Quarante Pty Ltd v The Owners Strata Plan No. 67212

Quarante Pty Ltd v The Owners Strata Plan No. 67212 - [2008] NSWCA 258 - NSWCA 2008 case summary — Zoe

[28]

Arrange and execute contracts pursuant to the Home Building Act." (Emphasis added.) 19 By November 2002, Quarante had not completed the refurbishment of the façade as required by the special conditions of the contract of sale between it and Tri-Anta. On 28 November 2002, Quarante refunded Tri-Anta the sum of $375,000 plus interest. 20 Shortly before Quarante refunded the moneys to Tri-Anta, Mr Anderson had a telephone conversation with Ms Wells in which he said words to the following effect: "Tri-Anta Pty Limited (who are the owners of lots 1, 3, 4, 5 and 6) have requested a refund of money which had been set aside to complete the façade works at the building. We do not believe that we now have an obligation to complete that façade and it is our intention to exclude the façade works from the building refurbishment works which we are undertaking at the building at 141-147A King Street Sydney. It will be up to the owners corporation to complete those works." 21 Between February and December 2002, Quarante entered into contracts of sale in respect of 20 lots in the strata scheme. None of these contracts was completed before 2004, but all were completed during that year. One of the 20 lots was purchased by Mr Stanford of Quarante. Quarante entered into two further contracts for sale of lots in 2003, both of which were completed in 2004. 22 On 16 December 2002, Sydney City Council approved Quarante's development application, including the Works. 23 In early 2003, Mr Anderson and Ms Wells had a further conversation to the following effect: "[Anderson] One way of sorting out for the excessive strata levies charged would be for the owners corporation to pay for the cost of the shopfront façade works. This would put nearly all the parties i.e. suite purchasers, owners corporation and you in approximately the same position they would have been in with Mr Rose (Tri Anta Pty Limited) being the prime beneficiary with new shop facades but without having paid for them. Despite the benefit to him it probably is the best outcome for everyone else.

[56]

The invoices were paid pursuant to the By-Law and in accordance with the wishes of the treasurer (and only executive committee member at the time), David Stanford. Provision of $100,000, (incl GST) was included in the sinking fund budget adopted for the period 1 Feb 2004 to 31 Jan 2005 and the payments were made from that fund." (Emphasis added.) 39 On the same day, Mr Patterson of DPS sent an email to Mr Anderson of Quarante suggesting that Quarante should lodge a "formal claim for façade works amounts it believes is due to it" and should seek reimbursement from OC. 40 On 25 July 2005, Mr Anderson sent to Ms Wells of DPS a final claim for the Works, amounting to $227,711 plus GST. This apparently reflected a total cost for the Works of $315,711 plus GST, less the sum of $88,000 plus GST, previously paid by OC. (The figure of $315,711 does not tally with the agreed figure for the cost of the Works ([25] above), but nothing turns on this.) 41 An extraordinary general meeting of OC was held on 13 September 2005. The meeting was attended by representatives of a number of lot proprietors in the strata scheme. The meeting resolved to issue a statutory demand to Quarante in respect of arrears of administration levies. It also resolved to issue a statement of claim in the District Court seeking to recover what was said to be "$91,640.00 (sic) wrongly paid" by OC to Quarante. 42 Quarante instituted these proceedings in the District Court by filing a statement of claim on 9 January 2006. It sought judgment for $250,482.10 (including GST) or, in the alternative, equitable compensation in that sum. 43 OC subsequently filed a cross-claim in the proceedings. The cross-claim, as amended, sought judgment in the sum of $244,263.54 for arrears of strata levies, plus interest of $42,655.74. The amended cross-claim also sought judgment in the amount of $96,800, being the amount paid by OC pursuant to the three invoices issued by Quarante. As has been noted, no issue remains in relation to any arrears of strata levies.

[100]

"There could be no doubts that the chairperson, secretary and treasurer, whether individually or in conjunction with one or more of the other office holders as a group, had the requisite authority to enter into the Contract". 73 Moreover, from 3 April 2002 until 1 July 2004, there was only one member of OC's Executive Committee. That person occupied the roles of chairperson, secretary and treasurer (SSM Act s 18(3)). Since DPS was able to exercise all these functions, it was able to exercise the functions of the Executive Committee. The change in the language of the management agency agreement (including a specific reference to the functions of the Executive Committee) was explicable as a consequence of the expansion of membership of the Executive Committee. 74 Quarante submitted that, in any event, the Works came within the description of "repairs, maintenance and replacement of owners corporation property" and thus could be construed by DPS under the management agreement. 75 In the alternative, Quarante submitted that OC had ratified the Reimbursement Agreement. OC had sufficient knowledge of the material facts through Ms Wells, who performed all of the functions delegated to DPS. OC also had the relevant knowledge through Mr Stanford, in his capacity as treasurer of the Executive Committee. 76 Quarante relied primarily on the payment of the three invoices as the act ratifying the Reimbursement Agreement, although it repeated its submission that other acts were also effective to ratify the Reimbursement Agreement. Quarante pointed to Ms Wells' evidence that payment of the invoices had been made with the knowledge of Mr Stanford. According to Quarante, any failure by Mr Stanford, as the sole member of the Executive Committee, to follow proper procedures could not affect Quarante: it was a matter between OC and Mr Stanford. In any event, contrary to her Honour's findings, Ms Wells herself had express authority to pay invoices on behalf of OC since this was one of the "Agreed Services" under the management agency agreement. 77 Quarante repeated the submissions made by it at the trial on its claim in quantum meruit and its claim for equitable compensation or damages founded on estoppel. As to the latter, Quarante submitted that OC had induced it to adopt the assumption that OC would reimburse it for the cost of the Works. OC had the requisite notice of the assumption, through Ms Wells or DPS, that made it inequitable for OC to resile from the common assumption. Moreover, Mr Stanford, as treasurer, had been consulted about payment of the invoices, indicating that OC knew that Quarante had paid for the Works.

[105]

Campbell JA pointed out (at 655-656 [263]-[264]) that one factor to be taken into account in determining whether a contract has been entered is the " purpose and object of the transaction ". As his Honour explained, the purpose and object of the transaction is to be ascertained objectively by reference to what a reasonable observer, in the situation of the parties, would conclude. 88 It appears that there are some circumstances in which the subjective intention of the parties can be taken into account in deciding whether a binding contract has been made. Examples commonly given of such circumstances are where evidence is given that one party to the alleged contract was merely joking or play-acting. In Ryledar, Campbell JA expressed the view (at 656 [266]) that such cases do not involve true exceptions to the objective theory of contract. His Honour considered that the subjective intention is relevant in these circumstances because a reasonable observer would realise that the words used are not to be taken at face value. 89 It is not necessary to explore the issue further in the present case. It is enough to recognise that evidence of the subjective intentions of Mr Anderson and Ms Wells is of limited significance in determining whether the Reimbursement Conversation resulted in a binding contract between the parties in the terms pleaded by Quarante. 90 On the findings made by the trial Judge, Mr Anderson told Ms Wells in November 2002 of his belief that, as Tri-Anta had requested a refund of the moneys set aside for the Works, he did not believe that Quarante was obliged to complete the façade and that it would be up to OC to complete the Works. About two months later Ms Wells and Mr Anderson had the Reimbursement Conversation, the terms of which have already been set out ([23] above). The substance of the Reimbursement Conversation, however, was that Ms Wells said that "one way" of approaching the problem was for OC to pay for the Works. Mr Anderson replied that he thought that this was a good idea and that he would get the builder to undertake the Works. 91 Taking the terms of the Reimbursement Conversation at face value, it would seem that Ms Wells and Mr Anderson went no further than agreeing that it would be a good idea for Quarante to arrange for the Works to be carried out and for OC to reimburse Quarante for the cost. There was no discussion of the likely cost of the Works; the mechanisms to enable OC to exercise control over the cost of the Works; the procedure by which and timeframe within which OC would reimburse Quarante for expenses incurred by it; the means by which OC was to be put in funds to pay for the Works; or the formalities that would be required to implement the idea. The absence of any reference to these matters, whether or not agreement on one or more of them was essential to the formation of a binding contract, would suggest to an objective observer that the Reimbursement Conversation was not intended, of itself, to constitute a binding contract. 92 The purpose and object of the "idea" discussed by Ms Wells and Mr Anderson was for the developer of the Premises to arrange to undertake substantial capital works on the common property and to provide for OC, rather than the developer, to bear the cost. A reasonable observer in the position of the parties would appreciate that the SSM Act prohibited payment for the Works out of OC's Administrative Fund (s 68(1)(d)) and that the Administrative Fund, in any event, was fully committed by the forward estimates made at the annual general meeting of OC held in April 2002. Moreover, at the time of the Reimbursement Conversation, OC's Sinking Fund had a balance of only about $20,000. Reimbursement for the Works undertaken by Quarante would have required OC to make estimates of the amounts to be credited to the Sinking Fund (s 75(2)(f)) and to impose the necessary levies (s 76(1)). Moneys could not be paid for the Works out of the Sinking Fund except in accordance with the estimates (s 71(1)). Independently of these requirements, DPS as the managing agent, was obliged if it exercised a function of OC, to make a written record specifying the function and the manner of its exercise (s 31). 93 None of these steps was taken by the parties to the alleged contract. An objective observer would have regard not only to the terms of the Reimbursement Conversation, but to the statutory procedures that had to be followed before the Reimbursement Agreement could be carried into effect. In these circumstances, the observer would find it very difficult to conclude that the parties intended the Reimbursement Conversation to impose a binding obligation on OC to reimburse Quarante for the large, as yet undetermined, cost of the Works. 94 The difficulties in Quarante's path are compounded when the subsequent conduct of the parties to the alleged agreement is taken into account. It is well established that post-contractual conduct is admissible on the question of whether a contract was formed: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at 163-164 [25], per Heydon JA (and authorities cited there). 95 In this case, the following matters are of particular significance:

[110]

Did DPS have actual authority to enter into a binding contract? 98 The conclusion that the Reimbursement Conversation was not intended to constitute a binding contract between Quarante and OC renders it unnecessary to address the question of DPS's authority to enter into such a contract. However, in my view, the trial Judge's holding that there was no such authority was correct, essentially for the reasons given by her Honour. 99 Actual authority arises where a principal grants and an agent accepts authority for the agent to perform specific tasks on behalf of the principal. Actual authority involves a consensual transaction, although consent may be express or implied: Equiticorp Finance Ltd v Bank of New Zealand (1993) 32 NSWLR 50 at 132 per Clarke and Cripps JJA. Where actual authority is said to be conferred expressly and in writing, as in this case, the scope of the authority is ascertained by reference to the express words of the agreement and any implications to be drawn from the agreement: GE Dal Pont, Law of Agency (2nd ed 2008) par 7.3. 100 Quarante acknowledged that whether DPS had actual authority to enter into the alleged agreement on OC's behalf depended upon the precise functions and powers delegated to DPS by the management agency agreement of 3 April 2002. Quarante's principal contention was that although the agency agreement did not delegate to DPS the functions and powers of the Executive Committee of OC, it was enough that the agreement delegated the "functions of the Chairperson, Secretary and Treasurer". 101 It is true that, as Quarante submitted, one person (Mr Stanford) was the sole member of OC's Executive Committee, an appointment that was renewed at the Annual General Meeting of 3 October 2003. It is also true that s 18(1) of the SSM Act provides that the members of the executive committee of an owners corporation must, at the first meeting after they assume office as members, appoint a chairperson, secretary and treasurer. No minutes of OC's Executive Committee were in evidence, but the trial Judge inferred that such meetings occurred from time to time, including one held on 17 November 2003. Although her Honour made no express finding on the subject and Mr Stanford himself did not give evidence, it might also be inferred that Mr Stanford was duly appointed to the offices of chairperson, secretary and treasurer of the Executive Committee of OC at one of its meetings. It follows that he was also the chairperson, secretary and treasurer of OC (SSM Act s 18(2)). 102 The executive committee of an owners corporation is a distinct decision making body for the purposes of the SSM Act. The legislation makes detailed provision for the appointment of the executive committee, the convening and conduct of meetings, the making of decisions, the keeping of records and the distribution of minutes. The executive committee is clearly intended to exercise functions that, subject to the direction of the owners corporation itself, go well beyond any functions that can be exercised by an individual office bearer in his or her own right. Moreover, the provisions to which I have referred demonstrate a legislative intention that the decisions of the executive committee of an owners corporation must be made, recorded and disseminated in accordance with elaborate procedural requirements. 103 No doubt it would have been feasible for Mr Stanford to take the steps necessary to convene a meeting of the Executive Committee of OC (of which he was the only member) and to cause a resolution to be passed at the meeting authorising OC to enter into a binding Reimbursement Agreement with Quarante. Had such a resolution been passed at a duly convened meeting of the Executive Committee, it would have been taken to be the decision of OC (s 21(1)), provided that the decision was not one required by the SSM Act to be made by OC itself (s 21(2)). But no such meeting of the Executive Committee was ever convened. In the absence of a duly convened Executive Committee meeting, it was not open to Mr Stanford in his capacity as chairperson, secretary or treasurer, to make decisions as the Executive Committee of OC. 104 The delegation of authority to DPS was expressly made by reference to s 28(1)(b) of the SSM Act, which allows the owners corporation to delegate to a strata managing agent "any one or more of its functions specified in the instrument". The delegation of the functions of the chairperson, secretary and treasurer of OC to DPS was not effective to delegate the broader range of functions that could be exercised only by a duly convened and properly conducted meeting of the Executive Committee of OC. The mere fact that Mr Stanford, who occupied all the three individual offices, could have convened a meeting of the Executive Committee and caused it to pass a particular resolution, does not mean that the function of the chairperson, secretary and treasurer were co-extensive with those of the Executive Committee. They were not. 105 The SSM Act expressly specifies the functions of the secretary and treasurer of an owners corporation (ss 22, 23), although it does not do so exhaustively. Subject to an argument advanced by Quarante to which I refer below, none of the functions expressly identified in the SSM Act authorised the secretary or treasurer of OC, in that capacity, to commit it to the Reimbursement Agreement relied on by Quarante in these proceedings. Nor did Mr Stoljar suggest that any residual functions of the chairperson, secretary or treasurer, not expressly specified in the SSM Act, could extend to committing OC to a binding agreement to reimburse Quarante for the cost of the Works. 106 Quarante advanced an alternative argument based on the definition of "Additional Services" in the management agency agreement as including "repairs, maintenance and replacement of owners corporation property". Quarante contended that the definition was sufficient to authorise DPS to commit OC to an agreement to reimburse Quarante for the cost of the Works. This submission ignored or underplayed the significance of the word "routine" that precedes the word "repairs" in the agreement. The word is, in my opinion, intended to qualify the composite expression "repairs, maintenance and replacement". It is impossible to regard the extensive refurbishment of the façade for the purpose of making the Premises more attractive to potential purchasers at a cost of some $300,000 as "routine … replacement of [common] property". 107 For these reasons, if it were necessary to decide whether DPS had authority to commit OC to the Reimbursement Agreement, requiring OC to reimburse Quarante for the cost of the Works, I would consider that it had no such authority.

[116]

No issue arises in this case as to any of these three elements. 111 It is, however, also necessary for ratification to take place that at the time the putative principal ratifies the act of the agent, he or she should have full knowledge of all the material circumstances under which the agent's act was done: Taylor v Smith (1926) 38 CLR 48 at 59 per Higgins J; GE Dal Pont Law of Agency (2nd ed 2008) par 5.19. Moreover, only unequivocal words or acts will suffice to establish ratification: Peterson v Moloney (1951) 84 CLR 91 at 101 per Dixon, Fullagar and Kitto JJ. 112 Quarante relied principally on the payment of the three invoices by OC (through Ms Wells) as ratifying the Reimbursement Agreement purportedly made between Quarante and OC. Quarante submitted that OC had the requisite knowledge of the act to be ratified, both through Ms Wells and Mr Stanford, the latter in his capacity as a member of the Executive Committee. 113 It is difficult to see how Ms Wells, whose unauthorised act gave rise to the need for ratification in the first place, could be the actor through whom OC, with full knowledge, is taken to have ratified the unauthorised act. If Ms Wells, in purporting to enter a binding Reimbursement Agreement on behalf of OC, was acting beyond DPS's delegated authority, her purported ratification of the Reimbursement Agreement would also be beyond DPS's authority, unless circumstances had changed in the intervening period. But the scope of DPS's delegated authority had not changed between the date of the putative unauthorised agreement (early 2003) and the dates on which the invoices were issued and paid by OC (March to June 2004). There is more than a hint of a bootstraps argument in the contention that Ms Wells could ratify on behalf of OC her own prior unauthorised act. 114 The authority conferred by the management agency agreement on DPS to pay invoices on behalf of OC did not carry with it the authority for DPS to ratify any purported agreement that caused invoices to be submitted to OC (or DPS) for payment. In particular, the authority to pay invoices did not authorise DPS to ratify the very agreement it had purported to enter, without authority, on behalf of OC some time earlier. 115 In any event, payment of the three invoices did not constitute an unequivocal ratification of the Reimbursement Agreement. Each invoice merely stated that the claim was for a "Contribution toward exterior refurbishment works". No reference was made in the invoices to the purported agreement and the sum specified in each invoice bore no relationship to the terms of the Reimbursement Agreement as pleaded. By the time the first invoice was issued on 12 March 2004, the Works had been completed. On Quarante's case, OC was required to reimburse it for the full cost of the Works, not merely some unexplained portion of the cost. 116 The other acts of ratification relied on by Quarante were not capable of ratifying the Reimbursement Agreement. The by-law passed on 11 March 2004 had a prospective operation only and did not purport to ratify any pre-existing agreement. The approval at OC's annual general meeting of 1 July 2004 of a budget that included $100,000 for repairs and maintenance was not referable to any pre-existing agreement, let alone one pursuant to which OC had already incurred a debt of $300,000 or more. On the assumption that the Reimbursement Conversation gave rise to an unauthorised Reimbursement Agreement which was capable of subsequent ratification by OC, no such ratification took place.

[118]

See also at [86], [90]. The way in which Quarante pleaded its case is consistent with the holding in Lumbers . 119 The findings made by the trial Judge are inconsistent with Quarante undertaking or arranging the Works at OC's request. No such request was ever made by OC or by any person authorised on its behalf. The only person who might be said to have made a request was Ms Wells, but she was not acting on behalf of OC. 120 The trial Judge found that the members of SP 67212 would have known that the Works were being undertaken, but had no reason to know that the cost of the works was to be borne by OC. Her Honour also found that Quarante had represented in various contracts of sale that it had arranged for the Works to be undertaken, yet gave no indication to the purchasers of units in the strata scheme that they would be expected to contribute to the cost. The Court was taken in the course of argument to contracts of sale the terms of which supported her Honour's findings. In addition, Quarante's brochure of September 2003, distributed to prospective purchasers of lots in the strata scheme, highlighted the value of the Works but gave no indication that Quarante intended to claim the cost of the refurbishment from purchasers of lots. 121 An additional difficulty facing Quarante concerns the assumption in its argument that OC had received a benefit from the Works. While it is not necessary to determine the soundness of this assumption for the purposes of the rectification argument, I do not think it is correct. 122 The relationship between an owners corporation and lot proprietors is determined by statute. The effect of s 20 of the Strata Schemes (Freehold Development Act 1973 (NSW) is that OC held common property in the strata scheme as agent for the proprietors of the lots. Accordingly, the lot proprietors held the common property beneficially as tenants in common: The Owners of Strata Plan No 3397 v Tate [2007] NSWCA 207 at [30] per McColl JA. The statutory relationship between OC and the lot proprietors in SP 67212 was therefore not merely that of agent and principal, but incorporated elements of a trustee-beneficiary relationship: The Owners - Strata Plan No 43551 v Walter Construction Group Ltd [2004] NSWCA 429; (2004) 62 NSWLR 169 at [42] - [46] per Spigelman CJ. 123 By the time Quarante commenced the Works, it had entered into a substantial number of contracts for the sale of lots in SP 67212. There appears to have been no evidence that any of the purchasers knew or had the means of knowing that Quarante intended that they, rather than it (except in its capacity as proprietor of retained lots), should bear the cost of the Works. On the contrary, there was positive evidence that at least some lot owners could reasonably have assumed that the cost of refurbishment would be met by Quarante as the developer of the Premises. An available inference is that purchasers, or some of them, agreed to a price that reflected the value of the Works to them as the proprietors of individual lots. In these circumstances, in my view, OC did not obtain a benefit from the Works of the kind that would attract the doctrine of quantum meruit, even assuming Quarante was able to satisfy the other preconditions for the application of the doctrine. 124 Mr Stoljar did not suggest that if Quarante's quantum meruit claim failed, it could succeed on the basis of estoppel. The findings made by the trial Judge are inconsistent with any such claim succeeding.

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