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[2009] NSWSC 150
defendant. The plaintiff's claim was dismissed. The court held that the Manager had not established an entitlement under clause 20.9 to require the Owners Corporation to enter a new building management...
The agreement promised a new five-year term only if the Manager had complied with its obligations during the existing term and was not in default when that term ended. The court interpreted those as separate requirements and accepted that a trivial lapse would not necessarily defeat the promise. But the Manager had not produced required annual audit reports for 2003 and 2004. The court considered that failure material, so the condition for a new agreement was not met. The Manager's claim was dismissed. The court's comments about damages and discretionary objections to specific performance were not necessary to the result.
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Newtown Management Pty Limited (the Manager) sought to enforce clause 20.9 of a Building Management Agreement with the Owners Corporation of Strata Plan 67219. The agreement was executed on 10 May 2002 for a five-year term. It covered caretaker and supervisory services for a mixed commercial and residential strata scheme at 138-140 Carillon Avenue, Newtown ([9], [13]). The Manager also managed the other two strata plans making up the Newtown Square complex ([9]).
Clause 20.9 was headed “Option to renew agreement”, but Ward J considered its operative wording to impose an obligation on both parties to enter a new agreement, provided its condition was met. The new agreement was to run for a further five years and was otherwise to be identical, subject to an adjustment to the fee ([19]-[20]). Clause 20.1 also provided for the existing agreement to continue in successive three-month periods after expiry until a new agreement was made or either party gave three months’ notice ([18]).
The agreement expired on 9 May 2007. The Manager remained in the holding-over position. It had sought a new agreement before expiry, but the Owners Corporation refused to enter one on the clause 20.9 terms. In October 2007, the Owners Corporation resolved to enter a new agreement only if it did not include clause 20.9; no agreement was executed ([40]-[42]).
The dispute concerned the proviso to clause 20.9: “provided the Manager has otherwise complied with this agreement and is not in default” ([19]). The Owners Corporation argued that the condition was unmet because of alleged service-provider engagements without proper approval, failures concerning the ETT cleaning contract, annual and key audits, and the presence of rubbish or flammable materials on common property ([43]-[47]). Ward J found that most of those allegations did not establish relevant breaches. The decisive exception was the absence of annual audit reports for 2003 and 2004. The claim for a new agreement was dismissed ([166], [184], [211]-[212]).
The central task was interpreting the two parts of the proviso. The Owners Corporation argued that they were separate requirements: compliance throughout the agreement’s term and no default at expiry. The Manager argued that they described one inquiry into whether it was in default at expiry ([50]-[52]). Each interpretation risked making some of the words redundant ([53]-[55]).
Ward J focused on the word “otherwise”. It suggested a contrast between the requirement that the Manager “has otherwise complied” and the separate requirement that it “is not in default”. The present-tense wording “is not in default” addressed the Manager’s position at expiry; “has otherwise complied” addressed its performance during the preceding term ([69]-[76]). The court therefore adopted two limbs: compliance during the term and no default at expiry ([91]).
That reading did not mean that every minor lapse would defeat the condition. Ward J considered it commercially unlikely that the parties intended an immaterial or de minimis failure at any point over five years to deprive the Manager of a significant commercial benefit ([67], [76]). The question remained what degree of performance the parties intended the proviso to require. The judgment treated this as a matter of construction, not as an automatic rule that a condition precedent must always be met with absolute literal exactness ([83]-[90]).
The evidence about the alleged unauthorised work did not establish a breach. In the Adelphos painting matter, the Manager had included the quote in a caretaker’s report and reasonably understood that the Executive Committee had not objected. The work appeared to be required, and there was no substantive complaint about it ([109]-[114]). In the ASM locksmith matter, the court accepted evidence that approval had been given for the further re-keying work. Ward J considered insistence on a formal work-order process unreasonable in those circumstances ([115]-[123]).
The annual audit obligation was different. Item 6 of the agreement required an annual audit of common property and a written report within one month after the audit ([142]-[144]). The evidence established that no annual audit report had been provided for 2003 or 2004 ([145], [152]-[166]). The Manager argued that the allegation in the defence concerned failure to perform audits, rather than failure to report them. Ward J rejected that technical pleading objection, noting that the evidence relevant to the alleged breach and the breach established was the same, and that the Manager had not raised the point earlier ([153]-[161]).
The Manager also bore the onus of proving the condition precedent was satisfied. The court relied on the pleading rules and authorities concerning conditions precedent: the Manager’s claim implied an assertion that the condition was fulfilled, and the Owners Corporation’s denial was a sufficient traverse to put proof on the Manager ([161]-[165]). The Manager could not establish compliance with the reporting requirement for those two years. Ward J expressly found that this breach was not trivial ([166]).
The other allegations did not alter the result. The court found no established breach regarding key audits, in part because the Manager’s inability to conduct a 2003/2004 key audit was connected to the absence of necessary computer software ([167]-[174]). It rejected the allegation about hazardous items, finding the evidence did not establish a relevant failure in the Manager’s duties ([175]-[183]). The annual audit reporting failure alone meant the condition was not satisfied, so there was no entitlement to a new agreement ([184]).
The judgment did not purport to announce a new general rule of contract law or change the governing authorities. Its contribution in this dispute was an application of established principles of construction to the particular wording of clause 20.9.
Ward J referred to the need to attend to the contract’s language, commercial circumstances and objects, citing McCann v Switzerland Insurance Australia Limited and Wilkie v Gordian Runoff Limited ([64]). The judgment also discussed the debate over when surrounding circumstances may be considered, but expressly stated that the admissibility question did not need to be determined because the parties relied on the agreement’s commercial purpose as apparent from the document itself ([58]-[60]).
On conditions precedent, the judgment explained the distinction between saying that a condition has been “substantially performed” and construing the condition to require a standard that tolerates trivial failures. It discussed Tricontinental Corporation v HDFI and B L M Holdings v Bank of New Zealand, and adopted the reasoning in Pangea Resources v General Credits as relevant to the question of what the parties meant by the condition ([80]-[88]). The court’s approach was that a condition is either fulfilled or not, but the content of what counts as fulfilment depends on construction.
The practical point is therefore specific: language requiring a party to have “otherwise complied” and to be “not in default” can be read as addressing different periods, particularly where the wording supports that distinction. The judgment does not establish that those phrases will always create two separate tests in every agreement. It also does not set a universal threshold for materiality. Ward J left the precise boundary between trivial and disqualifying non-compliance open because the annual-report failure was not trivial ([90]-[91], [166]).
At [75], Ward J reasoned that the phrase “has otherwise complied” should be contrasted with “is not in default”. In plain English, the first phrase looks back across the term, while the second asks whether a default existed when the agreement expired.
At [76], the court concluded that the proviso had two limbs. It nevertheless rejected the proposition that any trivial lapse would necessarily prevent a renewal. The clause had to be construed in a way that gave its words meaningful work without producing an unreasonable commercial result.
At [83], Ward J stated: “What is required, to satisfy a condition precedent of the kind in clause 20.9, must ultimately be a question of construction.” The plain-English point is that there is no automatic answer based only on the label “condition precedent”. The court must determine what the parties meant the required performance to be.
At [161]-[166], the judgment addressed who had to prove compliance. The Manager was claiming the benefit of the clause, and the Owners Corporation had denied that the condition was satisfied. The Manager therefore had to establish that it had met the condition. It failed to do so for the annual audit reports for 2003 and 2004.
At [211], Ward J summarised the decisive finding: the Manager had not established an entitlement to require a new agreement because it breached its annual audit reporting obligations. This was the ground that determined the case, not the court’s discussion of possible damages or discretionary objections.
The decision is most relevant where a commercial agreement makes a future renewal, extension or further contract conditional on a party having complied with its obligations and not being in default. It is especially relevant where the wording appears to refer both to past performance and to the party’s status at a particular date, such as expiry.
A court considering similar wording may need to ask whether the clauses’ different expressions address separate periods or repeat the same test. Here, “has otherwise complied” and “is not in default” were read separately because of the wording and the contrast conveyed by “otherwise” ([69]-[76]).
The judgment may also be relevant where the party seeking the benefit of a renewal condition argues that a minor lapse should not defeat it. Ward J accepted that the agreement should not ordinarily be read as making trivial non-compliance decisive, but did not formulate a comprehensive threshold test ([76]-[90]). The outcome instead turned on a failure to produce two annual audit reports, which the court regarded as non-trivial ([166]).
A further recurring issue is proof. Where a party claims a contractual benefit that depends on a condition precedent, and the other party specifically denies that the condition was met, this judgment treats the claimant as bearing the burden of proving fulfilment ([161]-[165]). The precise pleading and contractual wording remain important.
The supplied judgment contains no later judicial decisions applying, distinguishing, approving or questioning Newtown Management Pty Limited v Owners of Strata Plan 67219. It was delivered on 13 March 2009, and the materials provided do not include subsequent authorities. Later treatment therefore cannot be assessed from this source alone.
Within the judgment itself, Ward J relied on earlier authorities rather than discussing any later treatment of this case. In particular, the judgment applied the approach in Pangea Resources v General Credits to the construction of a condition precedent ([86]-[90]) and used authorities on pleading and the onus of proving conditions precedent ([154]-[165]). Those are relationships between the 2009 judgment and earlier authorities, not evidence of how later courts treated this decision.
The judgment did not decide the precise boundary between a trivial breach and a breach that defeats a renewal condition. Ward J considered that trivial or de minimis non-compliance should not necessarily be disqualifying, but concluded that the annual audit reporting failure was material enough that the boundary did not have to be fixed ([90], [166]).
It also did not decide whether damages would have been an adequate remedy if the Manager had established a contractual entitlement. Ward J discussed the difficulty of valuing the potential loss, including possible effects on the value of the Manager’s business, and indicated that specific performance might have been appropriate. But the court expressly found it unnecessary to rule on the question ([185]-[197]).
Nor did the court need to make an operative decision on the discretionary objections to specific performance. It gave views on the personal-services argument and alleged post-expiry breaches, but those matters could not change the outcome once the Manager failed to establish the condition precedent ([198]-[210]).
Finally, the judgment’s interpretation depended on the particular clause. It does not resolve how differently drafted renewal conditions, express cure provisions, waiver terms, or provisions identifying the seriousness of a breach would be construed. Those questions would require the relevant contract and authorities to be considered.
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CITATION : Newtown Management Pty Limited v Owners of Strata Plan 67219 [2009] NSWSC 150
CATCHWORDS : CONTRACTS - general contractual principles - construction and interpretation of contracts - construction of proviso - whether proviso satisfied - held that proviso not satisfied - claim for specific performance dismissed
Australian Tenancy Practice and Precedents LEGISLATION CITED : Strata Schemes Management Act 1996 Supreme Court Act 1970 Uniform Civil Procedure Rules
Ankar Proprietary Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 ANZ Executors and Trustees Limited v Humes Limited [1990] VR 615 B L M Holdings Pty Limited v Bank of New Zealand (unreported, Court of Appeal, 25 March 1994) Banque Commerciale SA (in liq) v Akhill Holdings Ltd (1990) 169 CLR 279 C H Giles & Co Limited v Morris [1972] 1 WLR 307 Chandos Developments Pty Ltd v Mulkearns [2008] NSWCA 62 Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 Collingridge v Sontor (1997) 141 FLR 440 Dahlenberg v Dahlenberg (1996) 7 BPR 14,885 El-Mir v Risk [2005] NSWCA 215 Evans Marshall & Co Limited v Bertola [1973] 1 WLR 349 Fitzgerald v Masters (1956) 95 CLR Gilbert J McCaul (Aust.) Pty Limited v Pitt Club Limited [1959] SR (NSW) 122 Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 Kooee Communications Pty Limited & Anor v Primus Telecommunications Pty Ltd [2008] NSWCA 5 CASES CITED : Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 Lion Nathan Brewing Investments Pty Ltd v Commissioner for ACT Revenue [1997] FCA 1153 Maggbury Pty Ltd v Hafele Australia Pty Limited 210 CLR 181 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 Moraitis Fresh Packaging (NSW) Pty Limited v Fresh Express (Australia) Pty Limited [2008] NSWCA 327 Pangea Resources Limited v General Credits Limited (unreported, Court of Appeal, 24 December 1992) Ryledar Pty Limited v Euphoric Pty Limited (2007) 69 NSWLR 603 St George District Rugby League Football Club Ltd v Tallis (unreported, Santow J, 28 June 1996) State Government Insurance Commission v Sharpe & Sharpe (1996) 126 FLR 341 State of New South Wales and Anor v Thomas; State of New South Wales and Anor v Welling [2004] NSWCA 52 Stocker v Wedderburn (1857) 3 K & J 393; 69 ER 1162 Suttor v Gundowda Pty Limited (1950) 81 CLR 418 Toikan International Insurance Broking Pty Limited v Plasteel Windows Australia Pty Limited (1989) 15 NSWLR 641 Tricontinental Corporation Limited v HDFI Limited (1990) 21 NSWLR 689 Waterways Authority of New South Wales v Coal and Allied (Operations) Pty Limited [2007] NSWCA 276 Wight v Haberdan [1984] 2 NSWLR 280 Wilkie v Gordian Runoff Limited (2005) 221 CLR 522
Anthony Beck "The Doctrine of Substantial Performance: Conditions and Conditions Precedent", Modern Law Review July 1975 David McLauchlan "Plain Meaning and Commercial Constructions: Has Australia Adopted the ICS Principles?" (2009) 25 Journal of Contract Law 7 TEXTS CITED : Meagher, Gummow and Lehane, Equity: Doctrines & Remedies Professor Carter "Conditions and Conditions Precedent", 4 Journal of Contract Law 90 Spry Equitable Remedies
PARTIES : Newtown Management Pty Limited (Plaintiff) The Owners _ Strata Plan No 67219
COUNSEL : T Lynch (Plaintiff) J Young (Defendant)
SOLICITORS : David Le Page (Plaintiff) HWL Ebsworth (Defendant)
4564/07 NEWTOWN MANAGEMENT PTY LIMITED V OWNERS OF STRATA PLAN 67219 JUDGMENT 1 In these proceedings the plaintiff, Newtown Management Pty Limited ("Manager"), is seeking an order that the defendants, The Owners of Strata Plan 67219 ("Owners Corporation"), specifically perform an obligation which it is said arises under clause 20.9 of a Building Management Agreement dated 10 May 2002 ("Building Management Agreement") between the parties to enter into a new building management agreement and, in the alternative, an order for the payment of equitable damages. Declaratory relief is also sought, namely a declaration that the Manager is entitled to enter into a new building management agreement for a further term of five years pursuant to clause 20.9 of the Building Management Agreement. 2 During the course of final submissions, counsel for the Manager (Mr Lynch) indicated that the Manager does not press for a new building management agreement for a term going beyond 9 May 2012, that being the term of the agreement which would have come into existence had the Owners Corporation executed an agreement of the kind contemplated by clause 20.9 immediately on the expiry of the Building Management Agreement. The Manager has, since 9 May 2007, remained in position as caretaker under clause 20.1 of the Building Management Agreement which operates, in effect, as a "holding over" clause.
3 By its amended defence, which I gave leave to the Owners Corporation to file during the course of the hearing, the Owners Corporation denies that the Manager is entitled to enter into a new building management agreement on the basis of the Manager's alleged non-compliance with the Building Management Agreement during its term and/or on the basis of the Manager's alleged default of its obligations under the Building Management Agreement as at the expiry of the term. 4 Further, the Owners Corporation says that even if the Owners Corporation were obliged under clause 20.9 to enter into a new agreement, here the Manager has not shown that damages would be an inadequate remedy and hence an order for specific performance is not available. 5 Finally, the Owners Corporation contends that in the exercise of the court's discretion, the court should not order specific performance. 6 As to this last aspect of the matter, the basis upon which the Owners Corporation originally contended that the discretion to order specific performance should not be exercised (as set out in clause 6.3 of the amended defence) was abandoned at the hearing, it being conceded at the commencement of the hearing that Part 4A in Chapter 2 of the Strata Schemes Management Act 1996 is not applicable to the Manager and hence would not render unlawful, invalid or ineffective any agreement which the Manager might be ordered to enter into pursuant to the entitlement it alleges under clause 20.9 of the Building Management Agreement. 7 Rather, the bases on which it was submitted at the hearing that the court should exercise its discretion against making any order for specific performance were, first, that to do so would compel the Owners Corporation to enter into an agreement akin to that for the provision of personal services in circumstances where there are and have been ongoing difficulties in the relationship between the Manager and the Owners Corporation and, secondly, that the Manager did not come to court with clean hands (having been, it was said, in breach not only of the Building Management Agreement but also, since the expiry of the Building Management Agreement, of the "holding over" agreement). 8 Those discretionary defences were not expressly pleaded in either the defence or the amended defence; there being simply a broad denial in the pleading that the Manager is entitled to any of the relief it has sought (paragraph 7.1 of the amended defence). Facts 9 On 15 April 2002, Strata Plan No 67219 was registered. Strata Plan No 67219 is located at 138-140 Carillon Avenue, Newtown, New South Wales (part of a complex known as Newtown Square). There are 117 lots within the Strata Plan. The strata scheme is a mixed commercial and residential strata scheme. There are two adjacent strata plans which (together with Strata Plan No 67219) make up the Newtown Square complex. The Manager is also the caretaker or business manager of the other two strata plans. 10 On 16 April 2002, the inaugural general meeting of the Owners Corporation was held. The meeting was attended by Mr Steven Chandler (who I assume was the representative of the developer, being nominated by the then owner of all the lots to be the sole member of the Executive Committee of the Owners Corporation) and Mr Richard Holloway (the principal of Strata Schemes Management Corporation Pty Limited, trading as Strata Titles Management Pty Limited ("STM"), the entity appointed at the meeting to be the strata managing agent under s 27 of the Strata Schemes Management Act). 11 At the meeting it was resolved that the Manager (or such other building manager that the Executive Committee might select) be appointed as the building manager. 12 The Executive Committee (comprised at that time solely by Mr Chandler) was authorised to negotiate and agree the commercial terms of the Building Management Agreement (a form of which was tabled at the meeting). The minutes noted that the proposed term of the appointment was from the date of the meeting for three months, with a month to month holding over provision until terminated by the Owners Corporation or the building manager according to the terms and conditions of the agreement or until a new building management agreement was entered into or the term of the existing agreement was extended.
13 The Building Management Agreement was executed on 10 May 2002, prior to the first annual general meeting of the Owners Corporation on 10 June 2002 (at or immediately following which meeting the Executive Committee was expanded to include members elected from owners of lots within Newtown Square), for a term of five years. The Manager was on site, I was told, from at least the end of April 2002. 14 Accordingly, and consistent with what I was informed was the usual practice of developers, the appointment of the Manager was effected at a time when the Executive Committee was controlled by the developer (and before the completion of sales of residential lots within the Strata Plan). Therein, perhaps, lies the seed of the discord which has arisen between the parties. At the least, it seems to be the basis on which the Owners Corporation complains (through submissions made by its counsel in this proceeding, Mr J Young), that it had been "forced" into a "perpetual" arrangement with the Manager (giving rise to the perceived mischief which I was told the amendments in Part 4A of the Strata Schemes Management legislation were designed to rectify).
15 That said, the fact that the legislature has now amended the relevant provisions of the Strata Schemes Management Act (and I note that in so doing the legislature has apparently chosen not to interfere with arrangements of this kind which were already in place at the time of the amendments) does not assist me in construing the rights and obligations of the parties under the agreement between them. Nor do I think it relevant to any discretionary considerations which may arise. 16 Under the Building Management Agreement there was a right of termination exercisable by either party without cause at the expiry of the term by giving written notice three months before the expiry of the term (or less notice if agreed between the parties) pursuant to clause 20.2. Surprisingly, given its apparent desire now to be rid of the Manager's services, the Owners Corporation did not exercise this right of termination prior to expiry of the term.
17 Clauses 20.4 and 20.5 gave the Owners Corporation and the Manager, respectively, rights to terminate the Building Management Agreement during its term, in effect with cause. In the case of the Manager, clause 20.4 included events, such as insolvency or the conviction of a director of the Manager for an indictable offence, which were not predicated on a breach as such by the Manager of the Building Management Agreement. Again, no steps were taken during the term of the Building Management Agreement by the Owners Corporation to terminate the agreement pursuant to clause 20.4. 18 The Building Management Agreement expired on 9 May 2007, in accordance with its terms, five years after its commencement. Clause 20 provided for the continuation of the agreement on a holding-over basis after expiry of its term. Relevantly, clause 20.1 provided: 20.1 After the term, this agreement continues for successive periods of 3 months each until: 20.1.1 Pursuant to clause 20.9 the Owners Corporation and the Manager enter into a new agreement; or
20.1.2 The Owners Corporation or the Manager terminates the agreement by giving three months' written notice (or less notice if agreed between the parties).
19 The critical part of the clause for the purpose of the present proceeding is clause 20.9 which provided that: Upon expiry of the term of this agreement and provided the Manager has otherwise complied with this agreement and is not in default, the Manager and the Owners Corporation must enter into a new agreement for a further term of five years which will be identical to this agreement except that the fee shall be the fee immediately before the expiry of this agreement increased pursuant to clause 3.
20 Although headed "Option to renew agreement", it can be seen that, in its terms, clause 20.9 obliges both parties to enter into a new agreement subject only to the proviso, which it is said operates in that regard as a condition precedent to the obligation arising. 21 It is because any new agreement is to be identical in all relevant respects (other than the calculation of the fee payable thereunder, as to which there is no dispute) to the expired agreement (and hence would contain the original clause 20.9) that clause 20.9 is said to give rise, in effect, to a perpetual agreement. That assumes, however, that neither party chooses in the future to exercise the right of termination under clause 20.2 in respect of any subsequent agreement. Therefore I do not accept that the arrangement between the parties can correctly be described as "perpetual" in its operation. 22 The Building Management Agreement recited that, under the relevant legislation and by-laws, the Owners Corporation had power to enter into an agreement with a caretaker to assist it to perform its functions in relation to common property and that the Manager had the expertise to do so. Consistent with the legislative scheme for the management of strata plans, under the Building Management Agreement responsibility for decision making in respect of the Strata Plan lies with the Owners Corporation. The functions of the Manager (it being, in effect, a caretaker of the common property) are supervisory in nature. 23 The Building Management Agreement makes it clear (clause 2.2) that the Owners Corporation does not appoint the Manager as its managing agent under s 27 of the Act and does not delegate any of its functions to the Manager under s 28 of the Act. Clause 2.3 expressly provides that the Manager does not have authority to exercise a function of the Owners Corporation under the Act or by-laws, or to deal with common property (the stated example of such a dealing being the making of decisions about the entry into or termination of a service contract), or to pledge the credit of the Owners Corporation. 24 The duties of the Manager are defined as "the duties in Schedule 1 which the Manager must perform according to clause 2 for a fee". Those duties are categorised in Schedule 1 as Site Management duties (item 1), Service Contract duties (item 2), Common Property duties (item 3), Supervision duties (item 4), Security duties (item 5) and Annual audit duties (item 6). 25 It appears that by 2005 a number of contentious issues had arisen between the Manager and the Owners Corporation (and/or between the Manager and STM acting on behalf of the Owners Corporation) in relation to the performance of services by the Manager. It was put to me that there was "dissatisfaction" on the part of the Owners Corporation with the Manager's services. 26 At the 11 April 2005 Executive Committee meeting, a motion was before the Executive Committee in relation to the Manager. Although it was described during the hearing as a motion to serve breach notices on the Manager, the minutes of that meeting (Annexure CT 7 to the affidavit sworn 30 July 2008 of Ms Coleen Tracey) record the motion as being that the Owners Corporation "issue formal notice to Resident Manager as per section 18 of the Building Management Agreement" for the identified breaches of the agreement. Clause 18 contains the dispute resolution provisions of the Building Management Agreement. 27 Interestingly, none of the breaches identified as the subject of the proposed clause 18 dispute resolution notice is a breach about which complaint is made in this proceeding (the perceived breaches at that stage being of items 1.1 and 1.3 of Schedule 1, and as to delay in "response times"). It would seem from the minutes that at the heart of the issues at that time was a concern by the Executive Committee that "additional member services being offered to owners/occupiers being leasing and sales were taking precedence over the on-site caretaker/manager duties". The minutes noted that "all parties considered the discussion to be fruitful … Mr Maddrell [the principal of the Manager] responded appropriately and all parties agree to continue the discussions to achieve a good working relationship". It would seem that nothing further came of the motion. 28 However, another dispute arose two months later in relation to the conduct of the annual general meeting on 16 June 2005 (in particular, as to the fact that a written nomination by a Mr Ben Maddison, one of the lot owners, for Mr Maddrell to become a member of the Executive Committee was not tabled by the chair at the meeting). I understand that there was also an issue as to the disallowance of proxies at that meeting and/or a subsequent extraordinary general meeting in August 2005 in respect of motions put forward for the Owners Corporation to approve the entry into a Deed of Consent to security over the Building Management Agreement which had been sought by the Manager in the context of certain financing arrangements in respect of the agreement. 29 This led to at least two separate applications by Mr Maddrell to the Consumer Trader and Tenancy Tribunal against the Owners Corporation. On the first of those applications it would seem that the Owners Corporation declined to participate in a mediation of the dispute (Ex 4 tab 4). 30 The Chairman of the Owners Corporation since 9 July 2003 (Mr Kerry Osborne), who has been a member of the Executive Committee since the inaugural annual general meeting on 10 June 2002 and who says that he has since 2002 held an active role with the Executive Committee, said quite candidly in cross-examination that "basically it got to the point where communications between the Executive Committee and myself as chairman and Mr Maddrell broke down to a point where we would be happy if he did what he would like to do" (Transcript p 190). By at least June 2006 Mr Osborne's evidence was that "to be honest my communications with Mr Maddrell were fairly minimal." (Transcript p 155). Mr Maddrell, for his part, gave evidence that (by August 2005) there was a "power struggle" between the Manager and STM (Transcript p 112), that being the context in which he said that a particular communication (described by Mr Young as "fairly confrontational") had been made to STM. 31 Having heard oral evidence from each of Mr Maddrell, Mr Osborne, and Ms MacLachlan, and having reviewed the correspondence between the parties and the minutes tendered, I have little doubt that there were faults on all sides in the problems which arose between the parties. 32 There was, for example, what seemed to me to be the almost farcical situation where approval was sought by the Manager in respect of a quote obtained in relation to emergency lighting (which it was not suggested was other than for the purposes and benefit of Newtown Square and which Mr Maddrell said he saw as a matter of urgency for safety reasons); at least three or perhaps four of the Executive Committee members seemed to approve the quote but one Executive Committee member (Ms Tracey), while insisting that this be the subject of a work order issued by STM, was apparently not prepared to confirm her approval for STM to issue the work order on the basis that it was not for her, as a single member of the Executive Committee, to "issue" the work order, and so did not appear prepared to confirm her approval for work to which it would seem she had no real objection. The Owners Corporation raised this in an Executive Committee meeting on 3 October 2006 as an example of unauthorised work. 33 By way of example of the level of distrust which seems to have arisen, I note that Mr Osborne was adamant that, according to his standards, Mr Maddrell should have disclosed to the Executive Committee that he was a director of a company Eric's Team of Tradespeople Pty Limited ("ETT") which in 2004 was tendering for (and, in due course, won) a cleaning contract for Newtown Square. Presumably, Mr Osborne's perception as to this breach of the standards he propounded was reflected in the instructions for the initial defence filed in the proceedings. The non-disclosure of a conflict of interest was pleaded as both a breach of duty and a breach of contract by the Manager and it was one of the bases on which it was said that the Manager was not entitled to a new building management agreement. Yet the minutes of the relevant Executive Committee meeting on 22 July 2003 (Annexure "U" to Mr Maddrell's affidavit sworn 23 June 2008) reveal that a conflict of interest of some kind was disclosed by Mr Maddrell to the Executive Committee (see item 4.6) and the evidence was that Mr Maddrell quite properly stepped aside altogether from the tender process in relation to the selection of the cleaning company. 34 Nevertheless, even faced with that minute, which Mr Osborne accepted he would have assumed referred to some form of association (directorship, shareholding or financial interest) of which he would have been aware as at 22 July 2003 (Transcript p 168), Mr Osborne maintained his stance that, whether or not any disclosure of some other association with the company might have been made by Mr Maddrell, Mr Maddrell had still failed to act appropriately in failing to disclose that he was a director of the company (Transcript p 175). Even then, Mr Osborne ultimately conceded that the disclosure recorded in the minutes of a potential conflict of interest by Mr Maddrell could in fact have extended to disclosure of Mr Maddrell's directorship or some kind of financial interest but he could not recall what was said (Transcript p 174). Not surprisingly, this complaint was not pressed against the Manager. 35 Similarly, Ms MacLachlan (who said she acted on the directions of the Owners Corporation in this regard - Transcript p 206) took issue with the presence of hazardous chemicals or equipment on the common property, saying that "just looking at it it felt dangerous" (Transcript p 205); and the Owners Corporation relied on the presence of this material (and a failure to report it) as further evidence of defaults by the Manager. However, insofar as the so-called hazardous chemicals were concerned, the offending items (or at least the only ones visible in the photographs to which I was taken) appeared to consist of a container of "Mr Muscle" cleaner and a bottle of turpentine, which Ms MacLachlan conceded was apparently, or could have been, for domestic use and which, under the by-laws for the Strata Plan (by-law 12.2), could have been left on the common property by residents without any breach whatsoever. I cannot accept that the presence of those relatively innocuous items on the common property was seriously thought to evidence a dereliction of duty by the Manager, yet that was the position taken by Ms MacLachlan (according to her because it was the view of the Owners Corporation, on whose direction she says she acted, that the items should not be stored on the premises) (Transcript p 206). 36 It would seem that Ms MacLachlan was instructed by the Owners Corporation or its legal representatives (Transcript p 193) to trawl through STM's records to uncover any unpaid or unauthorised work orders (presumably as evidence of past breaches to justify the stance taken by the Owners Corporation in relation to its non-execution of a new building management agreement), yet of the hundreds of invoices paid on behalf of the Owners Corporation each year, her review identified only some eight invoices which she said had been processed or recorded without a work order, (those being invoices described as unauthorised in the minutes of the Executive Committee meeting on 3 October 2006) the majority of which were not the subject of any allegation of breach in these proceedings. 37 While the zeal of the Owners Corporation (or, perhaps, simply Mr Osborne) and/or STM to identify some kind of breach by the Manager (presumably so as to rely upon the proviso to clause 20.9, since no other step was taken in relation to any of the alleged breaches) is not relevant to the question whether or not there were in fact breaches by the Manager of the Building Management Agreement which would disentitle the Manager to a new contract, it is something which might have been of relevance in considering any discretionary factors had the Manager established an entitlement under clause 20.9 to a new agreement. 38 For his part, some of Mr Maddrell's communications (in particular, the response which he, as director of ETT, made to the request that he produce a copy of the ETT cleaning contract) were confrontational and hardly conducive to the maintenance of an harmonious working relationship between the Executive Committee, STM and the Manager. 39 By letter dated 18 December 2006, the Manager was notified by STM that the Owners Corporation had formed the view that the Manager was in breach of clause 2 of the Building Management Agreement by reason of an alleged failure to comply with an instruction from the Owners Corporation for the Manager to contact the local Council and "The Glebe" newspaper (in relation to an issue which had arisen in respect of the dumping of newspapers and building rubble on or near Newtown Square). A resolution was passed by the Executive Committee on 22 December 2006 (apparently post-dating the issue of the letter notifying the breach) recording that it had formed the opinion as to the breach and instructing a notice of breach to be issued. However, again nothing seems to have happened following this in terms of any formal action by the Owners Corporation to bring the Building Management Agreement to an end or otherwise as a consequence of the alleged breach; and it was not the subject of complaint in the proceedings. In fact, during the course of the hearing, the Manager (in answer to a notice to produce) produced copies of letters (Ex 2) which, on their face, appeared to constitute communications by the Manager to the Council and "The Glebe" newspaper, respectively, on 13 and 15 December 2006 in apparent compliance with the said instruction.
40 As noted, the term of the Building Management Agreement expired in May 2007. Prior to this (by letter dated 14 March 2006), the Manager had purported to exercise "the option" contained in clause 20.9. There was no assertion at that stage by STM that the Manager was not entitled to a new term because it was already in breach of the Building Management Agreement (see SMM 7 to Mr Maddrell's first affidavit which is the STM response to this letter). By letter dated 9 May 2007, the Manager again purported to exercise that "option". I say "purported" because it was contended, correctly in my view, that (although clause 20.9 was headed "Option") in its terms what was contained in clause 20.9 was not strictly an option; rather the clause imposed an obligation on both parties to enter into a new agreement on the expiry of the term subject only to the proviso being satisfied.
41 The Owners Corporation has refused to enter into a new five year building management agreement as contemplated by clause 20.9. The Owners Corporation, at an annual general meeting on 17 October 2007, did pass a resolution to enter into a new building management agreement with the Manager, but only on the basis that such agreement was not to contain clause 20.9. No such agreement has been executed. The Manager contends that it is entitled to an agreement as provided for under clause 20.9 (namely one which includes, as one of its terms, the equivalent of clause 20.9). 42 It was put to me that a new agreement without clause 20.9 was the "best that the Manager could get", because it was said (somewhat inconsistently with the submission made as to the mischief of this being a perpetual agreement) that there could be no value attributed to the agreement being a perpetual agreement in light of the "break" clause in clause 20.2. I have difficulty with that proposition, not least because the break clause can operate only at the end of the relevant term (ie at the end of a five year period) and there is nothing to suggest that the Owners Corporation might not over a five year period change its mind in relation to the Manager or find itself satisfied with any assignee of the Manager's rights under an agreement as so renewed. In any event, it is not for the Owners Corporation unilaterally to amend (or insist upon amending) the terms of any agreement which, pursuant to clause 20.9, it is or may be obliged to enter. Dispute
43 The crux of the dispute before me is that the Owners Corporation contends that the proviso expressed in clause 20.9 has not been satisfied (or, to use the terminology employed by Mr J Young, that the condition precedent to the existence of an entitlement for a new agreement has not strictly been fulfilled) and hence it has no obligation to enter, and the Manager is not entitled to, a new building management agreement.
44 Broadly speaking, it is alleged that the Manager (contrary to the provisions of the Building Management Agreement identified in paragraphs 6.2.2 to 6.2.6 of the amended defence) failed to comply with the Building Management Agreement during the course of its term in a number of respects: by directing that work be done by service providers and approving (or forwarding to the Executive Committee or STM for) payment of invoices issued by the said providers in relation to that work where no authorisation had been issued by the Owners Corporation; by failing during the term of the agreement to comply with a "direction" to provide to the Executive Committee copies of the cleaning contract entered into with ETT; by failing to perform its obligations in relation to annual audits and key audits; and by causing and/or failing to prevent garbage and flammable liquids to be stored on the common property or to take other action in relation thereto. 45 As noted above, a further complaint in relation to the ETT cleaning contract (namely as to the alleged failure by the Manager to disclose association and resulting conflict of interest), was expressly withdrawn following the matters put to, and acknowledged by, Mr Osborne during the course of the hearing. Paragraphs 6.2.7(b)(iii)(C) and 6.2.7(b)(iv) and (iv) were then deleted in the amended defence. (As I indicated at the time of giving leave for that amendment, it seems to me that this leaves paragraph 6.2.7(b) of the amended defence without any relevant content.) 46 It is alleged that by reason of one or more of the matters the Manager had been or was in breach of various obligations under the Building Management Agreement (clause 2.1.1 or alternatively an implied agreement to that effect, item 3.7.1 of the Schedule to the Agreement; Item 4.1.1 and 4.1.3 to the Schedule to the Agreement) and that various of those defaults (namely those set out in paragraphs 6.2.7(a), (c), (d), (e) and (f) of the amended defence), were continuing at the time the Manager purported to require the Owners Corporation to enter into a new building management agreement.
47 Not surprisingly, much of the evidence turned on the issue as to whether the Manager was indeed in default under (or had not complied with) the Building Management Agreement at any time during its term or was currently in default of the Building Management Agreement at the time of its expiry. 48 Objection was taken by Mr Lynch to the admission of evidence which related either to matters not alleged to amount to default or non-compliance with the Building Management Agreement (such as the applications made to the Consumer Trader and Tenancy Tribunal by Mr Maddrell in 2005 and Mr Maddrell's attempt to be elected to the executive committee) and to matters occurring after expiry of the term of the Building Management Agreement (such as the commissioning of SS Housewashing). To the extent that any evidence of that kind was admitted, over Mr Lynch's objection, it was admitted by me subject to relevance and as going only to the discretionary aspect of the Owners Corporation's defence. Construction of clause 20.9
49 The first issue for determination is the proper construction of clause 20.9; in particular, the words "Upon expiry of this agreement and provided the Manager has otherwise complied with this agreement and is not in default …". 50 On the construction urged upon me by Mr Young for the Owners Corporation, the proviso operates as a condition precedent to any obligation arising on the part of the Owners Corporation to enter into a new five year agreement and sets, in effect, a two limb hurdle for the Manager - first, that there has been no default by the Manager at any time prior to expiry of the term (deriving from the words "the Manager has otherwise complied with this agreement") (whether or not any such default may have been rectified and/or waived and, it would seem, whether or not any such default in compliance with the agreement was de minimis having regard to the agreement as a whole) and, secondly, that the Manager is not in default as at the expiry of the term (deriving from the words "and is not in default"). 51 For the Manager, Mr Lynch submitted that clause 20.9 should be construed in effect as encompassing both those notions (ie of compliance during the term and of there being no default at the end) in the one test, reading the clause as follows: "That on the expiry of the term the Manager is not in default in compliance with this agreement". 52 On this construction the words "has otherwise complied with" are read as an explanation of (or another way of describing) what is meant by "is not in default" on the expiry of the term. Mr Lynch submits that on this construction (and this construction alone) all the words of the proviso are used (they are simply inverted in order so as to make sense of them all). On Mr Lynch's construction what is required is simply that there be an inquiry as to the state of affairs (breach or no breach) as at the expiry of the initial term. 53 Mr Lynch's submission rests on the basis that if the construction put by Mr Young were to be adopted then the words "and is not in default" can have no operative meaning, since if it were the case that at all times throughout the course of the agreement (including the point at which the term expired) there had been compliance with its terms then there could not at the end of the term be any possibility of a default. 54 While this has some force, the converse is, I think, also true, namely that Mr Lynch's construction does not to give the words "has otherwise complied with this agreement" any separate work to do. 55 Therefore, on either construction the proviso seems to involve an element of tautology. 56 Mr Lynch's submission was that the difficulty of the construction for which Mr Young contended could be tested by supposing that there had been at some stage a non-compliance; that a notice had been issued under clause 20.4 for rectification; and there had then been compliance with that notice and rectification of the breach. On Mr Young's construction, he says, there would still have been non-compliance with the agreement during its term and there would thus have been no entitlement (by either party) to a renewed term. Mr Lynch submitted that this highlights the difficulty if the words "not in default" are not given any separate meaning or role to play. It was impressed upon me that the proviso to clause 20.9 must be read in its commercial context. 57 The extent to which a "purposive" construction may be given to the interpretation of private contracts has been a matter for academic and judicial debate.
58 Much of the debate centres on the extent to which extrinsic evidence of the surrounding circumstances of the contract is admissible if, on the face of the document, the words used are not ambiguous - ie as to whether extrinsic evidence can be used both to demonstrate and to resolve ambiguity (as seems to be the case under the principles espoused by Lord Hoffman in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896) or only when ambiguity has first been identified by reference to the language of the contract. (See the discussion of this issue by David McLauchlan in "Plain Meaning and Commercial Constructions: Has Australia Adopted the ICS Principles?" (2009) 25 Journal of Contract Law 7, in which the author suggests that the recent Court of Appeal decision in Kooee Communications Pty Limited & Anor v Primus Telecommunications Pty Ltd [2008] NSWCA 5 "resurrects" Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337, insofar as Basten JA in Kooee reinforced the view that the court must give effect to the unambiguous words of the contract.) 59 In both the Federal Court (Finn J in Lion Nathan Brewing Investments Pty Ltd v Commissioner for ACT Revenue [1997] FCA 1153 and in the Court of Appeal (in Moraitis Fresh Packaging (NSW) Pty Limited v Fresh Express (Australia) Pty Limited [2008] NSWCA 327), the issue whether ambiguity must be found before extrinsic evidence is admissible has been considered. In Moraitis, Giles JA accepted, for the purposes then before him, that ambiguity in the words used need not be found before regard can be had to the context in which the parties acted and their purposes in entering the transaction, citing Ryledar Pty Limited v Euphoric Pty Limited (2007) 69 NSWLR 603. 60 Strictly speaking, this question does not fall for determination here because there was no attempt by the parties to invoke extrinsic evidence to assist in the construction of clause 20.9. Rather, I was urged to have regard to the commercial purpose of the contract as gleaned from the contract as a whole, something which is clearly permissible. 61 Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201, while deprecating the extension of the use of the expression "purposive construction" from the interpretation of statutes to the interpretation of private contracts, said: … if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense. 62 In Kooee Basten JA referred to the principle articulated by Lord Diplock in Antaios and said that this "should not be seen as permission for judicial rewriting of contractual provisions to accord with the result said by one party to accord with "commercial reality", namely its financial interests". 63 Reference was made by his Honour to the approach by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Ltd v Hafele Australia Pty Limited 210 CLR 181 at [43] of asking not whether something flouted business commonsense but rather whether "something must have gone wrong with the language" as reminiscent of that adopted in Fitzgerald v Masters (1956) 95 CLR where Dixon CJ and Fullagar J (at pp 426-427) said: "Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency." 64 In Kooee, Basten JA accepted the statement in McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 at [22] (Gleeson CJ), quoted with approval in Wilkie v Gordian Runoff Limited (2005) 221 CLR 522 at [15] (Gleeson CJ, McHugh, Gummow and Kirby JJ) that "Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure." 65 The subject matter and commercial purpose of the Building Management Agreement are clear on its face. The Manager is appointed to act as a "caretaker" in a supervisory and advisory role to assist the Owners Corporation in the performance of its statutory functions in relation to common property. The Manager is not appointed as a managing agent, nor are such functions delegated to it. The Manager is required to provide an on-site manager for 40 hours per week (Monday to Friday, excluding public holidays) and, among other things, to supervise service providers and report to (and notify) the Owners Corporation in relation to various matters relating to the maintenance, security and safety of common property. 66 It was submitted that in an agreement such as this, where there was ongoing interaction between the parties (and where, one might infer, the supervisory tasks might range from the minutiae of day-to-day supervision to more complex tasks relating say, to the development of strategies to maintain the security of the common property), it was unlikely that an exact or precise performance was in contemplation by the parties. The generality of description for some of the duties (such as the requirement to supervise each service provider "to the extent necessary to ensure that the service provider performs its duties according to its service contract" - item 4.1.1) may support such a contention. (I interpose to note that there was no attempt by the parties in their agreement to denote any or all of the tasks as being ones requiring strict performance or to make time of the essence for any of the contractual stipulations.) 67 While I accept that the broad way in which the Manager's obligations are framed, and the time period over which the contract was to be performed, makes it commercially unlikely that the parties would have contemplated that a trivial (or de minimis) breach at any stage during the course of the five years should ultimately deprive the Manager of a significant commercial right in terms of obtaining a new building management agreement on the expiry of the term, nevertheless, I do not accept that this compels the construction for which Mr Lynch contends. 68 Commercially, it seems to me to make sense that the Owners Corporation might not have wished to be bound to enter into a new agreement with the Manager in circumstances where (even if there was no subsisting breach at the expiry of the term) nevertheless the Manager had previously been in breach of one or more of its obligations at least to something more than a de minimis or trivial extent. This could well be the case irrespective of whether the Owners Corporation had previously chosen to issue a notice of breach or otherwise exercise any rights consequent upon such a breach during the term of the agreement. 69 Although there is, in my view, force in the submission by Mr Lynch that a two-limb test (as propounded by Mr Young) deprives the latter part of this proviso of any separate operative force, the real difficulty I have with Mr Lynch's construction is that it gives no operation to the word "otherwise" in the first part of the proviso. 70 "Otherwise" must have been intended to introduce a contrast with something. It might be said that the placement of "otherwise" in the first line of the proviso is odd, from a linguistic point of view, if it was intended to introduce a contrast with something in the latter part of the proviso. 71 Linguistically, I would have thought that a word denoting a contrast with something would more appropriately have been placed after that which was the subject of the comparison ie "provided that the Manager is not in default at the expiry of the term and has otherwise complied …"(my emphasis). However, I doubt that much store can be placed on linguistic conventions. I suspect that the real explanation is that this was a poorly drafted (perhaps pro forma) agreement and that not much attention was devoted to the operation of these words as they appear in the proviso. 72 In any event, even if the words were so inverted, the same issue of construction would remain - are the two halves of the proviso intended to set separate tests (as Mr Young contends) or are they two ways of expressing only one test (as Mr Lynch contends)? 73 I cannot draw any assistance from the identity of the party by or for whom the contract was prepared (even if a contra proferentem principle might otherwise have been applicable) since it seems from Mr Maddrell's evidence (and by inference from the chronology of events discernible from the minute of the inaugural Owners Corporation meeting) that it was the developer who put forward the initial contract for execution between the Owners Corporation and the Manager; and the developer would presumably have little ongoing interest in the renewal or otherwise of the Building Management Agreement. 74 Another possibility (adopting Mr Lynch's one-notion construction but leaving the order of the words intact) which I considered (and which is really the converse of Mr Lynch's construction) would be to read the proviso as meaning "has complied with the agreement and is therefore not in breach at the expiry of the term" but that construction still gives no operation to the word "otherwise" (and is not a construction contended for by either party). 75 In order to give effect to the word "otherwise" it must be contrasted with something. The only part of the proviso against which the description "has complied with" could be contrasted is that contained in the words "is not in default". The latter, by use of the present tense, clearly focuses on the point at which the term of the agreement expires. On that basis it appears to me that the intention of the clause is to focus attention on two points in time: first, at the expiry of the term (ie, is the Manager in breach at that time?) and, secondly, (and this logically would only be necessary if the answer to the first is "no") over the preceding period of five years from commencement up until that point (ie, has the Manager, even if it is not or does not remain in breach at the expiry of the term, complied with the agreement over the period leading up to its expiry?). Read that way, both parts of the proviso have operative effect and the word "otherwise" makes sense. If the answer to the first question is that the Manager is in breach of the agreement at the expiry of the term, then no further enquiry needs to be made. If the Manager is not in breach at that time, or perhaps if there is any doubt as to that question, then there must be a further enquiry as to whether the Manager has previously been in default of compliance. 76 Mr Young's construction of clause 20.9 achieves that result and I consider it to be the correct construction. That said, I do not accept that the clause (properly construed) means that the Manager is not entitled to call for a new agreement if there has been some de minimis or trivial non-compliance at any point over the preceding five years of the term. Such a construction would in my view flout business commonsense. 77 The question it seems to me is what kind of default (or non-compliance) did the parties objectively intend would be such as to preclude any entitlement to a new agreement. 78 Mr Lynch submits that a breach that has no damage or consequence for the Owners Corporation (or of an obligation on which the Owners Corporation has placed no weight during the term of the agreement) is a breach that one would not have thought to be contemplated as falling within the proviso of clause 20.9. I do not see any basis, having regard to the terms of the Building Management Agreement, for such a construction. Whether or not the Owners Corporation suffers loss or damage as a result of breach or non-compliance by the Manager, it surely cannot be that the Owners Corporation would have intended to be bound to enter into a renewed five year agreement if (to take an extreme example) the Manager had deliberately disregarded its obligations under the agreement merely because no loss was suffered thereby or because the Owners Corporation may not (as was put to me, for example, in relation to the default in conduct of the 2003/2004 annual audit) have previously called for compliance with the obligation(s) in question. 79 Mr Young, on the other hand, sought to call in aid cases (generally in the context of options) in which it has been said that the doctrine of substantial performance has no role to pay in determining whether a condition precedent to the existence of a right has been satisfied. 80 I was referred to Tricontinental Corporation Limited v HDFI Limited (1990) 21 NSWLR 689, where Samuels JA (after quoting a passage from Ankar Proprietary Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549) stated that: It seems to me to follow from Ankar that it is meaningless to speak of the substantial performance of a condition precedent. Either it has been performed, or it has not. If it has, performance enlivens the obligation to which the stipulation is a condition precedent. If it has not, the obligation does not arise. 81 Thus it is said, in the context of options to renew a lease, (see Australian Tenancy Practice and Precedents Part 1 para 1415 and cases cited therein) that where the condition precedent to the exercise of an option is that the tenant not be in breach: any breach by the tenant, whether cured or not, whether waived by the landlord or not, whether serious or trivial, has been regarded as sufficient to deprive the tenant of it. 82 Reliance was placed by Mr Young on Gilbert J McCaul (Aust.) Pty Limited v Pitt Club Limited [1959] SR (NSW) 122, as authority for the proposition that there must be strict compliance with the conditions of an option. However, the reasoning in that case was largely based on the characterisation of an option as being an irrevocable offer and it seems to me that Professor Carter (as cited below) is correct in his view that the controversy regarding the juristic nature of an option contract (whether characterised as an offer accompanied by a contractual obligation that the offer not be revoked or as a conditional contract) is not relevant to the question whether, as a matter of construction, substantial performance would satisfy the conditions of the option (or, as here, the condition precedent to the existence of a right).
83 What is required, to satisfy a condition precedent of the kind in clause 20.9, must ultimately be a question of construction. I note in this regard the analysis by Anthony Beck in "The Doctrine of Substantial Performance: Conditions and Conditions Precedent", the Modern Law Review July 1975 at p 427 in which the author concludes that the role of the court "should not be to define substantial performance but what performance in the intention of the parties was to constitute compliance with the condition precedent, if a condition precedent was in fact intended by them".
84 Professor Carter in, ("Conditions and Conditions Precedent", 4 Journal of Contract Law 90 at 101), when discussing Tricontinental noted that: … although it was contended in argument that the relevant provisions would be satisfied by "substantial" compliance, the court does not in the judgments record that such argument could be based on Bowes v Chaleyer and Luna Park (NSW) Limited v Tramways Advertising Pty Limited… In both cases the clauses were construed as if the word "substantially" was inserted into them. Both cases concerned promissory conditions, but the approach taken to construction seems to me appropriate to conditions precedent as well, provided that the parties' intention is that substantial compliance is what is required. This is not the same as the Hongkong Fir approach. The effect of the construction is that the promisor's obligation is discharged by substantial performance: there is no breach of the clause.
85 This explanation of Tricontinental was adopted by Sheller JA, with whom Clarke JA and O'Keefe CJ in Comm D agreed, in B L M Holdings Pty Limited v Bank of New Zealand (unreported, Court of Appeal, 25 March 1994): The question whether the condition precedent was satisfied is answered by determining whether what happened accorded with what the condition required. It is meaningless to speak of a substantial performance of a condition precedent; see generally Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 at 705E per Samuels JA. The condition has either been performed or it has not. Of course, properly construed, performance of a condition precedent may involve less than the exact performance the words at first sight suggest; compare Bowes v Chaleyer (1923) 32 CLR 159 at 167 and 168, 187 and 193; Luna Park (NSW) Ltd v Tramways Advertising (1938) 61 CLR 286 at 304 and the learned article by Professor J W Carter, "Conditions and Conditions Precedent, 4 JCL 90 at 101.
86 A similar approach had earlier been adopted by Mahoney JA (with whom Clarke JA agreed) in Pangea Resources Limited v General Credits Limited (unreported, Court of Appeal, 24 December 1992). There, the obligations of General Credits Limited under the contract were made conditional upon "due performance" by Tantalex of certain of its obligations under the contract. Mahoney JA, having referred to Ankar, considered that had Tantalex engaged in only de minimis or trivial breaches of its obligations, due performance may have been rendered for the purpose of the condition precedent (properly construed), adopting reasoning very similar to that of Professor Carter in the article cited above. Ultimately, however, Mahoney JA found that the breaches were not such that it could be said that due performance had been rendered.
87 Kirby P, though dissenting in the outcome, agreed with Mahoney JA's reasoning that (in Kirby P's words) "[t]he deficit by the appellant in its performance of a requirement of an appropriately de minimis or trivial nature would not deprive that performance of the character of "due performance", as that phrase was used in the agreement."
88 The reasoning of Mahoney JA in Pangea seems to me to be applicable in the present case. While the Manager may have breached certain of its obligations under the Building Management Agreement, the question to be asked is what the words "has otherwise complied with" and "is not in default" require, when properly construed. 89 Mr Young did, I think, ultimately concede that if as a matter of construction trivial or de minimis defaults were not defaults of a kind contemplated by the proviso to clause 20.9, then the reasoning in Gilbert J McCaul would not apply. 90 As a matter of business commonsense, I have difficulty accepting that it could have been the intention of the parties that compliance, for the purpose of the proviso of clause 20.9, should require that there be no trivial or de minimis defaults in performance of the Manager's obligations. But for the exhortation to avoid judicial rewriting of contractual provisions, I would have construed the proviso to clause 20.9 to require "due" compliance in the sense of disregarding trivial or de minimis defaults. I think such a construction is necessary to avoid the absurdity which would otherwise flow from a wholly trivial default nevertheless depriving one party of a significant commercial benefit. In the end result, however, this issue is not critical because I am of the view that the Manager has defaulted in at least one of its obligations in a manner which cannot be described as trivial. 91 Accordingly, I consider that, properly construed, the proviso to any entitlement (or obligation) arising in respect of entry into a new agreement should be read as having two separate limbs, in effect, as follows: Provided: (i) the Manager during the course of the agreement has complied with the agreement; and (ii) on the expiry of the term of this agreement, the Manager is not in default.
Alleged Defaults 92 With that in mind, I turn to the various instances of default/non-compliance alleged against the Manager. Paragraph 6.2.7(a) - "unauthorised" engagement of service providers
93 It is alleged that the Manager directed work to be done by service providers and approved payment of invoices issued by the said providers in relation to work when no authorisation had been issued by the Owners Corporation. It is alleged that this was a breach of clause 2.1.1 (the obligation to undertake the Manager's duties conscientiously and in a proper and workmanlike manner) and clause 10.1.4 (which provides that the Manager is appointed the authorised agent of the Owners Corporation to enter into service contracts on its behalf "subject to authorisation of the Owners Corporation"). 94 In this regard, complaint is made first as to the engagement in 2005 of Adelphos Pty Limited ("Adelphos") in respect of certain painting work, the subject of an invoice dated 10 July 2005, and secondly as to the engagement in 2005 of ASM Locksmiths and Alarms Pty Limited ('ASM") in respect of the provision of keys for Newtown Square, which was the subject of an invoice of 20 September 2005. 95 Although the amended defence also particularised (as a breach of clause 10.1.4 of the Building Management Agreement) the engagement of SS Housewashing in about 2007, it was conceded during the course of the hearing that this engagement took place after the expiry of the term of the agreement (and therefore it was ultimately sought to be relied upon by the Owners Corporation only insofar as it might be relevant to the exercise of discretion). 96 Mr Lynch submits that, even if the conduct alleged were established, such conduct did not give rise to any breach of the Building Management Agreement. As I understand this submission, it is said that if (as is clearly the case - see clause 2.3) the Manager does not have authority to exercise a function of the Owners Corporation under the Building Management Agreement or the by-laws, or to deal with common property, or to pledge the credit of the Owners Corporation, then the fact that it may have purported to do so without authorisation would not bind the Owners Corporation and would simply be an action which was on the Manager's "own head". 97 In particular, insofar as any pledge of credit is concerned, Mr Lynch says that for credit to have been pledged there has to be implicit on the part of the Owners Corporation either acceptance of authorisation or a ratification of an unauthorised engagement, in which case there is no breach. If, on the other hand, invoices were not paid by the Owners Corporation that must have been on the basis that there was no liability on the part of the Owners Corporation for payment and that can only have been because there was no authorisation; therefore no credit has been pledged.
98 Accordingly, Mr Lynch says that the instances involving invoices by service providers which are relied upon by the Owners Corporation cannot have given rise to any breach of the agreement because the Owners Corporation cannot say, "You had no authority to contract on behalf of the Owners Corporation and the contract did not bind us" and at the same time say there is a breach because the credit was in fact pledged. 99 The submission made by Mr Lynch as to any breach arising from the pledging of credit (ie that this can be answered by reference to whether or not the Owners Corporation accepted the liability and paid the invoices in question) seems to me to be reminiscent of the cases which have considered the circumstances in which payment by a third party may operate to discharge another's debt. Be that as it may, what this submission, put simply, asserts is that there is no breach of clause 2.3.3 if the Manager, without authority, purports to pledge the credit of the Owners Corporation, rather, that is simply an unauthorised activity. 100 It does not seem to me that that is the real issue here. Irrespective of whether the Manager actually committed the Owners Corporation in a binding sense to a debt when it engaged the service providers (on this hypothesis without authorisation), and hence whether the Owners Corporation could lawfully have refused to pay the service provider in question, the conduct of which complaint is made relates back to the commissioning the work (or retainer of the service providers) in the first place. 101 Clause 2.1.1, as noted, obliged the Manager to perform its duties in a conscientious, proper and workmanlike manner. 102 Clause 2.1.2 obliged the Manager to perform the duties according to the reasonable instruction of the Owners Corporation. Although paragraph 6.2.7 (a) of the amended defence does not expressly allege a breach of clause 2.1.2, the opening words of the paragraph assert that such conduct was "contrary to" various provisions identified in paragraphs 6.1.2 to 6.2.6 (and those do include clause 2.1.2). 103 Whether there is a breach of either of those obligations does not seem to me to turn on whether the Owners Corporation actually became bound by what the Manager did (although if the Owners Corporation was not bound by the contract it would be difficult for the Owners Corporation to claim to have sustained any damages in respect of a breach in connection with such a contract). It cannot be the case that the Manager could be said to be properly or conscientiously performing its duties if, knowing it had no authority to do so (or knowing, if that be the case, that there had been an instruction given by the Owners Corporation or STM not to approve work or not to issue work instructions except in accordance with a certain procedure), nevertheless proceeded to act in such a fashion. 104 If, for example, the Manager had been instructed not to arrange for work to be done without a work order first being issued by STM, then whether or not the Manager in doing so had simply pledged its own credit it would seem to me that this must involve a breach at least of 2.1.2 (assuming that the instruction itself was a reasonable one).
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
142 Paragraph 6.2.7(d) sets out the allegation made against the Manager in relation to the performance of annual audits: The plaintiff failed to perform any of the annual audit duties in breach of its obligations as set out in Item 6 of the Schedule at any time during the term of the Agreement ( my emphasis). 143 Item 6, headed "Annual audit duties", required the Manager, first, to carry out an annual audit of common property within one month of each review date (6.1.1) and, secondly, to present a written report about the annual audit to the Owners Corporation "within one months [sic] after carrying it out (6.2). Review date is defined in clause 22 of the Building Management Agreement to mean each anniversary of the commencement of the agreement. 144 The purpose of the review was to identify the adequacy, of and any changes required to, maintenance programs and strategies for common property. 145 It was acknowledged that no such annual audit report was provided to the Owners Corporation as required on the review dates in each of 2003 and 2004, nor (as I understand it) is it likely that an audit as such was carried out at that stage although this was not conceded. 146 It was said that the Manager did perform its annual audit duties, except in respect of the obligation to report under 6.2, for two years in 2003 and 2004 and that there is no evidence that it did not do so. 147 Mr Holloway (the principal or licensee of STM) led positive evidence, in paragraph 16 of his affidavit, of the production of the 2005/2006 annual report when he said he recalled the reaction by members of the Owners Corporation to it having been distributed. In light of that evidence, it is difficult to accept Ms MacLachlan when she says there was no discussion at the relevant meeting and that no such document produced. In respect of the 2007 report, again Ms MacLachlan said there was no discussion and no document but Mr Osborne gave evidence that he saw such a document at that meeting. None of the other members of the Executive Committee (Ms Peak, Mr Steain, Ms Tracey or Mr Smith) gave evidence as to this issue. 148 All that was requested by STM was the annual audit for 2005. It was suggested that this evidence should lead the court to accept that the Owners Corporation was quite indifferent to performance of annual audits. That may well be the case (although I do not consider anything turns on this). Mr Maddrell's answer to the request for that report was that the annual audit for 2005 was sent to STM's office in May 2005 and distributed to Executive Committee in September 2005. It was found on Ms MacLachlan's review of the file. The inference I would draw was that it was distributed and in existence on the date it bears. On the evidence I would be prepared to accept that annual audit reports were prepared for each of the years from 2005 and were, as Mr Maddrell says, posted to the lot owners. I understood Mr Maddrell's evidence in this regard (when he said he did not send them to the Executive Committee see Transcript pp 115/116) to relate to the sending of the reports by email to them separately as members of the Executive Committee. He recalled that the report had been bound (for presentation purposes). He saw this as a way of "advertising" the Manager's services to lot owners (Transcript p 115). 149 Ms MacLachlan's criticism of the annual audits (and for that matter the key audits) seems to me to be self-serving and beside the point, since no allegation is made of any failure to comply with this obligation by reference to the content or form of the annual audit reports. 150 It was said that, in the context of there not being a 2003/2004 report, the request on 29 December 2005 for production only of the 2005 audit dispensed with any requirement on the part of the Manager to produce any earlier report and that that remained the state of affairs up until the expiry of the term of the agreement. In those circumstances, the failure to produce the report for those years was, it was submitted, something falling within the same category as the so-called unauthorised invoices dealt with at the meeting on 3 October 2006, namely it was not treated as a breach by the parties. 151 If there had been dispensation from the requirement for production of a report or for the carriage of an audit, then logically the failure to produce or carry out one could not amount to a breach and therefore any non-compliance would not such as would be enliven the proviso to clause 20.9. However, I would not draw from the lack of a demand for production of the report that there had been any dispensation with the need for its production. 152 Accordingly, the evidence clearly establishes a failure to produce an annual audit report for the two years prior to 2005. Is that a breach which is open to be relied upon, given the basis on which the amended defence has been pleaded? It was submitted that on the pleadings such an allegation is not open to the Owners Corporation. 153 Mr Lynch submitted that what was pleaded against the Manager was that it did not perform any annual audits during the term and that on that basis the Owners Corporation had to fail since there was clear evidence that the manager produced audit reports in the later years. A distinction was drawn between an activity and a report (item 6.1 requiring the former and item 6.2 the latter). It is said that there was no evidence that there was no audit undertaken in any year; simply a concession that no report was prepared for 2003 and 2004. 154 In State Government Insurance Commission v Sharpe & Sharpe (1996) 126 FLR 341 Millhouse J said: Pleadings in an action are to define the issues between the parties. Sometimes - perhaps this is one of those times - the pleadings may not do so at all or only imperfectly. As a rule, though, depending on the course of the hearing, that may not matter because the issues become quite plain as the hearing proceeds and no party is put at a disadvantage. That, I think, was so here. The day has well passed when decisions are based on the state of the pleadings, irrespective of the facts or justice.
155 Similarly, Dawson J in Banque Commerciale SA (in liq) v Akhill Holdings Ltd (1990) 169 CLR 279 at 296-297 said: It is, of course, the purpose of pleadings to define the issues between the parties so that they may know the case which they have to meet and in order that the proceedings upon trial may be conducted in an orderly fashion by reference to those issues. The defined issues provide the basis upon which evidence may be ruled admissible or inadmissible upon the ground of relevance. But modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties. Special procedures apart, cases are determined on the evidence, not the pleadings.
156 Stephen, Mason and Jacobs JJ (Barwick CJ dissenting) in Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 at 668 said: Now, and for many years past, a plaintiff does not fail by being refused leave to amend or through failure formally to apply for amendment, where the evidence has disclosed a case in the cause of action fit to be determined by the tribunal of fact. Particularly is this so when the action finally determines the rights of the parties in the cause of action.
157 Handley JA, with whom Beazley JA and Stein AJA agreed in State of New South Wales and Anor v Thomas; State of New South Wales and Anor v Welling [2004] NSWCA 52 noted that there was nothing in Leotta v Public Transport Commission of New South Wales which entitled a plaintiff to judgment on an unpleaded cause of action, but that it was open to the court to make the necessary amendments and the court should do so. The prejudice in question was to be tested by whether they would have conducted the case differently had the common law cause of action been pleaded or amended in a timely fashion.
158 McColl JA, with whom Handley and Ipp JJA agreed in El-Mir v Risk [2005] NSWCA 215: While in the ordinary course, the relief granted at trial is confined to that available on the pleadings, if evidence is led at a trial upon which the other party joins issue, it is too late to take a pleading objection during final addresses and "it becomes the duty of the trial judge to require the pleadings to be amended to reflect the conduct of the trial and the issues litigated between the parties": State of New South Wales v Thomas ; State of New South Wales v Welling [2004] NSWCA 52 at [16] per Handley JA (with whom Beazley JA and Stein AJA agreed).
159 Looking at the defence and amended defence as pleaded, it is difficult to accept that the Manager would not have appreciated that the breach or breaches pleaded in relation to its obligation to carry out the annual audit duties encompassed a failure on its part to do so in any one or more of the relevant years. It is doubtful that anyone in the Manager's position could argue that it was not sufficiently aware of the case put against it. As infelicitously as it has been expressed in the defence, the suggestion that the defence encompassed one "rolled-up" allegation of breach seems to me to be a very technical argument. Testing this, it is difficult to suggest that the Manager could reasonably (and without any doubt) have believed that an absence of breach for the purposes of clause 20.9 could be established by showing that on one instance an annual audit had been carried out. If there was any doubt as to the position on the pleadings, the Manager could and should have raised this at the commencement, of or at any time during, the hearing. For the pleading issue to be raised for the first time in closing submissions seems to me to illustrate the artificiality of the position taken by the Manager in this regard. 160 The present situation is somewhat unusual in that, while there is a disconformity (at least on a strict reading of the pleadings) between the breach as pleaded and the breach established on the evidence as heard, the evidence relevant to each breach is the same. The cases I have referred to above, dealing with disconformities between the evidence and the pleadings in general, relate to much more significant divergences (different causes of action or breaches of duties not pleaded). That being the case it is difficult to see what further evidence the Manager could or would have adduced had the breach of annual audit duties been expressed sequentially. 161 In any event, I am of the view that this technical pleading point does not assist the Manager because the onus of proving the satisfaction of the proviso in (or the fulfilment of the condition precedent to) clause 20.9 rests upon it. 162 Rule 14.11 of the Uniform Civil Procedure Rules provides: If it is a condition precedent necessary for a party's case in any pleading that:
(a) a thing has been done, or (b) an event has happened, or (c) a state of affairs exists, or has existed at some time or times, or (d) the party is ready and willing, or was at all material times ready and willing, to perform an obligation,
a statement to the effect that the condition has been satisfied is taken to be implied in the party's pleading.
163 In the present case, implied in the Manager's pleading must therefore be an averment or statement that the proviso (or condition precedent) in clause 20.9 is fulfilled.
164 In Toikan International Insurance Broking Pty Limited v Plasteel Windows Australia Pty Limited (1989) 15 NSWLR 641, Samuels JA, with whom Clarke and McHugh JJA agreed, said at (647-648), in a case where it was asserted by the defendant that even if proper insurance had been effected, the occupiers would not have been entitled to indemnity because of their failure to take all reasonable precautions, it was wrong for the trial judge to conclude that it was for the defence to prove the occupiers' failure to do so: The point must be considered as if it had arisen in an action on the policy by the insured against the insurer. In the days of strict pleading the insured would have averred that "all things happened and all times elapsed and all conditions were fulfilled necessary to entitle the insured to performance". A sufficient traverse of an ingredient of this general averment of the performance of conditions precedent would cast the onus of proving its fulfilment upon the insured. So under current pleading rules if the insurer specifically pleads the failure of the insured to perform a condition precedent to the insurer's liability, notwithstanding that the insurer has raised the defence the onus is again cast upon the insured, if, that is, the stipulation is truly a condition precedent.
In Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231 at 234-235; 59 WN (NSW) 197 at 199 and 237 Jordan CJ (delivering the judgment of the Full Court) discussed the nature of a condition precedent in an insurance policy (in terms which would attach that character to condition 9 [the requirement to take all reasonable precautions]) and held that the onus of proving compliance with it lay upon the insured. That decision has been followed in New South Wales by Macfarlan J in Norwich Union Insurance Co Ltd v R & W Products Pty Ltd (1969) 90 WN (NSW) 554 and Southern Union Insurance Co of Australia Ltd v Altinier [1969] 2 NSWR 333 and, curiously enough, by Yeldham J in Cooper Park Apartments Pty Ltd v Prudential Assurance Co Ltd , an unreported judgment given on 19 December 1979 to which, I presume, his Honour was not referred. In Victoria it has been followed by Lowe J in Green v Windman; Scottish Union & National Insurance Co (Third Party) [1964] VR 297 and by Kaye J in Body Corporate Strata Plan No 4303 v Albion Insurance Co Ltd [1982] VR 699. Most recently it has been expressly approved by this Court in Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390, a case to which Yeldham J referred.
165 Here, it seems to me that the pleading in the amended defence amounts to a "sufficient traverse" of an ingredient of the general averment implied in the Manager's claim under clause 20.9 of the satisfaction of the proviso to clause 20.9. The relevant part of the amended defence is a denial that any of the annual audit duties were carried out. It does not matter in my view that Owners Corporation did not make out the entirety of the denial. The effect of the denial was to cast the onus upon the Manager of showing that the condition precedent was fulfilled in this regard. The Manager was unable to do so in regard to the obligation to produce annual audit reports in 2003 and 2004. 166 Accordingly, I consider that a breach (during the term of the Building Management Agreement) has been established in this regard, it being acknowledged by the Manager that no annual audit report was produced before the 2005 year. For completeness, if it be relevant, I note that I do not regard this as a trivial or de minimis breach. Paragraph 6.2.7(e) - Key Audit 167 Paragraph 6.2.7(e) pleads that the Manager "failed to perform the key audit in breach of the obligations as set out in Item 5.4.1 of the Schedule at any time in the term of the Agreement". 168 That item obliges the Manager on each anniversary date to audit all security keys issued in the last 12 months. Mr Lynch submits (correctly in my view) that all item 5.4.1 requires is for an activity to be carried out; it does not require a report to be produced, and that there is no evidence that the Manager did not in fact do the audit. Relevantly, in terms of the allegation that the Manager failed to perform the key audit in breach of item 5.4.1 "at any time" in the term of the Building Management Agreement it is said that there is no evidence against the Manager and that is true for all of the years. (That said, where there is a denial which puts in issue compliance with this obligation, on the reasoning set out above the onus in this regard would still seem to lie on the Manager.) It was said that the only thing in item 5 which might be thought to require a document from the Manager was the reference in item 5.1 to a security key register. It was said that that was the subject of the request appearing at page 551 of the court bundle and the response to that was at page 531 - a letter providing a copy of the key register, following which there was no further complaint. 169 To my mind there was an implied admission by Mr Maddrell that no key audit was performed in the 2003/2004 year insofar as he provided an explanation as to why he could not carry out a key audit in 2003/2004 (see paragraphs 7 and 29 of his affidavit at pages 176 and 173). What is said in paragraph 29 is that Mr Maddrell was unable to prepare a key audit or a database for keys prior to 2004 as the Owners Corporation had not purchased the necessary computer to read the swipe cards. That seems to me to encompass an acknowledgement that no key audit as such was carried out. 170 It was nevertheless said that those facts could not found a breach or non-compliance with the obligation in Item 5.41: first, because as a matter of commonsense, if something cannot be performed then there cannot be a failure to perform it and, secondly, because under the Building Management Agreement (clause 2.13) there is no breach if the Manager is delayed or prevented by reason of the conduct of the Owners Corporation or any other circumstances beyond the reasonable control of the Manager. It was said that there was no challenge, evidentially, to the evidence led Mr Maddrell that it was the responsibility of the Owners Corporation to provide the computer software. 171 While I have some doubt as to whether, in order to maintain an audit of the keys or swipe cards, the purchase of particular computer software would have been necessary, I am inclined to prefer Mr Maddrell's evidence (over that of Ms MacLachlan and Mr Osborne) that this was so, particularly having regard to the minutes in 2003 which suggest that the Executive Committee was on notice of issues to do with the keycard changeover (see Annexure U to Mr Maddrell's affidavit being minutes of a meeting of the Executive Committee on 22 July 2002 which noted the representative of the Manager being "unable to proceed until the programme was loaded into the new computer") and the lack of any objection or complaint in relation thereto, as well as the fact that computer software was in fact provided to or purchased for the Manager for that very task (which suggests that it was regarded as necessary). 172 Although there was criticism made by Ms MacLachlan (and by various members of the Executive Committee) as to the substance or accuracy of the key register or report provided from 2005 onwards (in terms of accuracy, this criticism seems to be confined to the 2008 report), in fact the Building Management Agreement specifies no particular form for the report (or indeed that there be a report as opposed to the maintenance of a security key register) and the fact that there may have been errors in the compilation does not seem to me necessarily to evidence any breach. 173 The only issue would be if the key audit duties were not carried out conscientiously or in a proper or workmanlike manner. No allegation was made to that effect and I do not think the evidence would support such an allegation. 174 Accordingly I do not find any breach of this obligation. Paragraph 6.2.7(f) - Hazardous items 175 The final allegation of breach is that the Manager "at times unknown but continuing up to about September 2007", allowed garbage and flammable liquids to be stored in rooms forming part of the common property and that
(i) this was not for a purpose connection with due performance of the Manager's duties (said to be in breach of clause 2.1.1 of the agreement or, in the alternative, an implied term to that effect);
(ii) the storage or flammable liquids, as hazards or dangers, was not reported to STM in breach of item 3.7.1 of the Schedule;
(iii) to the extent to which those items were placed in the common property by contractors this amounted to a failure adequately to supervise service providers (item 4.1.1 of the Schedule), or to ensure they cleaned common property and removed rubbish (4.1.3.); and
(iv) in the circumstances was a breach of clause 2.1.1. 176 There was clearly an instruction to clean the paint room area (in March 2007). The relevant instruction was noted in the minutes of the meeting of 1 March 2007 (at page 422 of the court bundle). The evidence of Mr Maddrell was that he did carry out a "tidy up". No inspection was carried out until about 12 May 2007 and it was not until August 2007 that photographs were taken. At that stage I understood the photos to be of the state of the plant room but they may have encompassed the paint room as well. While the evidence was that the state of the rooms the subject of the photographs in August 2007 was the state of the rooms in May 2007, at best this might prompt some criticism as to the efficiency of the tidy up, but none was expressed in the pleading. 177 There was also some doubt in my mind as to whether the direction to tidy up extended beyond the paint room (to, say, the B1 plant/security room or other areas). The evidence in relation to these alleged breaches was highly subjective and seemed to be consistent with a desire to find fault on the part of the Manager rather than any real issue on the part of the Owners Corporation with the state of the common property. 178 Put simply, the evidence of Mr Maddrell (which I accept) was, first, that various of the items the subject of the complaints in this paragraph were items left by the builder/developer. The Manager cannot be criticised for failing to supervise the work of those parties (since the Manager only commenced work on site once the development was completed). If, in the Manager's opinion, they were not hazardous (and rolls of carpet/ hardware items on their face would surely not be) there can have been no obligation to notify the Owners Corporation of their presence or to effect their removal. 179 Secondly, there was evidence that from time to time rubbish or junk was abandoned on the common property. The presence of rubbish (old bikes/wheels, etc), left presumably by residents or visitors, cannot amount to a breach by the Manager of its duties if, as was said to be the case and which I have no reason to doubt, the Manager had given instructions to cleaners for their removal and had arranged or directed that there be regular inspections to ensure that any rubbish was identified. 180 Thirdly, there were items apparently left by the gardening or cleaning contractors. To suggest that it was inappropriate for the Manager to permit cleaning or other items (presumably used on a regular basis) of contractors to be stored in the plant rooms (which I would infer would assist in the tidiness of the more open common areas) does not seem to me to be a reasonable complaint. While Mr Maddrell readily accepted an obligation to supervise the cleaners, it would appear his ability to do so (at least since 2005) was frustrated by the lack of access permitted to him in respect of the cleaners' area or room. 181 Fourthly, there were at least some real estate signs left in the common property area. Insofar as some of the items (the real estate agent's signs) may have belonged to a company associated with the manager, it still does not seem to me to be a breach by the Manager to permit them to be stored there on a temporary basis (and I understood the evidence of Mr Maddrell was that any items such as this which were left or abandoned outside the premises by other agents were regularly put out for rubbish collection). 182 Finally, there was a complaint about the presence of the so-called hazardous materials. This in my view was wholly unfounded. Item 3.7 imposes an obligation or responsibility on the Manager immediately to report hazards or dangers in common property which come to the attention of the Manager. That requires the formation of an opinion that they were hazardous. Mr Maddrell's evidence was that he had the opinion that none of the material was hazardous or dangerous. I agree with him. I also consider that this was not an unreasonable opinion in circumstances where the so-called "hazardous material" was material of the type that the by-laws (12(2) in particular) permitted residents to keep on the premises. While the by-laws do not in terms apply to Mr Maddrell, they do indicate the reasonableness of Mr Maddrell's view that the material was not a hazard or danger. 183 I find no breach of the kind alleged in this paragraph. Conclusion as to entitlement to a new agreement 184 In view of my finding as to the existence of a breach in relation to the failure to prepare annual audit reports for the 2003/2004 years and on the construction I believe the proviso to clause 20.9 properly bears, there is no entitlement on the part of the Manager to a new Building Management Agreement. Adequacy of damages 185 It was submitted for the Owners Corporation that even if an entitlement to a new contract had arisen, the court should not order specific performance as damages would be an adequate remedy. As I have found that the proviso was not satisfied, this issue does not arise. 186 There is an academic debate as to whether the adequacy or otherwise of an order for damages goes to the jurisdictional basis for a decree of specific performance (as is traditionally said to be the case, see Meagher, Gummow and Lehane's Equity: Doctrines & Remedies) or goes to the court's discretion (see Spry's Equitable Remedies). I note that Beazley JA recently considered this issue to an extent in Waterways Authority of New South Wales v Coal and Allied (Operations) Pty Limited [2007] NSWCA 276 and said (Campbell JA agreeing): [95] The authors of "Equity: Doctrines and Remedies" point out at 20-030 that the authorities and texts when dealing with the question whether damages are an adequate remedy have tended to place the cases in categories and have developed sub-rules in relation to the established categories. They observe that whilst in Coulls v Bagot's Executor & Trustee Co Ltd & Ors Windeyer J indicated that there was no reason to limit the principle to particular categories of cases, that remained the approach. They also noted the approach developing in the United Kingdom, that the question of adequacy of damages as a jurisdictional limitation was being replaced with the discretionary approach as to whether it would be more just to grant specific performance rather than damages: see ICF Spry, "The Principles of Equitable Remedies", 7th ed (2007), Lawbook Co, p 60. This has not attracted support in Australia: cf The Mayo Group International Pty Ltd v Hudson Respiratory Care Inc [2005] NSWSC 445, where Young CJ in Eq was content to adopt the English approach without determining whether it was the presently correct jurisprudence.
[96] No occasion has been shown in this case to depart from the long-standing Australian approach to these principles. 187 That said, it seems to be acknowledged that where it is extremely difficult to assess damages, the remedy of specific performance will lie: If it will be extremely difficult, albeit not impossible, to assess damages with reasonable accuracy, so that it would be an unjust imposition to leave the plaintiff to the remedy at law, specific performance may be decreed of an agreement to lend money. (Meagher Gummow and Lehane) 188 In Wight v Haberdan [1984] 2 NSWLR 280 at 290 Kearney J said: In relation to the question of whether damages are an adequate remedy the true rule requires in my view consideration of the circumstances of the particular case in hand. The test [which I interpose to note seem very reminiscent of the English approach noted in Spry] is, in my view, whether by leaving a plaintiff to a remedy in damages justice is done. In other words, the question to be determined is whether such a remedy in damages is adequate to satisfy the demands of justice. In the present instance it is obvious that if the plaintiff is left to pursue common law claims for damages the most complex questions will arise. There will be necessarily difficult questions as to the measure of damages and the remoteness of damages. There will be obviously great delay and expense and at the end of the day the question of what damages could be awarded would, in my view, be extremely difficult, if not virtually impossible, to assess with reasonable accuracy. 189 There, Kearney J considered that the complications involved in the Manager being left to pursue a claim for damages were "so monumental" and the prospects of an adequate recovery so remote as to make a refusal to order specific performance an "unjust imposition" upon the plaintiff, referring in that regard to Vandeventer v Dale Construction Co 534 P 2d 183 (1975).
190 Similarly, in ANZ Executors and Trustees Limited v Humes Limited [1990] VR 615, Brooking J approved what had been said in Evans Marshall & Co Limited v Bertola [1973] 1 WLR 349 at 379-380 by Sachs LJ: The courts have repeatedly recognised that there can be claims under contracts in which, as here, it is unjust to confine a plaintiff to his damages for their breach. Great difficulty in estimating these damages is one factor that can be and has been taken into account. Another factor is the creation of certain areas of damage which cannot be taken into monetary account in a common law action for breach of contract: loss of goodwill and trade reputation are examples - see also, in another sphere, the judgment of Jenkins L.J. in Vine v. National Dock Labour Board [1956] 1 Q.B. 658, 676 which, albeit a dissenting judgment, was unanimously adopted in toto in the House of Lords. Generally, indeed, the grant of injunctions in contract cases stems from such factors. 191 It seems, having regard to the similarity of the tests applied in Evans Marshall and in Wight v Haberdan that the criticism by Meagher Gummow and Lehane of the trend in English cases relates more to the suggestion that adequacy of damages goes to a discretionary point (as opposed to the jurisdictional basis for the remedy) rather than to the proposition that where there is great difficulty in assessing damages an order for specific performance is available. 192 Here, it was submitted by Mr Lynch that there was no damage at the present time and that what happens in the future would depend upon the outcome of the proceedings. Common law damages were not sought by the Manager and it contended that it had not suffered any. Mr Lynch further submitted there was no present entitlement to equitable damages and would not be any such entitlement until the prayer for relief has been determined because pursuant to s 68 of the Supreme Court Act 1970 damages are awarded in lieu of specific performance. It was said that there was no damage nor any right to damage until, if it be the case, the Owners Corporation refused to execute pursuant to an order for specific performance. It was said that the Manager had affirmed the contract by bringing the proceedings and by not terminating the contract and remained as Manager that even if the contract had come to an end at the moment there would be no damages up to the present time. 193 Insofar as it is suggested that, by reason of the fact that the Manager remains in a holding over position there would presently be no entitlement to damages for a refusal by the Owners Corporation to execute an agreement (assuming it was obliged to do so), I do not accept that submission. 194 If (contrary to my conclusion) there was an obligation at the expiry of the term to enter into a new agreement, then the refusal of the Owners Corporation to do so must be a subsisting breach which would sound in common law damages calculated by reference to the position the Manager would have been in had the Owners Corporation complied with its obligation and entered into a new agreement. 195 The fact that the Manager has remained in its position under a holding over agreement would not affect that entitlement (although it might affect the quantum of any damages so claimed). 196 It seemed to me that in this case specific performance might well be the appropriate remedy because of the complexity in assessing any damages which might be suffered. I would have thought that it would not simply be an exercise of calculating what profits might be earned under any renewed agreement but also that the recoverable damages might include capital losses by reference to the diminution in value of the Manager's business as a result of the fact that a new building management agreement had not been entered into pursuant to clause 20.9. Loss of capital profits is something which might be able to be inferred from the fact that the contract itself was assignable on terms favourable insofar as there was no requirement for consent by the Owners Corporation to the Manager. 197 Here, where there would be doubt as to the overall term for which any renewed appointment might potentially extend (depending on whether any party exercised the "break clause") and where the value to be attributed to the assignment rights might involve complex issues of valuation methodology, I would have been inclined to think that damages could have been an inadequate remedy, applying the test in Wight, and that an order for specific performance should lie. However, in the end it is unnecessary for me to rule on this. Discretionary matters
198 Again, while the question of discretion also strictly does not arise, given my finding that the proviso to clause 20.9 was not satisfied (and hence that no entitlement to a new agreement arose), I consider below the discretionary issues raised by the Owners Corporation. · Contract for provision of personal services 199 Had I found that the Manager was entitled to a new contract, I would not have refused to grant specific performance on this basis. 200 The proposition which derives from cases such as Stocker v Wedderburn (1857) 3 K & J 393; 69 ER 1162, and was accepted by Young J (as his Honour then was) in Dahlenberg v Dahlenberg (1996) 7 BPR 14,885, is that whether or not the contract which would be executed is one akin to a contract of personal service (and of which a court would not order specific performance) a court will order the parties to execute such an agreement, where they have agreed to do so.
201 It was said in C H Giles & Co Limited v Morris [1972] 1 WLR 307 that: The distinction between an order to perform a contract for services and an order to procure the execution of such a contract seems to me to be sound both in principle and on authority. I do not think that the mere fact that the contract to be made is one of which the court would not decree specific performance is a ground for refusing to decree that the contract be entered into. 202 In terms of the difficulties in the relationship between the parties (and the readiness or willingness or ability of the Manager) to perform the agreement, Mr Lynch notes that there had been no attempt to terminate the agreement pursuant to clause 20.2 nor had there been any notification of a dispute under clause 18 or under clause 20.4. Whatever the friction, it was submitted there was no indication the parties would not make the contract work according to its terms and that it would not be correct to anticipate future difficulties. I agree. · Subsequent "breaches" 203 In Suttor v Gundowda Pty Limited (1950) 81 CLR 418 at 439 the High Court said: Specific performance is not a remedy which should lightly be refused when the plaintiff has established the existence of a contract capable of specific performance which the defendant has refused to complete. "It is well established that the court cannot judicially exercise its discretion by refusing the remedy in a case of the appropriate class, unless some sound and recognized reason is shown" ( Fullers Theatres Ltd. v. Musgrove , at p. 549). It would be necessary for the defendant to prove that a hardship amounting to an injustice would be inflicted on him by holding him to his bargain and that it would not be reasonable to do so. 204 I am not satisfied that the matters raised in this case (in particular the subsequent "breach" alleged in relation to the SS Housewashing invoice) are such as would lead me to decline to grant specific performance had such an order otherwise been available. 205 Where the plaintiff has committed an essential breach of the contract (being one which would give the other party a right to terminate the contract) it has been said that is only in exceptional circumstances that a court will order specific performance of the contract. Where as here, any breaches post expiry of the term would seem to be at most inessential breaches of the "holding over" contract, it does not seem to me that, even if established, they would render it inequitable or productive of hardship for specific performance to be ordered.
206 Therefore, I would be inclined to the view that if the Manager were otherwise entitled to an order for specific performance, an inessential breach of contract on its part should not displace this.
207 Young J in Collingridge v Sontor (1997) 141 FLR 440 said that: Although a plaintiff in a suit for specific performance must show that he or she is ready, willing and able to perform the contract, it is clear that a plaintiff who has committed a breach of a trivial or non-essential nature can still obtain specific performance.
208 In Chandos Developments Pty Ltd v Mulkearns [2008] NSWCA 62, Giles JA with whom Beazley and McColl JJA agreed: [109] It should be noted that breach by a vendor may bear upon whether the vendor can obtain specific performance against the purchaser, but despite a vendor's failure in performance the vendor may be entitled to specific performance with compensation to the purchaser: for example, Ray v Davies; Dyster v Randall [1926] Ch 932. It is not consistent with this that any breach by the vendor entitles the purchaser to decline to complete. In Mehmet v Benson (1965) 113 CLR 295 ; [1965] ALR 903 ; (1965) 39 ALJR 1 ; BC6500360, in which it was argued that a purchaser should not have specific performance because its breach meant that it was not ready and willing to perform its part of the contract, Barwick CJ said at 307-8 that the significance of the distinction between essential and inessential terms is derived from the fact that a person in breach of inessential terms may be granted specific performance.
209 Santow J in St George District Rugby League Football Club Ltd v Tallis (unreported, 28/6/1996) agreed with the conclusion of Dr Spry ("Equitable Remedies" 1990 at 21) that "the better view is that both past and prospective breaches that are inessential are not necessary bars to relief but are merely relevant considerations in the exercise by the court of its discretion, especially where questions of hardship arise". 210 Nor did I think any adverse finding should be made in respect of the evidence led as to a suggestion made by Mr Maddrell early in 2002 as to payment being made to the sinking fund in lieu of cleaning fees. STM regarded this as tantamount to a fraud on the revenue. Mr Maddrell's explanation, while not accepted by STM (and albeit that it was a suggestion which would apparently have been contrary to ETT's own interests), has sufficient logic for me not explore this issue any further. Conclusion 211 The Manager has not established an entitlement to call for entry by the Owners Corporation into a new building management agreement, due to its breach of its obligations in relation to the provision of annual audit reports in 2003/2004. 212 Accordingly, I dismiss the Manager's claim. **********
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.
Newtown Management Pty Limited
Owners of Strata Plan 67219
[1997] FCA 1153
(1987) 162 CLR 549
(1990) 169 CLR 279
(1982) 149 CLR 337
(1997) 141 FLR 440
(1976) 50 ALJR 666
(2000) 203 CLR 579
(2007) 69 NSWLR 603
(1996) 126 FLR 341
(1950) 81 CLR 418
(1989) 15 NSWLR 641
(1990) 21 NSWLR 689
(2005) 221 CLR 522
(1923) 32 CLR 159
(1938) 61 CLR 286
(1986) 6 NSWLR 390
(1965) 113 CLR 295
(1965) 39 ALJR 1
The plaintiff's claim was dismissed. The court held that the Manager had not established an entitlement under clause 20.9 to require the Owners Corporation to enter a new building management agreement ([184], [211]-[212]).