105 The difficulty for the Owners Corporation, in this regard, is that although a number of its witnesses (including Mr Osborne - see Transcript p 146) asserted the existence of a system or work process to that effect (and Ms MacLachlan in her affidavit gave a broad description of the work processes adopted by the Executive Committee), there was no evidence, other than bald assertions by members of the Executive Committee (Mr Osborne and Ms Tracey in particular) or STM of that having been made clear to the Manager or of any such instruction having been given other than by a letter dated 8 August 2005 from STM, which postdated the relevant engagement of both Adelphos and ASM (and a later minute of the procedure for obtaining approval of quotations, which might suggest the previous absence of a set procedure - see minutes 3 October 2006).
106 An issue also arises as to what is the significance if (as seems to be the case) work was commissioned (whether authorised or not) and the relevant invoices were issued to and paid by the Manager but the Manager later sought and obtained reimbursement from the Owners Corporation? Mr Lynch seemed to suggest this amounts to ratification of the relevant service provider's contract and, hence, that no breach has occurred. Mr Young contends that, for the purposes of satisfaction of the condition precedent in clause 20.9, any such ratification is irrelevant; the fact is that there was a breach.
107 In my view, the effect of what the Owners Corporation has done would need to be carefully analysed in each case. Payment (or reimbursement to the Manager) of an invoice in respect of an "unauthorised" work contract would not of itself necessarily "ratify" the contract. For that to be the case there would need to be an unequivocal adoption or acceptance of the underlying contract. Therefore, while it must, I think, follow that ratification of an unauthorised contract means that entry into the contract itself can no longer be treated as a breach capable of supporting the assertion by the Owners Corporation that the provision to clause 20.9 has not been satisfied, I am not satisfied that here what has occurred amounts to ratification.
108 In any event, for the reasons set out below, it is not necessary for me to reach a decision on that issue because there are in fact only two relevant instances in which a breach of this kind has been pleaded by the Owners Corporation (notwithstanding the submission that there were "repeated" instances of failure to obtain work orders or the general assertions to that effect by STM - see Ms MacLachlan's evidence): those being the work underpinning the Adelphos invoice of 10 July 2005 and the ASM invoice of 20 September 2005; and in each case I do not consider any breach to have been established. (It was conceded that the SS Housewashing invoice postdated the expiry of the term.)
· Adelphos Invoice
109 This was for a minor sum ($550). It related to painting work carried out in the foyer of the building (there was it seems some misdescription as to whether it was the east or west side of the building but there seems no dispute that paint work was carried out in the foyer).
110 Mr Maddrell pointed to the inclusion of a reference (in his caretaker's report to the Executive Committee for the week ending 19 April 2005) to the need for repairs and maintenance "7 April 05 - Adelphos Pty Ltd - Quote for painting EAST lobby internally and externally" and, also in that report to the quote for this work ("5 April - $1,000 painting EAST lobby (walls and ceiling) and External Porte Cochère"). He gave evidence that the work had been approved at the Executive Committee meeting on 11 April 2005. In fact, there was no record of any formal approval to that effect and Mr Maddrell could not recall any formal vote to approve the work, though he said that such a procedure was not ordinarily followed for items of work of this kind, the Executive Committee members simply saying "yes" or "no". Mr Maddrell seems to have assumed that if no objection was raised at the meeting to work itemised in the caretaker's report then he was authorised to proceed to arrange for the work to be carried out.
111 Perhaps the real explanation for the dispute arising over this invoice is the fact that there is a discrepancy between the quote (for $1,000) and the invoice rendered (for the lesser amount of $550). There was further confusion arising from the (perhaps shorthand) way in which the work was described in the invoice by Adelphos (Painting Two High Columns). Mr Maddrell's explanation seemed to me to be logical - Adelphos quoted for two items of work (the porte cochère and the colonnade) and carried out (at least at the time of the disputed invoice) the work for one and had invoiced the Manager accordingly.
112 If, as I think is the case, the only relevant breach would be if the Manager had failed conscientiously or properly to act in accordance with its duties when commissioning the paint work (or had failed to comply with a reasonable instruction of the Manager to obtain a "work invoice" from STM first, as to which I comment below), then the fact that Mr Maddrell appears (rightly or wrongly) to have understood these works to have been approved by the Executive Committee would, in the absence of anything to suggest it was unreasonable of him to form that view, be sufficient to negate any finding of breach.
113 Here the work was apparently reasonably required to be done for the benefit of the Strata Plan; neither the Owners Corporation nor STM seems to have objected to it being done (as opposed to later objecting to the lack of a work order to support the request for payment); there was no suggestion that it should not have been done or that there was any real dispute over the cost of the work. Insofar as the Manager had itself retained the contractor, then the Manager was liable for the amount payable on the invoice (and it would appear the Manager initially paid that invoice) so no pledge of the Owners Corporation's credit was involved unless the Owners Corporation chose to accept liability for the work. Insofar as the Owners Corporation might later have agreed to reimburse the Manager, this would suggest that the Manager's conduct in commissioning the work was not a frolic of its own. Insofar as the Owners Corporation might later have refused to do so, this would seem to me to be unreasonable since there was no real complaint as to the work but in any event would not justify a finding of breach by the Manager.
114 I find no beach of clause 2.1.1 in this regard. As far as any breach of an implied obligation arising from the limitations on the Manager's appointment as authorised agent under clause 10.1.4 is concerned, I consider that the absence of any objection by the Executive Committee to the work being carried out when the quote was included in the caretaker's report was sufficient to amount to an implied authority for Mr Maddrell to proceed with the commissioning of the work. (I turn later to the question of absence of a work order from STM.)
· ASM Locksmith invoice
115 Again, it cannot seriously be suggested that the Manager was behaving improperly in commissioning the work which underlay the ASM invoice.
116 In early 2005, restricted locks/keys were "re-keyed" for residential units in part of the building. There is no suggestion that this work was not approved by the Owners Corporation (see p 387 court bundle). Thereafter it was drawn to Mr Maddrell's attention by Ms Tracey, a member of the Executive Committee, that the "re-keying" had not extended to the commercial tenants and there was an issue with their access (Transcript p 121). Mr Maddrell authorised that re-keying. There is evidence that he did so after Mr Osborne had verbally approved (by a conversation with Mr Maddrell's associate, Ms Lott) the engagement of ASM for that purpose (and had asked that the work be completed before Christmas) (see annotation to this effect on the letter which is p 387 of the court bundle).
117 When an invoice was issued for the work, Mr Maddrell presented it to STM and sought (presumably in compliance with the 8 August 2005 instruction, albeit after the work had been commenced) a work order (see p 391 of the court bundle). STM demanded to know on whose authority the work had been carried out and made it clear that there had been no work order issued. Mr Osborne, in the witness box, was firm in his view "no work order, no authorisation". He resisted the suggestion put to him that this work was in fact a continuation of the re-keying process which had been approved in early 2005, and insisted that this was "additional" work (Transcript p 144). I cannot help but think that Mr Osborne's adamance on this point (like his insistence that the term of the ETT contract finished three months earlier than it did and his insistence, even in the face of unchallenged documents to the contrary, that Mr Maddrell had not appropriately disclosed his association with ETT and hence his conflict of interest in the cleaning contact tender process) is something derived from Mr Osborne's dissatisfaction (to put it mildly) with Mr Maddrell - and hence a readiness on Mr Osborne's part to attribute wrongful conduct to Mr Maddrell. As noted, Mr Maddrell's evidence was that an associate (Pam Lott) had obtained Mr Osborne's express approval for the ASM work and there was no substantive complaint as to the work.
118 Whether or not the ASM work in late 2005 was a "continuance" of, or work additional to, the work which had been approved for the re-keying of locks earlier that year, I cannot see any breach of clause 2.1.1 (or of any implied limit on the authority otherwise conferred under 10.1.4) in Mr Maddrell acceding to a suggestion by Ms Tracey, approved by Mr Osborne, to commission that work. Strict insistence on the system as outlined by Mr Osborne (approval of quote/request for work to generate a work order - Transcript p 146), even if by then it had been in place, would seem to me in those circumstances to be unreasonable. Mr Osborne's explanation that the Manager, having received his approval, would still have "to go through the formality" (Transcript p 149) or that (which he said in relation to a different piece of work - the contract with Romtech) there could be an approval which would not be an approval to engage simply be an "approval … to go through this correct procedure" (Transcript p 150) seems to me to make no commercial sense.
119 Indeed, some of the correspondence (see the annotation on document at p 389 of the court bundle) suggests that the real purpose of the work order procedure was for there to be a "paper trail", not that there was any objection to the work itself or the manner in which it was commissioned.
· Work orders
120 Turning to the question of work orders generally, it is said that Mr Maddrell was instructed not to engage service providers (except perhaps for emergency works) without first obtaining a "work order" from STM. That process apparently involved an approval first being given by the Owners Corporation and for STM then to issue some form of work order. The scope for such a procedure to become unworkable is obvious in a situation where no love appears to have been lost between members of the Executive Committee and Mr Maddrell. There was evidence by Mr Maddrell that there had been numerous instances where no work orders had been required for work carried out at the request of Executive Committee members.
121 The only evidence of an instruction having been issued to that effect before 2006 was the response by STM to the presentation of the ASM invoice (see letter dated 8 August 2005, p 390 of the court bundle), well after the Adelphos work had been commissioned and after the "additional" ASM work had been carried out. There is no evidence of non-compliance by Mr Maddrell with that instruction after August 2005, at least during the balance of the term of the agreement (the incident involving SS Housewashing, to which I will refer shortly, being after the expiry of the term). The first recorded description of the procedure (on which so much emphasis was placed by the Owners Corporation) for obtaining approval in respect of quotations by service providers which I could find in the material tendered during the hearing was in the minutes of an Executive Committee meeting on 3 October 2006 (p 501 of the court bundle) - again, well after the work particularised as breaches by the Manager was commissioned.
122 There would also in my mind be a question whether insistence upon a formal work order before commissioning work was a reasonable instruction at least on occasions where the work had been approved by the Executive Committee and it would reasonably have been expected that in due course a work order would issue from STM (Mr Osborne reluctantly conceding, as he did in the witness box, that one would expect that a work order would follow approval by the Executive Committee - Transcript p 158).
123 In any event, for the reasons set out above, I find no breach of clause 2.1.2 of the agreement in relation to either of the disputed invoices.
· SS Housewashing
124 As to the SS Housewashing incident - which is relied upon as going only to discretion - to my mind that again does not paint the Owners Corporation (or more precisely the Executive Committee) in a positive light. It is clear from the correspondence/communications to which I was taken in this regard, that Mr Maddrell understood (wrongly as it turns out) that approval had been given for SS Housewashing to be engaged. The fact that he was under this impression was (or should been) clear to STM or to Mr Osborne (and hence to the Executive Committee) (see Annexure Q to Mr Maddrell's affidavit, p 282 of the court bundle; Transcript p 152). Mr Osborne conceded that it was apparent on the documents to which he was taken in cross-examination that Mr Maddrell thought he had received approval to go ahead with the work and Mr Osborne conceded that at that stage there was an opportunity for Mr Osborne to correct that mistake before any work proceeded. He did not do so. Mr Osborne's attitude was "we have procedures where a work order should have been followed and received and Mr Maddrell obviously did not get a work order on this particular occasion. So the procedures were in place. So it is his issue. Not the Owners Corporation" (Transcript p 158). I disagree. Having, in effect, allowed Mr Maddrell to proceed with the SS Housewashing work in the (on this hypothesis) mistaken belief that it had been approved, it does not sit well for the Owners Corporation now to suggest that I should exercise any discretion against the grant of equitable relief in favour of Mr Maddrell because of the fact that he proceeded with that work for the benefit of the Strata Plan.
· Trivial nature of breaches
125 In relation to the breaches/non-compliance pleaded in 6.2.7(a), had I found, by reference to the Adelphos or ASM invoices, that a breach of the Building Management Agreement had been established (which I do not), I would have been of the opinion that in the scheme of things these were trivial or de minimis breaches.
126 Mr Lynch submits that if there were contracts which were made without authorisation and which were not adopted or ratified by the Owners Corporation then the Owners Corporation has suffered no damage so that even if there has been a breach of procedure it has no consequence for the Owners Corporation. For the reasons given earlier, I do not consider this to be the test.
127 However, Ms MacLachlan conceded that there would have been several hundred (and could be near to a thousand) instances in which invoices were raised for work carried out or expenditure incurred in respect of the Strata Plan each year (Transcript p 196). Over a five year term that means anywhere around 4,000 or more instances of payments made on behalf of work for the Strata Plan. The most that the Owners Corporation could come up with, by way of alleged breaches, were these two isolated instances. Had I found them to have been instances of non-compliance with the Building Management Agreement, this would have raised a question as to whether they could have been considered of such a kind as to preclude a right arising under clause 20.9 properly construed, or to disentitle the Manager from reliance on such a right, to a new building management agreement. As it is, however, I do not need to make such a finding.
Paragraph 6.2.7(c) - Failure to provide to the Owners Corporation and/or STM with copies of the ETT cleaning contract.
128 This allegation can be disposed of relatively quickly. On the evidence before me it is incorrect to assert (as is pleaded) that on or about 15 May 2006 the Manager was instructed to provide to the Owners Corporation and/or STM copies of the ETT cleaning contract. The request made on 15 May 2006 at a meeting of the Executive Committee (as minuted - see p 110 plaintiff's bundle of documents) was as follows:
Request made for Contract for cleaning to Simon Maddrell from Eric's Team of Tradespeople.
129 In circumstances where much issue has been made by the Owners Corporation of the association between Mr Maddrell and ETT it must be assumed that the way in which this request was minuted was intentional. If so, non-compliance with that request cannot result in a breach of the Building Management Agreement by the Manager. Certainly Mr Maddrell was aware of the request, but something which is not an instruction to the Manager surely cannot logically form the basis for complaint by the Owners Corporation as to non-compliance by the Manager. The only request that is particularised and relied upon for the purposes of the proceedings is the request made of ETT.
130 Those same minutes noted an acknowledgement by Mr Maddrell that requests for a copy of the contract had been made on three separate occasions. I understand, however, that Mr Maddrell disputes this.
131 That said, the only capacity in which Mr Maddrell attended Executive Committee meetings, so far as I am aware, was as a representative of the Manager and it might therefore be said that (acting conscientiously in his position as Manager) he should be taken to be aware of the request and to have acted upon it - whatever the capacity in which it was made.
132 In any event, it would seem that at an earlier Executive Committee meeting on 15 February 2006 (the minutes of which appear at pp 104-107 of the court bundle) in the context of a discussion as to tenders for the cleaning contract, a similar request was made about this time of the Manager it being recorded that, "EC requested Resident Manager [by which the minutes clearly referred to the Manager] to produce contract with options."
133 Technically, there was no ETT contract with options, in the sense that it is conceded that no such agreement was ever signed by the Owners Corporation (and there is nothing to suggest that an option was ever agreed, that not forming part of the initial scope of works). Therefore, it might be said that the failure to provide a copy of a non-existent contract could not be a breach of the instruction (assuming there was a relevant instruction made of the Manager at the 15 February 2006 meeting).
134 Nevertheless, I think that, properly understood, what Mr Maddrell was being asked in February 2006 and again in May 2006 was to produce for inspection by the Executive Committee (in circumstances where he, whether on behalf of ETT or otherwise, was asserting and the Committee was denying that the ETT cleaning contract contained an option), whatever document he (or ETT) was relying on for the assertion that ETT had an option to renew its contract. That seems to me to have been a reasonable instruction in the circumstances. Mr Maddrell's response (that he would not assist the committee to repudiate an existing contract) was in my view unreasonable and not an appropriate response in the context of the Manager's obligation conscientiously and properly to perform its duties and to comply with reasonable instructions. It would seem that Mr Maddrell subsequently produced a copy of what he asserted to be the (unsigned) cleaning contract but that there was some (perhaps not reasonable) delay in so doing.
135 The confusion between the corporate entities in the context of this request was not assisted when, by letter dated 7 March 2006, STM formally requested production with 14 days of a copy of the cleaning contract from ETT but asserted that this was further to the Executive Committee meeting in February "when you [presumably meaning Mr Maddrell] were asked to produce a copy of the cleaning contract you believed existed".
136 This was followed by an email on 23 March 2006 from Mr Osborne to Mr Maddrell asserting that the Executive Committee "do in fact have a copy of the cleaning contract" and requesting on behalf of the Executive Committee that Mr Maddrell "as Resident Manager" request that the directors or management of ETT provide a copy of the cleaning contract to STM within seven days. That request was not complied with during the stated time period.
137 It was submitted to me that the contract ultimately produced was in some way a concoction or fabrication - in part because the copy produced was not signed and was printed from a computer; had errors of nomenclature (namely the clearly incorrect description of the "Cleaner" on page 3 as "Manager"); and the fact that Appendix Two was clearly taken or adapted from a contract with another entity (Regis Towers Owners Corporation) apparently drawn from a pro forma caretaker/manager agreement. There is also a repetition insofar as Appendix One appears again at the end of Appendix Two.
138 There is nothing to suggest on its face, however, that this was not a document drafted (however poorly) in November 2004 nor was it suggested to me that its contents could assist in determining when it was created. The errors in drafting were not suggested to be a breach of contract (and even if there were there may be room for doubt as to whether it was a document prepared by Mr Maddrell, as Manager or prepared by or on behalf of ETT, which would arguably be more consistent with the Manager having stepped aside from the tender process). Equally consistent with the allegation of fabrication (which Mr Maddrell denies) is that the reason for the form in which the contract was ultimately produced is either that it was originally poorly cobbled or pieced together from another earlier contract and not properly proofed or that the ETT contract (having remained on the computer), was later used as a template (and so amended) to produce another different (but equally poorly drafted) contract (say, in relation to the Regis Towers complex to which it refers in part) and not kept in its original state.
139 Either way, the fact that the Manager may not have been diligent in the preparation or review of the cleaning contract, or in the filing or retention of such a contract, is not something which goes to the breach or non-compliance particularised in the amended defence. Nor was it apparent to me that responsibility for the finalisation of contracts with ETT fell within the Manager's duties. While it seems that the Manager was asked to, or did, prepare the scope of works for use as a part of the cleaning contract process, this was presumably subject to review by STM and/or the Executive Committee and does not seem to me to be fairly the subject of criticism of the Manager.
140 There was a heated debate between the parties during 2005 as to the term of the ETT cleaning contact and as to whether ETT had the benefit of an option under its cleaning contract. Mr Osborne expressed very firm views as to the former (which were demonstrably wrong); Mr Maddrell expressed equally firm (and wrong) views as to the latter. The communications relating to these issues indicate a degree of suspicion and lack of trust between at least Mr Osborne and Mr Maddrell, but do not ultimately take the matter very far.
141 In relation to the breach which has in fact been pleaded in paragraph 6.2.7(c), even ignoring the fact that the 15 May request in its terms was not made to the Manager, I am of the view that the failure to produce the cleaning contract when the request was first made and the delay in its ultimate production, would have been of a relatively trivial nature in the scheme of things (particularly as Mr Osborne was asserting in March 2006 that he already had a copy of the contract).
Paragraph 6.2.7(d) - Annual Audit