Rise's analysis of Apartments' swipe card access logs for the mid-rise section of the building. Mid Rise says that Apartments has failed to account to it for an amount of between $240,000 and $842,000 in swipe card deposits that Apartments has allegedly received.
Mid Rise issued a notice of breach to Apartments on 23 April 2012 for this alleged failure to account, requiring Apartments to account under the Caretaker Agreement for the amount outstanding, which Mid Rise estimated in its notice of breach at $788,900.
Apartments responded on 23 May 2012, refusing to remedy the claimed breach. Mid Rise says that Apartments has refused since then to remedy the breach. These events were the culmination of a dispute which had begun in February 2011 and escalated over a period of some 14 months.
The contest about swipe card data covered two phases. In the first phase between February 2011 and November 2011, Mid Rise requested data and Apartments disputed whether it should be provided, in what form, and to what extent. The final phase of the contest commenced in December 2011, when Apartments provided Mid Rise with five DVD's containing swipe card data logs. Mid Rise analysed this data and by May 2012 was using it to allege there had been a failure to account.
The request for data - February to November 2011. On 24 February 2011 Mid Rise's strata manager sought information about any monies Apartments had received on behalf of Mid Rise for the issue of "swipe" security access cards. Mr Peter Domazetovski of Body Corporate Services ("BCS"), Mid Rise's strata manager, made the request to provide details for what he described as monies received for "key deposits". His letter was as follows: "Rob, Are you able to provide details of monies received for key deposits for Mid Rise (SP 72381) since you've been BM at World Tower? (Earlier if possible) The EC need these details from Meriton, which must be available in order to enable approval of any refund of bond money for the swipe card. BCS will keep these details as part of the accounting and tax records in case of a tax audit of SP 72381."
Mid Rise needed this data so that it could properly account for GST and so that it could verify from accurate data when lot owners and tenants were returning their swipe cards and obtaining refunds of deposits. Mid Rise wanted to check that refunds were only being provided to lot owners and tenants who had already given a deposit to Mid Rise for a swipe card that had in fact been issued. The primary data was needed to verify this.
Apartments responded on 7 March 2011, refusing to supply the data. Through its World Tower building manager, Mr Robert Eyears, Apartments admitted it sold "swipe cards" to low-rise and mid-rise tenants but explained that Apartments kept no records of the sales and handed the paperwork over to Mid Rise's strata manager, BCS. Mr Eyears elaborated on this position as follows:- "Peter, When we sell 'swipe cards' for low and mid rise we issue a Meriton receipt and then attach a copy (blue) to an envelope with the money inside and deliver it to BCS. We don't keep records that is what BCS are for you would have every sale we have for swipe cards and I asked Adel and he stated the same, all delivered to BCS. I remember a comment you once stating you had thousands of dollars and no record of where it came from or where it was to go. If any tenant requires a refund they must bring the receipt back to us and fill in a refund form. Instead of me signing the form that I have sighted the receipt we will now copy and forward to you as we have been. The rest is between your company and mid rise. As for the data base yes I am almost complete but certainly won't be sharing any of the information with mid rise, they can do their own. This information belongs to Meriton."
From there the issue escalated to the lawyers. Mid Rise continued to press for production of records showing the data it wanted.
By 10 March Mr Eyears had discussed Mid Rise's request with Apartments' solicitors and its operation manager. They instructed Mr Eyears "to make available the information requested". But Mr Eyears explained that retrieving the information was not a simple exercise and it would not be available until 16 March.
On 29 March 2011 the Meriton Group corporate counsel, Ms Katerina Mihail, sent to Mid Rise what she described as the "existing Acceptnet security data for the mid rise" area of the building (referred to in these reasons as "the March 2011 data"). Mid Rise soon contended that the March 2011 data was inadequate.
In early April 2011 Mid Rise renewed its request for adequate swipe card data. Apartments took the position that it could not provide this data without the consent of both Low Rise and Properties. Low Rise provided its consent to release the data on 24 May 2011. But on 26 July Properties declined consent to release the data. Mid Rise responded on 12 October 2011, issuing a formal written direction to Apartments under the Caretaker Agreement requiring it to produce the swipe card data.
Apartments' response to this written direction was confused. Apartments first asked BCS, Mid Rise's strata manager, for documents to assist Apartments in complying with the direction. Then Apartments explained that any data that it had was stored on a hard drive, which it rather surprisingly claimed had been destroyed in February 2011, a month before the March 2011 data had been previously sent to Mid Rise.
On 3 November 2011 Mid Rise wrote to Apartments pointing out that the destruction of the swipe card data was a breach of the Caretaker Agreement and it issued a corresponding formal breach notice under the agreement. That provoked Apartments to review all the data it retained and to assert that the data being requested "had never existed" as the swipe card system "was only capable of storing data relating to a maximum period of 3 months". Nevertheless Apartments indicated it would attempt to resurrect the data it had previously said was stored on the destroyed hard drives. This ultimately led to the restoration and the supply of some data.
Data Provided - December 2011 to May 2012. On 23 December 2011 Apartments provided Mid Rise with 5 DVDs containing swipe card data logs, comprising some 84 million individual data records ("the December 2011 data"). The data provided was for the entire period from 2004 and comprised a record of each occasion over that period that a swipe card had been used within the World Tower building.
Mid Rise contended that the December 2011 data lacked what Mid Rise had requested: (1) a transaction log of all cards activated and de-activated in respect of the mid-rise area of the building from 2004 up to the 12 October direction; and (2) a copy of all receipts that recorded swipe card deposits for the same period. Mid Rise contended that Apartments should have held accessible data in both these classes.
Despite these difficulties Mid Rise went on to analyse the December 2011 data and calculated from it that Apartments had issued access cards in respect of the mid-rise area on 7,880 occasions from 21 January 2004 to 22 February 2011. Mid Rise's case was that this level of card issuance was far in excess of the card issuance that Apartments had reported to Mid Rise over the period 2004 and 2010.
The contest about the December 2011 data is elaborated further below but the nature of that contest is summarised here. Mid Rise's witness Mr Pascoe did the analysis of this data for it. His analysis was criticised for a number of reasons. Apartments contended that the raw data on which his analysis was based was not accurate. Mid Rise countered this with a contention that if the raw data was not accurate that was Apartments' fault (and was a breach of the Caretaker Agreement), as Apartments was the author of the December 2011 data.
Mid Rise also sought to measure the December 2011 data against its own alternative analysis of records based on its own replacement swipe card system that it installed in about April - May 2010 ("the Mid Rise data"). Mid Rise contends that the Mid Rise data from this replacement system leads to a similar conclusion: that Apartments has substantially failed to account for swipe card deposits. Apartments in turn says that Mid Rise's analysis of the Mid Rise data is flawed.
The Court has been able to draw conclusions about the failure to account. But that requires deeper analysis of both the December 2011 data and the Mid Rise data.
Quantifying any failure to account. Mid Rise contends that Apartments' failure to account, though not precisely quantifiable, was nevertheless clearly for a substantial amount. Apartments contends that no failure to account for swipe card deposits has been demonstrated and alternatively any failure to account that could be established, must on the evidence be minor.
Mid Rise contends that the failure to account must have been at least in the sum of $240,000 but more likely as much as $842,000. These two figures are derived from different sources.
Mid Rise's lower estimate. Mid Rise calculates its lower figure of $240,000 from Mr Ong's analysis of Apartments' December 2011 data. The analysis takes the following steps. The mid-rise lot owner, Mr Ong, used his professional skills to review the ledgers within the December 2011 data relating to Mid Rise and isolate the amount of money deposited into Mid Rise's bank accounts for the issue of swipe cards. Mr Ong's analysis covers the years of calculation from the year ending 31 July 2004 to the year ending 31 July 2010. During that period (more precisely from 21 May 2004 to 31 July 2010) the ledger shows that the funds provided by Apartments to Mid Rise for swipe card deposits were a total of $102,501.
This calculation is complicated by Mid Rise's introduction of its own swipe card system from April 2010. Before April 2010 the ledgers include money that Apartments forwarded for swipe card deposits that Apartments had received upon the issue of cards. The ledger also includes funds received directly by Mid Rise after its own swipe card system commenced from April 2010. For this period Mr Ong was able to separate out Apartments' deposits from the amounts that Mid Rise deposited directly on account of swipe cards, because Apartments and Mid Rise were charging and therefore collecting different amounts for swipe card deposits: multiples of $100 or $150 for Apartments and multiples of $140 for Mid Rise.
Mid Rise began collecting funds directly into its bank account from 19 May 2010. Thus Mid Rise has direct evidence of its own operation of collecting swipe card deposits for an approximately 14 month period between May 2010 and July 2011. Mid Rise wanted its own photo identification swipe card system and introduced a new by-law to give effect to this, By-law 31, in November 2009.
Mid Rise's case is that a far higher rate of swipe card deposit taking is evident in this 14 month period from May 2010 to July 2011 than Apartments deposited in the six years between 2004 and 2010. The figures are quite startling. Between 19 May 2010 and 22 July 2011 Mid Rise collected $97,660 in swipe card deposits (being $15,040 of funds collected by Meriton and $82,620 being deposits directly banked by Mid Rise). This was only approximately $5,000 less than the sum of $106,322.22 that it is accepted that Apartments deposited on account of swipe card monies for the period of six years from 2004 to 2010.
Mid Rise extrapolates the amount it collected in the fourteen month May 2010 - July 2011 period and applies it to the whole six years between 2004 and 2010. It says that if this extrapolation exercise is done then it can be inferred that Apartments should have collected about $340,000 for the swipe card deposits. Instead Apartments has only collected about $100,000. The difference of approximately $240,000 thus emerges as Mid Rise's lower estimate. Apartment's challenge to this lower estimate will be dealt with below.
Mid Rise's higher estimate. Mid Rise's higher estimate of $842,000 is also derived from analysis of the December 2011 data Mid Rise compares the number of swipe cards issued according to its analysis (some 7,880 swipe cards) with the number of swipe cards that Apartments reported that it issued (approximately 906 swipe cards) over the same period.
Apartment's December 2011 data does show that it issued 960 cards and that it collected $106,332.22 in respect of those 960 cards for the years ending 31 July 2004, 2005, 2006, 2007, 2008, 2009, 2010.
Mid Rise estimates that the failure to account is therefore conservatively estimated it at $788,900. This appears to represent a multiple of $100 per deposit for what the 23 April 2012 notice of breach asserts was 7,889 unique users between 2004 and March 2011. But the figure of $788,900 cannot be right because it does not make allowance for deposit monies for which account has been given in the sum of $106,322.22.
Apartments' Response. Apartments challenged Mid Rise's conclusion and submits that Apartments could not possibly have issued approximately 8 times the number of swipe cards than it had reported as having issued. Apartments does not accept Mid Rise's methodology in reaching the figure of 7,880 issued cards. Much of the contest on this allegation of substantial breach turned on Apartment's criticism of Mid Rise's methodology in reaching its lower and higher estimates.
Apartments' principal case is that there is no evidence of any failure to account. It took this position from the beginning. In its reply to Mid Rise's 23 May 2012 Notice of Breach on this issue Apartments stated that it has "at all times accounted to the Owners Corporation in accordance with clause 24 of Schedule 2 of the Agreement". Indeed it took a stronger position: stating that the Notice of Breach was issued "not in good faith and is only issued to be a nuisance and an attempt to be inflammatory".
Apartments' case starts with facts that are common ground. Apartments accepts that evidence of the procedure Apartments adopted from Mr Paskell and Mr Walmsley confirms that each time a swipe card was issued for which a deposit was payable, a receipt was prepared and Apartments provided the deposit, together with a copy of the receipt, to BCS as Mid Rise's strata managing agent. It is common ground that Mid Rise received at least 960 receipts through this process for which it was paid $106,322.22.
Apartments then launches a two-pronged attack on Mid Rise's case. First, it seeks to strengthen the relationship between the issuing of swipe cards, the issuing of receipts and the monies deposited into Mid Rise's bank accounts to weaken the inference that Apartments could have issued large numbers of swipe cards for which deposits were received but for which there was no paperwork. The second prong of Apartments' attack is then to challenge the validity of the assumptions behind both Mid Rise's lower and higher estimates of numbers of cards issued.
Apartments launched the first prong of its attack deploying expert evidence sourced from Mid Rise, evidence of spot checks of the relationship between swipe cards issued, paperwork issued and the receipt of deposit monies. The report was obtained from Mid Rise's auditor, Panel Kerr Foster ("PKF"). PKF's more detailed findings appear below.
Mid Rise retained PKF in July 2011, to undertake a review of Mid Rise's GST compliance and reporting obligations and to review the GST implications of its existing arrangements with both BCS Strata Management Pty Limited ("BCS") and Apartments. In addition to PKF's reports on those GST related matters, Mid Rise instructed PKF to: (1) review the systems in place for recording of swipe card deposits; and (2) review the data the system captured to determine whether the data reconciles to the accounting records and banking receipts. PKF generally described what it was doing as a review of the "process of cash handling over the counter by the Caretaker". The detailed relevant review processes are best described in PKF's own words: "2.2 We obtained a master spreadsheet of deposits taken for swipe cards issued and selected a random sample of ten for testing. For each transaction in the sample selected from the listing we agreed the transaction had been accounted for in the general ledger of the strata plan financial statements. 2.3 For each transaction in the sample selected from the listing we requested access to the supporting documents and performed the following: (i) Agreed the swipe card request form had been completed by the owner/resident; (ii) Agreed a deposit slip had been attached and completed by a staff member from the Caretaker, Meriton. (iii) Agreed a receipt from Australia Post was attached depositing the funds into the strata plans bank account. 2.4 We further selected a small sample of receipts from the unit filing cabinets and agreed them back to the spreadsheet listing and the general ledger to ensure all deposits had been recorded for completeness purposes."
PKF pointed out that the procedures they employed "do not constitute either an audit or a review in accordance with Australian Auditing Standards, so PKF was not expressing either an audit or review opinion on the results of the procedures. PKF warned that had additional procedures, or a review or an audit been performed in accordance with Australian Auditing Standards "other matters might have come to our attention that would have been reported to you".
These reporting qualifications were to a degree balanced by the fact that Mid Rise commissioned PKF's report. PKF's engagement was in accordance with Australian Auditing Standards "applicable to agreed - upon procedures engagements". On such an engagement PKF made clear that "the responsibility for determining the adequacy or otherwise of the procedures to be performed is that of the Treasurer of the strata plan [Mid Rise]". PKF stated what it understood to be the agreed overall objective "the procedures were performed solely to assist you in evaluating the operations of the strata plan…"
PKF's review of the process of cash handling over the counter by Apartments led to it making the following finding about the paragraph 2.2 processes: "a) With respect to 2.2 above, tracing the deposits from source documentation to the general ledger to ensure all had been accounted for proved difficult due to a lack of controls in the cash handling of deposits. Whilst we could verify that a deposit for the same amount as that sampled had been banked and entered into the general ledger within a week period of the cash being taken, we could not verify with any certainty that the amounts are in relation to the same customer/deposit. The reason for the inability to verify this highlights a lack of control in relation to the recording and tracing of key/swipe card deposits. We therefore suggest through be taken as to the implementation of the following controls listed below."
PKF made suggestions for better controls for tracking swipe card deposits, including: maintaining a complete list of swipe cards for each of the strata plans in World Tower on one spreadsheet; updating the spreadsheet with the swipe card number, receipt number and unit (apartment) details each time a deposit is collected from the customers; completing a deposit slip with the amount, receipt number and unit number; and forwarding copies of the deposit slips to BCS, so BCS can correlate the deposits to the Bank account with the deposit slips.
The PKF findings for paragraph 2.3 and 2.4 of it processes were the following: "c) With respect to 2.3 above, we tested a sample of 5 deposits from the listing maintained by the Caretaker, Meriton. From our testing we note the following: ● In relation to 2.3 (i), that a swipe card request form had been completed by the owner/resident and kept on file. No exceptions to this were identified. ● In relation to 2.3(ii) and (iii), that a deposit slip and receipt had been attached and completed by a staff member from the Caretaker, Meriton. We found one instance where a copy of the deposit slip and receipt were not kept on file. This was in relation to unit number 4301 on the 27/08/2009 for $100,000. d) With respect to 2.4 above, we selected a sample of 5 deposits from the Caretaker, Meriton's filing system to determine whether they had been added to the deposit listing spreadsheet. We found that two of the five deposits were not recorded on the master spreadsheet and therefore the deposit listing could not be considered a complete reference."
It is difficult for Mid Rise to criticise the methodology adopted in the PKF report. Mid Rise commissioned the report using that methodology, presumably for a business purpose that Mid Rise thought would be of practical use to it. On the other hand, PKF's report surveys no more than 10 swipe card issuance transactions, data in respect of which is not clearly identified.
Mr Pascoe, a witness for Mid Rise is the source of the figure of the 7,880 swipe cards that Mid Rise contends were issued in the 2004 - 2010 period. Apartments contends Mr Pascoe's analysis is unreliable, and that the evidence shows that not every card issued will generate a corresponding deposit received by Apartments. Apartments' contention is persuasive.
This unreliability subsists for several reasons. First, the figure of 7,880 cards includes an unknown number of residents from level 36 who are not part of Mid Rise. The lifts Mr Pascoe examined served levels 36 to 58. The mid-rise area of the building is level 37 to 58. Level 36 is part of the low rise section of the building. But unfortunately Mr Pascoe's analysis does not permit separate identification of the cards issued to level 36 residents. Mr Pascoe's data does not reveal from what floors the card users entered or exited the lift system. Mr Pascoe's data contains instances of persons who resided on level 36 but it is not possible to determine how many of them are counted in his data.
Secondly, the figure of 7,880 issued cards includes a significant number of temporary cards, used only once or twice. These were cards that could have been issued to temporary guests or visitors to tenants or owners. It is not clear on the evidence that such temporary cards will always attract a full security deposit. For example, Mr Walmsley was of the view that a guest "may pay a $100 deposit" for a temporary card. A number of these show up on Mr Pascoe's analysis.
Thirdly, the 7,880 figure includes cards activated and used only after Mid Rise ceased to use Apartments' AcceptNet system. For example some cards in Mr Pascoe's data were activated in June and September 2010 in Exhibit D. From May 2010 Mid Rise was itself issuing its own cards for its new card security system and these new cards would not have attracted deposits for which Apartments was accountable to Mid Rise under clause 24.
Fourthly, many of the cards in Mr Pascoe's calculations contain user names that suggest they are staff access cards for cleaning or security purposes, or for staff access to the serviced apartment floors. For example, names like "Aus Management" and "Serviced Apartments" recur throughout Mr Pascoe's data. The evidence does not demonstrate that cards used for service staff will always attract a deposit.
The inference that every swipe card issued implies that Apartments received a corresponding deposit is further weakened by a number of other practices in the World Tower building in the 2004 to 2010 period. I accept Mr Walmsley's evidence that it was the policy when he was in charge, and I infer the practice was more widespread, that up to two cards per bedroom (of each apartment) were delivered free of charge to purchases: moreover faulty swipe cards were replaced without taking a further deposit and would be charged at cost to Mid Rise. Mr Paskell said that the first cards after purchase of an apartment from the developer were free, putting it colourfully "if you bought a house you wouldn't want to pay for the keys as well".
Mr Paskell explained, and I accept, how the system should work with tenants: if tenants had paid a $100 deposit but lost their deposit receipt, the money would be retained; and if the tenant moved out and forgot to return the key, then the next tenant who was issued a swipe card would have to pay another deposit that Apartments would collect. Mr Paskell confirmed that if the cards were lost or not returned by outgoing owners or tenants that the issuing of a new card would attract another deposit.
But the issue of complimentary cards to replace faulty cards is included in Mr Pascoe's calculations. So some discount to his calculations will be required to infer the true number of deposits Apartments has taken in the period 2004 - 2010. It must be inferred, in my view, that the overall number of deposits received and banked is less than the number of cards that Apartments issued.
So how many deposits did Apartments receive in the period? All that can be said is that after Mr Pascoe's analysis the number of cards issued for which a deposit should have been collected is uncertain.
But Mid Rise repels one way that Apartments puts its case against this breach. Apartments suggests that Mr Pascoe's analysis fails because it does not prove the number of cards issued to mid-rise residents, as distinct from mid-rise tenants. Apartments' clause 24 obligation is to "account properly and faithfully to the Owners" and "to the occupiers and registered proprietors of units as the case may be". Apartments may have to account to tenants under this clause. But on the proceedings as presently constituted, Mid Rise can only complain about a failure to account to itself and to the registered proprietors, the unit owners. Mid Rise cannot maintain a case of failure to account to tenants. It is not at all clear on Mr Pascoe's analysis of all the cards issued, how many cards were issued to registered proprietors and how many were issued to tenants. This is no criticism of Mr Pascoe. It is just that he was not asked to analyse data to extract this subset of information.
The logic behind Mid Rise's lower estimate also has difficulties. Mid Rise's lower estimate assumes that the first 14 months of operation of Mid Rise's own separate system is a proper basis to infer average collections for each year between 2004 and 2010.
That inference is not compelling. When Mid Rise's new system commenced, every owner or tenant who wanted to access the Mid Rise lifts was required to pay for a new card at $140 that year. That year there were no free cards available. No one that year was able to continue using a card that had been issued in previous years, as cards were being issued afresh. But numbers of deposits actually collected in the 14 month period represent approximately 2.5 cards per unit of the mid-rise section of World Tower. This number is intuitively a high one. It is difficult to see how more than two cards could be replaced every year, year-on-year, for every unit of mid-rise.
Apartments argued that the alternative Mid Rise case, based on the lower estimate, was not adequately opened. I accept this submission. I do not think it would be fair to Apartments for this alternative case to proceed as it was not made clear until final submissions. But in any event it suffers from similar flaws to the higher estimate case.

[15]

(f) Overcharging of Caretaker fees

Introduction. Mid Rise's second allegation of serious breach is that the total sum of invoices ($5,059,057) Mid Rise has paid an account of Remuneration (as defined) for Apartments' services during the term of the Caretaker Agreement. This includes overcharging due to cumulative errors on Apartments' part. Some of the differences between the parties about the alleged overcharging have now been resolved.
For example, in 2011 Mid Rise claimed that it had discovered that Apartments had been overcharging it, claiming that the overcharging had resulted from Apartments' application of an incorrect CPI adjustment to the annual review mechanism in the Caretaker Agreement clause 2. On 12 August 2011 Apartments admitted that it had made the wrong CPI adjustment in the clause 2 annual review mechanism and had pro tanto overcharged Mid Rise.
But according to Mid Rise, Apartments has still been overpaid in excess of $200,000 (exclusive of GST) during the term of the Caretaker Agreement until its claimed termination by Mid Rise; that is, from 4 February 2004 until 13 July 2012. This Mid Rise says is a serious and persistent breach of the Caretaker Agreement, which breach has not been remedied and which now justifies Mid Rise's termination of the agreement, whether under clause 5 or at common law. Mid Rise now claims that, including interest (but exclusive of GST), Apartments must refund the overcharged amounts. The detail of relevant financial calculations appears later in this section.
Moreover Mid Rise contends that when Apartments launched its Local Court proceedings in May 2012 for the recovery of allegedly unpaid Remuneration, as defined under the Caretaker Agreement, Apartments' long-standing overcharging, meant that Apartments actually owed Mid Rise money on remuneration account.
Summary of the two remaining overpayment issues. The parties have two remaining contests about Apartments allegedly overcharging Mid Rise. The first contest concerns when, on the proper construction of Caretaker Agreement clause 1.6 (b), Apartments first becomes entitled to the full amount of its Remuneration (the full Remuneration threshold issue). The second contest concerns whether or not Apartments is entitled to claim back from Mid Rise the amount of Mid Rise's underpayments of Remuneration that occurred more than 6 years before Apartments commenced its recovery proceedings in May 2012, namely before May 2006 (the limitation issue).
Mid Rise says the Court would not have to decide any overpayment issue if Mid Rise were otherwise successful in its claim for an account of profits. But, as will be seen later in these reasons, the Court has not determined that Mid Rise should have an account of profits, so this issue should now be determined. Moreover, if the Court determines in a supplementary hearing that Mid Rise is entitled for example to equitable compensation and were that determination later to be overturned on appeal, it would be useful nevertheless for the facts and legal issues relevant to this issue to have been decided.
The parties' competing contentions in relation to the full Remuneration threshold issue may be shortly summarised. The contest turned upon whether Apartments' total Remuneration on the proper construction of the Caretaker Agreement clause 1.6(b) became due commencing on 14 June 2004 (as Apartments contended) or commencing from the later date of 5 February 2005 (as Mid Rise contended).
Apartments contends that it was entitled under clause 1.6(b) (iii) and (iv) to charge Remuneration in the full amount of $521,400 per annum (being $300,000 per annum for Stage 1 and $221,400 per annum for Stage 2) from no later than 14 June 2004, when a second interim occupation certificate was issued in respect of Mid Rise's section of the building, and from which date occupation of the whole of the part of the building under Mid Rise's control was permitted. The experts calculated the amount of Remuneration due under clause 1.6(b) from 1 August 2004, rather than 14 June 2004: a date both Apartments and Mid Rise nevertheless accepted as an appropriate date for the calculation of the Remuneration due under the Caretaker Agreement, were Apartments' principal contention successful.
In contrast, Mid Rise contends that the full amount of clause 1.6(b) Remuneration of $521,400 only became due to Apartments from 5 February 2005, being the date one year after the signing of the Caretaker Agreement. Mid Rise contends that before 5 February 2005 only the first component of Mid Rise's Remuneration under clause 1.6(b)(iii), $300,000 per annum, was due. Thus the dispute is about when the second tranche of Remuneration becomes payable under clause 1.6 (b).
The parties' contentions pivot around the problem of the lack of contractual definition in the Caretaker Agreement for "Stage 1" and "Stage 2" in the two clause 1.6(b) expressions "Occupation Certificate for Stage 1 of Lot 802" and "Occupation Certificate for Stage 2 of Lot 802".
The other issue, the limitation issue, springs from Apartments' claim that Mid Rise underpaid Remuneration due to Apartments from the time that the Caretaker Agreement commenced in 2004. But Apartments only commenced its proceedings to recover underpayments on 9 May 2012. Thus Mid Rise contends that Limitation Act s 14 would ordinarily bar Apartments from recovery of underpayments before 9 May 2006. But Apartments replies that the Remuneration was due under the Caretaker Agreement as part of a running account and that Apartments is not now precluded from claiming the benefit on that running account of amounts due to it prior to 9 May 2006.
Applicable principles of construction. The Caretaker Agreement is a commercial contract. There are many appellate pronouncements upon how courts should construe commercial contracts. I am guided by the most recent of these, the High Court's decision in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] where the majority (French CJ, Hayne, Crennan, and Kiefel JJ) described the approach to construction of the commercial contract in the following way: "[35] Both Verve and the Sellers recognised that this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean (McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22] per Gleeson CJ ;[2000] HCA 65; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ ; [2004] HCA 35; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ ; [2008] HCA 3; see further Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11] per Gleeson CJ, Gummow and Hayne JJ ; [2001] HCA 70, citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 ; [1998] 1 All ER 98 at 114. See also Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 737 [10] per Lord Bingham of Cornhill). That approach is not unfamiliar (See, for example, Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 at 504 per Lord Esher MR; Bergl (Aust) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 at 199 per Knox CJ, Isaacs and Gavan Duffy JJ; [1920] HCA 41; see generally Lord Bingham of Cornhill, "A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision", (2008) 12 Edinburgh Law Review 374.). As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; [2004] HCA 52; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ, 174 [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; Byrnes v Kendle(2011) 243 CLR 253 at 284 [98] per Heydon and Crennan JJ; [2011] HCA 26. See also Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 326 and 350; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2906-2907 [14]; [2012] 1 All ER 1137 at 1144). Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating" (Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 per Mason J; [1982] HCA 24, citing Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574. See also Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ; [2004] HCA 56; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ.). As Arden LJ observed in Re Golden Key Ltd ([2009] EWCA Civ 636 at [28].), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience"(Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464; [1983] HCA 38.)."
In his dissenting judgment Gageler J compactly expressed the same idea at [53]: "Commercial parties contracting at arm's length are free to agree on terms each considers to be to its own commercial advantage. The terms of their agreement, however, are construed by a court to mean what reasonable commercial parties in their position can be taken together to have meant."
This judgment does not call for any further debate about the well-known principles of construction of commercial contracts. The Caretaker Agreement is a reasonably well-crafted document. Despite the present dispute about clause 1.6(b), it is drafted in a way which generally conveys clear meaning.
Consideration of the full Remuneration threshold issue. The Court finds Apartments' submissions on the full Remuneration threshold issue more persuasive than Mid Rise's submissions. These reasons first identify some basic facts in relation to the timing of the interim and final occupation certificates for the mid-rise area and then outline Mid Rise's submissions.
Levels 39 to 60 comprise the mid-rise sections of the World Tower. On 2 April 2004 an interim occupation certificate was issued for levels 39 to 50 and level 61. But levels 51 to 60, comprising the balance of the mid-rise section, remained unapproved for occupation. An interim occupation certificate was issued for levels 51 to 59 on 16 June 2004. Level 60 comprises a plant room shared by Low Rise, Mid Rise and High Rise, and was thus not included in these interim occupation certificates.
Mid Rise contends that because the word "Stage" is not anywhere defined in the Caretaker Agreement, the use of the expressions "Occupation Certificate for Stage 1" and "Occupation Certificate for Stage 2" render void for uncertainty the mechanism for increasing the Remuneration from $300,000 to $521,400 contemplated by clause 1.6 (b). Mid Rise contends that the expressions "Stage 1" and "Stage 2" do not fasten upon any certain event or state of affairs in relation to the mid-rise part of the building and leave the parties in such uncertainty that the mechanism cannot work.
The uncertainty arises, so Mid-Rise says, because the Sydney City Council relevantly issued four occupation certificates in respect of the mid-rise area, respectively on 2 April 2004 (an interim occupation certificate - for levels 39 to 50), June 2004 (an interim occupation certificate - for levels 51 to 59), 5 August 2005 (a final occupation certificate) and 31 August 2005 (a final occupation certificate). Mid Rise submits that even if one attempts to give meaning to clause 1.6(b) by equating a "Stage" with the issue of an interim occupation certificate, there is no evidentiary basis to relate any of the interim occupation certificates to either of the first or second "Stages" contemplated by clause 1.6(b). Mid Rise argues it is equally plausible that when clause 1.6(b) refers to "Stage 2", the clause is referring to final completion of the various stages of construction of the mid-rise area, a state of affairs which is far more synonymous with the issue of a final occupation certificate than an interim certificate. And the final certificates were not issued until August 2005, after the February 2005 date from when Mid Rise concedes the step up in remuneration occurs.
So Mid Rise argues that to avoid complete uncertainty as to the remuneration payable to Apartments, attempts to construe clause 1.6 are driven back to focus on the end of the clause, that Mid Rise calls the "default provision". The clause 1.6 default provision says: "For the avoidance of any doubt, the amounts referred to in clause 1.6 are with respect to the Remuneration for the first year of the Term only." Mid Rise submits that the rest of clause 1.6(b) can be severed (using Caretaker Agreement clause 15) and this default provision applied by analogy with the approach taken in LMI Australasia Pty Limited v Baulderstone Hornibrook Pty Ltd (2001) 53 NSWLR 31; [2001] NSWSC 688 at [35] (Barrett J) affirmed on appeal [2003] NSWCA 74. On that basis these words would have the effect of ensuring the payment of the full Remuneration from the date following the one-year anniversary of the Caretaker Agreement, namely from 5 February 2005.
Apartments' answer to this construction of clause 1.6 is persuasive. Of course Lot 802 referred to in clause 1.6(b) has now become the mid-rise area of the building. The full Remuneration of $521,400 is Mid Rise's 33 per cent proportion of the total $1,580,000 Remuneration payable to Apartments under the Caretaker Agreement for the whole building for year one as provided in Schedule 1.
The parties were for a period of time at issue as to whether an "Occupation Certificate" within clause 1.6 could only mean a final Occupation Certificate or could also include an interim Occupation Certificate. But this issue fell away. The parties, correctly in my view, accepted that the contractual definition of "Occupation Certificate" was wide enough to include either an interim or a final Occupation Certificate issued under Environmental Planning and Assessment Act 1979, Part 4A.
Indeed Environmental Planning and Assessment Act, s 109C(2) provides for the issue of interim and final certificates. Section 109C(1)(c) and (2) provide as follows: "109C Part 4A certificates (1) The following certificates (known collectively as Part 4A certificates) may be issued for the purposes of this Part: … (c) an 'occupation certificate', being a certificate that authorises: (i) the occupation and use of a new building, or (ii) a change of building use for an existing building, (2) An occupation certificate: (a) may be an interim certificate or a final certificate, and (b) may be issued for the whole or any part of a building."
The Court accepts most but not all of Apartments' submission on the full Remuneration threshold issue. Meaning can be given to the word "stage" in clause 1.6 by looking within the Caretaker Agreement. Clause 1.6 itself contains a number of indications of what "Stage" must mean. Clauses 1.6(a) and (b) both refer to the concept of "Stage 1" and "Stage 2" respectively for Lot 803 (for the low-rise area) and Lot 802 (for the mid-rise area). For both Lots 803 and 802 the Agreement contemplates that the Remuneration will start and then be stepped up as each of Stages 1 and 2 occur.
But what is a "Stage" in this context? The Macquarie Dictionary defines "stage" in its primary and relevant meaning as "a single step or degree in a process". The language of clause 1.6 implies that the single step involved is the giving of permission by the Council for use of Lot 802 and Lot 803, permitting some occupation of the Lot. Two kinds of Occupation Certificate are possible: interim and final. The clause does not distinguish between the two. But it does no violence to the language of clause 1.6(a) and (b) to accept that "an Occupation Certificate" can be either an interim or a final Occupation Certificate; and that either the issue of another interim or a final Occupation Certificate may qualify as a different stage under clause 1.6(a) or (b).
There are several indications in the Caretaker Agreement that "stage" is being used in clause 1.6(a) and (b) to indicate the approval for occupation of more floor area as a proportion of the whole of Low Rise's and Mid Rise's respective floor areas. Thus the step between Stage 1 and Stage 2 is making available more floor area - a spatial difference. It is not, in contrast, a difference between the making perfect of an interim certificate into a final certificate, where both certificates are in respect of the same area but the final certificate reflects a higher level of finality in respect of the occupation already approved.
The first indication of this is in clause 1.6(c). Like its counterpart clauses 1.6(a) and 1.6(b), clause 1.6(c) operates in respect of Lot 801 to increase the Remuneration but by a formula which does not involve what is called stages. The clause 1.6(c) formula takes as its starting point Lot 801's annual remuneration at $410,800 (calculated in accordance with Lot 801's 26 per cent portion of first year whole building remuneration of $1.58 million). But that amount is not fully payable until all units in Lot 801 are available to be occupied. The $410,800 per annum is reduced by formula which divides the number of units in that stage that have "been granted on Occupation Certificate" by the Council by the total number of units in Lot 801. The connection in clause 1.6(c) between increases in the numbers of units occupied and commensurate increases in the Remuneration is an indicator that a similar relationship was intended to operate in clause 1.6(a) and (b), such that extensions in the occupied area of the building causes corresponding increase in contractual services (and the Remuneration for) on Apartments.
So much is also indicated by clause 21, which addresses itself to the problem of the incomplete state of the Complex at the time the agreement was signed. The Caretaker only has to perform the Duties as defined (at the cost of the Caretaker) "that are reasonably appropriate and at the frequency reasonably necessary having regard to the stage of completion of the Complex, the number of occupants in the Complex and the monies available on the budgets of the Lots" [emphasis added].
Clause 9.1 provides a prescriptive list of hours of employees and services to be provided to each lot. Clause 21.2 makes clause 9.1 subject to clause 21.1, such that there can be a reasonable adjustment of the service provided, and therefore of the cost of those services to Apartments depending upon "the stage of completion" of the Complex. Clause 21 indicates that a "stage" of completion will likely involve a change in demand for Caretaker services, from no doubt the approval of greater floor area for occupation. Contemplating the contractual flexibility required for an incomplete complex, clause 21 is a natural source of illumination for the meaning of "Stage 1" and "Stage 2" in clause 1.6. The concepts have nothing to do with interim and final certificates but rather with increasing the demand for services that will follow an increase in the number of occupants in the low-rise, mid-rise or high-rise areas of the building. That in my view would occur at least upon the issue of an interim Occupation Certificate, which itself permits occupation of part of the building for the first time. Thus "Stage 1" in my view refers to the interim Occupation Certificate issued on 2 April 2004 for part of the mid-rise area of the bulding. And "Stage 2" represents the second interim Occupation Certificate issued for the balance of Mid Rise's floor space on 14 June 2004, and occasions the next increase in demand for Apartments' Caretaker services.
It is not necessary to consider Mid Rise's arguments about the operation of the default provision in clause 1.6 because in my view it is not necessary to look to this provision to resolve any issue of construction.
Were the Court to approach the construction of clause 1.6 on the basis that the words "Stage 1" and "Stage 2" were ambiguous, the same conclusion would be reached. The Court cannot have regard to the circumstances surrounding the making of the Caretaker Agreement unless such ambiguity is discerned: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 and Western Export Services v Jireh International Pty Ltd (2011) 282 ALR 604; [2011] HCA 45. The Court's primary conclusion here is that there is no ambiguity. On 3 April 2004 only two months after the Caretaker Agreement was signed on 4 February 2004, SP72381 was registered defining the mid-rise into two parts. Level 39 to 50 had already been developed into individual units suitable for immediate sale and occupation. But at that time level 51 to 59 still constituted a single development lot, which was then labelled lot 145. Given the size and structure of this building, and the pre-planning necessary for the registration of such a strata plan, this proposed division of the mid-rise area must have been known to the parties when the Caretaker Agreement was signed on 4 February.
There is a startling proportionality between the floor space on levels 39 to 50 of SP72381 as a proportion of the whole of the mid-rise area, and the Remuneration for Stage 1. One can exclude lot 60 from calculation which only contains shared facilities. Mid Rise's floors 39 to 50 and 51 to 59, are a total of 21 floors. Floors 39 to 50, the subject of the 4 April 2004 interim certificate represent 57.14 per cent of the floor area of those 21 floors with floors 51 to 59 representing 42.85 per cent of the total floor area.
The Remuneration for Stage 1 represents almost the same proportion to the whole. The Stage 1 $300,000 per annum is 57.53 per cent of $521,400. And $221,400 is 42.46 per cent of $521,000. Were reference to surrounding circumstances needed, these calculations are unlikely to be accidental and would be another indication of what one would expect if Stage 1 represented the occupation of floors 39 to 50 by Apartments and the supply of services under clause 9.1 as modified by clause 21.1.
Consideration of the limitation issue. Mid Rise contends that Apartment's claimed underpayment of Remuneration to it prior to 9 May 2006 is now statute barred under Limitation Act, s 14. The scenarios in the expert evidence in fact looked at underpayment occurring for a date some 3 months after 9 May 2006, namely 10 August 2006. Confusing though this may at first seem it has an easy explanation. It is accepted on all sides that there were in fact no underpayments between 9 May 2006 and 10 August 2006. Therefore the experts joint report (Exhibit E) conveniently uses 10 August 2006 as the relevant cut-off date for the purposes of the operation of the Limitation Act.
Apartments opposes Mid Rise's position with two main contentions. First, Apartments contends that the proper characterisation of the relationship between the parties is that of a running account giving rise to a single balance, which balance arises within the limitation period and is not statute barred. Apartments alternatively argues that the rules as to the appropriation of payments mean that Apartments was entitled to apply and did apply payments received from Mid Rise to extinguish the debts that Mid Rise owed to Apartments as at May 2006, such that there became no sum owing to Apartments for the period prior to 9 March 2006 in any event. Both these contentions require further analysis.
Apartments acknowledges there is no strict legal definition of the term "running account". But judges have ventured various practical definitions of the term. A "running account" has been described as "a current account where the debtor/creditor relationship of the parties is recorded in one entire account into which all liabilities and payments are carried in order of date as a course of dealing extending over a considerable period": Re Footman Bower & Co Ltd [1961] Ch 443 at 450, per Buckley J (as his Lordship then was). The Court of Appeal in New South Wales has described a "running account" as "where there is truly a running account, there is a single balance which is the product of mutual dealings in the past": Santos Coffee Co Pty Ltd v Director Freight Express Pty Ltd [2010] NSWCA 14 at [41]. Wiley v Eastern Elevators Pty Ltd (2003) 175 FLR 344; [2003] NSWSC 377, at [29] described a running account as arising in circumstances where "the transactions between the parties…resulted in a fluctuating balance with the payments made from time to time against services provided and to be provided, that is, to the general balance of the account", a situation which is to be contrasted with an account in which "each party was specifically related with a specific invoice representing a particular 'progress payment' for past work".
Mr Paskell's evidence contains the relevant account ledgers, which in my view do show there is a single balance which is the product of past dealings and which balance arises within the limitation period.
Apartments alternatively argues that even if the relationship is not one of a running account, then the Court should presume, in accordance with the rule in Clayton's Case (Devagnes v Noble (1816) 1 Mer 572), that whatever was the balance owing from Mid Rise to Apartments at 9 May 2006 that when thereafter in May, June or again in July 2006 Mid Rise made further payments to the plaintiff, it should be presumed that Mid Rise applied those payments to the oldest outstanding invoice in accordance with the rule in Clayton's Case. The same analysis applies when the next payment is made in 2006: it should be presumed that Mid Rise was applying that payment to the oldest outstanding invoice. So it is said that where there is such a relatively short period of time between the commencement of the relationship (February 2004) and the limitation cut off date (9 May 2006) all underpayments prior to May 2006 will have been extinguished and that any balance of the account will only be due within the limitation period. It is not necessary to decide the merits of this submission.
Apartments' alternative point successful. Apartments contends in the alternative that even if it has wrongly construed clause 1.6 and has overcharged Mid Rise, this is firstly not a breach of contract and is secondly certainly not a breach of the Caretaker Agreement which would justify Mid Rise terminating either under clause 5.3 or on the basis of repudiation.
Apartments first submits that for it to issue an erroneous invoice is not a breach. This submission is not sustainable. The Caretaker's Duties are widely defined in Schedule 2. The issue of an erroneous certificate could well be a breach of Schedule 2, clauses 8, 9 and 17.
But even if the issuing of erroneous invoices is to be described as a "persistent and continuing" breach, it is not in my view a "serious" breach within clause 5.3; nor is it repudiatory conduct justifying Mid Rise's termination in July 2012. Apartments has only issued a series of erroneous invoices. Mid Rise has not declared it would not accept an adjusted invoice in an amount calculated in accordance with the proper construction of the Caretaker Agreement. The Court will not readily infer from a party's insistence on a wrong construction of a contract that the party is unwilling to perform it according to its true construction: Green v Sommerville (197) 141 CLR 594; (1979) 27 ALR 351, per Mason J, at 611.
Consideration of the quantum in issue here suggests the same conclusion. The amount in issue between the parties is approximately 2 per cent of the total Remuneration paid. And Mid Rise has withheld funds and not paid the invoiced amount allegedly overcharged. The appropriate remedy for such a breach of contract would be taking a proper account and ordering of repayment of overpaid funds only.
Calculations based on the Expert Evidence. The parties instructed their accounting experts, Mr James and Mr Bell to confer and prepare a joint report (which became Exhibit E) recording six calculations of the amounts of Remuneration either overpaid or underpaid by Mid Rise, depending upon the outcome of the two contests the subject of this section: the full Remuneration threshold issue and the limitation issue.
The experts considered whether Mid Rise overpaid or underpaid Remuneration to Apartments, assuming: (1) the additional fee of $221,400 on top of the Stage 1 fee of $300,000 was charged from 1 August 2004, from 6 February 2005 or from 31 August 2005; and (2) whether any underpayments prior to 10 August 2006 should be included or disregarded in the calculation. The calculation for each of the three possible start dates for the additional $221,400 was divided into two sub hypotheses, depending on whether the early underpayments should be included or disregarded, leading to a total of six scenarios.
Given the calculations in Exhibit E, unless the threshold date for Stage 2 is shifted from 1 August 2004 (Scenarios A and B) to the later dates of 6 February 2005 (Scenarios C and D) or 31 August 2005 (Scenarios E and F), Mid Rise will have underpaid Apartments. It is only if the later dates are applicable (Scenarios C, D, E and F) that an overpayment has occurred.
In the result the Court has now found that Stage 2 was reached under the agreement on 14 June 2004. The closest date to this for the experts report calculation is 1 August 2004 (Scenarios A and B). The Court has also found that underpayments prior to May 2006 can be disregarded. This means the applicable Exhibit E scenario is Scenario B, which shows that Mid Rise has underpaid Apartments by some $23,209 plus interest.
Thus, on this issue Mid Rise owes Apartments $23,209 plus interest which the parties can calculate. There are interest calculations in Exhibit E which the parties may adopt. But the parties may also wish to present to the Court an interest calculation up to the date of judgment which they may do by bringing in short minutes of order to give effect to these reasons.

[16]

(h) Refusal to accept instructions from Mid Rise

Introduction. Mid Rise's third allegation of serious breach arises out of a letter Apartments wrote to Mid Rise on 9 March 2012. Mid Rise contends that the import of the letter was that Apartments stated it would no longer accept instructions from Mid Rise under the Caretaker Agreement.
Were this what the letter said, then it would have been a candidate for breach of clause 16.4 of the Caretaker Agreement, which implicitly provides that the Caretaker will accept and comply with the directions from the Owners Representative and the Lot's Representative (as defined under the Caretaker Agreement). Mr Chen was the Owners Representative.
Several other clauses of the Caretaker Agreement provide for the appointment of representatives of Mid Rise and Apartments to liaise about aspects of the management of World Tower. Clause 9.3 requires the Caretaker to appoint a Caretaker's Representative to liaise with representatives of Mid Rise and Low Rise. The Executive Committee of each of the Lots must appoint a representative to liaise with the Caretaker in respect of common property that does not comprise World Tower Shared Facilities (clause 16.3). And the World Tower Committee is required to appoint the Owners Representative to liaise with the Caretaker on behalf of the Owners in respect of the World Tower Shared facilities. Mr Chen was the representative appointed for Mid Rise to perform these various functions.
Mid Rise's solicitors asked Apartments on 13 March 2012 to withdraw the statement in the letter, warning that if it were not withdrawn, Mid Rise would treat it a as repudiation of the Caretaker Agreement. Apartments did not withdraw the statement. Mid Rise says that Apartments has refused to accept instructions from Mid Rise since then and right up until the date of termination of the Caretaker Agreement in July of that year.
The Apartments 9 March Letter. Apartment's 9 March 2012 letter describes an incident that took place between Mr Chen and Apartment's staff, Ms Moulas and Ms Danni Lee. Mr Chen was not cross-examined about that incident. Ms Moulas swore an affidavit but not touching upon this subject and was not required for cross-examination. The letter was sent at a time when relations had deteriorated badly between Mid Rise (under the stewardship of Mr Chen) and Apartments and was sent only about 4 months before Mid Rise attempted to terminate the Caretaker Agreement. The letter was addressed to the attention of Mr David Edwards at Doyle Edwards Anderson solicitors, the solicitors for Mid Rise, and was signed on behalf of Apartments by Katerina Mihail, the General Counsel of Meriton Group. Its text was as follows: "Our building Manager, Ms Moulas has just attended the writer's office to report an alarming and frankly quite disturbing incident that she experienced this afternoon at the hands of your client Mr Chen. Despite Ms Moulas asking Mr Chen to leave her reception office after he began to make unreasonable demands and abuse her staff, Mr Chen refused to leave. Our staff as well as an external contractor had to then leave the reception area and lock themselves in the back office in order to avoid the barrage of abuse being wailed at them by Mr Chen. Your client's behaviour towards Meriton staff is becoming more and more destructive and abusive. This must stop now. We have written to you on countless occasions complaining about Mr Chen's inappropriate behaviour towards our staff. We already have a Building Manager on stress leave due to Mr Chen. As you know Ms Moulas is pregnant and whilst this in itself does not, and should not interfere with her ability to do her job, one would nevertheless expect some sort decency from Mr Chen and his staff to not intentionally bully and intimidate a pregnant woman for no justifiable reason. This is appalling. Enough is enough. From now on Mr Chen and his staff must not directly communicate with the Building Manager and/or staff, and in particular Ms Danni Lee who was also verbally abused by Mr Chen today. From now another Executive Committee member for Mid Rise or the Strata Manager is to directly communicate with the Building Manager. Mr Chen is barred from speaking to or sending any form of communication including emails to the Building Manager and her staff, including emails from others on his behalf. Can you please advise Mr Chen of these arrangements and ensure that he understands that no email generated by him or on his behalf and sent to the Building Manager or her staff will be answered."
Mid Rise's closing submission describes the 9 March letter as Apartments "in-house solicitor issued an edict stating that Meriton [Apartments] would no longer accept instructions from Mid Rise under the Caretaker Agreement. That is an overstatement. Properly construed, in my view, the letter is not an edict to this effect.
This letter should not be characterised as a refusal by Apartments to accept instructions from Mid Rise under the Caretaker Agreement. First, the letter must be read as a whole. The first four paragraphs are a strong complaint about the personal conduct of Mr Chen in relation to Apartment's female staff, ending with the statements "This is appalling" and "Enough is enough". It is clear that a personal issue is being raised about allegedly offensive conduct of Mr Chen in relation to Apartments employees (to whom Apartments owed duties of care) and how that should best be remedied. The letter does not enter the territory of the general rights of Mid Rise to give instructions to Apartments.
Secondly, the letter nowhere says that Apartments will "no longer accept instructions" from Mid Rise under the Caretaker Agreement. It does quite the opposite. It invites "another Executive Committee member from Mid Rise" or indeed the Strata Manager to "directly communicate with the Building Manager". The letter makes clear an intention to keep open Apartments' lines of communication with Mid Rise. The only bar imposed related to Mr Chen, who was the sole focus of the complaint: "Mr Chen is barred from speaking to or sending any form of communication including emails to the Building Manager and her staff". The fact that the 9 March 2012 letter was sent between Meriton Group's General Counsel and the solicitors for Mid Rise is itself some evidence that lines of communication were being kept open at some level.
Thus in my view notwithstanding that Mr Chen was not cross-examined on any aspect of this issue, this allegation of serious breach falls at the first hurdle: it fails to establish that there was any direction that Apartments would no longer accept instructions from Mid Rise.
The 13 March Reply. But the parties conduct as reported in a subsequent letter also makes clear that Apartments did not persist in any refusal to accept instructions from Mid Rise, as distinct from Mr Chen. Doyle Edwards Anderson (Doyle Edwards) responded to the 9 March letter in a letter on 13 March sent to Meriton's General Counsel. Doyle Edwards asked for withdrawal of the 9 March letter in the following terms: "Response to Allegations The building manager's conduct is not conduct to a standard expected of a competent and professional building manager. It appears that the building manager deliberately delayed providing access to the Telstra technician so he could explain to Mr Chen the project so as to facilitate works (which have already been approved by the owner of High Rise (Meriton Properties Pty Limited)). Mr Chen did not make any unreasonable demands or abuse staff. Mr Chen was asking the building manager when she was going to respond to the numerous matters that she had failed to respond to alt all or in a timely manner. Our client is concerned that the Caretaker is making these allegations against Mr Chen is an attempt to have him removed as lot representative because he has a very detailed knowledge of the building and the various failures of the Caretaker to comply with the provisions of the Caretaker Agreement over the last few years. There is no legal basis for your demand to remove the elected Lot Representative. In relation to your demand that 'from now on Mr Chen and his staff must not directly communicate with the Building Manager and/or her staff, and in particular Ms Danni Lee who was also verbally abused by Mr Chen today', ,that demand will not be complied with. There is no basis for the Caretaker, that is engaged to assist the owners corporation, to demand that the Lot Representative appointed to deal with the Caretaker pursuant to clause 16.3 of the Caretaker Agreement is replaced. We have been provided with a copy of numerous emails sent by Mr Chen to the building manager over the last three or four weeks most of which remain unanswered by the building manager. After reviewing those emails it is quite alarming that the building manager has not responded to many of those emails some of which are simple requests for information to be provided. Instead the building manager is apparently 'investigating' various issues and some of those 'investigations' have been going on since the end of January with no meaningful response to valid questions being raised by the owners corporation. Our client suspects that is the reason behind your demand that Mr Chen no longer communicate with the building manager because for whatever reason the building manager is unable or unwilling to respond to simple requests for information or is being directed not to respond to those requests for information by her employer, the Caretaker. In relation to your comments that 'Can you please advise Mr Chen of these arrangements and ensure that he understands no email generated by him or on his behalf and sent to the building manager or her staff will be answered', we invite you to formally withdraw that position. If you do not do so our client will treat your letter as a wrongful repudiation of the Caretaker Agreement and will take appropriate action under the terms of the Caretaker Agreement. … Mr Chen will continue, as the lot representative under the Caretaker Agreement, to correspond with the building manager in relation to various issues that arise in performance of the Caretaker's duties. If you would like him to send those emails to another person on behalf of the Caretaker then please let us know. Our client expects that the Caretaker will respond to the issues that have been outstanding for weeks urgently and any other correspondence about the performance of duties will be dealt with in a competent, timely and professional manner. If the Caretaker is unwilling to that then please confirm that position in writing so that we can advise our client to take appropriate action under the Caretaker Agreement."
Mid Rise relies upon Mr Ong's general affidavit evidence that Apartments refused to take any directions from Mr Chen as the Lot Representative and Secretary of Mid Rise or to respond to any communications from him after 9 March 2012. This can be accepted as correct. But that did not in fact prevent communication between the two entities.
I accept Apartments' submission that its refusal to deal with and receive instructions from one particular individual on behalf of Mid Rise does not constitute a refusal to deal with Mid Rise. Nothing in the 9 March letter prevents Mid Rise from subsequently nominating another avenue of communication with Apartments other than Mr Chen. And that is indeed what the Doyle Edwards reply sensibly seeks to do. The result was as much the product of Mid Rise's refusal to communicate through someone other than Mr Chen, as it was from Apartments running out of patience with his behaviour.
It is strictly unnecessary to decide whether Mr Chen or Ms Moulas is correct in their respective versions of what happened at World Tower at the time. Neither Mr Chen nor Ms Moulas was cross-examined about the allegations. The Court is left with two competing sets of allegations in the correspondence. But in the absence of a finding of a clear prohibition in the 9 March letter to make out this claim of breach of contract, the onus lies on Mid Rise to establish that Apartments actually refused to accept instructions from anyone other than Mr Chen that Mid Rise might put forward. Mid Rise never tested that by putting up any alternative to Mr Chen.
Subsequent conduct. Events between March and July 2012 contradict any inference that Mid Rise itself rather than just Mr Chen was barred from communicating with Apartments. There was continuing communication during this period through the lawyers and between employees of the two organisations. The statements in the 9 March letter were not withdrawn. But they were not enforced by Apartments other than with respect to Mr Chen. Nor did Mid Rise accept them as governing its general freedom to communicate with Apartments thereafter. Mid Rise suggested in its 13 March letter that other forms of communication might occur. That is what happened.
And if Mr Chen's behaviour was unacceptably offensive to reasonable people or the manner of his giving directions to Apartment's staff unreasonable, the directions were perhaps unlikely to be construed as "directions" in conformity with the Caretaker Agreement. Thus any post 9 March refusal by Apartments to act on such "directions" was unlikely to be a breach of the Caretaker Agreement. And any misconduct on Mr Chen's part in communicating with Apartments was likely to be a breach of an implied term that he should observe a basic code civility when giving directions to Apartments staff.
What was the reasonable course in the circumstances for Mid Rise? To make out a case that acting on the 9 March letter was a breach of the Caretaker Agreement, Mid Rise would have to establish that the factual allegations behind the letter were not justified, or at least that it had taken reasonable steps to investigate them and the investigation showed they had no basis. Either Mid Rise or Doyle Edwards could have engaged with Apartments to investigate whether Mr Chen's behaviour might actually have been as unacceptable as Ms Moulas was alleging. Merely to deny the allegations and ask for the letter to be withdrawn was to take the position that the allegations were false, a position Mid Rise has not defended in these proceedings. There has not been any evidence from Mid Rise of investigation of the allegations. This weakens Mid Rise's contention that it was facing an unacceptable denial of its contractual rights of communication with Apartments.
Failure to Call Witnesses. Mid Rise seeks to turn the onus back onto Apartments. It submits that Apartments failed to call Ms Katarina Mihail, the Meriton Group General Counsel, to give evidence about the "edict" in the 9 March letter against communication and that therefore the Court should infer that any evidence from her, had it been led, "would have exposed facts unfavourable to [Apartments]". The submission is put in reliance upon Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, 418 (per Handley JA). But there is no basis for such an inference to be drawn. There is not much to explain about the 9 March letter, which the Court has not construed to be an "edict" against any of Mid Rise's instructions to Apartments.
Initially Mr Chen did not give evidence. His early absence was not clearly explained, other than that he was no longer in Australia. But he ultimately gave oral evidence on 11 October 2013. He was not cross-examined on this issue. It is therefore difficult to assess his credit on the underlying facts. To the extent that one can know a person through their correspondence Mr Chen presents a disquieting picture. Apart from his four formally crafted affidavits, his more spontaneous correspondence with Ms Moulas is persistent, argumentative, self-righteous and sprinkled with discriminatory and inappropriate language to the female employees of Apartments.
One small example of Mr Chen on paper will show this. On Tuesday, 14 February 2012 Mr Chen wrote a three page email about failed lights and other matters in the mid-rise area. Relevant parts of that email are the following. "Q6. In turn, what is the procedure for you to report to the Owners Corporation? Our residents have been complaining to us about failed lightings and we are very concerned that our residents have been made to carry out your function in inspecting failed lights. This is completely unsatisfactory! According to the Duties of the Caretaker, you are responsible for ensuring that the Sauna Room is cleaned on a daily basis. Q7. Our question is how could your contract cleaners (or your maintenance staff) not detect the lights having failed, if they have cleaned the Sauna daily as they have to do? Do you not know that the cleaners failed, too? Q8. We appreciate that you are relatively new and unfamiliar without facilities, however since your assumption of the role as a temporary building manager, how often has these situations (of failed lightings) been reported to you? Further concerns we now have are whether you in a position to carry out any inspections of the complex machinery, equipment and plants situated in many difficult to reach locations and sometimes dangerous areas, given that your employer has warned us that you are 5 months pregnant. There are unavoidable risks existing within our common property and that's how it was designed and built by Meriton. We will want this careless decision by your employer in putting your health and your baby's health at risks working in such an high risks operating environment when every building manager in the past had to inspect machinery, plant and equipment and be exposed to actual fire & toxic smokes hazards already notified to your employer by our insurer e.g. the garbage room special hazards highlighted by ACE Insurance. What would WorkCover say when they visit our premises? Q9. What are the reporters given to you by your contractors or staff of locations, dates of inspection of light failings and types of light fittings - we require a copy of that information as part of our inquiry to these concerns? Your response to the above questions is important particularly when the owners Corporation is reliant on you to carry out proper building services and timely reporting as required. So please response specifically to our questions so we can assess the implications. We have not had a building manager's report for around 5 months and the Executive Committee has no reasonable basis to assess the true state of our common property."
This language speaks for itself. Ms Moulas' reply was the following. "Your initial concern is one of lighting in common property. I find this very contradictory given the situation with the urgent lobby light repairs which you are holding up. Nevertheless maintenance inspects and carries out light repairs. As emailed to your staff member Haidar earlier today maintenance was waiting on mid rise to purchase lighting to carry out these repairs. You should always ensure that you have stock available especially given that you stress the urgency of the safety of your fellow residents. As I have also stressed the urgency of the outstanding light repairs in the lobby I await your urgent attention and instructions for this matter which low rise and high rise have already assessed as an emergency and given me the go ahead to proceed. Furthermore I do not appreciate your discriminatory comments of my ability to carry out my job. You have no right to comment on my current position and ability to perform my job. I have already corresponded with our strata manager regarding many of the matters mentioned in your email. In future to avoid lengthy emails going back and forth please address matters individually in emails giving priority to urgent matters so we can address items accordingly. "
The correspondence between Apartments and Mr Chen presents a common pattern: a cascade of competing and often unprioritised demands on his part, the volume of which could not be readily be dealt with in a timely way by considered correspondence in reply. And more than occasionally the correspondence, as it did in respect of the lights, shows that the cause of the underlying problem is to be attributed to Mid Rise, not to Apartments.
In my view, for the reasons stated, Mid Rise has not made out a case of breach of the Caretaker Agreement by Apartments refusing to accept instructions from Mid Rise. The less serious allegations (b), (c), (d), (e), and (g) can now be considered.

[17]

(b) Access for Contractors

Mid Rise alleges that Apartments permitted contractors to enter and work upon Mid Rise common property without Mid Rise's prior knowledge or consent. Mid Rise says it had specifically directed Apartments to inform it of Apartment's intention to arrange such contractors and to seek its consent before doing so. Although this allegation was broadly based, it related in the end to one contractor, Protection Services Pty Ltd trading as "Guardian Fire Services" ("Guardian").
Apartments answered this allegation. It contended Guardian was at all material times retained by Mid Rise itself, not by Apartments, so that the responsibility to arrange access and give notice of it was entirely that of Mid Rise. The contest of evidence on this issue generally, although not entirely favours Apartments' contentions.
During World Tower's construction in 2003 and 2004, Apartments engaged Guardian (through a related entity Karimbala Properties (No. 25) Pty Limited "Karimbala")) to install safety fire systems in the building. Apartments controlled the low-rise and mid-rise sections of the building at the time it engaged Guardian to maintain, repair and certify the building's essential fire safety systems.
Low Rise replaced Guardian in early 2011 and appointed another fire safety system certifier for the low-rise part of the building. Mid Rise terminated its relationship with Guardian in October 2011, and appointed another maintainer, repairer and certifier of essential fire safety systems in the mid-rise area, Torvac Solutions ("Torvac"). In November 2011 Torvac provided a report to Mid Rise on Mid Rise's fire safety system. That report was critical of Guardian's prior certification and identified defects in the building's system. Moreover, in late 2011 Torvac was concerned that Guardian was continuing, in its view wrongly, to certify the World Tower shared facilities as fire safety-compliant at the direction of Apartments and Properties.
Not surprisingly the presence of a number of fire safety contractors examining the World Tower shared facilities at the one time from late 2011 caused friction and misunderstandings. Issues came to a head in early April 2012.
The correspondence shows that an incident occurred on the morning of 5 April 2012. I infer from an email that Doyle Edwards sent to the General Counsel of Meriton Group that day at 3.39pm that a male person unknown to Mid Rise personnel attended at the level 38 Mid Rise office and requested access to level 58 to "seal all the penetrations in the fire stairs". This person explained that he worked for Karimbala and had been sent by the Meriton Group. He was refused access, although he was seen later using the fire doors on level 50 and 58 of the mid-rise area. The Doyle Edwards letter then asked the following question: "Please explain the following: 1. Who was the male person? 2. Precisely what work was he instructed to do and by whom? 3. How did he gain access to Mid Rise after access was refused? The owners corporation believes that the Caretaker staff or security swiped him to level 61 and then he used the fire stairs. 4. Why did the Caretaker not give any notice to Mid Rise that this person was attending to do work and what work he was proposing to do? This is a serious breach of security for Mid Rise. An unidentified person was on its property without authority and it is not known what work he was proposing to do or did. Please take instructions and respond to these matters."
Doyle Edwards sent a longer letter to Apartments the same day, a letter that covered broader issues. Guardian had been involved in the first quarter of 2012 in preparing an Annual Fire Safety Statement for the whole building. Apartments had been concerned that Guardian was being denied access to the mid-rise area to complete this task. Doyle Edwards protested on 5 April and said "Guardian had not been denied access to Mid Rise". Doyle Edwards stated that a Mr Mathew Sayers of Guardian had been on Mid Rise's common property for extended periods of time in "the last few weeks". Doyle Edwards complained that Mid Rise had never been informed why he was there, or what he was doing, and asserted that he was present again on 4 April. Doyle Edwards then said as to whether Guardian would be permitted access to the building: "Guardian has not been denied access to Mid Rise for the purpose of doing work to any shared facilities owned by Mid Rise. However, Mid Rise did terminate its relationship with Guardian last year and has appointed another contractor to inspect and certify the Mid Rise fire safety equipment and systems. If Guardian requires access to the Mid Rise common property in order to inspect and certify any shared facilities owned by Mid Rise then Mid Rise is entitled to know when Guardian will be on its property and precisely what work it proposes to do. The Caretaker appears to treat the property as if it owns it. Mid Rise owns the common property of Mid Rise and any shared facilities on Mid Rise common property."
The letter then gave a direction to Apartments under the Caretaker Agreement in the following terms: "The Mid Rise Owners Corporation is the owner of the common property in Mid Rise. The Caretaker is the servant of Mid Rise. The Caretaker does not own Mid Rise. The Mid Rise Owners Corporation requires the Caretaker to comply with the following directions in relation to any contactor (including Guardian), that is engaged to do any work on Mid Rise common property (including shared facilities on Mid Rise common property): 1. The Caretaker is to notify Mr King Chen, the secretary of the owners corporation and Lot Representative, in writing of the following matters before the contractors enter Mid Rise common property: (a) The identity of the contractor; (b) The times and dates the contractor will require access to the common property; (c) Details of the work, proposed work or investigations that the contractor has been engaged to do; (d) Details of the anticipated costs of the work, proposed work or investigations; 2. The Caretaker is to direct and ensure that the contractors attend and report to the Level 38 Mid Rise office before they commence any work to or on Mid Rise common property (including shared facilities on Mid Rise common property). These directions are to be implemented immediately."
Guardian re-attended on Mid Rise's common property on 10 April. Mid Rise says this contravened its direction. I accept the contents of Mid Rise's 10 April incident reports recorded by a Mid Rise security officer on a 24 hour clock. The first incident occurred at 13.30 and the second at 13.36. In the first incident, Mr Letaif, the security officer found a male person near the level 58 south-end stairs. Upon Mr Letaif questioning the person, he said he was from "Guardian". Mr Letaif then sought to take him down in the lift to level 38. But the visitor declined to answer questions as to what sort of work he was doing in the fire stairs. The visitor refused to get out of the lift at level 38 and instead sought to travel further down to the level 10 lobby.
The second incident started at 13.36. Again taken from the contemporaneous incident report, I accept that Mr Letaif observed a male person on level 59 opening the Fire Hose Reel cupboard for about 40 seconds. Then this person checked the electrical risers to see if he could enter them. About 15.56 Mr Letaif met this contractor when the lift door opened on level 52. Mr Letaif questioned him about his reasons for being on the Mid Rise premises. The visitor explained that he was "checking and fire proofing the Fire Hose Reel cupboards and the electrical rises", explaining that he was a "subcontractor for Guardian". I accept on the basis of these reports that Mr Letaif did not have advance notice of either of these persons coming on the site. I also accept Mr Ong's evidence that nothing in Mid Rise's records shows that there was any prior approval of the works to be done by Guardian on 10 April 2012. Mr Ong's evidence was based purely upon the records. It was as good as far as it went. But Apartment's correspondence at the time show that Mr Chen was involved in these incidents. His evidence does not assist me in resolving what happened.
Apartments wrote to Mid Rise about Guardian on 12 April 2012. Apartments explained that the Caretaker did not retain Guardian, but the Guardian was retained by Low Rise and by Properties to look after the shared services in their respective areas of the building. Apartments denied that Guardian was its contractor and said that Mid Rise would have to take up any issues it has about access to shared facilities with either Low Rise or Properties.
To the extent that Apartments says that it does not retain Guardian, in my view that can be accepted. To the extent that Apartments contended in final submissions that Mid Rise retains Guardian that is incorrect. I accept Mr Ong's evidence that Mid Rise terminated Guardian services in October 2011.
Then Apartments' 12 April 2012 letter turned to the two incidents: the first on 4 April, which had led to the direction being given, and the second one on 10 April. As to the 4 April incident, Apartments alleges in this 12 April letter that Mr Chen was eavesdropping on Mr Sayers from Guardian on 4 April, when Mr Sayers was inspecting common property of Low Rise. I accept that Mr Sayers greeted Mr Chen on this occasion and did not confront him. I accept what Mr Sayers says as to what happened on this occasion.
Apartments' 12 April letter contended to Doyle Edwards that the building Strata Manager had been emailed on 10 April to advise that Guardian was carrying out inspections to shared facilities in the low-rise, mid-rise and high-rise areas. Apartments 12 April letter explained the chain of communications from there, "The Strata Manager was asked to notify all parties and he confirmed a short time later that he had done so. So it was a surprise when shortly after this Mr Chen again denied Guardian access". Apartments put in issue the possibility that information about Guardian's visit on 10 April had been communicated in advance to Mid Rise via the Strata Manager.
The onus of establishing a breach of contract by contravening Mid Rise's directions lies on Mid Rise. It is up to Mid Rise to prove the negative: that Apartments had not given it notice contrary to its direction. Although Apartments' evidence on this issue is non-specific, Mr Chen's evidence does not assist me and the Court is not prepared to infer in Mid Rise's favour that there was no communication in advance of Guardian's 10 April visit. Apartment's responsibility to communicate such information is weaker when the contractors are engaged by Low Rise and Properties rather than by it as Caretaker.
Mid Rise fails to establish any breach of the Caretaker Agreement on this ground.

[18]

Mid Rise's common property includes a store room on level 5. Between 2004 and February 2012 Apartment's maintenance personnel used this store room to provide maintenance services throughout the whole World Tower building. Apartments did not first get Mid Rise's express permission for its maintenance staff to use the room. Mid Rise accepted the services Apartments provided from this room. Mid Rise says that through this conduct Apartments breached the Caretaker Agreement. Apartments say that Mid Rise is estopped from alleging that Apartments' use of the room was a breach of the Caretaker Agreement.
The level 5 store room is located in common property owned by Mid Rise next to the low rise lift well. I accept Mr Ong's evidence that he had been in that store room some 6 to 8 times in the period 2005 to 2010 to visit Apartments' then Maintenance and Building Manager, Mr Christodoulou, to discuss issues that arose from time to time. The store room was set up as an office, with a desk, chair, computer, telephone and other office equipment. Mr Ong says, and I accept, that although he had been in the room a number of times with Mr Christodoulou, he was unaware that the room was actually part of Mid Rise's common property.
Apartments incurred electricity charges for the use of the room. Electrical power was needed to supply the room's air conditioner, computer, equipment and light. The electricity supplied to the common property of the building was invoiced monthly by Energy Australia. Mid Rise pays 33 per cent of the invoiced amount in accordance with the Strata Management Statement. For many years Mid Rise has been paying the cost of running the power and other electrical equipment being used by Apartments in the level 5 store room.
There is direct evidence of Apartments' usage of this level 5 store room from Mr Ong, a member of Mid Rise' Executive Committee. When the issue came to a head in March or April 2012 Mr Ong was no longer a member of the Executive Committee. Mr Chen was then Secretary of Mid Rise. Mr Ong's evidence establishes that Mid Rise did not at any time between 2004 and March 2012 complain about Apartment's use of the level 5 store room. I accept Mr Ong's evidence that there are no minutes of any Mid Rise meeting between the April 2004 registration of the Mid Rise Strata Plan and March 2012 giving authority to Apartments to use this room.
The matter came to a head the following way, according to the correspondence. Mr Chen demanded access to the level 5 store room on Friday, 24 February 2012. He says he was denied access until the following Monday, 27 February. The Building Manager (Ms Moulas), an Apartments security guard and two cleaners cleared out the level 5 store room that Monday. A key to the room was provided to the Owners Corporation later that same day. Thus even before Doyle Edwards became involved, on Mid Rise's own admission, the room had been cleared out over the course of the weekend.
On 1 March 2012 Mr Chen emailed Ms Moulas asking her to make herself available the following day or any other suitable time "to come with me to the Police Station at Day Street so we can together make a police report about the missing Air Conditioner on level 5 Management Office?" The following day Ms Moulas replied and said that she was "still in the middle of investigating this matter" but that at this stage she could "report to the Air Conditioning Unit Break Down in 2011". Mr Chen replied the same day that he wanted to report the missing air conditioning unit to the police. He complained that Apartments should have reported to Mid Rise about this and other breaches of security (Caretaker Agreement, clause 2) and that Apartments had failed to keep the Owners Representative and Lot Representative informed at all times as to the general condition of machinery (clause 9). Moreover he asked a series of questions: (1) who authorised the air conditioner to be installed; (2) when did Icebrink [the air conditioner maintainer] inspect the air conditioner and determine it was broken; (3) whether the air conditioner was under warranty; (4) when was the air conditioner removed and by whom; (5) who gave authority for the air conditioner to be removed; (6) where the air conditioner currently was.
In an email sent at 3.58pm on 2 March, after identifying these questions, Mr Chen said to Ms Moulas "I would like you to prioritise your response and to ensure that we have the abovementioned report by 12 noon on Monday. If you are unable to inform the Owners Corporation where the air conditioner now is then I intend to report the matter to the NSW Police and request they investigate the missing property".
Mr Chen followed up on 6 March 2012 complaining to Ms Moulas "the Owners Corporation has now been waiting for you for over a week to provide the Owners Corporation with a report in relation to the missing air conditioner".
Then the correspondence was referred to Doyle Edwards, who it appears had recently checked the location of the store room against the Strata Plan. On 12 March 2012 Doyle Edwards wrote and pointed out that Mid Rise owned level 5. But Mr Chen had by then already told Ms Moulas this and she had responded by clearing the room. The 12 March 2012 letter refers back to the 24 and 27 February events and seeks information by what authority Apartments had exclusively occupied the store room and who had paid for the electrical power to the store room.
Meriton Group's General Counsel replied on 27 March 2012, asserting that a Mid Rise Executive Committee had in 2004 authorised the Maintenance Manager to use the level 5 store room. The Meriton Group 27 March letter confirms Mid Rise's version that a request for entry to the room was only made for the first time on 24 February 2012 to Ms Moulas, who was a new Building Manager and who was not at the time yet familiar with the room. Apartments claimed that the Building Manager (Ms Moulas) did not immediately know if the store room belonged then to Low Rise or Mid Rise and that she had not had the opportunity to locate the key to the room. But Ms Moulas immediately investigated the issue, found out that the store room was located in the Mid Rise area and arranged for it to be cleared so that control over the room could be handed back to Mr Chen on 27 February, which it was.
Doyle Edwards replied on 27 April to the effect that there was no minute of Mid Rise Executive Committee or General Meeting authorising the "Maintenance Manager to use the level 5 room as a store room".
The Court concludes the following from this history. If Mid Rise appreciated that Apartments was using this property rent-free between 2004 to 2012, it did not complain to Apartments about it. As soon as Mid Rise did raise the issue, Apartments vacated the room. From the tone of his general correspondence Mr Chen does not appear to be the kind of person who would have held back for very long if he had known that Mid Rise owned the room Apartments was using on level 5. The better view is that some informal arrangement was made back in 2004, which was never minuted but which both sides accepted as temporarily convenient and that for the first time in 2012 Mr Chen realised that Apartments was using Mid Rise property. It is equally to be inferred from Apartments' quick response to the complaint that prior to 24 February 2012 that it had not been brought to Apartments' attention that it was using Mid Rise's level 5 property rent-free.
Apartments submits that Mid Rise benefitted by Apartments' occupation of the level 5 store room. But merely because Mid Rise accepted some of the services provided from this room does not of itself estop Mid Rise from now complaining about Apartments' use of the room. Apartments was providing its contractually required services for a fixed fee under the Caretaker Agreement to Mid Rise during the relevant period. But it happened to be using the level 5 store room for that purpose. If Apartments had used a different room Mid Rise would not have had to pay any more to Apartments under the Caretaker Agreement. Apartments was saving rent by using a room and not offering to pay Mid Rise rent for it and thereby reducing its internal costs of providing the Caretaker services. Indeed Apartments did provide the services from elsewhere, no doubt at additional cost, after Mid Rise demanded in February 2012 that it leave the level 5 store room. I accept Mid Rise's submission that as the relevant breach was using the room without paying rent, that the only person benefitted by the conduct in question was Apartments, not Mid Rise.
Mid Rise's breach allegation is of the occupation of the office and the use of electricity "without Mid Rise's prior knowledge or consent and without providing payment for rent". Mid Rise contends that the breach is similar to that in Waldorf Apartment Hotel, the Entrance Pty Ltd v Owners Corp Strata Plan 71623 [2009] NSWSC 882 ("the Waldorf"); [2010] NSWCA 226 ("the Waldorf Appeal")
But there are difficulties with Mid Rise's breach case. First, Mid Rise has not established that Mid Rise neither knew nor consented to Apartment's occupation of this space. As Apartments undoubtedly occupied the room from 2004, either someone from the Mid Rise Executive Committee gave informal permission to someone from Apartments for the room to be used, or Apartments simply used it and no one in the Mid Rise Executive Committee checked that they owned it. The first scenario is the more probable. It is difficult to accept that if no permission had been given in 2004 that Mid Rise would have tolerated Apartments' occupation for 8 years without complaint, and without demand for rent. This is a complete answer to Mid Rise's case on this breach.
Mid Rise has not quantified any claim for rent for this room or established the basis on which the rent should be calculated. Perhaps there was a breach once the occupation and the withdrawal of any implied consent was brought to Apartments' attention on 24 February. But the breach only subsisted for a weekend after that and any wrongful occupation was then quickly and fully remedied. There is no basis on these facts for a contention that Apartments repudiated the Caretaker Agreement. Nor was a Caretaker Agreement, clause 5.3 notice served on Apartments in respect of this breach; understandably, because any breach was remedied on discovery.

[19]

(d) Lift Bookings for Owners and Tenants

Mid Rise alleges that Apartments failed to provide exclusive access to lifts to co-ordinate movements of owners and tenants in and out of mid-rise apartments. Apartments admits that it could not provide exclusive access to the mid-rise area on one occasion. But it contends that this occurred because Mr Chen had cancelled all access to the mid-rise lift system to Apartment's staff, some days earlier and without prior notice.
Mid Rise's case contains little reliable contemporaneous evidence to support this contention of breach, other than some correspondence. Mr Ong's affidavit on the issue is mostly based on the correspondence passing between the lawyers at the time.
Mid Rise issued two notices of breach in October 2011 in relation to this allegation of breach: the first on 11 October and the second on 27 October. Mr Ong provides evidence in support of a possible breach only based on the second of these two notices, the one considered in these reasons.
The findings on this issue commence on 20 October 2011. Doyle Edwards wrote that day to Apartments reporting that Apartments' building manager had delivered to Mid Rise's office on Level 38 certain protective curtains that should be placed in lifts for when persons were moving in and out of the premises. Doyle Edwards reported that upon delivery of these curtains the Apartments building manager had verbally informed Mid Rise's representative that Apartments would no longer co-ordinate residents moving in and out of the mid-rise section of World Tower.
The Doyle Edwards 20 October letter referred Apartments to its obligations in Caretaker Agreement, Schedule 2, clause 39, which provides: "General Duties The Caretaker will by its employees, contractors or agents at the cost of the Owners in all respects: … 39. Organise, schedule and co-ordinate all people moving in or out of the Complex to minimise damage and inconvenience to residents".
Doyle Edwards then pointed out: "Therefore, the Mid Rise owners corporation requires the Caretaker to co-ordinate and manage the moving in and out of residents taking bookings for the lifts, placing protective curtains in the lifts, arranging for the lifts to be taken and put back into service and otherwise cleaning the lift after it has been used by residents moving and out of the premises If the Caretaker fails to comply with this written direction and the duties required under the caretaker agreement then the Mid Rise owners corporation will issue a breach notice in accordance with the Caretaker Agreement."
Mid Rise was unsatisfied with what happened with the protective curtains in mid-rise lifts in the course of the next week. On 27 October Mid Rise issued a notice of breach to Apartments. After referring to the Caretaker Agreement clause 1.1 and Schedule 2 clauses 8 and 39, the notice declared: "The Caretaker has breached the abovementioned provisions of the Caretaker as follows: (a) On the 18 October 2011 the building manager delivered to the owners corporation's office on level 38 of the building the protective curtains that are placed in lifts when persons move in and out of Mid Rise World Tower. The building manager informed the owners corporation's representative, King Chen, that he had been directed by head office of Meriton to do that and that the building manager will no longer schedule and co-ordinate all people moving in or out of the complex. (b) The owners corporation has directed the Caretaker to perform those duties (verbally King Chen to Chris Christodoulou and in writing by letter from its lawyers Doyle Edwards Anderson lawyers to Meriton dated 20 October 2011) however the Caretaker has failed and refused to perform those duties. The failure by the Caretaker to schedule and co-ordinate all people moving in or out of the complex by taking bookings for lifts, placing protective curtains in the lift and putting the lift into and out of service is a breach of the abovementioned provisions of the Caretaker Agreement. The Owners Corporation considers these breaches wilful."
The Caretakers Agreement, Schedule 2 clause 8 provides as follows: "General Duties The Caretaker will by its employees, contractors or agents at the cost of the Owners in all respects: … 8. Comply with and carry out all reasonable directions from time to time given by the Owners' Representative and the Lot's Representative to the Caretaker in and about the security, maintenance and care of the Common Property."
This 27 October notice gave the Caretaker 30 days to remedy the breach. Mr Ong's evidence was that Apartments failed to comply with the 27 October notice. But Mid Rise does not offer more specific evidence in support of this breach allegation. Mr Ong's evidence asserted that it "was required to employ persons to perform those duties itself", a statement which on its own gives little information about the duties in question. Mid Rise threatened in its notice to claim compensation for the cost of employing those persons. Mr Ong continues in his evidence that he "had to incur the cost of purchasing a ladder so as to hang the curtains properly".
Whatever breach may have occurred it was immediately remedied. The Meriton Group General Counsel Ms Mihail wrote back on behalf of Apartments the next day, 28 October, saying: "We refer to your letter dated 20 October 2011. We understand that Mr Chen has changed the lift keys for mid rise, has not provided copies of the new keys to the Building Manager and has also instructed Schindler not to give us a key. Further, Mr Chen has refused to allow some of the Caretaker staff access to mid rise (by cancelling individual access cards without notice) and as a result we are unable to lock off the lifts in order to facilitate people moving in or out of mid rise. We understand from your letter that your client now wants the Building Manager to resume this task. We are very happy to do so and we have asked the Building Manager to attend level 38 and obtain from Mr Chen's personal security team the lift key and lift protectors. We will also assume that Caretaker staff and subcontractors will not have their access key cancelled without notice. If this is not the case please advise us immediately. As you can appreciate it is most difficult co-ordinating works when we do not know at any given time whether rostered staff will be able to access mid rise lifts in order to carry out their work. "
Mid Rise does not answer the statement made in the Meriton General Counsel's letter of 28 October that Mr Chen was responsible for the problem: by not providing new keys to the building manager after he changed the lift keys for Mid Rise. The evidence is equally consistent with any lack of co-ordination being Mr Chen's fault. Mid Rise's evidence does not support a breach of either Schedule 2, clauses 8 or 39 concerning curtains in the lifts. On this material Court cannot find that there was any breach of the kind Mid Rise alleges on this subject.
And if this were a breach of the Caretaker's Agreement, it was immediately remedied. It could not found any right to terminate the Caretaker Agreement either under clause 5.3 or based on Apartment's repudiation.

[21]

(g) Keys to the Level 61 Plant Room

The Level 61 plant room contains equipment that services different parts of the World Tower building. Apartments and its contractors have maintained and repaired this equipment under the Caretaker Agreement. Mid Rise is entitled to access to the Level 61 plant room as part of the Mid Rise common property. Mid Rise was denied access to this plant room in April 2012 in the midst of the other tensions between Mid Rise and Apartments.
The Court's findings on this issue are as follows. On or about 18 April 2012 Apartments changed the locks to the Level 60 fire stairs (that give access from the mid-rise fire stairs into the Level 61 plant room owned by Mid Rise) and the locks to the plant room providing entry into the plant room on Level 61 itself were changed. Mid Rise did not authorise the changes before they occurred.
Mid Rise immediately protested. On Monday, 23 April 2012 at 10:01 am Doyle Edwards emailed the Meriton Group General Counsel, the appropriate representative of Apartments for this purpose, complaining about the unauthorised changing of locks to the plant room and pointing out that Mid Rise owned the Level 61 plant room and did not require Apartments permission to access it.
This email generated a quick reaction. At 1:37 pm, approximately three and a half hours after the Doyle Edwards email, Apartments building manager emailed back to Mid Rise strata managing agent, "Hi Peter, please advise Mid Rise that the locks on the plant room have been put back to the old key".
The reference in the Apartments reply email to "the old key" was a reference to certain events back in September 2011. At that time in 2011 events between Mid Rise and Apartments had prompted allegations by Meriton's General Counsel on behalf of Properties (the Meriton-controlled entity that owns the high-rise section of the building) that that someone with relevant technical experience working within the Level 61 plant room had removed the English language program to certain hydrovale pumps in that room, pumps that supplied water to the high-rise serviced apartments. The allegations were that the person had replaced the English language program with a program in the German language, causing the pumps not to be able to communicate. Meriton's response to these events was to write on 6 September 2011 to Doyle Edwards to ensure that no one would have access to the Level 61 plant room without being escorted there by Apartments' staff. And the locks to the Level 61 plant room were changed.
On 8 September 2011 Doyle Edwards protested at this, pointing out that Mid Rise owned the Level 61 plant room and that Apartments was not entitled to change the locks or to put in place any access protocol in relation to property that it did not own. Doyle Edwards foreshadowed that the locks would be changed back to a set of locks that Mid Rise could use, and they were. So from 2011 the room utilised a set of locks to which Mid Rise had satisfactory access.
Six months later in 2012, Ms Moulas confirmed on Monday 23 April 2012 that the locks to the Level 61 plant room had been changed back to this "old key". A few days later, on 24 April 2012 Doyle Edwards emailed Meriton's General Counsel, Ms Katerina Mihail, complaining that the change of the locks to the Level 61 plant room back to the "old key" had been without its consent. But apart from this, the convenience to Mid Rise of the change back meant that it did not protest any further. It thenceforth had access to the Level 61 plant room.
Apartments' conduct in changing the locks to the Level 61 plant room was undoubtedly a trespass to Mid Rise's common property and a breach of the Caretaker Agreement. But it was a minor breach, for about 3 1/2 hours, to a very small part of Mid Rise's common property, which was immediately rectified.
Mid Rise did not issue a Caretaker Agreement clause 5.3 notice to Apartments for this breach. It is difficult to see how such a notice could have been issued. The problem complained of was remedied as soon as it emerged. This breach was incapable of constituting a repudiation of the Caretaker Agreement, or founding a contractual right of termination.

[22]

Conclusions on Apartments' Breach and Mid Rise's Repudiation

The Court's findings that Apartments has not established any but the most fleeting breaches of the Caretaker Agreement are sufficient to dispose of Mid Rise's clause 5.3 termination case. The Court's findings do not warrant a conclusion that Apartments has committed what might be described as a "serious continuing or persistent breach" of the Caretaker Agreement.
The lack of any finding of breach against Apartments also means that the question does not arise of what may be required to give a valid clause 5.3 notice to remedy breaches. That being said, in the course of the Court's consideration above of individual breaches findings are made as to whether Mid Rise gave written notice of breach to Apartments with respect to particular breaches. These reasons show that for two alleged breaches Apartments did comply with clause 5.3(a) by issuing a notice of breach. But Mid Rise has not established the breaches specified in one of these two notices. As to the other notice, these reasons have found that Apartments remedied the minor breach concerned within the permitted 30 day period. This is sufficient to dispose of Mid Rise's termination case under the contract based on clause 5.3.
Mid Rise's case of termination at common law (for Apartments' alleged repudiation, breach of an essential term, or a serious breach of a non-essential term) fares little better. Mid Rise has failed to establish against Apartments any serious unremedied breach of the Caretaker Agreement. Nor has it established that Apartments was not ready or willing to perform the Caretaker Agreement, such that Apartments repudiated the agreement.
Apartments July 2012 purported termination of the Caretaker Agreement when it had no basis for that termination, itself amounted to a repudiation of that agreement. Mid Rise's conduct therefore in issuing those notices, refusing to accept further caretaker services under the Caretaker Agreement after July 2012 and engaging Moreton & Moreton from July 2013 to provide other caretaker services are all conduct that repudiated the Caretaker Agreement: Hayman v Darwins Ltd [1942] AC 356, at 373, 378, 379 and 398 and Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (The Hongkong Fir) [1962] 2 QB 26 at 38.
There is an initial contest as to whether Mid Rise has sufficiently pleaded its case for common law termination. Apartments says that Mid Rise has not sufficiently pleaded this part of its case. But Apartments had ample opportunity to deal with it in the course of what was a flexible hearing in which the Court gave both sides to understand that they would be afforded, with appropriate directions, an opportunity to deal with any matter which they thought may have taken them by surprise.
The pleading issue is not decisive in any event. Mid Rise has neither made out a case that Apartments has breached an essential term of the Caretaker Agreement nor that Apartments has committed a sufficiently serious breach of a non-essential term: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, [2007] HCA 61, [47]-[49]. Mid Rise fails at the threshold of not being able to prove any kind of breach of either an essential term or a non-essential term. It is unnecessary further to examine which of the terms alleged to have been breached was essential on which of the breaches alleged were serious.
Nor has Mid Rise established that Apartments has repudiated the Caretaker Agreement, by words or conduct evincing an intention no longer to be bound by it or demonstrating an absence of readiness or willingness to perform its contractual obligations.
The evidence is to the contrary. Apartments has constantly communicated its willingness to perform the Caretaker Agreement to the point of seeking to offer its services to Mid Rise after Mid Rise's allegations of breach, service of clause 5.3 notices and purported termination of the agreement.
Mid Rise's July 2012 purported termination of the Caretaker Agreement, when it had no basis for that termination, itself amounted to a repudiation of that agreement.

[23]

Could Mid Rise have Terminated the Caretaker Agreement Alone?

The Court's findings mean that it is strictly not necessary to decide whether Mid Rise may terminate the Caretaker Agreement without the co-operation of Properties and Low Rise, an issue in the proceedings ("the joint termination issue"). The Court has found that Apartments has neither repudiated the Caretaker Agreement, nor breached the Caretaker Agreement such as would allow Mid Rise in any circumstances to use clause 5.3 to terminate the agreement.
The joint termination issue is therefore now of little importance to the parties. Moreover, the original term of the Caretaker Agreement expired in February 2014. The Caretaker Agreement is now at an end by the effluxion of time. Unless Apartments seeks to allege, perhaps on the basis of these reasons that the Caretaker Agreement remains on foot after February 2014, it is difficult to see how this issue could now arise between the parties. But it is still a possible remaining issue. So the Court will record its conclusions. Analysis now may assist in clarifying the respective final positions of the parties in the light of these reasons.
On the joint termination issue Mid Rise contended that it was entitled to terminate under clause 5.3 without Low Rise and Properties joining in the clause 5.3 notices and act of termination. In contrast, Apartments argued that Mid Rise could only terminate under clause 5.3 with the concurrence of Low Rise and Properties. For the reasons which follow, the Court prefers Mid Rise's construction of the agreement. These reasons first set out Apartments' contentions, followed by an analysis as to why Mid Rise's submissions to the contrary are preferred.
Apartments submits that as clause 5.3 allows that "The Owners may terminate this agreement at any time by notice in writing…"[emphasis added] and that as "Owners" in Part 1 of the agreement means "the Lot 801 Owner, the Lot 802 Owner and the Lot 803 Owner", which entities subsequently became respectively Properties, Mid Rise and Low Rise, the simple application of that definition to clause 5.3 means that to be effective the notice must be given by all three owners together. Moreover, Apartments submits that construed against the background of the provision and regulation of caretaker services to a large modern commercial residential building complex divided into three stratum lots with shared facilities such as fire safety systems and lifts serving more than one of the separate sections of the building, with only one single system of car park access, the use of the plural "Owners" in clause 5.3 was deliberate. Mid Rise says it expresses the objective intention of the parties that termination was to be by co-operative action of all the owners moving together.
That is not to say, Apartment submits, that the Caretaker Agreement does not contemplate that at some stage different providers might deliver caretaker services to different parts of the building, something that may be possible after expiry of the agreement or after its co-operative determination. But Apartments' essential point is that each of the owners was given the right to postpone the breaking down of co-operative service provision by declining to give a notice of termination, such that it was not intended or provided that there would be a unilateral right of termination for each owner at any time that such owner considered a breach to have occurred.
Apartments' argument also looks more widely to the language of clause 5 of the Caretaker Agreement and submits the following. Clause 5.3 does not provide for notice of an intended termination to be given to each other owner, something that might be expected if the right were granted unilaterally. The Caretaker Agreement does distinguish between "Owner" in the singular and "Owners" in the plural, according to whether a right or obligation falls on one or all jointly. For example in clauses 1.3 and 1.6, "Owner" is used in the singular when dealing with the individual Owner's obligation to pay Remuneration. And Clause 5.2 itself refers to "any serious, persistent, continuing breach by any one or more of the Owners of their obligations to this agreement" [emphasis added] (clause 5.2(a)) and again if…."or anyone or more of the Owners enters into a deed or arrangement" [emphasis added] (clause 5.2(b)), expressions that make quite clear that the Caretaker Agreement does clearly refer to individual Owners when breaching the agreement is in question. It is difficult to see why the same crisp distinction could not have been drawn when the right to terminate is in question. It must therefore be inferred, Apartments submits, that the parties' intended that termination can only occur by joint action.
In contrast, Mid Rise put several submissions that it may terminate unilaterally under clause 5.3. First, the common parts of the World Tower building, the shared facilities, were regulated separately from the Caretaker Agreement by the Strata Management Statement under the legislatively authorised regime of the Management Act, which answers any alleged problem arising from the administration of shared facilities after termination by any of one of several Owners. Secondly, the term of the Caretaker Agreement was only ten years, following which Low Rise, Mid Rise and Properties could choose their own service providers, neutralising the argument that joint termination was necessary due to the structure of this building. Thirdly, there is no practical difficulty with the World Tower being operated by Mid Rise separately from Low Rise and Properties as that is presently the case, and is a situation expressly contemplated by Apartments' own documents (World Tower Access Points and Systems), paras [7] and [11] Exhibit H). Fourthly, after its claimed determination of the Caretaker Agreement Mid Rise engaged Moreton & Moreton as its replacement caretaker on 30 May 2013, which has not resulted in demonstrable detriments to any part of the World Tower building. Finally, Low Rise, Mid Rise and Properties are presently co-operating in respect of shared facilities pursuant to the Strata Management Statement.
Mid Rise's arguments should be preferred for reasons that have already been considered above under the heading "The Scope of the Caretaker Agreement".
Clause 5.3 only applies to breaches of the Caretaker Agreement affecting all three owners corporations, Low Rise, Mid Rise and Properties. It is only when all three owners corporations were so affected by a breach that all three owners would be required to use the clause 5.3 mechanism. Otherwise the respective owners corporations would be left to their common law rights. Otherwise Mid Rise's submissions are persuasive that clause 5.3 permits termination by an individual owners corporation.

[25]

(1) Is the Contract Still On Foot?

Apartments did not accept Mid Rise's repudiatory conduct. It has instead elected to treat the Caretaker Agreement as remaining on foot. In quick response to Mid Rise's Notice of Termination Apartments responded on 17 July 2012 by letter, "[Apartments] does not accept that repudiation and hereby affirms the Caretaker Agreement…[Apartments] is continuing to perform its obligations under the Caretaker Agreement and will continue to perform its obligations thereunder".
Having continued to tender its caretaker services to Mid Rise Apartments now seeks judgment in respect of Mid Rise's continuing unpaid share of the Remuneration accrued under Caretaker Agreement, clause 1.4. Apartments says that it has continued to perform as much of the contract as it was permitted to do without having access to the mid-rise section of the building.
Apartments' submissions on its attempts to continue to render performance are persuasive. For example Apartments continues: to administer the World Tower carpark access system; to co-ordinate services in relation to the building's shared facilities; to provide security services and concierge services on level 10 (the Liverpool Street entrance); and, to tender the services of cleaners to cleanse the mid-rise floors of the building. I am satisfied that Apartments has continued to offer its services under the Caretaker Agreement to Mid Rise and is ready, willing and able to continue to perform its obligations under the Caretaker Agreement, notwithstanding Mid Rise's repudiation.
The parties' post-repudiation conduct requires closer examination, in particular in two areas: (1) the security and concierge services on level 10; and, (2) the provision of cleaning services.
Apartments' security services continue to benefit Mid Rise. Apartments stations security guards on level 10. Although a sign (visible in Exhibit 3) is displayed on the concierge desk which directs Mid Rise tenants and visitors up to level 38, where the mid-rise reception desk is located, as a practical matter the presence of security guards on level 10 does protect the residents, tenants and visitors of the mid-rise section of the building. Apartments' submission is persuasive that it is likely that in emergency situations these security guards will intercept potentially anti-social conduct at level 10 long before the security guards make enquiries as to whether a person causing anti-social activity wants to go to level 38 or elsewhere in the building. The presence of these security guards provides some indirect benefit to Mid Rise.
Since July 2012 the parties have been in a standoff about cleaning services. In July 2012 Apartments' cleaners attended at the mid-rise floors of the building until Mr Chen turned them away, using Mid Rise's own security guards. Mr Chen also threatened to call the police. Understandably the cleaners were reluctant to attend the mid-rise floors for fear that Mr Chen might do just that. I accept that Apartments did not continue to offer cleaning services at level 38 because it considered that to do so may lead to an escalation of hostilities and the possibility of injury to cleaners or security guards in an accidental confrontation. I accept the correctness of the contemporaneous account recorded in correspondence on behalf of Apartments on 25 July 2012 "Yesterday Mr Chen personally informed…the cleaning contractor, that if the cleaners returned today then Mr Chen would call the police. Each day the cleaners have turned up to undertake their duties and Mr Chen and his staff have directed them to leave…The cleaners remain ready, willing and able to undertake cleaning work".
Since that time Apartments has in correspondence consistently asserted Apartments' willingness to continue to perform the contract. Mid Rise has not demonstrated that Apartments was incapable of continuing to perform the contract after July 2012. In my view Apartments did all that could reasonably be expected of it to tender further performance of the Caretaker Agreement despite Mid Rise's repudiation.

[26]

Applicable Legal Principles

The parties disagree about the legal principles that govern Apartments' entitlements to relief for Mid Rise's repudiation of the Caretaker Agreement. Apartments has clearly not accepted that repudiation and continues to tender performance under the Caretaker Agreement. But Apartments is not able to perform this services contract without some co-operation from Mid Rise. For example Apartments cannot deliver the cleaning and security services (the major components of Apartments caretaker services) within mid-rise without gaining access to that sector of the building, access which Mid Rise now bars.
Apartments contends that it is entitled to the full Remuneration under the Caretaker Agreement for the period since July 2012, at least until expiry of the Caretaker Agreement on its 10th anniversary in February 2014. Apartments submits that authority supports its ability to recover the full contract remuneration notwithstanding its inability to perform due to Mid Rise's obstruction, because it has demonstrated it is ready, willing and able to perform the Caretaker Agreement.
On the other hand, Mid Rise contends that notwithstanding its repudiation of the Caretaker Agreement because its co-operation is required before Apartments can effectively perform the contract and because it has declined to co-operate, the legal result is that Apartments may now only recover damages for its loss of profit for the balance of the contract. Mid Rise points out that Apartments seeks 100 per cent of the Caretaker Agreement Remuneration even though it cancelled its outsourced security and cleaning services, a large part of the caretaker services that Apartments was to supply in consideration of that Remuneration. In other words, Mid Rise submits, Apartments wants to retain all the revenue without paying any of the expenses to earn that revenue.
These competing submissions are based on different views of the application of White & Carter (Councils) Ltd v McGregor [1962] AC 413 ("White & Carter"). It is necessary to develop the arguments on both sides further. But in the result, the law is as Mid Rise contends. Apartments is only entitled to damages.
The starting point is legal common ground. First, it is beyond argument that an unaccepted repudiation, at least in the context of repudiation prior to the time for performance, cannot be regarded as a wrongful act - a breach of contract - in the absence of acceptance: Johnstone v Milling (1886) 16 Qbd 460 at 467, 472-3. To use the vivid metaphor of Asquith LJ in Howard v Pickford Tool Co Ltd [1951] 1 KB 417 at 421 that an unaccepted repudiation is "a thing writ in water and of no value to anybody: it confers no legal rights of any sort or of any kind". Second, where the obligation to pay the contract price is a dependent obligation, breach or repudiation by the party obliged to pay does not convert the dependent obligation into an independent obligation. Third the innocent party is entitled to terminate the contract but is not obliged to do so and may instead proceed on the basis that the contract remains on foot: Carter's Breach of Contract, paragraphs 10.1 and 10.2.
Apartments contends that the effect of White & Carter is that where the continued performance of contract after a wrongful repudiation depends upon the co-operation of the repudiator, the innocent party is not forced to accept the repudiation and not forced to rely only on its right to damages. Apartments contends that the law is that it is sufficient for the innocent party to hold itself ready to perform the agreement, as a result of which the innocent party is entitled to the whole contract sum whether or not the repudiator accepts further performance. Thus, Apartments submits the repudiator is not able to force the innocent party to put up with the repudiation.
Apartments bases its submission on Jordan CJ's well-known statement in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 645: "A party by committing a breach of an essential promise cannot thereby compel the innocent party to put an end to the contract: the latter may go on with the performance of the contract if he chooses: Fullers' Theatres Ltd v Musgrove (1923) 31 CLR 524 at 543-4, Ahmed v Estate and Trust Agencies (1927) Ltd [1938] AC 624 at 639. If, however, the terms or nature of the contract are such that the participation of the defaulting party is necessary to enable the innocent party to perform the contract on his part, and this participation is withheld, the innocent party is necessarily prevented and absolved from performance so long as the participation is withheld. And, if the innocent party insists on upholding the contract, he must in any action brought by him on the contract as a subsisting contract prove performance on his own part or readiness and willingness to perform, as the case may be, unless of course upon the pleadings he is not put to such proof: Bowes v Chaleyer (1923) 32 CLR 159 at 169, 197; Monigatte v Minchen [1937] NZLR 49."
Apartments' focus is the last sentence of this statement. Apartments submits that to bring an action on a subsisting contract an innocent party must "prove the performance on his own part or readiness or willingness to perform as the case may be". Apartments says this indicates that it is sufficient for the innocent party to prove "a readiness and willingness to perform" if the innocent party is not able to prove actual performance to succeed on an action for the contract price.
Whilst superficially attractive, the flaw in Apartments' argument is that Jordan CJ's last sentence refers to situations in which the innocent party is able to obtain specific performance of the contract by demonstrating the innocent party's readiness, willingness to perform the contract. If an innocent party can obtain the remedy of specific performance (for which it is necessary to prove readiness, willingness and ability to perform), then the innocent party would be entitled to the contract price, as the repudiating party's performance would have been required by the Court. But it is in cases where the remedy of specific performance is not available, such as the present case, where the co-operation of the defendant is required, that the question arises whether the innocent party can recover the contract price merely by proving its readiness, willingness and ability to perform, without also obtaining a decree in specific performance. In my view White & Carter, and the later authorities that consider it do not support the entitlement of an innocent party such as Apartments to the contract price in the absence of either actual performance or a decree for specific performance.
The effect of White & Carter is that an innocent promisee may ignore its right to terminate performance of a contract, elect to complete performance and receive the agreed return for performance as a contract debt. Both White & Carter and current authority accepts the correctness of these principles: Kyren Pty Ltd v Wunda Projects Australia Pty Ltd [2012] SASCFC 23; [128] - [130] and Ledger v Cleveland Nominees Pty Ltd [2001] WASCA 269 at [15].
The High Court has not authoritatively applied White and Carter (Councils) Limited v McGregor (1962) AC 413 in Australia. Both academic authority and more importantly for present purposes the New South Wales Court of Appeal accept that it is good law in Australia. Carter's Breach of Contract, at [11-45] says that White &Carter is "good law in Australia" and refers to the full court of the Supreme Court of Victoria applying it in Bolwell Fibreglass Pty Ltd v Foley [1984] VR 97 at [100], [102] - [113], [114], and [117]. But the decision has also been applied in New South Wales.
In Showcase Video Pty Ltd v Tambarle Pty Ltd (Court of Appeal (NSW), 28 April 1987, unrep) ("Tambarle") the New South Wales Court of Appeal considered the remedies available following repudiation. The respondent had signed an agreement with the appellant to negotiate the distribution of two movies. The term of the agreement pivotal to the appeal required the appellant to pay a non-refundable advance against receipts payable upon delivery of both completed films to the appellant. The central issue to the appeal was whether or not delivery in accordance with the agreement had been effected. The Court of Appeal found that it had.
The appellant consequently conceded that by refusing to pay for the films following delivery it had repudiated its obligations under the agreement. However, the appellant contended that even so, the respondent could not elect to affirm the contract and so the debt which the respondent sought to recover never arose. The appellant argued that such election would require the appellant to accept delivery of goods and cooperate with the respondent, but because the Court would not decree specific performance of the contract, the respondent's only remedy was in damages.
In considering the point, Samuels JA (with whom Glass and Priestly JJA agreed) confirmed the application of White & Carter in New South Wales and the operation of the co-operation limitation (see below), stating: "Reliance was placed upon passages in the speech of Lord Reid in White & Carter (Councils) Limited v McGregor [1962] AC 413 at 428 and 429. The first of these is merely a recapitulation of the argument of counsel and therefore is not an authoritative statement; the second is to this effect:- 'Of course, if it had been necessary for the defender to do or accept anything before the contract could be completed by the pursuers, the pursuers could not and the court would not have compelled the defender to act, the contract would not have been completed and the pursuer's only remedy would have been damages. But the peculiarity in that case, as in the present case, was that the pursuers could completely fulfil the contract without any co-operation of the defender. The Lord President cannot have meant that because of non-acceptance the contract had not been completely carried out, because that in itself would have been a complete answer to an action for the contract price.' I do not understand the appellant to rely upon the argument that the respondent had no legitimate interest in performing the contract rather than claiming damages - see White & Carter at 431 per Lord Reid. There is no doubt about the correctness of the rule expressed by Lord Reid and earlier described by Jordan CJ in Tramways Advertising loc cit in much the same terms:- 'If, however, the terms or nature of the contract are such that the participation of the defaulting party is necessary to enable the innocent party to perform the contract on his part, and this participation is withheld, the innocent party is necessarily prevented and absolved from performance so long as the participation is withheld.'"
Samuels JA found in Tambarle that the agreement was not conditional upon the appellant's acceptance of the films: the appellant had agreed to take delivery of the films without viewing them first. Once the respondent had delivered the completed films, its obligation to perform had come to an end. Because the delivery did not depend upon any act of cooperation by the appellant, the respondent was entitled to recover the agreed sum, and the Court's observations about the co-operation limitation are strictly obiter.
There are two recognised limitations on the application of White & Carter: what Carter's Breach of Contract calls the "co-operation limitation" [at paragraph 11.45 and 11.46] and the "legitimate interests limitation" (paragraph 11.49 - 11.52). The parties' present contest concerns the co-operation limitation. As Carter's Breach of Contract points out the co-operation limitation means that if repudiating party has agreed to pay a contractual sum as the agreed return for the innocent party's performance of the contract but the provision of which performance still requires the repudiating party's co-operation, a refusal by the repudiating party to co-operate will nevertheless prevent the innocent party from earning the contract price unless the innocent party obtains an order for specific performance.
For example the fact that an employee may elect to continue performance of the contract and remains ready, willing and able to work, does not entitle the employee to recover wages: Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 451, 452, 461, 465 and 476. And contracts for the provision of services, such as the present contract, which cannot be performed without the promisor's co-operation will attract the co-operation limitation: Clea Shipping Corp v Bulk Oil International Ltd (No. 2) (The Alaskan Trader) (1984) 1 All ER 129 at 138-9; Bolwell Fibreglass Pty Ltd v Foley [1984] VR 97 at 112-113; Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1999] 1 AC 266 at 290 and Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 (building contracts).
Apartments has not sought specific performance of the Caretaker Agreement. Given the degree of supervision which would be required, a decree of specific performance of the Caretaker Agreement is unlikely.
The White & Carter principle is also modified by what is known as the "legitimate interests limitation". The Court may limit recovery where the promisee has no legitimate financial or other interest in completing performance. The limitation is rarely applied and is clearly not applicable in this case, as Apartments has a clear financial interest in the further performance of the Caretaker Agreement, both in direct financial return and in preserving its market wide reputation. The second limitation need be considered no further. Lord Reid's reference to it in White & Carter has been more debated than applied.
I accept that the co-operation limitation recognised in White & Carter applies in this case. Mid Rise has not co-operated in providing Apartments with access to its premises for Apartments to deliver services and the Caretaker Agreement. Apartments could not access the mid-rise section of the building without a Mid Rise access card. Mid Rise locked Apartments out from the mid-rise area and prevented provision of the services there. In the result, Apartments could not deliver the services. The operation of the co-operation limitation means that Apartments is restricted to claiming damages for breach of the Caretaker Agreement.
But Mid Rise also challenged Apartments' readiness and willingness to perform the Caretaker Agreement after July 2012. In my view Mid Rise made good this attack, such that even if Apartments' contentions as to the applicable law are correct it cannot succeed in showing an entitlement to the full contract price. Apartments did not continue to retain the services of either cleaners or security staff after July 2012. Apartments' evidence does not descend into the detail of showing how Apartments was in a position to deliver every caretaker service to Mid Rise at all times after July 2012. But this question strictly no longer arises. No more detailed findings in relation to it are necessary.

[27]

(2) Specific Performance of the Caretaker Agreement

Apartments contends that if the Court finds that the Caretaker Agreement was not validly terminated, then it should grant a decree requiring Mid Rise to specifically perform the agreement, to require Mid Rise to grant it access to the mid-rise sector of the building. Mid Rise contends that specific performance should not be granted.
There are many reasons why the Court should not now order specific performance. The detailed contests between these parties between early 2011 and July 2012 demonstrate the hazards of attempting to specifically perform this agreement, one that is essentially for the provision of personal services. Moreover, as Mid Rise submits, the relationship between Mid Rise and Apartments is "broken beyond repair". Mid Rise clearly does not want Apartments to have access to the mid-rise sector of the building. Mediations in these proceedings have failed. The parties have engaged in an all out struggle against one another about detailed personnel-related disputes that are likely to drain any reserves of trust between them. These reasons are unlikely to improve their relationships.
Mid Rise's refusal to give Apartments access to its premises, is a powerful factor weighing against a grant of specific performance: see Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 71623 [2010] NSWCA 226 at [59] - [60] (Hodgson JA, Beazley and Macfarlan JJA agreeing). Furthermore, since May 2013 Mid Rise has engaged Moreton & Moreton as alternative contractors in contractual arrangements which would be adversely affected were specific performance to be granted.
And Apartments would have to demonstrate that the Caretaker Agreement continued after February 2014 in order to now grant a decree for specific performance. Otherwise specific performance of the Caretaker Agreement would be futile, as the agreement is already at an end: Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-676.
Apartments has an adequate remedy for damages for loss of profits. The Court will permit that remedy to be pursued. The Court therefore will decline to grant a decree of specific performance of the Caretaker Agreement to Apartments.

[29]

Mid Rise's Alleged Breaches of the Caretaker Agreement

Apartments also alleges that Mid Rise breached the Caretaker Agreement. The principal alleged breach claimed that Mid Rise denied access to Apartments' staff when they were seeking to provide caretaker services for Apartments. This is reflected in the declaration Apartments sought as follows: "Caretaker Agreement 1. A declaration that the defendant has breached clause 16.1 of the Caretaker Agreement between it and the plaintiffs dated 4 February 2004 (the 'Caretaker Agreement') by denying the staff to the first plaintiff in its capacity as Caretaker access to the common property forming part of Strata Plan 72381 within the building known as 'World Tower', 91-95 Liverpool Street, Sydney, New South Wales (the 'Building')".
Based upon these allegations Apartments obtained interlocutory injunctions before the trial, injunctions that now should either be made permanent or dissolved.
The allegations of Mid Rise's breach of the Caretaker Agreement arise out of a mid-2011 incident between Mr King Chen and Mr Khier, Apartments' supervisor and security officer at World Tower. The incident was recorded audio-visually on CCTV security cameras. It is necessary to decide the question of the admissibility of the material recorded on those security cameras (a matter reserved during the hearing for determination after final submissions) before the issue of breach is considered. There was a preliminary contest about this admissibilty issue.
Apartments' contention is that Mid Rise denied access to Apartments' staff to Mid Rise common areas. Mr Khier's oral and affidavit evidence supports that contention. Mr Chen, on behalf of Mid Rise, gave evidence that there was no denial of access to the mid-rise section of the building.
Both sides concede that the CCTV footage in issue is of the disputed incident. Apartments' objection to its admission into evidence was based on Surveillance Devices Act 2007, s 7. Apartments alleges that the recording was taken without Mr Khier's consent. If admitted, this CCTV footage would be contemporaneous evidence of the incident.
Surveillance Devices Act, s 7 relevantly provides: "7 Prohibition on installation, use and maintenance of listening devices (1) A person must not knowingly install, use or cause to be used or maintain a listening device: (a) to overhear, record, monitor or listen to a private conversation to which the person is not a party, or (b) to record a private conversation to which the person is a party. Maximum penalty: 500 penalty units (in the case of a corporation) or 100 penalty units or 5 years imprisonment, or both (in any other case). … (3) Subsection (1) (b) does not apply to the use of a listening device by a party to a private conversation if: (a) all of the principal parties to the conversation consent, expressly or impliedly, to the listening device being so used, or (b) a principal party to the conversation consents to the listening device being so used and the recording of the conversation: (i) is reasonably necessary for the protection of the lawful interests of that principal party, or (ii) is not made for the purpose of communicating or publishing the conversation, or a report of the conversation, to persons who are not parties to the conversation."
Mid Rise argues for the admission of this CCTV recording under s 7(3)(a) on the basis that both Mr Khier and Mr Chen impliedly consented to the listening devices being used and under s 7(3)(b)(i) because the use of the listening devices was "reasonably necessary for the protection of the lawful interests" of Mr Chen.
The CCTV recording (and its associated written transcript) will be admitted into evidence for the following reasons. They are already marked respectively as Exhibits 1 and 3 on the Voir Dire. They will both now be marked as Exhibit 9 in the proceedings.
The s 7(3)(a) exception to the s 7(1) prohibition applies. Mr Khier did impliedly consent to the listening device within the CCTV camera system being used to record the conversation. He was the supervising security officer at World Tower at the time the recording was made. There are surveillance warning signs on level 38 in view of anyone accessing that level. Given Mr Khier's thorough knowledge of the building including the public areas of level 38, he must have been aware of these surveillance warning signs. To the extent that he says he was not aware of these signs I do not accept his evidence. The warning signs include a warning about the possibility audio, as well as video, surveillance. The camera itself, without more, is a clear warning of the likelihood of visual surveillance and the possibility of audio recording. Mr Khier was warned about recording of his conversation.
Mr Khier said that he did not see these signs. It may be accepted that he did not see the signs on this occasion. The CCTV recording, which the Court has viewed to determine the issue of admissibility, does not show him looking at the signs in any conscious way. But he was sufficiently familiar from his previous experience with the camera in this area and with the signs for him to be conscious they were present. The Court concludes therefore that he impliedly consented to these conversations being recorded.
The other exception under Surveillance Devices Act, s 7(3)(b) also applies. The use of the listening device "is reasonably necessary for the protection of the lawful interests of one of the parties to the conversation", in this case Mid Rise. The CCTV camera was placed in a public area on level 38, which was Mid Rise's de facto reception area. The self-evident purpose of the CCTV camera was to provide security for employees, and residents officers of Mid Rise against strangers who may visit that part of the building. The installed camera would deter unlawful activity on level 38. The camera would also record any unlawful activity occurring on level 38 for use in later legal proceedings. Protecting Mid Rise's employees, officers and the residents of the mid-rise section of the building from unlawful activity is a "lawful interest" of Mid Rise, those officers, employees and residents. The CCTV was being used for that purpose at the time this conversation was recorded.
Assessing this incident with the benefit of the CCTV footage, Mr Chen's evidence is to be preferred to Mr Khier's evidence. Mr Chen's attitude to Mr Khier in the conversation is at times prickly. But on the whole the CCTV recording shows a conversation in which both parties are diplomatically skirting around the issue of denial of access. Mr Khier, who was cross-examined, handled himself well on the occasion but to the point that there was not a denial of access by Mr Chen. Mid Rise highlighted Apartments' failure to put Mr Khier's version of the conversation to Mr Chen. But this is a minor matter. Not every piece of evidence needed to be put to him. The Court can make findings based on the contents of competing affidavits even without cross-examination provided the nature of the contest is clear to the parties: Allied Pastoral Holdings Pty Ltd v Commissioner of Tax (1983) 1 NSWLR 1 at 26F-G.
Mid Rise has not breached the Caretaker Agreement by denying access to representatives of Apartments. The injunctions against Mid Rise should be dissolved on this ground alone. But the injunctions can also be dissolved on the basis that the term of the Caretaker Agreement has expired.

[32]

Overview of the Cross Claim issues

Mid Rise contends on the Cross Claim that Apartments' control of Mid Rise when Mid Rise came into existence placed Apartments in a position akin to that of a promoter with respect to Mid Rise and that Apartments therefore owed fiduciary duties to Mid Rise: duties not to place itself in a position of conflict of interest and duty; not to profit from contracts entered into with Mid Rise; and not to act to the detriment of Mid Rise. Mid Rise's case is that it is well established that a developer acting as a promoter of a strata title body corporate has fiduciary duties to that body corporate as is demonstrated in authorities such as Re Steel and the Conveyancing (Strata Titles) Act 1961 (1968) 88 WN (Pt 1) (NSW) 467 ("Steel"), Community Association DP No 270180 v Arrow Asset Management Pty Ltd [2007] NSWSC 527 [208]-[226] (Arrow) McDougall J and Radford v The Owners of Miami Apartments, Kings Park Strata Plan 45236 [2007] WASC 250 at [157] - [162] (Radford) Simmons J.
As to breach of that fiduciary duty, Mid Rise alleges that Apartments has overcharged by an amount well in excess of market rates for the caretaker services that Apartments provided to it. Mid Rise contends that despite extensive pre-trial discovery Apartments still cannot identify the basis of its calculation of the charges imposed upon Mid Rise under the Caretaker Agreement. Mid Rise says that it follows from this that the Court should conclude that figures charged to Mid Rise are a "contrivance, completely dissociated from any attempt to reflect market charges" and are objectively well in excess of market rates for equivalent services.
Mid Rise says that the lack of opportunity afforded to persons buying into the mid-rise area of World Tower to decline to engage Apartments as caretaker, together with Apartments' overcharging beyond market rates compels the conclusion here, as in Arrow, that Apartments ignored its fiduciary duty and had regard to its own interests in drafting the Caretaker Agreement and in committing Mid Rise to it. Mid Rise says that the breach of fiduciary duty occurred because of Apartments' control of Mid Rise at the time of the 11 October 2004 extraordinary general meeting. Moreover, Mid Rise submits that if the Court finds that Mid Rise cannot terminate the Caretaker Agreement unilaterally under clause 5.3 (and without Low Rise and Properties joining in the act of termination), then Apartments' breach of duty in crafting a one-sided Caretaker Agreement disabled Mid Rise from terminating the agreement in its own best interests.
It follows, Mid Rise says, that it is entitled to an account of profits to redress these claimed breaches of fiduciary duty. In pre-trial directions Rein J on 19 July 2013 ordered Apartments to serve an affidavit setting out the profit it had earned under the Caretaker Agreement from 4 February 2004 to 30 June 2013. The affidavit was served on 30 August 2013 and showed that the revenue Apartments earned under the Caretaker Agreement during this period was $5,059,057.08, less certain identified cleaning and security expenses, leaving a balance that Apartments should pay of $3,317,395.76 (plus interest) if termination of the Caretaker Agreement in July 2012 is valid, or, $3,228,963.73 (plus interest) if the termination was not valid. Mid Rise says that if it is successful on its cross claim that its claim against Apartments for an account of profits will subsume Apartments' claims for monies due to it in respect of Mid Rise's alleged breaches and wrongful termination of the Caretaker Agreement.
Apartments answers Mid Rise's case in several ways. Apartments first contends that there is no room for the operation of fiduciary duties to regulate the making of the Caretaker Agreement in the context of the Management Act and the Freehold Act. Apartments adds that this legislation makes detailed provision for the making of such agreements, including provisions that are designed to protect yet-to-be-formed owners corporations, such as Mid Rise, provisions which imply that fiduciary duties have no residual scope of operation against a developer-promoter.
Moreover, Apartments says that even if the 2004 relationship between it and Mid Rise had a fiduciary dimension that does not lead to the conclusion that all aspects of the relationship over time were fiduciary. And the content of the fiduciary duty must be determined in the specific circumstances in which a particular action is performed. Apartments says no fiduciary duty prevented it from settling between itself and Mid Rise the precise terms of the Caretaker Agreement that was made.
Furthermore, Apartments says that the Arrow decision does not provide a template for the resolution of this case. Apartments points out that the statutory setting and provisions of the Management and Freehold Acts were different at the time of Arrow and that in Arrow the particular payments which were impugned had been concealed by the promoter/developer from members of the plaintiff-association, whereas here they have been fully disclosed, by annexing the proposed Caretaker Agreement to every off-the-plan contract of sale of units in Mid Rise.
Finally, Apartments contends that there was nothing uncommercial about the Caretaker Agreement from Mid Rise's perspective. Apartments says that Mid Rise's evidence does not prove any more than that in a few quotations the provision of a small number of services may have been procurable at a lower market price than was charged under the Caretaker Agreement. Apartments says that Mid Rise has established neither Apartments' actual level of profit or expense under the Caretaker Agreement or what a market rate of profit or expense for such an agreement would be. Apartments points out that the two other parties to the Caretaker Agreement, Properties (in the high-rise section of World Tower) and Low Rise affirm the agreement in its present form.
Mid Rise also makes specific allegations of trespass on its Cross-Claim. Apartments says that these are trivial and can be ignored.
The issues on the Cross Claim may be organised under the following broad questions. 1. Did Apartments owe Mid Rise a fiduciary duty as a promoter in the circumstances in which Mid Rise became bound to the Caretaker Agreement? 2. If Apartments owed a fiduciary duty as a promoter did it breach that duty? 3. Does any discretionary equitable defence such as delay, acquiescence or estoppel defeat Mid Rise's claim for breach of fiduciary duty? 4. In the event it establishes a breach of fiduciary duty, is Mid Rise entitled to an account of profits from Apartments under the Caretaker Agreement?
Each of these broad questions contains sub-questions which will be dealt with below.

[34]

The Decision in Re Steel

The applicant in Steel, the proprietor of several lots in a strata plan, sought the appointment of an "administrator" to the affairs of the body corporate of the strata plan (the statutory remedy at the time). Prior to registration of the strata plan the subject real estate was owned by a company, the majority of the shares in which were controlled by another corporate entity, English and Australasian Holdings Pty Ltd ("Australasian"), a respondent to the summons. Australasian's managing director, a Mr Emmaus Jacombe, procured registration of the strata plan. At the strata plan's initial meeting the proprietors, the majority of whom Australasian controlled, passed several resolutions to regulate the future conduct of the body corporate under Australasian's administration and through Mr Jacombe.
Australasian contested the application to appoint an administrator. Else-Mitchell J found that Australasian was "in the position of a promoter of the strata title enterprise": Steel at 469. Else-Mitchell J further reasoned that as such Australasian had "a duty to ensure that full disclosure was made to the strata lot holders, apart altogether from the statutory duties cast on it as a member of the council under the by-laws of the First Schedule" [to the Conveyancing (Strata Titles) Act 1961 (NSW) ("the 1961 Legislation")]. McDougall J explained in Arrow, in reasoning with which I respectfully agree, that Else-Mitchell J's reference to a duty of full disclosure may now require further consideration having regard to the modern view that fiduciary duties are proscriptive (a duty "not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict") rather than prescriptive (a "positive legal duty to act in the interest of the person to whom the fiduciary owes the duty"): Arrow at [212] and [216] and see Pilmer & Ors v Duke Group Ltd (in liquidation) & Ors (2001) 207 CLR 165 ("Pilmer") at 198-199 [77]. Although development of the law with respect to fiduciaries may make this aspect of Else-Mitchell J's reasoning now look somewhat dated, his Honour's characterisation of the role of a developer of a strata or a community scheme is, as McDougall J said in Arrow, "as much applicable today as it was in 1968": Arrow at [211].
Else-Mitchell J is not the only judge to formulate a promoter's duty as being one to disclose, rather than the modern view since Pilmer, that disclosure should now be characterised as a defence to what would otherwise be a breach of duty. As Finkelstein J pointed out in Fitzwood Pty Limited v Unique Goal Ltd (in liquidation) [2001] FCA 1628; (2001) 188 ALR 566 ("Fitzwood"), at [32] and [33], the equitable obligation of a promoter has been spoken of "as a positive duty for over a 100 years". Occasionally these reasons use similar language. But as Finkelstein J observed in Fitzwood (at [33]) "the law will not be seriously injured if I continue to adopt the same language". The modern approach is clear and is here being applied. Disclosure is simply a means of avoiding a breach; not a duty: Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24, at [105] - [106].
Else-Mitchell J appointed an administrator in Steel. He did so because the respondents had failed to comply with the statutory by-laws under the 1961 Legislation and the procedures they had devised for the conduct of the body corporate's affairs: Steel at 470. I respectfully agree with McDougall J's analysis in Arrow that the misconduct, including non-disclosure, that Else-Mitchell J found in Steel was really non-disclosure in the course of acting as a manager of the body corporate, not in relation to transactions between Australasian as the developer/promoter of the strata scheme and the body corporate: Arrow at [213]. But Else-Mitchell J founded his decision on the dual role of the persons managing the body corporate, roles as both directors of the body corporate and as promoters of the scheme that it embodied. He stated (Steel at 470-1) that those who managed the affairs of the body corporate: "… are at least in a position analogous to company directors; they may even have a higher fiduciary duty, and when they are promoters as well this duty has a dual basis. It is plain that the respondents have failed to recognise that it is their duty to manage the affairs of the body corporate for the benefit of all the lot holders, and that the exercise of any of their powers in circumstances which might suggest a conflict of interest and duty requires them to justify their conduct … . There is no doubt in my mind that … there have been breaches of the fiduciary duty which flows from membership of a council of a body corporate … ."
Steel confirms that from the time of the operation of the earliest strata title legislation, the 1961 Legislation, a "promoter of [a] strata title enterprise" could owe fiduciary duties to the strata lot holders "apart altogether from the statutory duties cast on it as a member of the council under the by-laws". The 1961 Legislation had not displaced a developer's fiduciary obligations as a promoter.

[35]

The Decision in Arrow

In 2007 in Arrow McDougall J considered a claim by a community association ("the Association") incorporated under the Community Land Development Act 1989 ("the CLD Act") against the developer of a community residential development, Australand Consolidated Investments Pty Ltd ("Australand") and two other parties. The first of these other parties, Arrow Asset Management Pty Ltd ("Arrow") had signed in December 1998 a site management agreement ("SMA") to provide services to the Association after the November 1998 registration of a community plan for the development. The second Bondlake Pty Limited (Bondlake) in June 2000 took a purported assignment of all Arrow's rights and obligations under the SMA with the consent of the Association. The Association alleged that the SMA came to an end at the date of its first annual general meeting in July 1999 before this assignment took place, so that the SMA assignment was ineffective. Australand negotiated the terms of the SMA with Arrow. The Association also contended that Australand, the developer, owed the Association fiduciary duties as a promoter, when it received a payment of $190,000 from Arrow for causing the Association to enter into the SMA.
Australand disputed that it owed the Association any fiduciary duties as a developer when it received the $190,000 payment. The issues required McDougall J to consider Steel and the promoters cases in the context of the CLD Act. The CLD Act governs the staged development of land into parcels for separate development or disposal, with the owners of those parcels retaining an interest in common facilities or property. The CLD Act uses concepts and procedures analogous to those in the Management Act and the Freehold Act.
McDougall J concluded from his analysis of Steel that it gave little guidance for the application of the principles relating to fiduciaries in the circumstances of the case before him, where the breach related specifically to the developer's conduct as a promoter: Arrow at [216]. The same is true of the present proceedings, which are subject to the effect of intervening legislative changes. Steel assists in affirming that a developer of a strata scheme may owe fiduciary duties as a promoter to an owners corporation and future lot holders. Arrow provides analysis of the principles relating to developers/promoters as fiduciaries.
In Arrow at [216]-[223] McDougall J stated the principles of fiduciary obligations to be applied in the context of promoters of strata title and similar schemes: "216 It is, and for many years has been, accepted that a fiduciary relationship exists between the promoter of a company and the company promoted. See (by way of example only)Tracy and Others v Mandalay Proprietary Limited (1953) 88 CLR 215. However, to say that one person stands in a fiduciary position vis-à-vis another is to begin, not to end, the enquiry: see the observation of Frankfurter J in Securities and Exchange Commission v Chenery Corporation (1943) 318 US 80 at 85, 86, cited with approval by the majority (McHugh, Gummow, Hayne and Callinan JJ) in Pilmer and Others v Duke Group Limited (In Liquidation) and Others (2001) 207 CLR 165 at 198-199 [77]. Their Honours earlier at 197-198 [74] had referred with approval to the observation of Gaudron and McHugh JJ in Breen v Williams (1996) 186 CLR 71 at 113, that the obligations of a fiduciary are proscriptive - "not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict" - and not positive (or prescriptive): "positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed." 217 Any analysis of the nature and content of a fiduciary duty must take into account the nature of the relationship and the facts of the particular case. See Gibbs CJ in Hospital Products Limited v United States Surgical Corporation and Others (1984) 156 CLR 41 at 73; and see Mason J in the same case at 102. 218 Clearly, any application in this case of the principles relating to fiduciaries must take account of the way in which the legislature has sought to impose duties of disclosure in certain cases, and to provide for the consequences of non disclosure. But it does not follow from the legislative scheme that all principles relating to the obligations of fiduciaries have been excluded. In particular, I think, nothing in that scheme excludes the basic principle that a fiduciary should not benefit from its position. 219 In Consul Development Pty Limited v D.P.C. Estates Pty Limited (1975) 132 CLR 373, Gibbs J stated the rule, and its basis, as follows at 393: " … the rule that a person in a fiduciary position is not entitled to make a profit without the knowledge and assent of the person to whom the fiduciary duty is owed is not limited to cases where the profit arises from the use of the fiduciary position, or of the opportunity or knowledge gained from it. The basis of the rule is that a person in a fiduciary position may not place himself in a situation where his duty and his interest conflict." 220 His Honour said at 394 that "[w]here the rule applies, the liability of the person in a fiduciary position does not depend on the fact that the person to whom the duty is owed has suffered injury or loss." 221 In Kak Loui Chan v Zacharia (1984) 154 CLR 178, Deane J (with whom Brennan and Dawson JJ agreed) referred at 198 to what he called the "fundamental rule" that a fiduciary should not put itself in a position where its interest and duty would or might conflict. However, as his Honour noted, "[t]he equitable principle governing the [fiduciary's] liability to account is concerned not so much with the mere existence of the conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, entering into a transaction or engagement "in which he has, or can have, a personal interest conflicting … with the interests of those whom he is bound to protect"." (The quotation comes from Lord Cranworth LC in Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 at 471.) 222 Deane J then pointed out at 198-199 that the "fundamental rule" embodied two themes. His Honour said: "The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge relating from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. … Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. … [I]t is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed." 223 In Warman International Limited and Another v Dwyer and Others (1995) 182 CLR 544, the High Court of Australia (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ) stated at 557-558 that: (1) The liability of a fiduciary to account does not depend on detriment to the plaintiff or dishonesty or lack of good faith on the part of the fiduciary. (2) A fiduciary must account for a profit or benefit obtained either when there was actual or possible conflict between duty and interest or by reason of the fiduciary position, or the use of opportunity or knowledge derived from it. (3) It matters not that the plaintiff was unwilling, unlikely or unable to make the profit taken by the fiduciary, nor that the fiduciary acted honestly and reasonably. "
McDougall J applied these principles in Arrow. He accepted that it is appropriate to regard the developer of a community scheme under the CLD Act in "a position analogous to the promoter of a company and it follows that the relationship between the developer and the community association is a fiduciary relationship": at [225].
But, as McDougall J explained, that is only the beginning of the enquiry. It is necessary to consider the incidents of the relationship. In Arrow the relevant incidents of the fiduciary relationship had some but not all elements in common with the position here. His Honour identified (at [224]) several "significant factors that are incidents of the relationship": (1) a legislative scheme imposing a substantial degree of regulation or the activities of (community) associations during the initial period; (2) Australand owned all the unit entitlements in the community scheme both when Australand made its agreement with Arrow for the payment of the $190,000 and when the SMA was made; (3) the Associations' intention to enter a management agreement generally of the kind made in the SMA was disclosed in the community management statement required by the legislation (an instrument analogous to the Strata Management Statement required here); (4) the decision taken at the inaugural special general meeting to enter the SMA was disclosed in the minutes of that meeting; (5) the community management scheme and the records of the association were available on search to any intending purchasers in the community scheme; and (6) a search could not access the detail of the agreement between Australand and Arrow, including the payment of the $190,000 for the rights conferred by the SMA.
Rejecting a number of pleaded prescriptive duties as applicable (at [226]), McDougall J found that Australand owed the Association the proscriptive duties not to place itself in a position of conflict or to profit from contracts entered into between the Association and Arrow without proper disclosure. McDougall J found that when Australand negotiated the SMA with Arrow that Australand had regard to its own interests, and secured the Arrow's payment of the $190,000 premium to itself, Australand, rather than to the Association.
McDougall J found on the one hand that Australand's duty was to make the SMA with Arrow on the best terms commercially available to the Association. But he found it was in Australand's interest to ensure that the terms of the SMA were sufficiently generous to Arrow to justify Arrow paying Australand the $190,000 premium. McDougall J found (at [227]-[232]) that: this was a conflict between Australand's interest and its duty to the Association; in substance Australand sold to Arrow the benefit of the rights that would be created under the SMA; and to the extent that the SMA provided for "excessive" remuneration, Australand acted to the detriment of the Association.
McDougall J concluded (at [234]) that Australand had: put itself in a position where its self-interest conflicted with its duty to the Association; breached its fiduciary duty; and garnered a premium of $190,000 by exploiting its control of the Association. After considering the issue of disclosure, concluding that Australand's disclosure was inadequate (at [235]-[250]) McDougall J found (at [256]) that receiving the $190,000 premium for causing the Association to enter into the SMA was a breach of Australand's duty as a promoter. McDougall J concluded (at [259]-[260]) there were difficulties in establishing equitable compensation for the loss suffered by the Association from entry into the Management Agreement, so (see Warman International Limited v Dwyer (1995) 182 CLR 544, at 559) he awarded the alternative remedy of an account of profits for the $190,000 premium.
In the result because he awarded an account of profits in Arrow McDougall J did not have to assess any loss to the Association from entry into the SMA. McDougall J found the expert evidence before him unsatisfactory as to the difference between the market value of Arrow's services and the amounts payable by the Association under the SMA. That was one reason for his deciding (at [263]) that an account of profits was the appropriate remedy. McDougall J also found (at [103]) that the expert evidence justified the conclusion that the actual amount payable under the SMA had exceeded the true value of the services performed under it for a number of years but because of the approach he took on the appropriate remedy he did not have to quantify that difference.
In Radford Simmonds J referred in obiter dicta to Steel and Arrow. Radford concluded that these two cases stated the applicable principles in this area. In Radford certain lot owners brought an application for leave to appeal to the Supreme Court of Western Australia under that State's strata title legislation, (the Strata Titles Act 1985 (WA) ("the STA Act") against a decision of the State's State Administrative Tribunal. Simmonds J, the trial judge in Radford, was considering whether the STA Act permitted an appeal to the Supreme Court and on what grounds. The applicant for leave to appeal in Radford was a lot owner in a strata scheme affected by the passing of a by-law which transferred parts of the common property of the strata scheme to other lot owners, who were developers of the scheme in question.
Simmonds J considered (at [157]) that Steel and Arrow "establish[ed] that persons in the position of developers of a strata scheme owe [the] duty [owed by promoters] to the strata company". However Simmonds J found (at [158]) that complaints about breach of a promoter's fiduciary duty with respect to a strata scheme did not come within the STA Act appeal provisions, so he did not have to consider the principles further other than by observing (at [159]) that in suitable circumstances the making of a by-law through the voting power of developers as original proprietors might be capable of breaching the fiduciary duty those developers owed.

[36]

Apartments' Response - No Fiduciary Duty

Apartments accepts that the relationship between the promoters of a new company and that company before it is brought into being is a recognised category of fiduciary obligation. Mid Rise did not have to argue for this basic proposition. But Apartments says that such obligations have only been applied to the relationship between developers and owners corporations (or community associations under the CLD Act) in narrow and specific cases, of which the present case is not an example. Apartments also says that the 2002 Amendment Act, passed as it was after both Steel and the events in Arrow, implies that the role to be played by fiduciary duties in this context has shrunk rather than expanded and that in substance all Apartments now has to do is to conform with the Management Act, Part 4A in order to comply with any applicable fiduciary obligation. I will shortly deal with these arguments.
But there are initial problems with the way that Mid Rise describes the promoter's fiduciary duty it propounds against Apartments. Mid Rise's submissions start by citing well-established fiduciary principles: that, "it is an inflexible rule…that a person in a fiduciary position…is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict", per Lord Herschell in Bray v Ford [1896] AC 44 at 51, Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 144-45 and United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1.
But Mid Rise's submissions assume, with little primary argument, that once a developer such as Apartments is capable of being characterised as a promoter of a newly formed company such as Mid Rise that: (1) Apartments owes fiduciary duties to Mid Rise; and (2) that those duties include a duty that Apartments must as a fiduciary, in all respects act "in the best interests of the Owners Corporation".
Mid Rise's description here of a promoter's fiduciary duty to a newly formed company is too vague and too wide. Apartments' counter-submission is persuasive. Mid Rise's submissions had a tendency to assume the nature of the fiduciary duty which it must instead prove. The existence and exact content of any fiduciary duty must always be specifically determined through close analysis of the incidents of the particular fiduciary relationship. As McDougall J said in Arrow (at [216]) citing Pilmer at [77], "to say that one person stands in a fiduciary position vis-à-vis another is to begin not to end the enquiry". This assessment will be specific to the relationship of the parties and the context of any agreement that they made.
Apart from the Court's findings about the relevant conduct of the parties up until the 11 October 2004 meeting, three main sources provide legal and factual context for that assessment in this case: (1) the Management Act, following the 2002 Amendment Act's changes governing caretaker agreements; (2) the general law of fiduciaries applicable to promoters; and (3) the Caretaker Agreement itself. In summary, analysis of these sources here importantly shows: that Apartments owed a fiduciary duty to make full disclosure to an independent board of Mid Rise; that the content ot Apartments' duty of disclosure is informed by Management Act, Part 4A; and, that an owners corporation such as Mid Rise cannot ordinarily obtain an account of profits against promoters; rather it has the choice of either affirming or disclaiming the impugned contract.
(1) Context - the Management Act. Management Act, Part 4A and s 183A introduced by the 2002 Amendment Act imply that a developer/promoter, or indeed any other person, can contract through a caretaker agreement on commercial terms and for a profit with a strata title body corporate that it is involved with bringing into being. Management Act, ss 40A, 40B and 40C do not exclude a developer or a person associated with a developer who is acting in the role of a promoter from being a party to a caretaker agreement. To fall within Part 4A a caretaker need only fulfill certain requirements of a basic physical and management relationship with the common property (s 40A), be appointed pursuant to an instrument that qualifies as a "caretaker agreement" (s 40B), and perform certain specified functions of an owners corporation (s 40C). The legislation exhibits no intention to bar developers, or their other promoter-associates from making caretaker agreements with newly formed owners corporations. It is obvious from s 183A (reproduced below) that a caretaker agreement will usually be a binding commercial agreement through which the caretaker levies charges on an owners corporation with a view to profit.
Even before analysis of the applicable equitable principles about promoter-fiduciaries, this statutory context is not readily consistent with Mid Rise's submission that if a breach of duty is established, it is entitled to an account of profits from Apartments, an entity the legislation contemplates may use its own private resources to deal commercially with Mid Rise.
The 2002 Amendment Act and the new Part 4A do not speak directly to the question of whether a promoter entering into a commercial caretaker agreement in this context owes a fiduciary duty. Rather the scope of the legislation is broader. It regulates the entry into caretaker agreements between both newly formed and established owners corporations and third parties, some of whom may happen to be promoters, but many of whom will not be promoters. And the legislation as amended by the 2002 Amendment Act gives a greater measure of control to owners corporations over the assignment of caretaker agreements.
Because the present litigation concerns a caretaker agreement with a promoter (Apartments) it is tempting to analyse the legislation as being aimed at promoters. After the 2002 Amendment Act the legislation increased the protection for both new and established owners corporations in a wide range of situations concerning the signing, renewal and assignment of caretaker agreements. The conduct of the actors in many of these situations may be constrained by any number of fiduciary duties which may operate in the background. So described, the legislation is not an obvious candidate to displace any particular class of fiduciary duty. And as will be seen shortly, there are strong indications in the Management Act that it does not.
But that leads to the second contextual source concerning the relationship, the general law of equity in relation to promoters.
(2) Context - Equitable Remedies Against Promoters. Mid Rise submits that where a fiduciary engages in acts of self-dealing and prepares the terms of a bargain for its own benefit, it will be found to have breached its fiduciary duty unless it is able to establish full and meaningful disclosure that is capable of neutralising the breach. As a general statement of principle this is correct as far as it goes, and it applies to the relationship between promoters and the companies they float. The key content of the promoter-new company fiduciary relationship is disclosure: the fiduciary duty is one to give full disclosure of all material information to an independent board.
But if disclosure to an independent board does not take place and a breach of fiduciary duty occurs, the remedy is not, as Mid Rise submits, an account of profits. Rather the company is afforded the opportunity to disclaim or affirm the agreement in question. If it disclaims the agreement, then the agreement is brought to an end. But if it affirms the agreement it must do so according to its terms. It cannot vary the agreement. The authorities on promoters make this clear and present a quite different fiduciary and remedial relationship than the one that Mid Rise propounds.
The starting point in describing the fiduciary duty that Apartments may owe as a promoter is to characterise the nature of the property and services the subject of the Caretaker Agreement. None of the know-how services or other assets which Apartments has deployed under the Caretaker Agreement belong to Mid Rise in Equity. They belong to Apartments both at law and in Equity. This distinguishes promoter cases from cases of a fiduciary's misuse of property which the fiduciary holds on behalf of the principal. Appreciating this distinction sharpens legal analysis in this case.
In the leading Australian authority on promoter's duties, Tracy v Mandalay Pty Ltd (1953) 88 CLR 215 ("Mandalay") the High Court explained this distinction (at 239-240): "We are of opinion that the basis on which his Honour granted relief was the proper basis. The land and shares sold to the plaintiff were assets owned by the respective vendors at law and in equity. They were not assets which the vendors held on trust for the plaintiff. They were the absolute property of the defendants. The plaintiff could not affirm the contracts of sale and at the same time ask for an account of profits or for damages as this would be, in effect, asking the court to vary the contracts of sale and order the defendants to sell their assets at a lesser price. In Cook v. Deeks (1916) 1 A.C. 554 Lord Buckmaster, L.C., delivering the judgment of the Privy Council said: "In their Lordships' opinion the Supreme Court has insufficiently recognized the distinction between two classes of case and has applied the principles applicable to the case of a director selling to his company property which was in equity as well as at law his own, and which he could dispose of as he thought fit, to the case of a director dealing with property which, though his own at law, in equity belonged to his company. The cases of North-West Transportation Co. Ltd. v. Beatty (1887) 12 App. Cas. 589 and Burland v. Earle (1902) A.C. 83 both belonged to the former class. In each, directors had sold to the company property in which the company had no interest at law or in equity. If the company claimed any interest by reason of the transaction, it could only be by affirming the sale, in which case such sale, though initially voidable, would be validated by subsequent ratification. If the company refused to affirm the sale the transaction would be set aside and the parties restored to their former position, the directors getting the property and the company receiving back the purchase price. There would be no middle course. The company could not insist on retaining the property while paying less than the price agreed. This would be for the Court to make a new contract between the parties. It would be quite another thing if the director had originally acquired the property which he sold to his company under circumstances which made it in equity the property of the company. The distinction to which their Lordships have drawn attention is expressly recognized by Lord Davey in Burland v. Earle (1902) A.C. 83 and is the foundation of the judgment in North-West Transportation Co. Ltd. v. Beatty (1887) 12 App. Cas. 589 and is clearly explained in the case of Jacobus Marler Estates v. Marler (House of Lords, April 14th, 1913) a case which has not hitherto appeared in any of the well-known reports" (1916) 1 A.C., at pp. 563, 564. (It is now reported in (1913) 114 L.T. 640 (n) and (1913) 85 L.J. (P.C.) 167 (n))."
Hope JA also adverted to this distinction in Walden Properties Ltd v Beaver Properties Ltd (1973) 2 NSWLR 815, at 836A-C. Citing Lord Cairns LC in Erlanger v New Sombrero Phosphate Co. (1878) 3 App. Cas. 1218, the High Court also made clear in Mandalay that promoters may sell their own property to the newly formed company. But the content of their fiduciary duty is closely defined by the quality of their disclosure to and the independence of the newly formed company before that sale (at p240): "Promoters may sell their property to the new company but they are under a fiduciary duty to disclose to the new company that they are doing so and under a duty to place it in a proper position to decide whether to accept the offer or not by appointing an independent board and fully disclosing the whole position to that board."
Consistent with the High Court's statement that a Court of Equity cannot remake the contract between a promoter and the company, the Court identified the limits on the remedies available to the newly formed company once a breach of fiduciary duty is established (Mandalay at 241): "It is clear from these passages, and there are many others to the same effect, that in the absence of approval by an independent board after full disclosure sales by a promoter of his property to the new company are in the same position as any other sales by a trustee of his property to a person towards whom he stands in a fiduciary relation. That is to say they are voidable at the mere option of the purchaser. But if the purchaser decides to affirm the transaction he must affirm it according to its terms. He cannot ask the Court "to fix a proper price between vendor and purchaser, and estimate the damage with reference to such price. This the Court cannot do" per Lord Parker of Waddington in Marler's Case (1913) 114 L.T. 640(n), at p. 641"
Thus, promoters may sell their own property (or relevantly between Apartments and Mid Rise, contract to supply their own services and deploy their own know-how) to the new company. But when promoters do this they come, to use the language of Erlanger and Mandalay, under a fiduciary duty of sufficient disclosure to the new company. And once the new company is in a position armed with full information to affirm or disclaim the property or contract concerned, it must elect between those courses. This principle is usually found in the context of a sale transaction for an individual piece of property by promoters to a new venture. But there is no reason in principle why it should not also apply to the making of a contract for a term for the supply of services.
None of this authority in my view permits a new company to do what Mid Rise claims in these proceedings: namely to take the benefit of Apartments' services under the Caretaker Agreement in whole or part for many of the years since 2004 and at the same time claim an account of profits against Apartments, measured by the difference between the Remuneration as defined under the Caretaker Agreement and some theoretical measure of the "market" cost price of the same or similar services over that period.
Meagher, Gummow & Lehane's Equity: Doctrines & Remedies points out that this rule was the same for other classes of fiduciaries who sell to their principal property which belonged to them; the principal may elect to rescind but if the principal does not or cannot rescind, then the principal cannot have an account: JD Heydon, MJ Leeming & PE Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies, (5th ed 2014, LexisNexis, Butterworths) ("Meagher, Gummow & Lehane"), para [5-190].
The core promoter's fiduciary duty is full disclosure to an independent board. Equity defines what full disclosure is sufficient to satisfy this fiduciary duty. But in my view, the general equitable principle in relation to promoters are to a degree modified by the Management Act as amended by the 2002 Amendment Act.
What is the level of disclosure required at general law? In Mandalay the High Court (at p 240) said that the promoters should disclose not only that they are selling property to the new company but they should "place it in a proper position to decide whether to accept the offer or not" by "fully disclosing the whole position" to that board. As McDougall J pointed out in Arrow (at [242]) informed consent would require at a minimum the disclosure "of relevant information" citing Queensland Mines Ltd v Hudson (1978) 18 ALR 1. The word "relevant" in this context "imports…an objective standard": Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 at 673; [2001] NSWCA 97 (at [124]), per Spigelman CJ. But what is required for a fully informed consent is "a question of fact in all the circumstances of each case": Maguire v Makaronis (1997) 188 CLR 449 at 466. In addition to those general statements these reasons later analyse what information is material for the purposes of assessing whether its disclosure is required.
The essence of a fiduciary breach in these circumstances is that the fiduciary takes advantage of knowledge about the property or contract the fiduciary is making with the principal, and the principal does not have that knowledge: Meagher, Gummow & Lehane, para [5-205].
Management Act, Part 4A provides its own disclosure regime. But this regime does not fully define the nature of the disclosure to a newly formed owners corporation to negate what would otherwise be a breach of fiduciary duty. Whether or not a newly formed company gives fully informed consent is a question of fact in all the circumstances decided according to an objective standard. Compliance with the disclosure regime of Part 4A is, in my view, one important factor in assessing whether the minimum information has been given to allow a fully informed consent.
But it is not difficult to identify circumstances in which a party to a caretaker agreement could comply with the regime of the Act but due to non-disclosure a prima facie breach of fiduciary duty by an associated promoter is not negated. Arrow itself and the other secret commission cases are examples of this. Mid Rise persuasively makes the point that if a developer were to receive a secret commission for enabling an owners corporation to make a caretaker agreement with a caretaker who otherwise complies with Part 4A that commission may be recoverable under doctrines of equity from the promoter by way of an account of profits, as the moment that secret commission comes into the hands of the promoter it is in equity owned by the owners corporation. Consistently with those principles, McDougall J in Arrow allowed an account of profits in respect of such a sum.
In my view, in assessing whether a promoter has given full disclosure to avoid a breach of fiduciary duty the statutory context means that the Court must look at whether there has been compliance with Part 4A. But the enquiry is not so limited. A promoter may have to meet a higher standard at general law than the standard imposed by Part 4A.
(3) Context - the Caretaker Agreement. The Caretaker Agreement is the third source of context. One important feature of the Caretaker Agreement is that the management, security, cleaning, concierge and other services it provided are provided at a fixed price per annum payable to Apartments, subject to review, in exchange for Apartments arranging its own employees and sub-contractors, equipment, operating systems, and know-how at its own cost to provide those services. It is obvious to the reader of the agreement that Apartments' management has made its own determination of the rate of profit it expects to earn, being the difference between the remuneration it earns, less the cost of its acquiring those services and the overheads and on-costs. The text of the agreement does not disclose the level of that profit, as is the case for most commercial agreements for the supply of services.
Another important contextual feature of the contract is that it does not exclude any fiduciary liability of the caretaker as a promoter of Mid Rise. The Caretaker Agreement excludes relationships of partnership, employer and employee, principal and agent: clause 11. But the fiduciary duties of promoters exist independently of these relationship types. The agreement does not exclude or limit Apartments' liability as a promoter to Mid Rise. The Caretaker Agreement is consistent with a finding that Apartments owes a fiduciary duty as a promoter to Mid Rise.
The Court's other findings as to the parties' relevant conduct up to October 2004 are dealt with below. But first it is necessary to consider Apartments' remaining arguments.
Apartments also argues that Management Act, Part 4A wholly inserted by the 2002 Amendment Act displaces any fiduciary duties of Apartments as a promoter. Though Mr Rudge SC put this argument with persuasive force, the argument fails for the following reasons.
Apartments points to a number of features of 2002 Amendment Act and the operation of the Management Act after its amendment. The 2002 Amendment Act commenced in February 2003, before all relevant events the subject of these proceedings. The provisions of Part 4A of the Act are set out earlier in these reasons. The 2002 Amendment Act also introduced s 183A into Management Act, Part 5, the Part which confers jurisdiction relevant to the Act on a specialist Tribunal. Prior to 2014 the "Tribunal" with jurisdiction to make orders in relation to the Management Act was the Consumer Trader and Tenancy Tribunal constituted under the Consumer Trader and Tenancy Act 2001. That has now been replaced by the New South Wales Civil and Administrative Tribunal constituted under the Civil Administrative Act 2013. In these reasons these two tribunals will be called "the Tribunal".
From February 2003 the new s 183A in Part 5 provided as follows: "183A Orders relating to caretaker agreements (1) The Tribunal may make an order with respect to a caretaker agreement: (a) terminating the agreement, or (b) requiring the payment of compensation by a party to the agreement, or (c) varying the term or varying or declaring void any of the conditions of the agreement, or (d) confirming the term or any of the conditions of the agreement, or (e) dismissing the application. (2) An order under this section may be made only on an application made by the owners corporation for the strata scheme concerned on one or more of the following grounds: (a) that the caretaker has refused or failed to perform the agreement or has performed it unsatisfactorily, (b) that charges payable by the owners corporation under the agreement for the services of the caretaker are unfair, (c) that the agreement is, in the circumstances of the case, otherwise harsh, oppressive, unconscionable or unreasonable. (3) Any amount ordered to be paid under this section may be recovered as a debt."
Apartments contends that the new Part 4A, dealing with the making and termination of caretaker agreements: does not impose any specific disclosure obligations on the original owner in relation to the Caretaker Agreement; but rather, protects the interests of the Owners Corporation by providing that any agreement made with an original owner expires at the conclusion of the first annual general meeting of the owners corporation, a meeting that arises immediately after the conclusion of the initial period, the point at which one third of the units in the strata body have passed into the hands of the independent purchasers (see Management Act, s 14 and Schedule 2) who are able to scrutinise any such agreement. Apartments submits that what is to be inferred from this scheme is: 1. Parliament regarded it as sufficient protection of the interests of the owners corporation that the caretaker agreement be considered at the conclusion of the initial period up to which it can be renewed for ten years without further obligatory scrutiny; 2. That parliamentary judgment of sufficient protection is informed by the introduction of s 183A which gives wide power to terminate the caretaker agreement if it is unfair or otherwise harsh, oppressive, unconscionable or unreasonable; and 3. The legislation makes clear (confirmed by the text of the second reading speech) that the legislation was not going to prohibit the making of a caretaker agreement between the original owner and an owners corporation.
Apartments contends in addition to these matters that inclusion of information about a caretaker agreement among the matters that may be the subject of a Management Act, s 109 certificate and in s 108 information is sufficient disclosure to prospective purchasers in a new strata plan. Moreover, Apartments submits that the case is like Owners of Strata Plan 50276 v Thoo [2013] NSWCA 270, because the Management Act has provided a remedy that should be taken as exhaustive, and compliance with Part 4A should be sufficient disclosure for all purposes. And even if there is wholly sufficient disclosure, Apartments says, Mid Rise has broad rights to set aside the Caretaker Agreement in the Tribunal. There is no longer, to use Apartments' language, any "gap left to be filled by equity". In other words the legislation now displaces any other remedial work that equity might do in this field.
This argument is not persuasive for a number of reasons. First, the Management Act both before and after the 2002 Amendment Act contained a provision entrenching existing common law and equitable rights arising outside the Act. Management Act, s 226(1) provides as follows: "226 Other rights and remedies not affected by this Act (1) Nothing in this Act derogates from any rights or remedies that an owner, mortgagee or chargee of a lot or an owners corporation or covenant chargee may have in relation to any lot or the common property apart from this Act. (2) In any proceedings to enforce a right or remedy referred to in subsection (1), the court in which the proceedings are taken must order the plaintiff to pay the defendant's costs if the court is of the opinion that, having regard to the subject-matter of the proceedings, the taking of the proceedings was not justified because this Act or Part 4 of the Community Land Management Act 1989 makes adequate provision for the enforcement of those rights or remedies. (3) The defendant's costs are to be as determined by the court."
Any approach to the construction of Part 4A should not begin with an a priori view that it displaces equitable rights. The Management Act expresses a clear intention to preserve those rights. Section 226 contemplates the interplay of rights or remedies outside the Act with remedies provided for under for example, Part 5 of the Act. It discourages through potential cost sanctions the pursuit of those remedies outside the procedures of the Management Act but does not eliminate them: s 226(2). This expresses Parliament's intention to preserve rights or remedies at general law alongside the rights and remedies afforded under the Management Act itself.
In MacLeod v Proprietors of Strata Plan No 6544 [1980] 2 NSWLR 691 ("MacLeod") Kearney J considered the same provision in a previous form of the legislation. As Kearney J said in MacLeod (at 694E), this section "is designed to preserve all rights and remedies which a person may have whether or not such rights and remedies overlap with those which are provided for by the Act".
Moreover, not only does the Act entrench rights and remedies at general law but it affords procedural entitlements to lot owners who wish to bring actions at general law to do so more efficiently through an owners corporation acting on behalf of the owners of individual lots: s 227. There are other indications in the legislation that when it does intend to interfere with common law rights, it will do so expressly: s 245 prohibits contracting out of the Management Act.
These statutory provisions reinforce the position at common law. Existing common law or equitable rights cannot be taken to be abrogated except by clear and unambiguous language: Balog & Stait v Independent Commission Against Corruption (ICAC) (1990) 169 CLR 625, 635-6 and Bropho v State of Western Australia (1990) 171 CLR 1; [1990] HCA 24. Moreover Coco v R (1994) 179 CLR 427; [1994] HCA 15, cited recently in Lee v NSW Crime Commission (2013) 251 CLR 196; [2013] HCA 39 ("Lee") (at [311]), referred to a frequently cited statement of Lord Hoffman, which explains the principle of legality in the following terms: "'Parliament must squarely confront what it is doing and accept the political cost' …'[f]undamental rights cannot be overridden by general or ambiguous words … because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process' (R v Secretary for Home Department; Ex parte Simms [2000] 2 AC 115 at 131)'"
In Lee the Court concluded (at [312]): "More recent statements of the principle in this court do not detract from the rationale identified in Potter, Bropho and Coco but rather reinforce that rationale". There is no clear unambiguous language in the Management Act abrogating any rights of Mid Rise or the mid-rise lot owners at general law against Apartments for breach of its fiduciary duty as a promoter.
Secondly, there are quite a few "gaps for equity to fill" in the legislative scheme that Part 4A sets up. Part 4A and s 183A would not: provide relief against a person who is not a party to a caretaker agreement but who has taken secret commission as the price of entry into the agreement; allow relief by way of mandatory injunction to perform a caretaker agreement after affirmation or a declaration avoiding an agreement with an owners corporation for breach of fiduciary duty; nor authorise orders to follow in equity monies paid on by either a party to a caretaker agreement or non-party in breach of a fiduciary duty (as amounts recoverable under s 183A are only recoverable "as a debt").
The Tribunal's s 183A jurisdiction is broad and without financial limitations. So apart from the above remedial gaps, the scope of the Tribunal's jurisdiction does not provide a strong argument assisting Mid Rise.
Disputes referred to the Tribunal under the Management Act are allocated to the Tribunal's Consumer and Commercial Division under Civil and Administrative Tribunal Act 2013 (NSW) ("Tribunal Act"), Schedule 4, s 3. The Management Act, its regulations (Strata Schemes Management Regulation 2010 (NSW)) and the Tribunal Act confer or impose the Tribunal's functions in relation to the Management Act. None of those legislative sources impose any monetary limit on the Tribunal's jurisdiction to hear claims brought under the Management Act: cf, for example, the Home Building Act 1989 (NSW), s 48K and Consumer Claims Regulation 2014 (NSW), r 4, under which the Tribunal only has jurisdiction to hear claims brought under those legislative schemes for amounts not exceeding $500,000 for home building claims and $40,000 for consumer claims.
But there are some substantive law "gaps" in the Tribunal's relevant jurisdiction. To obtain relief under s 183A, for example terminating a caretaker agreement, an applicant must show that the caretaker has either failed to perform the agreement, or the charges are unfair or the agreement is otherwise harsh, oppressive or unconscionable. Under the Mandalay doctrine a plaintiff seeking to avoid the agreement need only prove an act of non-disclosure of a material matter. This non-disclosure may fall short of a conclusion that the contract is harsh or unfair but it may nevertheless be able to be terminated in equity. It is too simplistic, in my view, to see s 183A as a substitute for all of Mid Rise's rights against promoters of a strata scheme. And it should be remembered that because of the width of the expression there could be many possible "promoters", who may gain advantages through a caretaker's agreement but who are not parties to the agreement.
And Thoo is distinguishable. Apartments argued that this case was like Thoo which determined (at [216]) that a breach of Management Act, s 62 did not sound in damages for breach of statutory duty for the reason that the legislature intended the system of adjudication established under Management Act, Chapter 5 to be the vehicle for which an owners corporations discharge of its s 62 functions should be regulated (Tobias AJA, Barrett JA and Preston CJ of LEC agreeing).
But Tobias AJA made clear in Thoo that his reasoning was only applicable to the creation of a new remedy for breach of statutory duty. It was not intended to apply to the Court's concurrent jurisdiction, for example to make declarations or grant mandatory injunctions (at [219]): "[219] In Proprietors of Strata Plan No 30234 v Margiz Pty Ltd, Brownie J referred to s 105 of the Strata Titles Act 1973 and to the decision of Kearney J in MacLeod v Proprietors of Strata Plan No 6544 [1980] 2 NSWLR 691 at 694, where his Honour held that s 146 (now s 226) had been carefully and deliberately drafted so as not to exclude the concurrent jurisdiction of the court, (that is, the jurisdiction of the court which was concurrent with the jurisdiction of the Commissioner to resolve disputes under the Strata Titles Act 1973). However, the concurrent jurisdiction to which his Honour was referring, and which was applied by Needham J in Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412, was the jurisdiction of the court to make a declaration in the latter case or a mandatory injunction in the former case. Neither case dealt with the issue of whether a breach of s 68(1)(b) or (c) (now s 62(1) and (2)) gave rise to a private right of action for damages. Nevertheless, as I have noted in [199] above, Brownie J in Margiz did hold that there was such a right of action."
Apartments argued that Arrow should be distinguished from the circumstances here. This submission was persuasive, as far as it goes. There are important differences between Arrow and the present case. Apartments is correct that in Arrow the plaintiff sought recovery of a secret commission from an entity who was not a party to a continuing management agreement with the owners corporation. Here it is true that that a relationship continues (or at least did until July 2012) and is governed by a different statutory regime. But in a sense all that Apartments' submission does is to highlight that this Court has now to decide something that McDougall J was not called upon to decide in Arrow. The present case differs from Arrow in two major respects, as Apartments points out: there was no equivalent of Part 4A in the CLD Act at the time of Arrow and the relief in Arrow was against a person not a party to a SMA (the equivalent of a caretaker agreement). But none of these particular differences leads to the conclusion that the Court should displace the inference that arises from the primary reasoning in Arrow that Apartments as a promoter may owe a fiduciary duty in the present circumstances to Mid Rise.
Apartments argues that the High Court has stated several times the super imposition of fiduciary duties on commercial transactions is "undesirable", particularly when the parties have chosen to identify and set out their respective rights and obligations in a mutual contract: Hospital Products v USSC (1984) 156 CLR 41 ("Hospital Products") per Dawson J at 149. It is well accepted that any fiduciary duty which co-exists with a contract "must accommodate itself to the terms of the contract so that it is consistent with and conformed to them" and "the fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation in which the contract was intended to have according to its true construction": Hospital Products at 97, per Mason J.
But as earlier indicated, the law does not require this Caretaker Agreement to be altered by any promoter's fiduciary obligation on Apartments, properly understood. This is because the effect of Mandalay, and the other authorities referred to earlier in these reasons, is that the new company being floated must either take or leave the contract for which the promoters are responsible. If the newly floated company affirms the contract, the contract cannot be altered. Thus the fiduciary duty on the promoter will always be consistent with any contract that survives between the promoter and the newly formed company. I see no inconsistency with the Caretaker Agreement in upholding a promoter's fiduciary duty on Apartments in this case.
But Apartments' concern about inconsistency with the contract is not without foundation. Mid Rise cast its case widely. Mid Rise contended that individual clauses in the Caretaker Agreement were evidence of a breach of fiduciary duty. But even if that were right the Court cannot just override those clauses. That is not a remedy for breach of fiduciary duty available to Mid Rise in these proceedings. It may have been available to Mid Rise under s 183A in the Tribunal.
But there is a procedural footnote to this. Once the applicable law is correctly formulated, the extent to which damages or equitable compensation may be available for any proven breach of a promoter's fiduciary duty is questionable: see Re Leeds and Hanley Theatres of Varieties Ltd [1902] 2 Ch 809. And see Meagher, Gummow & Lehane, para [5-275]. And Mid Rise has not formulated such a claim. It elected an account of profits. These are matters that have not been explored by the parties in any submissions. This is one of the reasons why the Court has decided to pause at this point to hear supplementary submissions from the parties on these questions.

[37]

(b) Did Apartments Breach its Fiduciary Duty?

The issue of breach raises the question: what must a fiduciary-promoter disclose? Early formulations of the duty state that "the utmost candour and honesty" is required: Directors of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99. And as Finkelstein J explained in Fitzwood (at [31]), the obligation of utmost honesty and candour does not require a promoter to disclose every aspect of the proposed dealing that is within his knowledge, as that would place too great a burden on the already onerous obligations of fiduciary. Rather the fiduciary must disclose "material" information and does not have to disclose information that is not "material": Fitzwood at [31].
But what information is material? The New South Wales Court of Appeal considered the issue of the necessary materiality to require a fiduciary's disclosure in Waldon Properties Ltd v Beaver Properties Pty Ltd (1973) 2 NSWLR 82 ("Walden"). In their reasons Kerr CJ and Hope JA (Hutley JA concurred in the result but not in their reasons) said certain information as to the value of a property dealt with by a person with fiduciary duties was material "not because it would necessarily, or even probably, have caused [the principal] to come to a different conclusion… But because it was material to the question which the [principal] had to decide and may have had an effect on the [principal's] Board's decision". Although in the same case Hutley JA (at 847) left open the possibility that the fiduciary could displace an inference of materiality by showing (and the onus was on the fiduciary) that the information not disclosed was incapable of affecting the result, even if it had been disclosed.
Finkelstein J's decision in Fitzwood contains useful examples (at [35], [36] and [37]) for present purposes as to how different kinds of information may be assessed for materiality and adequacy of disclosure. In a case in which the question was whether an information memorandum to potential investors disclosed a fiduciary's annual rental profits in addition to profits on the sale of a property Finkelstein J concluded: that (1) if a fair reading of the information that was given should have alerted a potential investor that the making of profit concerned might occur, disclosure was adequate (at [35]); that (2) if in the circumstances which obtained at the time disclosure was required a particular kind of profit was not anticipated by the fiduciary then, the distribution of that kind of profit (which happened unexpectedly to occur later) was not material (at [36]); and (3) that the equitable obligation of disclosure does not require the fiduciary to speculate about matters that may not occur (at [37]).
The decision of the Full Court of the Federal Court of Australia in Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488 ("Jones") is also instructive for present purposes on the issue of materiality. In Jones the issue was whether certain promoters of a horse breeding syndicate who were vendors at a profit of horses into that syndicate should disclose the level of their sale profits. Wilcox and Lindgren JJ said (at 512) that if the profit "being realised by [the fiduciary] was within reasonable limits and was not such as to cast doubt on the viability of the venture, there would have been no undisclosed material fact; there would have been no inconsistency with [the principal's] implicit understanding that the fiduciary had no existing information detrimental to the venture." Giving effect to findings of the trial judge, Wilcox and Lindgren JJ applied this formula (at 512). After finding that the fiduciary was making more than a reasonable profit on the sale, indeed more than three times his costs, that the quantum of the profits was so great as to cast doubt on the financial viability of the venture and that the principal would not have proceeded with knowledge of these facts, their Honours concluded that the nondisclosure was material.
The decision in Jones also makes clear an important distinction about the time at which the judgement of materiality relevant to disclosure must be made. Not all information will be known to the fiduciary at the time that disclosure is required. So far as existing information the fiduciary holds is concerned, their Honours said (at 511 - 512) that an obligation of good faith and disclosure of relevant information exists at the moment that consent to a transaction is sought and it "is sought on the implicit understanding that the fiduciary presently has no reason to believe that the transaction (including the granting of the consent) is contrary to the person's interests. A fiduciary who was aware of circumstances that made a particular transaction disadvantageous to a cestui que trust would be bound to disclose that fact in discussing the prospect of the transaction proceeding…" (emphasis is in the text). Whereas in relation to future information, their Honours said (at 511) "it must be sufficient that the person said to have been given a fully informed consent was informed, in precise terms, the nature of the duty he or she is being asked to waive and, where they are not apparent, the ramifications of granting consent".
These principles inform the Court's analysis of the issue of breach in the present case.

[38]

February to October 2004

The relevant circumstances of the making of the February 2004 and the October 2004 Caretaker Agreements may be described briefly. Some the facts including the resolutions of the 11 October 2004 Extraordinary General Meeting are set out earlier in these reasons under the heading "The Caretaker Agreement - February to October 2004" and are not repeated. Mr Ong an experienced architect and a resident of the mid-rise sector of the building gave an account of Mid Rise's internal records from this period, which I accept.
As earlier indicated in these reasons Apartments entered into the 4 February Caretaker Agreement with itself as the then owner of the original lots which later became High Rise and Mid Rise. Clause 12.3 of the Caretaker Agreement contemplates that once the mid-rise part of the building was subdivided that the owner of the lot immediately before the registration of the strata plan should "as soon as practicable" procure the new owners corporation, in this case Mid Rise, to sign what is described as an "Acknowledgement Document" and deliver it to the World Tower Committee. Mr Ong says he cannot find such a document among Mid Rise's records. Apartments has not adduced any evidence of this document or of a version of this agreement signed on behalf of the interests of the mid-rise sector of the building. I infer nothing like this was ever signed or delivered.
But Apartments provided and charged for caretaker services from the time of Mid Rise's formation in April 2004, when the strata plan was registered, in accordance with the February 2004 Caretaker Agreement. Both parties conducted themselves in accordance with these terms until October 2004. I infer that by their conduct the parties became bound at law by the terms of the February 2004 Caretaker Agreement: Waldorf Apartment Hotel, the Entrance Pty Ltd v Owners Corporation SP 71623 [2010] NSWCA 226 at [64] - [66], per Beazley and Macfarlan JJA. But Management Act s 113 prohibits a newly formed owners corporation from making commitments beyond the initial period fixed under that Act, a period which expires at the holding of the first annual general meeting of the owners corporation: Management Act s 14 and Schedule 2, cl 2. This first agreement expired at the holding of the annual general meeting.
Versions of the draft caretaker agreement were in circulation before February 2004. Apartments was marketing units off-the-plan during 2003 and a draft version of the agreement was attached to these contracts. It differed in material respects from the February 2004 version. Both the draft and final versions were prepared by in-house lawyers that the Meriton Group employed. Mid Rise was critical that these lawyers were not called to give evidence to explain the rationale for the drafting changes before February 2004. But the nature of the changes themselves and evidence from other Apartments witnesses, detailed below, gives a sufficient explanation for why the changes were made. The differences are detailed below. I do not draw any inference against Apartments because it did not call its own lawyers who worked on the Caretaker Agreement during this period.
On 11 October 2004 Mid Rise's annual general meeting (AGM) was followed by the extraordinary general meeting (EGM) that dealt with the Caretaker Agreement. The AGM concluded the "initial period" that had commenced in April 2004 upon the constitution of Mid Rise and ended when one third of Mid Rise's aggregate unit entitlement were owned by individuals other than the original owner, Apartments: Management Act Dictionary. The business at the AGM was routine.
There is no issue on the evidence that Mid Rise's EGM immediately followed the AGM. The notice of the EGM dated 21 September 2004 foreshadowed the proposed resolution to appoint Apartments under item 2, of the meeting's business, "Appointment of Building Manager" in the following terms: "That according to by-law 28 the owners corporation appoint Meriton Apartments Pty Ltd as its building manager, as in the terms and conditions marked Exhibit 'A' tabled at the meeting, further the owners corporation affix the common seal in accordance with section 238 of Strata Schemes Management Act 1996. (Due to the costs associated with the copying and circulation of caretaker agreement it has not been included with the agenda. A copy of the document is available upon request at the offices of Body Corporate Serves, lower ground floor, 323 Castlereagh Street, Sydney)."
Although the proposed Exhibit "A" was not attached, the notice declared it could be inspected at the offices of Body Corporate Services ("BCS"). The February 2004 Caretaker Agreement was the only signed version of the agreement at that time. It is the same version used later by the parties. No one gave evidence that they had tried to inspect the document at BCS and had been unable to do so. I infer that the document subsequently adopted by the parties was available for inspection at BCS.
An extract of the minutes of the extraordinary general meeting that followed are set out earlier in these reasons. The full text is as follows: "RESOLVED that according to by-law 28 the owners corporation appoint Meriton Apartments Pty Limited as its building manager, as in the terms and conditions marked Exhibit 'A' tabled at the meeting, further the owners corporation affix the common seal in accordance with section 238 of the Strata Schemes Management Act 1996. A copy of the document is available upon request at the offices of Body Corporate Serves, lower ground floor, 323 Castlereagh Street, Sydney)."
The minutes of the extraordinary general meeting contemplate the affixation of Mid Rise's common seal in accordance with Management Act s 238. The minutes infer there was an exhibit "A" before the meeting. I have no reason to infer that the meeting was not regularly conducted. But no version of the Caretaker Agreement, executed on behalf of Mid Rise after this meeting in conformity with this resolution, has been found. But after October 2004 the parties conducted themselves in accordance with a version of the Caretaker Agreement identical to the February 2004 version. For the same reasons, based on Waldorf, as apply in respect to the February 2004 agreement, in my view, the parties bound themselves at common law to the full terms of that agreement. The parties' equitable rights are separate. I also infer from this conduct after October 2004 that this was the version of the agreement before the AGM meeting.
The EGM resolution refers to by-law 28 of Mid Rise's strata scheme, a by-law that contemplates that Mid Rise could engage a caretaker under a caretaker agreement to provide the kind of services for which the Caretaker Agreement actually stipulates. The by-law gives Mid Rise the discretion (by-law 28.4) in relation to a caretaker to grant necessary consents, execute documents, pay agreed remuneration, grant special privileges to the caretaker to occupy parts of the common property and to assist the caretaker to perform its duties. The by-law only permits Mid Rise to engage one caretaker (28.5) and prevents Mid Rise or occupiers from obstructing the caretaker fulfilling its duties.
Mid Rise's strata plan constituted itself with a total unit entitlement of 10,000. I accept Mr Ong's evidence based on Mr Chen's calculations that at the AGM Mr Ray McDowell held 173 proxies for Apartments representing a total unit entitlement of 7395, or just under 74% of the total. Although the initial period had concluded and one third of the unit entitlement (3333) was in independent hands, I infer that Apartments had proxies from some of the new owners whose contracts had exchanged but not yet settled.
Part of Mid Rise's argument goes to showing that disclosure before 4 February 2004 was in substantially different terms to the agreement that was brought into existence on 4 February 2004. But even if this case were made out it would only relate to the agreement that subsisted between February and October 2004. Contrary to Mid Rise's submissions any non-disclosure that occurred during this period would not be committing Mid Rise to an agreement for a decade. The February 2004 Caretaker Agreement could only be binding for about eight months, no matter what it said. Any longer commitment would be in contravention of Management Act, s 113.
Mid Rise's case looked at various alleged non-disclosures prior to February 2004 and sought to argue that these non-disclosures, if established, were a basis to avoid the October 2004 Caretaker Agreement. In my view such non-disclosures as occurred before February 2004 could only affect the February 2004 Caretaker Agreement that existed for only eight months. That agreement came to an end on 11 October 20004 by force of s 113. No question now arises as to whether that agreement should be affirmed or avoided.
In these reasons the Court deals with the position as at 11 October 2004 at the time of the EGM. It is clear that Mid Rise wants relief for just this February - October 2004 period on any ground. If it is, that is something that can be addressed in the course of other supplementary submissions.
Once this distinction is made, some but not all of Mid Rise's non-disclosure criticisms of Apartments are not effective against the October Caretaker Agreement. This is because whatever may have been the deficiencies of the off-the-plan version of the Caretaker Agreement, the February 2004 Caretaker Agreement was in circulation for 8 months before the October 2004 AGM.
I accept the evidence of Mr Tony Paskell, the Meriton Group's operations manager from the late 1990s and covering the period of the Meriton Group's development of the World Tower Building that the February 2004 Caretaker Agreement had been executed by the Executive Committee of Low Rise before it was even adopted by Mid Rise. Moreover, Mr Paskell says, and I accept, that after the agreement was executed by Low Rise that it was being performed, as caretaker services were being provided to Low Rise. This further strengthens the inference that the February 2004 Caretaker Agreement was the one in general circulation among potential purchasers in the mid-rise sector in the period February to October 2004.
Some 75 purchasers of apartments in the mid-rise sector of the building acquired their apartments off-the-plan before 4 February 2004. This was established by Robyn McCully, the Secretary of the Meriton Group since 1990, who searched the Group's archive records for the relevant period. Relevantly she was also the Group's Conveyancing Manager during this period. These purchasers probably did, I infer, purchase under contracts that annexed the pre-February 2004 off-the-plan version of the Caretaker Agreement. Mid Rise argues that the existence of these 75 purchasers is fatal to Apartments' attempts to show that it has given full disclosure to Mid Rise and is not in breach of duty.
But although this argument may found a challenge to the February 2004 Caretaker Agreement, it does not impair the inference, which I draw, that mid-rise purchasers were being shown the February 2004 Caretaker Agreement between then and October 2004. I accept Robyn McCully's evidence that the February 2004 Caretaker Agreement was being included in sale contracts some time after February 2004. I found Ms McCully a credible witness, who was plainly an efficient employee. Her evidence was that although she could not "give an exact date" when she was given the February 2004 Caretaker Agreement for her to annex to contracts in her role as Conveyancing Manager, she thought it was "a quicker time" than "weeks or months". Although she speaks of budgets being received within 1 to two weeks I interpret her evidence as a whole as saying she thought she would have had the February 2004 Caretaker Agreement ready for annexing to contracts within a fortnight of 4 February 2004. I infer that she would have started annexing that agreement (and directing others to do the same) almost immediately.
The off-the-plan and final versions. The pre-February 2004 off-the-plan version of the Caretaker Agreement and the final version differ in material respects. They differ as to their description of the proposed caretaker and the remuneration payable, the term of the Caretaker Agreement, their termination provisions, making good on termination, Mid Rise being bound on it coming into existence, Mid Rise's approval of the persons to be engaged by the caretaker, and the areas for the exclusive use of the caretaker within the building. The duties of the caretaker in Schedule 2 and the draft by-laws in Schedule 3 of the off-the-plan versions and the final versions are largely similar. The details of the areas of some of these areas of difference are important and will be discussed with Mid Rise's contentions.
One change that does not fall under any single Mid Rise contention relates to the term of the agreements. The off-the-plan version provides for a term of ten years, plus three 5 year options exercisable by the caretaker (draft clause 8.1). The February 2004 agreement provides for a ten year term. This change is to be accounted for by an appreciation of the effect of the introduction of the 2002 Amendment Act which prohibited Caretaker Agreement terms of more than 10 years.
The Non-Disclosure Contentions. Mid Rise has made a range of allegations of non-disclosure. But by the time the parties written submissions had taken their course these allegations had reduced to four main contentions under which Mid Rise's non-disclosure case can be organized. Some of Mid Rise's non-disclosure contentions were of more substance than others.
Mid Rise alleges that Apartments did not disclose to it (a) the remuneration payable under the Caretaker Agreement or the identity of the caretaker; (b) the relationship between Properties and the caretaker; (c) the limited scope for termination and (d) that remuneration was well in excess of market rates. These reasons deal with these allegations of non-disclosure in turn so far as they can be taken. As the earlier statements of principle make clear, the time at which non-disclosure to Mid Rise should be assessed is at the 11 October 2004 EGM when Mid Rise gave assent to the October 2004 Caretaker Agreement.
(a) (i) The Remuneration Payable. Mid Rise says the remuneration payable under the off-the-plan version was blank. It is not in contest that the remuneration in the off-the-plan version was blank. The off-the-plan version makes the Remuneration payable as specified in Schedule 1, as does the 2004 agreement. But the pre-February 2004 off-the-plan version's Schedule 1 is blank, so that the remuneration cannot be ascertained just by looking at it.
But Apartments says that the caretaker's remuneration was disclosed in other ways. Apartments says that the form of disclosure was that it provided an estimate of total contributions by way of strata levies that each lot would be expected to make to the strata plan. In order to determine that amount Apartments staff made a pre-estimate of the likely remuneration under the Caretaker Agreement during 2003 as a preliminary to marketing units in Mid Rise. Apartments points out that neither Mid Rise nor any lot owner within the Mid Rise area of the building has complained these pre-estimates were wrong.
But it is not necessary to go into these alternative estimates for the purpose of ascertaining whether remuneration was disclosed. In my view, as the February 2004 Caretaker Agreement was in circulation to purchasers and it could be inspected at the offices of BCS, as was notified in the notice of meeting for the EGM, the figure was sufficiently disclosed.
(a) (ii) Identity of Caretaker. Mid Rise contends that the identity of the proposed caretaker was not disclosed. Moreover Mid Rise says that this was a stratagem because by the time it started marketing the off-the-plan apartments it would have been quite easy for Apartments to have disclosed a caretaker agreement which identified Apartments as the caretaker.
But Apartments says that the caretaker was disclosed. Apartments says that Mr Ong's contract for his off-the-plan apartment (exchanged in August 2005) was typical of those exchanged before February 2004. Clause 45 of Mr Ong's contract makes provision for the Caretaker Agreement and relevantly says "the vendor discloses that the vendor intends to procure the Owners Corporation to enter into an agreement with the vendor or the vendor's nominee…" [emphasis added] in relation to the provision of caretaking services. I am prepared to infer that the contracts exchanged prior to February 2004 for off-the-plan apartments did contain an equivalent of clause 45, as aspects of it (e.g. clause 45.3) are highly favourable to Apartments. All that clause 45 relevantly says is that the vendor may be one of the possible caretakers and may be the caretaker or Apartments may nominate someone else. It may be readily inferred from a fair reading of the clause that Apartments would have control over who would be appointed and it was at least open that Apartments would appoint either itself or another member of the Meriton Group as Caretaker. That is a clear disclosure that Apartments would either be the caretaker or would have a say in who it was. In my view that is sufficient disclosure.
In my view the notice to Mid Rise's lot owners for the EGM and the use of the February 2004 Caretaker Agreement in conveyancing contracts gave sufficient disclosure of the identity of the caretaker.
(b) Properties' Relationship to the Caretaker. Mid Rise alleges that Apartments failed to disclose that the Caretaker Agreement was structured so that one of the three parties, Properties, the ultimate owner of the high-rise area of the building, did not make any actual payments of the fees to Apartments. Mid Rise says this had the effect that Mid Rise and Low Rise were subsidizing Properties' serviced apartments business.
Apartments submits that the only impact on Mid Rise or purchasers of apartments in the mid-rise area of the building of the remuneration payable by Low Rise or Properties is that it reduces the amount Mid Rise is obliged to pay to Apartments. Apartments submits that it does not matter whether this was done by an accounting entry or by an actual transfer of funds between Apartments and Properties; all that really matters is that Properties was bearing its fair share of costs incurred under the agreement.
It is important to distinguish two aspects of this particular non-disclosure issue: one is a question of the identity of the owner of the high-rise sector of the building and the other is an accounting issue. As to the former there was no non-disclosure, in my view. A fair reading of the February 2004 Caretaker Agreement, which was available in October 2004, shows that at the time that agreement was made Apartments was the original owner of the high-rise sector of the building. This meant that Apartments would control whether it retained or transferred this part of the building. It was quite open that an entity related to Apartments would continue to control this part of the building.
The other aspect, the accounting question will be reserved for further consideration for the reasons explained below.
(c) Limited Scope for Termination. Mid Rise also contends that on Apartments' construction of the Caretaker Agreement, it was designed to render any right that Mid Rise had to terminate illusory by requiring the consent of another Meriton Group entity, Properties, for the issue of a notice of breach.
Mid Rise puts this contention in the alternative to its principal construction of clause 5.3 that termination is possible without the concurrence of Low Rise or Properties. But these reasons have earlier found that clause 5.3 does not apply to breaches that relate to Mid Rise alone. And the Court has found that Apartments has not breached the agreement in a manner that would warrant termination at common law or under clause 5.3. Therefore it is not strictly necessary for the Court to decide this point. But were it necessary to decide the issue the finding would be that this was not an item of non-disclosure because like all other parts of the February 2004 Caretaker Agreement clause 5.3 was available to all those who were voting at the October 2004 EGM.
(d) Remuneration at Above Market Rates. Mid Rise alleges Apartments did not disclose to it or to the lot owners that the Caretaker Agreement provided for Apartments to charge well in excess of market rates for the services being provided under the Caretaker Agreement. This contention is not simply answered by saying that Mid Rise could compare Apartments charges under the Caretaker Agreement with other market rates at any time. It raises the question, raised in Jones, as to whether Apartments' profits were on this agreement excessive to the point that their disclosure was required.
The Court's analysis of the applicable principles in relation to fiduciaries has somewhat changed the landscape of these proceedings since the parties lodged their final submissions. It is now clear that Mid Rise's right may be of quite a different nature than Mid Rise has been contending for, if it were to establish a breach of fiduciary duty. Mid Rise may arguably be able to claim equitable compensation and not an account of profits, if it is successful. This may well have implications for the way that the parties wish to put their submission about issues such as the discretionary equitable defences to Mid Rise's claim: if the nature of any applicable remedy is different from what seemed apparent during final submissions, then the operation of these defences may well be different. It seems therefore to be potentially procedurally unfair for the Court to proceed to any further findings without hearing supplementary submissions from the parties. Such submission will be permitted for the sole purpose of the parties recasting submissions in light of the Court's legal conclusions and other core factual findings. The parties are not at liberty to contest existing findings.
All other issues in the proceedings are reserved for further consideration after hearing the parties' supplementary submissions. In particular the accounting issues concerning claims whether Apartments has derived an excessive profit that should have been disclosed to Mid Rise will then be determined.

[41]

Conclusions in Relation to Fiduciary Duty

On Mid Rise's claim that Apartments owed it fiduciary duties as a promoter, Mid Rise has succeeded in establishing that Apartments owed it fiduciary duties of disclosure as a promoter. Apartments' arguments that the application of these fiduciary duties has been displaced, or the content of those duties limited by Management Act, Part 4A fails. Mid Rise has failed to established a number of its non-disclosure allegations against Apartments. But for procedural reasons the Court has reserved for further consideration all the remaining questions including the question whether Apartments has breached its duty of disclosure to Mid Rise because Apartments did not disclose to Mid Rise in October 2004 the profit that it was making on the Caretaker Agreement.
The Court has found that the applicable law in relation to promoters gives the parties and Mid Rise somewhat different rights and remedies and defences in relation to the Caretaker Agreement than either party addressed in final submissions. In particular Mid Rise does not have a right to an account of profits against Apartments in the circumstances of this case. It has a right to affirm or disclaim the Caretaker Agreement for Apartments' non-disclosure and possible rights to equitable compensation. As these issues were largely unaddressed in the existing submissions the Court has declined to proceed beyond its statement of the applicable law and made some core findings but instead will give directions to the parties to put on further submissions about the unaddressed issues.
As there are a number of issues still to be determined. It will be more appropriate to consider costs questions once the matters reserved for further consideration have been resolved.
There are interlocutory orders in place in the proceedings. Some of these will need to be discharged, some varied and some made final. Close analysis of these reasons will be required to determine the disposition of each of these existing orders. They will remain in place until the parties have undertaken that analysis. What is to happen with these orders can be decided when the Court is hearing submissions as to the matters reserved for further consideration and the final form of orders, at a further hearing for that purpose.
In the result therefore the Court will order as follows: 1. Direct the parties to bring in short minutes of order to give effect to these reasons. 2. Direct the parties to file with my Associate and exchange any submissions in relation to any contest concerning the matters reserved for further consideration or the form of the short minutes of order by 5pm on Thursday, 9 April 2015. 3. List the proceedings for further directions and argument on any outstanding issues at 9.30am on Thursday, 16 April 2015, or such other time as the parties may arrange for their mutual convenience through my Associate.

[42]

Amendments 20 March 2015 - Para 3: addition of: In these reasons, references to Parts of the Management Act are references to Chapter 2 of that Act. 06 May 2015 - [25] "11 October 2002" to "11 October 2004" [39] "Midrise" to "Mid Rise" [90] Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 715623 [2009] NSWCA 882 at [45]. 06 May 2015 - 25] "11 October 2002" to "11 October 2004" [39] "Midrise" to "Mid Rise" [90] Waldorf Apartment Hotel, The Entrance Pty Ltd v Owners Corp SP 715623 [2009] NSWCA 882 at [45]. 06 May 2015 - [90] NSWSC 882 at [45] 23 September 2016 - [42] "Others Involves" to "Others Involved" [76] "unaffected by an" to "unaffected by any" [87] "Caretaker Agreement so as to permit it to" changed to "Caretaker Agreement, so as to permit Mid Rise" [96] "parties arrangements" changed to "parties' arrangements" [99] "have been commonly understood" changed to "have been a commonly understood" [198] "Contemplating contractual flexibility" changed to "Contemplating the contractual flexibility" [221] in quote, fourth line "officer" changed to "office" [235] "will shows this" changed to "will show this" [260] "(2) when did Icebrink" changed to "(2) when did Icebrink" [267] "in February 2004" changed to "in February 2012" [271] "occasion. Buit" changed to "occasion. But" [342] "MacFarlan" to "Macfarlan" [428], (b) "hars, oppresive" to "harsh, oppressive" [451] "to have given" to "to have been given" [476] "estimate of a total contributions" to "of total contributions"..."stratan oplan in order" to "strata plan. In order" [482] "purchasers of Apartments" to "purchasers of apartments" [487] "market at any time" to "market rates at any time" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 September 2016

Meriton Apartments Pty Limited v The Owners Strata Plan No. 72381

At a glance

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Judgment (42 paragraphs)

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Cases Cited (82)

Cited By (6)