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[2012] VSC 232
Supreme Court of Victoria
2012-06-25
JUDD J
Original judgment source is linked above.
ASSOCIATIONS AND CLUBS - Expulsion - Finding that expulsion invalid
CONTRACT - Construction of express terms - No breach on the evidence - Declaration that contract not terminated
EQUITY - Availability of equitable remedy - Sufficient protection to plaintiff through grant of injunction restraining action being taken upon, or effect being given to, invalid expulsion
Mr S.G. O'Bryan, Senior Counsel with Mr L.E.P. Magowan, of counsel for the Plaintiff
1 At a meeting of the committee of Southern Cross Ski Club (the Club), the defendant in this proceeding, held on 14 December 2011, it was resolved to expel the plaintiff, Christopher Charles Humphries, from membership. Mr Humphries was informed of his expulsion by a letter dated 22 December 2011 sent by the President of the Club, Paul Miller. He was advised that he had been expelled 'on the basis that you are guilty of conduct which in the Committee's opinion is unbecoming of a member of the Club and prejudicial to the interests of the Club for the reasons set out in my letter to you dated 6 December 2011'.
2 This proceeding was instituted by a writ issued on 20 March 2012. Mr Humphries sought a declaration that his expulsion from Southern Cross was invalid and of no legal effect, and a permanent injunction requiring Southern Cross to re-enter his name on the register of members. The Club counterclaimed for a declaration that an agreement with Mr Humphries under which he enjoyed exclusive occupation of a family apartment at the Club's lodge on Mt Buller had been terminated. In the alternative, the Club sought injunctions to restrain alleged breaches by Mr Humphries of the agreement and damages.
3 Mr Humphries is an architect and, prior to his purported expulsion from the Club, had been a longstanding member. In around 1977 and 1978 the Club built a ski lodge at Mt Buller. At that time, Mr Humphries was a partner in a firm of architects and builders, CC & RH Humphries. The firm performed building works for which the Club became indebted to the firm. Mr Humphries and the Club agreed that $40,000 of the construction cost incurred by the Club and due to the firm would be treated as an advance by Mr Humphries in return for a right of exclusive occupation of an apartment described as Family Suite 4. The agreement between Mr Humphries and the Club was recorded in writing and dated 24 April 1978. The relevant parts of that agreement are set out below, commencing with recitals.
(a) In this Agreement unless there is something inconsistent with the context thereof the following expressions shall have the following meanings -
...
(iii) 'designated premises' means that self-contained area in the new club building known as 'Family Suite No.4' and being the area delineated and coloured red on the plan annexed as a schedule hereto.
...
(vii) 'standard loan' means the amount of $3,000 to be lent by each full member of the Club to the Club.
(viii) 'additional loan' means the sum of $37,000 to be lent by the Lender to the Club pursuant to this Agreement.
...
The Lender hereby agrees to make the additional loan to the Club by paying the additional loan by instalments to the Club on or before and in the amounts specified on each of the following dates -
The sum of $ 7,000 by 15th day of February 1978
The sum of $10,000 by 31st day of March 1978
The sum of $10,000 by 30th day of April 1978
The sum of $10,000 by 15th day of May 1978
The total loan shall be interest free.
...
4. Right to Enjoy Designated Area
In consideration of the Lender agreeing to make the additional advance to the Club and for so long as the Lender remains a full member and complies with his duties and obligations under this Agreement and does not demand repayment of the total advance or any part thereof the Club grants to the Lender his family and guests the exclusive right to use and enjoy the designated area together with a right to use and enjoy in common with other full members all the facilities and amenities and common areas of the Club and the new club building.
5. No Lease
This Agreement shall not constitute a lease or sub-lease between the Club and the Lender.
6. Undertakings by the Club
The Club hereby agrees with the Lender at the Club's expense -
...
(d) to repair and maintain the interior of the designated area where the need for such repair and maintenance arises as a result of fair wear and tear or defects or a structural nature;
(e) to take out and maintain a fire insurance policy and a public risk policy in respect of the designated area.
The Lender hereby agrees with the Club -
...
(d) not to make any alterations or additions to the designated area;
(g) to pay any telephone charges separately metered and assessed in respect of the designated area;
The Lender shall be responsible for furnishing the designated area at his own expense and shall ensure furniture is of a standard and quality at least equal to that used elsewhere in the common areas of the new club building. The Lender shall be responsible for separately insuring any furniture or other contents he may bring into the designated area.
The Lender and his family and guests who stay in the designated area shall not be obliged to pay lodge fees. The Lender will not let or sublet the designated area or purport so to do or provide accommodation therein for reward.
The Lender will be obliged to pay the same annual subscription fee as other members. In addition the Lender will be obliged to pay an additional amount which shall be calculated on an annual basis by the committee to cover the cost of electricity gas and other like services consumed in the designated area.
The total loan of $40,000 comprises an amount of $37,000, being the additional loan and an amount of $3,000 being the standard loan made by all full members. The Lender's rights and obligations in respect of the standard loan shall be the same as those of other full members. The Lender's rights and obligations in respect of the additional loan shall be as follows -
(a) the Lender, with the prior approval of the committee, may by written instrument assign the additional loan and the benefits and obligations of this Agreement (including the exclusive right to use and enjoy the designated area) to another full member;
(b) upon the Lender ceasing, for any reason whatsoever, to be a full member the Lender or his duly authorised representatives or legal personal representatives shall by written instrument assign the additional loan and the benefits and obligations of this Agreement (including the exclusive right to use and enjoy the designated area) to such other full member as the committee may approve. Such other full member may be a duly authorised representative or a legal personal representative of the Lender or a spouse or child of the Lender if the committee so approves.
(c) upon any assignment pursuant to sub-clause (a) or (b) of this clause the committee shall -
(i) delete the name of the Lender and enter the name of the assignee as the creditor of the Club for the amount of the additional loan in the books of account of the Club;
(ii) relieve the Lender from any further liability and obligations under this Agreement.
(d) notwithstanding the provisions of sub-clause (a) and (b) of this clause upon the Lender notifying the committee of his wish to assign this Agreement and the additional loan or upon his ceasing for any reason whatsoever to be a full member the committee may, at its option, resolve on behalf of the Club to take over the designated area and henceforth apply the same for the use and enjoyment of members in general. If the committee resolves to exercise its aforesaid option it shall -
(i) notify the Lender or his duly authorised representatives or his legal personal representatives of its decision so to do within eight weeks of the date upon which the Lender notifies the Club of his wish to assign or within eight weeks of the date upon which he ceases to be a full member; and
(ii) repay to the Lender or to his duly authorised representatives or his legal personal representatives the additional loan and any further amount referred to in sub-clause (e) of this clause within six months of the date upon which the committee resolves to exercise its said option. This Agreement shall thereupon be deemed to be terminated.
(e) The Club and the Lender hereby acknowledge and agree the Lender may have the prospect of being able to assign this Agreement and the additional loan to another full member at a premium over and above the amount of the additional loan. Accordingly if the Club resolves to take over the designated area pursuant to sub-clause (d) of this clause the Club agrees to repay the Lender the additional loan and any further sum equal to the amount of any premium which the Lender would have received had he been permitted to assign this Agreement and the additional loan to another full member. The amount of any such premium shall be determined by negotiation in good faith between the Lender and the committee. The Lender will have the onus of establishing to the reasonable satisfaction of the committee the amount of any such premium and may, inter alia, be obliged to produce evidence that another full member acceptable to the committee dealing at arms length with the Lender and not being a spouse or child of the Lender would be prepared to pay the premium claimed by the Lender.
The additional loan shall not be repayable within a period of two years of the date of this Agreement except at the option of the Club.
If the Lender demands repayment of the total loan or any part thereof the Club may forthwith terminate this Agreement and thereafter deal with the designated area in such manner as the committee considers fit.
The committee shall have the power to determine the maximum number of persons permitted to occupy the designated area at any one time.
The Lender shall be obliged to observe and comply with Club rules and regulations as in force from time to time and insofar as the same are relevant and applicable shall ensure other persons staying in the designated area do likewise.[1]
4 The agreement was prepared on behalf of the Club by its solicitor, Mr MacKinnon who was then Club secretary. It will be observed that by cl 4, Mr Humphries' right of exclusive occupation continued for so long as he remained a full member of the Club and complied with his duties and obligations under the agreement, and did not demand repayment of any part of the advance. An incident of his expulsion from the Club exposed Mr Humphries to the risk of losing his right of occupation. While Mr Humphries had not made any demand for repayment, the Club contended that it had the right to terminate following Mr Humphries' expulsion, or upon repayment of the loan, or as a consequence of alleged breaches of the agreement. The Club tendered repayment of the additional loan.
5 The rights granted under cl 4 extend to Mr Humphries, his family and guests, and gave to them the right to use and enjoy the apartment as well as the common areas available to other members. His obligation to contribute to the operating expenses of the lodge were confined to the cost of services consumed within the apartment. Mr Humphries was not required to pay lodge fees. He did not contribute towards the operating costs of the lodge even though the Club was obliged to maintain his apartment, and he was entitled to enjoy the common facilities without contribution, as were his family and guests.
6 Notwithstanding the value of the loan to the Club at the time (which sum seemed to be accepted equated with the price of a small inner city property), in recent years club members have become intolerant of various aspects of the arrangement between the Club and Mr Humphries. They began to take action in mid-2009.
7 Until around August 2010, Mr Humphries, his family and guests, continued to enjoy exclusive use of the apartment, without any open challenge or hostility. Unbeknown to Mr Humphries, from June 2009, members of the committee were discussing ways in which the Club might terminate his rights under the agreement. The issue came to a head on 18 August 2010 when Mr Humphries' son and some guests were refused entry to the apartment by the Club manager, because the Club was occupied by a school group. Part of the arrangement with the school was that there would be no other guests at the Club. While Mr Humphries' son and the guests found other accommodation on the mountain, Mr Humphries was upset by what he characterized as disgraceful behaviour by the Club manager in turning away his son and guests. On the following day he sent an email to the Club president asserting his rights under the agreement. From that email it would appear that there may have been an earlier incident, but there was no elaboration.
8 Mr Humphries put his case for invalidity of the expulsion on a number of bases. He contended that the conduct complained of in the notice of resolution was not, on a proper construction of art 15 of the Club's constitution, capable of supporting expulsion. He argued that there was no power to make the resolution. Alternatively, he contended that the resolution was not made in good faith, but was a device designed and intended to deprive him of his rights under the agreement. In other words, the purpose of the resolution was to deny to him the benefit of the contract.
9 The primary contention of the Club may be summarised as follows:
(a) having validly expelled Mr Humphries as a member, the Club had the right to terminate the agreement and did so by letter dated 16 April 2012 by tendering repayment of the 'additional loan' in the sum of $37,000 thus bringing the agreement to an end. By that letter the Club's solicitors tender a cheque for $37,000 on the basis of an implied right to repay the 'additional loan' at its option at any time;
(b) the Club also contended, perhaps in the alternative, that the licence to use the apartment could be revoked at will by the Club, and if the revocation of the licence, coupled with repayment of the loan, was in breach of the agreement, the appropriate remedy lies in damages. Presumably, the Club would rely upon the same letter from its solicitors dated 16 April 2012; and
(c) finally, the Club contended that specific performance and injunctive relief are unavailable or inappropriate to enforce Mr Humphries' personal rights to exclusive occupation.
10 The foregoing summary tends to mask the discrete contentions in favour of termination. While the first contention contemplates a valid expulsion, the Club advanced, as a separate ground, a contention that it was entitled to repay the additional loan at any time and bring the agreement to an end. That was in addition to the contention that because Mr Humphries had been expelled, the agreement could be terminated. Finally, it contended that Mr Humphries had breached various provisions in the agreement by his failure to pay an invoice and by other conduct. The breach allegations were also multifaceted. There was an overlap, although imprecise, between the conduct said to constitute breaches of the agreement and the conduct relied upon the Club to support its resolution to expel Mr Humphries. The Club claimed the right to terminate the agreement as a consequence of the breaches, and that it had done so by tendering repayment of the additional loan.
11 In resolving to expel Mr Humphries, the committee of the Club relied upon the grounds set out in the letter of 6 December 2011. The letter gave notice to Mr Humphries of a meeting to be held on 14 December 2011 to consider a resolution for his expulsion. The Club contended that the committee had formed an opinion for the purpose of art 15 that Mr Humphries' conduct was unbecoming of a member and prejudicial to the interests of the Club. That was all that was required, provided there was a basis for the opinion. The letter of 6 December 2011 is long, but its content was central to the proceeding as it was relied upon by the Club to support its opinion, and by Mr Humphries to evidence the absence of valid grounds and the collateral purpose. The president wrote:
Dear Christopher
As President of the Southern Cross Ski Club I write to you on behalf of the Committee in relation to family suite number 4 (F4) and the agreement between the club and yourself dated 24 April 1978 (the Agreement).
The Committee has previously advised you that:
The Committee has previously written to you in an attempt to bring the Agreement to an end in a way which meets the interests of the Club and which recognises your long standing role at the Club. By your lack of action and unwillingness to address this issue, the Committee has now formed the view that your conduct is unbecoming of a Member of the Club, prejudicial to the interests of the Club and for the Committee to move to exercise the powers available to it under the Club Constitution for your expulsion as a Member.
In forming this view the Committee relies upon clause 15 of the Club's Constitution, which provides:
"If any Member shall - be guilty of any conduct which in the opinion the Committee is unbecoming of a member or prejudicial to the interests of the Club the Committee shall have the power to expel the Member from the Club."
As previously advised, the Committee regards the Agreement as prejudicial to and not in the interests of the Club and in arriving at that decision has taken into account, the following -
The Committee has written to you on 8/12/2010, 19/12/2010, 31/1/2011, 3/2/2011, 23/3/2011, 11/5/2011, 15/6/2011 and 6/10/2011, invited you to attend before it, which you have declined, and made its position in relation to F4 clear. On each occasion you have failed to adequately respond to the Committee or make any contribution to the Committee's position in relation to the determination of the Agreement. The Committee regards your conduct as being unbecoming of a Member.
The Committee will meet on the 14th of December, 2011 at 7.00pm, The Heinz Residence 60 Caroline St at South Yarra to deliberate the Resolution for your Expulsion from the Club.
I note that pursuant to clause 15 of the Club's Constitution, a Member:
"shall have written notice at such meeting, of what is alleged against him and of the intended resolution for his expulsion and that he shall at such meeting and before the passing of any such resolution have had the opportunity of giving orally or in writing any explanation or defence he may think fit.
You may attend the Committee Meeting in person for the purpose of responding to the Resolution only. Should you choose to attend, and once the Committee hears from you, you will be asked to leave so that the Committee may deliberate the Resolution and you will then be advised of the outcome of the Committee's deliberation on the proposed Resolution.
I enclose a copy of the draft Resolution for Expulsion as a Member of the Club which will be considered by the Committee at the Meeting.
Please advise whether you will attend the Meeting or provide any written explanation or defence for consideration by the Committee. If you intend to provide any written explanation or defence please provide this to me by 4:00pm on the 13th of December, 2011 so I can circulate your response to the Committee in advance of the Meeting.
12 The letter was unambiguous in providing the basis for the Club's decision. In summary, the Club considered the agreement to be prejudicial to its interests and desired to bring it to an end. Conduct of Mr Humphries said to be unbecoming of a member and prejudicial to the interests of the Club included his 'lack of action and unwillingness to address this issue'. In other words, his refusal to abandon rights under the agreement.
13 The Club refused to acknowledge that the agreement was binding. Mr Miller conceded that 'we thought it would compromise our position'. He conceded that the agreement looked 'pretty rock solid'. The committee sought legal advice and were advised 'not to compromise our position'.
14 Mr Miller said that the 'unbecoming conduct' of Mr Humphries was not confined to his failure to give ground on the agreement. He said there was a range of issues. From the letter dated 6 December 2011, and Mr Miller's evidence, these included an allegation that Mr Humphries' use of the apartment 'is a significant source of irritation and disharmony within the Club...'; there was an allegation of unauthorised additions, and the use of additional beds that put the Club's lease in jeopardy; another complaint was that guests, who were not members, used Club facilities when a member was not present.
15 Mr Miller said, and the Club argued. that Mr Humphries did not pay his fair share of charges, and therefore placed an unfair financial burden on the Club. These matters were all relied on by the Club as a basis for its opinions under art 15, and converted into allegations of breach by Mr Humphries of the agreement justifying termination. The pleaded breaches by Mr Humphries were:
(a) his failure to pay an invoice issued by the Club on 4 May 2011 in the sum of $14,807.46. The invoice was for a proportional share of Club expenses;
(b) making unauthorised additions to the apartment, most significantly having up to 10 beds rather than the permitted six beds;
(c) allowing non-members to occupy the apartment when not accompanied by him; and
(d) failing to comply with Club rules by failing to book in advance or to report to the manager or complete the register when attending the Club.
If any member shall wilfully refuse or neglect to comply with the provisions of the memorandum or articles of association of the Club or shall be guilty of any conduct which in the opinion of the committee is un-becoming of a member or prejudicial to the interest of the Club the committee shall have power to expel the member from the Club...
17 Mr Miller, the Club President and author of the letter, was surprisingly frank under cross-examination. He conceded that, in the lead up to the meeting at which the committee decided to expel Mr Humphries, they had been looking closely at how they might be able to put an end to the agreement. Mr Miller conceded that at, and since, the committee meeting of 6 June 2009, the committee had discussed ways in which the Club might terminate Mr Humphries' right of exclusive occupation at as little cost to the Club as possible. He accepted that there had been a deliberate strategy to keep news of the discussions from reaching Mr Humphries.
18 Having examined the agreement, the committee formed the view that on its face it gave the Club no right to repay the loan and bring the agreement to an end. It was in those circumstances that the committee turned its mind to how it might put an end to Mr Humphries' membership. Mr Miller agreed that he looked carefully at the Club constitution for opportunities to expel Mr Humphries. While Mr Miller was unable to say whose idea it was to expel Mr Humphries for conduct unbecoming, he agreed that it was discussed amongst the members of the committee.
19 When hostilities broke out, and Mr Humphries made it clear that he wanted the Club to acknowledge that the agreement was valid and binding on the Club, the committee would not do so.
20 Mr Miller said that had Mr Humphries been willing to negotiate with the committee he was sure that they could have reached an arrangement. The only kind of arrangement that would have been satisfactory to the Club, however, was one in which Mr Humphries' rights were significantly diminished. Mr Miller believed that it was up to Mr Humphries to come to the Club with a proposal to diminish his contractual rights in order to negotiate some sort of settlement. The Club did not formulate and put any proposal to Mr Humphries.
21 Mr Miller accepted that Mr Humphries' expulsion was a strategy that the committee adopted to form him to negotiate with the committee. He elaborated,
We just wanted to have a chat with him really to work out an exit strategy and we couldn't do that. So our last resort was - that was the only thing in our power that we could see in our club's constitution that we could use to get someone to come and talk with us.
22 It has long been held that a member unjustly expelled from an unincorporated association may obtain an injunction to restrain the association's committee from treating him as validly expelled, if the member could establish that the purported expulsion was contrary to natural justice, contravened the rules of the association or was not bona-fide.[2] There was an additional requirement that the plaintiff establish a proprietary right.[3]
23 The requirement for a proprietary interest has become less rigid, with the recognition of an implied negative stipulation in a contract as a sufficient basis to support injunctive relief.[4] Whether the search for a sufficient interest is defined by an analysis of the member's proprietary interest[5] or by implying a negative contractual stipulation, I am persuaded that Mr Humphries has a sufficient interest to support a remedy in equity to restrain the Club and its committee from treating him as validly expelled.
24 Mr Humphries' contention that the resolution by the committee expelling him from Club membership was beyond power or was not made in good faith was only faintly resisted by the Club. The Club contended that it did not act beyond power or in bad faith because it had legitimate concerns about the financial burden of the agreement on the operation of the Club. It contended that it had made extensive efforts to have a dialogue with Mr Humphries about a range of related matters, but that he would not meet with the committee for that purpose, and did not provide any response to the proposed resolution. The Club further contended that Mr Humphries did not pursue his right to appeal to an extraordinary general meeting of the Club if dissatisfied with the decision. Accordingly, the Club argued it did not act contrary to the provisions of art 15 of the constitution and the court should decline to interfere.
25 In my opinion it is manifestly clear that the resolution by the Club expelling Mr Humphries was made for the purpose of inducing him to negotiate with the Club to diminish his rights under the agreement. Such an objective was not a purpose for which the power conferred under art 15 might properly have been exercised. The purpose was to force Mr Humphries to give up contractual rights granted by the Club. It was an attempt at commercial extortion, or at least an attempt to bully Mr Humphries into submission. Further, the conduct identified by the committee in its letter dated 6 December 2011 as 'unbecoming of a member or prejudicial to the interests of the Club' was, according to the ordinary and natural meaning of those words, incapable of constituting such conduct. Having entered into the terms of the agreement, it is simply not open to the Club to attribute to Mr Humphries' assertion of his rights, the character of 'conduct... unbecoming of a member or prejudicial to the interests of the club'.
26 The other grounds relied upon by the committee, which overlap with the alleged breaches of the agreement were without substance, whether characterised as breaches to justify termination, grounds to support injunctive relief, or a claim for damages; or as conduct which might justify the exercise of the power by a committee, acting reasonably, to expel Mr Humphries under art 15. By advancing those so-called breaches as justifications for the resolution, and as contractual breaches in aid of remedies on its counterclaim, the committee, and thus the Club, further evidenced the absence of good faith in the exercise of the power.
27 I find that the resolution of the committee made on 14 December 2011 to expel Mr Humphries from the Club was and is invalid and of no force and effect. But that is not the end of the matter.
28 The Club contended that, whether or not there had been any valid expulsion, it was entitled to bring the agreement to a close by repaying the additional loan amount of $37,000. It characterised the agreement by reference to the heading in cl 2, 'Agreement to Lend' and Mr Humphries' description in the agreement as 'the lender'. The Club contended that the essence of a loan is the obligation on the borrower to repay. It submitted that the absence of a demand for repayment by the lender does not prevent the borrower from repaying the loan. The Club submitted that Mr Humphries sought to impose a negative stipulation on repayment. It submitted that the purpose of the agreement was to provide the Club with funds to build the clubhouse. The licence granted to Mr Humphries was designed to serve the purpose of the Club, not the other way round. Thus, the Club argued, by repayment of the loan the Club could bring the licence to an end.
29 The Club further contended that the context of the agreement required a construction which enabled the Club to repay the additional loan when the amount was tendered. It pointed to the fact that the lease contemplated by the agreement had expired in 1999, and the current lease was granted by a different landlord. A further contextual circumstance was the prohibition in the constitution on property being transferred to a member by way of profit to members. The Club also drew attention to a provision limiting interest payable on loans by members to a rate not exceeding the lowest rate at the time being payable by the State Savings Bank of Victoria in respect of term deposits. Having valued the use of the apartment during one ski season at approximately $72,250, the Club contended that the effect of the agreement was to profit Mr Humphries and therefore inconsistent with the constitution.
30 The Club contended that if it were necessary to imply terms to give effect to its ability to repay at any time or after the expiry of the old lease, or in order to avoid conferring a profit on Mr Humphries, such terms should be implied, permitting the Club to repay the loan in order to give efficacy to the agreement. The terms sought to be implied were -
(a) the Club could repay the additional loan at its option at any time;
(b) upon the Club repaying the additional loan, the agreement would come to an end.
31 In my opinion the implication of these terms would be inconsistent with express terms of the agreement. The clear words of cl 4 grant to Mr Humphries, his family and guests, the exclusive right to use and enjoy the apartment on three conditions: first, that he remain a full member of the Club; second, that he comply with his duties and obligations under the agreement; and third, that he did not demand repayment of the advance or any part of it. The interaction between these conditions and the circumstances in which the agreement might be brought to an end are elaborated in cll 11, 12 and 13. The agreement deals expressly with the Club's right to repay, Mr Humphries right to deal with the rights granted under the agreement, limitations on those rights and the consequence of a demand for repayment.
32 Clause 11 is important. The clause informs the nature of the rights acquired by Mr Humphries under the agreement and any opportunity the Club had to terminate the licence, as well as the interest which Mr Humphries has in his membership that supports his right to claim equitable relief. For present purposes, cl 11 set out a regime under which Mr Humphries is permitted to assign his rights and the Club has an opportunity to acquire them.
33 Under cl 11 Mr Humphries has the right, with the approval of the committee, to assign his rights under the agreement in the prescribed circumstances. The agreement acknowledged that he might charge a 'premium over and above the amount of the additional loan'. In such circumstances, the Club might, at its option, resolve to take over the rights, and thus the apartment. If the Club were to exercise the option it was required to repay the loan and any 'premium' to reflect an arms length valuation. In other words, the Club's right to terminate the agreement, in the prescribed circumstances, was conditional on paying a proper price to Mr Humphries 'or his legal personal representative'. The terms sought to be implied by the Club would, if given effect, completely undermine the conditional rights granted to Mr Humphries to transfer his occupation of the apartment at a premium and the Club's obligation to pay the premium in the prescribed circumstances. That clause also contradicts the construction contended for by the Club that seeks to cast the agreement as a simple lending arrangement.
34 Clause 12 provides a protection for the Club in that the additional loan will not be repayable for a period of two years from the date of the agreement even if called upon by Mr Humphries. Clause 13 is the corollary of the third condition in cl 4, and contemplates repayment, resulting in termination, as an act only by Mr Humphries.
35 In my opinion no such terms may be implied. While Mr Humphries has the right to demand repayment, subject to the protection afforded the Club by cl 12, the Club has no corresponding right to terminate the agreement merely by repaying the additional loan.
36 I am not satisfied that any of the alleged conduct relied on by the Club to support the formation of the necessary opinions under art. 15 of the constitution or as breaches of the agreement justifies termination, injunctions or damages.
37 The allegation of unauthorised additions was loosely made and mercurial. At one point the Club seemed to allege that Mr Humphries had made physical alterations to the premises in breach of an express prohibition in the agreement. That was denied by Mr Humphries, and there was no evidence of any such alterations. He said that the configuration of the apartment had not changed since the lodge had been built.
38 The next stage in the Club's case for this alleged breach was a contention regarding the number of beds. The Club argued that Mr Humphries was using bench seating on the upper level as beds, and that there were more beds than authorised under the Club's lease and the Club rules. The only rules relied on by the Club were those found in a Code of Conduct first promulgated in around July 2011. Under the heading 'bookings', the maximum number of room occupants for the apartment was six persons. But there was no evidence that more than six persons had ever occupied the apartment, even if the Code of Conduct were to have the effect contended for by the Club.
39 The allegation is without substance. I accept the evidence given by Mr Humphries that the structure and configuration of the apartment has remained unchanged since original construction. The evidence does not support the proposition that any alterations of the kind alleged by the Club were made. Nor was there credible evidence that more than six persons had occupied the apartment at any time since the promulgation of the Code of Conduct.
40 On 4 May 2011, the Club presented Mr Humphries with an invoice for $14,807.46. He responded by attempting to make a payment of $660 by cheque. That sum was his calculation of the amount payable in accordance with cl 10 of the agreement, based on the amounts paid in previous years. Mr Humphries' cheque was returned.
The lender will be obliged to pay the same annual subscription fee as other members. In addition the Lender will be obliged to pay an additional amount which shall be calculated on an annual basis by the committee to cover the cost of electricity gas and other like services consumed in the designated area.
42 The obligation to pay the 'additional amount' might also include an obligation to pay for telephone services, internet, cable television and other like services used in the apartment. The evidence was that no such services were used in the apartment.
43 The scope of the rights and obligations under cll 9 and 10 did not attract much attention during submissions. Under the agreement the Club agreed to incur the cost of insurance pursuant to cl 6(e). Mr Humphries was excused from paying lodge fees pursuant to cl 9. There was no express obligation to contribute to costs associated with the maintenance of the Club or the common areas. The point is moot, however, because Mr Miller, who participated in the approval of the invoice at the committee, explained that the invoice was prepared on the basis of dividing all of the expenses of the club. A proportion of those expenses had been allocated to Mr Humphries on the basis of the number of beds contained in the apartment. He agreed that the approach taken by the Club was excessive and not supported by clause 10. In my opinion, the obligation under cl 10 does not, and was not intended to include, a proportion of all Club expenses included in the invoice.
44 The Club's case was based more upon notions of fairness than contractual obligation. Clause 10 seems to exclude liability for costs that might properly be regarded as attributable to an apartment owner within a body corporate arrangement. The Club might not have been criticised for approaching Mr Humphries with a proposal to contribute more than he was obliged. But what it did was to demand payment of an amount which it must have known was beyond the scope of cl 10 and convert Mr Humphries' refusal into an alleged breach.
45 There were three allegations by the Club of a breach by Mr Humphries concerning the use of Club facilities by him, his family and visitors. One complaint was that the apartment and lodge facilities were used by persons who were not accompanied by Mr Humphries. Another concerned the failure of occupants to make a booking in advance of their arrival. A third complaint was the failure of visitors to report to the manager on arrival.
46 The Club's complaint concerning unaccompanied visitors was ultimately expressed by Mr Miller as a risk or inconvenience because the manager would not have the name and address of each occupant of Mr Humphries' apartment. He said that when other Club members brought guests, their identity would have been notified to the booking agent, so that someone would be aware of their identity.
47 The Club again relied on the Code of Conduct, in which was found a requirement that members and guests report to the manager on arrival and complete the lodge accommodation register. The evidence was to the effect Mr Humphries, his family and guests did not follow that procedure. While the Code of Conduct was first promulgated in about July 2011, Mr Humphries said that the first he knew of it was when a copy was provided to him by another club member on about 25 January 2012.
48 It is not entirely clear what status the Code of Conduct has as an instrument binding upon club members. It is at once aspirational, setting out the values of the Club, and also prescriptive. Under the heading 'bookings', the Code prescribes the manner in which bookings are to be made and cancelled, the number of occupants per room, provision for deposits, members' discounts, check-in and check-out times, and the reporting obligation mentioned above. For the most part the requirements seem to have little or no relevance to Mr Humphries, who has an exclusive right to occupy the apartment. He need not make a booking, and presumably may come and go as he pleases. There is also a question as to what prevails in the case of inconsistency - the Code of Conduct or the agreement. No attention was directed to that question during submissions. Some aspects of the Code of Conduct, if taken to be rules authorised under the constitution, may be inconsistent with Mr Humphries' rights under the agreement.
49 The Code of Conduct also set out etiquette policies, prescribing hygiene requirements, the containment of noise, the use of common areas and like matters.
50 It should be noted that the complaint made in the letter of 6 December 2011 was not that Mr Humphries, his family or guests failed to comply with the Code of Conduct insofar as they did not report to the manager on arrival. In any event, I am not satisfied on the evidence that there has been non-compliance since that time. The evidence given by Mr Miller was of the most general kind concerning his dissatisfaction with what he had been informed by the manager and other members had occurred.
51 Properly analysed, the real complaint made by the Club did not involve a failure to comply with the Club Code of Conduct at all. It was a general complaint that the Club facilities were being used by non-members, and that non-members had unrestricted access to the apartment without a club member present. Whatever may be the validity of the complaint from the perspective of management, club policy, fairness or safety considerations, that is precisely what cl 4 of the agreement grants to Mr Humphries - 'to the lender his family and guests the exclusive right to use and enjoy the designated area...'
52 There is much to be said for a requirement that at all material times the Club manager is aware of the identity of the occupants of all apartments and rooms, and that they are not over-occupied. Such a requirement seems necessary to ensure minimum safety requirements. A rule to the effect that all persons occupying a room or apartment report to the manager does not seem unreasonable, and if imposed as a club rule could hardly be resisted by Mr Humphries. Nor do I think that such a rule would be inconsistent with Mr Humphries' exclusive rights. Nevertheless, insofar as the Code of Conduct is to be taken to be rules made under the constitution and binding on Mr Humphries, the evidence does not support a finding that he acted in breach of that rule since he was given notice of it, or even since its promulgation.
53 Insofar as the Club contended that all family and guests were to be accompanied by Mr Humphries, I am not persuaded that cl 4 imposes any such requirement. Further, the Code of Conduct itself contemplates bookings made by non-members. The requirement that Mr Humphries make a 'booking in advance when staying at the lodge' is nonsensical when Mr Humphries has an exclusive right of occupation.
54 The Club submitted that the breaches entitled it to terminate the agreement. It contended that the breaches constituted a repudiation which has been accepted by the Club. It tendered repayment of the loan. I have found that the breaches have not been established. Consequently, there was no basis upon which the Club was entitled to terminate the agreement for that reason or claim damages. Nor is there any basis for the injunctions sought by the Club.
55 The Club contended that specific performance and injunctive relief were not available as a remedy or appropriate in the circumstances. It contended that any remedy Mr Humphries may have lay only in damages. The Club argued that Mr Humphries had no proprietary interest in the apartment. It submitted that his interest rose no higher than a mere contractual licence. It also submitted that the relief sought was inappropriate because of breaches by Mr Humphries of the agreement. I have found that the evidence does not support the alleged breaches.
56 The submissions of the Club, directed to the availability of a remedy, were in response to Mr Humphries' claimed relief. In addition to a declaration that the expulsion resolution was invalid, Mr Humphries sought a permanent injunction requiring the defendant to re-enter him on the register of members, and an order for specific performance of the licence agreement.
57 The Club's focus was, quite understandably, on the nature of the rights granted under the agreement. But there are two contracts: the first is between the Club members under the constitution; and the second is the agreement under which Mr Humphries was granted the occupation rights. The Club submitted that his right of occupation was a purely contractual licence. Thus, it argued, equity would not assist with an order for specific performance.
58 The Club relied on Cowell v Rosehill Racecourse Co Ltd.[6] In that case the majority considered that absent a proprietary interest in land, coupled with a licence, equity could not act to prevent a licence from being revoked.[7] The statement of principle in Cowell is limited. In each of their judgments, Latham CJ, Dixon and McTiernan JJ[8] acknowledged the possibility of a negative stipulation being specifically enforced, but each denied the enforcement of a negative stipulation where the grant of the licence was only a secondary consideration. The licence was subsidiary to the primary right which was admission to view a public amusement.
59 It was this characterisation of the relationship between the two rights given to a patron that gave rise to Dixon J's explanation as to why a suggested negative stipulation not to terminate the licence, would not be enforced in the particular circumstances:[9]
On the other hand, there is a fugitive or ephemeral purpose of pleasure, mutual undertakings, mostly implied, affecting the behaviour of the parties, and a complete absence of material interest. The purpose is not to enjoy the amenities forming part of the land, but to witness the races and, perhaps, to use the facilities provided for adding to the pleasure and excitement of the spectacle.
60 The Club also relied on the decision of Helsham J in Graham H Roberts v Maurbeth Investments Pty Ltd, where an injunction to protect a licence granted to a builder was refused.[10] Once again, the licence to use land was found to be subsidiary to the primary object of the contract. This context is important. Helsham J said:
The case, therefore, must be approached as if there is a contractual licence granted to the plaintiff to go on to the land of the proprietor during the carrying out of the work and an implied negative stipulation not to revoke it during that time.[11]
61 Maurbeth Investments was not a case where the court was called upon to exercise its discretion to protect a plaintiff from a defendant acting in defiance of a negative stipulation in a contract. In each of Maurbeth Investments and Cowell, the licence granted was in aide of the subject matter of the contract. In the present case, the licence is the subject matter of the contract.
62 In Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd,[12] the Court of Appeal adopted the reasoning of Batt JA, who said of injunctive relief in aid of a licence, that '[c]ases can be found where an injunction was granted in favour of a licensee to prevent the licensor from revoking, or acting upon the revocation of, the licence at least where it was not a fleeting one.' The rationale for granting an injunction was that,[13]
in every contractual licence there is an implied negative stipulation by the licensor not wrongfully to revoke the licence, not to treat the licensee as a trespasser until the licence has been validly determined. And the licensee may be granted an injunction as above-mentioned provided, perhaps, that to do so would not amount to granting specific performance of a contract in respect of which that remedy is not available: see generally Meagher, Gummow & Lehane: Equity Doctrines and Remedies.
63 A negative stipulation in the current circumstances may take one of three possible forms, depending on the conception of Mr Humphries' rights. Under the first, the Club impliedly agreed not to expel a member otherwise than for sufficient reason in accordance with the constitution, bona fide and in accordance with the principles of natural justice. That stipulation is implied into the agreement between the members under the constitution. A second conception involves the implication of a negative stipulation into the licence agreement to the effect that the Club agreed not to terminate Mr Humphries' right of exclusive occupation otherwise than in accordance with the terms of that agreement. Such a formulation might, for example, be suitable where the Club threatened and intended to act upon its purported termination of the agreement to exclude Mr Humphries from occupation. On the other hand, a declaration to the effect that the agreement between the Club and Mr Humphries has not been terminated by the Club would seem sufficient.
64 The third conception of a negative stipulation, was that advanced by Mr Humphries, to the effect that the Club would do nothing to thwart his exclusive occupation of the apartment. In my opinion, such a conception goes too far. It would be inconsistent with the ability of the Club to manage its affairs according to law, which might even include expelling Mr Humphries as a member in justifiable circumstances, thus triggering the process contemplated under cl 11 of the agreement.
65 The positive formulation of a permanent injunction proposed by Mr Humphries', requiring specific performance of the licence agreement, is unnecessary to protect his rights as a member, or his rights under the licence agreement. An injunction supporting the more confined negative covenant, protecting Mr Humphries' right to a proper decision, coupled with a declaration to the effect that the Club has not terminated the agreement, is the minimum equity[14] required. The most suitable injunction is one to restrain the Club and its committee from acting upon or giving effect to the purported expulsion made by resolution of the committee on 14 December 2011. The basis for that injunction is the failure of the committee to act with sufficient reason in accordance with the constitution, and its failure to act bona fide.
66 When considering the suitability of injunctive relief as a remedy to protect Mr Humphries rights, it is not necessary to look only to his right to a proper decision under art 15. While the nature of that right alone would be sufficient to justify an injunction, because Mr Humphries has a real and tangible interest in the lodge and its facilities, his rights also extend to his entitlements under the agreement, because of the consequences of expulsion under cl 11.
67 Accordingly, I propose to make a declaration to the effect that the purported expulsion was invalid and of no legal force and effect; a declaration that the agreement between the Club and Mr Humphries dated 24 April 1978 has not been terminated by the Club, and remains in full force and effect; and an order restraining the Club and its committee from acting upon or giving effect to the purported expulsion made by resolution of the committee on 14 December 2011.
68 The Club having failed to establish any breaches of the agreement, the counterclaim is dismissed.
[2] Dawkins v Antrobus (1881) 17 ChD 615; Meagher, Heydon and Leeming 'Equity: Doctrines and Remedies' [21 - 285].
[3] Rigby v Connol (1880) 14 ChD 482, 487.
[4] Meagher et al op cit at [21 - 305].
[5] Cameron v Hogan [1934] HCA 24; (1934) 51 CLR 358; McKinnon v Grogan [1974] 1 NSWLR 295; Mackin v Gallagher [1974] 2 NSWLR 559.
[7] See, e.g.[1937] HCA 17; , (1937) 56 CLR 605, 619 (Latham CJ).
[8] [1937] HCA 17; (1937) 56 CLR 605, 619, 633, 655.
[9] [1937] HCA 17; (1937) 56 CLR 605, 633.
[13] Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd [2004] VSCA 242 [31].
[14] Commonwealth v Verwayen (1990) 170 CLR 394; Crabb v Arun District Council [1976] Ch 179.
Humphries
Southern Cross Ski Club [2012] VSC 232
(1934) 51 CLR 358
(1937) 56 CLR 605
(1990) 170 CLR 394